standpoints – whether the main scenario leads to the attainment of our objective and how other relevant risks should be evaluated. from the first perspective, we examine the prospects for economic activity and prices for one to two years ahead – this time, through fiscal 2008 – and assess whether the most likely outlook is for the economy to follow a path of sustained growth under price stability. through fiscal 2008, the economy, as i said earlier, is likely to continue its sustained expansion with a virtuous circle of production, income, and spending in place. the year - on - year rate of change in the cpi ( excluding fresh food ) is likely to be around 0 percent in the short run, but is expected gradually to rise in the longer run. such developments can be regarded as in line with the " understanding of medium - to long - term price stability " that each member of the policy board has in mind. in sum, we judged that, through fiscal 2008, japan's economy is likely to realize sustainable growth under price stability. this outlook is based on the assumption that market participants and firms make decisions by factoring in future changes in monetary policy. thus, adjusting the level of the policy interest rate will become necessary for the economy and prices to continue to follow the projection. the pace of necessary adjustment, however, will depend on the degree of future improvements in the economy and price situation. we do not, therefore, have any predetermined schedule. the second perspective extends the time horizon and assesses the risks considered most relevant to the conduct of monetary policy. in this assessment, we take account of the cost incurred should risks materialize, even though the probability of this happening may be low. in this regard, both upside and downside risks need to be borne in mind. in terms of the upside risks, we need to be mindful of the stimulative effect of monetary policy being further amplified with the improved prospects for economic activity and prices. if, for instance, the expectation takes hold that interest rates will remain low for a long time regardless of developments in economic activity and prices, then firms and financial institutions may over - extend themselves based on such expectation, resulting in medium - to long - term risks of larger swings in the economy and inflation rate, and of misallocation of funds and resources. on the other hand, if the downside risks mentioned earlier should materialize, the improvement in the economic situation may stall. it is also possible that prices will continue

important investment, and would not be a major problem. arguments that low interest rates cause problems in addition to the debate surrounding low interest rates mentioned earlier, it has been argued that the low interest rate policy allows inefficient firms to survive, leading to a decline in productivity and, consequently, a decline in the natural rate of interest. this could be called the " zombie firm argument " - - that is, the argument that low interest rates artificially keep inefficient firms alive. 16 yet another argument is that the current low interest rates are due to low interest rates in the past that brought about a " frontloading " of demand and resulted in a further decline in interest rates. 17 first of all, it needs to be noted that these arguments focus on real, not nominal, interest rates. thus, as for the first argument that the low interest rate policy allows inefficient firms to survive, leading to a decline in productivity, this is implausible given that productivity has been rising as a result of qqe. in addition, if inefficient firms were forced to exit the market because of higher interest rates, this would lead to employment issues. in contrast, japan's economy is currently facing labor shortages due to monetary easing. if inefficient firms are to be forced to exit the market, it is much better if this occurs through labor shortages and upward wage pressures. with regard to the second argument that the current low interest rates are merely the result of a " frontloading " of future demand, both production and people's incomes have been there had been claims that, due to low interest rates, inefficient firms are able to survive. for example, see " zonbi kigyo to wa hatan jotai'oi kashi'de enmei, " nikkei, february 9, 2019 and kamei katsuji, " zonbi o amayakasu nichigin, " nikkei, october 4, 2019. these referred to the following analysis indicating that the increase in the number of zombie firms is linked to the effects of lower interest rates : ryan banerjee and boris hofmann, " the rise of zombie firms : causes and consequences, " bis quarterly review, bank for international settlements, september 2018. 17 see, for example, okina kunio, kinri to keizai ( tokyo : diamond, inc, 2017 ), 174 -