August 29, 2019
Bank of Japan
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Kumamoto
Hitoshi Suzuki
Member of the Policy Board
I. Recent Economic and Price Developments
A. Developments in Overseas Economies
I would like to begin my speech by talking about overseas economies.
Overseas economies have been growing moderately on the whole, although the business
sentiment of manufacturing firms has begun to deteriorate in advanced economies in
particular, amid protectionist trade policy in some countries and the heightening of
geopolitical risks, as well as the accompanying uncertainty regarding global financial markets.
Slowdowns are expected to continue for the time being, but overseas economies are likely to
grow moderately on the whole thereafter with the growth rates rising somewhat, partly due
to the effects of economic stimulus measures, such as in China, and the progress in global
adjustments in IT-related goods.
Let me take a look at developments by major region. Regarding the U.S. economy, while
trade friction, particularly with China, seems to have been having a negative effect on
momentum in manufacturing firms, nonmanufacturing firms have been showing resilience.
In a favorable employment and income situation, the economy is likely to maintain its
moderate expansion, partly underpinned by expansionary fiscal measures, as the Federal
Reserve has implemented monetary policy measures that take into consideration the
downside risks to economic activity and prices.
The European economy has been decelerating, as seen, for example, in the slowdown in the
pace of increase in business fixed investment with heightened uncertainty over economic and
political developments. Potential downside risks to economic activity are trend changes in
global financial markets, geopolitical developments, and considerable uncertainty over
political developments, such as the outcome of negotiations on the United Kingdom's exit
from the European Union (EU).
The Chinese economy has continued to see stable growth on the whole, but some weakness
has been observed in manufacturing firms. An estimate by the International Monetary Fund
(IMF) suggests that, if the U.S.-China trade friction intensifies, the growth rate of the Chinese
economy for 2020 could slow by around 1 percent. Although uncertainty remains, if trade
friction with the United States heads toward a settlement, the stability of the economy is likely
to be enhanced further as there is growing expectation that the authorities' stimulus measures
gradually will take effect.
Emerging economies other than China and commodity-exporting economies are likely to
continue their moderate recovery on the whole.
The view that global growth rates will rise somewhat is consistent with the forecasts of
international institutions. For example, according to the July 2019 World Economic Outlook
Update released by the IMF, global growth is forecast at levels exceeding 3.0 percent for
2019 and 2020, although the projections for both years were revised downward from those
made in April 2019 (Chart 1).
B. Current Situation of Japan's Economy
I will now discuss the economic situation in Japan.
Japan's economy has been on a moderate expanding trend, with a virtuous cycle from income
to spending operating, and the output gap has remained positive. In 2018, the real GDP growth
rate for the July-September quarter was negative, due mainly to the effects of natural disasters.
Thereafter, however, the rate registered positive growth for three consecutive quarters (Chart
2). Although exports, production, and business sentiment have been affected by the slowdown
in overseas economies, the situation does not yet indicate an economic downturn, owing in
part to a sustained increasing trend in business fixed investment. Private consumption has
been increasing moderately, albeit with fluctuations, against the background of an
improvement in the employment and income situation. However, careful attention is
warranted on future developments, including those prior to and after the consumption tax hike
scheduled for October 2019.
According to the Regional Economic Report released by the Bank of Japan in July 2019, all
nine regions of Japan reported that their respective economies had been either expanding or
recovering (Chart 3). The Kyushu-Okinawa region, in which Kumamoto Prefecture is located,
reported that firms' business sentiment generally remained at favorable levels, although
exports and production were relatively weak on the whole. Housing investment and public
investment were at high levels, and business fixed investment was increasing. Private
consumption was also increasing moderately on the back of an improvement in the
employment and income situation.
Labor market conditions have remained tight as Japan's economy has maintained its
expanding trend. The unemployment rate has been at a low level of around 2.5 percent, and
the active job openings-to-applicants ratio has remained at a high level. Firms' perception of
a labor shortage, suggested by the diffusion index for employment conditions in the June
Tankan (Short-Term Economic Survey of Enterprises in Japan), remained at a high level in a
wide range of industries (Chart 4). Firms in many industries therefore have been proceeding
proactively with labor-saving investment with a view to utilizing artificial intelligence (AI),
robotic process automation (RPA), and other technologies.
