expected growth rates ( chart 9 ). with firms having come to take a positive view of their business conditions, a virtuous cycle from profits to fixed investment is starting to operate, where they aim to achieve higher profitability by raising the prices of their goods and services. i believe that the higher margins earned by firms through price rises could lead to wage increases and are expected to serve as a great catalyst for achieving the 2 percent price stability target. now i would like to reassess the two factors just mentioned based on recent developments. let me focus on the first factor - - firms'price - setting behavior. as the surge in raw material prices was much larger than expected, many firms in the dining - out and food manufacturing industries are passing on such cost increases to retail prices. similar moves are increasingly seen in other industries, such as apparel. looking at developments in the di for firms'output prices in the bank's latest march 2022 tankan to examine their price - setting stance, the di has reached the highest level since 1980 ( i. e., just after the second oil shock ) for the manufacturing industry and the highest level since 1991 ( i. e., the end of the bubble period ) for the nonmanufacturing industry ( chart 10 ). these moves to raise selling prices are mainly due to cost - push factors stemming from the surge in raw material prices. however, such a pass - through of cost increases was barely seen when a similar price hike in raw materials occurred in past deflationary periods, like the one from 2007 to 2008. this may suggest that many firms are trying to change their " low - margin, high - turnover " business models that were quite common in those days. on the other hand, regarding the second factor for inflation - - that is, firms'growth expectations - - many firms unfortunately do not seem to have raised their expectations yet, partly due to the global supply - side constraints that i pointed out earlier. this is suggested by the fiscal 2021 annual survey of corporate behavior released by the cabinet office, which shows that firms'forecast for the real economic growth rate over the next five years was 1. 0 percent, thus remaining only close to the 1. 1 percent presented in the fiscal 2020 survey. firms'growth expectations are key to the sustainability of wage increases in japan. although the proportion of firms that have adopted so - called simultaneous recruiting of new graduates and seniority - based wages has started to decrease recently,

these employment practices remain typical in japan. under such practices, young workers are prone to be underpaid compared to their labor productivity, while middle - aged workers could benefit from being overpaid for their productivity. this is known as " employees'invisible investment, " which refers to the situation where young workers invest their human capital in the firm they work for and later earn relatively high wages that include dividends on the investment. 1 this model could explain the structure of japanese - style business management to some extent. in order for the model to work, human capital invested by young workers in their firm needs to yield future dividends by contributing to corporate growth ; to this end, sustainable growth in corporate sales is necessary. in reality, however, due to prolonged deflation, many firms were forced to lower their growth expectations and were less likely to see sustainable growth in their sales. as a result, it has become difficult to maintain the mentioned model, and firms seemed to have actively reduced their labor costs by, for example, increasing the number of non - regular employees and rehiring retirees at low wages relative to their labor productivity. i believe that in this way japanese - style employment practices hit turbulence. given these circumstances, i consider firms'growth expectations to be important in enhancing the sustainability of wage increases, which is vital to achieving the price stability target, and am paying attention to developments in such expectations. for example, see kagono, t. and kobayashi, t., " miezaru shusshi : jugyoin mochibun to kigyo seicho, " chapter 9 in itami, h. et al., kyoso to kakushin : jidosha sangyo no kigyo seicho ( tokyo : toyo keizai inc., 1988 ). ii. monetary policy the bank will persistently continue with accommodative monetary policy until the 2 percent price stability target is achieved ( chart 11 ). i would like to say a few words about the points i see as essential in the conduct of monetary policy in japan going forward. let me touch on the impact of foreign exchange rates and crude oil prices, mainly on economic activity and prices, as this has become a hot topic lately. faced with the recent yen depreciation and rising crude oil prices, some have pointed out the risk of stagflation, while others say that the bank should urgently revise its monetary policy to avoid materialization of