J u n e 6 , 2 0 2 4
Bank of Japan
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Sapporo
NAKAMURA Toyoaki
Member of the Policy Board
I. Economic Developments at Home and Abroad
I will begin my speech by talking about recent developments in and the outlook for overseas
economies.
The pace of recovery in overseas economies has slowed. Uncertainties surrounding these
economies have continued to be high (Chart 1). For example, one concern is that, with
inflationary pressure still looming on a global basis, there may be a resurgence in inflation
triggered by wage increases. In addition, the European and Chinese economies have been
slow to recover and tensions in the Middle East have increased. The U.S. economy, despite
the impact of policy interest rate hikes, has been firm, mainly due to resilient private
consumption, and according to projections by the International Monetary Fund (IMF) is
expected to grow by 2.7 percent in 2024. However, there is a risk that, if inflation resurges,
tight monetary policy will become prolonged. European economies have kept slowing
moderately due to the continued impact of factors such as policy interest rate hikes. There is
concern over economic recovery being delayed in Europe due to factors such as the risk of a
resurgence in inflation and economic stagnation in Germany. The Chinese economy has
remained on a moderate slowing trend, reflecting structural changes in the economy leading
to insufficient domestic demand and excess supply capacity. These changes are mainly due
to adjustments in the real estate market, an aging population, and a rise in households'
thriftiness. Looking ahead, uncertainty continues to be high, as adjustment pressure in the
labor and real estate markets remains, and there is concern over heightening deflationary
pressure and growing trade friction, mainly reflecting excessive supply in some goods.
Let me move on to recent developments in Japan's economic activity and prices. The economy
has recovered moderately, despite weaknesses in some parts. In the corporate sector, goods
exports have been more or less flat despite the slowdown in the pace of recovery in overseas
economies. Meanwhile, inbound tourism demand, which falls under services exports, has
continued to increase, pushed up partly by the effects of the yen's depreciation. Turning to
industrial production, although the underlying trend has been more or less flat, production
has declined recently, due in part to the effects of a suspension of production and shipments
at some automakers. Corporate profits have been on an improving trend, and business
sentiment has been favorable. Likewise, business fixed investment has been on an increasing
trend. As for the household sector, private consumption, although showing some signs of
resilience, has been weak recently, mainly due to the impact of price rises, given that
disposable income has been growing slower than wages, and to the decline in automobile
sales caused by the suspension of shipments at some automakers (Chart 2). Turning to prices,
although the effects of the pass-through to consumer prices of cost increases triggered by past
rises in import prices are waning, lingering indirect effects remain; in addition, the effects of
government support measures against price increases have run their course and services prices
have continued to rise moderately, so that the year-on-year rate of increase in the consumer
price index (CPI) for all items less fresh food has been in the range of 2.0-2.5 percent recently.
As for the outlook, the April 2024 Outlook for Economic Activity and Prices (Outlook Report)
forecasts that Japan's economy is likely to keep growing at a pace above its potential growth
rate, with overseas economies growing moderately and the virtuous cycle from income to
spending gradually intensifying against the background of factors such as accommodative
financial conditions (Chart 3). However, households' disposable income may not rise as much
as wages due to, for example, the heavier social burden and the increase in the number of
pensioners, both of which are the result of structural issues such as the aging and declining
population, and also due to the so-called annual income barrier -- that is, the fact that
households' secondary earners or seniors try to adjust their working hours so that their income
stays under the ceiling for tax exemption. This may lead households to reverse the reduction
in their saving rate and become thriftier, while small and medium-sized firms may delay
reforms aimed at boosting their earning power. My concern is that, under these circumstances,
Japan's growth rate may fall below its potential and remain so. I will return to this point in
more detail later. Meanwhile, the median of the Bank of Japan Policy Board members'
forecasts for the year-on-year rate of increase in the CPI for all items less fresh food is above
2.5 percent for fiscal 2024 and at around 2 percent for fiscal 2025 and 2026. However, I fear
that the rate in fiscal 2025 and thereafter may not reach 2 percent if private consumption
becomes sluggish due to households reversing the reduction in their saving rate and becoming
thriftier, and the rate of price increases slows down.