In addition to developing a
working environment that further encourages the labor participation of senior citizens and
in areas such as automation and labor-saving technologies are important
women, innovations
for the social development of our economy in dealing with demographic changes brought
about by an aging population.
Experience suggests that, once this type of business fixed investment begins, including that
intended for domestic capacity expansion, firms will also proactively consider renewing other
plants and equipment, thereby making it unlikely that demand for fixed investment will
decline significantly even in the presence of some uncertainty regarding the economy. Indeed,
despite previous concern over a drop in business fixed investment, the real GDP growth rates
for the January-March and April-June quarters of 2019 actually registered quarter-on-quarter
increases. This could be regarded as an indication of the resilience of Japan's economy to
downward pressure and uncertainties arising from overseas economies.
C. Outlook for Japan's Economy
Japan's economy is likely to continue on an expanding trend throughout the projection period
-- that is, through fiscal 2021.
In fiscal 2019, exports are projected to continue showing some weakness for the time being,
reflecting the effects of the slowdown in overseas economies, and the pace of increase in
business fixed investment is likely to decelerate temporarily, mainly in manufacturing. On
the other hand, private consumption likely will increase as the employment and income
situation continues to improve. After the consumption tax hike scheduled for October, private
consumption and housing investment are likely to be pushed down for some time. However,
the rate of increase in business fixed investment is expected to rise somewhat, due in part to
increases in investment related to urban redevelopment projects as well as labor-saving
investment. Public investment is also likely to increase, due mainly to the implementation of
the supplementary budgets for fiscal 2018 and the promotion of policy measures for national
resilience. Moreover, exports are projected to return to their moderate increasing trend, with
overseas economies growing moderately on the whole.
Following a likely decline in the second half of fiscal 2019 due to the effects of the
consumption tax hike, private consumption and housing investment are expected to head
gradually toward a recovery in fiscal 2020. The economy is projected to be underpinned
mainly by the continued increasing trend in exports, with the growth rates of overseas
economies rising, and an expansion in public expenditure accompanying the hosting of the
Olympic Games to be held in Tokyo in 2020. Japan's economy is therefore expected to
continue on an expanding trend in fiscal 2020.
Moreover, although Olympic Games-related expenditure will have been completed, private
consumption and housing investment are projected to increase in fiscal 2021, partly because
the effects of the decline in reaction to the scheduled consumption tax hike are likely to
dissipate. Meanwhile, exports are projected to continue their moderate increasing trend, and
business fixed investment is also likely to maintain its moderate uptrend, due in part to a rise
in the potential growth rate.
According to the Bank's July 2019 Outlook for Economic Activity and Prices (Outlook
Report), the medians of the Policy Board members' forecasts for the real GDP growth rate are
0.7 percent, 0.9 percent, and 1.1 percent for fiscal 2019, 2020, and 2021, respectively (Chart
5).
However, in considering the outlook for Japan's economy, attention should be paid to
considerable uncertainties regarding the global economy. Specifically, these include U.S.
protectionist moves and responses by its trading partners, developments in negotiations on
the United Kingdom's exit from the EU, geopolitical risks in regions such as the Middle East
and consequent fluctuations in crude oil prices, and the risk of a sharp decline in economic
activity in Europe and China. Moreover, concerns over these risks may give rise to volatility
in
financial markets, which in turn would likely push down the global economy. Given these
growing downside risks concerning overseas economies in particular, it is necessary to pay
close attention to developments in firms' and households' sentiment in Japan.
D. Prices in Japan
Next, I will elaborate on price developments in Japan.
The year-on-year rate of change in the consumer price index (CPI) for all items less fresh
food (core CPI) has been at around 0.5 percent recently (Chart 6). With the price stability
target set at 2 percent, the Bank has been conducting large-scale monetary easing, but there
is still some way to go before achieving the target. However, firms have been raising prices
of a wider range of products recently, and the output gap, which I will touch upon later, has
remained positive. As these factors suggest, the conditions necessary for strengthening the
movement toward price rises in the medium term have begun to be put in place, and thus the
momentum toward achieving the price stability target appears to have been maintained in
Japan.
