Junko Nakagawa: Economic activity, prices, and monetary policy in Japan
Central bank: boj | Type: speech | Date: 2025-04-17

Bank

of

JapanApril

17,

2 0 2 5

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

## NAKAGAWA JunkoMember of the Policy Board

## I.

Current Situation of Economic Activity and Prices

## A.

Current Economic Developments AbroadI

would

like

to

begin

my

speech

by taking

a

look

at the

current

situation

of

overseas economies (Chart 1).

Regarding global business sentiment, as of March 2025, the Purchasing Managers' Index (PMI) for the manufacturing industry has been at around 50 -- the breakeven point between improvement and deterioration -- and the PMI for the services industry has continued to improve.

In the January 2025 World Economic Outlook (WEO) Update , the International Monetary Fund (IMF) projected that the growth rate of the global economy would be in the range of 3.0-3.5 percent for both 2025 and 2026, which is broadly in line with the average growth rate since 1980.

The IMF will release the next quarterly update of the WEO this month, and attention is warranted on its assessment of the future path of trade policies in each jurisdiction and global developments in economic activity and prices affected by such policies.

## B.

Current Economic Developments in JapanI will now turn to the current situation of Japan's economy.

The Bank of Japan judges that the economy has recovered moderately, although some weakness has been seen in part.

It is necessary to pay attention to the fact that there are high uncertainties regarding trade policies in each jurisdiction and developments in overseas economic activity and prices affected by such policies.

I will come back to this later.In what follows, I would like to explain developments in Japan's economy from two aspects: the corporate sector and the household sector.

## 1.

Corporate sectorLet me start with the corporate sector (Chart 2).

Corporate profits have been on an improving trend on

the

whole.

The Financial

Statements

Statistics

of

Corporations

by

Industry, Quarterly shows that

current

profits for

all

industries

and

enterprises

for

the OctoberDecember quarter of 2024 reached their highest level since the April-June quarter of 1985, from when comparable data are available.

This reflects progress in the pass-through of cost increases to prices and the increase in non-operating profits due to the yen's depreciation in the October-December quarter.

The

Bank's March

2025 Tankan (Short-Term

EconomicSurvey of Enterprises in Japan) showed that business sentiment stayed at a favorable level.

Specifically, the diffusion index (DI) for business conditions has remained at a favorable level for

both

manufacturing

and

nonmanufacturing:

although firms have

faced

a

rise

in

raw material

and

input

prices, labor

shortages, and a

rise

in

personnel

expenses, they

have benefited from favorable demand related to business fixed investment and from solid private consumption.Now I will touch on business fixed investment (Chart 3).

With corporate profits improving, business

fixed

investment

has

continued

on

a

moderate

increasing

trend,

mainly

led

by digital- and labor saving-related investments at home.

The aggregate supply of capital goods -- a coincident indicator of machinery investment -- has increased with a continued recovery in demand for IT-related goods, although sluggish external demand has pushed down renewal investment.

Regarding

construction

investment,

private

construction

completed has

been more or less flat, partly because investments have been delayed reflecting factors such as high construction material prices and labor shortages.

That said, a leading indicator of construction investment has been at a relatively high level, mainly because the construction of logistics facilities,

urban

redevelopment

projects,

and the establishment

of

new

factories have all remained active.

Business fixed investment plans in the March 2025 Tankan indicated that the year-on-year rate of increase in investment would be relatively high at 8.2 percent for fiscal 2024.

They also showed a year-on-year rate of increase of 2.7 percent for fiscal 2025, suggesting a high increase compared with the average of past surveys for March, the month before the start of a new fiscal year.Turning to industrial production, exports, and imports, the Bank judges that they have all been more or less flat (Chart 4).

Looking at the latest developments, industrial production increased for

the October-December quarter

of

2024, reflecting (1) a dissipation

of

the

effects

of automakers suspending operations at factories in the previous quarter due to the typhoon, and (2) a concentration of projects to manufacture semiconductor production equipment; however, industrial production has since declined

somewhat, mainly

reflecting a dissipation of the effects of the concentration of such projects.I will outline developments in real exports by region and by type of goods, based on data until February 2025 (Chart 5).

By region, exports to the United States increased and have been at relatively

high

levels, as the effects of

the

dockworkers

strike on

the

East

Coast have dissipated.

Some view that a front-loaded increase in demand prior to the U.S. tariff hike may have also affected some of these exports.

On the other hand, exports to Europe have been relatively weak, mainly for capital goods.

