M a y 1 0 , 2 0 1 8
Bank of Japan
Japan's Economy and Monetary Policy
Speech at the Kisaragi-kai Meeting in Tokyo
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
It is my great pleasure to have the opportunity today to speak at the Kisaragi-kai meeting.
Five years have passed since the Bank introduced quantitative and qualitative monetary
easing (QQE) in April 2013, and Japan's economy -- which had been deteriorating under
prolonged deflation -- has improved significantly. Recently, corporate profits have been at
record high levels, and the labor market is close to full employment. Although the price
stability target of 2 percent has not been achieved yet, Japan's economy is at least no longer
in deflation, which is generally defined as a sustained decline in prices, after having
overcome negative shocks such as the large drop in crude oil prices. Over the past year, the
year-on-year rate of change in the consumer price index (CPI) has increased moderately,
registering around 1 percent of late. Today, I will first explain in detail the current situation
of economic activity in Japan and its outlook, while outlining the Outlook for Economic
Activity and Prices
(Outlook Report) released after the Monetary Policy Meeting (MPM)
held at the end of April. Then, I would like to talk about the Bank's thinking behind the
conduct of monetary policy.
I. The Current Situation of Economic Activity and Its Outlook
Overseas Economies
Let me start by talking about economic developments. I will first touch on developments in
overseas economies.
Overseas economies have continued to grow firmly. The last time I gave a speech at the
Kisaragi-kai meeting last December, I referred to the remark by Christine Lagarde, the
Managing Director of the International Monetary Fund (IMF), that the global economy is
showing "the broadest-based recovery in the last 10 years." In the almost half year since
then, this synchronous growth of the global economy, with both the advanced and emerging
economies growing in a well-balanced manner, has become more pronounced. Such
synchronous growth can also be observed at the industry level (Chart 1). While the global
economy had continued to recover moderately over the past few years, led mainly by the
nonmanufacturing sector, since around last year, production and trade activity in the
manufacturing sector have picked up substantially, reflecting an expansion in IT-related
demand due to the use of artificial intelligence (AI) and the Internet of Things (IoT), as well
as growing demand for capital goods due to a rise in capital utilization rates on a global
basis.
Given such positive cycle operating in a wide range of regions and industries, it is highly
likely that overseas economies will continue to grow firmly for the time being. In the IMF's
quarterly projections for global economic growth based on its World Economic Outlook
(WEO), those for 2018 and 2019 were revised upward markedly in April 2018 from the
October 2017 projections, with growth expected to register 3.9 percent, exceeding the
long-term average since the 1990s. There is, of course, considerable uncertainty as to how
long such high economic growth will last. Among advanced economies, the U.S. economy
in particular has continued its long recovery phase for nine years already, and the growth
pace is projected to decelerate somewhat around 2020. In this context, some have expressed
concerns that the U.S. economy might experience a significant downturn, but I consider this
risk to be small. The reason is that, in the early phase of the current recovery in the early
2010s, the level of economic activity was low and the growth pace remained very moderate.
Therefore, although the economy has been recovering for a long time, there seem to be no
signs of overheating, such as an excess build-up of capital and housing stock. Meanwhile,
the recovery in emerging economies is likely to take a firmer hold, given that growth rates
in commodity-exporting economies -- which had been lagging behind due to the effects of
sluggish commodity prices -- have been gradually increasing. Thus, overseas economies are
expected to grow firmly, with growth momentum shifting from advanced to emerging
economies.
Current Situation of Japan's Economic Activity
Next, I will talk about Japan's economy. The economy has been expanding steadily, albeit at
a moderate pace, supported in part by the growth in overseas economies that I just
mentioned. The output gap, which represents the utilization of capital and labor, exceeded
the long-term average of 0 percent in the second half of 2016, and since then has continued
to widen further in positive territory (Chart 2). The diffusion index (DI) for business
Tankan
conditions for all industries and enterprises in the Bank's (Short-Term Economic
Survey of Enterprises in Japan) -- which is an indicator of firms' business sentiment --
suggests that business conditions have improved for seven consecutive quarters, reaching
the highest level since the early 1990s.