I would now like to explain the recent environment surrounding prices from the following
three aspects: human resources, tangible factors such as capital equipment, and intangible
factors including services prices.
1. Human resources
Let me first explain the environment surrounding prices from the aspect of human resources.
As I mentioned earlier, Japan's employment situation continues to be tight, as seen in such
indicators as the unemployment rate and active job openings-to-applicants ratio; it seems that
the labor market has been close to full employment. In such circumstances, wages are
expected to rise.
Wages have indeed been increasing, particularly for part-time employees and temporary
workers. However, according to the press release presenting the results of the annual spring
labor-management wage negotiations in 2019, as compiled by the Japanese Trade Union
Confederation (Rengo), the year-on-year rate of increase in wages of Rengo union members,
including the amount equivalent to regular pay hikes, remained at around 2.0 percent --
marking the same level as that of 2018. Likewise, while base pay has risen for a sixth
consecutive year, the negotiation results of firms for which base pay data were available for
aggregation showed that the rate of increase was limited to around 0.5 percent. Moreover, the
Japan Business Federation (Keidanren) revealed that the 2019 summer bonus payments of
large firms fell below those of the previous year for the first time in two years.
Given the projected decline in Japan's labor force, there is a risk of labor shortages
intensifying. Thus, firms are expected to invest in their human resources wherever necessary
through more proactive wage increases, so as to maintain their production levels. Through
such wage increases, the
virtuous cycle from income to spending will be enhanced, and
will
inflation expectations of households and firms rise.
2. Tangible factors
Next, I will explain the tangible factors that affect prices. The Bank estimates the output gap,
which is the economic measure of the difference between aggregate demand (actual output)
of the economy and average supply capacity (potential output) that is smoothed out for the
business cycle. According to this estimate, the output gap has remained positive for 10
consecutive quarters since the October-December quarter of 2016, due to the contribution of
the tangible factor of a rise in capital utilization rates, in addition to the human resources
factor of the steady tightening of labor market conditions, which I explained earlier (Chart 7).
This suggests that capital utilization also has been exerting upward pressure on prices.
3. Intangible factors
Lastly, in explaining the intangible factors that affect prices, such as the cost of services, I
would like to touch on communication charges for mobile phones and the so-called koto
consumption. This type of consumption is based on intangible qualities, and consumers seek
value in experiences rather than getting pleasure merely from possessing material goods.
These factors have been drawing attention recently.
First, as communication charges for mobile phones in Japan have been weighing heavily on
consumers, the government has requested mobile carriers to lower such charges, and the
Cabinet has decided on a revision of the service plans that package handset payments and
communication fees. Successive offers of new simpler plans by mobile carriers based on such
revision have been pushing down the CPI as a result.
Next, as for koto consumption, accommodation and overseas package tours are also
consumption components that affect overall prices. In these areas, there is rising demand for
koto consumption, and an increasing number of new services are being provided that
primarily target tourists from abroad, in addition to domestic consumers. Given that the
Olympic Games will be held in Tokyo, it is expected that price increases through such
experience-oriented consumption also will contribute to pushing up prices overall.
I have explained the recent environment surrounding prices from these three aspects -- human
resources, tangible factors, and intangible factors. Needless to say, there are factors other than
these that could affect prices. Despite current economic expansion and tight labor market
conditions, the trend inflationary pressure on the CPI has remained relatively weak. This has
been affected by the deeply entrenched mindset and behavior based on people's assumption
that wages and prices will not increase easily, due mainly to the experience of prolonged low
growth and deflation. Firms' efforts to absorb the increase in wage costs by raising
productivity and technological progress in recent years, as seen in the expansion of online
shopping, also have contributed to the situation where prices do not increase easily.
