May 8, 2024
Bank of Japan

Virtuous Cycle between Wages and Prices

and the Bank of Japan's Monetary Policy

Speech at a Meeting Held by
the Yomiuri International Economic Society in Tokyo

UEDA Kazuo
Governor of the Bank of Japan

(English translation based on the Japanese original)

Introduction
Thank you for the opportunity to speak today at this meeting hosted by the Yomiuri

International Economic Society.

At the Monetary Policy Meeting (MPM) held on March 18 and 19, 2024, the Bank of Japan
changed its monetary policy framework, judging that it was now within sight that the price
stability target would be achieved in a sustainable and stable manner. The Bank considers
that the large-scale monetary easing that lasted for 11 years since the introduction of

Quantitative and Qualitative Monetary Easing (QQE) in April 2013 had fulfilled its role.

Today, I would like to provide an overview of the Bank's assessment of the developments in
economic activity and prices underlying this decision, including the contents of the Outlook
for Economic Activity and Prices (Outlook Report) released at the end of April, and then
talk about the details of the Bank's new monetary policy framework and its thinking on the

future conduct of monetary policy.

I. Economic Activity

Let me begin with developments in economic activity. Japan's economy has recovered
moderately, although some weakness has been seen in part. Looking at the corporate sector,
production has been flat as a trend, although it has declined recently, partly due to the
effects of a suspension of production and shipments at some automakers (Chart 1). The
March Zankan (Short-Term Economic Survey of Enterprises in Japan) showed that business
sentiment has stayed at a favorable level on the whole, although there were some industries
in which sentiment was subdued due to the impact of the aforementioned developments in
the automobile industry. Corporate profits have improved as firms have made progress in
the pass-through of cost increases to selling prices, and business fixed investment has been
on a moderate increasing trend. In the household sector, as regards private consumption,
consumption of nondurable goods such as food has been affected by the downward pressure
on real income due to price rises seen so far, and automobile sales have declined due to the
same factors affecting production. However, indicators of household sentiment have shown
a clear improvement recently, mainly due to expectations for wage increases. Therefore,
despite some temporary weakness in both the corporate and household sectors, the virtuous

cycle from income to spending has been maintained.

As for the outlook, the Bank expects Japan's economy to continue growing firmly as
overseas economies grow moderately and the aforementioned temporary factors dissipate.
In the April Outlook Report, the Bank projects that the economy is likely to keep growing at
a pace above its potential growth rate through fiscal 2026 (Chart 2). This is because the
Bank expects the virtuous cycle from income to spending to gradually intensify in both the
corporate and household sectors. In the corporate sector, production is expected to return to
an uptrend, due to a moderate increase in domestic and external demand as well as progress
in global adjustments for IT-related products. Against this backdrop, corporate profits are
expected to follow an improving trend and business fixed investment is likely to continue
on an increasing trend. Business fixed investment plans in the March Zankan show that
investment is expected to continue rising clearly in fiscal 2024, partly in response to the
digitalization and decarbonization of the economy, providing further evidence of firms'
positive fixed investment stance. Turning to the household sector, with wages expected to
grow firmly, which will be explained in more detail later, and with the effects of the
government's cuts in income tax and inhabitant tax, household income is expected to
improve even on a real basis. Under these circumstances, private consumption is expected

to gradually return to an increasing trend.

II. Price Developments

Current Situation of and Outlook for Prices

Next, let me look at prices. The year-on-year rate of increase in the consumer price index
(CPI) for all items less fresh food for March 2024 -- the latest figure available -- was at
around 2.5 percent (Chart 3). While inflation has now been above 2 percent for two years,

the nature of this inflation has changed.

