M a y 1 7 , 2 0 1 9
Bank of Japan
Outlook for Economic Activity and Prices
and Monetary Policy
Speech at a Meeting Held by the Naigai Josei Chosa Kai
(Research Institute of Japan) in Tokyo
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
It is my pleasure to have the opportunity to address you today at the Naigai Josei Chosa
Kai.
At the Monetary Policy Meeting (MPM) held at the end of last month, the Bank updated its
projections for Japan's economic activity and prices through fiscal 2021 and released them
in the April 2019 Outlook for Economic Activity and Prices (Outlook Report). In addition,
with a view to making clearer its policy stance to persistently continue with powerful
monetary easing, the Bank decided to take some additional monetary policy measures.
Today, I would like to talk about the Bank's outlook for Japan's economic activity and prices
based on the Outlook Report, as well as its current thinking behind the conduct of monetary
policy, including the decision at the recent MPM.
I. Economic Developments
Developments in Overseas Economies
Let me start by talking about developments in overseas economies. Overseas economies
have been growing moderately on the whole, but slowdowns have been observed recently
(Chart 1). Unlike the synchronous growth of the global economy seen through the first half
of last year, differences in growth rates among regions and industries have become evident.
While the U.S. economy has continued to expand firmly, relatively weak developments
increasingly have been observed in the Chinese economy because economic activity has
been hampered by the trade friction between the United States and China as well as
adjustments in the IT sector, in addition to the impact of authorities' measures to push
forward with deleveraging. As for Europe, production has declined since the second half of
last year, mainly in Germany, reflecting the tightening of gas emission regulations on
automobiles within the European Union (EU), and weaker exports to Turkey and China also
have been exerting downward pressure on the European economy recently. Under these
circumstances, in the latest forecasts released by the International Monetary Fund (IMF) last
month, the global economic growth rate for 2019 is projected to be 3.3 percent, which was
further revised somewhat downward from the previous forecasts released in January. Thus,
the growth rate for this year is likely to fall slightly below the long-term average since 1980
of 3.5 percent.
Current Situation of Japan's Economic Activity
With the global economy decelerating, Japan's exports and production have shown some
weakness recently (Chart 2). Exports have decreased since the turn of the year, mainly in
terms of capital goods and IT-related goods to China, and this has led to the weakness in
production and deterioration in business sentiment in the manufacturing sector. However,
weakness in overseas economies so far does not appear to have spread clearly to domestic
demand. Business fixed investment has continued on an increasing trend, with corporate
Tankan
profits staying at favorable levels on the whole (Chart 3). According to our March
(Short-Term Economic Survey of Enterprises in Japan), business fixed investment plans for
fiscal 2019 showed relatively high growth for this time of the year, exceeding the past
average. Private consumption also has been increasing moderately against the background
of steady improvement in the employment and income situation. Meanwhile, demand from
foreign visitors, which temporarily declined in the second half of last year due to the effects
of the successive natural disasters, has recovered clearly again. Thus, in Japan, a virtuous
cycle from income to spending has been maintained in both the corporate and household
sectors, although some weakness has been observed in exports and production. On this basis,
the Bank judges that Japan's economy has been on a moderate expanding trend.
