M a y 2 2 , 2 0 1 9
Bank of Japan
Economic Activity, Prices,
and Monetary Policy in Japan
Speech at a Meeting with Business Leaders in Nagasaki
Yutaka Harada
Member of the Policy Board
Introduction
Thank you for giving me this opportunity to exchange views with you and for having taken
the time to be here despite your busy schedules. It is indeed a great honor to be here today.
Please allow me to express my gratitude for your great cooperation with the business
operations of the Bank of Japan, particularly of the Nagasaki Branch.
As you all know, Japan's growth rate, which until the 1980s was the highest among major
developed countries, has declined since the 1990s. Low growth started in the 1990s, so it
has lasted for three decades. Those who know nothing but low growth are already in their
forties. And those who have happy memories of entering the job market during the bubble
period and remember suffering through the collapse of asset prices are already in their
fifties.
Many people say that they do not really mind if economic growth is low -- there are more
important things than the economy. But if you tell them that low growth will lead to lower
pensions, everyone will reply: "Well, that's a problem." The Scandinavian countries, with
their comprehensive welfare systems, are all economically wealthier than Japan.
Moreover, people lose their generosity and ability to make rational judgments when the
economy is in trouble. You will probably agree if, for example, you think back to Japan's
path from the Showa Depression of 1930-31 to the war. It is important for the economy to
be in a good state.
Based on these considerations, there are a number of issues I will talk about today. First, I
would like to consider Japan's low growth by dividing GDP growth into the three factors
determining growth -- growth in capital input, labor input, and total factor productivity
(TFP), which can be regarded as representing technological progress -- and look at Japan's
performance in comparison with other countries. Second, linked to this low growth, I will
talk about why the 2 percent price stability target is needed. Third, I will talk about the link
between the "high-pressure economy" and growth. Fourth, I will explain the relationship
between low interest rates and banks' profitability. And fifth, I will elaborate on recent
economic developments and monetary policy.
1. Japan's Low Growth and Growth Accounting from an International Perspective
Let us look at Japan's low growth from an international perspective. In what follows, I will
divide growth into growth in capital input (information and communication technology
[ICT] capital as well as other capital), labor input, and TFP. The reason for dividing growth
into these three factors is that considering each factor individually provides some
understanding of how the growth rate could be raised. Let us take a moment to have a look
at the estimates for member countries provided by the Organisation for Economic
Co-operation and Development (OECD). Specifically, Chart 1 presents the average growth
rates for three subperiods for each of the seven major OECD economies and the averages
for these economies as a group.1
The blue line in the charts shows that, while Japan still enjoyed comparatively high
growth during 1985-95, growth subsequently stalled, and from the mid-1990s it
registered slower growth than the other countries except Italy. However, following the
introduction of bold monetary easing -- quantitative and qualitative monetary easing
(QQE) -- in 2013, Japan's growth rate recovered somewhat, and with growth in the
other countries slowing, Japan's low growth is no longer that conspicuous.2
1
Data provided by the OECD are also employed in Chapter 1, Section 3 of the 2018 White Paper
on Information and Communications in Japan released by the Ministry of International Affairs and
Communications. Figure 1-3-2-2 of the White Paper arrives at similar conclusions to my speech
today. Using the dataset employed by the Bank of Japan's Research and Statistics Department and
the Cabinet Office to estimate the output gap and potential GDP, somewhat different results from
those using the OECD data are obtained regarding the contribution of growth in TFP and capital
input.
2
To simplify the chart, the period 1985-95 is shown. Since the high growth registered in Japan
during the second half of the 1980s was due to the bubble, combining this period with the first half
of the 1990s, when the bubble burst, provides a better representation of the underlying growth trend.
See Harada Yutaka, "Jissho keizaigaku wa ikanaru shinjitsu o terashi dashi taka," in Ushinawareta
10 nen no shinin wa nanika, ed. Iwata Kikuo and Miyagawa Tsutomu (Tokyo: Toyo Keizai, 2003).
Chart 1 Decomposition of Structures of Economic Growth in Major
Countries Based on Growth Accounting
Japan U.S.
