February 28, 2019
Bank of Japan
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Ibaraki
Hitoshi Suzuki
Member of the Policy Board
I. Recent Economic and Price Developments
A. Developments in Overseas Economies
I would like to begin my speech by talking about overseas economies.
Overseas economies have continued to grow firmly overall, although the business sentiment
of manufacturing firms has been mixed across economies and regions recently. In terms of
the outlook, overseas economies are expected to continue growing firmly on the whole,
amid firm domestic demand, although various developments of late warrant attention, such
as the trade friction.
U.S.-China
The U.S. economy has continued to grow firmly, supported in part by a favorable
employment and income situation. It is likely to maintain its expansion, underpinned by
expansionary fiscal measures.
As for the European economy, growth in production has been decelerating, due in particular
to the tightening of gas emission regulations on automobiles, and the economic growth rate
also has been on a downtrend recently. The economy has continued on a recovery trend,
albeit at a slower pace, as seen in exports having shown signs of a and business
pick-up
fixed investment having been on an increasing trend; however, attention needs to be paid to
the outlook for the economy.
The Chinese economy has continued to see stable growth on the whole. It is likely to
broadly follow a stable growth path as the authorities conduct fiscal and monetary policy in
a timely manner, despite recent concerns including fluctuations in exports namely, their
--
increase following the United States having raised import tariffs imposed on
front-loaded
China and their subsequent decline as well as the effects of authorities' measures to push
--
forward with deleveraging and a decline in business sentiment of manufacturing firms.
Emerging economies other than China and economies have been
commodity-exporting
recovering moderately on the whole, mainly reflecting an increase in exports and the effects
of economic stimulus measures. Going forward, as domestic demand has remained firm,
those economies are likely to continue their moderate recovery, partly supported by trading
with advanced economies.
B. Outlook for the Global Economy
According to the January 2019 World Economic Outlook Update released by the
International Monetary Fund (IMF), the global economy is projected to continue growing at
around 3.5 percent in 2019 and 2020, although the projections for both years were revised
downward from those made in October 2018 (Chart 1).
Developments in stock markets and foreign exchange markets, however, were somewhat
unstable from the end of 2018 to the turn of the year, as investors' risk aversion had
heightened since autumn 2018, mainly reflecting uncertainties over the trade
U.S.-China
friction and over political developments in Europe, as well as relatively weak economic
indicators in China. The fundamentals of the global economy do not seem to have changed
substantially thus far, but due attention should be paid to the gradual heightening of
uncertainties that could pose a downside risk to economic activity, including the risk of
turmoil in financial markets seen around the turn of the year leading to deterioration in the
economy. Specifically, close attention should continue to be paid to the following risks: U.S.
protectionist moves and responses by its trading partners; developments in negotiations on
the United Kingdom's exit from the European Union (EU); developments in crude oil prices
that declined significantly from autumn 2018 to the end of the year; geopolitical risks; and
deceleration in the Chinese economy. Moreover, in the United States, the amount
outstanding of leveraged loans (with financial covenants) extended to firms with low credit
ratings has increased to about 1 trillion U.S. dollars. The amount outstanding of
covenant-lite loans (with eased financial covenants) has been increasing recently, and that
of collateralized loan obligations (CLOs) (a securitized instrument in which several
leveraged loans are packaged) has increased significantly over the past five years. So far,
the default rate on leveraged loans has been at a low level; however, as has been pointed out
Financial Stability
in the very first issue of the Report, released by the Federal Reserve in
November 2018, risks of an increase in the number of firms with high leverage warrant
attention.
C. Current Situation of Japan's Economy
I will now discuss the economic situation in Japan.