In several of my speeches, I have explained developments in prices since 2021 by
distinguishing between the "first component" and the "second component" (Chart 4). The
first component refers to the force that pushes up prices due to cost-push pressure led by the
rise in import prices. In contrast, the second component refers to the force that leads to
further price rises through the linkage between wages and prices, mainly against the
backdrop of tightening labor market conditions while the economy improves; in other

words, the virtuous cycle between wages and prices. Needless to say, the first component is

a temporary force, and its effects will gradually dissipate once the upward pressure on
import prices, which was the driver of the first component, ceases. In contrast, the second
component is expected to raise inflation in a more sustainable manner, accompanied by

changes in firms' wage- and price-setting behavior.

Keeping this distinction in mind, let us have a look at recent price developments (Chart 3).
Recently, the rate of increase in the prices of goods, especially food products, has clearly
been falling, which shows that the effects of the first component are easing. On the other
hand, in services, for which labor costs account for a large share of total costs, prices have
continued to rise moderately. This suggests that the effects of the second component are

increasing.

Looking ahead, I expect the first component to ease off but the second component to
continue increasing. In the April Outlook Report, the Bank projects that the rate of increase
in the CPI for all items less fresh food and energy will fall from 3.9 percent in fiscal 2023 to
1.9 percent in fiscal 2024, be at 1.9 percent in fiscal 2025, and increase to 2.1 percent in
fiscal 2026. While the rate of increase in the CPI less fresh food will show somewhat larger
fluctuations due to the impact of the phasing out of government energy subsidies, it is
expected to be in the range of 2.5-3.0 percent for fiscal 2024 and then be at around 2

percent from fiscal 2025 onward.

As such, it is fairly clear from these forecasts in the Outlook Report that the Bank expects
the momentum to shift from the first component to the second component. When making an
assessment of price developments, it is important to capture the trend in prices brought
about by the second component -- in other words, underlying inflation. Next, I will talk

about underlying inflation in more detail.

An assessment of underlying inflation cannot be made based on developments in a single
indicator. It should be made by carefully examining a range of information on economic
activity and price developments, including not only a variety of price indicators, but also
that lying behind price changes, such as the output gap, inflation expectations, and the wage

growth rate. Therefore, capturing underlying inflation is not necessarily easy. It is an

especially difficult challenge in the current phase, in which price fluctuations attributable to
the first component are large. The Bank has been compiling various measures considered
useful in determining developments in the underlying trend in prices. However, the sharp
rise in import prices, as seen in the current phase, was not factored into the calculation of
these measures. To give an example, the trimmed mean is calculated by excluding items that
belong to the upper and lower 10 percent of the price change distribution. Thus, when prices
temporarily rise across a wide range of items, the underlying trend in prices cannot be
captured by the trimmed mean. To capture underlying inflation in the current phase, it is

necessary to take a new approach.

In the April Outlook Report, the Bank presented three approaches to capturing underlying
inflation in the current phase: (1) extracting underlying factors from price statistics through
a new method; (2) focusing on indicators of inflation expectations; and (3) estimating
indicators of trend inflation from economic models (Chart 5).' Although indicators
estimated using these approaches show different developments and their levels vary, a few

things can be noted when taking a comprehensive look.

First, although the levels of these indicators vary, all of them are below the price stability
target of 2 percent. Second, however, all of the indicators have been rising gradually,
meaning that underlying inflation is almost certainly rising. Thus, at this point, underlying

inflation seems to be on a rising path toward 2 percent.

Of course, all of these estimated results are based on certain premises and assumptions, and
they should be interpreted with considerable latitude. To give an example, indicators of
trend inflation calculated from economic models are affected by how the model is specified.
Furthermore, I would like to reiterate that developments in underlying inflation should not
be assessed solely based on such analyses. It is important for the Bank to comprehensively
assess underlying inflation by taking a variety of perspectives into account while carefully
examining the mechanism that lies behind price changes by also using anecdotal

information from firms.

' For details of each approach, see Box 4 of the April 2024 Outlook Report.

Firms' Wage- and Price-Setting Behavior and Virtuous Cycle between Wages and Prices

In the April 2024 Outlook Report, the Bank projects that, in the second half of the
projection period, underlying inflation is likely to be at a level that is generally consistent
with the price stability target of 2 percent. This is because changes in firms' wage- and
price-setting behavior have become more evident recently. The linkage between the two has

strengthened in both directions, from prices to wages and from wages to prices.

