Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Ehime
ADACHI Seiji
Member of the Policy Board
I. Economic Activity and Prices
A. Economic Activity
I would like to start my speech by talking about points that are noteworthy in examining the
current situation and outlook for Japan's economy.
Amid the ongoing reopening of the economy and society, as seen in, for example, the
downgrading of COVID-19 to a Class V infectious disease under the Infectious Disease
Control Law in May 2023, Japan's economy has recovered moderately (Chart 1). With such
progress in reopening, demand that was suppressed during the pandemic, or pent-up demand,
will likely continue to be a factor pushing up economic activity. However, as a significant rise
in such demand is expected to peak out in the near future, it seems that the actual strength of
Japan's economy has begun to be tested.
Let us look at recent developments in Japan's economic activity in detail. With respect to
private consumption, the positive effects from pent-up demand have remained in
consumption of some durable goods such as automobiles. I have an impression that
consumption overall has regained the pre-pandemic trend of a stable increase, albeit at a
moderate pace (left panel of Chart 2). That said, due in part to a decline in real disposable
income stemming from recent price rises, households have been defensive about spending;
for instance, their demand for frequently purchased items including beverages, food, and
daily necessities has shifted to lower-priced goods such as affordable private brand products.
Meanwhile, services consumption such as entertainment, travel, and accommodations has
remained firm despite having been affected by price hikes (right panel of Chart 2). These
developments suggest that households, faced with high inflation, have increasingly been
selective with their spending patterns, in that they are willing to spend money for certain
goods and services regardless of price while opting for lower prices on other goods and
services or refraining from spending in the first place. These changes in spending patterns
will potentially affect price developments, which I will describe later.
Next, I will turn to business fixed investment. The environment surrounding such investment
has been extremely favorable in Japan. Specifically, a number of promising projects are
scheduled to take place: (1) IT-related investment aimed at digital transformation (DX) and
labor saving; (2) construction investment in, for example, urban redevelopment projects and
in logistics facilities resulting from expansion in e-commerce; and (3) large-scale fixed
investment projects by large domestic and overseas manufacturing firms that aim at
strengthening supply chains and are backed by the yen's depreciation. Accordingly, reflecting
firms' positive stance toward fixed investment, the Bank of Japan's September 2023 Tankan
(Short-Term Economic Survey of Enterprises in Japan) showed firmness in such investment
plans (Chart 3). However, hard data on business fixed investment collected from the results
of statistics on GDP and machinery orders representing actual economic activity have shown
somewhat weaker results relative to the plans presented in the Bank's Tankan (Chart 4). In
some respects, there may be fundamental reasons for such weakness in fixed investment --
namely, amid high uncertainties regarding developments in overseas economies, firms have
still been reluctant to take on risks and invest for their future growth.
Exports have been more or less flat on the whole. By region, exports of transportation
machinery to the United States and Europe in particular have been on an uptrend, mainly led
by automobiles, which had been burdened by high levels of order backlogs due to
semiconductor shortages. In contrast, those to China have remained weak, mainly for capital
goods, and this is also the case for those to the NIEs and the ASEAN economies due to a drop
in demand for digital-related parts such as semiconductors for smartphones and personal
computers (Chart 5).
Given what I have just outlined, I believe that the following points are crucial in forecasting
the future course of Japan's economy. First, with respect to private consumption, how a rise
in firms' earning power will be allocated to households in the form of wages is important.
With regard to business fixed investment, it is worth examining how firms will raise their
growth expectations and in turn boost their investment activities. Lastly, in terms of exports,
whether Japan can take a lead in the restructuring of global supply chains warrants attention.
These all suggest that it is time for the actual strength of Japan's economy to begin to be tested.
To foster these key factors for economic growth, underpinnings from the government's policy
measures may also be necessary.
Moreover, since business fixed investment and exports are influenced by overseas economies,
future developments in these economies are also of significance to Japan's economy. While
European economies in particular have been pushed down by the effects of the situation in
Ukraine since 2022, geopolitical risks in the Middle East have been heightening most recently,
and this could be a new factor that will give rise to uncertainties. Adjustments in China's real
estate market have been heightening uncertainties regarding the outlook for its economy.
Moreover, while the U.S. economy has been firm despite its rapid and substantial monetary
tightening, attention should continue to be paid to economic developments as the impact of
the rapid policy interest rate hikes to date might emerge with a time lag.
B. Price Developments in Japan
1. Price situation
I will now talk about recent price developments in Japan.
