the conduct of monetary policy overseas economies inflation policy interest rates y / y % chg. united states germany france % united states euro area - 2 - 4 cy 80 - 1 cy 85 notes : 1. in the left - hand chart, figures are based on national statistics compiled by the oecd. 2. in the right - hand chart, figures for the united states are the federal funds target rate or the medians of the target ranges. those prior to july 1995 are monthly averages of the effective federal funds rate. figures for the euro area are the rates on the deposit facility. sources : haver ; bloomberg. chart 11 ii. outlook for economic activity and prices and the conduct of monetary policy wages business and employment conditions in the tankan di, % points inverted, di, % points inflation and base pay increase - 60 y / y % chg. business conditions : " favorable " employment conditions : " insufficient " - 40 cpi inflation employment conditions ( right scale ) base pay increase - 20 - 20 - 40 - 60 cy 88 business conditions ( left scale ) business conditions : " unfavorable " employment conditions : " excessive " - 1 - 2 cy 88 notes : 1. in the left - hand chart, figures are for all industries and enterprises. there is a discontinuity in the data for december 2003 due to a change in the survey framework. 2. in the right - hand chart, figures for cpi inflation are for all items less fresh food, excluding the effects of the consumption tax hikes, etc. the figure for base pay increase for 2023 is from rengo's fifth aggregation. sources : bank of japan ; ministry of internal affairs and communications ; japanese trade union confederation ( rengo ) ; central labour relations commission ; institute of labour administration. ii. outlook for economic activity and prices and the conduct of monetary policy chart 12 phillips curve before and after the pandemic cpi ( less fresh food and energy ), y / y % chg. 23 / q1 since the outbreak of the pandemic ( from cy 2020 onward ) period under qqe ( pre - pandemic, cy 2013 to 2019 ) - 1 - 5 - 4 - 3 - 2 - 1 note : figures for the cpi ( less fresh food and energy ) exclude temporary factors ( see note in chart 4 ). sources : ministry of internal affairs and communications ; bank of japan. output gap ( 2 - quarter lead, % ) chart 13 ii. outlook

the past 25 years from a broad perspective as described, the bank has devised various monetary policy measures, with japan's economy facing the challenge of deflation and the need to transform the mindset and behavior based on the assumption of low inflation, as the aftereffect of deflation. however, since the conduct of these measures had no precedent, practice may have preceded theory in some respects. in this sense, there remains some room for further analysis regarding, for example, the positive effects and side effects of the measures. furthermore, although i spoke earlier about macroeconomic developments during the past 25 years in a very simplified manner, in practice, the various factors are intricately intertwined, such as problems in the financial system after the bursting of the bubble economy, rapid advances in deregulation and globalization, and demographic changes. moreover, the series of monetary easing measures has been implemented in response to such developments in economic activity, prices, and financial conditions. therefore, the positive effects and side effects of the easing measures should be understood and examined in the context of interaction with these developments. based on these considerations, the bank decided at its monetary policy meeting last month to conduct a review of its monetary policy over the past 25 years from a broad perspective ( chart 7 ). the purpose of the review is to further deepen the bank's understanding of the interaction between monetary policy, economic activity, and various other factors, and to gain insights that will be useful for future policy conduct. the bank intends to steadily work on this project and spend a sufficient amount of time of around one to one and a half years, drawing on the knowledge it has gained from its experience to date and the research that has accumulated in the academic community in japan and abroad. ii. outlook for economic activity and prices and the conduct of monetary policy so far, i have described the basic thinking on and history of monetary policy. i would now like to change the subject and talk about the outlook for economic activity and prices and the conduct of monetary policy for the time being. i will begin with an overview of developments in economic activity and prices in japan, based on the outlook report that was just published at the end of april. outlook for economic activity and prices japan's economy has picked up ( chart 8 ). currently, what is driving the economy is pent - up demand ; that is, the materialization of demand that had been suppressed during the pandemic. this consists mainly of demand for services, including