August 27, 2020
Bank of Japan
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Asahikawa
(via webcast)
SUZUKI Hitoshi
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 depressed significantly, reflecting the novel coronavirus
(COVID-19) pandemic. As the impact of COVID-19 wanes, they are likely to recover, partly
supported by aggressive macroeconomic policies taken by each country and region.
Nevertheless, the pace of recovery is expected to be only moderate, since firms and
households are likely to remain vigilant against the risk of infection until effective medicines
and vaccines are developed (Chart 1).
Let me take a look at developments by major region. The U.S. economy has seen a continued
pick-up mainly in its labor market indicators, reflecting moves to resume economic activity
despite the ongoing spread of COVID-19. However, it is of concern whether the pace of
economic recovery will be sustained, given the resurgence of COVID-19 and anxieties about
the political and social situation.
In Europe, some signs of heading toward a pick-up have been observed, with indications of
a resumption in economic activity, as seen in border restrictions starting to be relaxed within
and from outside the European Union (EU). Yet, the economy remains significantly depressed.
Along with an increasing number of confirmed COVID-19 cases, there have recently been
moves to retighten preventive measures to contain the spread of the infection.
As for China, with COVID-19 subsiding for now and economic activity starting to normalize,
the economy has picked up due to the emergence of the effects of aggressive macroeconomic
policies and the materialization of pent-up demand.
On the other hand, in emerging economies, such as Central and South America and India, the
number of confirmed COVID-19 cases is still increasing.
B. Current Situation of Economic Activity and Prices in Japan
Based on the aforementioned developments in overseas economies, let me now move on to
economic activity and prices in Japan.
Japan's economy was greatly affected by the spread of COVID-19 particularly in the April-
June quarter of 2020, with the declaration of a state of emergency; the real GDP growth rate
registered significant negative growth of minus 7.8 percent from the previous quarter (Chart
2). COVID-19 has exerted considerable downward pressure on aggregate demand in Japan's
economy through the following three major channels: (1) goods exports; (2) inbound tourism
demand; and (3) domestic private consumption. The output gap -- which represents the
balance between the aggregate demand and average supply capacity -- narrowed within
positive territory for the January-March quarter, reaching almost 0 percent. Given the
deterioration in the diffusion indices (DIs) related to employment and business fixed
investment in the Bank of Japan's June 2020 Tankan (Short-Term Economic Survey of
Enterprises in Japan), it is quite likely that the gap will become negative for the April-June
quarter (Chart 3).
In what follows, I will outline each of the three channels through which COVID-19 has
exerted downward pressure on aggregate demand in Japan's economy.
The first is exports. Exports, mainly of automobile-related goods to the United States and
Europe, declined substantially in the April-May period, when each country imposed strict
limits on movement in order to contain the spread of COVID-19, and the recovery thereafter
has been sluggish. Meanwhile, exports to China, where economic activity resumed first, have
continued to pick up.
The second channel through which COVID-19 has exerted downward pressure is inbound
tourism demand. Inbound demand centered on tourism had been one of the major driving
forces in Japan's economy, as indicated by the fact that the number of visitors to Japan
exceeded 30 million in 2019. Unfortunately, however, this demand has almost evaporated due
to the global spread of COVID-19. The outlook for inbound tourism demand is extremely
severe as it is expected to remain subdued for as long as entry restrictions continue.
The last channel is domestic private consumption. This marked a large decline particularly in
the April-May period, when the state of emergency was in place. Since then, it has been
gradually heading toward a pick-up, along with the resumption of economic activity.
Nevertheless, the pace of the pick-up will likely be quite moderate, mainly for dining-out and
services for individuals, due to vigilance against COVID-19 and the need to ensure social
distancing. In addition, the propensity to consume will likely remain at a somewhat low level
compared with the past average, mainly due to a rise in concern over future developments.
Since COVID-19 has been pushing down aggregate demand considerably through these three
channels, corporate profits seem to have declined significantly recently. Weakness in the
employment situation has also become evident, as seen in (1) the fact that the DI for
employment conditions turned to a net "excessive" for manufacturing, accommodations, and
eating and drinking services in the June Tankan; (2) a decline in the active job openings-to-
applicants ratio; and (3) a rise in the unemployment rate (Chart 4).