On the wage side, against the backdrop of favorable corporate profits and tightening labor
market conditions, moves to reflect price rises in wages have become evident. Currently, the
increase in wages agreed in this year's annual spring labor-management wage negotiations
is above 5 percent, while that in base pay is around 3.5 percent, both being the highest
levels since 1991 (Chart 6). The trend toward higher wages has been particularly
pronounced at larger firms, suggesting that their wage-setting behavior has changed

considerably.

At the moment, wage negotiations of small and medium-sized firms are in progress,
following those of large firms. I am aware that the business conditions of such small and
medium-sized firms vary across industries and depend on individual firms, and that some
have said that it is not easy to raise wages. However, through regular dialogue between a
wide range of firms and the Bank, including its Head Office and branches across Japan, the
Bank has heard from many firms, including regional small and medium-sized firms, that
there is a pronounced labor shortage and that they -- even those facing severe business
conditions -- are considering raising wages in order to recruit and retain employees. The
government's efforts to ensure an appropriate pass-through of labor costs in
business-to-business transactions also seem to be encouraging these firms to make the
decision to raise wages. Moreover, looking back at the past, in Japan, the results of wage
agreements reached at large firms have tended to form the so-called prevailing wage and to
spill over to wages at small and medium-sized firms, and a similar tendency was seen last
year. Based on these developments taken together, I believe that the average rate of increase

in wages this year is highly likely to exceed that of last year.

In terms of prices, we are also seeing a change in firms' price-setting behavior. Looking at

firms' outlook for output prices in the Zankan, while the short-term outlook has declined
somewhat with the easing of the impact of the rise in import prices, the long-term outlook
has increased further. I think that this may indicate a change in firms' price-setting behavior,
in that they plan to gradually raise their selling prices as they factor in their expectation that

labor costs will continue to rise.

Changes in Firms' Wage- and Price-Setting Behavior: Comparison with the Past

Looking back, after Japan fell into deflation in the late 1990s, the mindset and behavior
based on the assumption that wages and prices will not increase easily had taken hold
among the public and firms. Meanwhile, there were several phases when prices rose
triggered by a rise in import prices (Chart 7). However, there was no substantial change in
firms' wage- and price-setting behavior. For example, in the late 2000s, wages hardly

increased at all, even when prices rose.

One of the reasons for this difference between these past phases and the current phase is that
import prices rose quite significantly this time. Another important factor is that during the
current phase, labor market conditions have been tightening notably, causing a change in the
wage and price formation mechanisms. The number of employed persons in Japan had been
more or less flat, albeit with fluctuations, since the late 1990s. It then turned to a clear
increase from the mid-2010s as, for a long period, the economy remained on an improving
trend and labor demand increased. Against this background, together with changes on the
labor supply side such as the baby boomer generation's exit from the labor market, labor
market conditions have tightened notably of late. I believe that the Bank's patient conduct of
large-scale monetary easing was also effective in this tightening by strongly stimulating

aggregate demand.

Changes in Firms' Wage- and Price-Setting Behavior: Outlook

Thus, the current phase is characterized by changes in firms' wage- and price-setting
behavior that were not seen in the past. The fact that a substantial rise in wages has been
achieved for two consecutive years and that firms' outlook for selling prices has increased
steadily is an indication of change in the mindset and behavior based on the assumption that

wages and prices will not increase easily, which had taken hold in society during deflation.

Looking ahead, taking into account that labor market conditions are expected to remain

tight, changes in firms' wage- and price-setting behavior will gradually take root.