Looking in more detail, in the corporate sector, exports and production have been on an
increasing trend (Chart 3). As I mentioned earlier, demand for IT-related and capital goods
has been expanding on a global basis, and this has acted as a tailwind for Japan's
manufacturing sector, which has a comparative advantage in these goods. In fact, Japan's
real exports marked a new record high in November 2017 for the first time in about 10
years, exceeding the peak before the global financial crisis, and have maintained their
uptrend. In this situation, corporate profits have been at record high levels, and business
fixed investment has continued on an increasing trend. According to the Tankan, business
fixed investment plans for fiscal 2018 as of March have turned out to be favorable for this
time of the year, significantly exceeding the average of the past.
There also has been improvement in the household sector. While labor market conditions
have been tightening further, with the unemployment rate declining to about 2.5 percent for
the first time since 1993, employee income has continued to increase moderately (Chart 4).
Private consumption has been increasing moderately, albeit with fluctuations, against the
background of this steady improvement in the employment and income situation.
Outlook for Japan's Economic Activity
Now I will turn to the outlook for Japan's economy. In the latest Outlook Report released at
the end of April, the Bank presents its projections for Japan's economic activity through
fiscal 2020. In terms of the medians of the Policy Board members' forecasts, the real GDP
growth rate is projected to register relatively high growth of 1.6 percent in fiscal 2018 and
continue to mark positive growth of 0.8 percent in fiscal 2019 and fiscal 2020 (Chart 5).
In fiscal 2018, the mechanism supporting the current favorable economic conditions is
expected to continue operating. Domestic demand is likely to follow an uptrend, mainly
against the background of highly accommodative financial conditions and the
underpinnings through government spending. Exports are expected to continue their
moderate increasing trend on the back of the firm growth in overseas economies. Under
these circumstances, in fiscal 2018, the economy is likely to continue growing at a pace
above the potential growth rate, which is currently estimated to be in the range of 0.5-1.0
percent.
From fiscal 2019 through fiscal 2020, Japan's economy is expected to continue on an
expanding trend, although the growth pace is projected to decelerate somewhat. If the
economy performs as projected, the duration of the current recovery phase, which started in
December 2012, will be the longest in the post-war era, significantly exceeding the record
of 73 months registered during the recovery period in the 2000s (Chart 6). The key issue
underlying this outlook are the reasons why the long-lasting recovery is likely to continue.
In what follows, I will outline three reasons.
The first is that overseas economies are projected to continue growing firmly in a
well-balanced manner in terms of regions and industries, as I explained earlier. Japan's
exports are expected to follow an increasing trend supported by this tailwind and continue
to firmly underpin the economy.
The second reason is that, even though Japan's economic expansion is becoming quite long,
it is likely that the pressure to adjust accumulated capital stock will not heighten as much. In
the past, long-lasting economic expansion was accompanied by a capital stock cycle, in
which capital stock gradually had built up and capacity utilization rates had declined,
thereby suppressing new business fixed investment. It is expected that, during the current
recovery phase, capital accumulation will continue to some extent in such areas as
construction in the leadup to the Tokyo Olympic Games in 2020. However, in the
manufacturing sector, there is a sense that capital stock is still insufficient, mainly due to the
increase in exports, and it is likely that the expansion in global IT-related demand
underlying this increase in exports will continue to last for a long time. In addition, due
mainly to acute labor shortage, many firms in a wide range of industries are actively making
labor-saving investment, and in view of the structural decline in the working-age population,
these developments are expected to continue going forward. Furthermore, it can be
expected that firms' growth expectations will gradually improve. If firms' growth
expectations rise, they will revise upward the level of capital stock that they consider
necessary for future production activities, creating new investment demand. With the
economic and price situation continuing to improve, and coupled with the government's
growth strategy, it is expected that firms' sentiment -- which had deteriorated under
deflation -- will improve, stimulating investment demand.
