J u n e 1 , 2 0 2 2
Bank of Japan
Japan's Economy and Monetary Policy
Speech at a Meeting with Local Leaders in Okayama
WAKATABE Masazumi
Deputy Governor of the Bank of Japan
Introduction
Good morning. It is a great pleasure for me to meet with local leaders in Okayama
Prefecture today. This is my first meeting with local leaders in two years and
face-to-face
four months. This year marks the 100th anniversary of the establishment of the Okayama
Branch of the Bank of Japan. It is an honor to hold this meeting in such a momentous year. I
would like to express my deepest gratitude for the great support provided for the branch's
activities over the past 100 years. I would also like to ask for continued support over the
next 100 years.
I will begin my speech by describing the current situation of the global and Japanese
economies, followed by the conduct of monetary policy. In particular, I will examine
inflation, which has been a major topic recently, by making comparisons with the Great
Inflation to draw lessons for today. Lastly, I will talk about the current economic situation
and outlook for Okayama Prefecture.
I. Current Situation and Outlook for Economic Activity
A. Global Economy
I would like to start by talking about the global economy. The growth rate of the global
economy saw a substantial decline of 3.1 percent for 2020 due to the spread of the novel
coronavirus but registered high growth of 6.1 percent for 2021, mainly on the
(COVID-19)
back of the widespread vaccinations (Chart 1). The latest World Economic Outlook released
by the International Monetary Fund (IMF) shows that, although they are projected to
decelerate from the growth rate for 2021, the global economic growth rates for both 2022
and 2023 are expected to be 3.6 percent, staying at around the average. However,
long-term
this outlook entails high uncertainties, and the following three factors warrant particular
attention.
The first is heightened geopolitical risks as a result of Russia's invasion of Ukraine (Chart
2). Since Russia and Ukraine together only account for about 2 percent of the global GDP,
the direct impact of these countries' economic downturns on the global economy is limited.
That said, in terms of their export shares in commodities, Russia accounts for 12 percent
and 19 percent of global exports of crude oil and natural gas, respectively. In addition,
Russia and Ukraine together export around 25 percent of the world's wheat. As it has been
viewed in the market that factors such as economic sanctions imposed on Russia will lead to
a decline in the supply of these commodities and grains, international commodity prices
have risen significantly of late. It should be noted, however, that the impact of this rise on
the economy differs considerably between countries that export commodities and those that
import them. That is, for commodity importers like Japan and Europe, the rise in
international commodity prices leads to an outflow of income to
commodity-exporting
countries in the form of deterioration in the trade balance (Chart 3). This puts downward
pressure on domestic demand of countries through deterioration in
commodity-importing
households' real income and corporate profits. On the other hand, unlike in the past, the rise
in commodity prices does not have a negative impact on the United States, which has
become the world's top oil producer as a result of the shale revolution.
The second factor is the impact of In the United States and Europe, economic
COVID-19.
activities have been normalizing
as approaches to living with COVID-19 have been taken,
but in countries where strict restrictions have been imposed, the economies have remained
under considerable downward pressure from In particular, China has continued
COVID-19.
to take the strategy, and it decided to impose lockdowns on large
so-called zero-COVID
cities such as Shanghai, reflecting the spread of highly contagious variants. This has not
only pushed down the Chinese economy; its adverse impact has also spilled over to the
global trade and production activities, including in Japan, through disruptions in distribution
networks and supply chains.
The third factor is the impact of the reduction in monetary accommodation in advanced
economies facing a continued rise in inflation on global financial and capital markets and
the global economy. In particular, the Federal Reserve raised its policy interest rate by 0.25
percentage points in March and 0.5 percentage points in May, and it has been
communicating that ongoing increases in the rate will be necessary to curb elevated
inflation. It has also started reducing the size of its balance sheet. Under these
circumstances, it is necessary to pay attention to downside risks to the global economy that
could be posed if global financial and capital markets become unstable through, for
example, global adjustment of stock prices and capital outflow from emerging economies.
