December 26, 2019
Bank of Japan
Toward Sustaining a Virtuous Cycle
Speech at the Meeting of Councillors of Nippon Keidanren
(Japan Business Federation) in Tokyo
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
It is a great honor to have this opportunity to address such a distinguished gathering of
business leaders in Japan today.
It is only a week before the first year of the new Reiwa era comes to an end. Today, in
wrapping up 2019, I would first like to take a look back at this year's economic
developments at home and abroad and talk about the Bank of Japan's conduct of monetary
policy. Then, I will touch on developments in Japan's economy from a somewhat long-term
perspective and future challenges. Specifically, I will explain the mechanism of the virtuous
cycle operating in Japan's economy and the challenges to sustaining this cycle.
I. This Year's Economic Developments at Home and Abroad
Continued slowdowns in the global economy
Starting with a look back at developments in the global economy this year, slowdowns have
continued to be observed (Chart 1). At this meeting three years ago, I said that the global
economy finally seemed to be entering a new phase by putting the negative legacy of the
global financial crisis behind it. In fact, the global economy registered relatively high
growth in 2017 and 2018, partly reflecting
a global increase in IT-related demand and a
boost in business fixed investment. However, a phase shift started from around mid-2018.
This is mainly because tension over the U.S.-China trade friction began to heighten and the
global cycle for IT-related goods entered into an adjustment phase. Back then, there seems
to have been a prevailing view that adjustments would come to an end shortly and the
global economy would head toward a pick-up in the second half of 2019. However, it
turned out that it remained in a deceleration phase for the whole year. A pick-up in the
global economy has been delayed, due mainly to the intensified and prolonged U.S.-China
trade friction and the continued slowdown in the Chinese economy, and the global economy
has not yet moved out of this situation.
What is the outlook for the global economy next year? The Bank projects that the growth
rate will rise moderately through mid-2020, although it is subject to considerable
uncertainties. According to the latest World Economic Outlook (WEO) released by the
International Monetary Fund (IMF), the global growth rate also is projected to recover to
3.4 percent for 2020, which is around the past average, from 3.0 percent for 2019. There are
three major reasons behind the Bank's projection. First is that uncertainties over the global
economy, including developments in U.S.-China trade negotiations, have eased somewhat.
As I explained earlier, the global economic slowdown this year is attributable mainly to
political and geopolitical uncertainties, such as the U.S.-China trade friction and Brexit. It is
significant that these uncertainties have been easing, at least to some extent. Second is that
the global cycle for IT-related goods, which had been exerting downward pressure on the
global economy this year, has been picking up. World semiconductor shipments recently
have turned to an increase. The adjustment phase of the global cycle for IT-related goods,
which started from around mid-2018, finally seems to be coming to an end. Third is the
effects of each country's macroeconomic policy. Since the turn of this year, many emerging
economies have reduced their policy rates, and the Federal Reserve and the European
Central Bank (ECB) have conducted monetary easing. This is likely to underpin the global
economy.
However, the Bank considers that downside risks regarding such outlook for the global
economy remain significant. As for U.S.-China trade negotiations, there remain points of
disagreement between the two countries, such as those regarding industrial policy. In
addition, it is necessary to pay attention to such factors as uncertainties over emerging
economies and geopolitical risks. Thus, future developments in the global economy likely
will continue to warrant close attention for the time being.
Developments in Japan's economy
Next, I will talk about Japan's economy (Chart 2). Looking back on this year, reflecting the
effects of the global economic slowdown, exports have continued to show some weakness
and manufacturers' sentiment has become cautious. On the other hand, domestic demand
has continued on an uptrend, and nonmanufacturers' sentiment has remained at a high level
on the whole.
