Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Kagoshima
ADACHI Seiji
Member of the Policy Board
I. Economic Activity and Prices
A. Economic Activity
First, I would like to touch on developments regarding COVID-19. While three years have
passed since its outbreak, COVID-19 was downgraded in Japan to a Class V infectious
disease under the Infectious Disease Control Law on May 8, 2023, bringing about further
normalization of socioeconomic activity. Although a certain degree of vigilance is necessary,
leading examples of such normalization overseas suggest that COVID-19 will have much less
impact on Japan's economy than previously.
Taking this into account, I will now talk about recent developments in Japan's economic
activity. The economy has continued to recover moderately, although the pace of recovery
has decelerated recently, as evidenced by some slowdown in certain indicators of private
consumption and in exports. These developments in private consumption are likely due to
price rises, and those in exports to a slowdown in the pace of recovery in overseas economies.
Let us look at private consumption in more detail. Consumption of durable goods such as
automobiles has recovered on the back of a waning of the effects of supply-side constraints.
Services consumption has also recovered, partly because demand that was suppressed during
the pandemic has materialized as the economy reopens. Therefore, private consumption
overall has increased (Chart 1). That said, the effects of price rises have been observed. For
instance, regarding consumption of items such as daily necessities, demand seems to have
shifted to lower-priced goods and affordable private brand products.
Next, I will turn to exports. While exports to advanced economies have remained on an
uptrend on the back of the waning of the effects of supply-side constraints, those to the NIEs,
the ASEAN economies, and some other Asian economies have decreased due to weakness in
global demand for IT-related goods, as seen in a drop in exports of electronic parts, such as
semiconductors mainly for smartphones and personal computers. Those to China have also
been somewhat weak, particularly for capital goods. In terms of total exports, they have been
more or less flat recently (Chart 2).
Meanwhile, business fixed investment has been generally firm. This is attributable to firmness
in (1) IT-related investment aimed at digital transformation (DX) and labor saving, and (2)
construction investment in urban redevelopment projects and in logistics facilities resulting
from expanding e-commerce. In addition, firms have become more positive about making
investment aimed at strengthening supply chains, partly owing to government support. Under
these circumstances, business fixed investment plans for fiscal 2023 suggest firmness in such
investment (Chart 3).
Since the collapse of the bubble economy, Japanese firms have in some respects been risk
averse in making investment, in that they have restrained fixed investment and preferred to
secure ample on-hand liquidity, given the widespread prospects for prolonged low growth
and the experience of negative external shocks. However, Japanese firms lately appear to be
starting to change positively in a way not seen since the 1990s. This is suggested, for example,
by the Annual Survey of Corporate Behavior released by the Cabinet Office in March 2023,
which shows that, based on firms' responses, the expected real economic growth rate for the
next five years has increased (Chart 4). To encourage such positive moves among Japanese
firms, it is important for the Bank of Japan to provide steady support for the economy when
conducting monetary policy, which I will explain later.
B. Price Developments in Japan
1. Price situation
I will now talk about recent price developments and then their outlook.
Starting with recent price developments, the year-on-year rate of increase in the consumer
price index (CPI) for April 2023 was 3.4 percent for all items less fresh food (core CPI) and
4.1 percent for all items less fresh food and energy (core-core CPI) (Chart 5). As for the core
CPI, the rate of increase is slower than the latest peak of 4.2 percent in January, mainly due
to the effects of pushing down energy prices from the government's economic measures. On
the other hand, the rate of increase in the core-core CPI has accelerated, reflecting, for
example, a pass-through to selling prices of increases in costs such as of raw materials led by
the past rise in import prices. My impression is that prices are currently rising faster than I
had so far expected.
Meanwhile, inflation expectations have stayed almost flat after rising moderately, although
this differs depending on economic entity (Chart 6). Specifically, households appear to expect
that prices will continue rising. This is evidenced, for example, by the 93rd Opinion Survey
on the General Public's Views and Behavior (March 2023 Survey) released by the Bank in
April, which shows that 85.7 percent of the respondents expected that prices "will go up" over
the year ahead.1 As for the perception of the present price levels compared with one year ago,
94.5 percent answered that prices "have gone up," suggesting that the respondents expected
inflation momentum to level off slightly (Chart 7).2
The price situation in Japan that I have just described can be regarded as a move toward
overcoming deflation, which Japan has experienced for a long period. On the other hand, if
the pace of inflation is too fast, this could have the effect of pushing down the economy, such
as downward pressure on real income. In the conduct of monetary policy -- I will return to
this topic later -- the Bank will thoroughly assess economic and price developments including
various factors brought about by changes in the price situation.