B. Japan's Economy
Let me now turn to Japan's economy. It has picked up as a trend, although weakness has
been seen in part, mainly due to the impact of and the rise in commodity prices.
COVID-19
Its real GDP for the quarter of 2022 was minus 0.2 percent on a
January-March
basis, registering negative growth for the first time in two quarters (Chart
quarter-on-quarter
4). This is because business fixed investment and durable goods consumption were
constrained due to the effects of constraints such as semiconductor shortage,
supply-side
and because services consumption, including and travel, had been under
dining-out
increased downward pressure due to the spread of the Omicron variant. Thereafter, although
the effects of constraints on goods in particular have been
supply-side automobile-related
prolonged, due in part to the impact of lockdowns in China, private consumption has started
picking up again as downward pressure on services stemming from
face-to-face
restrictions has waned.
pandemic-related
For the time being, Japan's economy is likely to follow a recovery trend, with the impact of
and constraints waning and with support from accommodative
COVID-19 supply-side
1
for
The following paper argues the possibility of an economic recession in the United States:
Domash, A. and Summers, L. H., "How Tight Are U.S. Labor Markets?" NBER Working Paper, no.
29739, 2022. In the context of U.S. monetary policy, a so-called inverted yield curve, where 10-year
Treasury yields fell below 2-year yields, was observed at the beginning of this April. Given the rule
of thumb that a recession often follows such an inversion, some market participants pointed out that
now
the United States was more likely to enter a recession as a result of the rapid reduction in
monetary accommodation. Economists at the Federal Reserve, however, asserted that the spread
between short- and long-term yields contains considerable noise and is not valid as an independent
a
indicator of the probability of recession. They argued, rather, that the likelihood of a recession is
for
not necessarily high, given developments in alternative indicators that are less noisy, example.
For details, see Engstrom, E. C. and Sharpe, S. A., "(Don't Fear) The Yield Curve, Reprise," FEDS
Notes, March 25, 2022,
https://www.federalreserve.gov/econres/notes/feds-notes/dont-fear-the-yield-curve-reprise-20220325
.htm.
financial conditions and the government's economic measures, although it is expected to be
under downward pressure stemming from a rise in commodity prices. In terms of the
medians of the Policy Board members' forecasts, Japan's real GDP growth rate is expected
to be relatively high, at 2.9 percent for fiscal 2022, and then decelerate to 1.9 percent for
fiscal 2023 and 1.1 percent for fiscal 2024; thus, the economy is projected to continue
growing at a pace above its potential growth rate throughout the projection period.
As mentioned earlier, for commodity importers like Japan, a shock of rising commodity
prices puts downward pressure on income such as households' real income and corporate
--
profits through higher energy and food prices, and therefore would normally act to
--
constrain spending (Chart 5). In the current phase, however, it is expected that Japan's
economy will be resilient to this negative income shock, instead of falling into a vicious
cycle from income to spending. As the background to this, the government's economic
measures, such as gasoline subsidies and subsidies for households, are likely to
low-income
mitigate the negative impact on income. In addition, households and firms have
accumulated a large amount of "standby" funds during the pandemic, and this is expected to
support the materialization of demand.2 In sum, the baseline scenario is that Japan's
pent-up
economy is likely to continue recovering as the positive effects on spending associated with
a waning of the impact of and constraints are projected to outweigh
COVID-19 supply-side
the negative effects on income due to a rise in commodity prices. From the middle of the
projection period, as the negative impact of high commodity prices wanes at a gradual pace
and a virtuous cycle from income to spending intensifies gradually, Japan's economy is
projected to continue growing at a pace above its potential growth rate and underlying
upward pressure on wages and prices is expected to increase.