In the past, there were many cases in Japan where changes in the global economy or
external demand affected overall developments in the economy relatively quickly. However,
what is unique to the current phase is that domestic demand has remained firm so far
despite weak external demand. One factor underpinning firm domestic demand is business
fixed investment. According to the December Tankan (Short-Term Economic Survey of
Enterprises in Japan), business fixed investment is planned to continue increasing steadily
(Chart 3). This increase in business fixed investment is underpinned by sustained
investment that is less susceptible to short-term economic developments, including
labor-saving and efficiency-improving investment, construction investment, and research
and development (R&D) investment for growth areas. This likely has brought about firm
domestic demand that is unlikely affected by external demand. In addition, private
consumption has continued to increase moderately on the back of steady improvement in
the employment and income situation. For the time being, the effects of the October 2019
consumption tax hike warrant attention. Private consumption registered a somewhat large
decline for October, partly affected by natural disasters such as typhoons. However,
excluding those effects, a reactionary decline in demand after the tax hike seems to be
smaller than that of the previous tax hike in 2014.
As for the outlook, domestic demand is likely to follow an uptrend with a virtuous cycle
from income to spending operating. Although its pace of increase is expected to decelerate
temporarily, affected by the global economic slowdown to date, the consumption tax hike,
and natural disasters, a large decline likely will be avoided. In addition, the global growth
rate is projected to rise. Under these circumstances, Japan's economy is expected to
continue on a moderate expanding trend.
Let me move on to price developments (Chart 4). Looking back on this year, the
year-on-year rate of increase in the consumer price index (CPI) excluding fresh food has
decelerated somewhat, partly due to the effects of the decline in energy prices. However,
that excluding fresh food and energy, which more clearly shows the underlying trend in the
CPI, has been somewhat higher compared to last year. As for the outlook, the year-on-year
rate of change in the CPI is likely to increase gradually toward the price stability target as
firms' and households' perception of prices improves amid the continuation of the
expanding economic trend.
II. The Bank's Conduct of Monetary Policy
Next, I will talk about the Bank's conduct of monetary policy.
The Bank has pursued powerful monetary easing with the aim of achieving the price
stability target of 2 percent since the introduction of quantitative and qualitative monetary
easing (QQE) in 2013 (Chart 5). In this situation, as the global economic slowdown
continued and downside risks to Japan's economic activity and prices became significant
this year, the Bank clarified its policy stance of being tilted toward monetary
accommodation since around summer. In October, with a view to making this clearer, the
Bank decided on a new forward guidance, whereby it would maintain the policy rates at
their present levels or, depending on the situation, lower their levels, as long as downside
risks to economic activity and prices remain significantly high. While continuing to
carefully examine various risks, 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.
Meanwhile, early this month, the government released the Comprehensive Economic
Measures to Create a Future with Security and Growth. Recently, the cooperation between
monetary and fiscal authorities increasingly has been drawing attention globally, so let me
explain the basic thinking on it. If the government implements fiscal policy when a central
bank pursues monetary easing to achieve its inflation target, economic stimulus effects will
become more powerful through their synergy effects. Such a combination of policies is
called a policy mix, and this is a standard approach of macroeconomic policy. Therefore,
the economic measures that the government recently has implemented can exert significant
effects to maintain the expanding trend in the economy with the Bank's pursuit of powerful
monetary easing.
That said, the cooperation between monetary and fiscal authorities entails difficulties in
terms of ensuring public confidence toward macroeconomic policy. In economic theory, a
policy mix is assumed to be conducted in an appropriate manner through monetary and
fiscal policies based on their own particular policy objectives. In recent discussions,
however, some seem to confuse a policy mix with debt monetization by central banks. Thus,
it is important to clarify each role when considering the monetary-fiscal policy mix. In the
joint statement released by the government and the Bank of Japan in January 2013, they
took this point into account and made it clear. The government and the Bank confirmed in
the statement that they would work within their respective autonomies to fulfill their own
roles, and this framework seems to be functioning very effectively.
III. Toward Sustaining a Virtuous Cycle
I have looked back at this year's developments in economic activity at home and abroad and
explained the Bank's monetary policy conduct during the period. In what follows, I would
like to talk about developments in Japan's economy from a somewhat long-term
perspective.
