February 2, 2023
Bank of Japan
Japan's Economy and Monetary Policy
Speech at a Meeting with Local Leaders in Shizuoka
WAKATABE Masazumi
Deputy Governor of the Bank of Japan
Introduction
It is my great pleasure to have the opportunity today to exchange views with leaders in the
fields of local government, economy, and finance in Shizuoka Prefecture. I would like to take
this chance to express my sincere gratitude for your cooperation and support with the
activities of the Bank of Japan's Shizuoka Branch.
Shizuoka Prefecture and the Bank have a special link to Ieyasu Tokugawa, who is gaining the
spotlight in this year's NHK Taiga Drama (the annual year-long historical drama television
series produced by NHK [Japan Broadcasting Corporation]). He was the first Shogun of the
Edo period (1603-1867) and established several official gold mints, or kinza. Kinza-machi in
Aoi Ward, where the Bank's Shizuoka Branch is located, was for a time (1607-1612) the place
where one of the kinza called Suruga kobanza was based, as is suggested by its Japanese
name. The kinza was subsequently moved to Edo (now Tokyo), and the Bank's current Head
Office was built on that site. It is known that modern monetary policy with a view to achieving
price stability through monetary control had already started to emerge during the Edo period.
In a sense, the kinza played the role of the Bank of Japan to some extent at the time of the
Edo Shogunate.1
Turning to the present price developments, the inflation rates have been increasing in Japan
since last year. After the economy fell into deflation in the mid-1990s, prices did not rise in a
sustainable and stable manner for a long time. Is this time different? Will the price
any
stability target of 2 percent be achieved? In a nutshell, although the current situation differs
from those seen in the past, there are extremely high uncertainties over future developments,
and I believe that it is necessary to continue pursuing monetary easing steadily in order to
achieve the price stability target in a sustainable and stable manner.
Today, I would like to begin by talking about the current situation of and outlook for economic
activity and prices based on the Outlook for Economic Activity and Prices (Outlook Report)
that was released recently. The essence is that, while
Japan's economy is likely to recover,
(Chart 1). On
inflation is expected to be relatively high in the short run and then decelerate
this basis, I would like to explain the Bank's thinking the recent conduct of monetary
behind
policy. Then, I will look back at its monetary policy since 2013. Lastly, I will touch upon the
economy of Shizuoka Prefecture and then would like to hear your views on the situation in
this region and on the Bank.
I. Current Situation and Outlook for the Economy: Is This Time Any Different?
A. Economic Activity at Home and Abroad
Let me start with the global economy. The global economy has seen a slowdown in its pace
of recovery recently and is expected to continue decelerating going forward. The Purchasing
Managers' Indexes (PMIs), indicators of business sentiment, for all three major economies --
the United States, Europe, and China -- have deteriorated (Chart 2). The central bank of the
United States, the Federal Reserve, raised its policy interest rates by a total of more than 4
percentage points during the course of 2022 in order to curb high inflation. So far, the impact
of this has been limited mainly to a decline in housing investment, which is susceptible to
developments in interest rates. However, the U.S. economy is highly likely to decelerate due
to the impact of higher prices and the policy interest rate hikes. European economies are also
expected to slow, reflecting the policy interest rate hikes by the European Central Bank (ECB)
as well as the prolonged invasion by Russia of Ukraine. Furthermore, in China, the surge in
the number of cases of the novel coronavirus (COVID-19) since the end of last year has been
weighing on the economy, especially on private consumption.
As I just described, the global economy is expected to decelerate temporarily. Thereafter,
however, it is likely to pick up as global inflationary pressure wanes, mainly reflecting the
effects of monetary tightening.2
Next, I would like to talk about Japan's economy. Japan's economy, despite being affected by
factors such as high commodity prices, has picked up as the resumption of economic activity
has progressed while public health has been protected from COVID-19. While the slowdowns
in overseas economies that I mentioned earlier, together with the impact of high commodity
prices, are expected to put downward pressure on the economy, it is likely to continue
recovering, supported by accommodative financial conditions and the effects of the
government's economic measures (Chart 3). In the latest Outlook Report, the real GDP growth
rates are projected to be 1.7 percent for fiscal 2023 and 1.1 percent for fiscal 2024, suggesting
that the economy is expected to continue growing at a pace above its potential growth rate.
The recovery is expected to be supported, for the time being, by the materialization of pent-
up demand reflecting the waning of the impact of COVID-19 and supply-side constraints --
both of which have been weighing on the economy -- and thereafter by the gradual
intensification of the virtuous cycle from income to spending (Chart 4).