As seen in the current economic phase, a situation where the slowdown in overseas
economies pushes down Japan's economy also was observed from mid-2015 through the
first half of 2016. Many people remember this as the so-called China shock, and not a few
have pointed out its similarity with the current phase. However, looking more closely, there
also seem to be some differences between then and now (Chart 4). First is the degree of the
declines in exports and production. Unlike at the time of the China shock, exports and
production fell significantly in the current phase. The fact that the assessment of the Indexes
of Business Conditions released by the Cabinet Office this week turned to "worsening" for
the first time since January 2013 is largely attributable to the recent declines in
production-related indicators. Of course, on this point, it is necessary to take into
consideration that these, to some extent, are reactionary declines to significant increases in
exports and production in the past few years. In fact, although exports and production have
decreased, their levels have remained higher than those during the China shock. Second,
developments in financial and commodity markets at home and abroad differ between the
two phases. Crude oil prices fell substantially to just below 30 dollars per barrel through
February 2016; in the foreign exchange market, the yen rapidly appreciated against the
dollar after the turn of 2016, from the range of 120-130 yen to below 100 yen. On the other
hand, in the current phase, although crude oil prices and financial markets at home and
abroad temporarily became unstable from last autumn through the year-end and the start of
this year, they both subsequently have regained stability. We are at least not in a situation
where developments in financial markets worsen firms' and households' sentiment and
thereby push down economic activity. Third, as I mentioned earlier, domestic demand and
business sentiment of the nonmanufacturing sector have been firm in the current phase on
the back of favorable corporate profits and improvement in the employment and income
situation. Under such circumstances, the output gap, which represents the utilization of
capital and labor, exceeded the long-term average of 0 percent in the second half of 2016,
and since then has remained clearly positive. Thus, it can be assessed positively that the
robustness of Japan's economy against external shocks has been increasing steadily amid
the economic expansion that is said to be the longest in the post-war era.
Outlook for Economic Activity
Next, I will talk about the outlook for Japan's economy. As shown in the Outlook Report,
the Bank projects that Japan's economy is likely to continue on an expanding trend
throughout the projection period -- that is, through fiscal 2021 -- despite being affected by
the slowdown in overseas economies for the time being (Chart 5). In terms of the median of
the Policy Board members' forecasts, the real GDP growth rate is projected to be 0.8 percent
for fiscal 2019, 0.9 percent for fiscal 2020, and 1.2 percent for fiscal 2021.
There are two important points regarding this outlook for economic activity (Chart 6). First
is future developments in overseas economies. Although slowdowns have been observed
recently, the Bank does not consider that overseas economies will continue to deteriorate all
the way. The U.S. economy -- the growth engine of the global economy -- is expected to
maintain its expansion, mainly supported by expansionary fiscal policy. As for the Chinese
economy, the effects of stimulus measures already have materialized in part, and such
moves are likely to become more widespread. The European economy is projected to
gradually move out of its deceleration phase as the effects of temporary factors such as the
tightening of gas emission regulations on automobiles are likely to dissipate. Taking
account of these developments, overseas economies are expected to start picking up,
although slowdowns are likely to continue for the time being. What matters is the timing of
the pick-up. On this point, the IMF forecasts that the global economic growth rate will start
rising again in the second half of this year. According to our interviews of firms, not a few
hold the view that global demand for IT-related goods will hit bottom in the second half of
this year. As overseas economies pick up, Japan's exports are projected to return to their
moderate increasing trend without much delay.
Of course, there are various uncertainties regarding this outlook. For example, Chinese
authorities have been implementing stimulus measures that focus on such factors as tax cuts
this time around while taking account of the balance between stimulating economic activity
and deleveraging, based on the recognition that large-scale infrastructure investment after
the global financial crisis subsequently led to the problems of excess production capacity
and excess debt. Thus, whether the recent measures will have immediate effects as in the
past may largely affect the timing of a pick-up in overseas economies going forward.
Developments in demand for IT-related goods such as semiconductors remain highly
uncertain, and there is a possibility that inventory adjustments on a global basis will take
longer than expected. The final outcomes of such issues as the trade friction between the
United States and China and negotiations on the United Kingdom's exit from the EU also
remain unclear. Although there is no need to focus particularly on risk factors and become
excessively cautious, the Bank considers it important to constantly examine risks to the
outlook without preconception.
The second important point in forecasting future developments is the sustainability of
domestic demand. In order for Japan's economy to continue expanding moderately without
interruption, it is necessary to maintain firm domestic demand until overseas economies
pick up. On this point, private consumption is expected to continue increasing moderately
for the time being as the employment and income situation continues to improve steadily.