Japan's economy has improved significantly since the introduction of QQE in 2013. Three
virtuous mechanisms have been operating behind this. The first is the virtuous cycle from
income to spending in the corporate sector. The second is the same virtuous cycle in the
household sector. And the third is the virtuous cycle that has been operating between the
corporate and household sectors, whereby an increase in corporate profits leads to a rise in
wages, which enables firms to raise their selling prices, resulting in a further increase in
corporate profits. It is important not to disrupt these virtuous cycles in order to achieve
sustainable economic growth in Japan. Today, I would like to focus on two cycles that in
particular are most relevant to business managers: (1) a cycle from income to spending in
the corporate sector and (2) a cycle of wages and prices.
Cycle from Income to Spending in the Corporate Sector
Let me first talk about the cycle from income to spending in the corporate sector. Looking
back from a somewhat long-term perspective, the collapse of the bubble economy in the
1990s was a significant turning point in Japanese firms' behavior (Chart 6). After the bubble
burst, firms were negative toward undertaking fixed investment for a prolonged period,
mainly against the background of the burden brought about by excess production capacity
that was accumulated during the bubble period and of corporate profits remaining low under
the following deflation. Moreover, this hampered the accumulation of capital stock and
innovation, and became one of the factors that lowered Japan's growth potential.
A remarkable change in this situation was observed after the introduction of QQE in 2013
(Chart 7). To begin with, corporate profits have improved clearly. Although they recently
have shown some weakness in part, due to the effects of the slowdown in overseas
economies, they have remained at historical high levels. In this situation, business fixed
investment has turned to an uptrend gradually.
However, even after 2013, compared to favorable corporate profits, some cautiousness has
remained in firms' fixed investment stance, and firms have continued to save most of their
profits (Chart 8). One of the multiple factors behind this seems to be a rise in demand for
precautionary saving on the firms' side, in reflection of the experience of severe recessions,
such as the collapse of the bubble economy and the global financial crisis. However, firms'
fixed investment stance clearly has become active for the past few years, with corporate
profits remaining at high levels. Although earned surplus has continued to increase, cash
and deposits have stopped accumulating since 2018. The proportion of business fixed
investment relative to cash flow has increased, and firms have come to use much of their
profits for fixed investment. In addition, the current steady business fixed investment --
mainly in terms of sustained investment -- despite weak external demand seems to be
attributable partly to firms' fixed investment stance, which is generally becoming active.
Firms' active stance toward fixed investment also can lead to a rise in Japan's growth
potential through an accumulation of capital stock and a rise in productivity. Of course,
economic policies such as structural reforms can contribute to enhancing this potential.
Monetary policy also has played a part in a rise in growth potential; due to powerful
monetary easing, Japan's economy is no longer in deflation and firms' overly pessimistic
view has eased. However, the main driving force of a rise in growth potential is the private
sector, and the mutual interaction between firms' innovation and investment is more
important than anything else. In order to further enhance Japan's growth potential, firms
need to continue with positive investment that leads to the creation of new values and an
improvement in productivity.
IT investment to address the digitalizing society is expected to be one of the areas of such
positive investment. Japanese firms already have made efforts in this area (Chart 9). R&D
expenditure during the past few years has been pushed up largely by investment in
automobile-related industries. The increase reflects moves toward advancing CASE
technologies -- connected, autonomous, shared & service, and electric -- of automobiles in
response to the digitalization. The progress in such firms' efforts is desirable particularly in
terms of enhancing Japan's growth potential. Let me give you two reasons why this is the
case.
First, since the labor supply is likely to decrease along with the declining and aging
population in Japan, the substitution of IT investment for employment has rather positive
effects. Regarding the impact of IT investment on the economy, some raise concern that
employment opportunities will be lost and the number of unemployed may increase.
However, in Japan, the negative impact of a decline in labor force on economic growth can
be offset by IT investment compensating for the future decline in labor supply.
