Not to be released until 8:50 a.m.
Japan Standard Time on Wednesday,
January 29, 2020.

January 29, 2020
Bank of Japan

Summary of Opinions at the Monetary Policy Meeting1,2
on January 20 and 21, 2020
I. Opinions on Economic and Financial Developments
Economic Developments
Japan's economy has been on a moderate expanding trend, although exports, production, andbusiness sentiment have shown some weakness, mainly affected by the slowdown in overseas
economies and natural disasters.

The probability that the global economy will follow its recovery trend through the middle ofthis year seems to be increasing.

Although risks concerning overseas economies remain significant, signs of recovery havestarted to be observed in part, as seen in the cycle for IT-related goods shifting toward aphase of improvement. Under these circumstances, Japan's economy has maintained its
moderate expansion due to the continued firm domestic demand.

Japan's economy is likely to continue on an expanding trend as the impact of the slowdown inoverseas economies on domestic demand is expected to be limited, although the effects of theslowdown are likely to remain for the time being.

As the underlying trend in domestic demand has been firm, Japan's economy is expected tocontinue on a moderate expanding trend, also taking into account the additional effects of thegovernment's economic measures.

English translation prepared by the Bank's staff based on the Japanese original.
"Summary of Opinions at the Monetary Policy Meeting" is made through the following process: (1) each
Policy Board member and government representative makes a summary of opinions that she/he presentedat the Monetary Policy Meeting (MPM) under a certain word limit and submits this to the Governor of theBank of Japan, who serves as the chairman of the MPM, and (2) the chairman edits those opinions as hisresponsibility.
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Japan's economy has been on a moderate expanding trend. The economy is likely to grow atabout the same pace as its potential. However, such effects as of the slowdown in overseas
economies warrant attention.

The government's economic measures are expected to have positive effects that support theexpanding trend in the economy in the medium term through a policy mix with monetary
policy. That said, risks including the effects of the consumption tax hike continue to warrant
attention and the Bank should keep examining these carefully for the time being.

It remains difficult to be optimistic about developments in Japan's economic activity andprices on the whole. Although uncertainties concerning overseas economies have improved
somewhat, as seen in the agreement on the U.S-China economic trade deal and in theprogress in the United Kingdom's exit from the European Union (EU), economic indicators inJapan since last October have not been favorable.

As risks over economic activity at home and abroad have remained significant, it is necessary
to carefully assess whether (1) the propensity to consume will not decline due to theconsumption tax hike, (2) developments in financial markets will remain favorable amid
modest economic activity, (3) a decoupling of the manufacturing and the nonmanufacturingsectors will continue, and (4) some weakness in short-term inflation expectations will not bereflected in medium- to long-term inflation expectations.

Developments in consumption-related indicators since the consumption tax hike show thatrecovery in private consumption has been weak. Although there has been improvement inhouseholds' sentiment indicators, its pace has been slow compared to that of the tax hikeconducted in fiscal 2014.

There has been an increase in voluntary or early retirement of middle-aged and elderly
employees while corporate profits have been at high levels. In a situation where profit levels
are high and the employment situation is favorable, it is reasonable that such retirement
increases because firms can provide additional retirement benefits easily and workers canfind new jobs smoothly. When labor force shifts to places where it is needed more, Japan'soverall productivity is likely to rise.

An estimation suggests that the share of employees who are engaged in routine tasks isrelatively large in Japan compared to that in Europe and the United States. Resolution of amismatch between jobs and employees as well as a rise in average wages could be hampered
amid the increasing use of artificial intelligence (AI) and robotic process automation (RPA).
2PricesThe year-on-year rate of change in the consumer price index (CPI) is likely to increase
gradually toward 2 percent, mainly on the back of the output gap remaining positive andmedium- to long-term inflation expectations rising, although the CPI inflation rate isexpected to be affected by such factors as the past decline in crude oil prices for the timebeing.

The positive output gap pushes up current prices, which simultaneously brings about thesecondary effect of raising inflation expectations in an adaptive manner. Thus, it isappropriate to assess the impact of the output gap on prices in terms of the "area" calculated
by multiplying the degree of the positive gap by its duration.

Although the situation has continued in which prices have not risen easily, mainly reflecting
the constraining effects on inflation due to a rise in productivity, the resilience of theeconomy has been increasing in the sense that it will not go back into deflation. It is
important to persistently wait for the inflation rate to accelerate in a situation where thepositive output gap is maintained, while examining economic indicators, such as those ofemployment and business fixed investment.

Although a virtuous cycle from income to spending has supported price rises, in order tomaintain this cycle, it is necessary to continue raising wages as well as improve corporate
profits to encourage such continuous wage increases.