Looking at the household sector, although Japan has been in the midst of the eighth wave of
COVID-19 since autumn last year, the consumption of services -- such as travel and dining
2
It should be noted that there are various uncertainties regarding this outlook.
For instance, although inflation rates in the United States and Europe have declined compared
with a while ago, they are still high, at around 6 percent and around 9 percent, respectively. If inflation
rates remain higher than expected, this will increase the degree of monetary tightening required and
intensify downward pressure on the economy accordingly. Attention also needs to be paid to the risk
that global monetary tightening could destabilize international financial and capital markets by, for
example, causing adjustments in asset markets or leading to an outflow of funds from emerging
economies with large external debt balances.
In addition, the Chinese economy seems to entail high uncertainties with regard to containing
COVID-19 infections and the normalization of economic activity. Once upside risks materialize -- that
is, economic activity recovers rapidly after weakening temporarily -- this could intensify global
inflationary pressure through increases in commodity and energy prices, making central banks around
the world conduct further monetary tightening. Attention is also warranted on adjustments in the real
estate sector, the course of various regulations, and a slowdown in medium- to long-term potential
growth rates due to changes in demographics. Regarding developments in China's potential growth
rates, see Sasaki, T. et al., "China's Long-Term Growth Potential: Can Productivity Convergence Be
Sustained?" Bank of Japan Working Paper Series, no. 21-E-7 (June 2021),
https://www.boj.or.jp/en/research/wps_rev/wps_2021/data/wp21e07.pdf.
out -- has been firm as mobility has continued to recover as a trend. The government's
domestic travel discount program and the increase in inbound tourism demand due to the
easing of COVID-19 border controls have supported the recovery in services demand.
Meanwhile, price rises for food, energy, and other items have put downward pressure on
households' real income and sentiment. However, private consumption has continued to
increase moderately, supported by the effects of the government's measures to address rising
prices and household savings that have accumulated as a result of pandemic-related
restrictions.
Turning to the corporate sector, although slowdowns in overseas economies have pushed
down exports and production, the levels of sales and profits have been high on the whole with
the impact of COVID-19 and supply-side constraints waning. Against this backdrop, the
business fixed investment plan in the December 2022 Tankan (Short-Term Economic Survey
of Enterprises in Japan) suggests that business fixed investment for fiscal 2022 will see a
double-digit percentage increase on a year-on-year basis, partly supported by accommodative
financial conditions.
However, this outlook for Japan's economy is subject to considerable uncertainties. In
addition to the developments in overseas economic activity and prices that I explained earlier,
developments in prices of commodities, including grains, and the course of COVID-19 at
home and abroad need to be noted. Furthermore, we pay attention to developments in
medium- to long-term expected growth rates, which have been on a downtrend to date (Chart
5). We are currently in a period of extreme change; besides the impact of the pandemic, the
future dynamics of globalization are becoming uncertain due to heightened geopolitical risks.
Global challenges, such as decarbonization, are also growing. If households and firms can
successfully respond to such developments, this could raise medium- to long-term expected
growth rates and thereby further strengthen the virtuous cycle in the economy.
B. Price Developments in Japan
Next, I would like to talk about price developments in Japan. The year-on-year rate of increase
in the consumer price index (CPI) for all items excluding fresh food has accelerated gradually,
reaching 4.0 percent for December 2022 (Chart 6). This is the highest inflation rate in Japan
in about four decades, and this is attributable to the effects of a pass-through to consumer
prices of cost increases led by a rise in import prices. However, such upward pressure on
consumer prices is highly likely to wane gradually. In fact, international commodity prices
have already turned to a decline, and the rate of increase in Japan's import prices has clearly
slowed. Furthermore, the effects of the government's economic measures pushing down
energy prices will be reflected in price developments from this month onward. Therefore, the
year-on-year rate of increase in the CPI is expected to decelerate toward the middle of fiscal
2023. Thereafter, with the economy continuing to recover, it is projected to accelerate again
moderately, although it will take time. This acceleration is likely to be mainly due to
tightening supply and demand conditions in the economy and a rise in wage growth, which I
will touch upon later.