2. Outlook for prices
I would like to move on to future price developments.
I mentioned earlier that prices are currently rising faster than I had so far expected. The Bank's
baseline scenario for the price outlook is that the year-on-year rate of increase in the CPI will
decelerate temporarily and thereafter accelerate again toward the Bank's price stability target.
This scenario is subject to considerable uncertainty, however, and both the upside and
downside risks are likely to be high. In what follows, I would like to talk about what informs
my thinking in this area.
Before elaborating on the upside and downside risks to prices, I would like to touch on a
perspective that I think is a useful starting point when considering price fluctuations.
While there are various methods for analyzing consumer prices, I think it is helpful to focus
on the frequency of price changes in each item by separating the two categories of "sticky"
and "flexible" consumer prices. Sticky consumer prices are those for items whose prices
change relatively infrequently, and in Japan's CPI these are mainly services prices. On the
other hand, flexible consumer prices are those for items whose prices change relatively
frequently, and these are mainly goods prices (Chart 8).
Sticky consumer prices are thought to be affected by medium- to long-term inflation
expectations, wages, and firms' medium- to long-term growth expectations (or demand
forecasts) that are likely to affect wages. Wage growth in this year's annual spring labor-
management wage negotiations is projected to exceed the past average and the previous
forecast by a wide margin. This could feed into further price rises. In terms of future price
developments, however, a crucial point will be whether this wage growth is for the current
fiscal year alone or will continue into the next fiscal year and beyond. On this point, it is
possible that firms will continue raising wages to secure their workforces given a further
tightening of labor market conditions, amid the dim outlook for additional labor force
participation by women and seniors, which has so far underpinned the labor supply.
It is likely that sticky consumer prices elevated the CPI considerably from the mid-1980s
through the first half of the 1990s, before Japan fell into deflation. In the current situation,
however, sticky consumer prices, which are mainly composed of services prices, have not yet
made a significant contribution to a rise in the CPI, though they could potentially make a
greater contribution in response to the results of this year's annual spring labor-management
wage negotiations. The key here, as previously mentioned, will be a sustained increase in
wages. I am paying attention to the extent of the spillover effects that wage hikes by firms
will have on services prices, which have so far seen only a marginal increase (Chart 9).
Next, flexible consumer prices are susceptible to the business cycle and the output gap, and
to raw material prices that mainly reflect commodity market conditions. Due in part to this
last factor, flexible consumer prices in the past tended to track movements in import prices
with a time lag. Looking at the corporate goods price index (CGPI) released by the Bank,
after reaching a peak in September 2022, the import price index has continued to decline, due
to such factors as a fall in raw material prices. According to the past trends I referred to earlier,
this decline in import prices is likely to dampen the rise in flexible consumer prices with a
time lag. In fact, developments in producer prices show that the decrease in import prices is
beginning to spread by demand stage from upstream to downstream (Chart 10). As for the
outlook, the drop in producer prices is basically projected to spill over into the CPI eventually.
Given what I have just outlined, let me interpret the Bank's baseline scenario for the price
outlook mentioned earlier using the framework of "sticky" and "flexible" consumer prices. It
can be said that sticky consumer prices are expected to rise gradually along with wage growth;
however, as the spillover of a fall in import prices to a decline in flexible consumer prices
fully takes hold, the rate of increase in overall prices is projected to be pushed down for the
time being.
3. Upside risks to prices
Next, I will discuss risks to the outlook for prices. In my view, upside risks require attention
for the time being, but thereafter, more attention should be paid to downside risks.
I will first focus on the upside risks to prices. It is assumed that sticky consumer prices will
continue to rise, but also that, in contrast to the baseline scenario, there is a risk that the rate
of increase in flexible consumer prices will not cool down.
Earlier, I said that flexible consumer prices tend to track movements in import prices with a
time lag. However, this is simply an observation based on the fact that such a relationship
existed in the past. As I mentioned earlier when talking about price developments in Japan,
the latest Opinion Survey on the General Public's Views and Behavior, along with other
reports, points out the possibility that households' perception of inflation that prices will not
rise, which has been deeply entrenched, may be on the verge of changing. From the standpoint
of firms, they may consider that the time has come to rethink the price-setting behavior that
took root during the past period of deflation. In other words, in setting product prices, firms
may think along this line: "When prices of raw materials eventually come down, sales may
not contract even if we do not lower product prices." If an increasing number of firms adopt
such price-setting behavior, they will not reduce selling prices even if import prices decline.