That said, this outlook is based on the assumption that, with the impact of and
COVID-19
constraints waning, firms' and households' growth expectations will increase
supply-side
moderately and their to inflation expectations will also rise. In other
medium- long-term
words, if the impact of COVID-19 and supply-side constraints becomes more prolonged
than expected and the two sets of expectations are pushed down, there is a risk that
"standby" funds will transform into precautionary savings to prepare for future uncertainties
and spending activity will not improve.
C. Price Developments in Japan
I will move on to price developments in Japan. The rate of change in the
year-on-year
consumer price index (CPI) for all items excluding fresh food rose from 0.8 percent for
March to 2.1 percent for April (Chart 6). On the surface, the rate of increase reached 2
percent. However, this primarily owes to rising energy prices, and the Bank does not
consider that it has achieved its price stability target in a sustainable and stable manner. The
rate of increase in the CPI is projected to be 1.9 percent for fiscal 2022 but
year-on-year
then decelerate as the positive contribution of a rise in energy prices wanes, registering 1.1
percent for both fiscal 2023 and fiscal 2024.
To understand the background to this outlook, it is crucial to make a distinction between
developments in individual prices and those in general prices. Statistically, a price index is
created by weighting the rates of change for individual prices to generate a weighted
average. Thus, if the individual prices of, for example, energy experience a significant rise,
this may lead to a figure of 2 percent in the CPI. However, inflation driven by such
individual price rises lacks sustainability. To achieve the price stability target of 2 percent in
a stable manner, the prices of a broad range of items have to rise, supported by
improvement in the output gap and an increase in inflation expectations. In other words,
general prices need to go up.
From this perspective, work needs to be done to accurately determine developments in
underlying inflation, by screening out the effects of various temporary volatile factors from
the actual price index movements. In this regard, the Bank constructs and examines various
measures of core inflation, mainly through two approaches. The first is to identify items
with large price fluctuations in advance and examine measures of core inflation that exclude
those items. The Bank has traditionally put emphasis on the CPI excluding fresh food, for
which prices fluctuate significantly due to weather conditions. Recently, due in part to the
situation surrounding Ukraine, crude oil prices have seen large fluctuations. Since energy
prices are directly susceptible to such fluctuations, the Bank decided to release its outlook
for the CPI excluding both fresh food and energy starting with its April 2022 Outlook for
Economic Activity and Prices (Outlook Report). The year-on-year rate of change in the CPI
excluding both categories has been only around 1 percent recently. This is clearly below the
rate of change in the CPI excluding fresh food alone. Nevertheless, with operation of the
virtuous cycle that I explained earlier, it is likely that the output gap will improve and
to inflation expectations and wage inflation will rise. Therefore, the
medium- long-term
rate of change in the CPI excluding fresh food and energy is projected to
year-on-year
moderately increase in positive territory, from 0.9 percent for fiscal 2022, to 1.2 percent for
fiscal 2023, and 1.5 percent for fiscal 2024.
The second approach to measuring underlying inflation does not involve excluding specific
items in advance. Rather, it is to monitor the distribution of price changes of items that
make up the CPI, and construct and examine measures for which the impact of outliers is
automatically excluded from the distribution. In this regard, comparing the price change
distribution by item before the pandemic with that at present shows that the distribution
itself has shifted in the direction of price increases in the United States and Europe, and that
the range of items increasing in price has also broadened (Chart 7). In Japan, meanwhile,
there has been no major change to date to the fact that the distribution of price changes for
many items has been centered on 0 percent, and that price increases are skewed toward
certain items, such as energy. The differences between distribution in the United States and
Europe and that in Japan seem to be mainly a reflection of disparities in to
medium-
inflation expectations (Chart 8). In other words, inflation expectations
long-term short-term
have indeed seen an increase in Japan, reflecting rising energy prices. Compared with the
United States and Europe, however, to inflation expectations in Japan
medium- long-term
are still low. This can be confirmed in various measures of core inflation calculated from the
price change distribution. While the trimmed mean of the rate of change in the
year-on-year
CPI has recently increased to the range of percent, the mode and weighted median
1.0-1.5
have been only slightly positive.3 The Bank will pay close attention to whether the price
change distribution by item will shift in the direction of price increases and the rate of
change in various measures of core inflation calculated from it will also increase as
to inflation expectations rise.
medium- long-term
II. Will the Era of Inflation Return?
A. Lessons from the Great Inflation
With the arrival of inflation for the first time in a long time, some are concerned that the
world will return to a period of very high inflation, such as experienced during the 1970s.