The third reason is that private consumption is likely to continue increasing moderately
amid the improvement in the employment and income situation. In this context, the
consumption tax hike scheduled for October 2019 may affect the economic growth rates
going forward. However, the increase in the consumption tax rate is smaller than that of the
previous tax hike in 2014, and measures such as a reduced tax rate and free education will
be implemented. Therefore, the increase in the household burden as well as the negative
impact on private consumption and the economic growth rates are expected to be smaller
than after the last tax hike.
Risks to Economic Activity
There are, of course, upside and downside risks to this baseline scenario of the outlook for
Japan's economic activity.
One of the risk factors is the U.S. economic policies, especially the heightening
uncertainties over its protectionist trade policy. As stated in the Group of Twenty (G-20)
communiqué, "[i]nternational trade and investment are important engines of growth,
productivity, innovation, job creation and development." Therefore, if protectionist moves
were to spread globally, they could hamper trade activity, which finally has been recovering,
and constrain global economic growth. As economies have become increasingly
interdependent through global value chains, countries that adopt protectionist policies may
face disadvantages in that such policies could impede necessary imports. Therefore, a brake
is expected to be put on excessive protectionist moves at some point, but we will not be
complacent and will closely monitor the situation.
The effects of major economies' policies on global financial markets also warrant attention.
For instance, global equity markets have been unstable since February this year, and it is
said that this was triggered by a sharp increase in long-term interest rates reflecting the fact
that U.S. wage growth exceeded market expectations, which gave rise to speculation that
the pace of policy rate hikes by the Federal Reserve could accelerate. In addition, the
uncertainties over U.S. trade policy that I mentioned earlier have been cited as another
reason for the recent volatility in stock prices in various countries and foreign exchange
rates. With the fundamentals of major economies remaining favorable, financial markets
have been regaining some calmness, but markets sometimes move suddenly, triggered by
minor matters. As volatility in financial markets may affect firms' and households' sentiment,
we will pay constant attention to financial market developments.
Turning to domestic risk factors, we need to bear in mind uncertainty regarding the effects
of the scheduled consumption tax hike that I mentioned earlier, as well as both upside and
downside risks to developments in firms' growth expectations. For example, firms may not
abandon the cautious mindset that had become entrenched under deflation and easily
embark on proactive investment activities. On the other hand, it is also possible that, amid
rising growth expectations, there may be a major switch among firms to start using the high
level of accumulated corporate savings for proactive investment.
II. Current Situation of and Outlook for Prices
Current Situation of and Outlook for Prices
Next, I will move on to price developments in Japan. The year-on-year rate of change in the
CPI excluding fresh food has increased to around 1 percent. The rise in energy prices partly
contributed to this, and the rate of change in the CPI for March excluding fresh food and
energy was 0.5 percent (Chart 7). The Bank has not changed its basic assessment that prices
have continued to show relatively weak developments compared to the economic expansion
and the labor market tightening. Nevertheless, the year-on-year rate of change in the CPI
has been rising steadily for over a year, albeit at a moderate pace, and the momentum
toward achieving the price stability target of 2 percent is firmly maintained.
Going forward, the year-on-year rate of change in the CPI is likely to continue on an
uptrend and increase toward 2 percent, mainly on the back of an improvement in the output
gap and a rise in medium- to long-term inflation expectations. This baseline scenario is
unchanged from the previous ones. The medians of the Policy Board members' forecasts of
the year-on-year rate of change in the CPI excluding fresh food are 1.3 percent for fiscal
2018 and 1.8 percent for both fiscal 2019 and fiscal 2020 (Chart 8).
The Inflation Mechanism
I would now like to explain the mechanism through which inflation will rise toward 2
percent. The Bank conceptually divides this mechanism into two steps. First, the output gap
improves in line with economic expansion, which will raise actual prices by making firms'
wage- and price-setting stance more proactive. Second, as actual prices increase, firms' and
households' medium- to long-term inflation expectations rise, which will further push up the
actual inflation rate.
