Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Gunma
TAMURA Naoki
Member of the Policy Board
I. Economic Activity and Prices
A. Economic Activity
1. Current Situation
I will begin my speech by talking about recent developments in economic activity in Japan.
Japan's economy, despite being affected by factors such as high commodity prices, has picked
up as the resumption of economic activity has progressed while public health has been
protected from COVID-19. The pace of recovery had remained moderate in Japan, partly
because steps to resume economic activity had been taken more cautiously than in other
advanced economies; nevertheless, real GDP growth has almost recovered to levels seen
before the pandemic (Chart 1).
Let me explain the current state of Japan's economy in more detail. First, a look at the
household sector. Although Japan experienced the eighth wave of the pandemic this winter,
the impact on private consumption has been limited compared with past cases, and private
consumption continues to recover as a trend from the downturn brought about by the impact
of the pandemic (Chart 2). This recovery trend has been supported by pent-up demand on the
back of household savings that had accumulated during the pandemic and by the
government's domestic travel discount program.
Next, the corporate sector. Exports and production have increased as a trend, supported in
part by high levels of order backlogs, with the effects of supply-side constraints waning (Chart
3). By goods, exports of automobile-related goods have increased moderately, as the tightness
in global supply and demand conditions for semiconductors used in automobiles has
gradually eased. Those of capital goods have increased, supported by high levels of order
backlogs. In contrast, exports of IT-related goods such as semiconductors have been
somewhat weak, with stronger adjustment pressure on those for smartphones and personal
computers. As for corporate profits, while there are differences across industries and firm
sizes, and despite having declined slightly recently, they have been at a historically high level
on the whole, exceeding the level seen before the pandemic (Chart 4). By firm size, while
corporate profits of large firms have been on a rising trend, those of small and medium-sized
firms have been more or less flat. The business fixed investment stance has been active in
both manufacturing and nonmanufacturing, due in part to pent-up demand for investments
that had been restrained during the pandemic.
2. Outlook
Next, I will turn to the outlook for economic activity. Economies in Europe and the United
States are expected to slow against the background of significant policy interest rate hikes by
central banks to contain rapid inflation (Chart 5). Meanwhile, Japan's economy is likely to
recover, with the impact of COVID-19 and supply-side constraints waning and with support
from accommodative financial conditions and the government's economic measures,
although it is expected to be under downward pressure stemming from high commodity prices
and slowdowns in overseas economies. In fact, the International Monetary Fund (IMF)
projected in its January 2023 World Economic Outlook (WEO) Update that Japan would
achieve the highest growth among the G7 countries in 2023 (Chart 6).
As background to Japan's economic outlook, the following are five key developments. First,
the waning of supply-side constraints will make a positive contribution to exports and
production. Second, pent-up demand, which has recently been pushing up private
consumption and business fixed investment, will continue to support the economy's recovery
for the time being. Third, inbound tourism demand will increase, reflecting the government's
relaxation of entry restrictions. Fourth, with corporate profits remaining at high levels on the
whole, business fixed investment -- including that to address labor shortage, digital-related
investment, and that related to growth areas and decarbonization -- will continue to increase.
Fifth, as wage growth increases, reflecting tightening labor market conditions and price rises,
a virtuous cycle from income to spending will intensify gradually. Taking these points into
account, I expect that Japan's economy will recover.
In terms of the medians of the Bank of Japan Policy Board members' forecasts -- as presented
in the January 2023 Outlook for Economic Activity and Prices (Outlook Report) -- Japan's
real GDP growth rate is expected to be at 1.9 percent for fiscal 2022, 1.7 percent for fiscal
2023, and 1.1 percent for fiscal 2024 (Chart 7). As Japan's recent potential growth rate is
estimated to be in the range of 0.0-0.5 percent, the economy is projected to continue growing
at a pace above its potential. However, the pace of growth is expected to decelerate gradually
because the outlook factors in the government's economic measures and their waning effects,
in addition to a weakening contribution from pent-up demand.
