Not to be released until 8:50 a.m.
Japan Standard Time on Thursday,
May 9, 2024.

May 9, 2024
Bank of Japan

Summary of Opinions at the Monetary Policy Meeting1,2
on April 25 and 26, 2024
I. Opinions on Economic and Financial Developments
Economic Developments
Japan's economy has recovered moderately, although some weakness has been seen in part. Itis likely to keep growing at a pace above its potential growth rate, as a virtuous cycle fromincome to spending gradually intensifies.

Upward revisions have been observed in the outlook for overseas economies overall,particularly for the U.S. economy.

Although private consumption has been relatively weak, reflecting price rises, it is likely toregain momentum, given that momentum in wage hikes has been strong recently.

If firms postpone business fixed investment due to factors such as supply-side constraints,
this could lead them to lose business opportunities and hinder improvement in theirproductivity, and in turn create a risk that firms will not be able to secure enough resources
for wage hikes. Therefore, attention is warranted on developments in business fixedinvestment.

While the output gap has been at around 0 percent, the weighted average of the diffusionindexes (DIs) for production capacity and employment conditions in the Tankan (Short-Term
Economic Survey of Enterprises in Japan) indicates that shortages of production capacity andlabor have been at historically high levels. In determining whether Japan's economy will keep
growing steadily at a pace above its potential growth rate throughout the projection period, it

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 presented
at 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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is necessary to assess the reason for this divergence between the output gap and the weightedaverage DI.
Firms' moves to collaborate with competitors, even on their main lines of business -including production and research and development -- have become widespread. Theseefforts are expected to address stress factors such as labor shortages, high prices, and interest
rate hikes, and in turn lead Japanese firms into a period of change.

In order to achieve sustained wage increases, corporate dynamism is necessary, in which, forexample, (1) small, medium-sized, and larger firms that have improved their profitability -through such means as passing on cost increases to selling prices -- raise their growthpotential steadily by making business fixed investment and strengthening their businessstructures and (2) startups, which create new markets, grow into so-called unicorns.

PricesUnderlying inflation, measured by the consumer price index (CPI), is expected to increase
gradually, since it is projected that medium- to long-term inflation expectations will rise witha virtuous cycle between wages and prices continuing to intensify. In the second half of theprojection period, it is likely to be at a level that is generally consistent with the price stability
target.

The outlook for prices is that they will remain at around the 2 percent level, mainly due to (1)a rise in import prices in reflection of continued inflation overseas, (2) tightness in domestic
labor market conditions, and (3) continued changes in firms' price-setting behavior.

The yen's depreciation and high crude oil prices have weakened the premise that cost-pushfactors will wane. Therefore, attention is warranted on the risk that prices will deviate upwardfrom the baseline scenario.

The recent depreciation of the yen and rises in prices, such as crude oil, have started to affectproducer prices through an increase in import prices. Considering this, it is necessary to pay
attention to the possibility that the current deceleration in the rate of increase in goods prices
will bottom out and start to reverse, as well as to the increase in services prices
accompanying wage hikes.

While the yen's depreciation is likely to push down the economy in the short run throughprice rises driven by cost-push factors, it could push up underlying inflation in the medium to2

long run, since it is also likely to have the effect of increasing production and income through,for example, a rise in inbound tourism demand and manufacturers moving their overseas
production sites back to Japan.
There is an upside risk of inflation due to cost-push factors stemming from a rise in importprices and to an increase in inflation expectations. Therefore, it is necessary for the Bank to
examine without any preconceptions whether a pass-through of cost increases to consumer
prices will occur again, following the pass-through from 2022.

Attention is warranted on the various upside risks to prices, such as greater-than-expected
progress in the wage-price spiral, a further depreciation of the yen, active fiscal policy, lackof supply capacity that is mainly due to labor shortages, and a rise in commodity prices.

Polarization has been seen between large firms and small and medium-sized firms in terms of
their profitability, wage levels, and other factors. Many small and medium-sized firms haveraised wages to retain employees, which suggests that the spillover effects of the results oflarge firms' structural reforms on small and medium-sized firms have remained weak.

II. Opinions on Monetary PolicyIf the outlook for economic activity and prices will be realized and underlying inflation will
increase, the Bank will adjust the degree of monetary accommodation, while it anticipatesthat accommodative financial conditions will be maintained for the time being.