Furthermore, consumers now face the important question as to how they can prepare for a
100-year lifespan. Reflecting these various factors, households' and firms' medium- to long-
term inflation expectations are more or less unchanged (Chart 8). Inflation expectations are
influenced by both the backward-looking (or adaptive) component that reflects past rates --
i.e., the observed inflation rate -- and the forward-looking component that reflects the
progress in the Bank's pursuit of monetary easing through its strong commitment to achieving
the price stability target. Thus, a rise in prices is the key to increasing medium- to long-term
inflation expectations, and it is important that this brings about a change in the perception of
firms and households regarding future prices.
E. Outlook for Prices in Japan
Based on the three aspects that affect prices, the year-on-year rate of change in the CPI is
likely to increase gradually toward the price stability target, as the effects of the current large-
scale monetary easing gradually permeate the economy. Firms are expected to broaden their
efforts to raise prices and wages as Japan's economy continues on an expanding trend and the
positive output gap is maintained, thereby inducing a gradual change in firms' and households'
mindsets. Specifically, the medians of the Policy Board members' forecasts for the year-on-
year rate of change in the core CPI presented in the July 2019 Outlook Report are 1.0 percent,
1.3 percent, and 1.6 percent for fiscal 2019, 2020, and 2021, respectively (Chart 5). However,
it should be borne in mind that, if risks to economic activity materialize -- particularly those
concerning overseas economies -- there is the possibility that prices will be affected to some
extent.
II. Conduct of Monetary Policy
A. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control
Let me now turn to the Bank's monetary policy.
Following the introduction of QQE in April 2013, the Bank has been pursuing
QQE with
since toward achieving the price stability target of 2
Yield Curve Control September 2016
percent.
Under this policy framework, controlling short- and long-term interest rates -- the so-called
yield curve control -- facilitates the formation of the term structure of interest rates that is
most appropriate for achieving the price stability target. Specifically, in the guideline for
market operations, the Bank sets at minus 0.1 percent
the short-term policy interest rate and
decides to purchase Japanese government bonds (JGBs) so that 10-year JGB yields will
remain at around zero percent (Chart 9).
Thereafter, in July 2018, the Bank implemented measures to enhance the sustainability of
QQE with Yield Curve Control. Specifically, in terms of yield curve control, while
maintaining the target level of 10-year JGB yields at around zero percent, the Bank made
clear that yields might "move upward and downward to some extent mainly depending on
developments in economic activity and prices," thereby securing a certain degree of flexibility
in the guideline for market operations.
Under the framework of QQE with Yield Curve Control, Japan's economy has continued on
an expanding trend and the output gap has remained positive. As for prices, the underlying
trend in the year-on-year rate of change in the CPI excluding fresh food and energy has been
generally in positive territory for six years. With regard to inflation expectations, the results
Opinion Survey on the General Public's Views and Behavior
of the Bank's June 2019 showed
medium- to long-term expectations
that, while remained low, the proportion of respondents
who answered that prices would go up one year from now has increased recently, and this
Although there is still
indicates a change in people's perception of future prices (Chart 10).
some way to go for the core CPI to increase toward the price stability target of 2 percent, it is
crucial to resolutely continue with powerful monetary easing under
QQE with Yield Curve
Control.
Under these circumstances, in April 2019, the Bank partially revised the description of
forward guidance for policy rates to, "the Bank intends to maintain the current extremely low
levels of short- and long-term interest rates for an extended period of time, at least through
around spring 2020, taking into account uncertainties regarding economic activity and prices
including developments in overseas economies and the effects of the scheduled consumption
tax hike." This was to make clearer the Bank's policy stance that it will resolutely continue
with powerful monetary easing toward achieving the price stability target (Chart 11).
The statement released after the Monetary Policy Meeting held on July 29 and 30 specified
that "the Bank will not hesitate to take additional easing measures if there is a greater
possibility that the momentum toward achieving the price stability target will be lost." This
was to affirm the Bank's commitment to preempting any loss of momentum toward achieving
the price stability target, particularly where -- mainly arising from developments in overseas
economies -- there are significant downside risks to economic activity and prices. On this
basis, should the Bank be required to examine and implement specific additional easing
measures, it will take appropriate action depending on the situation while weighing the
positive effects and side effects.