In the Outlook Report, the year-on-year rate of change in the CPI (all items less fresh food)
is projected to be 3.0 percent for fiscal 2022, and then fall below 2 percent for fiscal 2023 and
2024, being 1.6 percent and 1.8 percent, respectively. In terms of the effects of the
government's economic measures, those measures to reduce the household burden of higher
gasoline prices, electricity charges, and manufactured and piped gas charges are expected to
push down the year-on-year rate of change in the CPI, mainly for the first half of fiscal 2023.
For fiscal 2024, on the other hand, they are likely to push up the rate due to a waning of the
effects they had of pushing down CPI inflation in the previous year. In this regard, looking at
the CPI for all items excluding fresh food and energy, which is not directly affected by energy
price fluctuations, the year-on-year rate of change for fiscal 2024 is projected to be at around
1.5 percent. Given these projections, it will still take time to achieve the price stability target
in a sustainable and stable manner.
As mentioned earlier, the recent CPI inflation is attributable to a variety of factors, such as
the impact of the substantial rise in import prices, particularly for energy and grains, as well
as the effects of the government's measures to address rising prices. Since it has become more
difficult to grasp underlying inflation based on a single indicator, it is becoming even more
important to carefully examine the mechanisms that determine price developments, including
supply and demand conditions in the overall economy and wage developments, rather than
just looking at superficial figures.
From this perspective, I would like to highlight three points that I am closely monitoring in
assessing current underlying inflation.
The first is changes in the price change distribution by item (Chart 7). In Japan, unlike in the
United States and Europe, price changes for many items have been concentrated in a narrow
range of around 0 percent for a long time. However, comparing the most recent price change
distribution with that before the pandemic, the right tail has become thicker -- that is, the
distribution has shifted in the direction of rising prices. While this pattern has been observed
mainly for goods, of which prices are susceptible to developments in import prices, it remains
to be seen whether it will spread to services prices as well.
The second point, which relates to the first one that I just mentioned, is firms' price-setting
stance (Chart 8). According to the Tankan, the diffusion indexes (DIs) for output and input
prices show not only that the share of firms reporting an increase in input prices has risen, but
also that the share of those reporting an increase in output prices has increased recently. In
addition, the distribution of firms' forecasts for prices, or inflation expectations, has shifted
somewhat in the direction of price rises.
The third point concerns firms' wage-setting stance (Chart 9). In achieving the price stability
target, it is very important that this be accompanied by an increase in wages. It is noteworthy
that, whereas firms' sense of labor shortage temporarily weakened during the early stage of
the pandemic, it has intensified again amid the pick-up in the economy, already reaching the
pre-pandemic level. Moreover, in predicting developments in wages for the time being, the
annual labor-management wage negotiations this spring will be a major key. I believe that
many firms are currently in the process of negotiating, and the rate of base pay increases
demanded by unions is much higher than in the past, reflecting the price rises since last year.
The government and many corporate executives have pointed to the importance of firmly
raising wages while taking the current price rises into account. Therefore, I am paying
attention to the degree to which base pay will increase in practice.
What is important, however, is whether these changes will be sufficiently sustained and lead
to the achievement of the 2 percent price stability target in a sustainable and stable manner.
There remain high uncertainties in this regard. In particular, since the current changes were
initially due to rising import prices since last year, it is necessary to carefully examine whether
these changes will be maintained even after such cost-push pressures have diminished -- that
is, whether changes in firms' price- and wage-setting behavior will take hold and people's
medium- to long-term inflation expectations will be anchored at 2 percent. While making use
of anecdotal information from firms in addition to a wide range of statistics, the Bank will
assess appropriately the outcome of the annual labor-management wage negotiations this
spring and how firms' price-setting strategies will develop in reflection of their experience of
raising prices during the current phase.
C. Recent Conduct of Monetary Policy
So far, I have explained the Bank's view on developments in economic activity and prices.
With such circumstances in mind, the Bank considers it important to firmly support the
economy and provide a favorable environment for firms to raise wages. In this regard, the
Bank decided at the Monetary Policy Meeting (MPM) held last month to continue with
monetary easing.
Meanwhile, at the December 2022 MPM, the Bank modified its conduct of yield curve control
in order to improve market functioning while maintaining accommodative financial
conditions. The modification was done with the aim of enhancing the sustainability of
monetary easing under yield curve control. The Bank expects that the modification will
facilitate the transmission of monetary easing effects generated under this framework. In
order to stabilize the entire yield curve at a low level, the Bank has also increased its amount
of Japanese government bond (JGB) purchases. In sum, the Bank's commitment to continuing
with monetary easing has not changed at all.
