Haruhiko Kuroda: The Bank of Japan'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 Representatives, Tokyo, 19 June 2013.
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Introduction
The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary
Control
in June and December. Most recently, the Bank submitted the report for the second
half of fiscal 2012 on June 14, 2013. I am pleased to have this opportunity to talk about
recent 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 been picking up as exports and industrial production have continued to
improve against the background that domestic demand remains resilient. As for overseas
economies, while the manufacturing sector shows a lackluster performance, they are
gradually heading toward a pick-up as a whole. In this situation, exports have started picking
up. Business fixed investment has been resilient in nonmanufacturing and appears to have
stopped weakening on the whole. Public investment has continued to increase, and housing
investment has generally been picking up. Private consumption has been resilient, assisted
by the improvement in consumer sentiment. Reflecting these developments in demand both
at home and abroad, industrial production has been picking up.
With regard to the outlook, Japan's economy is expected to return to a moderate recovery
path, mainly against the background that domestic demand increases its resilience due to
the effects of monetary easing as well as various economic measures, and that growth rates
of overseas economies gradually pick up, albeit moderately.
Meanwhile, financial conditions are accommodative. The monetary base has increased
significantly as asset purchases by the Bank of Japan have progressed, and firms' funding
costs have been hovering at low levels. The year-on-year rate of increase in the amount
outstanding of bank lending has been at around 2 percent, mainly due to increased demand
for working capital and funds related to mergers and acquisitions. Issuing conditions for CP
and corporate bonds have remained favorable on the whole.
Financial markets have shown somewhat volatile movements since late May, largely
reflecting developments in overseas markets. Given that Japan's economy is on a steady
path toward recovery, however, they are expected to gradually regain stability, reflecting
positive momentum in economic activity.
On the price front, the year-on-year rate of change in consumer prices (all items less fresh
food) has been negative, due to the reversal of the previous year's movements in
energyrelated and durable consumer goods. The rise in some market indicators of inflation
expectations has come to a pause; however, indicators including the surveys conducted on
households and economists suggest a rise on the whole. In May, the year-on-year rate of
change in consumer prices in the Tokyo metropolitan area registered positive for the first
time in four years and two months. Going forward, the year-on-year rate of change in
consumer prices nationwide is likely to gradually turn positive.
There remains a high degree of uncertainty concerning Japan's economy, including the
prospects for the European debt problem and the growth momentum of the U.S. economy as
well as the emerging and commodity-exporting economies. The Bank will continue to pay
close attention to further developments, including those in financial markets.
II. Conduct of monetary policy
Next, I will explain the Bank's conduct of monetary policy.
In April, the Bank introduced quantitative and qualitative monetary easing (QQE), aiming to
achieve the price stability target of 2 percent in terms of the year-on-year rate of change in
the consumer price index at the earliest possible time, with a time horizon of about two years.
QQE represents a new phase of monetary easing, both in terms of quantity and quality. More
concretely, first, the Bank changed its main operating target for money market operations
from the uncollateralized overnight call rate to the monetary base. On top of this, it will
double the monetary base in two years. Second, the Bank will purchase Japanese
government bonds (JGBs) so that their amount outstanding will increase at an annual pace
of about 50 trillion yen. As a result, the amount outstanding is also expected to double in two
years. In addition, the average remaining maturity of the Bank's JGB purchases has been
extended from slightly less than three years to about seven years. Third, the Bank will
purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs)
so that their amounts outstanding will increase at an annual pace of about 1 trillion yen and
about 30 billion yen, respectively. The Bank will continue with QQE, 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 both upside and downside risks to economic activity and
prices, and make adjustments as appropriate.
The transmission channels of QQE are as follows. First, the purchases of financial assets will
exert influence on long-term interest rates and risk premia of asset prices. Second, a portfolio
rebalancing effect, in which the investment behavior of financial institutions and institutional
investors changes by increasing lending and/or shifting their portfolios to risk assets. Third,
the clear commitment to achieving the price stability target at the earliest possible time and
the continuation of massive purchases of assets are expected to drastically change the
expectations of markets and economic entities. Through these channels, QQE will stimulate
private demand and contribute to raising prices by improving the aggregate supply and
demand balance and by raising inflation expectations.
Such conduct of monetary policy by the Bank will support the positive movements in
economic activity and financial markets, contribute to a rise in inflation expectations, and lead
Japan's economy to overcome the deflation that has lasted for nearly 15 years. The Bank will
continue to conduct monetary policy as appropriate.