II. Conduct of Monetary Policy and Structural Changes in the Economy
At the March 2024 Monetary Policy Meeting, the Bank decided to change its monetary policy
framework. With regard to this decision, I was in favor of discontinuing purchases of
exchange-traded funds (ETFs) and other assets, which were mainly related to large firms
proceeding with reforms, but I was opposed to terminating the negative interest rate policy
and revising the policy framework of Quantitative and Qualitative Monetary Easing (QQE)
with Yield Curve Control. My thinking was that, to ensure that the price stability target of 2
percent is achieved, the policy framework should be changed only after improvement in the
earning power and capacity for raising wages of small and medium-sized firms, driven by
spillovers from the benefits of reforms at large firms, which are driving economic growth,
was confirmed. To this end, I consider it necessary to make sure that firms conduct active
corporate reforms by avoiding any adverse impact, such as from financial market turmoil, on
corporate managers' willingness to undertake reforms. Since the March 2024 Tankan (Short-
Term Economic Survey of Enterprises in Japan) subsequently showed that the earnings of
small firms are expected to improve, and based on data available at present, I believe it is
appropriate to maintain the current policy for the time being. I would now like to talk about
my thoughts on the future conduct of monetary policy, taking into account recent
developments in economic activity and prices.
A. The Importance of Stronger Household Purchasing Power
Looking at recent developments in prices and wages, the year-on-year rate of increase in the
CPI for all items less fresh food was 2.2 percent for April 2024, marking a growth rate of 2
percent or more for 25 months in a row. Against this background, firms' and households'
inflation expectations are rising, and there is a sense that large firms in particular are
increasingly willing to raise wages in a sustained manner due to favorable business
performance and labor shortages (Charts 4 and 5).
However, I think that the recent figures for the year-on-year rate of increase in the CPI for all
items less fresh food are mainly the result of a slowdown in the year-on-year rate of decline
in electricity and gas charges due to the dissipation of effects of government subsidies.
Meanwhile, the rate of increase in the CPI for all items less fresh food and energy, which is
not directly affected by energy price fluctuations, has fallen for eight consecutive months.
These developments indicate that inflation so far has been largely driven, with a lag, by the
surge in import prices, and that the pass-through of higher wages to prices is still less than
robust. That said, given that unit labor costs in the first quarter of 2024 rose by 2 percent on
a year-on-year basis, I am paying close attention to developments going forward (Chart 6).
The aggregate results for the wage growth rate agreed in the 2024 annual spring labor-
management wage negotiations compiled by the Japanese Trade Union Confederation
(Rengo) show a 5.2 percent wage hike for fiscal 2024, the highest level in 33 years.1 However,
since these aggregate results are mainly for large firms, how much of this wage hike spills
over to small and medium-sized firms, where about 80 percent of employees in Japan work
and which account for about 70 percent of labor costs, remains to be seen. Moreover, while
employee compensation in 2023 rose by 1.7 percent year on year, household disposable
income, which represents households' purchasing power, increased by only 0.2 percent, due
in part to the heavier social burden and the expiration of government benefits provided during
the previous year to households that were exempt from the resident tax. While household
final consumption expenditure rose by 3.7 percent despite the lingering sluggishness in the
income situation, this was largely due to households drawing down the ample savings
accumulated during the pandemic, and the saving rate decreased from 3.4 percent in 2022 to
2
0.1 percent in 2023 (Chart 2). Households' purchasing power remains weak, with real
consumption of households in fiscal 2023 decreasing by 0.6 percent from the previous fiscal
year (Chart 7). While the fixed-amount income and resident tax reduction in fiscal 2024 is
expected to have positive effects, given that households may reverse the reduction in their
saving rate and become thriftier, not only do real wages need to turn upward, but disposable
income also needs to rise firmly for the virtuous cycle from income to spending to strengthen.
As I mentioned, the 2024 annual labor-management wage negotiations yielded the highest
wage growth in 33 years. Meanwhile, from 1990 to 2023, the working age population in Japan
decreased by about 10 percent, and the number of pensioners increased 2.4-fold. Furthermore,
additional increases in the labor participation rate are very unlikely, given issues such as the
annual income barrier for homemakers and seniors as well as the gradual shift to a super-aged
society in which seniors aged 75 and older -- i.e., the advanced elderly -- account for more
than half of the population aged 65 and older (Chart 8). As shown in the Family Income and
Expenditure Survey, consumption expenditure declines significantly in households where the
head of the household is aged 65 and older (Chart 9); therefore, as the population continues
to age, there will likely be downward pressure on the overall consumption expenditure of
households. To strengthen the purchasing power of households and stimulate private
consumption, sustained high wage hikes for the working age population are essential.