Exports to China have also been relatively weak against the background of a slowdown in the Chinese economy.

Exports to the NIEs, the ASEAN

economies,

and

some

other

Asian

economies

have increased,

particularly

for semiconductor-related goods.

By type of goods, exports of automobile-related goods have risen due to the dissipation of the effects of the dockworkers strike in the United States.

As for

exports

of

capital

goods,

those of

semiconductor

production

equipment have been at relatively

high

levels.

Although

exports

of

IT-related

goods

have been

firm, those of intermediate

goods --including

chemicals --have

been

at

relatively

low

levels,

mainly reflecting an oversupply of such goods, particularly in Asia.

## 2.

Household sectorI now turn to the household sector, focusing on private consumption and the employment and income situation.Private consumption has been on a moderate increasing trend to date despite the impact of price

rises (Chart

6).

The Consumption Activity Index, which is calculated by combining various

sales

and

supply-side

statistics,

has

continued

on

a

decreasing

trend,

mainly

for nondurable goods.

However, the Bank judges that private consumption thus far has been decent

in

reality.

This

is

evidenced

by

the

fact

that

services

consumption

has

increased moderately as a trend, and also suggested by, for example, anecdotal information from firms and high-frequency data such as on credit card spending.The

employment

and

income

situation

has

improved

moderately.

Chart

7 shows

that the number of employed persons has continued to rise.

In the left panel of this chart, the calendar year 2019, the year before the outbreak of the pandemic in Japan, is used as the base year for the

number

of

regular

employees

and

non-regular

employees.

The

number

of

regular employees has been on a moderate uptrend, albeit with fluctuations, mainly in the informationand communications industry and the medical, healthcare, and welfare services industry, both of which have been facing severe labor shortages.

The number of non-regular employees overall has been more or less flat: while the number of non-regular employees in industries such as face-to-face services has been on an increasing trend, the number of involuntary nonregular employees has been on a declining trend with labor market conditions tightening.

Nominal wages per employee have shown a clear increase, partly reflecting the improving trend in corporate profits.

In addition, the year-on-year rate of increase in scheduled cash earnings has remained at a relatively high level (Chart 8).

In light of the employment and wage developments mentioned so far, employee income -- which is the total amount of wages earned by all employees -- has continued to see a clear year-on-year increase in nominal terms, and

in

real

terms, the

rate

of

change

in

employee

income

has

been

positive

recently.

Furthermore, the 2025 annual spring labor-management wage negotiations provide positive signs: the third provisional aggregate results of wage negotiations compiled by the Japanese Trade Union Confederation (Rengo) show that the year-on-year rate of increase in wages agreed in the negotiations is an average of 5.42 percent, and that for unions with less than 300 members also stands at 5 percent, both following the high levels for 2024.

## C.

Current Price Developments in JapanNext, I would like to talk about current price developments in Japan (Chart 9).Looking at recent data, the year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food has been in the range of 3.0-3.5 percent, and the increase in the CPI for all items excluding fresh food and energy has been in the range of 2.5-3.0 percent.

The increase in the producer price index (PPI) has been in the range of 4.0-4.5 percent.

The increase in the services producer price index (SPPI) has remained relatively high recently at around 3.0-3.5 percent.

Now let us take a look at the right panel of Chart 9, which shows the breakdown of the year-on-year rate of change in the CPI excluding fresh food, energy, and the effects of temporary factors.

Figures for the rate of increase in general services prices seem to have moderated, partly because the impact of the price survey of charges for package tours to overseas being resumed last year has dissipated.

On the other hand, the increase in goods prices has accelerated, due to a rise in rice prices and its spillover effects, and because moves to pass on higher costs -- such as increased personnel expenses and distribution costs-- to prices have been widely observed.

In addition, the rate of change in administered prices, which were less likely to move in the past, has been increasing.Let me now focus on factors affecting price developments (Chart 10).

The import price index on

a

contract

currency

basis

has

been

more

or

less

flat

since

2023,

after

it

decreased

in response to past developments in international commodity prices.

On the other

hand, the index on a yen basis has been significantly higher than the index on a contract currency basis.

Although commodity prices

have declined and the excessive depreciation of

the

yen

has subsided, firms' price revisions are still in progress; specifically, firms are in the midst of reflecting the impact of past developments in commodity prices and foreign exchange rates in the price

of

intermediate

and

final

products.