The year-on-year rate of increase in the consumer price index (CPI) for October 2023 was
2.9 percent for all items less fresh food and 4.0 percent for all items less fresh food and energy
(Chart 6). The rate of increase for all items less fresh food has been slower than the peak
marked in January 2023, partly because the government's economic measures have been
pushing down energy prices (Chart 7). On the other hand, the rate of increase for all items
less fresh food and energy has accelerated since early spring 2023 and has remained elevated
in the range of 4.0 to 4.5 percent, as a pass-through to selling prices of cost increases such as
for raw materials has intensified for a wide range of items.
Meanwhile, inflation expectations -- an important factor in considering monetary policy --
have risen moderately, although they differ depending on economic entity (Chart 8). Until
recently, it was believed that prices were highly unlikely to rise as many people, the younger
generation in particular, had never experienced a situation in which prices rise and found it
difficult to expect future inflation. Currently, however, the situation may be starting to change.
2. Future price developments that are subject to considerable uncertainties
The Bank aims to achieve the price stability target of 2 percent in a sustainable and stable
manner. It is thus highly important to examine how prices will progress. To state the
conclusion first, the Bank's baseline scenario does not assume that prices will continue to rise
at the current pace. In other words, the effects of cost pass-through led by the increase in
import prices, which have been pushing up consumer prices to date, are expected to wane
gradually. On the other hand, the strengthening of a virtuous cycle between wages and prices
-- which I will touch on later -- will in part contribute to gradually pushing up prices. With
such shift in the main factor pushing up prices, the year-on-year rate of increase in the CPI
for all items less fresh food -- in terms of the median of the Bank's Policy Board members'
forecasts presented in the October 2023 Outlook for Economic Activity and Prices -- was
projected at 1.7 percent for fiscal 2025. The baseline scenario involves extremely high
uncertainties and is subject to both upside and downside risks. Given actual price
developments until recently, though, my sense is that risks are skewed to the upside.
Before I talk specifically about risks to the outlook for prices, I would like to touch on a
perspective that I have referred to in my past speeches, which I think is a useful starting point
when considering developments in consumer prices.
I would like to note that, although the CPI consists of prices of a variety of items, price
fluctuations vary by item. Given this aspect, I would like to focus on the frequency of price
changes, specifically by separating the category of "flexible" consumer prices, made up of
items for which prices change relatively frequently, and "sticky" consumer prices, made up
of items for which prices change relatively infrequently. Flexible consumer prices are mainly
composed of goods prices while sticky consumer prices are mainly composed of services
prices.
Having made this distinction, I would like to explain the reasons behind my thinking that
risks to the outlook for prices are skewed to the upside.
First, let me talk about flexible consumer prices. On a yen basis, import prices have been
trending downward since peaking in September 2022. Flexible consumer prices, which are
primarily composed of goods prices, tend to track movements in import prices with a time
lag, because they are made up of items for which prices change relatively frequently.
Currently, however, even as import prices have decreased, the rate of decline in flexible
consumer prices has been slower than expected. The decrease in import prices, which mainly
consist of raw material and fuel prices, will spread from upstream to downstream demand
stages in producer prices, and presumably this will eventually spill over into consumer prices.
The decline in import prices has in fact been spreading from upstream to downstream demand
stages, but it seems possible that prices in the downstream have become less likely to fall than
before (Chart 9). This may be because, compared to the past deflationary period, firms have
become more likely to pass on cost increases to selling prices at each stage of demand.
Let us look back at firms' business strategies in the deflationary environment. Many firms at
the time, faced with intense price competition, were forced to maintain or lower their selling
prices even at the expense of some measure of profit. In this context, they secured profits
through business strategies that emphasized cutting costs, including the wages of workers.
With these points in mind, the current situation -- where firms' pass-through of cost increases
has been more widespread than expected -- seems to suggest that the deflationary
environment in which price competition was predominant is beginning to undergo a sea
change.
Next, I would like to touch on sticky consumer prices. These prices are thought to be more
susceptible to medium- to long-term inflation expectations than short-term expectations,
since their index is made up of items for which prices change relatively infrequently. Sticky
consumer prices are also considered to be affected by wage developments. As I suggested
earlier, if we take it that firms have recently begun to emerge from a deflationary environment,
the addition of upward pressure on workers' wages, which firms restrained in the deflationary
environment, is likely to affect sticky consumer prices. There is a strong tendency in Japan
for firms to revise wages at the outset of the fiscal year, especially for regular employees, as
typified by the annual spring labor-management wage negotiations. Given the results of the
spring 2023 negotiations, sticky consumer prices are also expected to rise (Chart 10).