Moreover, I think that bringing about changes in the financial asset composition of Japanese
households so that they, like households in the United States and Europe, derive more income
from the growth of listed firms, would be an effective way of firmly increasing disposable
income (Chart 10). I will elaborate on this point later.
As I have explained thus far, to achieve sustainable economic growth, it is necessary to ensure
that high wage hikes lead to a solid increase in disposable income and that the virtuous cycle
from income to spending becomes stronger. Therefore, in considering the future conduct of
monetary policy, I would like to carefully monitor whether real private consumption makes a
positive turnaround, which forms the basis of the virtuous cycle from income to spending.
B. The Importance of Improving Small and Medium-Sized Firms' Earning Power and
Capacity for Higher Wages
While small and medium-sized firms employ about 80 percent of the total workforce and
account for about 70 percent of labor costs in Japan, labor costs per employee at small firms
are only half of those at large firms, and those at medium-sized firms only three-quarters
(Chart 11). To achieve, at the national level, sustainable wage growth that can keep up with
rising prices, it is essential for small and medium-sized firms to improve their earning power
and capacity for raising wages. Ever since Japan fell into deflation, the prolonged stagnation
of the economy, long-standing business practices making it difficult for firms to pass on
higher costs to prices, and continued fierce competition have led to "risk-off management"
taking hold. As a result, firms held off from expanding and fell into a cost-cutting mindset,
leading to a decline in their earning power and capacity for higher wages. Meanwhile, many
large firms have restructured their business portfolios and have been increasing their earning
power and capacity for raising wages. According to the Financial Statements Statistics of
Corporations by Industry, Annually, while large firms' operating profits per employee grew
1.6-fold from fiscal 1990 to fiscal 2022, those of small firms roughly halved and those of
medium-sized firms remained flat. Moreover, while the break-even ratio, which is available
from fiscal 2007 to fiscal 2022 only due to data constraints, for large firms improved to about
60 percent, it remained at around 90 percent for small firms and improved only moderately
to around 80 percent for medium-sized firms. These developments show that the gap between
large firms and small and medium-sized firms in terms of their capacity for increasing earning
power and for higher wages have been widening (Chart 12). Against this background, I am
still not sure that the recent wage hikes will be sustained, given some anecdotal information
3
indicating that they are defensive in nature to retain human capital. I believe that
restructuring efforts at large firms, which are driving economic growth, have not yet
sufficiently spilled over to small and medium-sized firms.
That said, there appears to be a growing sense of urgency among corporate managers at small
and medium-sized firms. Since the start of 2024, there have been numerous reports about the
growing impact of the initiatives taken by the Japan Fair Trade Commission to more actively
encourage small and medium-sized firms to pass on cost increases to prices. My hope is that,
in the lead-up to the price negotiation campaign in September 2024 promoted by the Small
and Medium Enterprise Agency, small and medium-sized firms will make headway in their
efforts to pass on higher costs to prices and secure funds for raising wages. With regard to
small firms, the March Tankan showed a significant improvement in the diffusion index (DI)
for output prices (calculated by deducting the percentage of enterprises answering that they
expected output prices to "rise" from the percentage expecting them to "fall") and higher
profits in the forecasts for fiscal 2024 (Chart 13). These developments suggest that it is more
likely for the fruits of reforms at large firms to spill over to small and medium-sized firms
because of the improved price pass-through environment. However, while the improved price
pass-through environment helps firms to boost their business performance in the short term,
achieving sustained wage increases requires more than simply passing on higher wages to
prices. Specifically, having improved their profitability, small and medium-sized firms need
to strengthen their competitiveness by leveraging their improved profit base to make
investments and strengthen their business structures with the aim of increasing their
productivity and value added. Meanwhile, large firms have been enhancing their growth
potential by shifting from closed innovation, which relies on in-house expertise, to open
innovation, which takes advantage of outside expertise, and by reinforcing their core
businesses. While research by the Ministry of Economy, Trade and Industry showed that the
share of listed medium-sized firms -- firms with 2,000 employees or less -- that grew into
large firms in the past 10 years is much lower than in the United States and Europe, I think
that by pushing ahead with the reforms I mentioned, more small and medium-sized firms will
be able to enhance their growth potential of their own accord.4 In the March Tankan, firms
overall expected their business fixed investment in fiscal 2023 to have grown by 10.2 percent
from the previous fiscal year, while the figure for small firms was higher at 13.7 percent.5
However, whether business fixed investment will expand remains to be seen, since some
firms, particularly small ones, have currently put fixed investment on hold due to supply-side
constraints and a lack of capacity to invest. Moreover, there are also concerns that firms may
not have the required capacity in place when needed to achieve their business plans, so that
they may miss out on business opportunities and hence fail to secure the funds needed for
raising wages.