As a result, the rate of increase in flexible consumer prices may not cool down as much as
expected. Meanwhile, if firms continue to raise wages by tapping into higher margins, the
rate of increase in sticky consumer prices could also rise.
In relation to upside risks to prices in Japan, I would now like to touch on the points I am
focusing on in terms of the price change distribution by item in the CPI. Let us take as an
example the United States, which has already experienced an upswing in prices. While it
should be noted that underlying conditions differ from those in Japan, before the COVID-19
pandemic, the price change distribution by item in the U.S. CPI was mountain-shaped, with
its peak in the 2 percent vicinity. This changed after the outbreak, however, with the peak
above the 2 percent level expanding and then plummeting (so the graph is trapezoid-shaped).
In Japan, the price change distribution by CPI item is still unchanged, with the peak around
0 percent (Chart 11). I would like to monitor whether a change in the distribution, if any, will
lead to an upswing in prices.
4. Downside risks to prices
I would now like to explain the downside risks to prices. Specifically, the rate of increase in
flexible consumer prices, which is projected to decelerate temporarily, may not accelerate
again as expected. It is likely that this risk arises from overseas factors rather than domestic
factors.
The current global economy is marked by a range of uncertainties. Depending on the course
of the situation in Ukraine, the downward pressure on European economies could heighten,
particularly for those in the euro area. In China, there are concerns over adjustment pressure
in the real estate market and over the risk of economic stagnation amid the elevated youth
unemployment rate. Having said that, I believe uncertainties surrounding the U.S. economy
warrant particular attention.
In the United States, with inflation having peaked in the second half of 2022 and now
gradually settling down, there seems to be a growing consensus in the market that the policy
interest rate hike cycle is nearing its end phase and interest rates will begin to decline
accordingly, so that a major economic downturn can be avoided. However, one still cannot
dismiss the view that the inverted yield curve in the United States, in which short-term interest
rates exceed long-term rates, is a signal of future economic downturn. In addition, since
developments in employment tend to lag behind economic activity, if the U.S. economy
decelerates faster than expected, the unemployment rate could rise by more than expected,
following in the wake of such an economic slowdown.
In terms of uncertainties surrounding the U.S. economy, I would like to add the risk that
financial conditions will also lead to an economic downturn. The United States has
experienced many cases where financial stress exacerbated a recession, such as after the
savings and loan (S&L) crisis intensified in the late 1980s and after the Global Financial
Crisis in 2008. That said, even if financial stress arises, it is not easy to accurately predict its
impact on the real economy.
Monetary tightening is intended to curb overheating of the economy and return it to a
"Goldilocks" situation. However, if financial stress increases before the economy returns to a
proper level of economic growth, it will become difficult to provide an outlook for economic
activity and prices, and policymakers will face a hard decision: whether to continue monetary
tightening, to halt it, or to shift to monetary easing. For example, if the shift to monetary
easing is premature, there is concern that an insufficient curbing of an overheated economy
may lead to the entrenchment of high inflation. On the other hand, if the shift to monetary
easing is put off and financial stress intensifies significantly, the adverse impact on the
economy could increase.
Although the United States has experienced multiple bank failures since March 2023, the
financial market seems to have regained stability, owing to swift responses by the U.S.
authorities. A review by U.S. supervisory bodies and other analyses have pointed out that
bankruptcies were attributable to the peculiar structure of the financial institutions' balance
sheets and the poor level of risk management, such that these institutions were unable to
adhere to basic practices for managing interest rate and liquidity risks. It seems to be widely
recognized therefore that these bankruptcies were basically caused by factors at the level of
individual institutions.
The downside risks to the U.S. economy that I explained, if they were to materialize, could
have a significant impact on Japan's economy. It is therefore imperative that the Bank
carefully monitor the course of developments, including financial conditions.
II. Conduct of Monetary Policy
Basic Idea
I would like to present my views regarding the Bank's conduct of monetary policy, based on
the current economic and price developments and the future scenario I have explained so far
(Chart 12).
Since 2022, particularly in the face of rising prices, some have suggested that the time has
come for the Bank to revise its monetary policy. Indeed, with observed inflation rates
increasing at a fast pace and expected rates showing a moderate rise, I consider that a change
has started to take hold in the deflationary mindset or people's perception of inflation that
prices will not rise. In that sense, we are coming closer to achieving the price stability target.
However, a revision of monetary policy is still premature because there is considerable
uncertainty about the baseline scenario regarding the price outlook that I described earlier.