B. Effects and Side Effects of Monetary Easing under a Low Interest Rate Environment
Let me now share my views on the effects and side effects of monetary easing.
While recognizing the importance of maintaining the extremely low levels of short- and long-
term interest rates toward achieving the price stability target, it also is necessary to pay
attention to the possibility of monetary easing effects materializing in an unusual manner and
of the potential side effects.
First, speaking of monetary easing effects, there is likely a zero lower bound on financial
institutions' interest rates on deposits and loans, due to contractual and operational constraints.
Meanwhile, it has been pointed out that, in the corporate bond market, the conventional
method of deciding interest rates on corporate bonds by adding spreads to JGB yields has
become less common amid negative JGB yields; instead, pricing is starting to be conducted
by attaching greater importance to a positive fixed value of interest rates on corporate bonds
rather than the relative relationship with JGB yields. In such a situation, with a virtually zero
lower bound, there is the possibility that monetary easing effects stemming from an additional
decrease in JGB yields will be more limited than before.
Next, I would like to discuss three points arising from the potential side effects of monetary
easing.
The first point concerns financial institutions' risk-taking stance. With the population and the
number of firms across regions declining, in addition to the current prolonged low interest
rate environment, financial institutions' average contract interest rates on new loans have
reached extremely low levels, owing in part to intensified competition among such
institutions. In this situation, their core profitability has continued to be on a downtrend. There
also is increasingly limited room to realize gains on the sales of securities and to reverse the
allowance for doubtful accounts. As a result, financial institutions have been actively
extending loans to middle-risk firms with relatively high credit risk and investing in assets
such as foreign bonds and domestic and foreign investment trusts. The following points
therefore warrant attention: a deterioration in the profitability of borrowing firms is more
likely to result in an increase in credit costs in the event of a phase shift in economic
developments and credit cycles, and the profits and soundness of financial institutions seem
to have become significantly susceptible to developments in domestic and foreign financial
markets.
Second, if interest rates decline excessively, the narrowing of financial institutions' deposit
and lending margins may make them unable to secure adequate profits, and through the
tightening of their capital constraints, this could induce a decline in the amount of bank loans.
Interest rate levels that reverse the effects of monetary easing in this way are known as
"reversal rates."
Third, if lending rates decline further, financial institutions that are no longer able to withstand
increased downward pressure on their profits may start to charge fees and commissions on
deposits, thereby making deposit rates virtually negative. In this case, some firms may prefer
to proceed with debt repayment in an effort to reduce their deposits, and this could contribute
to a decline in the amount of bank loans. Furthermore, if deposit rates fall into virtually
negative territory, this could have an adverse effect on economic activity through a
deterioration in consumer sentiment.
When conducting monetary policy, the Bank must weigh up the positive effects against the
accompanying costs and side effects, including the ones I have explained.
In considering the
effects of monetary policy, it is important to maintain a transmission channel through which
monetary easing effects spread to the overall economy via financial institutions. Therefore, it
crucial that the Bank, while aiming to achieve price stability, also secure financial system
is
stability so as to ensure that financial institutions can continue to fully perform their financial
intermediation function. As the global financial crisis revealed, the considerable impact on
the real economy of financial system instability makes it increasingly important that the Bank
conduct monetary policy in a manner that focuses not only on achieving price stability, but
also on giving due consideration to financial system stability, on the premise that monetary
policy influences broad areas of financial activity. In other words, once financial system
destabilizes, it would be extremely difficult for the Bank to ensure price stability.
I believe that, at least for now, financial institutions in Japan as a whole are resilient against
stress in terms of both capital and liquidity, and financial system stability has been maintained.
Indeed, as financial institutions have maintained their active lending stance, the year-on-year
growth rate of loans outstanding has been in positive territory. Yet, going forward, the Bank
must consider monetary policy measures more carefully, to prevent financial system
instability. In doing so, it should examine closely the effects on the profits and lending stance
of financial institutions of changes in their attitude to risk and of the current prolonged low
interest rate environment, by taking into account not only the time frame in which monetary
policy effects spread to the real economy, but also the time frame in which the side effects
accumulate.