However, to start with my conclusion, I am skeptical that we will see a return to an era of
high inflation. Leaving other countries aside, my greater concern for Japan, at least for the
present, is still continued low growth, low interest rates, and low inflation a situation that
--
has come to be called "Japanification."4
Let us take a moment to look back in history and examine the Great Inflation. There is now
a consensus among academics about the Great Inflation on the following points.5 First,
3
The trimmed mean is calculated by excluding items that belong to a certain percentage of the
upper and lower tails of the price change distribution (10 percent of each tail) in order to eliminate
the effects of large relative price changes. The mode is the inflation rate with the highest density in
the price change distribution. The weighted median is the average of the inflation rates of the items
at around the 50 percentile point of the cumulative distribution in terms of weight.
4
I explained "Japanification" in detail in an earlier speech. See Wakatabe, M., "Japan's Economy
and Monetary Policy," speech at a meeting with business leaders in Ehime, February 5, 2020,
https://www.boj.or.jp/en/announcements/press/koen_2020/ko200205a.htm/.
5
For details on the Great Inflation, see Wakatabe, M., Kiki no keizai seisaku: Naze okita no ka, nani
o manabu no ka [Economic Crisis and Policy Responses: Why It Happens, What We Can Learn]
(Tokyo: Nippon Hyoron Sha, 2009), pp. 73-126; Bordo, M. D. and Orphanides, A., eds., The Great
Inflation: The Rebirth of Modern Central Banking (Chicago: The University of Chicago Press,
2013); and Walsh, C. E., "Inflation Surges and Monetary Policy," keynote speech at the 2022
BOJ-IMES Conference entitled "New Dimensions and Frontiers in Central Banking" hosted by the
Institute for Monetary and Economic Studies (IMES) of the Bank of Japan, May 25, 2022,
https://www.boj.or.jp/announcements/release_2022/data/rel220525b.pdf. For the Great Inflation in
Japan, see Komiya, R., "Shōwa 48, infurēshon no gen'in" [Causes of the
9-nen 1973-74 Inflation] in
Gendai nihon keizai: Makuroteki tenkai to kokusai keizai kankei [The Modern Japanese Economy: In
Relation to Macroeconomic and Global Economic Developments] (Tokyo: University of Tokyo
Press, 1988), pp. 1-61 (originally published in Keizaigaku ronshū [The Journal of Economics], vol.
In addition to
42, no. 1, 1976, pp. 2-40). this classic paper by Komiya, see Wakatabe, M. and
although the Great Inflation is often thought to have occurred in the 1970s, an international
comparison shows that the timing at which it began differed across economies. Price
developments in the United States, the United Kingdom, West Germany, and Japan from the
through the 1980s show that, while the inflation rates of the economies are
mid-1950s
broadly correlated, a closer look reveals some differences across economies (Chart 9). In
the United States, an acceleration in inflation was observed from around 1965, whereas in
Japan, inflation accelerated after the turn of the 1970s. In addition, while
double-digit
inflation was seen in many economies, inflation in West Germany did not reach 8 percent
even at its peak. Moreover, inflation in Japan peaked at 23 percent in the first half of the
1970s, specifically 1974, but the United States experienced its peak in inflation in 1980.