Japan's economy is expanding moderately, with the output gap being maintained in excess
demand and a virtuous cycle from income to spending operating. In 2018, the real GDP
growth rate for the quarter was negative for the first time in nine quarters,
January-March
mainly reflecting weather conditions. That for the quarter picked up and became
April-June
positive, but for the quarter, the growth rate fell into negative territory again,
July-September
partly due to natural disasters exerting downward pressure on, for example, private
consumption and exports. Despite these fluctuations, the recently released preliminary
estimate for the quarter returned to positive territory on the back of a
October-December
in business fixed investment, private consumption, and exports (Chart 2).
pick-up
According to the Regional Economic Report released by the Bank of Japan in January 2019,
out of a total of nine regions across Japan, six including the region, in
-- Kanto-Koshinetsu
which Ibaraki Prefecture is located reported that their respective economies had been
--
expanding, amid the progress in restoration and reconstruction in the Hokkaido and
Chugoku regions affected by natural disasters such as the earthquake and heavy rain (Chart
3). In the region, business fixed investment had been increasing and
Kanto-Koshinetsu
private consumption had been doing so moderately, albeit with fluctuations, on the back of
steady improvement in the employment and income situation. Ibaraki Prefecture reported
that exports were at a high level, particularly those of parts for maintenance, in view of an
increase in demand from emerging economies making an improvement in infrastructure
including railways and roads. The prefecture also reported that, in response to acute labor
shortage, an increasing number of small and firms were boosting
medium-sized
investment, and that those firms had mainly utilized a manufacturing subsidy
labor-saving
program provided by the government.
As Japan's economy has continued on an expanding trend, labor market conditions have
tightened steadily. The unemployment rate has been at a low level of around 2.5 percent,
and the active job ratio has remained at a high level (Chart 4). Firms'
openings-to-applicants
perception of labor shortage suggested by the diffusion indexes for employment conditions
in the December 2018 Tankan Economic Survey of Enterprises in Japan)
(Short-Term
released by the Bank remained at a high level in a wide range of industries. Against this
background, firms in many industries have been proceeding proactively with
labor-saving
investment with a view to, for example, using artificial intelligence (AI), robotic process
automation (RPA), and other means. On this point, although labor force participants in
Japan have been at a record high level recently, they are likely to start declining in the near
future, considering, for example, a shrinking national population and rapid progression of
the declining birth rate and aging population (Chart 5).1 Given this situation, the innovative
use of AI and RPA is not only a temporary measure to addressing current labor shortage but
also could serve as an important means to compensating for shortage of the working age
population that Japan may face in the future. If the introduction of new technologies allows
firms to provide goods and services at lower costs, output per worker will increase, pushing
up corporate profits and wages. That being said, if human labor is to be replaced rapidly by
new technologies, wages and employment might be affected following a decline in labor
demand, and the gap between industries with sufficient labor and those with labor shortage
might widen. Thus, in adapting new technologies, it also is important to foster resources in
terms of and skills so that human employees can effectively use such
know-how
technologies. In other words, if three capital components labor force, facilities, and new
--
technologies are combined appropriately, the challenges of a declining birth rate and an
--
aging population and of a decline in labor force participants can be overcome, pushing up
Japan's potential growth rate and the natural rate of interest accordingly.
D. Outlook for Japan's Economy
With regard to the outlook, Japan's economy is likely to continue on an expanding trend
throughout the projection period that is, through fiscal 2020. In fiscal 2019, private
--
consumption is expected to see an increase in its growth momentum in the first half of the
fiscal year, reflecting the increase in demand prior to the scheduled
front-loaded
consumption tax hike in October 2019, but is likely to be pushed down in the second half of
the fiscal year by the subsequent decline in demand following the tax hike and the decline
in real income. However, public investment is likely to increase clearly, due mainly to the
implementation of the supplementary budgets to address the natural disasters that
successively occurred in fiscal 2018, as well as the promotion of policy measures for
national resilience. Exports are projected to maintain their increasing trend on the back of
firm growth in overseas economies. With regard to business fixed investment, although it is
likely to decelerate gradually, mainly reflecting the effects of Olympic
Games-related
investment peaking out, its increasing trend is projected to be maintained, due partly to
demand for investment underpinned by the increase in exports.