Taking a look at growth in wages of regular employees at the time of recruitment by prefecture
shows that, while the growth rate has been rising across regions since 2023, for wages to
increase nationwide in a sustained manner, small and medium-sized firms need to grow (Chart
14). It is therefore critical that regional financial institutions familiar with the situation of
4
According to research by the Ministry of Economy, Trade and Industry, the share of listed
mediumsized firms (i.e., firms with 301 to 2,000 employees) in fiscal 2011 that had grown into large firms
(i.e., firms with more than 2,000 employees) by fiscal 2021 was 11 percent in Japan. This is
significantly lower than the 30 percent in the United States and the 22 percent in Europe (the figure is
for the United Kingdom, France, and Germany). For details, see the material regarding the policies to
promote the growth of medium-sized firms with high growth potential that lead regional economies,
released by the Ministry of Economy, Trade and Industry on March 13, 2024 (available only in
Japanese).
5
The figures for business fixed investment plans include software and research and development
(R&D) investment but exclude land purchasing expenses. They are based on all industries and
enterprises, excluding the finance and insurance industries.
such firms and their regions play their part by strengthening their cooperation with support
organizations such as the Organization for Small & Medium Enterprises and Regional
Innovation, the National Center for Industrial Property Information and Training (INPIT), the
National Institute of Advanced Industrial Science and Technology (AIST), and university
research centers in the respective regions. Regional financial institutions also should provide
value-added services, such as in-depth business matching for mergers and acquisitions
(M&As) and third-party business succession. These services will help small and medium-
sized firms to strengthen their core businesses, expand their scale of operations, and improve
job satisfaction among their employees, which in turn will help to boost the attractiveness
and revitalization of regions struggling with population outflows.
C. Sustainable and Stable Achievement of the 2 Percent Price Stability Target
With prices and wages finally starting to move, Japan's economy is approaching a critical
turning point (Chart 15). The economy has almost reached the golden opportunity to break
out of its long-standing stagnation, achieve the 2 percent price stability target, and realize
sustainable economic growth. Large firms have begun to take the lead in raising wages at a
higher rate to address labor shortages and achieve further growth, which has pushed up overall
wage levels. Meanwhile, small and medium-sized firms are beginning to find it easier to pass
on higher wages to prices. As a result, small and medium-sized firms are also making various
efforts to enhance customer satisfaction, which is necessary to allow them to raise selling
prices, and I see positive changes taking place in the economic structure. As the market and
the corporate sector come to appreciate these efforts, firms can increase their selling prices in
line with enhanced customer satisfaction and raise wages of employees contributing to
creating added value, which in turn will boost employee engagement and growth expectations.
These developments, together with productivity improvements and more innovation, will
lead to a virtuous cycle from prices to wages and from wages to prices. Moreover, it is
expected that, along with the sustainable and stable achievement of the price stability target,
firms will become more forward-looking in their business activities and households will
become more optimistic about the future. I look forward to your efforts as growth-oriented
business leaders to continue to pursue reforms (Chart 16).
Nonetheless, it is hard to imagine that the cost-cutting orientation of firms, which lasted for
30 years, will suddenly change in two short years. My view is that to achieve the 2 percent
price stability target in a sustainable and stable manner, changes in the economic structure are
needed to turn hope for a strong economic recovery into certainty. From this perspective, I
consider it critical to carefully monitor progress in the strengthening of firms' business
structures and measures to achieve further growth, including how widespread small and
medium-sized firms' efforts to pass on higher costs to prices are and how much their capacity
for raising wages improves, along with developments in business fixed investment,
investment in human capital, R&D investment, M&A activity, and third-party business
succession.
III. Pursuing Sustainable Economic Growth to Overcome Structural Issues
I would now like to share my personal views from a medium- to long-term perspective on the
"dynamism" of firms, employment, and households that is needed to achieve sustainable
growth in Japan's economy, which is highly affected by structural issues.