Second, overall productivity will be enhanced through the advances in digitalization. On
this point, some argue that, among the general-purpose technologies, the productivity
improvement effects brought about by IT such as computers and the internet are smaller
than those brought about by electricity and internal-combustion engines. Such pessimistic
views on IT have been presented by, for example, Professor Robert Gordon of
Northwestern University, but there are various counterarguments against this. Erik
Brynjolfsson, Professor at the Massachusetts Institute of Technology, noting that innovation
will occur by connecting a variety of existing products and ideas, states that IT is the
general-purpose technology that can lead to innovation more easily compared to electricity
and internal-combustion engines, because it enabled the connection of brand-new products
and ideas through networks. Given that the development of such cutting-edge applied
technology as artificial intelligence (AI) and Internet of Things (IoT) is underway, I
suppose innovation brought about by the advances in digitization will improve productivity,
and this can be evaluated as favorable.
On this basis, how firms make use of technologies also is important in order to strengthen
growth potential through IT investment. According to a survey asking Japanese and U.S.
firms why they have increased their IT-related budgets, many Japanese firms answered in
the 2013 survey that it was to improve business efficiency and cut costs (Chart 10). On the
other hand, U.S. firms seemed to have focused on so-called aggressive investment, in that
they aimed at incorporating new technologies to encourage innovative initiatives such as
developing products and services. Although there already had been such a contrast between
Japanese and U.S. firms, a significant change was observed in the 2017 survey. That is,
Japanese firms also have started to make more active use of technologies to enhance
value-added through innovation, rather than only utilizing them to cut costs and streamline
production processes. Since Japanese firms are good at making process innovation, I hope
that they will proceed further with the current innovations, thereby raising productivity.
In order to foster various innovations by firms, it is essential to promote basic research to
support them (Chart 11). For example, "the number of highly cited papers," which is a
proxy indicator of basic research, unfortunately is much smaller in Japan than in other
countries. Providing sufficient funds may be important to raise the level of such research.
On this point, in addition to financial support from the government, it is hoped that the flow
of funds from industries to universities will be boosted. Although some statistics show that
the proportion of firms providing universities with R&D funds is relatively smaller in Japan
than in other countries, Japanese firms have been collaborating with universities by
proposing research topics to them. Statistics by the Organisation for Economic
Co-operation and Development (OECD) show that R&D funds in Japan are not at all small
compared to other countries. I expect that a further promotion of collaboration among
industry, academia, and the government will raise the potential of basic research in Japan
into the future, and in turn boost the growth potential of the overall economy.
Cycle of wages and prices
I now will move on to the second virtuous cycle. As I said earlier, an increase in corporate
profits leads to a rise in wages, enabling firms' selling prices -- that is, general prices -- to
rise, which results in a further increase in corporate profits. In order for corporate profits to
increase in a sustainable manner, it is important that a virtuous cycle of wages and prices
continue to operate.
After the introduction of QQE in 2013, the practice of base pay increases, which had been
lost under deflation, has continued for six consecutive years (Chart 12). In this situation, the
positive inflation rate has taken hold and Japan's economy already is no longer in deflation.
That said, the virtuous cycle of wage increases and price rises still lacks strength. One of the
reasons behind this is that, due to the long experience of a severe employment situation
under deflation, both labor and management have come to prioritize the stability of
long-term employment over wage increases, and this behavior has been deeply entrenched
even after wages started rising. The lack of strength in the virtuous cycle also is attributable
to the fact that firms have absorbed the upward pressure of costs such as personnel expenses
by raising productivity, and only moderately passed on such cost increases to selling prices.
Some of you might think that raising wages and selling prices amid a situation of severe
competition is not a viable option. However, realizing an economy where wages and prices
rise moderately is beneficial from the viewpoint of corporate management as well. Let me
raise two points.