II. Monetary Policy: Achievements and Discussions since 2013
Now, I would like to talk about three aspects of the Bank's monetary policy from a somewhat
longer-term perspective -- namely, the evolution and achievements of monetary easing since
2013, misconceptions and criticisms regarding the Bank's monetary policy, and the
importance of inflation targeting.
A. Evolution and Achievements of Monetary Easing since 2013
While the Bank has maintained monetary easing since the onset of deflation in the mid-1990s,
the inflation rate turned clearly positive only after it introduced large-scale monetary easing
in 2013.
The recent history of monetary easing is shown in Charts 10 and 11. Three points are
important here. First, the starting point for the current large-scale monetary easing was the
adoption of the price stability target of 2 percent in January 2013. Major central banks around
the world had already adopted such inflation targets, and it was at this time that Japan adopted
one as well. The Bank decided on the adoption of the price stability target on its own initiative
and addressed this in a joint statement with the government. Second, with this target, the Bank
conducted monetary easing measures on a larger scale than before. Initially, this took the form
of the introduction of quantitative and qualitative monetary easing (QQE) in April 2013,
followed by the adoption of negative interest rates, and thereafter the current yield curve
control. Third, the Bank has persistently pursued monetary easing to date. Over the years,
there have been numerous exogenous shocks, such as large fluctuations in prices of
commodities including crude oil, swings in overseas economies, weakened demand following
the consumption tax hikes, multiple natural disasters, and the outbreak of COVID-19. On
each occasion, the Bank has made various responses in an innovative and creative manner.
The achievements of QQE are summarized in Chart 12.3 Let me highlight a few points. First
of all, economic growth has been restored. Reflecting the declining and aging population, as
well as the downtrend in working hours, Japan's GDP growth rate is trending downward, but
when excluding the decline due to the pandemic, it has improved since 2013 as the
unemployment rate has declined and the number of employed persons has increased. Looking
at the real GDP growth rate per capita, the rate was at 0.4 percent in the 2000s, whereas it
recovered to 1.3 percent in the 2010s, almost equivalent to the average growth rate of the
1990s (Chart 13 [left chart]). I have always believed that the negative impact of a declining
population on the economy tends to be overestimated in general discussion. As a matter of
fact, an international comparison of population growth rates and per capita GDP growth rates
shows that there is no clear correlation between them (Chart 13 [right chart]). While it is true
that a declining population is a headwind for economic activity, economic growth is still
possible even in such circumstances.
Second, despite the decline in the young population, employment has increased. This increase
was initially driven by a rise in non-regular employees, but regular employees have also
increased since 2014. Moreover, the labor force participation rates for seniors and women
4
have risen. Improvement in employment conditions has led to an increase in the
employment rate for new graduates and changed the situation drastically compared with the
time of the "employment ice age." Of course, providing support for those who struggled to
find a job during the employment ice age remains a crucial task. In this regard as well, large-
scale monetary easing, which provides support for the economy, is playing an important role.
Third, tax revenues have increased, reflecting economic growth.
Fourth, with regard to prices, we are now in a situation where the economy is no longer in
deflation, in the sense of a sustained decline in prices. While the average year-on-year rate of
change in the CPI (all items less fresh food) was minus 0.3 percent between fiscal 1998 and
fiscal 2012, that from fiscal 2013 onward rose to 0.5 percent.
Fifth, wages have risen. Base pay increases, which had not taken place in real terms for a
prolonged period, have resumed since fiscal 2014, and nominal wages have increased, albeit
moderately.5
As I have described, large-scale monetary easing conducted over the last decade has produced
positive effects in various aspects.
B. Discussions over Monetary Policy
However, the Bank's monetary policy since 2013 has been subject to criticism in various ways,
including that based on misconceptions.
The first criticism is that the monetary policy is ineffective. As already described, it has
clearly been effective. In fact, estimates on what economic and price developments would
have been in the absence of the monetary easing since 2013 suggest that the GDP growth rate
would have been subdued and prices would have remained deflationary.6
The second criticism concerns the notion of the "interest rate buffer" and "zombie firms,"
both of which are often mentioned with regard to the allegedly harmful effects of low interest
rates. Before I elaborate on each notion, let me briefly explain what interest rates should refer
to in this context. When people talk about interest rates, they often refer to nominal interest
rates, but it is important to distinguish them from real interest rates, which take inflation into
account. When considering the economic impact, what is important is real interest rates. It is
5
The issues concerning statistical features and the compositional effects for analyzing real wages were
explained in the following speech: Wakatabe, M., "Japan's Economy and Monetary Policy," speech at
a meeting with local leaders in Hiroshima, September 1, 2021,
https://www.boj.or.jp/en/about/press/koen_2021/ko210901a.htm.
