cycle : higher disposable income underpins greater household spending, which represents final demand, which then feeds into an expansion in corporate sales and profits. firms draw on the funds generated by greater sales and profits and on leverage arising from such means as cash borrowing for investments aimed at enhancing their added value. firms that increase the value of their products, services, and labor reflect this in selling prices, and then grow by acquiring the resources needed for further wage increases and investments ( chart 10 gives a simplified representation ). however, international comparisons show that, since the first half of the 1990s, household disposable income has more than tripled in the united states and about doubled in germany, but it has hardly increased in japan ( chart 11 ). i would like to share my views on the three dynamisms necessary to break out of this stagnation in disposable income, based on my own experience at a private firm. a. dynamism of japanese firms my first point is about the dynamism of firms. many japanese firms long wrestled with declining profitability and a deterioration in business performance. this stems from several factors, including the yen's sharp appreciation following the 1985 plaza accord and the bursting of the bubble economy in the early 1990s, coupled with the higher price of imported raw materials brought about by overseas economic growth and with the inflow of low - priced goods from developing economies. at the same time, firms faced strong social pressure in japan to maintain employment. they responded by overhauling their cost structure, cutting fixed expenses, such as personnel expenses - - including wages and " investment in people " - and research and development ( r & d ) expenses, all the while maintaining their existing business portfolios. this gave rise to excessive competition among firms in japan and waning profitability and growth potential. meanwhile, from 2008, firms'entry rates were in the range of 4 - 6 percent and exit rates were almost constantly below 4 percent. thus, both entry and exit rates remained low vis - a - vis international levels ( chart 12 ). this situation points to limited corporate metabolism, in terms of the redistribution of resources through the entry into and exit from businesses. this dearth of corporate dynamism, coupled with the onset of deflation in the latter half of the 1990s, seems to have precipitated sluggish growth in productivity and wages stemming from a lack of innovation and investment. in other words, in a deflationary

recent developments in wages as well as the core cpi, an indicator that the policy board presents in its assessments. b. qqe and long - term interest rate i will now talk about the effects of the price stability target on financial markets. under the qqe, the bank puts strong downward pressure on nominal long - term interest rates through the massive purchases of jgbs. it also tries to raise people ’ s inflation expectations via the accumulation of the monetary base. the combination of the two will lower real long - term interest rates. that is an unprecedented challenge. there are different views on the extent to which the massive supply of the monetary base can have a real impact on people ’ s inflation expectations. nevertheless, lifting inflation expectations is one of just a few remaining policy options under these circumstances. after nearly 15 years of deflation, the medium - to long - term inflation expectations have been around 1 percent and stayed low, compared to those in other advanced economies. moreover, japan has been faced with a zero boundary of nominal interest rates. here, let me recap on how the qqe will work on nominal long - term interest rates through its transmission mechanism. nominal long - term interest rates combine two elements : one is the average of future short - term rates ; the other is premiums ( chart 4 ). based on that understanding, the bank has specified its forward guidance in order to produce these effects. first it will continue with the qqe, aiming to achieve the price stability target, as long as it is necessary for maintaining that target in a stable manner. that in effect will exert downward pressure on the average of future short - term rates. in addition, premiums will be prevented from widening through the massive purchases of jgbs with relatively longer maturities. the qqe thus relies on the mechanism in which the combination of the forward guidance and asset purchases will maintain nominal long - term interest rates at low levels. that is not different from what happens at other central banks, such as the federal reserve and the bank of england, which also depend on similar unconventional monetary policy. under such unconventional policy, nominal interest rates are likely to rise as the effects of the policy start to occur, preceding the improvement in the economy and prices. referring to the elements that i have just explained, future short - term rates are likely to rise if the market judges that an exit from current easing policy is at hand. admittedly, we need to follow a narrow path