Let me reiterate the Bank's baseline scenario: the year-on-year rate of increase in the CPI is
likely to decelerate temporarily and thereafter accelerate again toward the Bank's price
stability target. In deciding whether or not monetary policy should be revised, it is important
to judge, under the baseline scenario, whether the CPI will move toward a sustainable and
stable rise when it starts to increase again following the temporary deceleration. It should also
be noted that, as I have described so far, there are both upside and downside risks to the
outlook for prices due to considerable uncertainty. From the long-term perspective, I think
that risks are more skewed to the downside. It is necessary to take into careful account the
risks mentioned when deciding whether monetary policy should be revised.
As I mentioned earlier, there is uncertainty over recent developments in the global economy,
especially the U.S. economy. Attention should thus be paid to downside risks to Japan's price
developments under the risk scenario of the global economy. If downside risks to the U.S.
economy materialize, the negative output gap in Japan could widen, causing a downswing in
economic activity and prices. If the U.S. dollar comes under downward pressure due, for
example, to a decline in U.S. interest rates, this could exert downward pressure on Japan's
import prices and in turn consumer prices.
Due attention should also be paid to the scenario of an upswing in prices in Japan. As I
mentioned earlier, there is the possibility that flexible consumer prices will not decline.
Having said that, it is important at this point for the Bank to carefully assess developments in
achieving the 2 percent price stability target in a sustainable and stable manner based on the
recognition that uncertainty is high regarding the price outlook.
At the Monetary Policy Meeting held in April 2023, the Bank confirmed that it will patiently
continue with monetary easing while nimbly responding to developments in economic
activity and prices as well as financial conditions. It also decided to conduct a broad-
perspective review of the monetary policy it has been implementing for the past 25 years.
Achieving price stability has been a challenge facing Japan's economy for a long period since
it fell into deflation in the late 1990s. To address the challenge, the Bank has devised various
monetary policy measures. These measures have interacted with and influenced wide areas
of Japan's economic activity, prices, and financial sector. Through the review, the Bank aims
to deepen its understanding of the interaction between monetary policy, economic activity,
and various other factors, and make use of the insights gained for future policy conduct. To
this end, the Bank will spend a sufficient amount of time, around a year to 18 months, drawing
on the knowledge it has gained from its experience to date, the research that has accumulated
in the academic community in Japan and abroad, and the opinions received at meetings with
local leaders and on other occasions.
Yield Curve Control
For the last topic of monetary policy conduct, I will focus briefly on yield curve control.
Yield curve control is a framework in which the Bank applies a negative interest rate of minus
0.1 percent as the short-term policy interest rate and purchases a necessary amount of
Japanese government bonds (JGBs) so that long-term interest rates, specifically 10-year JGB
yields, remain at around 0 percent.
Let us look back at the introduction of yield curve control. Following the introduction of
negative interest rates in January 2016, the Bank introduced yield curve control in September
that year to strengthen the policy framework thus far implemented, aiming to achieve the 2
percent price stability target at the earliest possible time. The Bank assessed at that time that
a weakening of inflation expectations was a major factor in delaying achievement of the target.
Although inflation expectations have risen recently, I believe that the framework of yield
curve control is necessary given the Bank's baseline scenario regarding the price outlook and
downside risks to prices, as I discussed earlier.
Since the introduction of yield curve control, the Bank has devised various measures to
enhance the sustainability of monetary easing under this framework. Here are some examples
of controlling long-term interest rates under yield curve control. In 2022, the functioning of
bond markets deteriorated, particularly in terms of relative relationships among interest rates
of bonds with different maturities and arbitrage relationships between spot and futures
markets. Specifically, interest rates of bonds with 8-9 years of maturity were higher than those
of bonds with 10-year maturity, and a price gap was observed between spot and futures
markets. A gap was also observed between the yields for on-the-run issues of 10-year JGBs,
which are eligible for the Bank's fixed-rate purchase operations, and those for issues of 20-
year JGBs with a residual maturity of 10 years. This is likely because a gap was created
between the Bank's yield target and yields based on market participants' predictions, as
volatility in overseas financial and capital markets increased from early spring 2022. Yields
on JGBs are reference rates for corporate bond yields, bank lending rates, and other funding
rates. The Bank judged that if these market conditions persisted, this could have had a
negative impact on financial conditions such as issuance conditions for corporate bonds.