Under these circumstances, I expect firms to change their behavior in a broader sense. In the
Survey regarding Corporate Behavior since the Mid-1990s that was conducted as part of the
review of monetary policy from a broad perspective, the Bank asked a wide range of firms
which was preferable in terms of their business activities: a state in which both prices and
wages rise moderately, or one in which both prices and wages hardly change (Chart 8)."
Approximately 70 percent of firms responded that a moderate rise in both prices and wages
was preferable. As a reason for this response, some of the firms added that this moderate
rise would make it unnecessary to cut costs in order to curb price rises, enabling them to
make active business fixed investment and raise wages. Needless to say, for the economy to
grow sustainably, enhancing productivity is essential. While changes in the mindset and
behavior based on the assumption that wages and prices will not increase easily have been
seen, I hope that firms in Japan will make the most of this environment, and that they will

strengthen their proactive efforts to enhance productivity.

Risks regarding Prices

So far, I have talked about the outlook for prices based on the baseline scenario. However,
the risks regarding the outlook are high, both to the upside and downside. Let me point out
two risks in particular. The first is risks regarding firms' wage- and price-setting behavior.
As I have said, firms' behavior has recently shifted more toward raising wages and prices,
and thus the linkage between wages and prices could strengthen further than expected,
causing prices to deviate upward from the baseline scenario. On the other hand, based on
the assumption that cost-push pressure led by the rise in import prices will subside, it is
necessary to pay close attention to whether moves to pass on increases in wages and other
costs to selling prices will weaken, together with the developments in cost-push pressure.
The second risk is future developments in foreign exchange rates and international
commodity prices, as well as the extent to which such developments will spread to import

prices and domestic prices. A rise in crude oil prices and depreciation of the yen could

2 The results of the survey will be released soon.

weaken the premise of the outlook that cost-push pressure led by the rise in import prices
will subside. Especially, with firms' behavior shifting more toward raising wages and prices
recently, it is necessary to be aware that, compared to the past, exchange rate developments

are more likely to affect prices.

II. The Bank's Monetary Policy

Changes in the Monetary Policy Framework

Next, I would like to turn to the Bank's conduct of monetary policy. As I have mentioned so
far, it is within sight that the price stability target of 2 percent will be achieved in a
sustainable and stable manner, as it has been confirmed that the virtuous cycle between
wages and prices has become more solid. In these circumstances, the Bank decided at the
March MPM to change the large-scale monetary easing that it had carried out for the past 11

years, as I noted at the beginning of this speech (Chart 9).

Specifically, the Bank decided upon the following. First, with regard to short-term interest
rates, it decided to encourage the uncollateralized overnight call rate to remain at around 0
to 0.1 percent. Given that the interest rate under the negative interest rate policy was in the
range of minus 0.1 to 0 percent, this policy change means an interest rate hike of around 0.1
percentage points. Second, the Bank decided to terminate the yield curve control framework
by discarding the target level of 10-year JGB yields and the upper bound for these yields as
a reference. Third, it decided to discontinue purchases of exchange-traded funds (ETFs) and
Japan real estate investment trusts (J-REITs). It also decided to gradually reduce the amount

of purchases of CP and corporate bonds and aim to discontinue the purchases.

In short, the new policy framework can be expressed as a conventional monetary policy
framework in which the Bank guides the short-term interest rate as a primary policy tool,
with the price stability target of 2 percent. With regard to JGB purchases, the Bank has
decided to continue for now its purchases at broadly the same amount as before to avoid
discontinuous changes before and after the change in policy framework, with possible
adjustment of the actual amount of JGB purchases in each market operation, mainly taking
into account market developments. Under such circumstances, long-term interest rates will

be determined basically by the financial markets. Therefore, it can be said that it is natural

for these rates to fluctuate in response to developments in overseas interest rates and
changes in the outlook for economic activity and prices. In addition, while the Bank is
currently examining the situation in financial markets under the framework of JGB
purchases revised in March, it is appropriate for the Bank to reduce the amount of its JGB

purchases as it proceeds with its exit from large-scale monetary easing.

