accommodative. there is no sign so far of excessively bullish expectations in asset markets or in the activities of financial institutions. furthermore, prolonged downward pressure on financial institutions ’ profits under the continued low interest rate environment could create risks of a gradual pullback in financial intermediation and of destabilizing the financial system. however, at this point, these risks are considered not significant, mainly because financial institutions have sufficient capital bases. given this situation, the momentum toward achieving the price stability target of 2 percent is being maintained. nevertheless, there is still a long way to go to achieve the target. i believe that it is necessary that the bank continue to persistently pursue powerful monetary easing under 4 / 5 bis central bankers'speeches qqe with yield curve control. iv. challenges for japan ’ s economy i would now like to express my thoughts regarding the current situation for japan ’ s economy from a longer - term perspective. according to the bank ’ s estimates, the potential growth rate, which was about 4 percent in the latter half of the 1980s, has been in the range of 0. 5 - 1. 0 percent recently. it can be said that japan ’ s growth potential has been sluggish, mainly reflecting the population decline and low productivity growth. yet, when looking at the economy in detail, we see that initiatives toward structural reforms and growth strategy have proceeded among a wide range of entities, in a situation where the output gap has widened within positive territory and further tightening has been seen in terms of both labor and capital. i expect that such initiatives will lead to raising the growth potential of japan ’ s economy. let me point to some examples. on the labor front, an increase in employment has been seen not only for non - regular employees, but also regular employees. at the same time, there has been progress in terms of making extensive use of diverse human resources, including women, the elderly, and foreigners. in addition, changes have begun to be observed in the seniority - based wage system. these developments can be perceived as one type of changes occurring in japan ’ s labor market, which previously had been rigid. my view is that bringing out the potential labor capacity that has not been utilized will likely boost japan ’ s labor productivity, which is low compared with that of the u. s. and european economies. on the capital front, an increasing number of firms have been taking measures to establish new factories and expand production capacity against the background

constructing market - based densities to optimize forward - looking portfolios. the strategy has also evolved to become more active tactically, to further enhance the return of its assets. in terms of diversification, the bank has complemented its traditional asset class diversification approach with regime - diversification analysis, risk - factor diversification techniques, and different investment strategies, including total - return portfolios. an additional aspect for effective fx intervention is to follow a well - defined strategy with clear objectives. in mexico, for over two decades, the fx commission ( formed by the ministry of finance and banco de mexico ) has fully committed to the flexible exchange rate regime by avoiding to send signals about any desired levels for the exchange rate, and by defining two clear goals for fx interventions. first, when appropriate, the commission has adjusted the pace of foreign reserve accumulation under preannounced rule - based mechanisms. second, in episodes of high volatility that could compromise the price discovery process, it has provided liquidity to markets. in this case, the fx commission considers interventions as the exception rather than the rule. finally, an effective intervention also depends on the use of appropriate instruments. in this regard, it is essential that intervention tools evolve together with the changing dynamics of foreign exchange markets. let me give you two examples. today, 80 % of the trading of the mexican peso takes place off - shore or without a domestic resident involved. in line with this, the fx commission has enhanced its intervention toolkit further by including the possibility of intervening with international financial institutions in asian and european hours, when liquidity could be compromised. another important consideration has been the recent decline in oil production in mexico and the lower oil prices since 2014. as a result, mexico ’ s state - owned oil company, pemex, has not been selling usd to banco de mexico as it did before, so the traditional main source to accumulate international reserves has waned. in this environment, the fx commission needed a mechanism to prevent international reserves from decreasing, while supplying foreign currency, so it introduced in 2017 non - deliverable forward auctions settled in mexican pesos. all in all, mexico ’ s floating exchange rate regime strategy, along with upgrading international reserve management and fx interventions, contributed to support the development of a deep and liquid fx market, with an efficient price discovery process both at normal times and during stress episodes. this is a key component of banco de mexico ’ s inflation targeting monetary policy framework,