J u l y 2 1 , 2 0 2 1
Bank of Japan
Japan's Economy and Monetary Policy
Speech at a Meeting with Local Leaders in Niigata
(via webcast)
AMAMIYA Masayoshi
Deputy Governor of the Bank of Japan
Introduction
It is my pleasure to have the opportunity today to exchange views with leaders in
administrative, financial, and economic areas in Niigata Prefecture, which is taking place
online due to the continuing impact of the novel coronavirus I would like to
(COVID-19).
take this chance to express my sincere gratitude for your cooperation with the activities of
the Bank of Japan's Niigata Branch.
At the outset of this meeting, I would like to explain the Bank's view on economic and
financial developments while touching on the content of the July 2021 Outlook for
Economic Activity and Prices (Outlook Report) released last week, and also talk about its
thinking on the conduct of monetary policy. In addition, I will outline the Bank's
comprehensive strategy on climate change that was made public last week, focusing on its
monetary policy actions.
I. Developments in Economic Activity and Prices
Economic Developments
I will start by talking about economic developments. Downward pressure has continued to
be exerted on Japan's economic activity mainly in the services sector, such as
-- face-to-face
eating and drinking as well as accommodations since the impact of has
-- COVID-19
remained, as evidenced by the state of emergency now in place in Tokyo and Okinawa
Prefecture. However, on the back of a clear recovery in overseas economies, exports and
production have continued to increase. In the corporate sector, a virtuous cycle in which a
recovery in profits leads to an increase in business fixed investment has started to operate.
Thus, Japan's economy has picked up as a trend, although it has remained in a severe
situation due to the impact of Before moving on to economic activity in the
COVID-19.
corporate and household sectors, let me explain developments in overseas economies.
Overseas economies have recovered on the whole, albeit with variation across countries and
regions (Chart 1). The International Monetary Fund (IMF) projected last October that the
growth rate of the global economy for 2021 would be 5.2 percent. Since then, the projection
has been revised upward twice, and the IMF forecasts in the latest projection made this
April that the growth rate for this year will be 6.0 percent. It also projects that the global
economy will grow at 4.4 percent for 2022, largely exceeding the past average of 3.5
percent. The recovery in overseas economies becoming clearer recently is attributable to the
economic measures in the United States and the acceleration in vaccinations in advanced
economies. Economic activity, including services consumption, has improved in the United
States and Europe amid progress with vaccinations. Such improvement, along with a
continuing recovery in the Chinese economy, has been pushing up the global economy as a
whole through trade activity.
Turning to the corporate sector in Japan, exports and production have increased steadily,
supported by the recovery in overseas economies (Chart 2). According to the June 2021
Tankan Economic Survey of Enterprises in Japan), while many firms in the
(Short-Term
services industry have continued to view their business conditions as
face-to-face
"unfavorable," overall business conditions have improved for four consecutive quarters. On
the back of improvement in corporate profits as a whole, business fixed investment has
picked up, mainly for machinery and investments, albeit with weakness in
digital-related
some industries. The business fixed investment plans in the June 2021 Tankan indicate that
the rate of change in such investment for fiscal 2021 is likely to show a steady
year-on-year
increase of 9.4 percent. Thus, in the corporate sector, a virtuous cycle from profits to
business fixed investment has been seen, triggered by an increase in external demand that
reflects the recovery in overseas economies.
As for the outlook, corporate profits are likely to continue improving on the whole on the
back of a recovery in domestic and external demand, despite being pushed down by cost
increases due to a recent rise in international commodity prices. Under these circumstances,
an uptrend in business fixed investment is expected to become clear.