% % % %
4 10 4 10
3 8 3 8
2 6 2 6
1 4 1 4
0 2 0 2
-1 0 -1 0
1985-95 1995-2012 2012-17 1985-95 1995-2012 2012-17
U.K. % Germany %
% %
4 10 4 10
3 8 3 8
2 6 2 6
1 4 1 4
0 2 0 2
-1 0 -1 0
1985-95 1995-2012 2012-17 1985-95 1995-2012 2012-17
France % Italy %
% %
4 10
4 10
3 8
3 8
2 6
2 6
1 4
1 4
0 2
0 2
-1 0 -1 0
1985-95 1995-2012 2012-17 1985-95 1995-2012 2012-17
G7 countries' average %
% Canada % %
4 10 4 10
3 8 3 8
2 6 2 6
1 4 1 4
0 2 0 2
-1 0
-1 0
1985-95 1995-2012 2012-17 1985-95 1995-2012 2012-17
TFP Non-ICT capital
ICT capital Labor
Real GDP CPI
Real GDP per capita Yields on 10-year government bonds (right scale)
Note: Real GDP per capita is GDP per capita expressed in terms of real purchasing power parity in U.S. dollars
as of 2010. ICT capital denotes information and communications technology capital. The starts to time
series of yields on 10-year government bonds differ according to their availability. Japan's growth
accounting data for 2017 are estimated using the Cabinet Office's System of National Accounts.
Sources: Cabinet Office, "System of National Accounts"; OECD, "Level of GDP per capita and productivity,"
"Growth in GDP per capita, productivity and ULC"; IMF, "World Economic Outlook Database";
Bloomberg.
Next, the bars in the charts provide a breakdown of GDP growth into changes in the
contribution of capital input, labor input, and TFP. As can be seen, in Japan, capital
input, labor input, and TFP growth all decelerated in 1995-2012, and thus all three
contributed to the decline in growth overall. In 2012-17, growth recovered somewhat as
a result of a recovery in the contribution of labor input and TFP.3 However, while the
average annual growth rate of the seven countries since 2012 has been 1.6 percent,
Japan's growth rate, at 1.3 percent, remains low.
That said, the reason that the growth rate of many of the other countries is higher than
Japan's is the higher growth rate of labor input. While labor input on average in the
other countries has contributed 0.6 percentage point to GDP growth, it has contributed
only 0.2 percentage point in Japan. However, because labor input growth in Japan in
1995-2012 actually made a negative contribution of 0.4 percentage point, the recovery
to small but positive labor input growth has made a substantial contribution to the
recovery in Japan's overall economic growth since 2012. The reason for the relatively
large contribution of labor input in most of the other countries is that these countries
recently have seen an increase in their population, mainly due to immigration. The fact
that labor input in Japan has made only a small contribution to growth overall means
that, on a per capita basis, Japan's growth rate has been on par with that of the other
countries. In fact, in terms of real purchasing power parity GDP per capita, Japan's
growth rate of 1.4 percent is higher than the 1.1 percent average of the seven countries.
3
While it frequently had been argued that the decline in Japan's growth rate during the 1990s was
due to a decline in TFP growth, it has been concluded that other factors also have substantially
contributed to the slowdown, such as a deceleration in labor quality improvements, a decline in labor
input, a deceleration in capital accumulation, and a decline in capacity utilization. For details, see the
following references. Motohashi Kazuyuki, "IT investment and productivity growth of Japan's
economy and comparison to the United States (available only in Japanese)," RIETI Discussion
Papers, no. 02-J-018, November 2002, https://www.rieti.go.jp/jp/publications/summary/02110001.
html. Kawamoto Takuji, "What Do the Purified Solow Residuals Tell Us about Japan's Lost
Decade?," Monetary and Economic Studies, vol.23, no.1, February 2005. Kwon Hyeog Ug and
ni TFP jyōshō wa naze teitai shitaka Seizōgyō kigyō dēta ni
Fukao Kyoji, "Ushinawareta 10-nen --
yoru jisshō bunseki," chap. 3 in
Keizai seido no jisshō bunseki to sekkei, vol.1 Keizai teitai no genin
to seido, ed. Hayashi Fumio (Tokyo: Keiso Shobo, 2007).
Moreover, in the case of Japan, another factor that has contributed to the recovery in
economic growth is the recovery in TFP growth. The contribution of TFP growth -- at
1.0 percent -- has been higher than the average of the seven countries, which is 0.6
percent. I think that the recovery in TFP growth is partly due to the contribution of the
"high-pressure economy," which I will talk about later. On the other hand, the
contribution of capital input has further declined from 1995-2012, dropping to 0.2
percent. This is lower than the average of the seven countries, which is 0.4 percent.
