by taking advantage of its rich natural resources, such as yakushima, which is registered as a world natural heritage site, its safe and high - quality food, and its abundant hot springs. the prefecture also has made efforts to use cutting - edge digital technologies, such as the implementation of smart farming and expansion of cashless payment services. furthermore, with the involvement of kagoshima university, collaboration between the industries, academics and research institutions, and the administration has been strengthened in order to enhance the effectiveness of these efforts. it is reassuring that these initiatives demonstrate the enterprising spirit etched into the dna of the people of the prefecture. i sincerely hope that kagoshima prefecture, which in the past has turned various hardships into positive transformations, finds a new way forward and further develops its economy based on the initiatives that are currently under way. thank you very much for your attention. japan's economy and monetary policy speech at a meeting with business leaders in kagoshima august 1, 2019 masayoshi amamiya deputy governor of the bank of japan introduction i. financial and economic developments ii. price developments iii. the bank's conduct of monetary policy conclusion chart 1 i. financial and economic developments developments in the global economy world trade volume global manufacturing pmi y / y % chg. s. a., di. global economy advanced economies emerging and commodity - exporting economies - 1 cy 12 cy12 notes : 1. in the left chart, figures for the trade volume are those for real imports. notes : 2. in the right chart, figures for the global economy are the " j. p. morgan global manufacturing pmi. " figures for advanced economies as well as emerging and commodity - exporting economies are calculated as the weighted averages of the manufacturing pmi using gdp shares of world total gdp from the imf as weights. advanced economies consist of the united states, the euro area, the united kingdom, and japan. emerging and commodity - exporting economies consist of 17 countries and regions, such as china, south korea, taiwan, russia, and brazil. sources : cpb netherlands bureau for economic policy analysis ; ihs markit ( © and database right ihs markit ltd 2019. all rights reserved. ), etc. chart 2 i. financial and economic developments output gap % excess demand - 2 - 4 - 6 - 8 cy 08 excess supply note : the output gap is based on boj staff estimations. source : bank of japan. chart 3

it is expected to still take time to achieve the price stability target of 2 percent. while there are various reasons for this, it seems to be affected largely by the fact that the mindset and behavior based on the assumption that wages and prices will not increase easily have been deeply entrenched, due mainly to the experience of prolonged low growth and deflation from the late 1990s. as i mentioned earlier, firms'cautious wage - and price - setting stance, as well as households'cautiousness toward price rises, have shifted gradually but have not yet clearly changed. firms have continued to make efforts to absorb upward pressure of costs on prices by increasing labor - saving investment and streamlining their business process. in addition, the progress in the labor force participation by women and seniors, which is desirable in terms of strengthening the growth potential of the economy as a whole, is another reason why it is taking time for prices to rise. although it is taking time, the inflation rate is expected to increase gradually going forward. for the past few years, the situation has taken hold in which the year - on - year rate of change in the cpi has been positive, with the economy continuing on an expanding trend and the output gap having been substantially positive. the output gap is basically expected to remain substantially positive. under these circumstances, firms'moves to raise prices are likely to be more widespread as households'tolerance of price rises increases, reflecting a rise in wage growth rates, and firms'stance shifts toward further raising prices. as people gain the collective experience of increases in wages and prices, the mindset and behavior based on the assumption that wages and prices will not increase easily are expected to weaken gradually. in this situation, inflation expectations - - that is, people's expectations for future price developments - - are projected to rise gradually. as these developments show, the bank recognizes that the momentum toward achieving the price stability target has been maintained, whereby a positive output gap results in an increase in actual prices, leading to a rise in inflation expectations. however, attention should be paid to the possibility that the inflation momentum would be lost through, for example, shrinkage of the output gap or fluctuations in financial markets if risks to economic activity were to materialize, particularly regarding overseas economies, as i explained earlier. iii. the bank's conduct of monetary policy next, i would like to explain the bank's conduct of monetary policy. the bank has been conducting " qqe with yield curve control " (