There are extremely high uncertainties regarding the outlook. Those that especially warrant
attention are (1) developments in overseas economic activity and prices and in global
financial and capital markets, (2) developments in the situation surrounding Ukraine and their
effects on the price of commodities, including grain, and (3) the impact of COVID-19 on the
economy. In view of these factors, while there are upside and downside risks to the outlook,
the Bank assesses that risks are skewed to the downside for the time being.
B. Price Developments
Turning to Japan's price developments, the year-on-year rate of increase in the consumer price
index (CPI) for all items less fresh food was 4 percent for December 2022 (Chart 8). In
addition to higher energy prices, for goods, the pass-through of cost increases to selling prices
has intensified for a wide range of items, especially food, daily necessities, and durable goods.
The rate of increase in general services prices has also accelerated against the backdrop of an
intensified pass-through of raw material costs, mainly for housework-related services,
including services related to housing repairs and maintenance, as well as dining-out.
Such price increases have been triggered by a rise in import prices, reflecting high commodity
prices and the yen's depreciation. However, what is distinctive about the current phase is the
change in firms' price-setting stance. In Japan, it had been difficult for firms to pass on cost
increases to selling prices even when faced with a rise in input prices. However, this situation
has started to change: firms -- even those that had taken a cautious stance toward changing
their selling prices -- have sought price hikes, while their pricing decisions have been made
in consideration of price setting by competitors (Chart 9). Furthermore, according to the
Tankan (Short-Term Economic Survey of Enterprises in Japan), firms' outlook for output
prices of their products for one year ahead has been higher than that for general prices in the
most recent surveys. These mark the first time this has been observed since the launch of the
survey in 2014, which can be viewed as indicating that firms' stance has shifted toward
actively raising their selling prices.
The rate of increase in the CPI is expected to decelerate toward the middle of fiscal 2023 due
to a waning of the effects of the pass-through of cost increases to consumer prices led by a
rise in import prices, as well as to the effects of pushing down energy prices from the
government's economic measures (Chart 10). In terms of the medians of the Policy Board
members' forecasts, the CPI for all items less fresh food is projected to see a year-on-year rate
of increase of 3 percent for fiscal 2022. The rate of increase is then likely to decelerate to
around 1.5-2.0 percent for fiscal 2023 and fiscal 2024 but remain somewhat high compared
to the past.
The outlook for prices also entails high uncertainties, and risks to prices are skewed to the
upside for the time being. In my opinion, we cannot deny the possibility that prices will rise
more than expected, given that firms' pass-through of cost increases to selling prices is
ongoing and inflation momentum has continued, and that the pace of rises in services prices
is accelerating gradually. Thus, it is necessary to continue to closely monitor price
developments going forward.
II. Conduct of Monetary Policy
A. Achieving the Price Stability Target in a Sustainable and Stable Manner
Now, I would like to turn to the Bank's conduct of monetary policy. The Bank conducts
monetary policy with the aim of achieving the price stability target in a sustainable and stable
manner. About 10 years ago, when Japan was struggling with deflation, the Bank set the price
stability target at 2 percent in terms of the year-on-year rate of change in the CPI, and has
since carried out large-scale monetary easing aimed at achieving this target.
The current framework for monetary easing, called Quantitative and Qualitative Monetary
Easing (QQE) with Yield Curve Control, consists of two components (Chart 11). The first is
yield curve control, which involves controlling short- and long-term interest rates through
market operations. The second is an inflation-overshooting commitment, in which the Bank
has committed to continuing to expand the monetary base until the year-on-year rate of
increase in the observed CPI exceeds the price stability target of 2 percent and stays above
the target in a stable manner, thereby strengthening people's confidence that the target will be
achieved. Specifically, yield curve control entails setting the short-term policy interest rate at
minus 0.1 percent, while conducting purchases of Japanese government bonds (JGBs) and
other operations for the long-term interest rate to ensure that 10-year JGB yields remain at
around 0 percent. The Bank's monetary easing assumes a transmission mechanism that works
in three ways (Chart 12): (1) nominal interest rates are pushed down through yield curve
control; (2) inflation expectations are raised by working on people's expectations through the
inflation-overshooting commitment, leading to a decline in real interest rates (i.e., nominal
interest rates less inflation expectations); and (3) lower real interest rates encourage economic
activity and improve the output gap, which in turn pushes up actual inflation.