A. Aspiring for Growth and Fostering the Dynamism of Firms and Employment
In societies that face structural issues such as an aging and declining population, the
purchasing power of households tends to weaken and private consumption is prone to
stagnating, pushing the economy into a downward spiral of contraction, leading to growing
concerns about the social security system, and triggering a vicious cycle in which people are
pessimistic about the future. To counter this, it is necessary to create a growth spiral on the
back of the steady growth of existing firms, the increased movement of labor to growing firms,
and the rapid growth of startups into so-called unicorns. In addition, wage hikes need to
spread and business practices with regard to passing on cost increases need to improve, while
corporate managers need to take steps to ensure that their labor force generates greater added
value and to expand the scale of their business. Efforts to further step up exports to growing
overseas economies are also essential. Such efforts help to strengthen the earning power of
firms and to achieve "structural wage hikes" -- that is, a situation in which wages rise
sustainably due to productivity improvements above and beyond any increase in the social
burden imposed by structural issues -- helping to realize sustainable economic growth in
which people feel better off.
Large firms in Japan have begun to channel management resources into core businesses,
introduce job-based employment, and more aggressively raise scheduled wages for younger
workers, which until now were kept low relative to their productivity. They are also stepping
up investment in human capital, such as in reskilling and the hiring of mid-career specialists,
and seeking to create a work environment that motivates employees and allows them to
realize their full potential. Through these efforts, firms are increasing the capacity of
individuals to generate innovations and boosting customer satisfaction with their products
and services. Thus, it seems to me that these firms are making active management efforts to
focus on human capital as a way of strengthening their earning power. Moreover, more than
half of large firms are undertaking mid-career hiring or considering doing so.6 This suggests
mounting competition to attract human resources, and it seems that labor is moving to large
firms that continue to grow and offer high wages. Thus, forces in Japan's labor market pushing
up wage levels, which are the lowest among the Group of Seven (G7) countries, are growing
(Chart 17). However, the slope of wage profiles by job grade in Japan is still less steep than
in other major Asian economies (Chart 18). Therefore, individuals' efforts to promote growth
need to be better recognized, higher wage increases need to be achieved going forward, and
wage profiles need to continue to be reformed.
My hope is that growth-oriented small and medium-sized firms, thanks to their improved
profitability as a result of actively passing on higher costs to prices, boost their investment
and strengthen their business structures, so that more firms, supported by government policies,
have the dynamism to expand their business -- that is, for small firms to grow into medium-
sized firms and medium-sized firms to grow into large firms. On the other hand, given that
funding for startups that try to use new technologies to carve out new markets has been
sluggish and the number of unicorns is much smaller than in other countries, Japan's economy
lacks the momentum to generate a growth spiral (Chart 19). Going forward, however, I hope
to see many startups grow rapidly into unicorns in line with the government's Startup
Development Five-Year Plan and that this, together with the growth of small and medium-
sized firms, will inspire admiration for firms and individuals pursuing growth, drawing both
funds and talent to growth-oriented firms, and thus creating a growth spiral that reinforces
the dynamism of firms and employment characterized by continuing rises in wage levels
(Chart 20).
Meanwhile, the number of M&As and cases of third-party business succession have steadily
increased, and the growth rate of firms that have gone through a business succession is higher
than the industry average, indicating that budding developments toward a greater dynamism
of firms and employment are steadily gaining traction (Chart 21). Nurturing these budding
developments is vital in overcoming structural issues such as an aging and declining
population, so that Japan will turn into a growth-oriented society in which young people --
the future of the country -- have hope for a better tomorrow.
B. Expectations for Improved Household Dynamism
The new Nippon Individual Savings Account (NISA) program was launched this year and
has started to lead to a shift from saving to investing. Unlike in the United States, household
disposable income in Japan has greatly relied on labor income from the firm where a person
works for many years (Chart 2). However, this is beginning to change. To raise household
disposable income, people are more actively trying to earn higher wages not only by making
efforts to contribute to the growth of the firm where they work, but also by changing jobs to
growing firms and/or improving their skills such as through reskilling. Furthermore, there has
been an expansion in investment to increase dividend income from listed firms that drive
economic growth. These developments suggest that a household dynamism is emerging
(Chart 22). While it is important for households to understand the risks associated with such
investment, I think that, if they have the financial capacity, efforts to shift from saving to
investing -- provided it focuses on the long term, regular contributions, and risk
diversification -- as well as continued efforts by households to expand their sources of income
through increased dividend income are a key element of economic growth. I believe that these
efforts can help to increase household wealth, including that of seniors, through economic
growth (Charts 8 and 10). I will pay close attention to changes in the composition of
household financial assets and disposable income amid rising inflation expectations.