The fact that public investment is expected to increase, mainly led by infrastructure
investment reflecting policy measures for national resilience, also is likely to contribute to
underpinning economic activity going forward. What holds the key is developments in
business fixed investment. So far, the impact of the slowdown in overseas economies
cannot be observed clearly in business fixed investment plans for this fiscal year, and in the
nonmanufacturing sector where labor shortage has continued, many firms seem to have
more active investment plans than last year, mainly regarding labor-saving investment.
However, business fixed investment plans at this time of the year have a strong tendency to
be based on rough estimates, and attention should be paid to the possibility that firms'
investment stance will become cautious in mainly the manufacturing sector, if a pick-up in
overseas economies takes longer than expected going forward. As I mentioned earlier, the
robustness of Japan's economy has increased, mainly on the back of favorable corporate
profits. Nevertheless, the Bank will closely monitor future developments as there is a
possibility that firms' and households' sentiment will be affected depending on
developments in overseas economies and financial markets.
II. Price Developments
Current Situation of Prices
Next, I will talk about price developments. The year-on-year rate of change in the consumer
price index (CPI) has continued to show relatively weak developments compared to the
economic expansion and the labor market tightening (Chart 7). However, the basic
mechanism has been operating in which a positive output gap -- a rise in the level of
economic activity -- results in moderate increases in wages and prices. For example, at this
year's annual spring labor-management wage negotiations, the rate of increase in base pay
started out lower than last year in early spring, mainly for large firms, but thereafter the rate
of increase for small and medium-sized firms turned out to be relatively high, due to such
factors as acute labor shortage. Eventually, the rate of increase in base pay as a whole was at
about the same level as last year. The year-on-year rate of increase in hourly wages of
part-time employees also has continued to mark relatively high growth in the range of 2-3
percent.
Such developments, together with a rise in prices of raw materials, will lead to an increase
in costs for firms. Thus, firms have been proceeding with reflecting these rises in prices of
their products and services, albeit slowly (Chart 8). Looking at the diffusion index (DI) for
output prices in the Tankan, the situation has continued for over a year in which the
proportion of enterprises answering that the output prices have risen exceeds the proportion
of those answering that such prices have fallen. This has occurred for the first time in about
30 years since the bubble period. Prices of services traded in the corporate sector also have
risen steadily, mainly against the background of an increase in distribution costs
accompanying labor shortage. From consumers' perspective, moves to raise retail prices
have been spreading recently, mainly in terms of food products. Of course, a rise in prices
of food products and daily necessities is not favorable for households, if focusing only on
the rise. What is important is that the employment and income situation improves to an
extent that households can accept such price rises. The Bank's monetary policy also aims at
creating a virtuous cycle in which the inflation rate rises moderately in line with increases in
corporate profits and wages. With a view to further pushing forward with such a virtuous
cycle, the Bank strongly hopes that positive efforts by both labor and management toward
raising wages will become more widespread.
Outlook for Prices
Let me now move on to the outlook for prices. In the latest Outlook Report, the medians of
the Policy Board members' forecasts of the year-on-year rate of change in the CPI excluding
fresh food are 1.1 percent for fiscal 2019, 1.4 percent for fiscal 2020, and 1.6 percent for
fiscal 2021, which is the end of the projection period (Chart 9).
As this shows, the pace of increase in the CPI in Japan is likely to remain moderate. While
there are various reasons for this, one of them is that the 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, and changing this is
expected to take time. This past experience and people's cautious mindset based on it lead to
a situation where prices in Japan will not rise easily, due mainly to two channels. The first is
the possibility that firms' stance will not shift as much as theoretically expected toward
further raising wages and prices, even when the output gap improves. Both labor and
management in Japan still have a persistent tendency to place priority on the stability of
employment over wage increases, due mainly to the experience of severe employment
adjustments under deflation. One example of this situation is the fact that the pace of
increase in wages has been sluggish compared to the degree of labor shortage. The second
channel is that it is likely to take time for inflation expectations to rise. Per orthodox
thinking, a mutual feedback between actual prices and inflation expectations is assumed to
operate. That is, if actual prices increase, people's inflation expectations also will rise, and if
inflation expectations rise, actual prices also will increase. If firms and households expect
that wages and prices will not increase easily, this feedback will not operate smoothly. In
this context, recent studies point out that people's inflation expectations tend to depend not
only on developments in actual prices, but also individuals' experiences over a long period.
