until recently, this did not manifest itself in the form of labor shortages, since labor demand has been sluggish, so that the problem was not sufficiently addressed. fortunately, during the current economic recovery, labor force participation rates, in particular those of women and the elderly, have been rising ( chart 8 ). it is critical to ensure that this phenomenon is not a cyclical one, but becomes permanent by creating a work environment favorable to women and the elderly in order to mitigate labor force shortages over time. utilization of foreign workers also deserves consideration. another way to mitigate future labor shortages is to prompt investment in labor - saving technology and research and development for such investment. all of these issues are incorporated in the government ’ s growth strategy. if, despite the delays, the strategy is implemented in a steady fashion, japan ’ s economy will regain its vitality and achieve sustained growth. i have talked about japan ’ s labor market, focusing on the effects of balance sheet adjustments, deflation, and demographic changes. while some of these problems are unique to japan, the issues i discussed may nevertheless be of relevance for the challenges faced by other countries today or in the future. i hope that japan ’ s experience can provide a helpful reference in this regard. thank you for your attention. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

likely to experience a full - fledged increase in the number of full - time workers. a more troublesome problem is that wage - setting practices have changed during the prolonged period of deflation. because of low labor mobility due to relatively widespread lifetime employment, wages of regular employees in japan tend to reflect labor market conditions only insufficiently, at least in the short term. therefore, some kind of mechanism, a “ visible hand, ” is necessary for wages to rise. prior to the period of deflation, the so - called bis central bankers ’ speeches spring offensive of the practice of simultaneous wage negotiations between management and labor at major firms in spring served as such a mechanism for negotiating wage increases. however, as deflation continued, this mechanism stopped working effectively. that is, firms needed to cut wages in order to reduce costs against the background of falling prices, while it was rational for workers to accept a decline in wages in exchange for job guarantees. as a result, in the past decade or so, the practice of raising base wages through the spring offensive had more or less disappeared. this spring, however, has seen increases in base wages and / or bonuses not only among large firms but also among small and medium enterprises, partly reflecting calls by the government. for wages to increase at an appropriate pace in the future, it is necessary to have some kind of coordination mechanism to bring about wage increases. in such a mechanism, the bank of japan ’ s price stability target can serve as a benchmark for firms in their wage setting. that is, once the bank has succeeded in firmly anchoring inflation expectations at 2 percent, this could provide the basis on which wage negotiations between management and labor are conducted. firms and households can then base their economic decisions firmly on the expectation that prices will rise at a rate of around 2 percent. thus, creating an appropriate wage - setting mechanism plays an important part in anchoring inflation expectations at 2 percent. concluding remarks i have so far talked about the effects of balance sheet adjustments and deflation on the labor market, but there is one topic i have yet to touch on. this is an issue that concerns the supply of labor, namely, demographic changes. reflecting the aging of japan ’ s population, the labor force participation rate has been on a downtrend, and serious labor shortages are likely to emerge in the future. the downtrend in the labor force participation rate is due to japan ’ s demographic composition and therefore does not come as a surprise. however,