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 (the core CPI) has decelerated recently, mainly due to the effects of the decline in energy
prices, and has been at around 0 percent. On the other hand, the rate of change in the CPI for
all items less fresh food and energy has been in the range of 0.0-0.5 percent recently, albeit
with fluctuations (Chart 5). On the price front, COVID-19 has affected not only energy but
also such items as the following: (1) travel-related services such as charges for hotels and for
overseas package tours; (2) water charges, which declined due to reductions and exemptions
by local governments for those who have difficulty paying them; and (3) tutorial fees, which
declined reflecting the introduction of online classes. Meanwhile, moves to reduce prices to
stimulate demand seen during the deflationary period in the past are not widely observed at
this point.
In financial markets, tension has abated compared with the period from late February through
March 2020, when the markets were extremely unstable. In the foreign exchange market, the
yen can be considered to have been substantially stable against the U.S. dollar: it temporarily
showed large fluctuations but has become increasingly range bound despite the reduction of
the Federal Reserve's policy rate by as much as 2.25 percentage points in total since July 2019.
In addition, the annual range of fluctuation for the dollar/yen exchange rate throughout 2019
was as narrow as around 8 yen, the smallest figure recorded since the adoption of the floating
exchange rate system in 1973. I would like to point out the following as background to these
developments. First, there was no significant difference in the volume of exports and imports
for 2019 in Japan, with exports amounting to 76.9 trillion yen and imports amounting to 78.6
trillion yen. However, the proportion of dollar-denominated transactions in imports was
higher, at nearly 70 percent, than that in exports, at almost 50 percent. Provided that the net
amount of U.S. dollar funds required for exports and imports is raised by selling yen,
calculations suggest that this creates demand for approximately 15 trillion yen worth of dollar
purchases against the yen, although the result should be interpreted with a certain latitude.
Put simply, a 10 percent appreciation of the yen against the dollar would result in an exchange
rate profit of approximately 1.5 trillion yen for Japan's economy as a whole. Second, Japanese
firms have been expanding their foreign direct investment mainly through overseas mergers
and acquisitions (M&As), with the net figure for 2019 reaching a record high of
approximately 27 trillion yen. Given that a considerable share of these transactions is
denominated in U.S. dollars, they would induce a significant amount of dollar purchases
against the yen, barring any currency hedging by the Japanese firms.1 While speculative
purchases of the yen may be discouraged when a substantial amount of the funds is based on
sound economic activities, I will continue to pay close attention to developments in the
foreign exchange market.
C. Outlook for Economic Activity in Japan
With the phased resumption of economic activity, Japan's economy is likely to improve
gradually from the second half of this year through the materialization of pent-up demand,
together with the support of accommodative financial conditions and the government's
economic measures. However, the pace of recovery will likely be only moderate as firms and
households remain vigilant against COVID-19 while it continues to have a worldwide impact.
Therefore, it seems inevitable that the economy will register significant negative growth for
fiscal 2020. Thereafter, as the impact of COVID-19 wanes globally and overseas economies
return to a steady growth path, the economy is likely to mark relatively high growth for fiscal
2021, and then continue to grow firmly for fiscal 2022. According to the Bank's July 2020
Outlook for Economic Activity and Prices (Outlook Report), the forecasts of the majority of
the Policy Board members for the real GDP growth rate are in the range of minus 5.7 to minus
4.5 percent, 3.0 to 4.0 percent, and 1.3 to 1.6 percent for fiscal 2020, 2021, and 2022,
respectively (Chart 6).
D. Outlook for Prices in Japan
Next, I will touch on the outlook for prices. In the July 2020 Outlook Report, the forecasts of
the majority of the Policy Board members for the year-on-year rate of change in the core CPI
are in the range of minus 0.6 to minus 0.4 percent, 0.2 to 0.5 percent, and 0.5 to 0.8 percent
for fiscal 2020, 2021, and 2022, respectively (Chart 6). The background to these forecasts is
as follows.
First, as I mentioned earlier, COVID-19 will affect the prices of such items as energy and
travel-related services in the short run. Prices of items that are sensitive to economic activity,
such as food products, durable goods, clothes, and dining-out, are also highly likely to come
under gradual downward pressure. Furthermore, mobile phone-related prices are projected to
continue to show some weakness, reflecting intensifying competition in the industry.
Nevertheless, in due course, movement toward price rises is expected again with the impact
of COVID-19 waning and Japan's economy improving. From a somewhat long-term
perspective, the inflation rate is likely to accelerate further through the second half of fiscal
2022 with a continued improvement in the output gap and a rise in medium- to long-term
inflation expectations -- the perception of firms and households regarding future prices.