In fiscal 2020, private consumption and housing investment, which are likely to decline in
the second half of fiscal 2019 due to the effects of the consumption tax hike, are expected to
gradually head toward a recovery. Under such circumstances, although business fixed
investment is likely to decelerate somewhat against the background of heightening pressure
stemming from cyclical adjustments in capital stock, the economy is projected to be
underpinned mainly by the continued increasing trend in exports and an expansion in public
expenditure owing to the Olympic Games. Therefore, Japan's economy is expected to
continue on an expanding trend in fiscal 2020.
According to the Bank's January 2019 Outlook for Economic Activity and Prices (Outlook
Report), the medians of the Policy Board members' forecasts for the real GDP growth rate
are 0.9 percent for both fiscal 2018 and fiscal 2019, and 1.0 percent for fiscal 2020 (Chart
6).
For the scheduled consumption tax hike, the government will deliberate various measures to
reduce the household burden. Taking this into consideration, private consumption is
expected to continue on a moderate increasing trend, supported mainly by the effects of
those government measures, an increase in employee income, and the wealth effects
stemming from the past rise in stock prices.
E. Prices in Japan
Next, I will elaborate on price developments in Japan.
The rate of change in the consumer price index (CPI) for all items less fresh
year-on-year
food (core CPI) increased to 1 percent in February 2018 but thereafter declined slightly.
After recovering to 1 percent, it has been in the range of percent recently (Chart 7).
0.5-1.0
With the price stability target set at 2 percent, the Bank has been conducting
large-scale
monetary easing, but there is still some way to go before achieving the target.
There are three aspects to consider when assessing price developments toward achieving the
2 percent target: the supply and demand conditions in the overall economy, factors from a
micro perspective, and firms' and households' mindset.
1. Supply and demand conditions in the overall economy
Let me first explain the supply and demand conditions in the overall economy. The Bank
estimates the output gap, which is the economic measure of the difference between
aggregate demand (actual output) of the economy and average supply capacity (potential
output) that is smoothed out for the business cycle. According to its estimation, the output
gap has remained positive for eight consecutive quarters since the
October-December
quarter of 2016, on the back of the steady tightening of labor market conditions and a rise in
capital utilization rates (Chart 8). This suggests that, in terms of the supply and demand
conditions, the economy has been in excess demand and upward pressure has been exerted
on prices.
2. Factors from a micro perspective
Now, I will touch on the second aspect: factors from a micro perspective. The CPI that I
mentioned earlier is an indicator of prices that represents the aggregation of prices of
various goods and services. Breaking down the CPI by item, energy prices which had
--
been pushing up the rate of change in the CPI are reducing their upward
year-on-year --
pressure on overall prices, reflecting the decline in crude oil prices since autumn 2018, and
communication charges for mobile phones are likely to decline further. With regard to the
producer price index (PPI) one of the measures of prices of goods traded in the corporate
--
sector the rate of change for 2018 showed an average increase of 2.5 percent,
-- year-on-year
due to rises in prices of raw materials and personnel expenses. Prices of goods traded in the
corporate sector have been raised by more than 2 percent; however, the rise has not been
fully passed on to retail prices. Nevertheless, there has been a gradual rise recently in prices
of such items as household wheat flour, ice cream, bottled beverages, and frozen and
refrigerated food; if such price rises are to spread to a wider range of industries, they likely
will be a steppingstone to a rise in overall prices.
