, haltmaier, carter, kole, linda, roush, jennifer, and john rogers, " preventing deflation : lessons from japan's experience in the 1990s, " international finance discussion papers number 729, board of governors of the federal reserve system, 2002. bank of japan, " outlook for economic activity and prices, october 2005, " 2005. krugman, paul, " it's baaack : japan's slump and the return of the liquidity trap ", brookings paper on economic activity 2, pp. 137 - 205, 1998. mishkin, frederic, s., " housing and the monetary transmission mechanism, " finance and economics discussion series 2007 - 40, board of governors of the federal reserve system, 2007. shirakawa, masaaki, " comment to " securing the peace after a truce in the war on inflation, " by vincent r. reinhart " in the 11th international conference sponsored, monetary and economic studies, vol. 22, no. s - 1, institute for monetary and economic studies, bank of japan, pp. 208 - 215, 2004. - - - - - - - - - - - - - - - - - -, " speech in the concluding panel discussion, " in the 12th international conference, monetary and economic studies, vol. 23, no. s - 1, institute for monetary and economic studies, bank of japan, pp. 243 - 248, 2005. ugai, hiroshi, " effects of the quantitative easing policy : a survey of empirical analyses, " monetary and economic studies, vol. 25, no. 1, institute for monetary and economic studies, bank of japan, pp. 1 - 47, 2007, see krugman ( 1998 ).

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,