E. Risks to Economic Activity and Prices
However, it should be noted that the outlook for economic activity and prices is extremely
unclear and that the balance of risk is skewed to the downside. The largest risk by far is the
impact of COVID-19 on domestic and overseas economies. Until effective medicines and
vaccines are developed, it is highly unclear how the COVID-19 pandemic will evolve and
how long it will take for it to subside. Firms' and households' behavior, including price setting,
is also uncertain, given the "new lifestyle" that requires the public to ensure social distancing
and that will likely induce a rapid expansion of teleworking and online shopping. Furthermore,
if COVID-19 has a larger impact than expected, there is a risk that deterioration in the real
economy will affect financial system stability, thereby exerting further downward pressure
on the real economy. I would like to elaborate on this later.
II. Conduct of Monetary Policy
A. Enhancement of Monetary Easing in Light of the Impact of COVID-19
Let me now turn to the Bank's policy conduct.
Global financial and capital markets were unstable from late February through March 2020
due to the spread of COVID-19. Investors' risk sentiment deteriorated sharply, stock prices
declined significantly, and credit spreads on CP and corporate bonds widened, while the costs
of funding U.S. dollars as a safe asset rose rapidly. In addition, financial conditions have
become less accommodative in terms of corporate financing, as seen in the deterioration in
firms' financial positions due to declining sales and profits. Given these developments, at the
regular Monetary Policy Meetings (MPMs) held in March and April and at an unscheduled
MPM held in May, the Bank decided to take measures to enhance monetary easing with a
view to doing its utmost to ensure smooth financing, such as of financial institutions and firms,
and to maintaining stability in financial markets. These consist of three monetary easing
measures, namely, (1) the Special Program to Support Financing in Response to the Novel
Coronavirus (COVID-19) (the Special Program), (2) an ample provision of yen and foreign
currency funds, and (3) active purchases of exchange-traded funds (ETFs) and Japan real
estate investment trusts (J-REITs) (Chart 7).
I will next explain each of these measures.
The first is the Special Program to support financing. The program consists of the Bank's
purchases of CP and corporate bonds within about 20 trillion yen and introduction of funding
measures of about 100 trillion yen to encourage lending by financial institutions. The latter
includes a scheme in which the government takes the credit risk of lending by financial
institutions to small and medium-sized firms and the Bank provides funds to those financial
institutions on favorable terms.
The second measure is an ample provision of yen and foreign currency funds. The Bank
decided to purchase a necessary amount of Japanese government bonds (JGBs) without limit,
with a view to maintaining stability in the bond market and stabilizing the entire yield curve
at a low level. It has also decided to provide a large amount of U.S. dollar funds based on
cooperation with five other major central banks.
The third measure is active purchases of ETFs and J-REITs. The aim is to prevent firms' and
households' sentiment from deteriorating through volatility in financial markets, thereby
supporting positive economic activity.
B. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control
The Bank has enhanced monetary easing in light of the impact of COVID-19, as I have just
outlined, but the Bank has been pursuing powerful monetary easing for more than seven years
since the introduction of QQE in 2013. Under powerful monetary easing,
with a view to
achieving the price stability target of 2 percent, the Bank has made clear its intention to
continue with QQE with Yield Curve Control, as long as it is necessary for maintaining that
Controlling short- and long-term interest rates -- so-called yield
target in a stable manner.
curve control -- facilitates the formation of the term structure of interest rates that is most
appropriate for achieving the price stability target. Specifically, the Bank applies a negative
interest rate of minus 0.1 percent to a portion of current account balances held at the Bank by
financial institutions,
and purchases JGBs so that 10-year JGB yields will remain at around
zero percent (Chart 8).
As a result of resolutely continuing with such powerful monetary easing, Japan's economy
had continued, up until around 2019, on an expanding trend with a virtuous cycle from income
to spending operating. As for prices, the underlying trend in the year-on-year rate of change
in the CPI less fresh food and energy has been generally in positive territory for seven years,
indicating that
the economy is no longer in deflation in the sense of a sustained decline in
prices. Unfortunately, however, the momentum toward achieving the price stability target has
been lost temporarily due to COVID-19, and thus it is assumed that monetary easing will be
prolonged further.