Assessing the Degree of Monetary Accommodation: the Real Interest Rate and r* (r-star)
Assessing the degree of monetary accommodation is one of the challenges the Bank faces
as it seeks to ensure the most appropriate financial conditions by guiding the short-term
interest rate with the price stability target.2 The Bank makes a comprehensive assessment
of financial conditions, taking into account factors such as developments in interest rates,
financial institutions' lending attitudes, and the financial market environment. Among these,
it is the real interest rate, that is, the nominal interest rate minus the expected rate of
inflation, which serves as the basis for this assessment. Recently, both short- and long-term

real interest rates have been significantly negative (Chart 10).

Furthermore, in assessing the degree of monetary accommodation based on the level of the
real interest rate, it is necessary to compare that rate with the real interest rate that is neutral
to economic activity and prices -- the so-called natural rate of interest or r* (r-star). Roughly
speaking, if the real interest rate is lower than r-star, households' and firms' spending
behavior will be more active, and this will push up economic activity and prices. On the
contrary, if the real interest rate is higher than r-star, their spending behavior will be

restrained, and economic activity and prices will be suppressed.

The difficulty with r-star is that it cannot be directly observed; rather, it must be estimated
using statistical methodologies. A variety of estimation methodologies have been devised
and the Bank staff has made various calculations. The reality is, however, that the estimated

values of r-star vary quite considerably, depending on the methodologies used (Chart 11).

Uncertainties with r-star have been extensively discussed not only in Japan but also in the

3 For details, see Box 5 of the April 2024 Outlook Report.

United States and Europe, since, in addition to the fact that estimating r-star is itself very
difficult, recent changes in the global situation have made it even more difficult to estimate
r-star. In principle, the value of r-star varies depending on the balance between savings and
investment. There may have been significant changes in this balance globally as firms'
investment behavior and cross-border capital flows respond to various factors, including
heightened geopolitical risks, changing globalization, and progress in decarbonization.
There are in addition some developments that are specific to Japan. The population in Japan
is aging more rapidly than in the United States and Europe. This population aging might
also change the balance between savings and investment in the national economy, thereby
affecting r-star. Another issue is the difficulty in estimating the effects of interest rate hikes
on economic activity and prices, given that it is a long time since the short-term interest rate

was raised in Japan.

It is therefore difficult at this point to specify the level of r-star in Japan and show the
degree of monetary accommodation in a clear manner. However, the real interest rate is
currently below various estimated values of r-star to a substantial degree, and there is
therefore no doubt that financial conditions are accommodative. I believe that this situation
will continue to firmly support the economy. As regards the uncertainties of r-star, the Bank
will examine in its future conduct of policy how the interest rate change will affect

economic activity and prices through changes in financial conditions.

Future Conduct of Monetary Policy
With the price stability target of 2 percent, the Bank will conduct monetary policy as
appropriate from the perspective of sustainable and stable achievement of the target, while

examining at every MPM the risks and the outlook for economic activity and prices.

Based on what I have said so far, I want to add that, if underlying inflation rises in line with
the Bank's outlook, the appropriate degree of monetary accommodation from the
perspective of achieving the price stability target will change, and the Bank will adjust the
degree of monetary accommodation. Additionally, if there is a change in the outlook for
economic activity and prices, or a change in the risks regarding the outlook, that is without

doubt an appropriate reason to adjust the policy interest rate accordingly. In this regard, as I

10

mentioned earlier, it is necessary to keep in mind that risks surrounding the price outlook
have continued to be high, both to the upside and downside. If the outlook for prices is
revised upward or if upside risks become high, it will be appropriate for the Bank to make
an earlier adjustment of the policy interest rate. On the other hand, if the outlook is revised
downward or downside risks increase, it will be necessary for the Bank to maintain the
current accommodative financial conditions for a longer period. In addition, if economic
activity and prices face large downward shocks, the Bank will consider taking the necessary
action, without ruling out any options in advance, including the implementation of the

various unconventional measures that have been taken so far.

Concluding Remarks
Today, I have talked about the Bank's assessment of price developments and its monetary

policy under the new framework.