Second, and related to the first point, the oil shocks were not the primary cause of the Great
Inflation. In Japan, there is a persistent belief that the two oil shocks were the cause of the
Great Inflation. While it is true that inflation accelerated partly due to the oil shocks, the
consensus among academics is that the main cause of the Great Inflation was actually
excessive monetary easing. In Japan, the main reason for the acceleration in inflation was
the percent annualized increase in money supply from the end of 1970 through 1973,
25-30
before the first oil shock occurred in October 1973.6 In fact, inflation rates during the Great
Inflation for both the United States and Japan show that prices of items other than energy,
including for services, had increased considerably, indicating that the main cause of
inflation was not a rise in energy prices (Chart 10). Contrary to popular belief, the reality of
the Great Inflation was that factors played a greater role than factors.
demand-pull cost-push
In the first half of the 1970s, when Japan experienced the Great Inflation, nominal wages
Kataoka, G., "The Great Inflation in Japan: How Economic Thought Interacted with Economic
Policy," TCER Working Paper Series, no. E-36, 2011, https://www.tcer.or.jp/wp/pdf/e36.pdf; and Ito,
T., "Great Inflation and Central Bank Independence in Japan," in The Great Inflation, eds. Bordo and
Orphanides, pp. 357-87. The case of Japan is also discussed in Kuroda, H., "Japan's Inflation
Dynamics and the Role of Monetary Policy," speech at Columbia University in New York, April 22,
2022, https://www.boj.or.jp/en/announcements/press/koen_2022/ko220423a.htm/.
6
The reason for such excessive increases in money supply, it has been argued, was that
policymakers at the time were afraid of an appreciation of the yen and a recession brought about by
see Komiya, "Shōwa 48, infurēshon no gen'in," p. 35.
such an appreciation. For details, 9-nen
increased significantly, at a pace even faster than that of prices, and inflation expectations
also rose (Chart 11).7
Third, while various hypotheses have been proposed as to the causes of the excessive
monetary easing, including errors in the real-time measurement of the output gap,
disagreements among policymakers, and political motives, the prevailing hypothesis is that
there was no theoretical agreement on inflation expectations or that the role of monetary
policy in the formation of inflation expectations was not fully recognized.8 Central banks at
the time did not share the view that monetary easing and the rise in inflation expectations
under such easing were the main causes of inflation.9
Central banks' responses today are based on the lessons of this era; that is, monetary policy
is important for price stability, central banks are responsible for conducting such policy, and
inflation expectations play a major role in sustaining inflation. These lessons have led
central banks to try to conduct their policies in a way that influences and stabilizes
expectations. It is no exaggeration to say that inflation targeting, under which central banks
conduct monetary policy based on a price stability target, was born from the experience of
the Great Inflation.
B. Relationship between Sustainable and Stable Inflation and Wages
Taking the aforementioned lessons into account, the Bank's monetary policy is aimed at
achieving the price stability target of 2 percent. What is important here is the sustainability
and stability of inflation. As I have already mentioned, in order to achieve the target in a
sustainable and stable manner, it is extremely important to determine underlying inflation.
7
Since there was no highly reliable measure of inflation expectations in Japan at the time, Chart 11
uses the estimates of the following paper, which employs the Carlson-Parkin method: Shimada, H.,
Hosokawa, T., and Seike, A., "Chingin oyobi koyō chōsei katei no bunseki" [Analysis of the Wage
and Employment Adjustment Process] in Keizai bunseki [Economic Analysis], ed. Economic
Research Institute, Economic Planning Agency, no. 84, March 1982.
8
Meltzer, A. H., A History of the Federal Reserve, Volume 2, Book 2, 1970-1986 (Chicago: The
University of Chicago Press, 2009), pp. 843-1007.
9
to kin'yū
This has been studied in the context of Japan. For details, see Komiya, "Haipawādo manē
seisaku" [High-Powered Money and Monetary Policy] in Gendai nihon keizai, pp. 107-53.
In addition, it is necessary to carefully analyze the economic developments behind price
developments.