Several points are crucial to keep in mind when considering the outlook for price
developments in this context. One concerns whether or not wage hikes at firms following the
2023 annual spring labor-management wage negotiations, which became more aggressive,
are temporary or will continue in fiscal 2024 (Chart 11). On this score, there have been
positive comments from both labor and management, mainly among large firms. By contrast,
many local small and medium-sized firms have expressed concerns that this year's wage hikes
were as much as they could manage, and that further increases will impair business continuity.
Thus, the outlook for wages is unclear at present. In light of unfolding demographic changes
in Japan, and also considering the unprecedented increase in the labor force participation rate
of seniors and women, another scenario regarding wage developments can be considered: as
constraints on labor supply intensify, labor market conditions will tighten further and firms
will raise wages more actively to recruit and retain employees. In considering this scenario,
though, a question arises as to whether many firms have an incentive that is strong enough to
lead them to raise wages at the expense of profit to recruit and retain employees. In this regard,
for firms to raise wages sustainably from fiscal 2024 onward, one of the key factors will be
economic activity at home and abroad remaining stable, fostering an environment conducive
to solid corporate profits. Having said that, given the considerable uncertainties over the
outlook for overseas economies, there is a risk that, depending on economic developments
going forward, downward pressure will be exerted on wages and then on prices. On the other
hand, if changes in firms' wage- and price-setting behavior continue and the virtuous cycle
between wages and prices strengthens, these -- together with the stable increase in private
consumption that I described earlier -- will likely push up prices further.
II. Conduct of Monetary Policy
Further Increasing the Flexibility in the Conduct of Yield Curve Control
Based on the economic and price developments I have explained so far, I would now like to
present my views regarding the Bank's current conduct of monetary policy, focusing on its
conduct of yield curve control in particular.
At the Monetary Policy Meeting (MPM) held in October 2023, the Bank decided by a
majority vote to further increase the flexibility in the conduct of yield curve control. Within
this modification, the Bank -- while maintaining the basic framework of yield curve control
by setting the short-term policy interest rate at minus 0.1 percent and the target level of 10-
year Japanese government bond (JGB) yields at around 0 percent -- decided to conduct yield
curve control with the upper bound of 1.0 percent for 10-year JGB yields as a reference and
control the yields mainly through large-scale JGB purchases and nimble market operations.
Specifically, the upper bound of 1.0 percent for 10-year JGB yields prior to the modification
in October was a "rigid cap," in that when the yields were at 1.0 percent, fixed-rate purchase
operations for consecutive days were to be conducted to strictly contain the rise in the yields
to below 1.0 percent. However, given that developments in economies and financial markets
at home and abroad are extremely uncertain at present, the Bank considered that strictly
capping 10-year JGB yields could entail large side effects. It therefore decided to further
increase the flexibility in the conduct of yield curve control with a "flexible cap," which
regards the upper bound of 1.0 percent for 10-year JGB yields as a reference (Chart 12).
Increasing the Flexibility in the Conduct of Yield Curve Control and Basic Stance on
Monetary Policy
The Bank's decision in October to further increase the flexibility in the conduct of yield curve
control marks the third time over the past year that it has modified such conduct, following
moves of the sort in December 2022 and July 2023. These modifications appear to have been
the subject of various interpretations in financial and capital markets at home and abroad. I
would like to take this opportunity to offer my own summary of the conduct of monetary
policy to date.
At the July 2023 MPM, multiple numerical guidelines were attached to the conduct of yield
curve control: the target level of 10-year JGB yields, the permissible fluctuation range of
these yields from the target level, and the rigid upper bound for strictly capping the yields.
This resulted in a complex monetary policy scheme, which might have made understanding
its intended purposes difficult. In this context, the Bank decided in October to further increase
the flexibility in the conduct of yield curve control, with the result that it has maintained the
target level of 10-year JGB yields at around 0 percent and has set the upper bound of 1.0
percent for these yields as a reference. I believe that the latest modification has allowed for a
simpler scheme for conducting monetary policy.
Given that the conduct of yield curve control has been simplified, some have started to
become skeptical as to whether the Bank's decision in October to further increase the
flexibility in such conduct was laying the groundwork for an exit from monetary easing.
However, current developments in economic activity and prices necessitate that the Bank
patiently continue with monetary easing; I think that it is still too early for the Bank to
deliberate on an exit.