Thus, there also is a possibility that average inflation expectations will not rise readily as
the ratio of the generation that has spent much of their life under deflation increases.
However, there is no need to be too pessimistic about the current situation. It is a significant
change in Japan's economy that the year-on-year rate of change in the CPI excluding fresh
food has remained at a level close to 1 percent for more than one year, owing to an
improvement in the output gap. The behavior and mindset under deflation also have been
changing gradually, as evidenced by the fact that base pay increases have been conducted
for six consecutive years (Chart 10). Under such circumstances, although inflation
expectations have remained more or less unchanged on the whole, those of mainly
households recently have risen somewhat. As people have gained the collective experience
of increases in wages and prices in the past few years, it is likely to contribute to pushing up
inflation expectations going forward. In this way, the momentum toward achieving the price
stability target has been maintained, whereby a positive output gap results in an increase in
actual prices, leading to a rise in inflation expectations. The Bank projects that the
year-on-year rate of change in the CPI is likely to increase gradually toward 2 percent,
although this will still take time.
III. The Bank's Conduct of Monetary Policy
Now, I would like to explain the Bank's conduct of monetary policy. The Bank currently
adopts the policy framework of "Quantitative and Qualitative Monetary Easing (QQE) with
Yield Curve Control." Under the framework, it sets the short-term policy interest rate at
minus 0.1 percent and the target level of 10-year JGB yields at around zero percent, and has
conducted purchases of Japanese government bonds (JGBs) in the market so that the yield
curve would be formed in line with this guideline (Chart 11). By conducting this operation,
short- and long-term interest rates in financial markets have been stable at low levels and
lending rates for firms as well as issuance rates for corporate bonds also have remained at
extremely low levels. The Bank aims at achieving the price stability target of 2 percent at
the earliest possible time through powerful monetary easing centered on yield curve control.
Meanwhile, at the MPM held at the end of last month, Policy Board members shared the
recognition that there are high uncertainties regarding the outlook for economic activity and
prices in Japan, including developments in overseas economies, and that it is likely to still
take time to achieve the price stability target.
Based on this recognition, the Bank judged it important to make it clearer that its policy
stance to persistently continue with the current powerful monetary easing toward achieving
the price stability target has not changed (Chart 12). Thus, it decided at the April MPM to
clarify forward guidance for policy rates introduced in July 2018. Forward guidance is a
measure that makes clear the stance on future policy rates in advance in order to strengthen
market confidence and expectations regarding monetary policy. Specifically, a part of the
existing guidance was revised, thereby making clear that the Bank would "maintain the
current extremely low levels of short- and long-term interest rates for an extended period of
time, at least through around spring 2020, taking into account uncertainties regarding
economic activity and prices including developments in overseas economies and the effects
of the scheduled consumption tax hike." The point of this revision is that a specific period
of "at least through around spring 2020" was added to clarify the meaning of "for an
extended period of time," during which the Bank intends to maintain the current interest
rate levels. This takes into consideration that (1) pick-ups in overseas economies and the
global cycle for IT-related goods are expected to be seen in the second half of this year or
onward and (2) it is projected to take some time to examine the effects of the scheduled
consumption tax hike after its implementation. On this basis, I would like to reemphasize
that the current forward guidance is a framework in which the Bank makes judgments
depending on economic and price developments by using data and information available at
the time, as it says that the Bank will make judgments, taking into account uncertainties
regarding economic activity and prices. While economic activity and prices are likely to
remain in a state where the current extremely low levels of short- and long-term interest
rates would be appropriate, at least through around spring 2020, the Bank considers that
there is a fair possibility that the current low interest rates will be maintained beyond this
period depending on future developments.
