due to the decline in prices. as prices rise, nominal interest rates will eventually also rise. 13 therefore, in order to raise interest rates, it is necessary to continue with bold monetary easing and achieve the 2 percent price stability target. moreover, as the economy improves, the number of people unable to repay loans will decrease, the number of people who want to borrow money will increase, and banks will be able to raise lending rates again. iv. why has the price stability target not yet been achieved? as mentioned earlier, the monetary easing measures have been effective and warnings of the dangers of these measures make little sense. the only thing that the measures have not achieved is an increase in prices. let me start by looking at developments in prices and then consider why the price stability target of 2 percent has not yet been achieved. on the link between monetary policy, structural changes in the financial environment, and interest rates, see harada yutaka, " naze nihon no kin'ri wa hikuinoka " [ why are japan's interest rates low? ], keiki to saikuru, no. 62, november 2016. chart 6 shows the year - on - year rate of change in the consumer price index ( cpi ) on a quarterly basis. the chart may give the impression that achieving the price stability target of 2 percent is a long way off. however, in order to grasp the underlying trend in consumer prices, it is necessary to look at the rate of change in the cpi excluding fresh food and energy, since the cpi excluding fresh food but including energy is affected by temporary fluctuations in oil prices. the important thing to note when looking at these indexes is that their underlying trend was negative from the mid - 1990s onward, but following the introduction of qqe the rate of change in the cpi excluding fresh food and energy turned positive and since then has continued to be on an uptrend. 14 chart 6 breakdown of the cpi consumption tax hike ( april 2014 ) consumption tax hike ( april 1997 ) % introduction of qqe ( april 2013 ) contribution of cpi ( all items less fresh food and energy ) contribution of cpi ( energy ) cpi ( all items less fresh food ) cpi ( all items less fresh food and energy ) - 1 - 2 cy - 3 note : the cpi is adjusted for the effects of the changes in the consumption tax by deducting 2. 0 percentage points at the time of the introduction of the tax in 1989, 1. 5

recently moved around zero compared to the level of a year earlier. consumer prices ( nationwide, excluding perishables ) increased at a slightly higher rate during the first half of fiscal 1997. this is because commodity prices declined more slowly as a result of a decelerated influx of low - priced foreign goods. in the second half of fiscal 1997, however, the softening of commodity prices reflecting the decline in domestic wholesale prices dampened the increase. furthermore, the 12 - month increase in consumer prices has recently fallen almost to zero, excluding the effects of the rise in medical service charges caused by the medical insurance system reform of september 1997. with respect to factors affecting prices, the price decline phase of the second half of fiscal 1997 differed from that of around 1994 - 1995. during the 1994 - 1995 period, downward pressure on the overall prices of import - competing domestic goods intensified owing to the rapid increase in the penetration ratio of imports, particularly in manufactured goods. this occurred against the background of the industrialization of asian countries other than japan and the continued appreciation of the yen. on the other hand, in the second half of fiscal 1997, downward pressure on overall prices resulted mainly from the stagnant domestic final demand. there did exist downward pressure on domestic wholesale prices caused by the drop in import prices, owing to the price declines in international commodity markets triggered by the crisis in asian economies. however, the penetration ratio of imports did not increase since the value of the yen was significantly lower on the whole than it was in 1994 - 1995. as for the effects of price declines on corporate activities, the decline in the prices of crude oil and other raw materials in international commodity markets in the second half of 1997 worked rather favorably for japanese firms by improving their terms of trade, unlike the first period during which the import penetration ratio of final goods increased. it should be noted, however, that there were signs of a squeeze on corporate profits as unit labor costs and labor ’ s relative share in income distribution increased against the background of the exceptionally low nominal gdp growth rate, and the expansion of the domestic output gap accelerated due to the stagnation of final demand. it therefore became important to carefully monitor the effects of the sluggish domestic demand on corporate activities and employment conditions. as for land prices, commercial land prices generally showed a smaller decline as a clear distinction in profitability existed between land whose price had stopped falling and land whose value continued to fall from fiscal 1996 through the first half of fiscal 1997. meanwhile