Toyoaki Nakamura: Economic activity, prices, and monetary policy in Japan
Central bank: boj | Type: speech | Date: 2022-08-25

Bank

of

JapanAugust

25,

2022

## Economic Activity, Prices, and Monetary Policy in JapanSpeech at a Meeting with Local Leaders in Fukuoka

## NAKAMURA ToyoakiMember of the Policy Board(English translation based on the Japanese original)

## I.

Economic and Price Developments at Home and Abroad

## A.

Recent Developments and Outlook for Economic Activity and PricesI will begin my speech by talking about recent developments in economic activity and prices.Overseas economies have recovered on the whole, albeit with some weakness seen in part (Chart 1).

The U.S. and European economies continue to recover, particularly for services consumption,

although

some

weakness

has

been

seen

in

several

sectors.

The

Chinese economy has started to pick up, led mainly by exports and production, with the impact of lockdowns and other public health measures waning.

Emerging and commodity-exporting economies

other

than

China

have

generally

picked

up

with

the

resumption

of

economic activity becoming full-fledged.Against this background, Japan's economy has also picked up with the impact of the novel coronavirus (COVID-19) waning, despite being affected by factors such as rises in the price of commodities, including grain.

In the corporate sector, exports have increased as a trend, although

they

have

been under

strong

downward

pressure

due to

supply-side

constraints.

Business fixed investment has picked up, albeit with effects of supply-side constraints.

In the household

sector,

private

consumption

has

increased

moderately,

particularly

for

services consumption,

with

the

impact

of

COVID-19

waning

and

also

with

support

from

the materialization of pent-up demand.

Meanwhile, the consumer price index (CPI) for all items less fresh food, or core CPI, has increased to 2.4 percent on a year-on-year basis, mainly due to rises in energy and food prices (Chart 2).Japan's economy is likely to recover as the impact of COVID-19 and the effects of supplyside

constraints

gradually

wane.

The

year-on-year rate

of

change

in

core

CPI

is

likely

to increase toward the end of 2022 due to rises in the price of such items as energy, food, and durable

goods.

Thereafter,

the

rate

of

increase

is

expected

to

decelerate

as

the

positive contribution of the rise in energy prices to the CPI wanes.

## B.

Risk Factors for Economic Activity and PricesThis outlook is subject to a number of uncertainties; specifically, I am particularly attentive to the following factors.The first is how COVID-19 at home and abroad will affect Japan's economy.

If vigilance against COVID-19 becomes elevated again in Japan due to a rapid resurgence of the disease, the

positive

contribution

of

pent-up

demand

could

weaken

by

more

than

expected, particularly in services consumption; this could pose the risk of a downward deviation in private consumption from the baseline scenario and of a delayed pick-up in inbound tourism consumption due mainly to entry restriction measures.

In the meantime, if pandemic-related restrictions become stricter again in China while the global semiconductor shortage continues, supply-side constraints could become prolonged and amplified through, for example, supplychain disruptions.

This could then exert downward pressure on Japan's exports and production, goods consumption, and business fixed investment.The second factor is developments in the situation surrounding Ukraine and in the price of commodities,

including

grain.

As

investment

in

natural

resource

development

has

been constrained in response to global efforts toward addressing climate change, there have been growing uncertainties over geopolitical factors, particularly the situation surrounding Ukraine.

Under these circumstances, there is a risk that the price of commodities, including grain, will rise or remain high for a prolonged period, which could cause further downward pressure on the global economy, especially the euro area.

In particular, Germany, which has been leading the euro area economy for many years, is expected to pay a large price for having to break away from a value chain that is mainly dependent on Russia.

Thus, I am carefully monitoring developments regarding this matter, including its effects on Europe as a whole.The third factor I am particularly attentive to is developments in overseas economic activity and prices and in global financial and capital markets.

Amid a continued rise in inflation, mainly in advanced economies, central banks have been raising policy rates significantly.