After almost 10 years since the Bank began large-scale monetary easing, Japan's economy
has achieved a situation where it is no longer in deflation, in the sense of a sustained decline
in prices (Chart 13). The output gap had continued to improve, clearly turning positive, until
the economy was significantly affected by downward pressure stemming from the impact of
COVID-19; it picked up thereafter and has returned to a level where it is poised to turn
positive once again. In addition, the employment situation has improved, as evidenced by, for
example, a continued decline in the unemployment rate. Successive increases in base pay,
which were not seen during the deflationary period, have also been observed.
As I mentioned earlier, however, the Bank projects that inflation will fall below 2 percent,
and we are not yet at a point where the price stability target of 2 percent is achievable in a
sustainable and stable manner. Furthermore, an important perspective would be to not simply
examine how superficial figures develop but to consider whether an economic virtuous cycle
is created in which price rises are backed by increases in corporate sales and profits and by
wage hikes.
At this juncture, whether wages will rise at a pace consistent with the ongoing significant rise
in consumer prices would seem to be particularly critical in terms of achieving the price
stability target in a sustainable and stable manner, and the outcome of the labor-management
wage negotiations in spring 2023 warrants attention (Chart 14). While the context may differ
among individual firms, my view is that there is a certain degree of possibility that relatively
high wage increases will be achieved in light of (1) a positive stance toward wage hikes
among the government, labor, and management; (2) generally favorable corporate profits; (3)
the labor-management relations in Japan, where there is a strong tendency to support each
other; and (4) the labor shortages in the face-to-face services industry and among small and
medium-sized firms.
To share my perspective regarding the conduct of monetary policy for the immediate future,
I see Japan's economy currently being in a rare situation, in which pent-up demand is
underpinning economic activity even as the rise in consumer prices has been triggered by the
rise in import prices. Given this situation, I believe that we are at a stage now where it is
necessary to carefully monitor whether a virtuous cycle between wages and prices will be
achieved in Japan. For the moment, therefore, I consider it appropriate for the Bank to
continue with monetary easing.
B. Side Effects of Large-Scale Monetary Easing
The Bank has carried out large-scale monetary easing while striking a balance between its
positive effects and side effects. Next, I would like to turn to some of the side effects.
The first is the deterioration in market functioning. At its Monetary Policy Meeting (MPM)
held last December, the Bank modified its conduct of yield curve control in light of this side
effect. Let me explain the nature and background of the modification (Chart 15). Since early
spring 2022, the JGB yield curve had been under significant upward pressure, in a situation
where overseas central banks raised policy interest rates and consumer prices rose in Japan.
While the Bank had been purchasing a necessary amount of long-term JGBs so that 10-year
JGB yields stayed within the range of plus and minus 0.25 percentage points from 0 percent,
upward pressure on interest rates had frequently caused long-term interest rates to remain at
the 0.25 percent upper limit. In this situation, yields on bonds with 8- and 9-year maturities
were higher than on 10-year bonds, and a price gap was observed between futures and spot
markets. In addition, while the yields for the most recent issues of 10-year JGBs had been at
0.25 percent or lower, issues of 20-year JGBs with a residual maturity of 10 years were trading
at higher yields. Amid such distortions in the yield curve, a survey of market participants
conducted by the Bank found a growing perception that the functioning of the JGB market
was deteriorating.
JGB yields serve as reference rates and indicators for corporate bond yields, bank lending
rates, and other funding rates. If such distortions persist, they could negatively impact
financial conditions, such as issuance conditions for corporate bonds. With this in mind, the
Bank decided to modify its conduct of yield curve control in order to improve market
functioning, while maintaining accommodative financial conditions. Concretely, while
significantly increasing the amount of JGB purchases, the Bank expanded the range of 10-
year JGB yield fluctuations from the target level, from between around plus and minus 0.25
percentage points to between around plus and minus 0.5 percentage points. Although these
modifications expanded the range of yield fluctuations, the Bank considered that they would
have the significant merit of facilitating the transmission of monetary easing effects more
smoothly, such as through corporate financing. It will take more time to assess the impact of
the modifications on market functioning. At this stage, I believe it is critical to humbly and
carefully monitor how markets settle, and to what extent market functioning improves.