3. Firms' and households' mindset
The third aspect to consider when assessing price developments is firms' and households'
mindset. I often hear concerns from corporate managers across various industries that, by
raising prices, they may lose customers, and consequently their market share. This is
because the competitive environment surrounding firms has become increasingly severe
amid an expansion of online shopping, and, in the case of Japan, firms' and households'
mindset and behavior based on the assumption that wages and prices will not increase easily
have been deeply entrenched, due mainly to the experience of prolonged low growth and
deflation. Moreover, consumers seem to be reluctant to increase their consumption, as it is
now considered reasonable to expect to live for 100 years and therefore they have to save
for future life events. Under these circumstances, firms' and households' to
medium-
inflation expectations are more or less unchanged (Chart 9). Theoretically,
long-term
inflation expectations are influenced by both the (or adaptive) component
backward-looking
that reflects past rates i.e., the observed inflation rate and the
-- -- forward-looking
component that reflects the progress in the Bank's pursuit of monetary easing through its
strong commitment to achieving the price stability target. In practice, they seem to be
greatly influenced by the observed inflation rate, as shown in the recent figures for firms'
and households' inflation expectations. This suggests that, if prices start to rise gradually,
inflation expectations will be pushed up, which in turn will lead to an increase in future
actual prices. In other words, to start a virtuous cycle, a rise in prices is the key, as this will
change the perception of firms and households regarding future prices, which can accelerate
the pace of increase in actual prices.
On the consumer front, in a wide range of age groups, consumption based on preference or
experience has begun to be observed recently. These categories of consumption are
in that consumers actively make expenditures on, for example, products,
value-oriented,
services, and entertainments that fit well with their values. If consumption of items in such
categories further expands and firms accordingly can set prices based on developments in
consumer behavior, consumers will gradually become more tolerant of price rises.
F. Outlook for Prices in Japan
Based on these three aspects the supply and demand conditions in the overall economy,
--
factors from a micro perspective, and firms' and households' mindset I will touch on the
--
outlook for prices. Going forward, amid the positive output gap, firms' efforts to raise prices
are likely to be seen broadly, and firms' and households' mindset is expected to change
accordingly. As this virtuous cycle among the three aspects starts to operate gradually,
prices are likely to rise. The momentum toward achieving the price stability target has been
maintained, and thus the rate of change in the CPI is likely to increase
year-on-year
gradually toward 2 percent, albeit with fluctuations caused by the effects of such factors as
developments in crude oil prices. Specifically, the medians of the Policy Board members'
forecasts for the rate of change in the core CPI presented in the January 2019
year-on-year
Outlook Report are 0.8 percent for fiscal 2018, 1.1 percent for fiscal 2019, and 1.5 percent
for fiscal 2020 (Chart 6).
In order to achieve the price stability target and thereby contribute to the sound
development of the economy, it also is essential for the Bank to not solely focus on price
rises but also ensure subsequent rises in corporate profits and real wages. Corporate
managers are making various efforts on a daily basis in terms of improving productivity and
efficiency, cutting costs, and providing products and services. As a result of
high-quality
these efforts, in an environment where prices rise moderately through an increase in the
of products and services, corporate profits are likely to increase. In this case,
value-added
wages of employees also would rise, as would household income. With increased household
income, people are likely to spend more on products and services, making corporate profits
increase even more. I consider it important to ensure that this virtuous cycle can operate.
II. Conduct of Monetary Policy
A. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control
Let me now turn to the Bank's monetary policy.
Following the introduction of QQE in April 2013, the Bank has been pursuing QQE with
since toward achieving the price stability target of 2
Yield Curve Control September 2016
percent.
Under this policy framework, controlling and interest rates the
short- long-term -- so-called
yield curve control facilitates the formation of term structure of interest rates that is most
--
appropriate for achieving the price stability target. Specifically, in the guideline for market
operations, the Bank sets at minus 0.1 percent
the short-term policy interest rate and decides
to purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at
around zero percent (Chart 10).
Since the introduction of
QQE with Yield Curve Control in September 2016, short- and
long-term interest rates have been maintained at levels consistent with the Bank's guideline
for market operations, and the output gap has remained positive. As for prices, the
year-on-year rate of change in the core CPI has increased by more than 1 percentage point
over the past two and a half years, from minus 0.5 percent for September 2016 to the range
of 0.5-1.0 percent for January 2019. With regard to inflation expectations, results of the
Bank's December 2018 Opinion Survey on the General Public's Views and Behavior
to expectations
showed that, while medium- long-term remained low, the proportions of
respondents who answered that prices would go up one year from now have increased
recently, and that seems to be a sign of change in people's perception of future prices (Chart
Although there is still some way to go for the core CPI to increase toward the price
11).
stability target of 2 percent, it is crucial to resolutely continue with powerful monetary
easing under
QQE with Yield Curve Control.