There remain high uncertainties surrounding the outlook for economic activity and prices
presented in the April 2024 Outlook for Economic Activity and Prices. That said, if thisoutlook will be realized, then in about two years, the price stability target of 2 percent will beachieved in a sustainable and stable manner and the output gap will be positive. Therefore,
there is a possibility that the future policy interest rate will be higher than the path that isfactored in by the market.

To contain any shocks arising from discontinuous and rapid policy changes when the pricestability target is achieved, one option is to adjust the degree of monetary accommodation by
conducting moderate policy interest rate hikes, in response to developments in economic
activity and prices as well as financial conditions.

In order to adjust the degree of monetary accommodation in a way that does not exert stresson the economy, it will be necessary for the Bank to raise the policy interest rate in a timely
3and appropriate manner as the likelihood of realizing the outlook for economic activity andprices rises.
It is necessary to deepen discussion on the timing and degree of policy interest rate hikes.

The key factor in considering further adjustments to monetary accommodation is to confirm
positive corporate behavior through this summer -- specifically, continued solid businessfixed investment -- and an improving trend in private consumption, led by wage hikes,
toward the second half of this year.

In the current situation where underlying inflation is below 2 percent, accommodative
financial conditions need to be maintained for a fairly long period. However, if underlying
inflation continues to deviate upward from the baseline scenario against the backdrop of a
weaker yen, it is quite possible that the pace of monetary policy normalization will increase.

In 2023, disposable income did not rise and the increase in private consumption was due tothe saving rate declining to 0 percent. As households' purchasing power has remained weak,
it seems appropriate for the Bank to maintain accommodative financial conditions for thetime being.

CPI figures and other information released after the previous MPM have proved that theconditions for changing the monetary policy framework were fulfilled at the time of theMPM. In fact, rapid market fluctuations have not occurred following the policy change.

Regarding purchases of Japanese government bonds (JGBs), while the Bank is currently
monitoring market conditions after the termination of yield curve control, at some point itshould indicate its intention to reduce its purchase amount of JGBs. Apart from this, the dailypurchase amount of JGBs should be adjusted carefully by the Financial Markets Department,in response to factors such as supply and demand conditions for JGBs.

The Bank needs to reduce the size of its balance sheet in order to normalize the amount of its
JGB holdings and optimize the excessive levels of its reserve balances. Moreover, given thatthe gradual increase in flexibility in the conduct of yield curve control led to a smooth exitfrom the previous policy framework, it is important for the Bank to proceed with reducing its
purchase amount of JGBs in a timely manner, while paying attention to market developments
and the supply and demand conditions for JGBs.

One option is to reduce the Bank's monthly purchase amount of JGBs -- which is currently
about 6 trillion yen per month -- based on the supply and demand balance of JGBs, with the4aim of restoring market functioning. Moreover, it is important to indicate its intention toreduce its purchase amount of JGBs from the perspective of enhancing market predictability.
Given market developments, it is increasingly likely that the Bank will be able to discuss thespecifics of the treatment of its holdings of exchange-traded funds (ETFs) and Japan realestate investment trusts (J-REITs).

In discussing the treatment of the Bank's ETF holdings, it is necessary to take into account,for example, the impact that the manner of the disposal of these assets will have on thefunctioning of the stock market and the extent of this impact. Although there is no simple
solution to this issue, the Bank should aim at bringing the amount outstanding to zero, even if
it takes a long time.

III. Opinions from Government Representatives
Ministry of FinanceIt seems that business fixed investment has marked its highest level and the trend towardraising wages seen among large firms has spread to other firms. However, there are manysmall, medium-sized, and larger firms that have not been able to pass on personnel expenses
to selling prices, and private consumption lacks firmness.

In aiming toward full liberation from deflation -- the path to which Japan is still only halfway
down -- the government will carry out all possible measures and strongly promote wagehikes.

The government expects the Bank to conduct monetary policy as appropriate towardsustainable and stable achievement of the price stability target of 2 percent while closelycooperating with the government.

Cabinet OfficeJapan's economy is recovering at a moderate pace, although it recently appears to be pausing.
The economy is expected to continue recovering at a moderate pace, while attention should
be given to uncertainties regarding the global economy and to the impact of the yen'sdepreciation on households' purchasing power.

The government will support wage hikes, underpin private consumption through cuts inincome tax and inhabitant tax, and work toward raising the potential growth rate.
5The government expects the Bank to conduct monetary policy as appropriate towardachieving the price stability target of 2 percent in a sustainable and stable manner whileclosely cooperating and exchanging views with the government.

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