been at record high levels, and the labor market is in a state that is close to virtually " full employment, " as evidenced by the fact that the unemployment rate has declined to 3 percent. against the backdrop of such tightening of labor market conditions, wages have been increasing moderately. base pay increases, which had not taken place for many years under deflation, were achieved for three consecutive years. in the financial markets, excessive yen appreciation was corrected and stock prices have risen significantly. it is certain that the bank's monetary easing has played a large role in economic recovery. in order to achieve the price stability target of 2 percent in a stable manner, it is necessary to drastically change people's deflationary mindset and raise their inflation expectations - - that is, people's perception of future price developments - - to 2 percent. on this point, qqe has been effective in raising such expectations. as mentioned in the bank's " comprehensive assessment, " inflation expectations rose significantly through summer 2014, after the introduction of qqe in april 2013. furthermore, the expansion of qqe in october 2014 played a role in supporting inflation expectations ( chart 8 ). these facts indicate that, under qqe, the expansion of the monetary base in combination with the commitment to achieving the price stability target have affected people's perception of prices by bringing about a regime change in monetary policy, and have contributed to raising inflation expectations. second, the main reason for not being able to achieve the price stability target of 2 percent despite such a positive turnaround in economic and price developments is that inflation expectations, which had increased significantly due to a regime change in monetary policy, weakened again. after the introduction of qqe, the year - on - year rate of change in the cpi reached 1. 5 percent in april 2014 and inflation expectations increased steadily. thereafter, however, mainly reflecting weak aggregate demand following the consumption tax hike, a decline in crude oil prices, and the global economic slowdown as well as turmoil in global financial markets, inflation expectations started to decline after having been flat for a while, with the observed inflation rate decreasing. the mechanism of formation of inflation expectations in japan has tended to be largely adaptive after the prolonged deflation, in that such expectations are influenced by the course of the past inflation rate. going forward, in order to achieve the price stability target of 2 percent, inflation expectations need to be raised once again by adopting more powerful measures. third, it

the 1930s. not surprisingly all advanced economies, being stressed by the worst financial and economic crisis since world war ii, are called to reflect on the weaknesses of their economic and financial structures and on the appropriate reforms to redress their medium and long term macroeconomic and macro - financial strategies. this is the case in the united states. this is the case in japan. it is the case in the european union and in the euro area as well. my plan for tonight is precisely to assess the institutional framework of the euro area by highlighting the origin of the tensions we are currently experiencing and the plausible solutions that would help to restore market confidence and consolidate the building blocks of emu. thucydides ( 431 bc ) : the history of the peloponnesian war ( translated by richard crawley ). as its name suggests, “ economic and monetary union ” has two attributes : one is “ economic ” and one is “ monetary. ” the monetary attribute of our union refers to the ecb, its mandate and its independence. the “ economic ” aspect of our union comprises the fiscal regime enshrined in the stability and growth pact ; the national frameworks of economic policy, including macroeconomic policy and financial supervision ; and the system of mutual surveillance. the developments we are currently witnessing in europe ’ s economy have to do with its “ economic ” functions. they have essentially three origins : unsound fiscal policies in a number of member states ; inappropriate macroeconomic and supervisory policies in a number of member states ; and overall an inadequate system of surveillance. this is the triangle that lies behind the current situation. and let me make this very clear : the triangle does not include monetary policy. * * * the “ monetary ” side : price stability in the euro area the “ m ” side of the emu is relatively straightforward to assess. the treaty assigns the ecb the primary responsibility for maintaining price stability in the euro area over the medium term. we now have almost 12 years of experience with the euro : this is a sufficiently long span of time to provide an evaluation of how successful the ecb has been in delivering on its mandate. you all know that from the outset the ecb has set itself a very clear numerical benchmark, which is a public and transparent yardstick. the ecb ’ s governing council has defined price stability to be an annual rate of inflation in the euro area of below 2 % over the medium terms. the governing council has also declared that, in pursuing its