Two major factors affecting underlying inflation are wage inflation and inflation
expectations. For prices to rise in a sustainable and stable manner, wages and inflation
expectations need to increase.
In an international and historical context, the interaction between prices and wages has been
observed both in Japan and the United States (Chart 12). However, this interaction seems to
have changed in Japan in recent years. Specifically, while the causality from prices to wages
remains, that from wages to prices seems to have almost disappeared.10 It can be said that
there are still scarring effects of prolonged deflation on the economy.
However, while much emphasis tends to be placed on clarifying whether prices precede
wages or vice versa and the causal relationship between the two, what is important is
creating an environment in which both prices and wages rise. Firms that are cautious about
raising wages, including base pay, seem to have a variety of reasons, such as poor
performance, concerns that once they raise wages, they will not be able to lower wages in
the event of future poor performance, and a lack of confidence that economic conditions
will improve. All of these reasons suggest that it is necessary for the economy to see
sustainable growth in order for wages to increase.11
10
For details, see section 2. (1) in Monetary Affairs Department, Bank of Japan, "Characteristics of
Price Developments in Japan: Summary of the First Workshop on 'Issues Surrounding Price
Developments during the COVID-19 Pandemic,'" BOJ Reports and Research Papers, May 2022,
https://www.boj.or.jp/en/research/brp/ron_2022/ron220523a.htm/.
11
a
In his book, Iwata Kikuo, former Deputy Governor of the Bank of Japan, quotes an influential
corporate executive who stated that, although a minimum economic growth rate of 4 percent was
necessary to increase base pay of regular employees, such growth could not be expected due to the
therefore
bursting of the bubble economy and deflation, and firms stopped increasing base pay. For
details, see Iwata, K., Nichigin nikki: 5-nenkan no defure tono tatakai [A Journal of Working at the
Bank of Japan: Five Years of Battle against Deflation] (Tokyo: Chikumashobo, 2018), p. 369. The
following paper describes that, under the system of life-time employment and seniority-based wages,
Japanese-style firms strongly intend to grow: Iwai, K., "The Japanese Firm as a Worker-Managed
Enterprise," Japanese Economic Studies, 23(2), March-April 1995, pp. 77-95.
The other major factor affecting underlying inflation is inflation expectations, which have
risen both for the short term and the medium to long term. However, as we have already
seen, to inflation expectations have risen only moderately and have not
medium- long-term
yet reached 2 percent.
C. Future Conduct of Monetary Policy
Most prices have not yet risen much, while some energy and food prices have risen
significantly. Although it is possible to some extent that higher energy and food prices will
push up prices overall, low inflation is currently coexisting with price increases in some
items.12 In policymaking, it is generally considered desirable to have the same number of
policy measures as policy objectives. This means that, to address low inflation, it is
necessary to persistently continue with monetary easing and thereby continue to steadily
support the virtuous cycle in the economy and maintain an environment in which wages rise.
In addition, if downside risks to the economy materialize, the Bank should not rule out
taking the necessary additional easing measures without hesitation.
On the other hand, since the price rises in energy and food are mainly caused by
cost-push
factors from abroad, it is desirable to respond to them through measures other than
monetary policy, which is aimed at managing aggregate demand. Possible options include
fiscal policy and energy policy to reduce dependence on petroleum and natural gas. Such
appropriate division of labor in policymaking is required to deal with low inflation and
price increases in some items.
Lastly, as caveats to conducting monetary policy, let me note common challenges that
central banks around the world now face. As the experience of the Great Inflation indicates,
it is not easy to identify developments in the output gap and determine underlying inflation
in real time. Moreover, if inflation rises far beyond the price stability target due to spiraling
wages and inflation expectations, undesirable inflation will persist. The experience of the
Great Inflation also led to the revision of the traditional theories. I think that it is necessary
to constantly reexamine, without any preconceptions, whether the current situation can be
explained and analyzed with the current theory of monetary policy.
