factors behind such weak developments. one is that the mindset and behavior based on the assumption that wages and prices will not increase easily have been deeply entrenched among firms and households, due mainly to the experience of prolonged low growth and deflation. the other is that the room to raise productivity and the technological progress have allowed firms to absorb a rise in labor costs by increasing labor - saving investment and streamlining their business process, and thereby constrain price rises. on the other hand, although the pace of improvement in prices has remained slow, some changes have been seen amid the improvement in the economic and employment conditions. for example, moves to raise sales prices are starting to be observed at a wide range of firms, mainly in the services sector. according to the tankan, the number of enterprises answering that the output prices have risen has been exceeding the number of those answering that such prices have fallen. also, with the aging of the population, labor market conditions are likely to tighten further and the pace of increase in hourly scheduled cash earnings of part - time employees is expected to accelerate. in addition to such moves, if full - time employees'wages increase with an improvement in productivity, this will lead to an increase in households'tolerance of price rises. while price developments are affected by various factors, i consider that the factor that determines the underlying trend in prices is the aggregate supply - demand balance. as the output gap remains positive, various factors behind the weak developments in prices will likely be resolved gradually. if that happens, firms'wage - and price - setting stance and households'tolerance of price rises will improve, and the pace of increase in inflation expectations will accelerate gradually. iii. conduct of monetary policy let me now turn to the bank's monetary policy. the bank has set the price stability target at 2 percent in terms of the year - on - year rate of change in the cpi and has been conducting monetary policy to achieve this target at the earliest possible time. to this end, the bank has been pursuing powerful monetary easing, considering developments in economic activity and prices, as well as financial conditions, under the framework of quantitative and qualitative monetary easing ( qqe ) with yield curve control introduced in september 2016. the bank, under this framework, has been conducting yield curve control, in which it controls short - and long - term interest rates. specifically, at present, according to the guideline for market operations, the bank sets the short - term policy interest

s. economy has been growing at a slower pace since this spring. this is partly because households ’ real purchasing power has declined due to the rise in gasoline prices seen until around spring, and there have been difficulties in procuring automobile parts due to the disaster in japan. it should be noted, however, that gasoline prices have fallen back somewhat since may and japan - led supply - chain disruptions have started to be resolved. therefore, the view held by the u. s. authorities and economists is that the recent economic slowdown is generally transitory, and their baseline scenario is that the pace of growth will resume a recovery supported by the accommodative financial environment. of course, such an outlook entails uncertainties. the focal point is on how to assess balance - sheet adjustment pressure. recent data on household debt and housing prices indicate that balance - sheet adjustment in the household sector is ongoing. the recovery in employment has also been disappointing. just as in the case for japan in the 1990s, after the bursting of the large credit bubble, the economy often continues to face a low growth rate for a bis central bankers ’ speeches protracted period, although there are some short - term boosts reflecting the implementation of fiscal stimulus packages or accommodative monetary policies. having said that, it might not be appropriate to conclude that the u. s. economy will follow a path similar to the one japan once experienced, taking into account the u. s. economy ’ s distinctive flexibility and the fact that it is a commodity - exporting country. careful attention should be paid to how strongly balance - sheet adjustment pressure continues to constrain growth in the u. s. economy. the european economy as a whole continues to recover moderately, although there are large differences in the economic growth rates between the euro area ’ s major countries, such as germany, and its peripheral countries, including greece. the german economy maintains its robustness ; for example, the latest unemployment rate is 7. 0 percent, the lowest level since the reunification of west and east germany. on the other hand, peripheral countries are experiencing a tough time, as witnessed by the recent greek growth data, which showed an 8. 1 percent decline on a year - on - year basis. regarding prospects for the european economy, the focal point clearly is developments in the sovereign debt problem in peripheral countries. the essence of the problem is an adverse feedback loop among fiscal conditions, the financial system, and the real economy.