For prices to rise in a sustainable and stable manner, both wages and inflation expectations
need to increase. The link between prices and wages was described in the following speech: Wakatabe,
M., "Japan's Economy and Monetary Policy," speech at a meeting with local leaders in Okayama, June
1, 2022, https://www.boj.or.jp/en/about/press/koen_2022/ko220601a.htm.
6
The estimation result is explained in more detail in Appendix 2 of the Assessment for Further
Effective and Sustainable Monetary Easing released in March 2021
(https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2021/k210319c.pdf). Compared with the hypothetical
case where large-scale monetary easing has not been implemented, the results suggest that such easing,
on average, pushed up the level of real GDP by between around 0.9 and 1.3 percent and the
year-onyear rate of change in the CPI (excluding fresh food and energy) by between around 0.6 and 0.7
percentage points.
only recently that real interest rates in Japan have been lowered. If the actual and expected
inflation rates were low, real interest rates would have been high even when nominal interest
rates were low.
On this basis, the notion of the interest rate buffer is that, with a low interest rate policy
continuing to be implemented, room for a monetary policy response to a possible future
economic downturn or financial crises becomes small. While I agree that having room for
monetary policy response is important, raising policy interest rates to create such room will
damage the economy. This outcome would be in opposition to the intended objective. In
finance, there is a saying that, "If you want to raise interest rates, lower them first; if you want
to lower interest rates, raise them first." This means that, if you want to create room for a
policy response, you should first encourage economic growth and lift inflation expectations
through monetary easing, so that inflation rates will increase and the level of nominal interest
rates that are neutral to the economy will rise accordingly. In fact, one of the reasons that
many central banks set their inflation targets at 2 percent is based on this thinking.
Let me now turn to the notion of zombie firms. Putting aside whether the term "zombie firms"
is appropriate, these are generally considered to be firms that have poor performance and lack
prospects for recovery, and only are able to continue existing with the support of banks in
particular. The notion is that such firms are kept alive because of a low interest rate policy.
As a matter of fact, it should be noted that the notion of zombie firms in the context of
academic research does not directly connect to monetary easing measures, since it first
emerged in relation to the disposal of nonperforming loans and measures to support corporate
financing, not in relation to monetary policy. Moreover, some argue that such firms are
increasing, but this is not necessarily supported by empirical evidence (Chart 14).7,8 Rather,
the low interest rate environment supports corporate financing and thereby contributes to
expanding investment by firms and improving their performance.
The third criticism is that, to boost economic growth, measures to tackle the declining
birthrate and structural reforms are more important than monetary easing. Such measures and
growth strategies, however, are not contradictory to policies to stabilize the macroeconomy,
including monetary easing, and therefore should be pursued simultaneously, as stated in the
joint statement by the government and the Bank in January 2013. There is no reason to oppose
the pursuit of such stabilization policies, since monetary easing measures have been effective
in boosting GDP growth and increasing employment, as mentioned earlier. Furthermore, if
the natural rate of interest -- that is, the rate of interest at which the economy is in equilibrium
-- were to fall due to a declining birthrate and a low potential growth rate, the central bank
7
For example, a study of the share of zombie firms across countries was conducted by the Bank for
International Settlements (BIS), and it shows that, in Japan, the share has been on a downtrend since
the Global Financial Crisis (GFC). See Banerjee, R. N., and Hofmann, B., "Corporate Zombies:
Anatomy and Life Cycle," BIS Working Papers, no. 882 (2022),
https://www.bis.org/publ/work882.htm.
A study by the Bank's staff defined zombie firms quantitatively in terms of three criteria --
namely, interest payment, solvency, and growth potential -- and found that the share of zombie firms
in relation to the total number of firms has remained at a low level since the 2000s, after increasing
significantly in the 1990s. That said, recent developments, particularly after the outbreak of the
pandemic, must be interpreted with caution due in part to data limitations. See Yamada, K. et al.,
"Corporate Finance Facility and Resource Allocation: Research Trends and Developments during the
Spread of COVID-19," Bank of Japan Working Paper Series, no. 23-E-1 (January 2023),
https://www.boj.or.jp/en/research/wps_rev/wps_2023/data/wp23e01.pdf.
