- term money market, the level of the target interest rate is to be set based on the bank's assessment of economic activity and price developments. with regard to the future conduct of monetary policy based on the new operating target of money market operations, namely, the uncollateralized overnight call rate, the bank introduced a new framework. the bank announced that, under this framework, it would assess economic activity and prices from two perspectives, taking account of the " understanding of medium - to long - term price stability, " which is expressed as an approximate range between zero and 2 percent in terms of the rate of year - on - year change in the cpi. in light of this assessment, it would outline and release its current view on monetary policy. the april outlook report was compiled under the new framework. in the outlook report, the bank examined, from the first perspective, whether the outlook deemed most likely by the bank for economic activity and prices two years into the future is that the economy will follow a path of sustainable growth under price stability. the bank judged that japan's economy is likely to achieve sustainable growth under price stability as long as the economy develops in line with the outlook described earlier. from the second perspective, the bank examined the risks that are most relevant to conducting monetary policy, looking over a longer time horizon. as a result, the bank came to the conclusion that, as an upside risk, it should pay attention in the medium to long term to larger economic swings, resulting in large fluctuations in the rate of inflation, mainly due to acceleration of business fixed investment reflecting the accommodative financial conditions. as for downside risks, the bank examined the possibility of economic activity and the rate of inflation deviating downward from its projection due to various factors. the bank's judgment was that even if economic activity is less robust and the inflation rate lower than expected, the risk of the economy falling into a vicious circle of declining prices and deteriorating economic activity has become smaller, since the japanese financial system has regained stability and the economy has now cast off excesses in production capacity, employment, and debt. with regard to the future course of monetary policy, based on the assessment of economic activity and prices from the two perspectives, it seems probable that the accommodative financial conditions ensuing from very low interest rates will be maintained for some time following a period in which the uncollateralized overnight call rate is at effectively zero percent. through and beyond this stage

trade expansion resulting from further progress in international division of the production process. as for domestic private demand, corporate performance continues to be strong. the bank's tankan ( short - term economic survey of enterprises in japan ) indicates that corporate profits increased for the fourth consecutive fiscal year, and firms expect their sales and profits to rise in fiscal 2006. business fixed investment plans for fiscal 2006 are relatively strong. as for the household sector, the employment and wage situation has been improving and private consumption has been on an increasing trend. japan's economy is likely to continue to show balanced growth. another characteristic is that the sustained economic recovery has resulted in a higher level of utilization of resources such as capital and labor. the current recovery has already lasted for over four years, and if it continues much longer, in october 2006 it will equal the izanagi boom ( 1965 - 70 ), which is the longest postwar economic expansion to date. as a result of the sustained recovery, according to the tankan, for the first time in more than a decade firms are no longer perceiving excess capacity but have started to feel more strongly that their labor holdings are insufficient. the ratio of job offers to applicants, below 1. 00 from 1992 until recently, has now exceeded 1. 00 since the end of 2005. furthermore, the conditions of persistent oversupply have been dispersed and the output gap, the difference between actual and potential output, which had long been negative, seems now to have closed. this indicates that demand and supply capacity in the economy are well balanced. given these characteristics of the current economic situation, the following are considered to be the three core elements of the most likely projection for economic activity and prices two years into the future. the first element is that the household sector is expected to be the main driving force behind firm domestic private demand. strong corporate performance has been benefiting the household sector, and this positive influence is likely to become more evident from now on. employment and wages have been improving against the background of favorable corporate profits and rises in labor shortages. the number of part - time employees and bonus payments are rising, and the number of full - time employees and regular payments are also on an uptrend. these developments suggest that households can expect the increase in their income to be more permanent, and this has contributed to the improvement in consumer sentiment. households'average propensity to consume is likely to remain at its current elevated level, and private consumption is expected to follow an increasing