Moreover, dividing capital input growth into growth in ICT capital and other capital
shows that input growth in both is lower than the average of the seven countries. It
could be said that, in Japan, the contribution of capital to economic recovery is
insufficient, and so is capital investment. I will return to this issue later.
Looking at the seven countries, most of them have been experiencing declining growth,
as indicated by the blue line in the charts. Countries growing faster than Japan have
been able to do so due to population growth including immigration. While low growth
has been a problem in Japan since the late 1990s, it has now become a global problem.
At the same time, inflation also has been falling. Until the 1980s, developed countries --
especially Italy and the United Kingdom -- were suffering from high inflation, so hardly
anyone in the world was concerned about the possibility of falling prices, which now is
a major issue. In Japan, from the mid-1990s onward, it has been pointed out that
deflation has led to sluggish output growth, exacerbating the nonperforming-loan
problem and the fiscal deficit problem.4
While the United States and the United Kingdom struggled to maintain positive
inflation, they somehow succeeded. However, the situation seems different in the case
of continental Europe. For example, as seen in the charts, inflation in Germany, France,
and Italy has not reached 1 percent in 2012-17, so it can be said that they are under
deflationary pressure. Meanwhile, Japan has recovered from the deflation observed in
1995-2012, but the rate of increase in the consumer price index (CPI) has not yet
reached 1 percent.
Furthermore, interest rates also have been declining. While this reflects the decline in
real growth rates and in inflation, it seems there are additional factors that play a role.5
2. Why Is the 2 Percent Inflation Target Important?
As mentioned earlier, not only Japan but other major countries also are suffering from
low growth and low inflation. In addition, countries in continental Europe have been
unable to achieve their inflation targets, which aim at 2 percent. So, why is inflation of 2
percent important? Some argue that if other countries cannot achieve 2 percent inflation,
Japan will not need to accomplish this target.
The Bank has cited three reasons why achieving 2 percent inflation is important.6 My
interpretation of the Bank's view can be summarized as follows. First, aiming at achieving 0
percent inflation entails the risk of actually aiming for deflation, given the upward bias of
the CPI. Second, the equilibrium interest rates -- which are achieved in the long run -- tend
to be lower on a nominal basis when the aim is 0 percent inflation. That being the case,
there will be virtually no room for lowering interest rates should the economy fall into
recession. In order to avoid this, it is necessary to provide a so-called buffer for nominal
interest rates by raising the inflation rate. Third is the global standard. Given that other
major countries aim at achieving 2 percent inflation, if Japan were the only country with a
lower target, this would result in an appreciation of the yen, which would create turmoil in
firms' investment plans. If Japan maintains the same inflation rate as other countries, I feel
that this will serve to stabilize foreign exchange over the long term.
5
On this point, I explained interest rate declines in relation to declines in the real GDP growth rate
and the inflation rate as well as structural changes in the supply of and demand for funds in Harada
Yutaka, "Naze nihon no kinri wa hikui no ka," Keiki to saikuru, no. 62, Japan Association of
Business Cycle Studies, November 2016. In addition, the relationship between monetary policy and
interest rates is explained in Ben S. Bernanke, "Why are interest rates so low?" Brookings Institution,
March 30, 2015, https://www.brookings.edu/blog/ben-bernanke/2015/03/30/why-are-interest-rates-
so-low/. The Cabinet Office raises the decline in capital goods prices and heightening demand for
Sekai keizai no chōryū 2016 nen
safe assets as factors behind interest rate declines in Cabinet Office,
II, chap. 1, section 1, January 2017.
6
Haruhiko Kuroda, "Overcoming Deflation and After: Speech at the Meeting of Councillors of
Nippon Keidanren (Japan Business Federation) in Tokyo," Bank of Japan, December 2013.
Of these theories, I consider the buffer theory of interest rates within the second point to be
the most important and would like to provide my view on it. This theory is completely
different from the one advocated by the Bank in the past. The previous theory aimed at
raising interest rates preemptively even when the economic recovery was insufficient,
because if interest rates were too low, it would be difficult to implement stimulus measures
during recessions. Such monetary policy resulted in a complete failure.
The buffer theory should be interpreted as raising interest rates after confirming that price
increases have gained enough momentum. This theory posits that interest rates will rise due
to inflation. I would like to emphasize that the Bank's current thinking on the buffer theory
is totally different from the previous incorrect one.