The mechanism in which a positive output gap results in increases in prices and inflation
expectations has been operating, but the paces have been slow. Taking into account research
results at home and abroad, it is necessary to continue to examine thoroughly the inflation
formation mechanism.

II. Opinions on Monetary Policy
There has been no further increase in the possibility that the momentum toward achieving theprice stability target will be lost. It is appropriate to maintain the current guidelines formarket operations and asset purchases.

The Bank should persistently continue with the current monetary policy stance with the aimof continuously encouraging the virtuous cycle of the economy to take hold and thereby
achieving the price stability target.

3Since the possibility that the inflation momentum will be lost continues to warrant attention,
it is appropriate to maintain a policy stance of being tilted toward monetary accommodation.

Among advanced economies, Japan is exceptional in that it succeeded in raising the inflation
rate after the global financial crisis. However, we are only halfway toward moving out of theso-called Japanification -- that is, secular stagnation where low growth, low inflation, and low
interest rates last for a long period -- and the risk that the economy might fall into deflation
again continues to warrant attention. Since downside risks to economic activity and prices arestill significant, it is necessary to be prepared for a possible economic downturn as one of therisk scenarios. It will become more important to enhance cooperation with the government interms of fiscal and growth policies.

Given that quite a long time has passed since the Bank introduced a powerful monetaryeasing policy, it is becoming more important to continuously make efforts to enhance thesustainability of the policy while weighing up the cumulative effects and side effects.

The financial system has remained stable on the whole. However, given that the effects ofstructural problems and the low interest rate environment have continued to accumulate, it isnecessary to closely monitor the business conditions of regional financial institutions as wellas their efforts made regarding corporate management.

While some argue that a decline in interest rates reduces interest income of households,
which are net depositors, such a decline has positive effects on firms, which are net borrowers.
In addition, it also is positive for households in that it brings about improvement in theemployment and income situation. In any event, the important thing is whether the utilization
rates of labor and capital will be at appropriate levels in the economy as a whole. In asituation of low interest rates in Japan, not only has employment expanded, but also
household income and corporate profits have increased, indicating that the current monetary
policy has exerted its intended effects.

Growth in deposits has been about 1 percentage point higher than that in loans, and this trend
has continued. The amount outstanding calculated by subtracting firms' deposits from theirborrowings has decreased by about 20 percent during the last decade. Under thesecircumstances, even if interest rates decline further, the effects on economic activity andprices could be limited.

As for account maintenance fees, the issue is how to balance the service contents and theirfair value in a situation where it has been recognized once again that a further improvement4

in the functioning of the payment and settlement systems is necessary while avoiding a freeride on such systems, which are part of the social infrastructure. It would be appropriate todistinguish this issue from the discussion over the effects and side effects of monetary policy.
As side effects stemming from the continuing negative interest rates, some point out thepossibility of a decline in inflation expectations due to households' and firms' views on thefuture becoming more cautious.

In Europe and the United States, economic policies have been actively discussed amid
concern over prolonged low growth and low inflation -- the so-called Japanification. While
taking account of fiscal policy and growth strategy, it also would be necessary to review
monetary policy in Japan, where low growth and low inflation have been prolonged.

III. Opinions from Government Representatives
Ministry of Finance
The government submitted to the Diet the supplementary budget for fiscal 2019 totaling
about 4.5 trillion yen, with a view to implementing, for example, the economic measures
decided by the Cabinet recently. It also submitted to the Diet the budget for fiscal 2020, witha total amount of 102.7 trillion yen, which represents revenues and expenditures in thegeneral account. This aims at achieving both economic revitalization and fiscal consolidation.
The government will work to obtain approval from the Diet for these budgets at the earliest
possible time so that it can do its utmost with regard to economic and fiscal management.

The government expects the Bank to continue to work toward achieving the price stability
target, taking account of developments in economic activity and prices as well as financialconditions.

Cabinet OfficeThe government released the Economic and Fiscal Projections for Medium- to Long-Term
Analysis on January 17. In the Economic Growth Achieved Case, the projections show thatnominal GDP will reach 600 trillion yen by the end of fiscal 2022 and that a primary balance
surplus will be achieved in fiscal 2027. Thus, by pushing forward with steady expenditurereforms, the achievement of the primary balance surplus in fiscal 2025 is expected to comeinto sight. The government will continue to steadily push forward with its growth strategy
and efforts such as expenditure reforms at the same time.
5The government expects the Bank to steadily pursue monetary easing toward achieving theprice stability target, taking account of developments in economic activity and prices as wellas financial conditions.

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