contrast, the third channel stresses that the bank ’ s purchases of jgbs with a commitment to continue until achievement of the 2 percent target could contribute to raising inflation expectations directly. an increase in inflation expectations would produce upward pressure on nominal long - term interest rates, but this would be contained partially by the downward pressure on the term premium. therefore, it is judged that real long - term interest rates would decline. in addition to jgb purchases, the bank purchases various types of risk assets. thus, transmission channels other than those i have described are also present. direct purchases of risk assets could thus be expected to directly influence risk asset markets. e. chances to revitalize the japanese economy since the adoption of the 2 percent price stability target ( based on the headline cpi ) in january 2013, nearly two years have passed. the adoption of the 2 percent numerical target bis central bankers ’ speeches reflects the following factors. ( 1 ) the need to keep a sufficient buffer with regard to inflation to avoid the economy from falling into deflation again and also consider the upward bias problems inherent in cpi statistics. ( 2 ) the need to leave sufficient room for the conduct of flexible monetary policy by achieving a certain level of inflation to avoid the zero lower bound in recessionary phases. and ( 3 ) the need to set a target of around 2 percent, which is becoming a global standard in terms of a price stability target, to avoid the re - emergence of excessive appreciation of the yen. in addition, the 2 percent target is essential to realize a normal economic condition whereby positive rates of nominal gdp growth can be seen on a sustainable basis and thereby help to increase firms ’ and households ’ medium - to long - term economic growth expectations ( chart 6 ). it is important to realize that a continual decline in nominal gdp over the past 15 years is a highly unusual economic condition, rarely seen in other economies. given that the rate of cpi inflation often exceeds the rate of annual change in the gdp deflator in japan, there is a wide gap between the levels of these two indices. thus, achieving about 1 percent cpi inflation appears inadequate to ensure trend movements of the nominal gdp growth rate in positive territory, and this is also one of the reasons why i judge that the bank should aim at achieving 2 percent cpi inflation ( chart 7 ). having said this, it appears that some among the public and the market feel uncertainty about the importance of achieving the 2 percent target, as well as the bank ’ s policy

minus " insufficient employment " ), % points - 60 all industries insufficient employment manufacturing construction retailing accommodations, eating & drinking services 1. 8 s. a., ratio s. a., % 1. 6 1. 4 - 40 1. 2 - 20 1. 0 0. 8 0. 6 0. 4 cy 2005 active job openings - to - applicants ratio for full - time employees ( left scale ) active job openings - to - applicants ratio ( left scale ) unemployment rate ( right scale ) excessive employment 0. 2 source : bank of japan. 0. 0 cy 2005 sources : ministry of health, labour and welfare ; ministry of internal affairs and communications. chart 5 cpi 2. 0 y / y % chg. all items less fresh food ( core cpi ) 1. 5 all items less fresh food and energy 1. 0 0. 5 0. 0 - 0. 5 - 1. 0 cy 2013 / apr. oct. 14 / apr. oct. 15 / apr. oct. 16 / apr. oct. 17 / apr. oct. 18 / apr. oct. 19 / apr. oct. 20 / apr. oct. source : ministry of internal affairs and communications. note : figures exclude the effects of the consumption tax hike in april 2014. chart 6 output gap 3. 0 % excess demand ( upward pressure on prices ) 2. 0 1. 0 0. 0 - 1. 0 - 2. 0 - 3. 0 excess supply ( downward pressure on prices ) - 4. 0 - 5. 0 - 6. 0 cy 2013 / q1 q3 14 / q1 q3 15 / q1 source : bank of japan. note : based on staff estimates. q3 16 / q1 q3 17 / q1 q3 18 / q1 q3 19 / q1 q3 20 / q1 chart 7 inflation expectations y / y, ann. avg., % 2. 5 households ( over the next five years ) 2. 0 firms ( five years ahead ) 1. 5 1. 0 0. 5 0. 0 cy 2005 source : bank of japan. notes : 1. figures for households are from the opinion survey on the general public's views and behavior, estimated using the modified carlson - parkin method. 2. figures for firms are those for the average of enterprises'inflation outlook for all industries and enterprises in the tankan. chart 8 outlook for economic activity and prices as of october 2020 forecasts