Turning to the household sector, the pace of improvement has been slower than in the
corporate sector. Private consumption has been stagnant with public health measures
remaining in place (Chart 3). Consumption of durable goods has been steady, partly on the
back of an expansion in demand. On the other hand, that of services, including
stay-at-home
eating and drinking as well as accommodations, has remained well below the
pre-pandemic
level. For the time being, private consumption, mainly of services, is likely to
face-to-face
be at a relatively low level due to the impact of That said, the situations in other
COVID-19.
countries where vaccinations are progressing ahead of Japan suggest that private
consumption, including that of services, is expected to pick up again in Japan.
face-to-face
The employment and income situation, which shows the underlying developments in
private consumption, has remained weak but not deteriorated significantly. The
unemployment rate rose last year but subsequently has been at around 3 percent. Against
this background, employee income has turned positive on a basis. It is likely to
year-on-year
start picking up with a time lag following the recovery in domestic and external demand,
and then increase moderately.
In sum, an uptrend in private consumption is expected to become evident as the impact of
wanes gradually and employee income increases. It is projected that the virtuous
COVID-19
cycle that has started to operate in the corporate sector will spread to the household sector,
thereby intensifying the cycle in the overall economy.
The Bank presented the projected real GDP growth rates in its Outlook Report released last
week (Chart 4). What I have explained so far outlines the background of the outlook for
economic activity. In terms of the medians of the Policy Board members' forecasts, the real
GDP growth rate is projected to be relatively high at 3.8 percent for fiscal 2021, and then be
2.7 percent for fiscal 2022 and 1.3 percent for fiscal 2023.
This baseline scenario of the outlook for economic activity entails high uncertainties
regarding the consequences of including the spread of variants and their
COVID-19 -- --
impact, and thus risks are skewed to the downside for the time being. That said, there is a
possibility that the vaccine rollout will accelerate and economic activity will improve by
more than expected. With the global economy recovering from the depression triggered by
the impact of international commodity prices have risen recently. Attention
COVID-19,
should be paid to future developments in these prices and their impact on Japan's economy.
The Bank will continue to closely examine developments in economic activity at home and
abroad.
Price Developments
Next, let me talk about price developments (Chart 5). The year-on-year rate of change in the
consumer price index (CPI) excluding fresh food dropped to minus 1 percent last December,
mainly reflecting a decline in energy prices and the effects of the "Go To Travel" campaign
on price indices. However, when excluding the effects of various temporary factors, it has
remained slightly positive and been steady compared with the degree of deterioration in the
economy. The reason for this steadiness is that price cuts that aim at stimulating demand
have not been observed widely in the current phase. Since services consumption has been
constrained due to people's vigilance against it will not increase even with price
COVID-19,
cuts. In addition, cost increases stemming from various preventive measures against
have made it difficult for firms to cut prices.
COVID-19
Since this spring, the rate of change in the CPI has been at around 0 percent,
year-on-year
despite being significantly pushed down by a reduction in mobile phone charges. The
underlying trend in prices, which excludes the effects of temporary factors such as the rise
in energy prices, has been slightly positive. Globally, prices had been pushed down due to
the impact of but they have seen acceleration in their rates of increase as
COVID-19,
economic activity has resumed. In Japan, prices are no longer on the declining trend that
was seen from last year and have been turning to a rise.
The rate of change in the CPI is likely to be at around 0 percent in the short
year-on-year
run (Chart 4). Thereafter, it is expected to increase gradually as economic activity continues
to improve and firms' stance becomes active. In terms of the medians of the
price-setting
Policy Board members' forecasts in the July 2021 Outlook Report, the rate of
year-on-year
change in the CPI is projected to be 0.6 percent for fiscal 2021, 0.9 percent for fiscal 2022,
and 1.0 percent for fiscal 2023. However, it has taken time in Japan to change people's
mindset and behavior, which are based on the assumption that prices will not increase easily.
There are high uncertainties over how firms' stance will change as the
price-setting
economy recovers from the shock of and thus this should be carefully
COVID-19,
monitored.
II. The Bank's Conduct of Monetary Policy
I would now like to explain the Bank's conduct of monetary policy (Chart 6).