The Bank aims to achieve the price stability target of 2 percent in a sustainable and stable
manner. This does not imply that simply achieving 2 percent in terms of recent figures for the
year-on-year rate of change in the CPI is enough. Rather, the underlying economic
mechanism should be capable of sufficiently guaranteeing the achievement of sustainable and
stable 2 percent inflation. To this end, it is important for the Bank to clearly confirm that the
virtuous cycle between wages and prices is at work. At present, budding developments toward
such a virtuous cycle may be appearing, but it has not yet taken hold. Therefore, the Bank
should patiently continue with monetary easing for the moment. Furthermore, as in the past
statements on monetary policy, the Bank presented in its statement released immediately after
the October MPM that it will continue expanding the monetary base until the year-on-year
rate of increase in the observed CPI for all items less fresh food exceeds 2 percent and stays
above this target in a stable manner, and it will not hesitate to take additional easing measures
if necessary. Monetary policy measures remain well prepared to combat downside risks to
economic activity and prices. It is thus clear that the Bank's decision at the October MPM to
further increase the flexibility in the conduct of yield curve control did not aim at normalizing
monetary policy.
To sum up, the three rounds of modifications to increase the flexibility in the conduct of yield
curve control, including the one decided at the October MPM, did not intend to lay the
groundwork for an exit from monetary easing. Rather, I would like to emphasize that the
modifications aimed at continuing with accommodative monetary policy to achieve the price
stability target.
Informational Value of Long-Term Interest Rates Formed in Financial Markets
Next, I would like to express my thoughts on the significance of continuously increasing the
flexibility in the conduct of yield curve control.
Conventional monetary policy, in my understanding, involves controlling short-term policy
interest rates and communicating with financial institutions through day-to-day market
operations, to form a perception of optimal interest rates to ensure stability in economic
activity and prices. In this context, long-term interest rates are an indicator reflecting market
participants' outlook for monetary policy as well as the results of their comprehensive
assessment of developments in and prospects for economic activity and financial market
conditions at home and abroad. Long-term interest rates are thus regarded as an extremely
informative indicator in conducting monetary policy. Given these considerations, the
framework of yield curve control, in which a central bank controls long-term interest rates
more directly, carries the disadvantage of losing the valuable information provided by such
rates. The Bank's decision to introduce yield curve control, despite this disadvantage, was
based on its judgment that a framework for continuing with powerful monetary easing is
necessary to achieve the price stability target of 2 percent.
However, amid the ongoing elevated inflation that started during the pandemic, I believe the
room for making effective use of the informational value pertaining to long-term interest rates
is gradually expanding. Thus, there seems to be a change in the balance between the policy
effects of the conduct of yield curve control, in which the Bank works to stabilize long-term
interest rates so that Japan's economy will make an exit from the prolonged deflationary trap,
and the informational value of long-term interest rates that could be gained by leaving the
formation of these rates up to the financial markets to some extent. From the perspective of
making use of the informational value of long-term interest rates, I consider it as highly
significant that the Bank has increased the flexibility in the conduct of yield curve control as
necessary.
I should point out that the increased flexibility does not imply that the effects of yield curve
control to hold down long-term interest rates are no longer needed. This is because, if 10-year
JGB yields rise to a level well above 1.0 percent, the resultant increase in real interest rates
could undermine the effectiveness of monetary easing and significantly dampen economic
activity, which could hinder the economy's transition to a virtuous cycle between wages and
prices.
Risk Management in the Conduct of Monetary Policy
Risk management is another aspect that I consider as critical in the conduct of monetary policy.
To continue conducting monetary policy appropriately, the key is the Bank's baseline scenario
for economic and price developments that forms the basis for policy conduct. Having said
that, drawing from my many years of experience as an economist, it is extremely difficult to
always be accurate in predicting such developments. Moreover, given the current situation
overseas and geopolitical risks, even greater uncertainties over economic and price
developments at home and abroad are anticipated. Under such conditions, a risk management
perspective becomes critical in the conduct of monetary policy.
I view the Bank's modifications to date to increase the flexibility in the conduct of yield curve
control as a sort of risk management in monetary policy conduct. During the pandemic,
emphasis was placed on addressing downside risks to prices, but recently, it also has become
necessary to take upside risks into account. In this context, I believe that the Bank's decision
to increase the flexibility in the conduct of yield curve control has had the following two
benefits.