B. Durability of Monetary Easing
Almost six years have passed since the introduction of QQE in April 2013. As I mentioned
earlier, firms' efforts to raise prices and changes in firms' and households' mindset are likely
to gradually proceed on the whole. However, firms' cautious and stance
wage- price-setting
and households' cautiousness toward price rises remain deeply entrenched, and attention is
warranted on the possibility that the rise in CPI inflation will continue to be constrained for
a long period. With these factors in mind, durability of monetary policy should be
considered in the future policy conduct.
So, what are the keys to enhancing the durability of monetary policy? I believe there are
three points in this regard. Just like a distance runner, we need (1) a commitment to keep on
running, (2) flexibility to adapt to changes in conditions, and (3) a running economy to
maintain good performance.
1. Commitment to keep on running
The first point the commitment to keep on running refers to the Bank's clarification of
-- --
its future policy stance, so as to secure and maintain public confidence in its policy actions.
In July 2018, the Bank introduced forward guidance in which it made clear that it would
"maintain the current extremely low levels of and interest rates for an
short- long-term
extended period of time, taking into account uncertainties regarding economic activity and
prices including the effects of the consumption tax hike scheduled to take place in October
2019." By doing so, the Bank has been working to strengthen its commitment to achieving
the price stability target (Chart 12).
2. Flexibility to adapt to changes in conditions
On the second point, the flexibility, it is important much like an athlete preparing to
--
perform by stretching, so as to mitigate risk of injury to have a certain degree of
--
flexibility in the monetary policy conduct. In this regard, the Bank implemented measures
to enhance the durability of QQE with Yield Curve Control in July 2018. Specifically, upon
maintaining the target level of JGB yields at around zero percent, the Bank made it
10-year
clear that they "may move upward and downward to some extent mainly depending on
developments in economic activity and prices" (Chart 12). Given that interest rate formation
became somewhat rigid since the introduction of yield curve control, the Bank has taken
this new measure through the flexible JGB purchases in further consideration of the
-- --
impact on the JGB market functioning. Let me note that the Bank does not intend to raise
the level of yields at present; it will purchase JGBs promptly and appropriately in the event
of a rapid increase in the yields. In addition to this measure, the Bank has allowed flexibility
in purchasing funds (ETFs) and Japan real estate investment trusts
exchange-traded
so that their amounts outstanding will increase at annual paces of about 6 trillion
(J-REITs)
yen and about 90 billion yen, respectively. Specifically, the Bank decided that it "may
increase or decrease the amount of purchases depending on market conditions" with a view
to lowering risk premiums of asset prices in an appropriate manner. In these ways, the Bank
has worked to enhance the flexibility and sustainability of the current monetary policy
framework.
3. Running economy to maintain good performance
The third point is the running economy, which means the efficient use of energy when
running long distance. In a similar way, it is important to maintain the optimal conduct of
monetary policy while weighing its positive effects against the accompanying costs and the
side effects. The framework of yield curve control has the function of efficiently reducing
and interest rates to extremely low levels, through the large stock effect of
short- long-term
reducing interest rates reflecting the cumulative amount of the Bank's JGB holdings, and
thereby leading to stimulating economic activity. On this point, let us focus on a more micro
perspective of the structure of the JGB market. At present, a considerable amount of the
newly issued JGBs are withdrawn from the market about six months after their
10-year
issuance and are purchased by the Bank, and the amount outstanding of JGBs in the market
continues to decline. Even in this situation, financial institutions need to hold a certain
amount of JGBs under a low interest rate environment for various purposes such as for
funding; namely, collateral held at the Bank through market operations, that under
derivative contracts, that for foreign currency funding, and that for repo transactions in
Japanese yen. If the amount outstanding of JGBs in the market continues to decrease, it is
likely that the amount outstanding of JGBs held by some financial institutions gradually
will approach the minimum level needed. The Bank considers it important that, by carefully
monitoring their demand, it will continue to appropriately adjust to the situation through, for
example, changing the amount of JGB purchases at each auction.
