Haruhiko Kuroda: The Bank's Semiannual Report on Currency and
Monetary Control
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on
Financial Affairs, House of Councillors, Tokyo, 24 November 2020.
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Introduction
The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary
Control every June and December. I am pleased to have this opportunity today to talk about
recent economic and financial developments and present an overall review of the Bank's conduct
of monetary policy.
I. Economic and Financial Developments
I will first explain recent economic and financial developments.
Overseas economies have picked up from a state of significant depression. They are likely to
continue improving, but the pace is expected to be only moderate with the continuing impact of
the novel coronavirus (COVID-19).
Japan's economy also has picked up with economic activity resuming, although it has remained
in a severe situation due to the impact of COVID-19. Exports and industrial production have
increased, reflecting developments in overseas economies. Private consumption has picked up
gradually on the whole, although consumption of services, such as eating and drinking as well as
accommodations, has remained at a low level. On the other hand, business fixed investment has
been on a declining trend, against the background of deterioration in corporate profits. With
economic activity resuming and the impact of COVID-19 waning gradually, Japan's economy is
likely to follow an improving trend, supported by accommodative financial conditions and the
government's economic measures. However, the pace of improvement is expected to be only
moderate while vigilance against COVID-19 continues.
The year-on-year rate of change in the consumer price index (CPI) is likely to be negative for the
time being, mainly affected by COVID-19, the past decline in crude oil prices, and the "Go To
Travel" campaign. Thereafter, it is expected to turn positive and then increase gradually along
with the effects of such factors as the decline in crude oil prices dissipating and the economy
improving.
II. Conduct of Monetary Policy
Next, I will explain the Bank's conduct of monetary policy.
The Bank has enhanced monetary easing in response to COVID-19. Specifically, it has
conducted the following three measures: (1) the Special Program to Support Financing in
Response to the Novel Coronavirus (COVID-19); (2) ensuring stability in financial markets
through an ample provision of funds; and (3) active purchases of assets such as ETFs. These
measures have had positive effects, coupled with the government's responses and active efforts
by financial institutions. Global financial markets are still nervous, but tension has eased.
Although firms' financial positions have been weak, the environment for external funding, such as
the issuance of CP and corporate bonds as well as bank borrowing, has remained
accommodative.
That said, there are high uncertainties over the outlook for economic activity and prices, and the
Bank recognizes that risks are skewed to the downside. As the spread of COVID-19 has not
subsided globally, the consequences of COVID-19 and the magnitude of their impact on
domestic and overseas economies are highly unclear. In addition, the outlook is based on the
premises that, while the impact of COVID-19 remains, growth expectations will not decline
substantially and financial system stability will be maintained, but these premises also entail
uncertainties. Moreover, with regard to risks to the financial side from a somewhat long-term
perspective, prolonged downward pressure on financial institutions' profits might lead to a
gradual pullback in financial intermediation, given the existing factors - such as the prolonged
low interest rate environment and the declining population - as well as the recent impact of
COVID-19. On the other hand, under these circumstances, the vulnerability of the financial
system could increase, mainly due to the search for yield behavior. These risks are judged as
not significant at this point, mainly because financial institutions have sufficient capital bases.
However, it is necessary to pay close attention to future developments.
Based on such recognition, the Bank will continue to firmly conduct the current monetary easing
measures and to support financing, mainly of firms, and maintain stability in financial markets. In
addition, for the time being, it will closely monitor the impact of COVID-19 and will not hesitate to
take additional easing measures if necessary.
Thank you.