The first is the improvement in market functioning. This applies to such factors as the
formation of a consistent relative relationship among interest rates of bonds with different
maturities and the narrowing of the yield differential between JGB issues that are eligible for
the Bank's outright purchases and those that are not. If the Bank attempts to strictly contain
yield increases for bonds with specific maturities through, for example, fixed-rate purchase
operations for consecutive days in its conduct of yield curve control, not only will the curve
see a distortion, but distortion in terms of bond prices could also emerge -- namely, as the
Bank purchases specific bond issues, market bond prices for issues purchased and those for
other issues with approximately the same residual maturity may end up being completely
different. With respect to such market price gaps, there is generally room in the market for
arbitrage to operate, and price distortions among different bond issues will be mostly
eliminated; however, should yields under yield curve control be far removed from those
predicted based on actual macroeconomic conditions, the price gaps among different bond
issues will not be resolved.
Furthermore, since JGB yields serve as reference rates for corporate bond yields, bank
lending rates, and other funding rates, there is concern that, if yield distortions are left
unaddressed, they will adversely affect corporate financing. Indeed, the second half of 2022
saw the risk of some concerns of this sort coming true. However, as the Bank's decision to
increase the flexibility in the conduct of yield curve control has mostly eliminated such yield
distortions, firms' funding conditions have been favorable recently.
The second benefit is the effects of enhancing the sustainability of monetary easing. As I
mentioned earlier, if yields under yield curve control turn out to be far removed from those
predicted based on actual macroeconomic conditions, attempts to forcibly maintain yields at
that level may spark speculative moves in financial markets. Such moves were seen in foreign
exchange markets of several economies in the past during their course of abolishing fixed
exchange rate systems. Let me touch on the case of Australia's central bank. Although the
framework differs from the Bank of Japan's yield curve control, the Reserve Bank of Australia
(RBA), since March 2020, adopted a target for the yield on the three-year Australian
Government bond. However, with mounting inflationary pressure, it was forced to
discontinue the yield target in November 2021, earlier than expected.
The Bank's decision in October to further increase the flexibility in the conduct of yield curve
control, before 10-year JGB yields actually reach the rigid upper bound set in July, may result
in raising the level of such yields to some extent. Given past examples, however, this
modification is at the same time enhancing the sustainability of monetary easing under the
framework of yield curve control.
Thank you.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Ehime
November 29, 2023
ADACHI Seiji
Member of the Policy Board
Bank of Japan
Chart 1
Real GDP
s.a., ann., tril. yen
580
560
540
520
500
480
460
CY 08 10 12 14 16 18 20 22
Source: Cabinet Office.
Chart 2
Private Consumption
Real Private Consumption
Consumption Activity Index (CAI, Real)
s.a., CY 2015=100
s.a., 2018/Q1=100 s.a., 2018/Q1=100
120 115 115
Nondurable goods
110 110
<40.5>
115
Services <50.7>
105 105
110
100 100
105
95 95
100
90 90
95
Consumption Activity Index
85 85
(CAI, travel balance adjusted)
90
80 80
Consumption of households
(excluding imputed rent)
85
75 75
Durable goods <8.9>
Disposable income, etc. (SNA)
80 70 70
13 14 15 16 17 18 19 20 21 22 23 CY 18 19 20 21 22 23 18 19 20 21 22 23
CY
Notes: 1. In the left panel, figures for the CAI are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude
inbound tourism consumption and include outbound tourism consumption.
2. In the left panel, "disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements.
Real values are obtained using the deflator of consumption of households.
3. In the right panel, figures are based on Bank staff calculations. Figures in angle brackets show the weights in the CAI.
4. In the right panel, nondurable goods include goods classified as semi-durable goods in the SNA.
Sources: Cabinet Office; Bank of Japan, etc.
Chart 3
Developments in Business Fixed Investment Plans
y/y % chg.
18
15
12
FY2023
9
6
3
Average (FY2004-2022)
0
FY2019
-3
FY2020
FY2021
-6
FY2022
-9
Mar. June Sept. Dec. Forecast Actual
Notes: 1. Figures are based on the Tankan and are for all industries including financial institutions.
2. Figures include software and R&D investments but exclude land purchasing expenses. R&D investment is not covered
as a survey item before the March 2017 survey.
3. There is a discontinuity in the data for December 2021 due to a change in the survey sample.
Source: Bank of Japan.
Chart 4
Business Fixed Investment
Indicators of Business Fixed Investment Capital Stock Cycles
s.a., ann., tril. yen
s.a., ann., tril. yen business fixed investment, y/y % chg.