III. Recent and Future Economic Activity in Okayama Prefecture
Next, I would like to talk about the economy of Okayama Prefecture. The prefecture is
characterized by a relatively higher share of the manufacturing industry, but at present its
economy has seen more or less the same developments as Japan's economy that I mentioned
earlier. That is, although downward pressure on services consumption from and
COVID-19
the effects of constraints such as semiconductor shortage continue to be
supply-side
observed, private consumption and production have been on a trend amid ongoing
pick-up
social and economic activities.
Like other regional economies in Japan, the significant challenge Okayama Prefecture has
to address from a to perspective is a declining and aging population.
medium- long-term
However, I have long asserted that the negative impact of this factor has been overestimated
in economic debates. In Okayama Prefecture, gross prefectural product per capita has been
on an uptrend (Chart 13).13 I also believe that, to achieve economic growth in this situation
of a declining and aging population, the starting point would be to make the region more
attractive in terms of livability for residents. From this perspective, I would like to highlight
three points with regard to the strengths and expectations for Okayama Prefecture.
The first is the prefecture's wealth of cultural value. The Kurashiki Bikan Historical Quarter
has the Ohara Museum of Art. I am aware that the Okayama Culture Zone in
long-standing
Okayama City's center, with its cluster of cultural facilities, will be hosting the Okayama
Art Summit this year and adding a new performing arts theater next year. Meanwhile, a new
pavilion has been built using timber (CLT) in the northern part of the
cross-laminated
prefecture, on the Hiruzen highlands, which are blessed with natural abundance. In addition
to the permanent exhibition of the modern art collection, the Setouchi Triennale art festival
is being held this year across the islands that dot the Seto Inland Sea to the south of the
prefecture. Okayama Prefecture has also long been a major transportation hub, and historic
townscapes in various areas like Katsuyama, Yakage, Fukiya, and Tsuyama have been
preserved as places where people still live. Such proximity to cultural value enriches the
lives of residents and attracts prospective residents. Enhancing the competitiveness of its
tourism resources is expected to bring more visitors to the prefecture.
The second point concerns the prefecture's education and healthcare. Okayama Prefecture
boasts a robust educational and medical care infrastructure, as seen in the fact that it has one
of the highest per capita numbers of universities, junior colleges, and major hospitals in
Japan. In a society with a declining and aging population, the hope is that the prefecture will
make the most of such a robust infrastructure from an economic perspective through greater
collaboration between industry and academia and a strong healthcare network, leading to
developing and securing human resources for firms in the region and extending the healthy
life expectancy of residents. In the area of healthcare, Kibichuo Town has been designated
as a rural digital health special zone. It has the potential to become a model case for
approaches that use digital technology to address health and medical issues in the
community.
The third point concerns initiatives to increase sustainability in the region. Livability
depends to a large extent on a society's sustainability. While the manufacturing industry is
the economic driver in Okayama Prefecture, with its Mizushima Coastal Industrial Zone, a
transition to a decarbonized society is likely to affect the competitiveness of the industry. It
is important to see this as an opportunity for innovation and new business creation rather
than as simply a constraint on economic growth. I heard that the Okayama Consortium for
Regional Decarbonization Creation is positioned to support regional decarbonization efforts
through cooperation among those in industry, academia, government, and finance. My hope
is that this will lead to revitalization of the prefectural economy.
As mentioned at the beginning of this speech, the Bank's Okayama Branch marked its 100th
anniversary in April. The Bank will endeavor to contribute to economic developments in
Okayama Prefecture by continuing to conduct central banking operations on the front lines
of the region while exchanging views with our counterparties and contacts in the region.
Conclusion
Low inflation is currently coexisting with price increases in some items. Since this low
inflation is connected to low wage inflation, it is necessary for the Bank to continue with
monetary easing to stimulate the economy and thereby realize a virtuous economic cycle
where an increase in income leads to that in spending. In addition, it is extremely important
to