In response, the Bank decided to modify the conduct of yield curve control in order to improve
market functioning and encourage a smooth formation of the yield curve. Specifically, it
decided to expand the range of 10-year JGB yield fluctuations from the target level while
increasing the amount of JGB purchases. Owing to this modification, along with a decline in
overseas interest rates, the shape of the JGB yield curve is generally smoother at present, and
market functioning has shown signs of improvement (Chart 13). All of this has convinced me
that it is appropriate for the Bank to continue with monetary easing under the framework of
yield curve control.
Thank you.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Kagoshima
June 21, 2023
ADACHI Seiji
Member of the Policy Board
Bank of Japan
Chart 1
Private Consumption
s.a., CY 2015=100
110
105
100
95
Consumption Activity Index
(travel balance adjusted)
90
Consumption of households
85
(excluding imputed rent)
80
13 14 15 16 17 18 19 20 21 22 23
CY
Chart 2
Exports
Total Real Exports Real Exports by Region
s.a., CY 2020=100 s.a., 2018/Q1=100 s.a., 2018/Q1=100
130 130
120
120
120
110
110 110
100 100
100
90 90
80 80
90
70 70
80
60
60
China
<19.4>
50 50
United States <18.6>
70 NIEs, ASEAN, etc.
<37.1>
40 40
EU <9.5>
Other economies <15.4>
60 30 30
CY 07 09 11 13 15 17 19 21 23 CY 18 19 20 21 22 23 18 19 20 21 22 23
Note: Figures are based on Bank staff calculations. Figures for 2023/Q2 are those for April. In the right panel, figures in angle brackets show the share of each
country or region in Japan's total exports in 2022. Figures for the EU exclude those for the United Kingdom for the entire period.
Sources: Ministry of Finance; Bank of Japan.
Chart 3
Business Fixed Investment
y/y % chg.
20
Private nonresidential investment (SNA, nominal)
15
Tankan (actual)
Tankan (planned investment for the next fiscal
10
year as of the March survey of each year)
5
0
-5
-10
-15
-20
FY 08 10 12 14 16 18 20 22
Note: Figures based on the Tankan 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. The figures are for all industries including financial institutions.
Sources: Cabinet Office; Bank of Japan.
Chart 4
Expected Growth Rate
%
5
Japan's expected real growth rate (over the next 5 years)
4
3
2
1
0
CY 85 90 95 00 05 10 15 20
Note: Based on the Annual Survey of Corporate Behavior. Figures show the results for listed firms in a particular survey year
for the next five years.
Source: Cabinet Office.
Chart 5
CPI for All Items Less Fresh Food
y/y % chg.
4.5
Mobile phone charges
4.0
Effects of travel subsidy programs
3.5
Effects of the consumption tax hike and
3.0
free education policies
Energy
2.5
2.0
Excluding the above factors
1.5
CPI (less fresh food)
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
17 18 19 20 21 22 23
CY
Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as 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 6
Inflation Expectations
y/y, ann. avg., %
2.5
Market participants (QUICK, 2 to 10 years ahead)
Economists (7 to 11 years ahead)
Households (over the next 5 years)
2.0
Firms (5 years ahead)
1.5
1.0
0.5
0.0
05 07 09 11 13 15 17 19 21 23
CY
Notes: 1. Figures for economists are the forecasts of forecasters surveyed for the ESP Forecast.
2. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin
method for a 5-choice question.
3. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan.
Sources: Japan Center for Economic Research (JCER), "ESP Forecast"; QUICK, "QUICK Monthly Market Survey <Bonds>"; Bank of Japan.
Chart 7
Households' Current and Future Perception of Price Levels
Present Compared with
One Year Ahead
One Year Ago
Compared with the Present
share of responses, %
share of responses, %
31.7
41.6
45.4
58.4
"Have gone up"
57.7 52.6
52.5
56.8
94.5% "Will go up"
58.8 63.9
85.7%
60.8
65.4
59.8
52.6
62.8
52.7
46.4
32.5 33.1
30.6
29.4
28.9
22.4
20.4
16.6
13.4
8.9
8.4
Have gone down significantly Will go down significantly
Have gone down slightly Will go down slightly
Have remained almost unchanged Will remain almost unchanged
Have gone up slightly
Will go up slightly
Have gone up significantly
Will go up significantly
Chart 8
CPI for Goods and Services
Goods Services
y/y % chg. y/y % chg.
10 10
8
8
6
6
4
4
2 2
0
0
-2
-2
-4
-4
Food products
General services
-6
-6
Textile products
-8
Public services
-8
Other industrial products
-10
-10
CY 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22
80 83 86 89 92 95 98 01 04 07 10 13 16 19 22
CY
Source: Ministry of Internal Affairs and Communications.