As the Bank continues resolutely with the current monetary easing policy, it will conduct
monetary policy in an appropriate manner, while examining all relevant risks, so that the
momentum toward achieving the price stability target is maintained.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Kumamoto
August 29, 2019
Hitoshi Suzuki
Bank of Japan
Chart 1
Global Economy
IMF Projections (as of July 2019) Real GDP Growth Rate
real GDP growth rate, y/y % chg., % points
y/y % chg.
6
2019 2020
CY
2017 2018
Avg. growth rate (1980-2018):+3.5%
IMF
projection projection
projections
3.2 3.5
World
3.8 3.6
5
(-0.1) (-0.1)
1.9 1.7
Advanced economies
2.4 2.2
(+0.1) (0.0)
2.6 1.9
United States 2.2 2.9
4
(+0.3) (0.0)
1.3 1.6
Euro area 2.4 1.9
(0.0) (+0.1)
1.3 1.4
3
United Kingdom 1.8 1.4
(+0.1) (0.0)
0.9 0.4
Japan 1.9 0.8
(-0.1) (-0.1)
Emerging market and 4.1 4.7 2
4.8 4.5
developing economies
(-0.3) (-0.1)
Emerging and developing 6.2 6.2
6.6 6.4
Asia
(-0.1) (-0.1)
1
6.2 6.0
China
6.8 6.6
(-0.1) (-0.1)
5.0 5.1
ASEAN
5.3 5.2
(-0.1) (-0.1)
0
1.2 1.9
Russia
1.6 2.3
(-0.4) (+0.2)
Latin America and the 0.6 2.3
1.2 1.0
Caribbean
(-0.8) (-0.1)
-1
CY
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24
Source: World Economic Outlook Update, International Monetary Fund (IMF).
Note: Figures in parentheses are the difference from the April 2019
Source: IMF.
projections.
Chart 2
Japan's Real GDP
s.a., ann., q/q % chg. s.a., tril. yen s.a., q/q % chg.
10 545
2018 2019
8 540
Real GDP (nominal value, right scale)
6 535
Q2 Q3 Q4 Q1 Q2
4 530
Real GDP 0.4 -0.5 0.4 0.7 0.4
2 525
[ann., q/q]
[1.6] [-1.9] [1.6] [2.8] [1.8]
0 520
Private consumption
0.4 -0.1 0.4 0.1 0.6
-2 515
Private non-resi. investment
2.5 -2.6 2.7 0.4 1.5
-4 510
Real GDP growth rate
Private residential investment
(left scale) -1.9 0.8 1.3 0.6 0.2
-6 505
Public demand
-0.2 -0.2 0.3 0.2 0.9
-8 500
Exports of goods & services
0.8 -2.1 1.2 -2.0 -0.1
-10 495
CY
2013/Q2 Q4 14/Q2 Q4 15/Q2 Q4 16/Q2 Q4 17/Q2 Q4 18/Q2 Q4 19/Q2
Source: Cabinet Office.
Source: Cabinet Office.
Chart 3
Regional Economic Assessments
Comparison of Previous and Current Assessments by Region
Changes
from the
Region Assessment in April 2019 Assessment in July 2019
previous
assessment
The economy has been recovering moderately.
Hokkaido The economy has been recovering moderately.
The economy has continued to recover The economy has continued to recover
moderately, although some weakness has been moderately, although some weakness has been
Tohoku
observed in part. observed in part.
Hokuriku The economy has been expanding moderately. The economy has been expanding moderately.
The economy has been expanding moderately, The economy has been expanding moderately,
Kanto-
although exports and production have been although exports and production have been
Koshinetsu
affected by the slowdown in overseas economies. affected by the slowdown in overseas economies.
Tokai The economy has been expanding. The economy has been expanding.
The economy has continued to expand
The economy has continued to expand
Kinki moderately, although some weakness has been
moderately.
observed in part.