As for the first step, the improvement in the output gap is steadily pushing up wages and
prices. In terms of wages, those of not only part-time but also full-time employees are rising
against the backdrop of tightening labor market conditions. According to various surveys,
the rate of increase in base pay for fiscal 2018 has exceeded the actual rate for last year, and
the proportion of firms that are increasing wages for full-time employees has also increased
(Chart 9). Firms are also increasingly reflecting rising wage costs in their sales prices. In the
March Tankan, the DI for output prices for small enterprises, following that for large
enterprises, has turned positive for the first time in 27 years, since 1991 (Chart 10). Thus,
the first step of the mechanism is working steadily. While it cannot be denied that the
momentum of prices is not yet sufficiently firm compared to the economic expansion, the
year-on-year rate of change in the CPI excluding fresh food and energy has continued to
rise moderately since bottoming out in March 2017.
Next is the second step of the mechanism: whether actual price increases have led to a rise
in medium- to long-term inflation expectations. In this regard, recent trends indicate that
inflation expectations have been more or less unchanged, although they have moved out of
the weakening phase (Chart 11).
Given these circumstances, going forward, it is important for the second step of the
mechanism in particular to operate more clearly toward achieving the price stability target
of 2 percent. To that end, it is necessary for the first step to continue operating amid the
long-lasting recovery, so that actual price increases affect people's perception of prices and
firmly push up inflation expectations through the adaptive formation mechanism. Going
forward, if firms and households become increasingly confident that improvements in
economic activity and prices are not temporary, the mindset and behavior based on the
assumption that wages and prices will not increase will change and inflation expectations
will rise firmly. The spread of base pay increases in the past few years can be regarded as an
indication of such change. If people's deflationary mindset changes, the forces that let
inflation expectations converge to the 2 percent target that the Bank is committed to
achieving -- that is, the operation of the forward-looking formation mechanism -- will
become much stronger.
Risks to Prices
Regarding the aforementioned baseline scenario of the outlook for prices, the Bank's
assessment is that risks are skewed to the downside. For example, if there is strong
uncertainty about future growth, firms will hesitate to raise wages in view of increasing
employment to expand their business. In that case, the pace of increase in actual wages and
prices -- that is, the operation of the first step of the inflation mechanism -- may be weaker
than expected. Moreover, even if firms' wage- and price-setting stance becomes more
proactive, inflation expectations may not rise smoothly; in other words, the second step of
the mechanism may not operate fully. Past experience suggests that there is a certain time
lag before actual inflation affects inflation expectations and the length of this lag is highly
uncertain. So far, there has not been enough academic literature on the learning process
through which firms and households revise their inflation expectations upward when faced
with actual price rises. Taking into consideration that the experience of 15 years of deflation
had become deeply entrenched in people's mindset and behavior, we need to keep in mind
that it might take a fair amount of time before actual inflation starts to affect inflation
expectations.
Thus, in a situation where there are various risks and uncertainty is high, with a view to
making an assessment of the outlook for prices and being accountable for this, it would not
be proper -- and not represent adequate information dissemination by the Bank -- to attract
excessive attention merely to forecast figures. As also highlighted by Federal Reserve
Chairman Powell, it is difficult to make accurate forecasts about future economic
developments, and too much emphasis should not be placed on the medians of board
members' forecasts. Regarding the timing of the year-on-year rate of change in the CPI
reaching around 2 percent, up until the previous January 2018 Outlook Report, the Bank
provided specific descriptions such as that this would likely be around fiscal 2019; however,
the latest report does not include such descriptions. The Bank believes that giving a detailed
and articulate explanation on price developments based on a comprehensive assessment --
including the mechanism through which the year-on-year rate of change in the CPI
increases toward 2 percent and the assessment of risks -- leads to more appropriate
communication to the public.
III. The Conduct of Monetary Policy
Let me now turn to the Bank's conduct of monetary policy. The Bank has been pursuing
powerful monetary easing with a view to achieving the price stability target of 2 percent.