Regarding this modification of the conduct of yield curve control, many have questioned
whether this was not a de facto interest rate hike or have said that the Bank's explanation of
why this was actually not an interest rate hike was hard to follow. To be sure, long-term
interest rates are rising. However, I would like to stress once again that these measures are
meant to alleviate the side effects of monetary easing and make it sustainable, and are not
intended as a move toward monetary tightening.
The second side effect is a possible adverse impact on the functioning of financial
intermediation, stemming from downward pressure on financial institutions' profits. The
profitability of such institutions had been on a downtrend for many years, due mainly to the
declining trend in domestic net interest income (Chart 16). While this had been due in part to
the prolonged low interest rate environment, it was also likely to have been caused by
intensifying competition among financial institutions, as declines in population and the
number of firms in respective regions had limited the demand for funds. Recently, however,
business efficiency has been enhanced, partly owing to the self-help efforts of various
financial institutions, and this has sparked a turnaround in the downtrend in profitability.
Financial intermediation can be judged as being functioning smoothly, as evidenced by the
fact that financial institutions have been maintaining capital bases that are adequate to meet
firms' demand for funds, and that the Tankan surveys have shown favorable levels both in
terms of lending attitudes among financial institutions and the financial positions of firms
(Chart 17).
Another side effect involves productivity. Some suggest that prolonged, large-scale monetary
easing has led to continuation of less productive investments and businesses, and furthermore
allowed firms that otherwise should have been withdrawn from the market to keep operating,
thereby causing delay in economic structural reforms and adversely affecting productivity. It
is true that Japan's business entry and exit rates, or its economic metabolic rate, have remained
at low levels compared to the United States and Europe (Chart 18).
As this is basically a result of each economic entity's actions made based on individual
decisions, my view is that large-scale monetary easing cannot necessarily be singled out as
the main factor behind such phenomenon. However, I personally believe that it cannot be
denied that prolonged, large-scale monetary easing is partly acting to restrain the effects of
market principles that should have been at work.
Going forward, we must consider what is needed to achieve economic growth that is
accompanied by continuous wage increases. Looking first at the microeconomic level, it is
important that individual firms continue to enhance their productivity by channeling
resources into business fixed investment, research and development, and human capital, as
well as through efforts such as reforming their business models. At the macroeconomic level,
looking at Japan's economy as a whole, it is important for economic metabolism -- or business
entry and exit rates -- to rise, which will lead to a greater proportion of firms with high
productivity. Likewise, it is vital that labor mobility be invigorated so that more people will
be working in highly productive firms and sectors. Such changes are expected to raise the
level of productivity for Japan as a whole.
I have spoken about the side effects of large-scale monetary easing. My view is that it is
necessary to examine and assess at some point in future the Bank's conduct of monetary policy,
including its monetary policy framework and the price stability target, and then carefully
reconsider the balance between positive effects and side effects of monetary policy based on
the examination and assessment. At this juncture, however, as I said earlier, I believe that it
is appropriate to continue with monetary easing.
Thank you.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Gunma
February 22, 2023
TAMURA Naoki
Member of the Policy Board
Bank of Japan
Chart 1
Real GDP in Major Economies
s.a., CY 2019 = 100
110
Japan
United States
105
Euro area
100
95
90
85
CY 19 20 21 22
Sources: Cabinet Office; Eurostat; FRED.
Chart 2
Private Consumption
Consumption Activity Index Household Income and Savings Consumption of Services
s.a., CY 2018 = 100
s.a., CY 2018 = 100 s.a., tril. yen tril. yen
160
500 1,150
110
Total number of overnight
guests (excluding inbound
140
visitors)
450 1,100
Sales in the food services
100
industry
120
400 1,050
100
90
350 Pre-pandemic 1,000 80
trend line
80
60
300 950
40
Disposable income, etc.
70
(left scale)
250 900
Total real private
20
Cash and deposits
consumption
(right scale)
Services
60 200 850 0
CY 18 19 20 21 22 CY 18 19 20 21 22
CY 18 19 20 21 22
Notes: 1. In the left-hand chart, figures for "total real private consumption" are for the real Consumption Activity Index and are based on Bank staff
calculations. The figures exclude inbound tourism consumption and include outbound tourism consumption.