The economy has been expanding moderately.
Chugoku The economy has been expanding moderately.
Shikoku The economy has been recovering. The economy has been recovering.
The economy has been expanding moderately. The economy has been expanding moderately.
KyushuOkinawa
Chart 4
Labor Market Conditions
Unemployment Rate and
Diffusion Index (DI) for
Active Job Openings-to-Applicants Ratio
Employment Conditions
reversed, DI ("excessive employment" minus "insufficient employment"), % points
s.a., ratio s.a., %
1.8 6 -80
Insufficient employment
All industries
Manufacturing
1.6
-60
Construction
5
Retailing
1.4
Accommodations, eating & drinking services
-40
1.2 4
-20
1.0
3
0.8
0
0.6 2
20
0.4
Active job openings-to-applicants ratio for
1 Excessive employment
full-time employees (left scale)
40
0.2
Active job openings-to-applicants
ratio (left scale)
Unemployment rate (right scale)
60
0.0 0
CY
2005 07 09 11 13 15 17 19
CY 2005 07 09 11 13 15 17 19
Sources: Ministry of Internal Affairs and Communications;
Source: Tankan (Short-Term Economic Survey of Enterprises in Japan),
Ministry of Health, Labour and Welfare.
Bank of Japan.
Chart 5
Outlook for Economic Activity and Prices as of July 2019
Forecasts of the Majority of Policy Board Members
y/y % chg.
Real GDP CPI (all items less fresh food)
+0.6 to +0.9 +0.8 to +1.1
Fiscal 2019
[+0.7] [+1.0]
Forecasts made in +0.7 to +0.9 +0.9 to +1.2
April 2019
[+0.8] [+1.1]
+0.8 to +1.0 +1.1 to +1.4
Fiscal 2020
[+0.9] [+1.3]
Forecasts made in +0.8 to +1.1 +1.2 to +1.5
April 2019
[+0.9] [+1.4]
+0.9 to +1.2 +1.3 to +1.7
Fiscal 2021
[+1.1] [+1.6]
Forecasts made in +0.9 to +1.2 +1.4 to +1.7
April 2019
[+1.2] [+1.6]
Chart 6
CPI
s.a., y/y % chg.
2.0
All items less fresh food (core CPI)
1.5
All items less fresh food and energy
1.0
0.5
0.0
-0.5
-1.0
CY 2013/Apr. Oct. 14/Apr. Oct. 15/Apr. Oct. 16/Apr. Oct. 17/Apr. Oct. 18/Apr. Oct. 19/Apr.
Chart 7
Output Gap
%
2.5
2.0
Excess demand
(upward pressure on prices)
1.5
1.0
0.5
0.0
-0.5
-1.0
Excess supply
(downward pressure on prices)
-1.5
CY 2013/Q1 Q3 14/Q1 Q3 15/Q1 Q3 16/Q1 Q3 17/Q1 Q3 18/Q1 Q3 19/Q1
Chart 8
Inflation Expectations
y/y, ann. avg., %
2.5
Households (over the next five years)
2.0
Firms (five years ahead)
1.5
1.0
0.5
0.0
CY 2005 07 09 11 13 15 17 19
Source: Bank of Japan.
Opinion Survey on the General Public's Views and
Notes: 1. Figures for households are from the Behavior,
estimated using the modified Carlson-Parkin method.
2. Figures for firms are from the Tankan (General Prices, summary of "Inflation Outlook of Enterprises,"
all industries and all enterprises).
Chart 9
Yield Curve Control
%
1.2
1.0
Target level of the long-term interest rate:
0.8
around zero percent
0.6
0.4
Short-term policy interest rate:
minus 0.1 percent
0.2
0.0
-0.2
Chart 10
Outlook for Price Levels
%
100
Prices will go up one year from now
Prices will go up over the next five years
90
80
70
60
CY
2013/Mar. Sept. 14/Mar. Sept. 15/Mar. Sept. 16/Mar. Sept. 17/Mar. Sept. 18/Mar. Sept. 19/Mar.
Source: Opinion Survey on the General Public'