Underlying inflation in Japan is firmly moving toward 2 percent, and it has been confirmed
that the virtuous cycle between wages and prices has become more solid. With the price
stability target of 2 percent, the Bank will conduct monetary policy as appropriate, in
response to developments in economic activity and prices as well as financial conditions,

from the perspective of sustainable and stable achievement of the target.

Lastly, I would like to say a few words about the review of monetary policy from a broad
perspective. The Bank launched the review in April last year and, among other things, it has
exchanged views with various related parties, held workshops, and conducted surveys. Last

October, the Bank also started to discuss the findings of the review at the MPMs.

In the review, the Bank will look back on developments in economic activity and prices
over the past 25 years and identify the positive and side effects of the various
unconventional measures that it has introduced so far by taking into account the
environment in which the Bank found itself at each point in time. No other central bank has
implemented unconventional measures over such a long period and in such a variety of
ways. The Bank will analyze its extensive experience from a broad perspective with the

help of the expertise of professionals in each field. We hope the results will provide

11

valuable material that should be useful for the conduct of monetary policy going forward,

not only in Japan but also in other economies.

Thank you very much for your attention.

12

Virtuous Cycle between Wages and Prices
and the Bank of Japan's Monetary Policy

Speech at a Meeting Held by
the Yomiuri International Economic Society in Tokyo

May 8, 2024

UEDA Kazuo
Governor of the Bank of Japan

Introduction

I. Economic Activity

II. Price Developments

Il. The Bank's Monetary Policy

Concluding Remarks

Chart 1

Current Situation of Economic Activity in Japan

Corporate Sector Household Sector
DI ("favorable" - "unfavorable"),
20 -s.a., CY 2020 = 100 % points_ 40 105 8:4 CY 2019 = 100 Sa 55
15 4 - Industrial production (left scale) I 39 100 50
- Business conditions (right scale)

10

95 4 r 45
05

90
00

85
95

80
90 . .

--Real private consumption

75 (left scale) L 95

85 - Consumer Confidence Index
(right scale)

80 1 fl 1 1 it 49 10 A 1 fl L it 39
CY 19 20 21 22 23 24 CY19 20 21 22 23 24

Notes: 1. In the left-hand chart, figures for business conditions are based on the Tankan.
2. In the right-hand chart, figures for real private consumption are the real Consumption Activity Index (travel balance adjusted) based on staff calculations, which exclude inbound
tourism consumption and include outbound tourism consumption.
Sources: Ministry of Economy, Trade and Industry; Bank of Japan; Cabinet Office. iT

Chart 2

Outlook for Economic Activity in Japan

The Bank's Forecasts for Real GDP . Develop: ments in
Business Fixed Investment Plans

590 -8-4., ann., tril. yen 18 _y/y % chg.

FY 2026

+1.0%
580

FY 2024 NL
570 4 70.8% a,
NON
560 4 . FY 2025
\ +1.0%

550 4 FY 2023

+1.3%
540
530
520 4

3] © Fy 2020 tm.
510 4 -FY 2021 tm,
500 I 6 I -FY 2022 NN
FY 2023 NN,

gop bee 9 : . : . ;
FY13 14 15 16 17 18 19 20 21 22 23 24 25 26 Mar. June - Sept. ~-'Dec. ~_-" Forecast' Actual

Notes: 1. In the left-hand chart, the forecasts presented are the medians of the Policy Board members' forecasts in the April 2024 Outlook Report. The values of real GDP for fiscal 2023 onward
are calculated by multiplying the actual figure for fiscal 2022 by alll successive projected growth rates for each year.
2. In the right-hand chart, figures are based on the Tankan. All industries including financial institutions. Including software and R&D investments and excluding land purchasing expenses.
R&D investment is not included before the March 2017 survey. There are discontinuities in the data for December 2021 and December 2023 due to changes in the survey sample.
Sources: Cabinet Office; Bank of Japan.