100 12 10
05 Investmentcapital stock
ratio at the
FY2023
end of FY2022
90 11 5
04
14
10
1.5%
21
12
0
80 10
07
19
1%
-5
70 9
0.5%
20
Private nonresidential investment
0%
-10
60 8
(SNA, real, left scale)
09
Machinery orders (private sector,
Expected
excluding volatile orders, right scale)
growth rate: -2% -1%
-15
50 7
9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0
CY 08 10 12 14 16 18 20 22
investment-capital stock ratio at the end of the previous fiscal year, %
Notes: 1. In the left panel, volatile orders are orders for ships and those from electric power companies.
2. In the right panel, each broken line represents the combination of the rate of change in business fixed investment and the investment-capital
stock ratio at a certain expected growth rate. The figure for fiscal 2023 is that for 2023/Q2.
Source: Cabinet Office.
Chart 5
Exports
Total Real Exports Real Exports by Region
s.a., 2018/Q1=100 s.a., 2018/Q1=100
s.a., CY 2020=100
120 130 130
120 120
110
110 110
100 100
100
90 90
80 80
90
70 70
80
60 60
China
<19.4>
50 50
United States <18.6>
NIEs, ASEAN, etc.
70
<37.1>
40 40
EU <9.5>
Other economies <15.4>
30 30
60
CY 18 19 20 21 22 23 18 19 20 21 22 23
CY 08 10 12 14 16 18 20 22
Notes: 1. Figures are based on Bank staff calculations.
2. Figures for 2023/Q4 are those for October.
3. In the right panel, figures in angle brackets show the share of each country or region in Japan's total exports in 2022. Figures for the
EU exclude those for the United Kingdom for the entire period.
Sources: Ministry of Finance; Bank of Japan.
Chart 6
Developments in the CPI
y/y % chg.
5.0
CPI (less fresh food)
4.0
CPI (less fresh food and energy)
3.0
2.0
1.0
0.0
-1.0
-2.0
18 19 20 21 22 23
CY
Source: Ministry of Internal Affairs and Communications.
Chart 7
CPI for All Items Less Fresh Food
y/y % chg.
4.5
Mobile phone charges
4.0
Effects of travel subsidy programs
3.5
Effects of the consumption tax hike and
3.0
free education policies
Energy
2.5
2.0
Excluding the above factors
1.5
CPI (less fresh food)
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
18 19 20 21 22 23
CY
Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges.
2. 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.
Source: Ministry of Internal Affairs and Communications.
Chart 8
Inflation Expectations
y/y, ann. avg., %
2.5
Market participants (QUICK, 2 to 10 years ahead)
Economists (7 to 11 years ahead)
Households (over the next 5 years)
2.0
Firms (5 years ahead)
1.5
1.0
0.5
0.0
05 07 09 11 13 15 17 19 21 23
CY
Notes: 1. Figures for economists are the forecasts of forecasters surveyed for the ESP Forecast.
2. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin
method for a 5-choice question.
3. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan.
Sources: Japan Center for Economic Research (JCER), ESP Forecast; QUICK, QUICK Monthly Market Survey (Bonds); Bank of Japan.
Chart 9
Spillover Effects of Import Prices on the CPI for Goods
y/y % chg.
y/y % chg. y/y % chg.
60 40
20
50
30
15
40
30 20
10
20
10 5
10
0 0 0
-10
-10 -5
-20
-30 -20 -10
CY 16 17 18 19 20 21 22 23 CY 16 17 18 19 20 21 22 23 16 17 18 19 20 21 22 23
CY
Import price index ID index (stage 2)
ID index (stage 4)
ID index (stage 1) ID index (stage 3) FD index (excluding exports)
ID index (stage 2) ID index (stage 4) CPI for goods (less fresh food and energy)
Note: The import price index is on a yen basis. The FD-ID price indexes divide demand into the final demand (FD) stage and four stages of intermediate demand (ID)
based on the Input-Output Tables for Japan. Goods and services prices are then aggregated according to the stage to which they belong to compile the FD index
and the ID indexes for stages 1 to 4, ranging from the upstream to downstream stages of the production process.
Sources: Ministry of Internal Affairs and Communications; Bank of Japan.
Chart 10
Developments in Wages and Prices
y/y % chg.
35
CPI (less fresh food)
30
Nominal wages
25
20
15
10
5
0
-5
FY 71 81 91 01 11 21
Notes: 1. The CPI figures ar