Haruhiko Kuroda: The Bank's Semiannual Report on Currency and
Monetary Control
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on
Financial Affairs, House of Councillors, Tokyo, 18 February 2016.
* * *
Introduction
The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary
Control in June and December. I am pleased to have this opportunity today to talk about
developments in Japan's economy and present an overall review of the Bank's conduct of
monetary policy.
I. Economic and financial developments in Japan
First, I will explain economic and financial developments in Japan.
Japan's economy has continued to recover moderately, with a virtuous cycle from income to
spending operating in both the household and corporate sectors, although exports and
production have been affected by the slowdown in emerging economies. Looking ahead,
Japan's economy is likely to be on a moderate expanding trend as domestic demand is likely
to follow an uptrend and as exports are expected to increase moderately on the back of
emerging economies moving out of their deceleration phase.
On the price front, the year-on-year rate of change in the consumer price index (CPI) for all
items less fresh food is about 0 percent. The year-on-year rate of change in the CPI for all
items less fresh food and energy has remained positive for 27 consecutive months and
increased to 1.3 percent recently; this suggests that the underlying trend in inflation has been
improving steadily. The year-on-year rate of change in the CPI for all items less fresh food is
likely to be about 0 percent for the time being, due to the effects of the decline in energy prices,
and, as the underlying trend in inflation steadily rises - on the back of an improvement in the
output gap and of an increase in medium- to long-term inflation expectations - accelerate
toward the price stability target of 2 percent. Assuming that crude oil prices will rise moderately
from the recent level, the timing of the year-on-year rate of change in the CPI reaching around
2 percent is projected to be around the first half of fiscal 2017.
II. Conduct of monetary policy
As explained, the baseline scenario assumes that Japan's economy is likely to be on a
moderate expanding trend and the year-on-year rate of change in the CPI is likely to accelerate
toward 2 percent. However, from the turn of the year, global financial markets have been
volatile against the backdrop of the further decline in crude oil prices and uncertainty such as
over future developments in emerging and commodity-exporting economies, particularly the
Chinese economy. For these reasons, there is an increasing risk that an improvement in the
business confidence of Japanese firms and conversion of the deflationary mindset might be
delayed and that the underlying trend in inflation might be negatively affected.
In order to preempt the manifestation of this risk and to maintain momentum toward achieving
the price stability target of 2 percent, the Bank introduced "Quantitative and Qualitative
Monetary Easing (QQE) with a Negative Interest Rate" in January 2016. The Bank will lower
the short end of the yield curve by slashing its deposit rate on current accounts into negative
territory and will exert further downward pressure on interest rates across the entire yield curve,
in combination with continued large-scale purchases of Japanese government bonds (JGBs).
The JGB yield curve has declined after the introduction of "QQE with a Negative Interest Rate,"
and policy effects have been seen. Going forward, these effects are likely to steadily spread
to both the real economy and the price front.
The Bank will continue with "QQE with a Negative Interest Rate," aiming to achieve the price
stability target of 2 percent, as long as it is necessary for maintaining that target in a stable
manner. It will examine risks to economic activity and prices, and take additional easing
measures in terms of three dimensions - quantity, quality, and interest rate - if it is judged
necessary for achieving the price stability target.
In global financial markets, risk aversion of investors has been spreading excessively around
the globe recently. The Bank will carefully monitor how the developments in global financial
markets influence Japan's economy and prices.
Thank you.