In addition, the Bank also decided at the MPM held at the end of last month to implement
various measures contributing to the continuation of the current powerful monetary easing.
Specifically, it decided on such measures as expanding the range of eligible collateral for
such purposes as the Bank's lending to financial institutions, and relaxing the terms and
conditions for the facility of temporarily lending Japanese government securities (JGSs)
held by the Bank. In addition, the Bank decided to consider the introduction of a facility for
lending exchange-traded funds (ETFs) that it holds to market participants. While I will not
explain these measures in detail today, they all will provide support for continuing with
powerful monetary easing through the Bank's smooth fund-provisioning and securing of
market functioning. In combination with the clarification of forward guidance, these
measures likely will strengthen public confidence in continuing with powerful monetary
easing, thereby contributing to further ensuring the achievement of the price stability target
and leading to stability in financial markets.
Given economic developments in Japan, where prices and inflation expectations have not
risen easily, the Bank considers it necessary to maintain a positive output gap for as long as
possible by keeping interest rates at sufficiently low levels for a prolonged time, in order to
achieve the price stability target. Some measures that I outlined earlier also are based on
such thinking. In this way, central banks always consider the most appropriate monetary
policies for their respective situations, with a view to achieving their objective of price
stability. This does not only apply to Japan. For instance, the U.S. Federal Reserve has been
proceeding with monetary policy normalization for the past few years, such as through
incrementally raising its policy interest rate. After the turn of the year, however, it
temporarily stopped raising the policy interest rate due to such factors as the slowdown in
the global economy, even though interest rate levels still have been quite low compared to
the time before the global financial crisis. In addition, central banks abroad, including the
Federal Reserve, recently have worked on reviewing their monetary policies after the global
financial crisis and discussing new monetary policy frameworks as well as specific tools. In
my understanding, the background to such moves is that (1) the real interest rate neutral to
economic activity, or the natural rate of interest, has been on a declining trend in many
advanced economies in recent years, mainly reflecting a decrease in the potential growth
rate and a constant excess of funds, and (2) difficulties in enhancing the effectiveness of
monetary policy under such circumstances have been taken into consideration. Of course,
Japan and economies such as the United States cannot be treated in the same way. However,
many central banks currently face a common fundamental challenge of how to achieve the
price stability target while securing stability in economic and financial conditions, in a
situation where room for monetary policy responses has been narrowing compared to the
past due to low growth and low inflation. While continuously keeping this challenge in
mind, the Bank deems it necessary to follow developments in discussions abroad as
appropriate.
Conclusion
So far, I have explained economic and price developments in Japan and the Bank's thinking
behind the conduct of monetary policy based on such developments. I would like to close
my speech today by adding a few words.
More than two weeks have passed since the Heisei era drew to a close and the Reiwa era
has started. While monetary policy is not classified in terms of the imperial era, I think that
the Heisei era can be characterized by a continuous battle against deflation when looking
back from the perspective of a central bank. In the situation of a prolonged economic
downturn after the so-called bubble burst, it became difficult to further reduce short-term
interest rates in order to stimulate the economy after around 1998 -- about a decade
following the start of the Heisei era. Incidents such as the global financial crisis and the
Great East Japan Earthquake also were tough challenges for Japan's economy, which was
seeking to move out of deflation. In order to overcome the zero lower bound on short-term
interest rates amid such challenges, the Bank has worked on conducting unconventional
monetary policies ahead of many other economies, such as introducing forward guidance
and purchasing a variety of assets. Six years ago, the Bank introduced QQE, which is a
more powerful measure than before, and has persistently continued with powerful monetary
easing. Under such circumstances, Japan's economy has improved significantly over the
past few years and successfully reached the end of the Heisei era in a situation where the
economy was no longer in deflation in the sense of a sustained decline in prices.
While the imperial era has changed, the Bank's mandate of aiming at achieving price
stability, thereby contributing to the sound development of the national economy, has not.
Going forward, the Bank will continue to make its utmost efforts as the central bank of
Japan with a view to fulfilling this mandate while responding appropriately to the constantly
changing developments in economic activity and prices.