First, given that it is difficult in general to lower the level of nominal wages, if there is some
room to reduce the wage growth rate, it will be easier for firms to adjust labor costs in the
event of an economic downturn. I mentioned earlier that, in Japan, the stability of
employment was prioritized over wage increases under prolonged deflation. However, an
empirical analysis suggests that, excluding such an extreme case, it is difficult for firms to
lower the level of nominal wages, or in economic terms, there is downward rigidity in
nominal wages. Provided that wage growth and inflation are zero in a situation where
economic activity neither accelerates nor decelerates, there is no other choice but to cut
employment or lower wages in order to adjust labor costs in an economic downturn.
However, if wage growth and inflation are sufficiently positive, firms can adjust real labor
costs by lowering the wage growth rate. In relation to this, economist James Tobin argued
that positive inflation acts as the "grease of the wheels" in the labor market.
Second, aiming at achieving the price stability target of 2 percent as in other advanced
economies will lead to stability in foreign exchange rates from a long-term perspective.
This is based on the idea of purchasing power parity, whereby the long-term trend of
nominal exchange rates is determined by the difference in inflation compared to other
countries. In fact, price differences between Japan and other countries have shrunk with the
positive inflation rate taking hold in Japan, and nominal exchange rates have been stable
from a long-term perspective. Such stability in foreign exchange rates has contributed to
corporate management and the stability of the overall economy.
Thus, moderate rises in wages and prices are beneficial for firms as well. In addition, as I
mentioned earlier, in order for corporate profits to increase in a sustainable manner, it is
necessary to maintain a virtuous cycle in the overall economy in which prices rise
moderately along with wage increases. In fact, the past data suggest that wages and prices
generally move in tandem on average, and a rise in only one of them usually does not occur.
Although I said that the virtuous cycle of wage increases and inflation still lacks strength,
positive changes have been observed recently (Chart 13). Households' tolerance of price
rises has increased, albeit moderately, on the back of improvement in the employment and
income situation, as seen in continued base pay rises. Under these circumstances, firms'
As for the stance of firms that
stance has shifted toward further raising prices. price-setting
are closely related to consumption, the output prices DI for industries
consumption-related
shows that the proportion of enterprises, including small ones, answering that output prices
have risen has continued to exceed the proportion of those answering that such prices have
fallen, and the gap has been expanding, albeit at a moderate pace.
In an economy where the price stability target of 2 percent has been achieved, if labor
productivity rises by around 1 percent, as in Japan's economy at present, the wage growth
rate would be around 3 percent; that is, 2 percent inflation plus 1 percent labor productivity.
On this point, minimum wages have been raised by around 3 percent for four consecutive
years from 2016. I hope that firms' stance will continue to shift toward further raising wages
and prices under the favorable economic environment, and that a virtuous cycle of wages
and prices will gain further strength.
Conclusion
As we are almost out of time, I would like to conclude my speech. Today, I talked in some
detail about the challenges to sustaining the virtuous cycle of Japan's economy from the
viewpoint of expectations for firms. I also touched on the importance of (1) firms
continuing with positive investment, which leads to enhancing productivity, in order to raise
the economic growth potential and of (2) making firms' stance shift toward further raising
wages and prices to strengthen the virtuous cycle of wages and prices.
Next year, the Olympic and Paralympic Games will be held in Tokyo. The previous Tokyo
Games were hosted in 1964, and back then, Japan was full of energy during the period of
high economic growth. Looking back on that year, there was a series of historical events
that boosted people's confidence, such as joining the OECD in April as well as launching
the Tokaido bullet train and hosting the Olympic Games in October. On the other hand,
economic expansion that had lasted for two years, dubbed the Olympics boom, had its peak
in October 1964 and Japan's economy experienced a downturn for a year thereafter. From
this experience, some worry about economic activity from the second half of next year, but
there is no need to be too pessimistic. Japan's economy has improved significantly, with the
virtuous cycle operating. Corporate activities, which had remained cautious, steadily have
become vigorous. The Bank will continue to firmly fulfill its responsibility as a central bank
of achieving the price stability target so that Japan's economy will grow in a sustainable
manner under the virtuous cycle of the economy.