2. In the middle chart, figures for "disposable income, etc." consist of disposable income and adjustment for the change in pension entitlements.
The pre-pandemic trend line is based on the average rate of increase for 2010 through 2019.
Sources: Cabinet Office; Japan Foodservice Association, "Market Trend Survey of the Food Services Industry"; Japan Tourism Agency; Bank of Japan.
Chart 3
Exports and Production
Real Exports and Industrial Production Real Exports by Type of Goods
s.a., CY 2018 = 100
s.a., CY 2018 = 100
110 140
Intermediate goods
<21.8>
105
Motor vehicles and
120
related goods <20.5>
100
95
100
90
80
85
IT-related goods
80 Industrial
<20.2>
60
production
Capital goods
75
Real exports
<17.5>
70 40
18 19 20 21 22 CY 18 19 20 21 22 18 19 20 21 22
CY
Note: Figures for real exports are based on Bank staff calculations. In the right-hand charts, figures in angular brackets show the share of each type of
goods in Japan's total exports in 2022.
Sources: Ministry of Economy, Trade and Industry; Ministry of Finance; Bank of Japan.
Chart 4
Corporate Profits and Business Fixed Investment
Planned and Actual Business
Corporate Profits
Fixed Investment
y/y % chg.
s.a., tril. yen
16 20
Small and medium-sized firms
14
15
Large firms
12
10
10
5
8 0
6 -5
Private nonresidential
investment (SNA, nominal)
4 -10
Tankan (actual)
Tankan (planned investment in
2 -15
current fiscal year as of the
December survey of each year)
0 -20
CY 07 09 11 13 15 17 19 21 FY 07 10 13 16 19 22
Notes: 1. In the left-hand chart, figures are current profits based on the Financial Statements Statistics of Corporations by Industry, Quarterly, and
exclude "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. Small and medium-sized firms are firms with
a capitalization of 10 million yen or more but less than 1 billion yen, while large firms are firms with a capitalization of 1 billion yen or more.
2. In the right-hand chart, the figures include software and R&D investments and exclude land purchasing expenses. R&D investment is
Tankan
not included before the March 2017 survey. The figures are for all industries including financial institutions. The figure for private
nonresidential investment for fiscal 2022 is the 2022/Q2-Q4 average.
Sources: Cabinet Office; Ministry of Finance; Bank of Japan.
Chart 5
Prices and Policy Interest Rates in Major Economies
Inflation Policy Interest Rates
y/y % chg. %
5
12
Japan
Japan
10
4
United States United States
8
3
Euro area Euro area
6
2
4
1
2
0
0
-2 -1
15 16 17 18 19 20 21 22 23 CY 15 16 17 18 19 20 21 22 23
CY
Notes: 1. In the left-hand chart, figures for Japan are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. Those for the
United States are the CPI for all items. Those for the euro area are the HICP for all items.
2. In the right-hand chart, figures for Japan are the rates applied to financial institutions' current accounts (the Policy-Rate Balances) at the Bank of Japan.
Those for the United States are the medians of the target ranges for the federal funds rate. Those for the euro area are the rates on the deposit facility.
Sources: Bloomberg; Eurostat; Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics.
Chart 6
Forecasts for Economic Growth in G7 Countries
Real GDP Growth Rates for 2023 (IMF Forecasts)
%
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Japan Canada United France Italy Germany United
States Kingdom
Note: Figures are as of January 2023.
Source: IMF.
Chart 7
BOJ Forecasts for Real GDP
s.a., ann., tril. yen
580
570
FY 2024
+1.1%
560
FY 2023
550
+1.7%
540
FY 2022
+1.9%
530
520
510
500
490
FY 13 14 15 16 17 18 19 20 21 22 23 24
Note: The forecasts presented are the medians of the Policy Board members' forecasts in the January 2023 Outlook Report. The values of real GDP
for fiscal 2022 onward are calculated by multiplying the actual figure for fiscal 2021 by all successive projected growth rates for each year.