Specifically, under the framework of "QQE with Yield Curve Control" introduced in
September 2016, it facilitates the formation of the yield curve that is considered most
appropriate for achieving the 2 percent target judged on the basis of developments in
economic activity and prices as well as financial conditions. At the MPM held at the end of
last month, the Bank maintained the guideline for market operations, in which the
short-term policy interest rate is set at minus 0.1 percent and the target level of the 10-year
Japanese government bond (JGB) yields at around zero percent.
The thinking behind this conduct of monetary policy is as follows. First of all, taking a look
at developments in economic activity and prices, the economy has been improving steadily,
but prices have not yet been sufficiently firm compared to the degree of improvement in the
economy, as I mentioned earlier, and thus there is still a long way to go to achieve the price
stability target of 2 percent. Downside risks to prices also warrant attention. Therefore, from
the perspective of developments in economic activity and prices, it is necessary for the
Bank to continue to pursue powerful monetary easing in line with the current guideline for
market operations.
Next, I would like to talk about the assessment of financial conditions. In the conduct of
monetary policy, it is necessary to pay attention to both signs of overheating where financial
imbalances build up and the stability of the financial system is impaired, as well as signs of
a gradual pullback, in which financial institutions' profit environment deteriorates and their
financial intermediation functioning declines. Regarding overheating, there is no sign so far
of excessively bullish expectations in asset markets or in the activities of financial
institutions. As for risks of a gradual pullback in financial intermediation, it has been
pointed out that powerful monetary easing including negative interest rates affects financial
institutions' profits and the functioning of financial intermediation, for example by reducing
lending margins. Going forward, attention needs to be paid to the possibility that, if the low
interest rate environment continues and downward pressure on financial institutions' profits
becomes prolonged, this may have a cumulative effect on their financial strength and, as a
result, the functioning of financial intermediation may be undermined. However, because
Japanese financial institutions have sufficient capital bases, the Bank judges that there is no
critical problem at this point in the functioning of financial intermediation due to a
deterioration in profits. This is also evidenced by financial institutions' continued proactive
lending attitudes (Chart 12).
These examinations indicate that, at present, the yield curve that the Bank is currently
aiming at is sufficiently effective in stimulating economic activity and prices while avoiding
a negative impact on financial intermediation; in other words, the Bank judges the current
yield curve to be the most appropriate for maintaining the momentum toward achieving the
price stability target of 2 percent.
When examining developments in economic activity and prices as well as financial
conditions under the framework of "QQE with Yield Curve Control," it is important to pay
attention to the difference between real and nominal interest rates. When assessing the
extent to which interest rates stimulate economic activity and prices, it is essential to
consider the level of real interest rates, which is calculated by subtracting inflation
expectations from nominal interest rates. Looking ahead, if real interest rates decline as
inflation expectations rise, the stimulative effect on economic activity and prices will
become stronger. In addition, as the potential growth rate of the economy rises with
progress in implementation of the government's growth strategy and firms' continued efforts
toward improving productivity, the natural rate of interest is projected to rise, and this is
expected to enhance monetary easing effects. Going forward, the Bank will continue to
pursue powerful monetary easing while taking advantage of this mechanism embedded in
the framework of "QQE with Yield Curve Control" in order to achieve the price stability
target of 2 percent at the earliest possible time.
Lastly, I would like to make one more point. As mentioned earlier, the Bank has been
conducting monetary policy while examining whether the momentum toward 2 percent
inflation is being maintained, taking into account developments in economic activity and
prices as well as financial conditions. The Bank has not set a specific deadline for achieving
2 percent inflation and does not conduct monetary policy with such a deadline in mind. The
latest Outlook Report does not include a description on the projected timing of reaching
around 2 percent inflation, and this partly aims to clarify this policy stance. Nevertheless, I
would like to stress that this does not mean that the significance or nature of the price
stability target has changed. Since the introduction of QQE in 2013, the Bank has
committed itself to achieving the price stability target of 2 percent at the earliest possible
time and continued to conduct large-scale monetary easing to underpin this commitment.