I would like to close my speech by expressing my sincere hope that the year 2020 will be a
wonderful one for all of you.
Thank you for your attention.
Toward Sustaining a Virtuous Cycle
Speech at the Meeting of Councillors of
Nippon Keidanren (Japan Business Federation) in Tokyo
December 26, 2019
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
I. This Year's Economic Developments at Home
and Abroad
II. The Bank's Conduct of Monetary Policy
III. Toward Sustaining a Virtuous Cycle
Conclusion
Chart 1
I. Economic Developments
Global Economy
Global Growth Rate World Semiconductor Shipments
y/y % chg.
s.a., q/q % chg.
6.0 10
5.5
5.0
2020: +3.4%
4.5
5
4.0
3.5
3.0
0
2.5
2019: +3.0%
Average from 1980
2.0 through 2018:
+3.5%
1.5
-5
1.0
0.5
0.0
-0.5 -10
CY 10 11 12 13 14 15 16 17 18 19
CY 00 02 04 06 08 10 12 14 16 18 20
Notes: 1. In the left chart, figures for 2019 and 2020 are the IMF's projections as of October 2019.
Notes: 2. In the right chart, figures are based on BOJ staff estimates using WSTS data.
Source: IMF.
1
Chart 2
I. Economic Developments
Japan's Economy
Domestic Demand and Exports Business Conditions DI
DI ("favorable" - "unfavorable"), % points
s.a., CY 2012=100
s.a., CY 2012=100
30
110 150
"Favorable"
20
10
105 125 "Unfavorable"
0
Nonmanufacturing
-10
100 100
Manufacturing
Domestic demand (left scale)
-20
Exports (right scale)
95 75 -30
CY 12 13 14 15 16 17 18 19 CY 10 11 12 13 14 15 16 17 18 19
Chart 3
I. Economic Developments
Business Fixed Investment and Private Consumption
Developments in Consumption prior to
Business Fixed Investment Plans
and after the Tax Hikes
s.a., average 16-18 months before the tax hike=100
y/y % chg.
10 106
8
104
April 2014 tax hike
FY 2019
FY 2018
6
October 2019 tax hike
102
4
100
average (FY 2004-2018)
2
98
0
96
-2
Mar. June Sept. Dec. Forecast Actual -18 -12 -6 0 +6 +12 +18
months
Notes: 1. In the left chart, figures are for all industries including financial institutions. Figures include software and R&D investment and exclude land purchasing expenses.
Notes: 2. In the right chart, month 0 is the month in which the consumption tax rate was raised -- namely, April 2014 or October 2019. Figures are for the Consumption Activity
Index (real, travel balance adjusted).
3
Sources: Bank of Japan, etc.
Chart 4
I. Economic Developments
Consumer Prices
y/y % chg.
2.0
CPI (less fresh food)
CPI (less fresh food and energy)
1.5
1.0
0.5
0.0
-0.5
-1.0
CY 12 13 14 15 16 17 18 19
Note: Figures are adjusted for the effects of the consumption tax hike in April 2014. Figures incorporate the effects of the October 2019 tax hike and policies concerning the provision
of free education.
Source: Ministry of Internal Affairs and Communications. 4
Chart 5
II. The Bank's Conduct of Monetary Policy
BOJ's Conduct of Monetary Policy
Stance of Monetary Policy Conduct
Yield Curve Control
and Forward Guidance
Taking account of developments in economic activity and
(Stance of Monetary Policy Conduct)
prices as well as financial conditions, the Bank facilitates
the formation of the yield curve that is considered most
 In a situation where downside risks
appropriate for maintaining the momentum toward
economic activity and prices, mainly regardingto
achieving the price stability target of 2 percent.
developments in overseas economies, are
%
1.0 significant, the Bank will not hesitate to take
additional easing measures if there is a greater
Recent
0.8
possibility that the momentum toward
Target level of the
0.6
longterm interest rate:
achieving the price stability target will be lost.
around zero percent
Short-term policy
0.4
interest rate:
(Forward Guidance for the Policy Rates)
minus 0.1 percent
0.2
 As for the policy rates, the Bank expects
0.0
shortand long-term interest rates to remain at their
-0.2
present or lower levels as long as it is necessary
to pay close attention to the possibility that the
-0.4
momentum toward achieving the price stability
-0.6
target will be lost.