In response to the impact of the Bank has continued to support financing,
COVID-19,
mainly of firms, and maintain stability in financial markets by conducting powerful
monetary easing since March 2020 through the following three measures: (1) the Special
Program to Support Financing in Response to the Novel Coronavirus (2) an
(COVID-19);
ample and flexible provision of yen and foreign currency funds, mainly by purchasing
Japanese government bonds (JGBs) and conducting the U.S. dollar
funds-supplying
operations; and (3) purchases of funds (ETFs) and Japan real estate
exchange-traded
investment trusts These responses have been effective, coupled with the
(J-REITs).
government's measures and efforts by financial institutions.
That said, firms' financial positions have remained weak. Since it is expected to take some
time for the impact of to subside, they are likely to remain under stress. The
COVID-19
Bank therefore decided at the June MPM to extend the duration of the Special Program by
six months until the end of March 2022. It will continue to firmly conduct the current
monetary easing measures. For the time being, the Bank will also closely monitor the
impact of and not hesitate to take additional easing measures if necessary.
COVID-19
In terms of the conduct of monetary policy, it is important for the time being to address the
impact of Now, let me touch on the Bank's stance on policy conduct from a
COVID-19.
somewhat perspective. As I have explained, although the CPI is expected to
long-term
increase gradually, it is likely to take time to achieve the price stability target of 2 percent.
While the inflation rate has risen clearly of late in the United States and other countries, it
has been sluggish in Japan. Given this, it is necessary for the Bank to persistently continue
to conduct powerful monetary easing with a view to achieving the price stability target.
III. The Bank's Efforts on Climate Change
To conclude my discussion on monetary policy, I would like to talk about the Bank's efforts
on climate change (Chart 7). Climate change is a global challenge that will have a broad
impact on our society and economic activity into the future. In order to address this
challenge, it is essential for various economic entities to play their roles, and firms and
financial institutions are strongly aware of the need to deal with it over the long run. Major
economies, including Japan, have pursued policy actions with the goal of decarbonization.
Although policies essentially are the responsibility of governments and
climate-related
legislative bodies, climate change is also related to central banks' mandates to achieve price
stability and financial system stability. In other words, it could exert an extremely large
impact on developments in economic activity and prices as well as financial conditions
from a to perspective. Under these circumstances, central banks around
medium- long-term
the world have taken necessary actions based on their own respective mandates. With an
intention of furthering its efforts on climate change from a central bank standpoint, the
Bank last week made public its comprehensive strategy on climate change, which covers a
wide range of areas including monetary policy, the financial system, research, and
international finance.
As monetary policy actions, the Bank decided to introduce a new
fund-provisioning
measure to support private financial institutions in their efforts to address climate change
(Chart 8). In making its decision, the Bank gave consideration to avoiding specific
intervention as much as possible in the allocation of resources to certain industries or
individual firms. While policy actions to address climate change may include regulation of
greenhouse gas emissions and subsidies for the development of new technologies, policies
that directly involve resource allocation should be implemented by
micro-level
governments and legislative bodies. In contrast, central banks' monetary policies essentially
target the overall economy and should be conducted while avoiding such involvement as
much as possible. From these perspectives, with the new measure, the
fund-provisioning
Bank decided to take the approach of providing funds to financial institutions against
investment or loans they make to address climate change based on their own decisions. On
this basis, financial institutions that wish to be provided with funds will be asked to disclose
a certain level of information on their efforts to address climate change so that discipline
can be exercised.
The Bank's approach of providing funds through this new measure has the advantage of
being flexible under the fluid external environment. The criteria and categorization
--
taxonomies for deciding which efforts would be regarded as contributing to
so-called --
addressing climate change are still under discussion both at home and abroad, and it is
possible that they may change in the future. If we wait for these debates to be settled, this
will delay the actions on climate change. In this regard, the Bank's approach is sufficiently
flexible to respond to changes in the situation, allowing it to tackle this important challenge
as promptly as possible.
