developments here : inflation expectations and temporary supply shocks. inflation expectations refer to people's expectations about the future rate of inflation. when firms set prices for goods and services, they consider not only supply and demand at that point in time, but also their expectations for prices in the future. for example, when setting the price of ramen noodles, firms make their outlooks for the price of ingredients and the wages of part - time workers and add an appropriate profit margin to determine the price. since frequent price changes may confuse customers, prices are not revised that frequently. therefore, if raw material prices and part - time wages are expected to rise, firms will set correspondingly higher prices in advance. in other words, for a given current supply and demand environment, higher inflation expectations will lead to higher inflation, and vice versa. applying this to the phillips curve, changes in inflation expectations will cause the curve itself to shift up or down. what about the other factor, temporary supply shocks? a typical example is a sharp rise in crude oil prices, such as that seen last year due to supply concerns associated with the situation surrounding ukraine. international commodity prices such as crude oil prices are determined regardless of the domestic output gap in japan. however, since crude oil is widely used as an energy source and raw material, a rise in the price of crude oil will not only increase the price of gasoline, but also the prices of various goods and services, including dining - out. if such developments are not sustained and instead are temporary, the observed inflation rate will rise briefly to a greater extent than what can be explained by the output gap and thereafter move back to somewhere on the original phillips curve again as the effects of the supply shock fade away. needless to say, if inflation expectations rise due to a supply shock, this could shift the phillips curve upward, and thus the two factors are interrelated. the rise in inflation brought through these developments is known as the second - round effects of the supply shock. so far, i have talked about the basic framework of monetary policy. next, i would like to explain in detail changes in the environment surrounding prices over the past 25 years and the bank's policy responses, using the framework of the phillips curve. the " two challenges " since the bursting of the bubble economy let me turn the clock back to the 1990s. monetary policy faced major challenges in the two mechanisms i mentioned earlier ; namely, the relationship between interest rates and economic activity and that between economic activity

= 100 s. a., 2019 / q1 = 100 s. a., 2019 / q1 = 100 nondurable goods < 40. 5 > services < 50. 7 > cy 14 cy durable goods < 8. 9 > 23 24 19 23 24 notes : 1. in the left panel, figures exclude inbound tourism consumption and include outbound tourism consumption, and are based on bank staff calculations. 2. in the right panel, figures in angle brackets show the weights in the cai. figures are based on bank staff calculations. 3. in the right panel, " nondurable goods " includes goods classified as semi - durable goods in the sna. sources : bank of japan ; etc. chart 5 consumption developments based on credit card spending chg. from baseline, % - 10 - 20 - 30 total retail ( excluding energy ) services ( excluding energy ) energy - 40 - 50 - 60 cy 20 notes : 1. figures are from the reference series in jcb consumption now, which take into account changes in the number of consumers. the baseline is the average for the corresponding half of the month for fiscal 2016 through fiscal 2018. 2. figures for the total and for services exclude telecommunications, and figures for energy consist of those for fuel, electricity, gas, heat supply, and water. figures are based on bank staff calculations. source : nowcast inc. / jcb, co., ltd., " jcb consumption now. " chart 6 exports total real exports real exports by region s. a., cy 2020 = 100 united states < 20. 1 > eu < 10. 3 > cy 23 24 19 china < 17. 6 > nies, asean, etc. < 34. 4 > other economies < 17. 6 > 23 24 notes : 1. figures are based on bank staff calculations. 2. figures for 2024 / q2 are those for april. 3. in the right panel, figures in angle brackets show the share of each country or region in japan's total exports in 2023. figures for the eu exclude those for the united kingdom for the entire period. sources : ministry of finance ; bank of japan. chart 7 developments in business fixed investment plans y / y % chg. fy 2024 average ( fy 2004 - 2022 ) - 3 - 6 - 9 mar. fy 2020 fy 2021 fy 2022 fy 2023 june sept. cy 09 s. a., 2019 /