Central banks in the United States and Europe seem to be prioritizing the containment of inflation even at the risk of some degree of economic slowdown.

However, there is concern in global financial and capital markets over whether it is possible to contain inflation and avoid a recession simultaneously.

If such concern grows substantially, there is a risk that financial

conditions

will

tighten

further

globally

through

adjustments

in

asset

prices

and foreign exchange rates, and through capital outflows from emerging economies.

There is also a risk that this will lead to a significant slowdown in overseas economies.

I am thereforepaying due attention to developments in financial and foreign exchange markets and their impact on economic activity, prices, and wages in Japan.

## II.

Conduct of Monetary PolicyLet me now turn to my basic view on the conduct of monetary policy for the immediate future, based on the economic and price developments I have just described.

In view of Japan's present economic conditions, I consider it necessary for the Bank of Japan to persistently continue with the current powerful monetary easing.

Here are three major reasons.The first reason is that Japan's economy is still on its way to recovery from the downturn caused by COVID-19.

Although exports and private consumption in particular have been picking up, Japan's real GDP has not yet recovered to the pre-pandemic 2019 average level, unlike in the United States and the euro area (Chart 3).

The output gap, which captures the utilization of labor and capital, has been consistently negative since the April-June quarter of 2020 (Chart 4).

As demand remains insufficient compared with supply capacity, a shift in the direction of monetary policy toward tightening would likely drag down the economy and put significant downward pressure on the economic activity of firms and households.The second reason is that the current price rises in Japan and those in the United States and Europe differ considerably in terms of degree and the number of items.

Comparing price developments in Japan with those abroad shows a significant difference: the year-on-year rate of change in consumer prices for all items exceeds 8 percent in the United States and Europe, while the rate of change in core CPI in Japan is 2.4 percent (Chart 5).

The breakdown of price change

distributions

by

item

indicates

that

in

the

United

States

and

Europe,

where

the economies recovered from the downturn caused by COVID-19 earlier than Japan, prices have risen significantly for a wide range of items, including services.

In Japan on the other hand, a limited number of items such as energy and food are the main contributors to price rises, and the rate of increase in the price of many items, including services, remains low, suggesting that the country is experiencing only imported inflation (Chart 6).

This difference is likely due to the disparity in wage inflation.

In the United States and Europe, economic recovery from the downturn caused by the pandemic was accompanied by significant upward pressure on wages.

In Japan, however, wage inflation remains low because the level of economicactivity is still on its way to recovery and wage increases have been suppressed by structural challenges

that

I

will

discuss

later.

In

the

current

situation,

where

cost-push

factors

from imported goods have resulted in significant price rises for only certain items, I believe that targeted policy action is more effective than monetary policy aimed at reducing aggregate demand.The third reason I consider it necessary for the Bank to persistently continue with the current powerful monetary easing is that the 2 percent price stability target needs to be achieved in a sustainable

and

stable

manner.

The

year-on-year

rate

of

change

in

core

CPI

is

likely

to increase toward the end of 2022 due to rises in the price of such items as energy, food, and durable goods.

However, the positive contribution of the rise in energy prices to the CPI is likely to dissipate thereafter.

Thus, my current assessment is that it is difficult for the price stability target to be achieved in a sustainable and stable manner.

Specifically, the year-onyear rate of increase in core CPI is projected to decline to the 1.0-1.5 percent range from fiscal 2023 onward, according to the median of the Policy Board members' forecasts presented in the July 2022 Outlook for Economic Activity and Prices (Outlook Report) (Chart 7).

As the 2 percent

price

stability

target

is

a

key

performance

indicator

whose

progress

should

be monitored continuously to realize the sound development of the national economy, I would like

to

emphasize

the

importance

of

core

CPI

becoming

2

percent

in

a

stable

manner, accompanied by a sustainable rise in wages; it is not enough for core CPI to reach 2 percent temporarily due to such factors as a rise in energy prices.

Even if the higher price of some items pushes up the overall price level to 2 percent, unless household disposable income increases, spending on products and services will decline due to budget constraints.