C. Durability of Financial Institutions
It is essential for the Bank to not only enhance the durability of monetary policy but also
pay due attention to the fact that the effects of monetary policy spread to the overall
economy mainly through financial institutions. In that sense, the Bank should closely
monitor the durability of financial institutions so as to ensure that they can continue to fully
carry out their financial intermediation function.
Financial institutions have been underpinning their profits by realizing gains on the sales of
securities and reversing allowance for doubtful accounts, as downward pressure on their
profits has been increasing mainly against the background of the declines in the population
and the number of firms across regions, in addition to the current low interest rate
environment. Taking a look at their core profitability, average contract interest rates on new
loans have been at extremely low levels with financial conditions remaining
accommodative. The numerical value obtained by subtracting overhead cost ratios from said
rates shows that the value for regional banks, for example, currently stands at around 10
basis points, which is significantly below the average credit cost ratio over the past 20 years.
In addition, regional banks and shinkin banks have been registering higher growth in
lending than major banks, and they have been extending loans such as to firms
middle-risk
with relatively high credit risk and to rental housing businesses.
Going forward, if the economy were to enter a recessionary phase, a worsening of financial
conditions at such firms and businesses might materialize as credit risk. Moreover, if
borrowing firms' default rates increase, it will be necessary for financial institutions to
accumulate reserves for doubtful accounts across the entire range of loan portfolios, and
attention is warranted on this point as it could be a factor triggering an acceleration of
deterioration in such institutions' profits.
On this point, at least for now, I believe that financial institutions in Japan as a whole have
strong resilience against stress in terms of both capital and liquidity, and stability in the
financial system has been maintained. However, close attention should continue to be paid
to developments in the stance and financial soundness of financial institutions,
risk-taking
including regional ones, from the perspective of monitoring those effects on the financial
system and the functioning of financial intermediation.
As the Bank resolutely continues with the current monetary easing policy, it will conduct
monetary policy, while examining all relevant risks, in an appropriate manner so that the
momentum toward achieving the price stability target will be maintained.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Ibaraki
February 28, 2019
Hitoshi Suzuki
Bank of Japan
Chart 1
Global Economy
IMF Projections (as of January 2019) Real GDP Growth Rate
real GDP growth rate, y/y % chg.
2019 2020
CY 2017 2018
projection projection
3.5 3.6
World
3.8 3.7
(-0.2) (-0.1)
2.0 1.7
Advanced economies
2.4 2.3
(-0.1) (0.0)
2.5 1.8
United States
2.2 2.9
(0.0) (0.0)
1.6 1.7
Euro area 2.4 1.8
(-0.3) (0.0)
1.5 1.6
United Kingdom 1.8 1.4
(0.0) (+0.1)
1.1 0.5
Japan 1.9 0.9
(+0.2) (+0.2)
4.5 4.9
Emerging market and
4.7 4.6
developing economies
(-0.2) (0.0)
Emerging and developing 6.3 6.4
6.5 6.5
Asia
(0.0) (0.0)
6.2 6.2
China
6.9 6.6
(0.0) (0.0)
5.1 5.2
ASEAN
5.3 5.2
(-0.1) 0.0
1.6 1.7
Russia
1.5 1.7
(-0.2) (-0.1)
Latin America and the 2.0 2.5
1.3 1.1
Caribbean
(-0.2) (-0.2)
CY
Source: World Economic Outlook Update, International Monetary Fund (IMF).
Note: Figures in parentheses are the difference from the October 2018
Source: IMF.
projections.