0 1 2 3 4 5 6 7 8 9 10 15 20 30 40
residual maturity, year
Source: Bloomberg. 5
Chart 6
III. Toward Sustaining a Virtuous Cycle
Potential Growth Rate
y/y % chg.
5
4
Total factor productivity Capital input
Labor input Potential growth rate
3
2
1
0
-1
-2
FY 85 90 95 00 05 10 15
Note: Figures are based on BOJ staff estimates.
6
Source: Bank of Japan.
Corporate Profits and Business Fixed Investment
Ratio of Current and Operating
Investment-GDP Ratio (Nominal)
Profits to Sales
s.a., %
s.a., %
7
17
Introduction
Introduction
of QQE
of QQE
6
Ratio of current profits to sales
Ratio of operating profits to sales
16
5
4
15
3
2
14
1
0 13
CY
CY 85 90 95 00 05 10 15 94 96 98 00 02 04 06 08 10 12 14 16 18
Note: In the left chart, figures exclude "finance and insurance." Figures from 2009/Q2 onward exclude "pure holding companies."
Sources: Ministry of Finance; Cabinet Office. 7
Chart 8
III. Toward Sustaining a Virtuous Cycle
Active Business Fixed Investment Stance
Earned Surplus, and
Investment Ratio
Cash and Deposits
CY 2010 average=100
%
180
40
170
Investment / (operating cash flows +
35
Earned surplus
personnel expenses)
160
Cash and deposits
150
30
140
130
25
120
20
110
100
15
90
80 10
CY 07 08 09 10 11 12 13 14 15 16 17 18 19 FY 85 88 91 94 97 00 03 06 09 12 15 18
Developments in R&D Investment
chg. from FY 2009, tril. yen
3.0
Nonmanufacturing
Other manufacturing
2.5
Electrical machinery
General-purpose, production, business-oriented machinery
Medicines
2.0
Transportation equipment
Total
1.5
1.0
0.5
0.0
-0.5
FY 10 11 12 13 14 15 16 17 18
Source: Ministry of Internal Affairs and Communications.
9
Chart 10
III. Toward Sustaining a Virtuous Cycle
Reasons for IT Investment
Aggressive
Defensive
Prompt responses to
changes in markets/customers
Regular system
50
Use of new technologies/
updates
products/services
40
Introduction of IT
to non-IT business processes Japan2017 Innovation in business
30
models using IT
20
Enhanced development
Greater business efficiency/
cost cut using IT 10 of products/services
using IT
0
United States 2013
Japan2013
Expansion in Enhanced analysis of
firm size
customer behavior/markets
using IT
Responses to
Expansion in business operations/
laws and regulations
product lines
Increasing sales
Increasing profits
Basic Research
Highly Cited Papers and
International Comparison of
R&D Funds from Firms to Universities
R&D Investment
ratio to GDP, %, CY 2016
The proportion of firms'
4
The number of highly cited
Business sector
R&D funds provided to
papers
Government sector
universities (%)
Others
United States
3
38,347 1.1
China
28,386 2.7
2
United Kingdom
8,718 2.0
Germany
7,591 3.8
1
France
4,716 1.1
Japan 0
3,927 0.7
Japan Germany United France China United
States Kingdom
Notes: 1. In the left chart, figures for the left column are from "Japanese Science and Technology Indicators 2019," NISTEP RESEARCH MATERIAL No. 283, National Institute of
Science and Technology Policy, Tokyo. Figures for the right column are calculated by BOJ staff based on this material.
2. As for the left column in the left chart, the number of highly cited papers is the adjusted number of papers ranked in the top 10 percent in terms of citation counts in each
field and each year. Based on the