This will lead to a vicious cycle in which rises in overall prices will be restrained and economic activity will be sluggish, thereby putting downward pressure on wages.

Thus, Japan's economy is only halfway to achieving the price stability target.Taking these three points into particular account, I consider that the Bank should continue with

the

current

monetary

easing

at

this

point.

At

the

same

time,

as

inflation

progresses globally, I have a feeling that there has been a change in the entrenched views and practices in Japan that are based on the assumption that prices will not increase.

Inflation is a common economic phenomenon in the world, and nominal wages should grow faster than inflationwhen labor productivity improves.

However, prices in Japan have barely increased over the past 30 years.

Thus, even if firms could not raise wages, employees did not typically leave to take another job, as I will elaborate later (Chart 8).

Meanwhile, there is now less room to increase the labor force participation of the elderly and women, and labor shortages have become more severe (Chart 9).

In this situation, wage growth becomes increasingly important for firms to secure their workforce, forcing them to face the strategic challenges of increasing productivity and thereby raising labor compensation.

To address these challenges, both small and medium-sized firms and large firms are expected to operate a virtuous cycle in which they increase the value added and competitiveness of their products and services and raise their prices, thereby securing resources for wage growth.A survey by the Japanese Trade Union Confederation, or Rengo, shows that the average rate of increase in wages, i.e., increases in base pay and regular salaries combined, for fiscal 2022 is 2.07 percent, suggesting that wage growth both at large firms and at small and mediumsized

firms

exceeds

that

of

the

previous

fiscal

year.

Earlier

this

month,

a

labor

ministry advisory panel put forward a proposal to raise the nation's average hourly minimum wage for the current fiscal year by 31 yen, or 3.3 percent, which would be a record increase.

Meanwhile, a survey targeting large firms conducted by the Japan Business Federation, or Keidanren, indicates that summer bonuses have increased by more than 8 percent.

All these demonstrate that

wage

increases

have

started

to

be

widely

observed,

reflecting

the

pick-up

in

overall economic activity while labor shortages continue.It is essential that such wage inflation be realized not only this year but also from next year onward in a sustainable manner.

Thus, the key is how bonuses for this winter and wage revisions for the next fiscal year will turn out.

To realize wage growth, it is necessary to strike a balance between the protection of public health and the reopening of economic activity at the earliest possible time, thereby enabling the economy to recover from the downturn caused by

COVID-19.

Meanwhile,

Japanese

firms

need

to

reform

their

business

lines

to

fit

the business

environment

that

has

changed

dramatically

due

to

the

pandemic.

The

Bank

is committed to continuing to support firms' initiatives through the current monetary easing.

## III.

Toward Achieving Sustainable Growth of Japan's EconomyAchieving the 2 percent price stability target calls for a sustainable and stable increase in household disposable income, mainly by means of higher wages.

This gives rise to a virtuous cycle:

Higher

disposable income

underpins

greater

household

spending,

which

represents final demand, which then feeds into an expansion in corporate sales and profits.

Firms draw on the funds generated by greater sales and profits and on leverage arising from such means as cash borrowing for investments aimed at enhancing their added value.

Firms that increase the value of their products, services, and labor reflect this in selling prices, and then grow by acquiring the resources needed for further wage increases and investments (Chart 10 gives a simplified representation).However, international comparisons show that, since the first half of the 1990s, household disposable income has more than tripled in the United States and about doubled in Germany, but it has hardly increased in Japan (Chart 11).

I would like to share my views on the three dynamisms necessary to break out of this stagnation in disposable income, based on my own experience at a private firm.

## A.

Dynamism of Japanese FirmsMy first

point

is

about

the

dynamism

of

firms.

Many

Japanese

firms

long

wrestled

with declining profitability and a deterioration in business performance.

This stems from several factors,

including

the

yen's

sharp

appreciation

following

the

1985

Plaza Accord

and

the bursting of the bubble economy in the early 1990s, coupled with the higher price of imported raw materials brought about by overseas economic growth and with the inflow of low-priced goods from developing economies.