Chart 2
Japan's Real GDP
s.a., ann., q/q % chg. s.a., tril. yen s.a., q/q % chg.
2017 2018
Real GDP (nominal, right scale)
Q4 Q1 Q2 Q3 Q4
Real GDP
0.5 -0.2 0.6 -0.7 0.3
[ann., q/q]
[2.0] [-0.9] [2.2] [-2.6] [1.4]
Private consumption
0.5 -0.2 0.6 -0.2 0.6
Private non-resi. investment
0.8 1.0 2.5 -2.7 2.4
Private residential investment
-3.2 -2.0 -2.0 0.5 1.1
Real GDP growth rate
(left scale)
Public demand
-0.0 0.0 -0.1 -0.3 0.4
Exports of goods & services
2.2 0.4 0.4 -1.4 0.9
CY
Source: Cabinet Office.
Source: Cabinet Office.
Chart 3
Regional Economic Assessments
Comparison of Previous and Current Assessments by Region
Changes
from the
Region Assessment in October 2018 Assessment in January 2019
previous
assessment
The economy has been recovering
Hokkaido The economy has been recovering moderately
moderately as a trend, although
as a trend, and downward pressure due to the
downward pressure due to the effects
effects of the 2018 Hokkaido Eastern Iburi
of the 2018 Hokkaido Eastern Iburi
Earthquake has continued to ease.
Earthquake is being observed.
The economy has continued to recover The economy has continued to recover
Tohoku
moderately. moderately.
Hokuriku The economy has been expanding. The economy has been expanding.
Kanto- The economy has been expanding The economy has been expanding moderately.
Koshinetsu moderately.
Tokai The economy has been expanding. The economy has been expanding.
The economy has been expanding
Kinki The economy has continued to expand
moderately, although effects of
moderately.
Typhoon No. 21 are being observed in
economic activity.
Although the economy was damaged
Chugoku The economy has been expanding moderately.
by the heavy rain in July 2018, it has
been expanding moderately as a trend,
amid the effects of the heavy rain
waning, mainly reflecting the
restoration of social infrastructure.
Shikoku The economy has been recovering. The economy has been recovering.
The economy has been expanding The economy has been expanding moderately,
moderately, with its growth gaining a with its growth gaining a more solid footing.
KyushuOkinawa
more solid footing.
Chart 4
Labor Market Conditions
Unemployment Rate and
Diffusion Index (DI) for
Active Job Openings-to-Applicants Ratio
Employment Conditions
reversed, DI ("excessive employment" minus "insufficient employment"),
s.a., ratio s.a., %
% points
Unemployment rate (right scale)
Insufficient employment
Active job openings-to-applicants
Excessive employment
ratio (left scale)
Active job openings-to-applicants ratio for
full-time employees (left scale)
CY
CY
Sources: Ministry of Internal Affairs and Communications;
Source: Tankan (Short-Term Economic Survey of Enterprises in Japan),
Ministry of Health, Labour and Welfare.
Bank of Japan.
Chart 5
Labor Force Participation and Employment
s.a., mil. persons
Labor force participants
Employed persons
2013 2015 2017
2007 2009 2011
2003 2005
CY
Chart 6
Outlook for Economic Activity and Prices as of January 2019
Forecasts of the Majority of Policy Board Members
y/y % chg.
Real GDP CPI (all items less fresh food)
+0.9 to +1.0 +0.8 to +0.9
Fiscal 2018
[+0.9] [+0.8]
+1.3 to +1.5 +0.9 to +1.0
Forecasts made in
October 2018
[+1.4] [+0.9]
+0.7 to +1.0 +1.0 to +1.3
Fiscal 2019
[+0.9] [+1.1]
+0.8 to +0.9 +1.5 to +1.7
Forecasts made in
October 2018
[+0.8] [+1.6]
+0.7 to +1.0 +1.3 to +1.5
Fiscal 2020
[+1.0] [+1.5]
+0.6 to +0.9 +1.5 to +1.7
Forecasts m