the bank's strong commitment to achieving the 2 percent price stability target will directly raise inflation expectations, prompting a rise in the observed inflation rate in turn. earlier, when i described the outlook for prices, i mentioned that the possibility of the year - on - year rate of change in the cpi increasing to 2 percent through fiscal 2019 is low. this is because i still lack confidence that the four transmission channels i have just explained are operating to an effective extent whereby the inflation rate will be pushed up to reach 2 percent, even though more than a year has passed since the bank's adoption of qqe with yield curve control. of course, the positive effects of monetary easing are likely to strengthen gradually, given that the improvement in the output gap continues. at this point, however, my view is that the momentum for a rise in inflation is not strong enough to reach 2 percent through fiscal 2019. 2 to illustrate this, i plot the relationship of the output gap and the inflation rate on a graph ( chart 7 ). in the period after the adoption of qqe leading up to the introduction of qqe with yield curve control, the slope of the trend line became somewhat steep and the line's level rose ( chart 7, red line in the left - hand panel ) compared with that for an earlier period ( black line in the same panel ). these developments suggest that ideal changes in the economy had been taking place, implying that the effects through the second channel - - that is, the improvement in the output gap that thereby pushes up the observed inflation rate - 2 for the inflation rate to increase to 2 percent going forward, i consider that it is essential to achieve a widening of the output gap that exceeds 2 percent, as well as a rise in the expected inflation rate that is greater than that observed during 2013 and 2014. this view is based on a projection of price developments derived by ( 1 ) estimating the so - called hybrid new keynesian phillips curve that takes the expected inflation rate, the observed inflation rate, the output gap, and the consumption tax dummy as explanatory variables and then ( 2 ) applying projections of the output gap - - deduced from the forecasts of the majority of the bank's policy board members on real gdp growth - - and the expected inflation rate. had been enhanced, and that both the third and the fourth channels had begun to operate following a rise in inflation expectations. taking a look at developments since the october - december

energy ) exceeded 2 percent on a basis excluding the effects of consumption tax hikes. forecasts presented in the outlook report, if there is a delay in the timing of achieving the price stability target due to domestic factors, the bank should take additional easing measures. i would note that a further lowering of yields on jgbs with maturities of 10 years and longer will promote business fixed investment and housing investment to a greater extent from the financial side. this lowering of jgb yields is also expected to have synergy effects with the government's fiscal policy providing tax support for firms that have a positive stance toward making fixed investment and raising wages. these developments will further increase the pace of improvement in the output gap, and thus enhance the dynamism of the rise in the inflation rate through the first and second transmission channels that i explained earlier. among many options for additional monetary easing measures under yield curve control, the further lowering of yields on jgbs with maturities of 10 years and longer is the best at this point, in my view, considering the balance between positive and negative effects. strengthening of the inflation - overshooting commitment aims at increasing the transmission effects of higher inflation expectations on the observed inflation rate - - in other words, increasing the effects through the third and fourth transmission channels. the rise in inflation expectations from 2013 was attributable to the bank's decision to introduce an inflation targeting policy. it also was attributable to the initiatives taken to achieve the policy ; the bank announced the strengthening of policy coordination with the government by releasing the joint statement, and the two entities have taken concrete actions by implementing flexible fiscal policy and bold monetary policy as well as the growth strategy. in order to influence inflation expectations, it is essential that policy coordination with the government aiming at achieving the price stability target be firmly ensured through both entities'concrete actions. the bank, for its part, should further promote powerful monetary easing backed by a clear and strong commitment to achieving the price stability target. iii. reason for importance of achieving and maintaining the price stability target as the global economy continues to grow at a moderate pace, the federal reserve is on course to raise policy interest rates and the european central bank is moving toward an exit from monetary easing. under such circumstances, there is some speculation, especially overseas, that japan's monetary policy might also shift to a tightening in the near future, or might at least make a slight adjustment toward an exit from monetary easing. however, the inflation