II. Price Developments Chart 3

Developments in Consumer Prices

Developments over Time Forecasts
5 ly % chg. yly % chg._ 5
C- Energy wry
44 (- Food products r 4
G55 Goods (less food products I 2
34 ( Products) I) Ii fy, Mar2024 +7 3% lL
Services » +2.9%
-- CPI (less fresh food)
2 == CPI (less fresh food and energy) t 2
14 r 1
04 0
-- CPI (less fresh food)
-1 4 L -1
--- CPI (less fresh food and energy)
2 f \ \ fl \ 2
CY 19 20 21 22 23 24 FY 24 25 26
Note: In the right-hand chart, the forecasts presented are the medians of the Policy Board members' forecasts in the April 2024 Outlook Report.
Sources: Ministry of Internal A fairs and Communications; Bank of Japan. 3

II. Price Developments Chart 4

Japan's Recent Inflation Dynamics: An Illustration

* flation rate i ar
? Projection
mem

The First Component:

Pass-through to consumer prices of cost :
increases led by the past rise in import prices ?s,

The Second Component:

Intensifying virtuous cycle between wages and prices

Time


II. Price Developments Chart 5

Three Approaches to Capturing Underlying Inflation

1. Price Statistics 2. Inflation Expectations 3. Economic Models
contribution to y/y % chg. in
3 % CPI less fresh food, % points. 1 5 3 % 3 %
- CPI (low-volatility items, -- Composite index of inflation - Model 1: Phillips curve model

left scale) expectations (10-year ahead) (time-varying intercept)

Sub-index for household
-- Trend component of the CPI ED AInEe Top nousenoO~ - Model 2: Time-varying

for services (left scale) doyn ln eee Sub-index for firms parameter VAR model
4 --=: Scheduled cash eamings of I ; 1° 4 Sub-index for economists and 21 Model 3: Semi I model
= ' -t =onn : -
full-time employees (left scale) H a market participants lodel 3: Semi-structural mode!
-- Contribution of wage factors i

to CPI changes (right scale) ra

0.5

0.0

-l poirririririririiiit -s5 -l peers iiiriiiiiiiys -] D4 erriiiiitiiiiiiis

CY07 09 11 13 15 17 19 21 23 CY07 09 11 13 15 17 19 21 23 CY 07 09 11 13 15 17 19 21 23

Note: For details of each approach, see Box 4 of the April 2024 Outlook Report.
Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Bank of Japan; QUICK, "QUICK Monthly Market Survey <Bonds>"; Consensus
Economics Inc., "Consensus Forecasts"; Bloomberg; Cabinet Office; Google Trends.

II. Price Developments Chart 6

Firms' Wage- and Price-Setting Behavior

Results of Spring Wage Negotiations Firms' Outlook for

Output Prices
ly % chg.
10 7 ons < Results by Type of Employment and Firm Size > 5.9 She: from the current level, %
9 total wage increase 45 4
; CY 2023 CY 2024
8 [=3Base pay increase 4.0 4
Regular employees 3.6% 5.2%
7 Regular wage increase (Base Pay increase 2 A % 3.6%) 3.5 4 -1 year ahead
6 1,000 or more 3.7% 5.2% 3.0 4
g -
"2 300 to 999 3.4% 5.3% 5 years ahead
5 E 25 I
= 100 t0 299 3.3% 4.9%
4 © 99 or less 2.9% 4.2% 2.0 5
3 Part-time employees 1s 4
2H {bE 1.0 4
Wi YWUGGAagGGA
' TT y) I 1] an
YGGG7Z V7} lV)
-l 0,5 Hos
CY 80 85 90 95 00 05 10 15 20 CY14 16 18 20 22 24

Notes: 1. In the left-hand chart, figures from 1980 to 2014 are those published by the Central Labour Relations Commission, while those from 2015 to 2024 are figures released by Rengo.
Figures for base pay increase and regular wage increase are aggregated values of the wage negotiation results of labo