Clearly demonstrating this determination is indispensable in changing the deflationary
mindset that had become entrenched among people. The commitment to achieving 2 percent
inflation at the earliest possible time has not changed.
Conclusion
Today, I have talked about Japan's economic and price developments and the Bank's
conduct of monetary policy. Over the past five years, Japan's economic activity and prices
have improved significantly, and are proceeding along a steady path toward achieving the
price stability target of 2 percent. In that sense, QQE certainly has been producing its
intended effects.
On the other hand, it has become apparent that people's deflationary mindset is more deeply
entrenched than expected, and that changing such mindset will take time. To make this
happen, the current virtuous cycle of the economy -- in which the inflation rate gradually
rises as corporate profits, employment, and wages increase -- needs to be maintained. With
a view to achieving the price stability target of 2 percent, the Bank will continue to pursue
powerful monetary easing with persistence and do its utmost to support such positive
developments.
Thank you very much for your attention.
Japan's Economy and Monetary Policy
Speech at the Kisaragi-kai Meeting in Tokyo
May 10, 2018
Haruhiko Kuroda
Governor of the Bank of Japan
Chart 1
Global Economy
IMF Projections of Real GDP Growth
Global PMI
by Major Economies (as of April 2018)
s.a., DI y/y % chg.
58
2018 2019
2016 2017
Manufacturing [Projection] [Projection]
3.9 3.9
Services
World
3.2 3.8
56
(+0.2) (+0.2)
2.5 2.2
Advanced economies
1.7 2.3
(+0.5) (+0.4)
2.9 2.7
54 United States
1.5 2.3
(+0.6) (+0.8)
2.4 2.0
Euro area
1.8 2.3
(+0.5) (+0.3)
52 1.2 0.9
Japan
0.9 1.7
(+0.5) (+0.1)
Emerging market and
4.9 5.1
4.4 4.8
developing economies
(0.0) (+0.1)
50
6.6 6.4
China
6.7 6.9
(+0.1) (+0.1)
5.3 5.4
ASEAN 5
5.0 5.3
(+0.1) (+0.1)
48
CY
Chart 2
Japan's Economy
Output Gap Business Conditions DI (Tankan)
DI ("favorable" - "unfavorable"), % points
%
50
8
40
"Favorable"
6
30
4
20
"Unfavorable"
10
2
0
0
-10
-2
-20
-30
-4
-40
-6
-50
-8 -60
CY CY 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
90 92 94 96 98 00 02 04 06 08 10 12 14 16 17
Notes: 1. Figures for the output gap are based on BOJ staff estimations.
2. Figures for the business conditions DI are those for all industries and enterprises. There is a discontinuity in the data in December 2003 due to a change in the survey framework.
2
Source: Bank of Japan.
Chart 3
Corporate Sector
Developments in Business Fixed
Exports
Investment Plans (Tankan)
y/y % chg.
s.a.
120
8
110
6
100
4
90
FY 2016
80
FY 2017
2
FY 2018
70
Average (FY 2004-2016)
0
60
Real exports (CY 2015=100)
-2
50
CY 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Mar. June Sept. Dec. Forecast Actual
Survey Survey Survey Survey
Note: The right chart indicates the revision patterns of fixed investment plans. The horizontal axis represents the point of time when the survey is conducted for each fiscal year. Namely, the first
survey for each year (March survey) is on the left, and the last survey (June survey of the following year; actual result) is on the right. The vertical axis represents the year-on-year percent
change. All industries including financial institutions. Including software and R&D investment and excluding land purchasing expenses (R&D investment is not included up until the
December 2016 survey). There is a discontinuity in the data in December 2017 due to a change in the survey sample.
3
Sources: Bank of Japan; Ministry of Finance.