Chart 9
Wages and Services Prices
y/y % chg.
35
General services
30
Nominal wages
25
20
15
10
5
0
-5
71 81 91 01 11
FY
Chart 10
Spillover Effects of Import Prices on the CPI for Goods
y/y % chg.
y/y % chg. y/y % chg.
60 40
20
50
30
15
40
30 20
10
20
10
5
10
0 0
0
-10
-10
-5
-20
-30 -20
-10
16 17 18 19 20 21 22 23 16 17 18 19 20 21 22 23
CY
CY 16 17 18 19 20 21 22 23
CY
Import price index
ID index (stage 2)
ID index (stage 4)
ID index (stage 1)
ID index (stage 3)
FD index (excluding exports)
ID index (stage 2)
ID index (stage 4)
CPI for goods (less fresh food and energy)
Note: The import price index is on a yen basis. The FD-ID price indexes divide demand into the final demand (FD) stage and four stages of intermediate demand (ID)
based on the Input-Output Tables for Japan. Goods and services prices 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 upstream to downstream stages of the production process.
Sources: Ministry of Internal Affairs and Communications; Bank of Japan.
Chart 11
Price Change Distributions
United States Japan
share of the number of items, %
share of the number of items, %
40 40
Goods
Dec. 2019
Sept. 2019
Services
30
30
Energy
20
20
10
10
Pre-Pandemic
0
0
-10 -5 0 5 10 15 20
-10 -5 0 5 10 15 20
or more
or less
or less
or more
y/y % chg.
y/y % chg.
share of the number of items, %
share of the number of items, % 40
40
Apr. 2023
Apr. 2023
30
30
20
20
Recent
10
10
0
0
-10 -5 0 5 10 15 20
-10 -5 0 5 10 15 20
or less or more
or less or more
y/y % chg.
y/y % chg.
Note: Figures for the United States are for the CPI for all items, while those for Japan are for the CPI for all items excluding fresh food. The pre-pandemic
distribution for Japan is based on data for September 2019, which was before the CPI developments were affected by the consumption tax hike.
Sources: Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics (BLS).
Chart 12
Conduct of Monetary Policy
Guideline for market operations under
Stance on future conduct of monetary policy
yield curve control
The short-term policy interest rate: Apply a negative interest rate
Basic stance
of minus 0.1 percent to the Policy-Rate Balances in current
accounts held by financial institutions at the Bank.
With extremely high uncertainties surrounding economies
The long-term interest rate: Purchase a necessary amount of JGBs
and financial markets at home and abroad, the Bank will
without setting an upper limit so that 10-year JGB yields will
patiently continue with monetary easing while nimbly
remain at around 0 percent.
responding to developments in economic activity and prices
as well as financial conditions. By doing so, it will aim to
The Bank will continue to allow 10-year JGB yields to fluctuate in the
range of around plus and minus 0.5 percentage points from the
achieve the price stability target of 2 percent in a
target level, and will offer to purchase 10-year JGBs at 0.5 percent
sustainable and stable manner, accompanied by wage
every business day through fixed-rate purchase operations, unless it
increases.
is highly likely that no bids will be submitted. It will make nimble
responses for each maturity by increasing the amount of JGB
purchases and conducting fixed-rate purchase operations.
Future conduct of monetary policy
Asset purchases (other than JGBs)
Purchase as necessary with following upper limits on annual paces The Bank will continue with QQE with Yield Curve Control,
of increase in their amounts outstanding aiming to achieve the price stability target, as long as it is
necessary for maintaining that target in a stable manner. It
ETFs: About 12 trillion yen
will continue expanding the monetary base until the
J-REITs: About 180 billion yen yearon-year rate of increase in the observed CPI (all items less
fresh food) exceeds 2 percent and stays above the target in a
stable manner. The Bank will continue to maintain stability
CP: Maintain the amount outstanding at about 2 trillion yen
of financing, mainly of firms, and financial markets, and will
Corporate bonds: Purchase at about the same pace as prior to the
not hesitate to take additional easing measures if necessary.
COVID-19 pandemic, so that their amount outstanding will
gradually return to the pre-pandemic level of about 3 trillion yen.
Chart 13
Yield Curve
%
1.8
December 19, 2022 (first day of December MPM)
1.6
Latest (June 16, 2023)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
0 1 2 3 4 5 6 7 8 9 10 15 20 30
residual maturity
year