The following study also shows that, although it depends on criteria, the number of firms that
cannot continue their business without the support of financial institutions or governments surged at
the time of the GFC but has not shown such a clear increase after the outbreak of the pandemic. See
Uesugi, I. et al., "Korona shokku e no kigyō no taiō to seisaku shien sochi: Sābei chōsa ni motozuku
bunseki" [The Economy and Society under the COVID-19 Pandemic: Evidence from Surveys],
Economic Review 73, no. 2 (2022): pp. 133-59; Uesugi, I., Chūshō kigyō kin'yū no keizaigaku: Kin'yū
kikan no yakuwari; Seifu no yakuwari [Economics of small business finance: The role of financial
institutions; The role of the government] (Tokyo: Nikkei Publishing, 2022), pp. 43-47.
8
Moreover, recent studies have shown that small and medium-sized firms with no debt, which do not
rely on bank loans, have a rather small appetite for capital investment. See Uesugi, Chūshō kigyō
kin'yū no keizaigaku, pp. 35-38.
would need to pursue policies to support the economy by further lowering market interest
rates below the natural rate of interest.9
C. Revisiting the Importance of Inflation Targeting
Earlier, I mentioned that the Bank adopted the price stability target of 2 percent in 2013. Here,
I would like to explain the importance of inflation targeting once again. Currently, the most
important mandate for many central banks is to maintain price stability. Inflation targeting
clearly defines this mandate in quantitative terms, and many central banks around the world
have adopted such targeting (Chart 15). Theoretically, one could argue that other indicators,
such as the nominal GDP growth rate, could be set as a policy objective. However, it is the
inflation rate that most naturally relates to the mandate of maintaining price stability.10 Major
central banks, such as the Federal Reserve and the ECB, also target a 2 percent inflation rate.
Ambiguity in this inflation targeting would make the objective of monetary policy vague, and
therefore could undermine the transparency of monetary policy and its effectiveness.11 This
applies to dealing with not only deflation but also inflation.
III. Recent and Future Economic Activity in Shizuoka Prefecture
Before closing my speech, I would like to talk about the economy of Shizuoka Prefecture.
The prefecture's economy is currently picking up as a trend, despite being affected by
9
In his paper published in 1998, which advocated at an early stage for Japan having more aggressive
monetary easing, Professor Krugman assumes that Japan's natural rate of interest is falling due to a
declining birthrate. The paper suggests that macroeconomic policies are necessary especially when
there are structural problems. See Krugman, P. R., "It's Baaack: Japan's Slump and the Return of the
Liquidity Trap," Brookings Papers on Economic Activity, no. 2 (1998): pp. 137-87.
The future developments in the natural rate of interest was described in Wakatabe, "Future of
Monetary Policy" (see n. 3).
10
The debate on the monetary policy framework taking place in the United States was described in
the following speech:
Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting
with business leaders in Aomori, June 27, 2019,
https://www.boj.or.jp/en/about/press/koen_2019/ko190627a.htm.
11
Professor Orphanides at the Massachusetts Institute of Technology, who is an honorary advisor to
the Institute for Monetary and Economic Studies of the Bank of Japan, argues that lack of clarity on
the definition of price stability rendered the Bank's monetary policy inadequate before 2013. See
Orphanides, A., "The Boundaries of Central Bank Independence: Lessons from Unconventional
Times," Monetary and Economic Studies 36 (November 2018): pp. 35-55.
COVID-19 and supply-side constraints.
When considering the future development of the prefecture, the major challenge is how to
deal with a declining population, as with other regions. Since its peak of 3.80 million people
in fiscal 2007, the population of Shizuoka Prefecture has continued to decline at a faster pace
than the nationwide average. Nevertheless, as I mentioned, the negative impact of a declining
population is overestimated. As a matter of fact, gross prefectural product per capita in
Shizuoka Prefecture has been on an uptrend since the 2010s after the GFC (Chart 16). The
prefectural income per capita for fiscal 2019 ranks third highest among all prefectures
nationwide.
From the perspective of economics, the sources of economic growth can be basically grouped
into accumulation of "capital," growth in "labor force," and "knowledge" in a broad sense,
including technology. Enhancing each of these sources will be the key to achieving further
development of the prefecture's economy going forward. I would like to touch upon three sets
of initiatives in the prefecture that are attracting attention from this perspective.
The first set of initiatives focuses on capital, involving the development of infrastructure and
industrial promotion by taking advantage of such infrastructure. The Port of Shimizu, an
international hub port, is laying the groundw