Sources: Cabinet Office; Bank of Japan.
Chart 8
Consumer Prices
CPI (Less Fresh Food and Energy,
CPI (Less Fresh Food)
Excluding Temporary Factors)
y/y % chg.
y/y % chg.
3.5
4.5
Mobile phone charges
Goods
4.0
Effects of travel subsidy programs
3.0
3.5 General services (less housing rent)
Effects of the consumption tax hike and
3.0 free education policies
Housing rent (private and imputed rent)
2.5
2.5 Energy
Administered prices
2.0
Excluding the above factors
2.0
CPI (less fresh food and energy)
CPI (less fresh food)
1.5
1.5
1.0
0.5
1.0
0.0
0.5
-0.5
-1.0
0.0
-1.5
-2.0 -0.5
CY 17 18 19 20 21 22
CY 17 18 19 20 21 22
Notes: 1. In the left-hand chart, figures for "energy" consist of those for petroleum products, electricity, and gas, manufactured & piped.
2. In the left-hand chart, 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.
3. In the right-hand chart, the CPI figures are staff estimates and exclude mobile phone charges and the effects of the consumption tax hike,
policies concerning the provision of free education, and travel subsidy programs. Figures for "administered prices" (less energy) consist of
those for public services and water charges.
Source: Ministry of Internal Affairs and Communications.
Chart 9
Changes in Firms' Price-Setting Stance
DIs for Prices
Firms' Inflation Outlook One Year Ahead
(Tankan)
(Tankan)
DI ("rise" - "fall"), % points
y/y % chg.
80
3.5
"Rise"
3.0
General prices
60
Output prices
2.5
40
"Fall"
2.0
20
1.5
0
1.0
-20
0.5
Input prices
-40
0.0
Output prices
-60 -0.5
CY 00 03 06 09 12 15 18 21
CY 14 15 16 17 18 19 20 21 22
Notes: 1. In the left-hand chart, figures are for all industries and enterprises. There is a discontinuity in the data for December 2003 due to a change in
the survey framework.
2. In the right-hand chart, figures are averages of all industries and enterprises.
Source: Bank of Japan.
Chart 10
BOJ Forecasts for the CPI
y/y % chg
4 FY 2022
+3.0%
3
FY 2023 FY 2024
+1.6% +1.8%
2
1
0
-1
-2
13 14 15 16 17 18 19 20 21 22 23 24
FY
Note: Figures are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The forecasts presented are the medians
of the Policy Board members' forecasts in the January 2023 Outlook Report.
Sources: Ministry of Internal Affairs and Communications; Bank of Japan.
Chart 11
QQE with Yield Curve Control (1)
(a) (b)
Yield Curve Control Inflation-Overshooting Commitment
%
1.0
The Bank will continue expanding the
0.8
monetary base until the year-on-year rate
Target level of the
long-term interest rate:
of increase in the observed CPI (all items
0.6
around zero percent
less fresh food) exceeds the price stability
0.4
target of 2 percent and stays above the
Short-term policy
target in a stable manner.
0.2 interest rate:
minus 0.1 percent
Achieving the price stability target means
0.0
attaining a situation where the inflation rate
-0.2
is 2 percent on average over the business
JGB yield curve cycle.
-0.4
-0.6 (Statement released after the MPM in Sept. 2016)
0 1 2 3 4 5 6 7 8 9 101520 30 40
residual maturity, year
Chart 12
QQE with Yield Curve Control (2)
(c)
Transmission Mechanism
QQE with Yield Curve Control
Inflation-overshooting
Yield curve control
commitment
Stabilizing interest rates Strengthening forward-looking
at low levels expectations formation
Nominal Real
Inflation
- =
interest interest
expectations
rates rates
Adaptive Boosting economic
expectations activity through
formation improvement in
financial conditions
Improvement
Observed
Inflation
= + in the output
inflation
expectations
gap
rates
Chart 13
Japan's Economy under the Large-Scale Monetary Easing
Unemployment Rate and
Inflation Rate and Output Gap
Labor Force Participation Rate
% y/y % chg.
s.a., % s.a., %
8 4 7 63
Output gap (left scale) Unemployment rate
6 3 (left scale)
Labor force participation
CPI (less fresh food and energy,
6 62
rate (right scale)
4 2
right scale)
2 1
5 61
0 0
4 60
-2 -1
-4 -2
3 59
-6 -3
2 58
-8 -4
CY 07 09 11 13 15 17 19 21 CY 07 09 11 13 15 17 19 21
Chart 14
Prices and Labor-Management Wage Negotiations
y/y % chg.