Thank you very much for your attention.
Outlook for Economic Activity and Prices
and Monetary Policy
Speech at a Meeting Held by the Naigai Josei Chosa Kai
(Research Institute of Japan) in Tokyo
May 17, 2019
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
I. Economic Developments
II. Price Developments
III. The Bank's Conduct of Monetary Policy
Conclusion
Chart 1
I. Economic Developments
Overseas Economies
Projections for Major Economies (IMF)
y/y % chg., % points
2019 2020
2017 2018
Projection Projection
3.3 3.6
World
3.8 3.6
(-0.2) (0.0)
1.8 1.7
Advanced economies 2.4 2.2
(-0.2) (0.0)
2.3 1.9
United States
2.2 2.9
(-0.2) (0.1)
1.3 1.5
Euro area
2.4 1.8
(-0.3) (-0.2)
1.0 0.5
Japan
1.9 0.8
(-0.1) (0.0)
Emerging market and
4.4 4.8
4.8 4.5
developing economies
(-0.1) (-0.1)
6.3 6.1
China 6.8 6.6
(0.1) (-0.1)
5.1 5.2
ASEAN-5
5.4 5.2
(0.0) (0.0)
Latin America and
1.4 2.4
1.2 1.0
the Caribbean
(-0.6) (-0.1)
Note: The post-2019 figures are based on April 2019 WEO projections. Figures in parentheses show the differences from the January 2019 projections.
Source: IMF.
1
Chart 2
I. Economic Developments
Exports and Production
Real Exports Industrial Production
s.a., CY 2015=100 s.a., CY 2015=100
115
110
110
105
105
100
100
95
95
90 90
CY
10 11 12 13 14 15 16 17 18 19 CY 10 11 12 13 14 15 16 17 18 19
Business Fixed Investment and Private Consumption, etc.
Business Fixed Investment Private Consumption Inbound Tourism Demand
s.a., ann., tril. yen s.a., CY 2011=100 s.a., ann., mil. persons
95
110
35
Consumption Activity Index
Private nonresidential investment Number of foreign
90 108
30
(travel balance adjusted, real)
(SNA, real) visitors to Japan
85 106
25
80 104
20
75 102
15
70
100 10
65 98
5
60 96 0
CY 05 07 09 11 13 15 17 CY 09 10 11 12 13 14 15 16 17 18 19
CY 10 11 12 13 14 15 16 17 18 19
Notes: 1. In the middle chart, figures for the Consumption Activity Index exclude inbound tourism consumption and include outbound tourism consumption.
2. In the right chart, seasonally adjusted figures are BOJ staff estimates.
Sources: Cabinet Office; Bank of Japan; JAPAN NATIONAL TOURISM ORGANIZATION, etc.
3
Chart 4
I. Economic Developments
Comparison between the Present and around 2015-2016
Crude Oil Prices Business Conditions DI
Exports and Production
and Yen/U.S. Dollar (Nonmanufacturing Sector)
s.a., CY 2015=100 U.S. dollar/bbl
yen/U.S. dollar DI ("favorable"-"unfavorable"), % points
118 120 130 30
Crude oil (Brent,
Real exports
left scale)
25
110
Yen/U.S. dollar
114 125
(right scale)
Industrial 20
100
production
110 120
90 15
10
80
106 115
5
70
102 110
60 0
"Favorable"
50 -5
98 105
Nonmanufacturing
(large enterprises)
40 -10
Nonmanufacturing
94 100
30 -15 (small enterprises)
"Unfavorable"
90 20 95 -20
CY 14 15 16 17 18 19
CY 12 13 14 15 16 17 18 19 CY 12 13 14 15 16 17 18 19
BOJ's Forecasts of Real GDP
(April 2019 Outlook Report)
s.a., ann., tril. yen
Fiscal 2021
560
+1.2%
Fiscal 2020
+0.9%
Fiscal 2019
550
+0.8%
Fiscal 2018
(y/y % chg.)
