february 9, 2017 bank of japan japan's economy and monetary policy speech at a meeting with business leaders in kochi hiroshi nakaso deputy governor of the bank of japan ( english translation based on the japanese original ) introduction it is my pleasure to have the opportunity today to exchange views with administrative, financial, and business leaders in kochi prefecture. i would like to take this opportunity to express my sincerest gratitude for your cooperation with the activities of the bank of japan's kochi branch. today, i would like to have your views on the actual situation of the local economy, as well as your candid opinions about the bank's policies and activities. let me now start by talking about the bank's outlook for japan's economic activity and prices as well as its thinking behind the conduct of monetary policy, while outlining the outlook for economic activity and prices ( outlook report ) released at the end of january 2017. i. recent developments in and outlook for economic activity at home and abroad japan's economy has continued its moderate recovery trend. as for the outlook, it is likely to continue growing at a pace above its potential on the back of highly accommodative financial conditions and the effects of the government's large - scale stimulus measures, with the growth rates in overseas economies increasing moderately. specifically, the medians of the policy board members'forecasts of the real gdp growth rates presented in the january 2017 outlook report were 1. 4 percent for fiscal 2016, 1. 5 percent for fiscal 2017, and 1. 1 percent for fiscal 2018, above japan's potential growth rate, which is estimated to be around 0. 5 percent ( chart 1 ). compared to the previous forecasts released at the beginning of november 2016, the projected growth rates are somewhat higher, reflecting improvement in overseas economies and the yen's depreciation in addition to the effects of the comprehensive revision to gdp statistics. in what follows, i will explain the background to these projections. overseas economies first, i will touch on developments in overseas economies. as you all know, in financial markets, a pessimistic view had prevailed regarding the outlook until around autumn 2016. with the benefit of hindsight, however, the momentum for global economic growth seems to have strengthened since mid - 2016. in particular, improvement in manufacturing and trade has been notable. an uptrend has become evident recently in indicators related to business sentiment of the manufacturing sector globally, mainly on the back of an increase

of qqe, it became positive in autumn 2013 and has remained in positive territory for over three years. japan's economy is no longer in deflation, which is generally defined as a sustained decline in prices. nevertheless, it is true that there is still a long way to go to achieve the bank's price stability target of 2 percent. the year - on - year rate of increase in the cpi for all items less fresh food and energy has remained on a decelerating trend since the beginning of 2016 ; thereafter, the rate of change has been fluctuating. this is attributable to a slowdown in firms'price hikes reflecting sluggish private consumption, and to price declines such as in durable goods, due mainly to the yen's appreciation last year. from a longer - term perspective, people's inflation expectations also have declined, following the course of the observed inflation rate, which has continued to show somewhat weak developments with the decline in crude oil prices that has lasted for about two and a half years. outlook for prices while recent price developments have been somewhat sluggish, the bank judges that the momentum toward achieving the price stability target of 2 percent is maintained. specifically, the year - on - year rate of change in the cpi for all items less fresh food is likely to increase from about 0 percent and become slightly positive, reflecting a bottoming out of crude oil prices, and thereafter is expected to increase toward 2 percent. the timing of the year - on - year rate of change in the cpi reaching around 2 percent will likely be at the end of the projection period of the outlook report - - that is, around fiscal 2018. this outlook for prices is unchanged from that presented in the october 2016 outlook report. going forward, the inflation rate is expected to rise through the following mechanism. first, the output gap has improved steadily, as evidenced by the tightening of labor market conditions, and this will lead to a rise in the inflation rate through wage increases and other channels. second, a pick - up in commodity prices, including crude oil prices, and the yen's depreciation are expected to push up consumer prices. third, along with these developments, people's medium - to long - term inflation expectations are likely to rise. the tightening of labor market conditions brings about upward pressure on wages. the bank aims to achieve a situation where the inflation rate increases moderately, accompanied by rises in corporate profits and wages. the past data