C. Effects and Side Effects of Monetary Easing under Prolonged Low Interest Rates
As just explained, the positive effects of the Bank's powerful monetary easing measures have
materialized under the prolonged low interest rate environment. On the other hand, attention
should be paid to the point that side effects have accumulated in this environment, and
moreover, that the risk of these side effects exerting a negative impact on financial system
stability will heighten due to COVID-19. I will now share my views on the side effects of
monetary easing.
Although firms' financial positions have deteriorated due to the impact of COVID-19,
financial institutions' lending attitudes have remained accommodative so far, as they have
been actively supporting their client firms with various measures taken by the Bank and the
government to support financing. Nevertheless, financial institutions themselves are also
facing a severe situation. According to the International Monetary Fund (IMF), in 2018 the
proportion of global systematically important banks that had a return on equity (ROE) below
4 percent was less than 10 percent, but this is projected to increase to around 50 percent by
the end of 2020.2 Furthermore, the IMF points out that, if the impact of COVID-19 persists,
many banks in advanced economies may fail to generate profits above their cost of equity
(COE) in 2025. If ROE does not exceed COE, financial institutions' profitability will
gradually decline. This may be attributed to three factors: a narrowing of loan spreads; a
decrease in investment income; and an increase in credit costs. I will now explain the situation
surrounding these three factors in Japan.
Let me first touch on the narrowing of loan spreads. Japan has been confronted with both
limited demand for new loans, due to a decline in population and the number of firms across
regions, and with prolonged low interest rates. In this situation, financial institutions' average
contract interest rates on new loans and discounts have reached extremely low levels, owing
in part to intensified competition among institutions. As a result, there has been a narrowing
of net profit margins -- calculated by deducting overhead cost ratios from the interest rates.
For example, the average net profit margin for regional banks -- specifically, member banks
of the Regional Banks Association of Japan -- was around minus 2 basis points for fiscal 2019
(Chart 9).3 When considering the net profits of financial institutions, it is also necessary to
deduct credit cost ratios -- the amount set aside for potential loan losses (Chart 10). In this
situation, if lending rates decline further from the current level, financial institutions will not
be able to generate profits unless they procure funds at negative interest rates. It is difficult,
however, for deposit rates -- which account for the majority of financial institutions' funding
costs -- to fall into negative territory. For this reason, we may be approaching a situation in
which, even if market interest rates decline, lending rates do not fall, or the provision of loans
does not increase. In addition, the amount of effectively interest-free loans expected to be
provided to small and medium-sized firms through private financial institutions based on the
government's support and the Bank's fund provisioning totals about 52 trillion yen. These
loans will have a significantly positive effect since they serve as a support for firms that are
having difficulties raising funds. On the other hand, these effectively interest-free loans are
equivalent to almost 20 percent of the amount outstanding of loans to small and medium-
sized firms provided by private financial institutions. Therefore, interest-free and unsecured
loans currently provided to support corporate financing might put downward pressure on
spreads on the ordinary loans that will be made, even after the impact of COVID-19 subsides.
In this case, the narrowing of lending margins would become more prolonged.
The second factor inducing a decline in financial institutions' profitability is the decrease in
investment income. As financial institutions have fulfilled the functioning of financial
intermediation by responding to the need for support of financing, mainly of firms, the
amount outstanding of bank lending rose significantly for July, by 6.4 percent from the
previous year. Meanwhile, the annual growth rate in the amount outstanding of deposits was
higher, marking 8.3 percent, due mainly to an expansion in fiscal spending. In terms of value,
while lending increased by 30 trillion yen, deposits rose by 60 trillion yen, exceeding the
increase in lending by 30 trillion yen. Financial institutions invest such excess deposits in, for
example, treasury discount bills (T-Bills) or current account deposits at the Bank, but their
profitability declines because the yields on T-Bills and the interest rates on these deposits are
extremely low.
The third factor is the increase in credit costs. As financial institutions provide active support
for firms whose financial positions have deteriorated due to COVID-19, a certain proportion
of their loans could become nonperforming, leading to a rise in credit costs. The increase in
these costs does not so far seem to be as serious as that observed after the Global Financial
Crisis (GFC). However, if the impact of COVID-19 expands, along with potential second or
third waves, credit costs could increase to almost the same level seen at the time of the GFC.