This

is

because some firms

have

been conducting the revisions carefully while gauging developments in demand and their clients' and consumers' reactions.Next, I would like to look at data that the Bank regularly releases as indicators used to capture the underlying trend in the CPI (Chart 11).

The trimmed mean of the year-on-year rate of increase in the CPI has been in the range of 2.0-2.5 percent, and the mode and the weighted median have both been in the range of 1-2 percent, all showing a recent resumption of an uptrend.

Chart 12 shows trends in the distribution of price changes for items that make up the CPI, specifically in the 25th-75th percentile band.

It reveals that, since April 2022, around three-quarters of items have experienced year-on-year price increases.

Although the median of the price change distribution is lower than the past peak, it has exceeded 2 percent, as more items have experienced high price rises recently.

Therefore, the median and the year-on-year rate of increase in the price of items in the 25th-75th percentile band both seem to be on an uptrend again.Given that the formation of inflation expectations in Japan is largely adaptive, the recent price environment has brought about a gradual rise in firms' and households' medium- to long-term inflation expectations.

## II.

Outlook for and Risks to Economic Activity and Prices

## A.

OutlookNow I would like to explain the Bank's outlook for Japan's economic activity and prices based on the Outlook for Economic Activity and Prices (Outlook Report) decided at the January 2025 Monetary Policy Meeting (MPM) (Chart 13).The real GDP growth rate is projected to be 0.5 percent for fiscal 2024, 1.1 percent for fiscal 2025, and 1.0 percent for fiscal 2026, in terms of the median of the Policy Board members' forecasts.The

background

for

the

real

GDP

projections

is

that

Japan's

economy

is

likely

to

keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies on the back of factors such as accommodative financial conditions.The year-on-year rate of change in the CPI for all items excluding fresh food is projected to be 2.7 percent for fiscal 2024, 2.4 percent for fiscal 2025, and 2.0 percent for fiscal 2026, in terms of the median of the Policy Board members' forecasts.

Likewise, the rate of change in the CPI for all items excluding fresh food and energy is projected to be 2.2 percent for fiscal 2024, and 2.1 percent for both fiscal 2025 and fiscal 2026.The CPI projections are based on expected positive contributions throughout fiscal 2025 from high levels of rice prices and the dissipation of some effects of the government's measures that have been pushing down inflation.

In the second half of the projection period -- in other words, toward the end of fiscal 2026 -- underlying inflation is likely to be around the 2 percent level,

which

is

generally

consistent

with

the

price

stability

target.

This

is

because

it

is projected that, with labor market conditions remaining tight, the output gap will continue to improve, wages and prices will continue to increase, and medium- to long-term inflation expectations will also rise.

## B.

RisksThere are high uncertainties regarding this outlook for economic activity and prices.

I will describe three risk factors to the outlook that I am paying attention to.The first risk involves growing uncertainties regarding tariffs and other policies in the United States and developments in overseas economies and global financial and capital markets.

One of

the

major

uncertainties

is

tariff

policies,

which

could

affect

Japan's

economy

through various channels.

Specifically, they may have a direct impact on global trade activity and on Japanese firms' exports, production, sales, fixed investment, and profits.

There could also be an impact on Japan's real economy and prices, as growing uncertainties regarding tariffs and other

policies could

affect

business

and

household

sentiment

at

home

and

abroad.

If commodity prices and global financial and capital markets undergo excessive fluctuations and adjustments, this may exert even stronger downward pressure on Japan's economy.

Since the extent of the impact largely depends on the future course of tariff policies, it is necessary to monitor developments with high vigilance.The second risk concerns firms' wage- and price-setting behavior.

The sustained inflation seen thus far has brought about a rise in households' and firms' medium- to long-term inflation expectations, and firms' behavior has shifted more toward raising wages and prices.

Apart from the potential impact of trade policy that I mentioned in the first risk, it is likely that firms' price revisions in response to past inflation are still in progress, as I explained earlier.

In this context, upward pressure on wages could intensify further with labor market conditions remaining tight, and moves to reflect the past inflation and higher wages in selling prices could strengthen to a greater extent than expected.The third risk is that a deterioration in consumer sentiment will disrupt the virtuous cycle from income to spending.

As I mentioned earlier, the Bank judges that private consumption has been on a moderate increasing trend, thanks to improvement in the income situation and the

effects

of

the

government's

measures

implemented

thus

far

to

address

rising

prices.

However, improvement in consumer sentiment has been seesawing, reflecting in part the climbing

rate

of

increase

in

the

price

of

food

and

other

everyday

goods.