+0.6%
540
530
520
510
500
490
FY 12 13 14 15 16 17 18 19 20 21
Note: Forecasts are the medians of the Policy Board members' forecasts (point estimates).
Sources: Cabinet Office; Bank of Japan.
5
Chart 6
I. Economic Developments
Key Points for the Future
Domestic Demand Sustainability
Developments in Overseas Economies
(Business Fixed Investment Plans
(IMF World Economic Outlook)
in the Tankan)
growth rates, ann., %
y/y % chg. average (FY 2004-2017)
6.0 10
5.5
5.0 8
4.5
4.0 6
3.5
3.0 4
2.5
2.0 2
FY 2019
1.5
Advanced economies
1.0 0
Emerging market and developing economies
FY 2015 FY 2016
World economy
0.5
FY 2017 FY 2018
0.0 -2
16:H1 16:H2 17:H1 17:H2 18:H1 18:H2 19:H1 19:H2 Mar. June Sept. Dec. Forecast Actual
Notes: 1. In the left chart, figures for the world economy are calculated as the weighted averages of growth rates of advanced economies as well as emerging market and developing economies
using GDP shares of world total GDP from the IMF as weights.
2. In the right chart, figures are all industries including financial institutions. Including software and R&D investment and excluding land purchasing expenses (R&D investment is
not included until the December 2016 survey). There is a discontinuity in the data in December 2017 due to a change in the survey sample.
Sources: IMF; Bank of Japan.
Consumer Prices
y/y % chg.
4
3
2
1
0
-1
CPI (all items less fresh food)
-2
CPI (all items less fresh food and energy)
-3
CY 85 90 95 00 05 10 15
Note: Figures are adjusted for changes in the consumption tax rate.
Source: Ministry of Internal Affairs and Communications.
7
Chart 8
II. Price Developments
Firms' Price-Setting Stance
Output Prices DI (Tankan) Services Producer Price Index (SPPI)
DI ("rise"-"fall"), % points
20
y/y % chg.
1.5
Large enterprises
10
1.0
Small enterprises
0
0.5
-10
0.0
-20
-0.5
-30
SPPI (all items excluding international
transportation)
-1.0
-40
-1.5
-50
11 12 13 14 15 16 17 18 19
85 90 95 00 05 10 15 CY
CY
BOJ's Forecasts of the CPI
(April 2019 Outlook Report)
y/y % chg.
Fiscal 2021
2.0
+1.6%
Fiscal 2020
CPI (all items less fresh food)
+1.4%
Fiscal 2019
(y/y % chg.)
1.5
+1.1%
1.0
0.5
0.0
-0.5
-1.0
FY 12 13 14 15 16 17 18 19 20 21
Notes: 1. Forecasts are the medians of the Policy Board members' forecasts (point estimates). The actual figures exclude the direct effects of the consumption tax hike in April 2014.
2. The direct effect of the scheduled consumption tax hike on the CPI for fiscal 2019 and fiscal 2020 is estimated to be 0.5 percentage point for each year. The direct effects of policies
concerning the provision of free education on the CPI for fiscal 2019 and fiscal 2020 are estimated to be minus 0.3 percentage point and minus 0.4 percentage point, respectively.
Sources: Ministry of Internal Affairs and Communications; Bank of Japan.
9
Chart 10
II. Price Developments
Environment Surrounding Prices
Nominal Wages Inflation Expectations
y/y, ann. avg., %
y/y % chg.
5
2.5
Market participants (QUICK, 2 to 10 years ahead)
Base pay increase for full-time
employees Economists (6 to 10 years ahead)
4
Scheduled cash earnings per
Households (Over the next 5 years)
2.0
fulltime employee
Firms (5 years ahead)
3
1.5
2
1.0
1
0.5
0
-1 0.0
CY 05 07 09 11 13 15 17 19
FY 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Notes: 1. In the left chart, figures for scheduled cash earnings from fiscal 2013 are based on corrected figures adjusted for establishments in Tokyo with 500