With the narrowing of lending margins and further declines in JGB yields, financial
institutions have actively extended loans to firms with relatively high credit risk and invested
in high-risk overseas assets. It is therefore extremely important that the Bank monitor
carefully whether a deterioration in the profits and soundness of financial institutions, and
any resultant weakening in the functioning of financial intermediation, have a negative impact
on Japan's economic activity and prices in the event of a phase shift in economic
developments and credit cycles.
If interest rates decline excessively with a decrease in financial institutions' profitability due
to these three factors, a tightening of the capital constraints of those institutions that failed to
secure adequate profits could induce a decline in bank lending. Interest rate levels that reverse
the effects of monetary easing in this way are known as "reversal rates."
As for now, with financial institutions maintaining their active lending stance, the year-on-
year growth rate of loans outstanding has been in positive territory. Nevertheless, as I
mentioned earlier, growth in deposits has exceeded that in lending, and the amount
outstanding of net borrowings -- calculated by subtracting firms' deposits from their
borrowings -- has fallen by around 20 percent over the past 11 years.4 In addition, according
Financial Statements Statistics of Corporations by Industry,
to the Annually, for all industries
excluding finance and insurance, firms' internal reserves accumulated through fiscal 2018
registered a record high of 463 trillion yen, increasing by about 65 percent over the last decade.
This partly reflects the difficulties firms had in borrowing from financial institutions in the
wake of the GFC. Cash and deposits accumulated using internal reserves have in fact
supported corporate financing amid the recent decline in sales due to COVID-19. It should
be noted, however, that the effects of monetary policy on firms' demand for funds could be
limited if Japanese firms increasingly tend to accumulate their profits as cash and deposits
rather than using them for wages and business fixed investment.
The Bank assesses that its monetary policy framework is functioning effectively, and the
positive effects of monetary easing outweigh the side effects at this point. In addition,
financial institutions in Japan as a whole have considerable resilience in terms of both capital
and liquidity, and the stability of the financial system has been maintained despite growing
concern over deterioration in financial positions, mainly of firms. Thus, the smooth
functioning of financial intermediation seems so far to have been ensured. However, the issue
is what lies ahead. Even if the spread of COVID-19 subsides for now, it will take time for
economic activity to return to the level before the spread of the disease. Moreover, if COVID-
19 has a larger impact than expected, there is a risk that deterioration in the real economy will
affect the stability of the financial system, thereby exerting further downward pressure on the
real economy. While paying due attention to this risk, the Bank should weigh the positive
effects against the accompanying side effects more thoroughly when conducting monetary
policy. I believe that it is particularly important to aim at achieving both price stability and
financial system stability. This is because, as the GFC revealed, once the financial system
destabilizes, it is extremely difficult for the Bank to ensure price stability, resulting in a failure
to meet both objectives.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Asahikawa (via webcast)
August 27, 2020
SUZUKI Hitoshi
Bank of Japan
Chart 1
IMF World Economic Outlook
(as of June 2020)
real GDP growth rate, y/y % chg.
2020 2021
CY
2018 2019
projection projection
World
3.6 2.9 -4.9 5.4
Advanced Economies
2.2 1.7 -8.0 4.8
United States
2.9 2.3 -8.0 4.5
Euro Area
1.9 1.3 -10.2 6.0
United Kingdom
1.3 1.4 -10.2 6.3
Japan 0.3 0.7 -5.8 2.4
Emerging Market and
4.5 3.7 -3.0 5.9
Developing Economies
Emerging and Developing
6.3 5.5 -0.8 7.4
Asia
China
6.7 6.1 1.0 8.2
ASEAN-5
5.3 4.9 -2.0 6.2
Russia
2.5 1.3 -6.6 4.1
Japan's Real GDP
s.a., q/q % chg.
2019 2020
Q3 Q4 Q1 Q2
Real GDP
0.0 -1.8 -0.6 -7.8
[ann., q/q]
[0.2] [-7.0] [-2.5] [-27.8]
Private consumption
0.4 -2.9 -0.8 -8.2
Private non-resi. investment
0.2 -4.7 1.7 -1.5
Private residential investment
1.2 -2.2 -4.2 -0.2
Public demand
0.9 0.4 0.0 0.0
Exports of goods & services
-0.6 0.4 -5.4 -18.5
Source: Cabinet Office.