The Bank presented specific conditions for the in the preliminary outline.
fund-provisioning
The
interest rate of 0 percent will be applied and the implementation period will last until
Through this measure, the Bank will support financial institutions'
the end of fiscal 2030.
efforts on climate change over a long period. It will work out further details through an
exchange of opinions with financial institutions and other entities and will likely start its
within 2021. Addressing climate change is becoming an inevitable
fund-provisioning
business challenge for firms and financial institutions. I hope that the private sector's efforts
on climate change will be further encouraged through the Bank's new measure, which could
be the world's first such attempt, in that it ensures flexibility while avoiding involvement in
resource allocation as much as possible.
micro-level
Conclusion
Lastly, I would like to talk about the economy of Niigata Prefecture.
While the economy of Niigata Prefecture has remained in a severe situation due to the
impact of COVID-19, it has been picking up. It is expected to continue recovering, but there
is still a need to be aware of downside risks as the future course of COVID-19 remains
uncertain. However, looking at the development trajectory of the economy, I believe that
Niigata Prefecture is well equipped with the innovative capabilities to weather the uncertain
post-pandemic era.
For example, Niigata's rice and sake, which are famous throughout Japan, are not simply
products of nature; their production has grown into high value-added industries that were
developed through research and development to make the most of the local climate and
water quality. There are also many examples of technologies and know-how handed down
in the region that have become the basis of world-renowned local industries, such as metal
processing in the Tsubame-Sanjo area, which developed from the casting of Japanese nails
in the Edo period, and hemp fabric in the Uonuma region, which is famous for its "snow
bleaching" during the agricultural off-season. Speaking of the accumulation of experience
and facilities, Niigata, which has produced oil and natural gas from long ago, is also one of
Japan's leading energy prefectures, equipped with technology for resource development and
recycling, and pipelines that connect to the Tokyo metropolitan area. While the society as a
whole is making efforts to address climate change, I hope that Niigata will take advantage
of its environment to boldly take on the challenge of entering new businesses and thereby
lead the country in terms of making such efforts.
Next year will mark the 100th anniversary of the opening of the Ohkouzu diversion channel
on Shinano River. Japan's first weir equipped with modern technology has protected the
Echigo Plain from devastating damage caused by the overflowing of Shinano River and has
supported the development of Niigata. I would like to close my remarks by expressing my
respect for the great innovations of our ancestors and my hope for the further development
of Niigata Prefecture's economy in the era.
post-pandemic
Thank you very much for your attention.
Japan's Economy and Monetary Policy
Speech at a Meeting with Local Leaders in Niigata
(via webcast)
July 21, 2021
AMAMIYA Masayoshi
Deputy Governor of the Bank of Japan
Introduction
I. Developments in Economic Activity and Prices
II. The Bank's Conduct of Monetary Policy
III. The Bank's Efforts on Climate Change
Conclusion
Chart 1
I. Developments in Economic Activity and Prices
Global Growth Rate
(IMF Forecasts in the
World Economic Outlook)
y/y % chg.
7
CY 2022:
6 +4.4%
CY 2021: +6.0%
5
4
3
CY 2019: +2.8%
2
Average from 1980
through 2019:
1
+3.5%
0
-1
-2
CY 2020: -3.3%
-3
-4
IMF forecasts
-5
(April 2021 WEO)
-6
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
CY
Source: IMF.
1
Chart 2
I. Developments in Economic Activity and Prices
Corporate Sector
Business Conditions DI Business Fixed Investment
Exports and Production
(Tankan) (Tankan)
DI ("favorable" - "unfavorable"), % points y/y % chg.
s.a., CY 2015 = 100
40
20
120
Actual
15
20
Planned investment in current
110
fiscal year as of the June survey
10
of each year
0
100
5
-20
0
90
-40
-5
80
All industries
-60
Real exports -10
Accommodations, eating
70
& drinking services
-80
Industrial production
-15
Services for individuals
-20
-100
60
CY FY 06 08 10 12 14 16 18 20
CY 06 08 10 12 14 16 18 20
Chart 3
I. Developments in Economic Activity and Prices
Household Sector
Private Consumption Employment and Income Situation
Unemployment Rate Employee Income
y/y % chg.
s.a., %
s.a., CY 2015 = 100
120 6 4
Services
2
Goods
110
5
0
100
4 -2
90
-4
Nominal
3
80
Real
-6
70
2 -8
Jan. Jul. Jan. Jul. Jan.