At the same time, firms faced strong social pressure in Japan to maintain employment.

They responded by overhauling their cost structure, cutting fixed expenses, such as personnel expenses -- including wages and "investment in people" -and

research

and

development

(R&D)

expenses,

all

the

while

maintaining

their

existing business portfolios.

This gave rise to excessive competition among firms in Japan and waning profitability and growth potential.

Meanwhile, from 2008, firms' entry rates were in the range of 4-6 percent and exit rates were almost constantly below 4 percent.

Thus, both entry and exit

rates

remained

low

vis-à-vis

international

levels

(Chart

12).

This

situation

points

tolimited corporate metabolism, in terms of the redistribution of resources through the entry into and exit from businesses.This dearth of corporate dynamism, coupled with the onset of deflation in the latter half of the 1990s, seems to have precipitated sluggish growth in productivity and wages stemming from a lack of innovation and investment.

In other words, in a deflationary environment where prices continue to fall, firms find it more difficult to make aggressive investment that carries risks because the expected rate of return on investment declines.

Firms therefore put priority on securing profits and cash flow by cutting costs.

Meanwhile, under slow corporate metabolism and the traditional practice of lifetime employment, if a firm were to go bankrupt and employees lost their jobs, their biggest worry is finding a new job.

As a result, employees seek stability of employment over higher wages.

This situation makes it possible to prioritize the

survival

of

a

business

in

the

short

term,

but

as

the

global

competition

becomes

more intense, overseas economies are growing in tandem with firms' efforts to increase the added value of their products and services, with wages and prices following suit.

Unless firms in Japan increase the added value of their products and services as well, both firms' and their employees' capacity to generate earnings will gradually weaken.The bold monetary easing and flexible fiscal policy pursued since 2013 have served to arrest the deflationary trend.

Firms have also begun realigning their business portfolios in an effort to identify and concentrate on their core competencies.

For example, firms have consolidated less productive businesses under their best owners (companies that are expected to maximize the

value

of

the

business

over

the

medium

to

long

term)

through

merger

and

acquisition (M&A) activities.

However, just as recovery was getting under way, COVID-19 broke out and

Japan's

economy

once

again

registered

negative

growth.

Now

that

the

economy

is recovering

from

the

worst

of

the

pandemic,

global

inflationary

pressures

have

increased.

While firms in the United States and Europe have made headway in passing on costs to prices and increasing wages, those in Japan have made relatively limited progress in passing on costs (Chart 13).

Sluggish growth potential and wage inflation have thus materialized (Charts 1 and 11).

This has given rise to a growing awareness among management or business owners that an increase in the added value of products and services and investment in people for that purpose, including raising wages, are critical strategic challenges for business growth.

Myhope is that, alongside the growth of startups that create and foster innovation, these recent developments will revive the dynamism of Japanese firms and lead to the sustainable growth of Japan's economy.

## B.

Dynamism of EmploymentMy second point concerns the dynamism of employment.

Many analyses have shown that in the

United

States

and

Europe,

the

redistribution

of

resources,

including

labor

mobility between industries and firms, has moved ahead since the outbreak of COVID-19, and that this has contributed to greater labor productivity. 1 By contrast, it seems that Japan to date has not shown similar signs of a full-fledged resource redistribution.

According to an analysis by the

Bank's

staff, 2 resource

redistribution

between

industries

has

made

only

a

very

slight contribution to boosting real labor productivity, even after the onset of the pandemic (Chart 14).

Moreover, the proportion of people changing jobs versus all employed persons is around 4 percent, and that of people changing jobs between regular employment versus all employed persons is only around 1 percent (Chart 15).

In contrast, the proportion of people changing jobs in the United States and Europe ranges between around 10 to 20 percent (Chart 16).Differences

in

the

extent

of

resource

redistribution

through

such

job

changes

and

other avenues,

and

in

the

ensuing

pace

of

improvement

in

labor

productivity,

could

also

be engendering differences in wage inflation.