Uncertainties concerning

tariff

policies,

the

employment

and

income

situation,

and

Japan's

economy,together with a potential further increase in households' defensiveness toward spending due to price rises, may increasingly weigh on consumer sentiment and thereby push down the real economy.

## III.

The Bank's Conduct of Monetary PolicyI would now like to look back at the Bank's decisions made at the MPMs held in January and March 2025.With respect to the guideline for money market operations, at the January MPM, the Bank decided to raise the target for its policy interest rate, the uncollateralized overnight call rate, from

the

previous

level

of

"around

0.25

percent" to

"around

0.5

percent"

(Chart

14).

Accordingly, it also decided to change the interest rate applied to the complementary deposit facility and the basic loan rate applicable under the complementary lending facility, based on wage and price developments at the time of the January MPM.

Regarding wages, many firms had plans to continue raising wages steadily in the 2025 annual spring labor-management wage negotiations, following the solid wage increases in 2024.

On the price front, firms had been increasingly reflecting higher costs -- not only increased raw material costs but also higher personnel expenses and distribution costs -- in selling prices.

Based on the assessment that the likelihood of realizing its outlook for economic activity and prices had been rising, the

Bank

judged

it

appropriate

to

raise

the

policy

interest

rate

and

adjust

the

degree

of monetary accommodation from the perspective of sustainable and stable achievement of the 2 percent price stability target.At the March MPM, the Bank decided to maintain its guideline for money market operations.

There

were

high

uncertainties

about

(1)

the

evolving

situation

regarding

trade

and

other policies in each jurisdiction and (2) economic activity and prices at home and abroad under such a situation.

That said, the Bank judged that Japan's economic activity and prices had been

developing

generally

in

line

with

its

outlook,

given

factors

such

as

the

preliminary results of the 2025 annual spring labor-management wage negotiations available at the time of the March MPM.

Nevertheless, the Bank deemed that it needed time to assess the impact of changes in the policy interest rate decided in January and earlier.Considering the current levels of real interest rates, the future conduct of monetary policy will depend on developments in economic activity and prices as well as financial conditions.

That said, if its outlook for economic activity and prices is realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.

At the MPM starting at the end of April, the Bank will release its projections for fiscal 2027 for the first time.

With uncertainties such as the impact of tariff policies being significantly high,

it

will

make

monetary

policy

decisions

as

appropriate

while

carefully

monitoring, without

any

preconceptions,

economic

and

price

developments

at

home

and

abroad

and financial market developments.Thank you.

## Economic Activity, Prices, and Monetary Policy in JapanSpeech at a Meeting with Local Leaders in GunmaApril 17, 2025

## NAKAGAWA Junko Member of the Policy Board Bank of Japan

## Overseas Economies

## Global PMINote: Figures for manufacturing are the J.P.Morgan Global Manufacturing PMI.Figures for services

are the J.P.Morgan Global Services

PMI Business Activity Index.

Source: Copyright

© 2025 by S&P Global Market Intelligence,

a division

of S&P Global Inc. All rights reserved.

## OutlookNote: Figures are the weighted

averages of real GDP growth rates using countries'

share in Japan's exports as weights.

The real GDP growth rates are compiled

by the IMF, and the rates from 2025 onward are its projections

in the October 2024 WEO and the January 2025 WEO Update .

Figures for advanced economies are those for the United States, the euro area, and the United Kingdom.

Figures for emerging

and commodity-exporting

economies are those for the rest of the world.Sources: IMF; Ministry of Finance.Chart 1

## Corporate Sector in Japan

## Corporate Profits

## Business ConditionsChart 3

## Corporate Sector in Japan

## Coincident Indicators of Business Fixed Investment

## Business Fixed Investment PlansNotes: 1.

The figure for domestic

shipments

and imports of capital goods for 2025/Q1 is the JanuaryFebruary average.

The figure for private construction

completed

for 2025/Q1 is that for January.2.

Figures for real private construction

completed

are based on Bank staff calculations

using the construction

cost deflators.Notes: 1.

Based on theTankan.

All industries

including financial institutions.2.

Figures include software and R&D investments but exclude land purchasing expenses.

R&D investment

is not covered as a survey item before the March 2017 survey.2.

Sources: Cabinet Office; Ministry of Economy,

Trade and Industry; Ministry of Land, Infrastructure, Transport and Tourism.3.

There are discontinuities

in the data for December 2021 and December 2023 due to changes in the survey sample.Source: Bank of Japan.

