a moderate increase as overseas economies move out of their deceleration phase. thus, japan ’ s economy is likely to be on a moderate expanding trend. according to the bank ’ s july 2016 outlook for economic activity and prices ( hereafter the outlook report ), the medians of the policy board members ’ forecasts for the economic growth rate are 1. 0 percent for fiscal 2016, 1. 3 percent for fiscal 2017, and 0. 9 percent for fiscal 2018, and the economy is expected to continue growing at a pace above its potential through the projection period. 2. prices next, i will talk about price developments. the year - on - year rate of increase in the consumer price index ( cpi ) for all items less fresh food and energy has decelerated somewhat recently, as firms ’ price - setting stance has become relatively cautious against the background of relatively weak developments in some indicators of private consumption. the rate of change for all items less fresh food has been slightly negative. looking at annual price changes across all cpi items less fresh food, the share of price - increasing items minus the share of price - decreasing items has maintained its historically high level, but is declining slightly at present. with regard to the outlook, the year - on - year rate of change in the cpi ( all items less fresh food ) is likely to be slightly negative or about 0 percent for the time being, due to the effects of the decline in energy prices, and, as the underlying trend in inflation steadily rises, accelerate toward 2 percent. meanwhile, assuming that crude oil prices will rise moderately from the recent level, the baseline scenario is that the timing of the year - on - year rate of change in the cpi reaching around 2 percent will be during fiscal 2017, although this is accompanied by considerable uncertainties including those surrounding overseas economies going forward. specifically, the medians of the policy board members ’ forecasts of the yearon - year rate of increase in the cpi ( all items less fresh food ) presented in the july 2016 outlook report are 0. 1 percent for fiscal 2016, 1. 7 percent for fiscal 2017, and 1. 9 percent for fiscal 2018. 1 individual policy board members made their forecasts assuming that dubai crude oil prices would rise moderately from the recent 45 u. s. dollars per barrel to around 50 dollars per barrel toward the end of the projection period ; that is, fiscal 2018. under this assumption, the contribution of energy prices to the year - on - bis central

inflation has been declining globally. this is due mainly to the successful conduct of monetary policy worldwide and the increasing penetration of emerging countries into market economies. firms have not regained pricing power in the market. therefore, there is a strong possibility that inflation will stay at a relatively low level, while the growth rate will increase. third, japan's economy is still suffering from structural problems such as excess debt, excess labor, and financial system fragility. because of these structural problems, cyclical recoveries at large manufacturers are not able to generate strong positive spillover effects for non - manufacturers, small to medium - sized companies, or households. to return to a sustainable growth path and overcome deflation, japan must thus solve its structural problems and enhance the growth prospects of both firms and households. in japan, as in europe, structural reform to ensure the more efficient use of capital and labor is urgently called for. despite the recent progress, we should not be complacent about the need for structural reform. the process of solving structural problems is still half - finished. for example, the debt to sales ratio for nonmanufacturing industries is still higher than it was before the bubble period. in addition, the sense that they are still holding excess labor remains among firms, whether in manufacturing or nonmanufacturing, and whether large or small. banks have also made progress in their restructuring. large banks have reduced outstanding amounts of nonperforming loans and have increased provisioning. they have also reduced the risk pertaining to stock prices by selling their shareholdings to the market as well as to the bank of japan under our stock purchasing scheme. almost all banks have reduced their shareholdings to levels below their tier 1 capital. banks'financial results turned out to be better than expected for the first half of the current business year ended in september. because losses resulting from the disposal of nonperforming loans were smaller than operating profits, most banks posted profits. the average capital adequacy ratio for large banks was around 11 percent. given the scheduled removal of blanket deposit insurance in the spring of 2005, time is running short for us to engage in the further restructuring of the financial system to restore the soundness of the banking system. moreover, the decline in bank lending illustrates not only that demand for loans is weak but also that the risk - taking ability of banks has not recovered sufficiently. under such circumstances, the bank of japan has adopted quantitative easing as its fundamental policy framework