July July CY 06 08 10 12 14 16 18 20 06/Q1 10/Q1 14/Q1 18/Q1
19 20 21
Note: In the right-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Employee income = Total cash earnings ("Monthly Labour
×
Survey") Number of employees ("Labour Force Survey"). Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the "Monthly
Labour Survey." Figures for real employee income are based on staff calculations using the CPI (less imputed rent).
Sources: Bank of Japan; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare, etc.
3
Chart 4
I. Developments in Economic Activity and Prices
The Bank's Forecasts for Economic Activity and Prices
(July 2021 Outlook Report)
Real GDP Growth Rate CPI (All Items Less Fresh Food)
y/y % chg. y/y % chg.
2
6
The medians of the Policy
The medians of the Policy
Board members' forecasts
Board members' forecasts
5
Fiscal 2022
4 Fiscal 2023
+0.9%
+1.3%
3 1
Fiscal 2021
2 +3.8%
Fiscal 2023
1
Fiscal 2022
+1.0%
+2.7%
0 0
Fiscal 2021
-1
+0.6%
-2
-3 -1
-4
-5
-6 -2
FY 13 14 15 16 17 18 19 20 21 22 23
FY 13 14 15 16 17 18 19 20 21 22 23
Chart 5
I. Developments in Economic Activity and Prices
Consumer Price Index (CPI)
y/y % chg.
2
1
0
Mobile phone charges
Effects of the "Go To Travel" campaign
-1
Effects of the consumption tax hike and free education policies
Energy
Excluding the above factors
CPI (less fresh food)
-2
CY 16 17 18 19 20 21
Notes: 1. Figures for energy consist of those for petroleum products, electricity, and gas, manufactured & piped.
2. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are staff estimates and include the effects of measures
such as free higher education introduced in April 2020.
Source: Ministry of Internal Affairs and Communications.
5
Chart 6
II. The Bank's Conduct of Monetary Policy
The Bank's Measures in Response to COVID-19
Supporting Corporate Financing
Special Program to Support Financing in Response to COVID-19
Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous
amount outstanding of about 5 tril. yen)
Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19
Stabilizing Financial Markets
Ample and Flexible Provision of Yen and Foreign Currency Funds
Active purchases of JGBs and T-Bills
U.S. Dollar Funds-Supplying Operations
Purchases of ETFs and J-REITs
ETFs: annual pace with an upper limit of about 12 tril. yen
J-REITs: annual pace with an upper limit of about 180 bil. yen
Chart 7
III. The Bank's Efforts on Climate Change
The Bank's Strategy on Climate Change
 Climate change is a global challenge and could have a broad impact into the future.
 Various entities in society and the economy need to actively play their roles.
The Bank, with an intention of furthering its efforts on climate change
consistent with its mandate of achieving price stability and ensuring the
stability of the financial system, decided the comprehensive strategy.
Operations
International
Monetary Financial
Research &
policy system finance
communication
The impacts of climate change on economic activity, prices, and the financial system are
highly uncertain and could greatly vary over time.
The Bank will constantly review its measures and make adjustments where needed.
7
Chart 8
III. The Bank's Efforts on Climate Change
Fund-Provisioning Measure to Support Efforts on Climate Change
From a central bank standpoint, the Bank provides funds to financial institutions for investment
or loans they make to address climate change based on their own decisions.
Amid the fluid external environment, it can respond flexibly to changes in circumstances
while avoiding direct involvement in micro-level resource allocation as much as possible.
Counterparties make investment/loans based on their
Eligible Counterparties
own decisions. Discipline will be exercised through a
Eligible Investment/Loans
certain level of disclosure.
 Financial institutions that disclose a certain level of information on their efforts to address climate change
 Of the investment/loans made by counterparties as part of their efforts, those that contribute to Japan's
actions to address climate change
Long-term support for financial institutions' efforts
Terms and Conditions