In the United States, the wages of people who have not changed jobs have been rising together with the wages of those who have (Chart 17).

Even in the United States and Europe, although people who change jobs in pursuit of higher wages represent only a part of total employees, in my view, the fear that employees might migrate

to

other

firms

has

spurred

management

or

business

owners

to

work

to

boost productivity

and

improve

employee

pay

and

benefits.

Also,

under

job-based

employment contracts that tie wages to the evaluation of individual ability, the stronger capabilities of workers themselves may be pushing labor productivity upward.

I suspect this is having a spillover effect even on the wages of people who have not changed jobs.1

For details, see Yagi, T., Furukawa, K., and Nakajima, J., "Productivity Trends in Japan: Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era," Bank of Japan Working Paper Series , No. 22-E-10, July 2022.2

See footnote 1 above.To bring about a more active redistribution of resources by means of job changes and other avenues, economic recovery from the downturn caused by the pandemic will be vital, as well as business growth driven by the revival of corporate dynamism.

At the same time, I believe institutional

improvements

are

needed,

including

developing

a

social

safety

net

that encourages a positive approach to taking on challenges and a social security system that is sustainable and does not disadvantage those who change jobs.I believe that, in Japan, "investment in people" used to be considered a labor cost rather than an investment in the intangible asset of human capital.

To build momentum in which wages continue to rise year after year, revitalizing such investment will be crucial, though it is an area where Japan falls far behind the United States and Europe (Chart 18).

As dynamism in employment emerges and firms turn to more active investment in human capital, I expect this to strengthen the added-value output of individuals, and in turn that of firms, thus accelerating the virtuous cycle of income and prices.

## C.

Dynamism of Household Financial AssetsThe

third

point

necessary

to

increase

household

disposable

income

is

the

dynamism

of household financial assets.

Although household financial assets in Japan have grown to more than

2,000

trillion

yen,

a

breakdown

of

those

assets

shows

that

growth

in

equity

and investment trusts has been lackluster.

As of the end of March 1992, after the bursting of the bubble economy, Japan's share of holdings of equity and investment trusts within overall household

financial

assets

was

15

percent,

and

in

the

United

States

it

was

37

percent.

However, as of the end of March 2021, a wider gap has formed, with the share at 15 percent in Japan and 51 percent in the United States 3 (Chart 19).

Reflecting this trend, growth in household dividend income in Japan has been more or less flat since the early 1990s.

In the United States and Germany, meanwhile, both employee income and dividend income are contributing to an increase in disposable income (Chart 11).3

Data were obtained relating to the percentage ratio of equity and investment trusts of household financial assets.

Data for Japan are from Japan's Flow of Funds Accounts released by the Bank of Japan, and those for the United States are from the Financial Accounts of the United States released by the Federal Reserve.

When comparing Japanese and U.S. data, it is necessary to take into account such factors as the difference in definitions of household assets and financial assets between the two countries.Firms are not only places that provide employment and wages but also vehicles for creating added

value.

Although

employee

income

accounts

for

the

bulk

of

household

disposable income in Japan, most people can only work for a single employer.

Therefore, to reap the benefits of the growth of many firms outside their own places of work, including that of listed firms, people have to invest.

If the trend of stable asset formation -- through the investment of surplus funds in financial assets focusing on the long term, on risk diversification, and on regular contributions -- gains traction, it will bring dynamism to household financial assets.

This development will give more depth to disposable income in Japan and as a result, Japan's economy

can

expect

more

robust

private

consumption

to

help

close

the

macroeconomic output gap and further boost corporate activities.

With institutional support already available, such as the Nippon Individual Savings Account (NISA) and iDeCo pension plans, there is growing

interest

in

investment

trusts,

especially

among

young

people.

Moreover,

the Japanese government's Council of New Form of Capitalism Realization has announced its intention

to

formulate

a

plan

to

double

asset

income

in

Japan.