7
Actual base pay increase
6
Base pay increase
5
demanded by labor unions
CPI inflation
4
3
2
1
0
-1
-2
CY 91 95 99 03 07 11 15 19 23
Notes: 1. Figures for CPI inflation are for all items less fresh food, excluding the effects of the consumption tax hikes, etc.
2. Figures for actual base pay increase from 1991 to 2013 are those published by the Central Labour Relations Commission, while those from
2014 to 2022 are figures released by Rengo. Figures for the base pay increase demanded by labor unions before 2023 are calculated by
subtracting seniority-related wage increases from the total increase in wages demanded. The figure for 2023 is from Rengo's policy for the
spring 2023 wage negotiations.
Sources: Central Labour Relations Commission; Japanese Trade Union Confederation (Rengo); Ministry of Internal Affairs and Communications.
Chart 15
Modification of the Conduct of Yield Curve Control (YCC)
Impact of Increased Volatility
Measures Decided by the Bank of Japan
in Overseas Markets
Deterioration in Japan's bond market functioning
Conduct of YCC
Relative relationships among interest rates of bonds with
Encourage a smoother formation of
different maturities
the entire yield curve
Arbitrage relationships between spot and futures markets
Significant increase in the amount of JGB purchases: from 7.3 trillion yen
per month to about 9 trillion yen per month
Expansion of the range of 10-year JGB yield fluctuations from the target
Possibility of a negative impact on financial conditions
level: from around 0.25% pts to around 0.5% pts
Nimble responses for each maturity:
Yields on JGBs are reference rates for corporate bond
- Offer to purchase 10-year JGBs at 0.5% every business day through
yields, bank lending rates, and other funding rates.
fixed-rate purchase operations
- Make nimble responses for each maturity by increasing the amount
JGB Yield Curve (Before the December 2022 MPM)
of JGB purchases even more and conducting fixed-rate purchase operations
%
1.6
1.4
In adjusting the amount outstanding of corporate bonds,
1.2
the Bank will give due consideration to their issuance conditions.
1.0
0.8
0.6
0.4
Facilitate the transmission of monetary easing effects
0.2
generated under the framework of YCC, such as through
0.0
corporate financing
-0.2
1 2 5 10 20 30
The Bank will aim to achieve the price stability target by
Chart 16
Financial Institutions' Profitability
Return on Equity Based on Pre-Provision Net Revenue
Excluding Trading Income
%
16
Major banks
14
Regional banks
12
banks
Shinkin
10
8
6
4
2
0
FY 00 03 06 09 12 15 18 21
Note: From fiscal 2012, profits and losses from investment trusts due to cancellations are excluded.
Source: Bank of Japan.
Chart 17
Financial Conditions
Lending Attitudes of Financial Institutions Firms' Financial Positions
(Tankan) (Tankan)
DI ("accommodative" - "severe"), % points
DI ("easy" - "tight"), % points
30 20
"Accommodative"
"Easy"
25
15
20
10
"Severe"
"Tight"
15
5
10
0
5
-5
0
Manufacturing
Manufacturing
-10
-5
Nonmanufacturing
Nonmanufacturing
-15
-10
-15
-20
CY 07 09 11 13 15 17 19 21
CY 07 09 11 13 15 17 19 21
Chart 18
Entry and Exit Rates in Major Economies
Entry Rate Exit Rate
% %
16 16
14 14
12 12
10 10
8 8
6 6
4 4
Japan United States
2 2
United Kingdom Germany
France
0 0
CY 08 10 12 14 16 18 20 CY 08 10 12 14 16 18 20
Note: Figures for Japan are on a fiscal-year basis.
Sources: Eurostat; Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency; U.K. Office for National Statistics; U.S. Census
Bureau.