Chart 3
Output Gap
%
reversed, DI ("excessive" minus "insufficient"), % points
8 -40
Output gap (left scale)
6 -30
Tankan factor utilization index (right scale)
Tankan factor utilization index (right scale)
4 -20
2 -10
0 0
-2 10
-4 20
-6 30
-8 40
CY 85 90 95 00 05 10 15 20
Source: Bank of Japan.
Notes: 1. The output gap is based on staff estimates.
2. The Tankanfactor utilization index is calculated as the weighted average of theproduction
capacity DI and the employment conditions DI for all enterprises. The capital and labor shares are
used as weights. There is a discontinuity in the data in December 2003 due to a change in the
survey framework.
Chart 4
Labor Market Conditions
Active Job Openings-to-Applicants Ratio
Diffusion Index (DI) for
and Unemployment Rate
Employment Conditions
reversed, DI ("excessive employment" minus "insufficient employment"), % points
s.a., ratio s.a., %
-80 1.8 6
All industries Insufficient employment
Manufacturing
1.6
Construction
-60
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
Source: Tankan (Short-Term Economic Survey of Enterprises in Japan),
Sources: Ministry of Health, Labour and Welfare;
Bank of Japan.
Ministry of Internal Affairs and Communications.
.
Chart 5
CPI
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. Oct. 20/Apr.
Chart 6
Outlook for Economic Activity and Prices as of July 2020
Forecasts of the Majority of Policy Board Members
y/y % chg.
Real GDP CPI (all items less fresh food)
-5.7 to -4.5 -0.6 to -0.4
Fiscal 2020
[-4.7] [-0.5]
Forecasts made in
-5.0 to -3.0 -0.7 to -0.3
April 2020
+3.0 to +4.0 +0.2 to +0.5
Fiscal 2021
[+3.3] [+0.3]
Forecasts made in
+2.8 to +3.9 0.0 to +0.7
April 2020
+1.3 to +1.6 +0.5 to +0.8
Fiscal 2022
[+1.5] [+0.7]
Forecasts made in
+0.8 to +1.6 +0.4 to +1.0
April 2020
Source: July 2020 Outlook for Economic Activity and Prices (Outlook Report), Bank of Japan.
Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates).
2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes
the form of a point estimate -- namely, the figure to which he or she attaches the highest probability of realization. These forecasts
are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors.
3. In the April Outlook Report, each Policy Board member made their forecasts as a range and submitted two figures (i.e., the highest
and lowest figures) within the range of 1.0 percentage point at most. The forecasts of the majority of the Policy Board members were
shown as a range excluding four figures -- namely, the two highest figures and two lowest figures among the forecasts of the nine
members. Thus, it should be noted that the definition of the forecasts of the majority of the Policy Board members in the April
Outlook Report is different from that in the July Outlook Report.
Chart 7
The Bank's Measures in Response to COVID-19
Supporting Corporate Financing
Special Program to Support Financing in Response to COVID-19:
total size of about 120 tril. yen + α
Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at
maximum (previously amount outstanding of about 5 tril. yen)
Special Funds-Supplying Operations to Facilitate Financing in Response to
COVID-19: about 100 tril. yen
Stabilizing Financial Markets
Ample and Flexible Provision of Yen and Foreign Currency Funds
Further active purchases of JGBs and T-Bills: unlimited
Enhancement of the U.S. Dollar Funds-Supplying Operations: unlimited
Lowering Risk Premia in Asset Markets
Active Purchases of ETFs and J-REITs
ETFs: annual pace of about 6 tril. yen
→ annual pace with
the upper limit of about 12 tril. yen for the time being
J-REITs: annual pace of about 90 bil. yen
→ annual pace with
the upper limit of about 180 bil. yen for the time being
Chart 8
Yield Curve Control
%
1.2
1.0
Target level of the long-term interest rate
0.8
(10-year JGB yields): around zero percent
0.6
0.4
Short-term policy interest rate:
minus 0.1 percent
0.2
0.0
-0.2
Chart 9
Net Profit Margins
Member Banks of the Regional Banks Association of Japan
%
2.5
Average contract interest rates on
new loans and discounts (total)
2
Overhead cost ratios
Net profit margins
1.5
1
0.5
0
-0.5
FY 2006 08 10 12 14 16 18
Chart 10
Credit Cost Ratios
%
0.8
Major banks
0.6
Regional banks
Shinkin banks
Shinkin banks
0.4
0.2
0.0
-0.2
FY 2006 08 10 12 14 16 18