However, if households increasingly accumulate financial assets because they are worried
about the future and want to save for retirement, this may lead to a shift from consumption to
investment, which may make households thriftier. Therefore, it is essential that asset
formation by households strike the right balance between managing assets for retirement and
generating income for the present. For this reason, I have high hopes for the educational
outreach of the Japan Financial Literacy and Education Corporation (J-FLEC), established in
April 2024, to promote a better understanding regarding the balance between consumption,
savings, and investment.
Thank you.
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Local Leaders in Sapporo
June 6, 2024
NAKAMURA Toyoaki
Member of the Policy Board
Bank of Japan
Chart 1
IMF Projections in the World Economic Outlook
(April 2024)
y/y % chg.
16
14
12
IMF projections
10
8
6
4
2
0
-2
Japan United States Euro area
-4
China India World output
-6
-8
CY
80 85 90 95 00 05 10 15 20 25
Source: IMF.
Chart 2
Household Disposable Income Breakdown
and Saving Rates
Japan United States
tril. yen
% tril. USD %
800 16 32 16
Other (left scale)
Other (left scale)
Social insurance premiums (left scale)
Personal current transfer receipts (left scale)
Income tax (left scale)
Contributions for government social insurance (left scale)
Operating surplus and mixed income (left scale)
600 12 24 Personal current taxes (left scale) 12
Social security benefits (left scale)
Property income (left scale) Personal income receipts on assets (left scale)
Compensation of employees (left scale)
Compensation of employees (left scale)
Saving rate (right scale)
Saving rate (right scale)
400 8 16 8
200 4
8 4
0 0 0 0
-200 -4 -8 -4
94 98 02 06 10 14 18 22
CY CY 94 98 02 06 10 14 18 22
Sources: Cabinet Office; U.S. Bureau of Economic Analysis (BEA).
Chart 3
Forecasts of the Majority of the Policy Board Members
y/y % chg.
(Reference)
CPI (all items
Real GDP
CPI (all items less fresh food
less fresh food)
and energy)
+1.3 to +1.4
Fiscal 2023 +2.8 +3.9
[+1.3]
Forecasts made in January +1.6 to +1.9 +2.8 to +2.9 +3.7 to +3.9
2024
[+1.8] [+2.8] [+3.8]
+0.7 to +1.0 +2.6 to +3.0 +1.7 to +2.1
Fiscal 2024
[+0.8] [+2.8] [+1.9]
Forecasts made in January +1.0 to +1.2 +2.2 to +2.5 +1.6 to +2.1
2024
[+1.2] [+2.4] [+1.9]
+0.8 to +1.1 +1.7 to +2.1 +1.8 to +2.0
Fiscal 2025
[+1.0] [+1.9] [+1.9]
Forecasts made in January +1.0 to +1.2 +1.6 to +1.9 +1.8 to +2.0
2024
[+1.0] [+1.8] [+1.9]
+0.8 to +1.0 +1.6 to +2.0 +1.9 to +2.1
Fiscal 2026
[+1.0] [+1.9] [+2.1]
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 they attach 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. Each Policy Board member makes their forecasts taking into account the effects of past policy decisions and with reference
to views incorporated in financial markets regarding the future conduct of policy.
Source: Bank of Japan.
Chart 4
Composite Index of 10-Year-Ahead Inflation
Expectations, by Type of Economic Agents
%
2.5
Composite index of inflation expectations
(10-year ahead)
Sub-index for households
2.0
Sub-index for firms
Sub-index for economists and market participants
1.5
1.0
0.5
0.0
CY 07 09 11 13 15 17 19 21 23
Note: The composite index is calculated by extracting the common components, based on the first principal component, of the
inflation expectations of firms, households, and economists and market participants. For details on the calculation method,
see Box 4 in the April 2024 Outlook Report.
Sources: Bloomberg; Consensus Economics Inc., Consensus Forecasts; QUICK, QUICK Monthly Market Survey <Bonds>;
Bank of Japan.
Chart 5
Firms' Willingness to Raise Wages
Results of the Annual Spring
Employment Conditions DI
Labor-Management Wage Negotiations
y/y % chg.
DI ("excessive" - "insufficient"), % points
50
6
Actual regular wage increase
40
5
Actual base pay increase
30
CPI inflation
R