I

look

forward

to

these developments gaining momentum.As has been illustrated, I expect the virtuous cycle of income and prices to be reinforced as the

dynamism

of

firms

and

employment

spurs

corporate

growth,

while

the

dynamism

of employment

and

household

financial

assets

stimulates

a

rise

in

household

income.

By providing accommodative financial conditions to persistently support these developments, I believe Japan's economy will approach the realization of the 2 percent price stability target, which will in turn lead to its sound development.Thank you.

## Economic Activity, Prices, and Monetary Policy in JapanSpeech at a Meeting with Local Leaders in FukuokaAugust 25, 2022NAKAMURA Toyoaki Member of the Policy Board Bank of JapanChart 1IMF Projections in the World Economic Outlook (July 2022)Source: International Monetary Fund (IMF).

## CPI (Less Fresh Food)Notes: 1.Figures for energy are those for petroleum products, electricity, and manufactured and piped gas charges.2.

Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020.Source: Ministry of Internal Affairs and Communications.Chart 3Euro AreaReal GDPJapanSources: Cabinet Office; Haver.United States

## Output GapDevelopments sinceChart 5

## Consumer PricesNotes: 1.

Figures for services include administered prices.2.

Figures for temporary factors for Japan are Bank staff estimates and consist of the effects of the reduction in mobile phone charges, the consumption tax hike, free education policies, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses.3.

Figures in angular brackets show the share of each component.

Figures for temporary factors for Japan include mobile phone charges (weight: 3%).4.

Figures for 2022/Q3 are those for July.Sources: Haver; Ministry of Internal Affairs and Communications.

## Price Change DistributionsSources: Eurostat; Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics (BLS).Chart 7

## Forecasts of the Majority of the Policy Board Membersy/y% chg.|

| Real GDP

| CPI (all items less fresh food)

| (Reference) CPI (all items less fresh food and energy)

||------------------------------|----------------------------|-----------------------------------|----------------------------------------------------------|| Fiscal 2022

| ＋ 2.2 to +2.5 [ ＋ 2.4]

| ＋ 2.2 to ＋ 2.4 [ ＋ 2.3]

| ＋ 1.2 to ＋ 1.4 [ ＋ 1.3]

|| Forecasts made in April 2022 | ＋ 2.6 to ＋ 3.0 [ ＋ 2.9] | ＋ 1.8 to ＋ 2.0 [ ＋ 1.9]

| ＋ 0.8 to ＋ 1.0 [ ＋ 0.9]

|| Fiscal 2023

| ＋ 1.7 to ＋ 2.1 [ ＋ 2.0] | ＋ 1.2 to ＋ 1.5 [ ＋ 1.4]

| ＋ 1.2 to ＋ 1.4 [ ＋ 1.4]

|| Forecasts made in April 2022 | ＋ 1.5 to ＋ 2.1 [ ＋ 1.9] | ＋ 0.9 to ＋ 1.3 [ ＋ 1.1]

| ＋ 1.1 to ＋ 1.3 [ ＋ 1.2]

|| Fiscal 2024

| ＋ 1.1 to ＋ 1.5 [ ＋ 1.3] | ＋ 1.1 to ＋ 1.5 [ ＋ 1.3]

| ＋ 1.4 to ＋ 1.7 [ ＋ 1.5]

|| Forecasts made in April 2022 | ＋ 1.1 to ＋ 1.3 [ ＋ 1.1] | ＋ 1.0 to ＋ 1.3 [ ＋ 1.1]

| ＋ 1.2 to ＋ 1.5 [ ＋ 1.5]

|Notes: 1.

Figures in brackets indicate the median of the Policy Board members' forecasts (point estimates).2.

The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which they attach the highest probability of realization.

These forecasts are then shown as a range, with the highest figure and the lowest figure excluded.

The range does not indicate the forecast errors.3.

Each Policy Board member makes their forecasts taking into account the effects of past policy decisions and with reference to views incorporated in financial markets regarding the future conduct of policy.