## Corporate Sector in Japan

## Industrial Production

## Real Exports and ImportsSource: Ministry of Economy,

Trade and Industry.Chart 5

## Corporate Sector in Japan

## Real Exports by Region

## Real Exports by Type of GoodsNotes: 1.

Based on Bank staff calculations.

Figures in angle brackets show the share of each country or region in Japan's total exports

in 2024.

Figures for 2025/Q1 are January-February averages.2.

Figures for the EU exclude those for the United Kingdom

for the entire period.Note: Based on Bank staff calculations.

Figures in angle brackets show the share of each type of goods in Japan's total exports in 2024.

Figures for 2025/Q1 are January-February averages.

Sources: Ministry of Finance; Bank of Japan.Sources: Ministry of Finance; Bank of Japan.

## Private Consumption in JapanChart 7

## Employment and Income Situation in Japan

## Number of Employed Persons

## Nominal Wages per EmployeeNote: Figures for regular employees and non-regular employees prior to 2013 are based on the "detailed tabulation" in the Labour Force Survey .

Figures for 2025/Q1 are January-February averages.

Source: Ministry of Internal Affairs and Communications.Notes: 1.

Q1 = March-May, Q2 = June-August, Q3 = September-November,

Q4 = December-February. 2.

Figures from 2016/Q1 onward are based on continuing

observations following the sample revisions.

Source: Ministry of Health, Labour and Welfare.

## Employment and Income Situation in Japan

## Scheduled Cash Earnings

## Employee IncomeNotes: 1.

Q1 = March-May, Q2 = June-August, Q3 = September-November,

Q4 = December-February.2.

Figures from 2016/Q1 onward are based on continuing observations following the sample revisions.Source: Ministry of Health, Labour and Welfare.- Notes: 1.

Q1 = March-May, Q2 = June-August, Q3 = September-November,

Q4 = December-February. 2.

Employee

income = Total cash earnings ( Monthly Labour Survey ) × Number of employees ( Labour Force Survey )3.

Figures from 2016/Q1 onward are based on continuing

observations following

the sample revisions

of the Monthly Labour Survey .4.

Figures for real employee

income are based on Bank staff calculations using the CPI (less

imputed rent).- Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications.Chart 9

## Inflation Indicators

## Inflation Indicators

## CPI (Excluding Temporary Factors)|

|

|

| y/y% chg.

| y/y% chg.

||-----------------------------|-------|-------|-------------|-------------||

| 24/Q2 | 24/Q3 | 24/Q4

| 25/Q1

|| CPI

|

|

|

|

|| Less fresh food

| 2.4

| 2.6

| 2.6

| 3.1

|| Excluding temporary factors | 2.4

| 2.8

| 2.8

| 3.2

|| Less fresh food and energy

| 2.2

| 2.0

| 2.3

| 2.6

|| Excluding temporary factors | 2.1

| 2.1

| 2.5

| 2.7

|| PPI

| 1.9

| 2.9

| 3.8

| 4.1

|| SPPI

| 2.8

| 3.0

| 3.2

| 3.2

|| GDP Deflator

| 3.1

| 2.4

| 2.9

|

|| Domestic demand deflator

| 2.6

| 2.2

| 2.4

|

|- Notes: 1.

Figures for the PPI are adjusted for the hike in electric power charges during the summer season.

Figures for the SPPI exclude international

transportation.2.

The CPI figures excluding

temporary factors are Bank staff estimates

and exclude the effects

of free education policies,

travel subsidy programs,

and mobile phone charges.3.

Figures for 2025/Q1 are January-February averages, except for the PPI.- Sources: Cabinet Office; Ministry of Internal Affairs and Communications;

Bank of Japan.CY- Notes: 1. "Administered

prices (less energy)" consists

of public services

and water charges. 2.

The CPI figures are Bank staff estimates

and exclude the effects

of the consumption

tax hike, free education policies,

travel subsidy programs,

and mobile phone charges.- Source: Ministry of Internal Affairs and Communications.

## Factors Affecting Consumer Prices

## International Commodity Prices

## Import Price IndexChart 11

## Measures of Underlying InflationCPI: Trimmed Mean etc.

## DI of Price ChangesNote: Based on Bank staff calculations using the CPI excluding the effects

of the consumption

tax hikes, free education policies,

and travel subsidy programs.

The CPI figures from April 2020 onward are Bank staff estimates

and exclude the effects

of measures such as free higher education.Sources: Ministry of Internal Affairs and Communications;

Bank of Japan.Note: The DI is defined

as the share of increasing

items minus the share of decreasing

items.

