. c. toward changing the norm for prices japan's economy has suffered from deflation for more than 15 years, since the late 1990s, with the year - on - year rate of change in the cpi being about zero or slightly negative. one likely reason why it has been taking time for the deflationary mindset to be dispelled in japan is that households and firms have been adaptive to the deflationary environment. despite the strong monetary easing being pursued for almost five years, the 2 percent price stability target has not been achieved. this confirms that the deflationary mindset was more such a downward trend in the natural rate of interest is not unique to japan, but rather is a global phenomenon. this is one element behind the fact that, since the global financial crisis, interest rates in japan, the united states, and europe have declined to lower levels than ever before. persistent than initially had been assumed, although there were external factors such as the substantial decline in crude oil prices. having said that, it is still necessary to pursue strong monetary easing ; that is, to drive real interest rates sufficiently below the natural rate of interest. meanwhile, almost five years have passed since the bank introduced qqe, and i believe that the positive effects and side effects of qqe continue to warrant careful examination. recently, price increases around the world have been relatively weak, and many have been pointing out that the factors behind this are the deepening of globalization and digitalization. as research on these factors is still in progress, the empirical evidence has not yet yielded conclusive results. 2 i consider it important to fully take into account the effects of such changes in the economic structure on prices. however, even if the effects stemming from globalization and digitalization have been pushing down prices in advanced economies to some extent, i think price developments in japan are quite different from those in the united states and europe. this is because inflation expectations seem to be anchored at around 2 percent in the united states and europe, with the price indexes showing that the underlying trend has been at around 1. 5 percent, despite the past experience of the substantial decline in crude oil prices. on this point, in japan, the year - on - year rate of change in the cpi ( all items less fresh food ) remains in the range of 0. 5 - 1. 0 percent - - as i mentioned earlier - - and that in the cpi ( less fresh food and energy ) is still in the range

continue on a moderate increasing trend. the year - on - year rate of change in the cpi ( all items less fresh food ) is likely to increase toward around 2 percent. this is because, although upward pressure of energy prices is likely to wane gradually, firms are likely to gradually shift their stance toward raising wages and prices with an improvement in the output gap, and inflation expectations are expected to accelerate moderately. in the short run, the rate of increase in prices of food products and goods related to daily necessities in particular is expected to accelerate gradually with a moderate increase in private consumption, and moves to pass on the increase in labor costs to prices of general services, including dining - out and housework - related services, are likely to prevail. looking at the medians of the policy board members'forecasts in the october 2017 outlook report, the year - on - year rate of change in the cpi ( all items less fresh food ) is projected to be 0. 8 percent for fiscal 2017, 1. 4 percent for fiscal 2018, and - - on a basis excluding the effects of the scheduled consumption tax hike - - 1. 8 percent for fiscal 2019. i believe that there are the following upside and downside risks to the outlook. risks to japan's economic activity are developments in overseas economies, such as the u. s. economic policies and geopolitical risks, firms'and households'medium - to long - term growth expectations, as well as fiscal sustainability in the medium to long term. risks to prices are developments in firms'and households'medium - to long - term inflation expectations, the fact that there are items for which prices are not particularly responsive to the output gap, as well as developments in foreign exchange rates and international commodity prices going forward. i hold the view that, while downside risks to japan's economic activity are limited, those to prices are fairly significant. this is particularly so because of the considerable uncertainty as to how far firms will adopt a shared attitude toward raising prices. ii. the bank's monetary policy next, i will talk about the bank's monetary policy. with a view to achieving the price stability target of 2 percent, the bank has been maintaining highly accommodative financial conditions by pursuing strong monetary easing. a. quantitative and qualitative monetary easing ( qqe ) with yield curve control the framework of qqe with yield curve control the bank has adopted consists of two major components.