## Prices and WagesNotes: 1.

For hourly scheduled cash earnings, Q1=March-May, Q2=June-August, Q3=September-November, and Q4=DecemberFebruary.

Figures are for full-time and part time employees before fiscal 1994 and for full-time employees thereafter.2.

The CPI figures are Bank staff estimates and exclude the effects of the decline in mobile phone charges, consumption tax hikes, free education policies, and the "Go to Travel" campaign.Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications.Chart 9

## Real GDP and Number of Persons Employed

## Decomposition of Change in Real GDP GrowthNumber of Persons EmployedSources: Cabinet Office; Ministry of Internal Affairs and Communications.

## Growth of Japan's Economy through a Virtuous Cycle of Corporate Activity and Household Disposable IncomeChart 11

## Household Disposable IncomeNotes: 1.

Figures for Japan before 1994 are calculated using year-on-year changes in each item in the 2000 System of National Accounts . 2.

Figures for interest income and dividend income in Germany are "other interests, rents" and "distributed income of corporations," respectively.Sources: Bureau of Economic Analysis (BEA); Cabinet Office; Statistisches Bundesamt.

## International Comparison of Entry and Exit RatesEntry RateExit RateNote: Figures for Japan are on a fiscal-year basis.Sources: Eurostat; Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency; U.K. Office for National Statistics; U.S. Census Bureau.Chart 13Final Demand-Intermediate Demand (FD-ID) Price Indexes (All Commodities)Note: The indexes divide demand into the final demand stage and four stages of intermediate demand based on the Input-Output Tables for Japan.

The prices of goods and services are then aggregated according to the stage to which they belong to compile the FD index and the ID indexes for stages 1 to 4, ranging from the most upstream to the downstream stages of the production process.Source: Bank of Japan.

## Decomposition of Real Labor ProductivityNote: Real labor productivity is calculated as productivity per hour worked.

The left panel is based on the Cabinet Office's System of National Accounts .

The right panel is based on the Ministry of Finance's Financial Statements Statistics of Corporations by Industry, Quarterly .Source: Yagi, T., Furukawa, K., and Nakajima, J., "Productivity Trends in Japan: Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era," Bank of Japan Working Paper Series , No. 22-E-10, July 2022.Chart 15

## Labor Mobility in JapanNote: Job changers are employees who have left their previous job in the past year and are currently employed. "Employed→Unemployed" refers to those who have left employment in the past year and are not currently employed.Source: Ministry of Internal Affairs and Communications.

## Labor Mobility in Europe and the United States (as of 2019)- Notes: 1.

Figures for Europe are percentages of those whose employment status has changed from the previous year relative to the number of all employed persons.

Non-employment refers to the status of being unemployed or not being in the labor force.

Figures for Norway are based on data for 2018.2.

Figures for the United States are percentages of those whose employment status has changed from the previous quarter relative to the number of all employed persons.

Non-employment refers to non-employment that has lasted for more than one quarter.

Quarterly average is the average of four quarters.

Annual estimate is the cumulative total of four quarters.Source: Causa, O., Luu, N., and Abendschein, M., "Labour market transitions across OECD countries: Stylised facts," OECD Economics Department Working Papers , No.1692, 2021.Chart 17

## Wages of Job Changers/Stayers in the United StatesNote: Figures are hourly data of 12-month moving averages of median wage growth.Source: Federal Reserve Bank of Atlanta.

## Ratio of Firms' Vocational Training Costs to GDPNote: Figures are estimated by Professor MIYAGAWA Tsutomu (Gakushuin University) based on the System of National Accounts of the Cabinet Office, JIP Database, and INTAN-Invest Database.Source: Ministry of Health, Labour and Welfare.

## Household Financial AssetsChart 19International Comparisonsああ2.

Also in the right panel, figures for the United States and the euro area are from "Flow of Funds: Overview of Japan, the United States and the Euro area," released by the Bank's Research and Statistics Department on August 20, 2021.