The share of increasing/decreasing

items is the share of items for which price indices

increased/decreased

from a year earlier.

Based on Bank staff calculations using the CPI (less fresh food) excluding

the effects

of the consumption

tax hikes, free education policies,

and travel subsidy programs.

The CPI figures from April 2020 onward are Bank staff estimates

and exclude the effects

of measures such as free higher education.Sources: Ministry of Internal Affairs and Communications;

Bank of Japan.

## Inflation Expectations

## Distribution of Actual Price Changes

## Survey Results and BEINote: Figures are based on the year-on-year

price changes for each CPI item.

Source: Ministry of Internal Affairs and Communications.estimated

using the modified

Carlson-Parkin method for a 5-choice question.2.

Figures for firms show the inflation outlook of enterprises

for general prices (all industries

and enterprises,

average) in the Tankan .3.

The BEI (break-even inflation)

rate is the quarterly average of the yield spread between

fixed-rate coupon-bearing

Japanese government

bonds (JGBs) and inflation-indexed

JGBs.

Figures from 2008/Q2 to 2013/Q4 are calculated using yield data for issue No. 16 of inflation-indexed

JGBs, which matured in June 2018.Sources: Bloomberg;

Bank of Japan.Chart 13

## Outlook for Economic Activity and Prices (as of January 2025)y/y % chg.|

| Real GDP

| CPI (all items less fresh food)

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

||--------------------------------|---------------------|-----------------------------------|----------------------------------------------------------|| Fiscal 2024

| +0.4 to +0.6 [+0.5] | +2.6 to +2.8 [+2.7]

| +2.1 to +2.3 [+2.2]

|| Forecasts made in October 2024 | +0.5 to +0.7 [+0.6] | +2.4 to +2.5 [+2.5]

| +1.9 to +2.1 [+2.0]

|| Fiscal 2025

| +0.9 to +1.1 [+1.1] | +2.2 to +2.6 [+2.4]

| +2.0 to +2.3 [+2.1]

|| Forecasts made in October 2024 | +1.0 to +1.2 [+1.1] | +1.7 to +2.1 [+1.9]

| +1.8 to +2.0 [+1.9]

|| Fiscal 2026

| +0.8 to +1.0 [+1.0] | +1.8 to +2.1 [+2.0]

| +1.9 to +2.2 [+2.1]

|| Forecasts made in October 2024 | +0.8 to +1.1 [+1.0] | +1.8 to +2.0 [+1.9]

| +1.9 to +2.2 [+2.1]

|Note: Figures in brackets indicate the medians

of the Policy Board members' forecasts

(point estimates).

Source: Bank of Japan.,

## Decision at the January 2025 MPMJapan's economic activity and prices have been developing generally in line with the Bank's outlook , and the likelihood of realizing the outlook has been rising .Medians of the Policy Board Members' Forecasts (y/y % chg.)

## Wages|

|

| Fiscal 2024

| Fiscal 2025

| Fiscal 2026

||---------------------------------|--------------------------------------------|---------------|---------------|---------------|| Real GDP

| Real GDP

| 0.5 (-0.1)

| 1.1 (-)

| 1.0 (-)

|| CPI (all items less fresh food) | CPI (all items less fresh food)

| 2.7 (+0.2)

| 2.4 (+0.5)

| 2.0 (+0.1)

||

| CPI (all items less fresh food and energy) | 2.2 (+0.2)

| 2.1 (+0.2)

| 2.1 (-)

|-  Firms have expressed the view that they will continue to raise wages steadily , following the solid wage increases last year.Prices-  With wages continuing to rise, underlying CPI inflation has been increasing gradually toward 2 percent .-  CPI inflation is likely to be at around 2.5 percent for fiscal 2025, due to the higher import prices stemming from the yen's depreciation etc.

## Overseas economiesNote: Figures in parentheses indicate changes from the October 2024 Outlook Report.-  Global financial and capital markets have been stable on the whole , while attention has been drawn to various uncertainties.Adjusting the degree of monetary accommodation from the perspective of sustainable and stable achievement of the price stability target of 2 percent

## Short-term interest rate raised to "around 0.5%" :(uncollateralized overnight call rate)(previously "around 0.25%")-  Real interest rates are expected to remain significantly negative, and accommodative financial conditions will continue to firmly support economic activity .-  If the outlook presented in the January Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.