at which time the number of customers is relatively small, and instead allocated their limited employees to daytime services. even with reduced labor input due to shorter business hours, sales will not decrease so much, thereby lifting firms'labor productivity. of these measures, increasing labor - saving and efficiency - improving investment has certainly contributed to the recent growth in business fixed investment. in addition, from a longer - term perspective, firms'various efforts are expected to play an important role in raising japan's growth potential. in japan, it is essential to raise labor productivity to compensate for the decline in labor force. although this is not easy, firms'increasing efforts of various kinds amid the widespread labor shortage of late have become a driving force toward raising productivity, which is a long - standing challenge to japan's economy. ii. price developments now i will move to price developments. the year - on - year rate of change in the consumer price index ( cpi ) excluding fresh food has increased to around 0. 5 percent recently, but that which also excludes the effects of a rise in energy prices has been relatively weak, remaining at around 0 percent ( chart 8 ). looking ahead, the bank of japan projects that the rate of change in the cpi is likely to continue on an uptrend and increase toward 2 percent. in what follows, let me describe how this process will operate, especially from firms'standpoint. what lies behind the fact that inflation has been relatively weak despite the increase in labor costs is firms'efforts to absorb the costs that i mentioned earlier. specifically, many japanese firms have raised wages for their employees but kept the prices of products and services unchanged, through labor - saving investment and streamlining of their business processes, for example. it often is pointed out that one reason why firms do not raise their sales prices is a kind of caution that, if they raise their prices but competitors do not, they may lose customers and competitiveness in the market. given that their competitors have the same thought, perhaps all the competing firms wait and see what others will do and none make the first move. this strategy itself would be reasonable for firms facing stiff competition. at the same time, however, it also makes it unlikely that firms will raise their sales prices by passing on increased costs to those prices as necessary. what will happen going forward? given that firms have already been working on streamlining their business processes in many ways, it will gradually become difficult for them to continue to absorb increases in

wage costs through those measures. in addition to continuing efforts to streamline their business processes, firms will need to reflect in their sales prices the increased costs that they cannot absorb. lately, it also seems to be becoming more likely that competitors will follow suit when a firm moves toward increasing its prices. this is because it is highly likely that, facing a tight labor market, every firm feels that it has been reaching the limit to which it can absorb increasing labor costs. on the consumer side, their perception of price rises seems to be changing gradually, as the employment and income situation has improved due to the better labor market conditions. after one of the major transportation companies announced this spring that it planned to raise the prices of its delivery services, competitors followed suit. according to a news report, slightly more than 30 percent of firms in the restaurant business are planning to raise the prices on their menus within this fiscal year, mainly due to increases in labor costs. these developments appear to show the possibility that firms'price - setting stance has been changing in response to the tightening of the labor market and improvement in the economy. these kinds of changes in firms'price - setting stance have not yet become widespread in the entire economy. however, as firms'and consumers'stance on the passing on of costs changes with the economy continuing to expand moderately, firms'attempts to raise sales prices will likely gradually become more widespread across a broad range of industries. furthermore, as this process lifts actual prices, firms'and households'medium - to long - term inflation expectations, or people's perception of future inflation, will increase. the bank of japan projects that, through these mechanisms, the inflation rate is likely to increase gradually toward the price stability target of 2 percent. iii. the bank's conduct of monetary policy next, i will elaborate on the bank's thinking behind the conduct of monetary policy. as stipulated in the bank of japan act, the objective of the bank's monetary policy is " achieving price stability, thereby contributing to the sound development of the national economy. " the specific number representing " price stability " is " 2 percent " in terms of the year - on - year rate of change in the cpi. for reasons why this needs to be 2 percent, i will explain three points in sequence : a bias in price statistics, securing policy room for the future, and a global standard. let me start with a bias in price statistics. although i am not going into detail since this might