Chart 4
Household Sector
Private Consumption
Employee Income
y/y % chg. s.a., CY 2011=100
4 108
2
106
0 104
-2 102
Total cash earnings
-4 100
Number of employees
Consumption Activity Index
-6 98
(travel balance adjusted, real)
Employee income
-8 96
06 07 08 09 10 11 12 13 14 15 16 17 CY 10 11 12 13 14 15 16 17 18
Notes: 1. For employee income, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February.
×
Notes: 2. Employee income = total cash earnings ("Monthly Labour Survey") number of employees ("Labour Force Survey")
3. Figures for the Consumption Activity Index exclude inbound tourism consumption and include outbound tourism consumption (BOJ staff calculations).
4
Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Bank of Japan.
Chart 5
BOJ's Forecasts of the Real GDP
(April 2018 Outlook Report)
s.a., ann., tril. yen
560
Forecast for FY2020
+0.8%
Forecast for FY2019
+0.8%
550 Real GDP
Forecast for FY2018
+1.6%
Forecast for FY2017
540
+1.9%
(y/y % chg.)
530
520
510
500
490
FY
12 13 14 15 16 17 18 19 20
Note: Forecasts are the medians of the Policy Board members' forecasts (point estimates).
5
Sources: Cabinet Office; Bank of Japan.
Chart 6
Length of Economic Recovery Period
Rank Period Duration
1 February 2002-February 2008 73 months
December
2 64 months
2012(Current)
November 1965-July 1970
3 57 months
(Izanagi boom)
December 1986-February 1991
4 51 months
(Heisei boom)
5 November 1993-May 1997 43 months
Note: Economic peaks and troughs are judged based on discussions by experts after waiting for data accumulation. The current recovery phase, which started in December 2012,
seems to have lasted for 64 consecutive months by March 2018.
Sources: Cabinet Office, etc. 6
Chart 7
Consumer Prices
y/y % chg.
2
Introduction of QQE
(April 2013)
1
0
-1
CPI (all items less fresh food)
CPI (all items less fresh food and energy)
-2
CY 10 11 12 13 14 15 16 17 18
Chart 8
BOJ's Forecasts of the CPI
(April 2018 Outlook Report)
y/y % chg.
2.5
Forecast for FY2020
+1.8%
Forecast for FY2019
CPI (all items less fresh food)
+1.8%
2.0
Forecast for FY2018
+1.3%
(y/y % chg.)
1.5
1.0
0.5
0.0
-0.5
-1.0
FY
12 13 14 15 16 17 18 19 20
Note: Actual figures are adjusted for changes in the consumption tax rate. Forecasts are the medians of the Policy Board members' forecasts excluding the effects of the scheduled consumption
tax hike (point estimates).
8
Sources: Ministry of Internal Affairs and Communications; Bank of Japan.
Chart 9
Firms' Wage-Setting Stance
Wage Increases for
Base Pay Increase
Full-Time Employees
(Ratio of Firms Planning to Increase Wages)
y/y % chg.
%
0.8 70
0.7
60
0.6
50
0.5
40
0.4
30
0.3
20
0.2
Small and
mediumsized firms
10
Large firms
0.1
0.0 0
FY 06 07 08 09 10 11 12 13 14 15 16 17 18
FY 09 10 11 12 13 14 15 16 17 18
Notes: 1. Figures for the base pay increase up to fiscal 2013 are based on the survey by the Central Labour Relations Commission, and those from fiscal 2014 onward are based on the survey by
the Japanese Trade Union Confederation (Rengo). Large firms up to fiscal 2013 are defined as firms with 1,000 or more employees, and those from fiscal 2014 onward are defined as
firms with 300 or more employees. Figures for fiscal 2018 are based on the fourth aggregate results as of mid-April.
2. Figures for wage increases for full-time employees are based on the survey results concerning firms' wage-setting stance (increases in base pay, bonuses, and lump-sum payments).
Sources: Central Labour Relations Commission; Japanese Trade Union Confederation (Rengo); Teikoku Databank, Ltd. 9
Chart 10
Firms' Price-Setting Stance
Change in Output Prices DI (Tankan)
DI ("rise"-"fall"), % points
20
Large enterp