Private banks' business consists of borrowing short-term debt and financing long-term
lending. The higher long-term interest rates are relative to short-term rates, the larger banks'
loan margins will be. Since short-term interest rates generally do not rise as much as
long-term rates, banks naturally will gain profits if interest rates go up due to an increase in
the inflation rate. So, why did banks want a hike in interest rates as early as possible?
Maybe they have not been sufficiently aware of the mechanism that lowering interest rates
to stimulate the economy will lead to a rise in inflation and hence in nominal interest rates,
or maybe they have been aware of this mechanism but were so desperate for a rise in
interest rates that they could not wait.
Moreover, there are many who say that the Bank's large-scale asset purchases and negative
interest rate policy are unusual, and thus the policy must be "normalized" as early as
possible.7 However, they never explain on what basis policy should be regarded as usual or
unusual. Termination of the zero interest rate policy in 2000 and of quantitative easing in
2006 can be regarded as attempts to "normalize" monetary policy, but these proved to be
major failures. The premature tightening of monetary policy gave rise to concerns about a
deterioration in the economy, and the spread between short- and long-term interest rates
actually declined rather than increased.8 Similarly, in the United States and Europe, the
spread between such rates has been declining. This is said to be because of the cooling of
the economy brought about by the monetary tightening implemented so far. If interest rates
were raised immediately in Japan now, the spread between short- and long-term interest
rates likely would be reversed.
Moreover, there is another reason for the Bank's committing to the 2 percent inflation
target; namely, that we cannot fully grasp the actual strength of the economy at present.
Specifically, we do not actually know the exact structural unemployment rate, which
represents the limit below which any further decline in the rate gives rise to inflation. If the
Bank had terminated monetary easing based on estimates that the structural unemployment
rate was around 3.5 percent or lower, the current unemployment rate of 2.0-2.5 percent
would not have been achieved.9 In fact, I think that we probably will be able to achieve an
even lower unemployment rate. The reason why lower unemployment was achieved and a
bubble has not occurred is because the inflation rate is set as the direct target for monetary
policy. Moreover, given the rise in wages, nonmanufacturing firms are making progress in
streamlining business processes and making labor-saving investment. In other words,
8
For more on this point, see Yutaka Harada, "Economic Activity, Prices, and Monetary Policy in
Japan: Speech at a Meeting with Business Leaders in Ishikawa," Bank of Japan, July 2018.
9
The following publications showed that the structural unemployment rate was around 3.5 percent
or lower using analysis: Ministry of Health, Labour and Welfare, Analysis of
unemployment-vacancy
the Labour Economy 2015, September 2015; Cabinet Office, Annual Report on the Japanese
Economy and Public Finance 2015, August 2015; and Bank of Japan, "The Bank's View" in the
Outlook for Economic Activity and Prices (hereafter the report), October 2014.
The Bank, from the April 2015 report, deleted the description regarding the structural unemployment
rate from the main text of "The Bank's View" and added the following in a footnote to it: "This rate
[the structural unemployment rate] is calculated to be around 3.5 percent or lower recently under a
specific methodology." Then, from the April 2016 report, this description was deleted from that
footnote and instead moved to a footnote to "The Background." From the July 2016 report, the actual
level of the structural unemployment rate referred to in that footnote was replaced by the following
expression: "the structural unemployment rate defined here differs from the concept of
Inflation Rate of Unemployment (NAIRU), and does not show a direct
Non-Accelerating
relationship with prices or wages." The chart presenting the structural unemployment rate had long
been published in the "The Background," and it indicated that the rate gradually had been declining
from the range of percent. The rate exhibited a sharp drop to around 2.5 percent in the April
3.0-3.5
2018 report, before the chart was removed from "The Background" in the July 2018 report.
having a clear inflation target made it possible to implement bold monetary policy and bring
about a recovery of the economy.
At the international conference entitled "Central Banking in a Changing World," hosted by
the Bank's Institute for Monetary and Economic Studies (IMES) in May 2018, Professor
Athanasios Orphanides of the Massachusetts Institute of Technology, the Honorary Advisor
to IMES -- who served as the Governor of the Central Bank of Cyprus and was then a
member of the Governing Council of the European Central Bank (ECB) -- commented that
lack of clarity on the precise definition of price stability made the Bank reluctant to engage
in decisive quantitative easing and instead willing to accommodate too-low inflation.
However, he also said that, following the clarification of the definition as 2 percent in terms
of the year-on-year rate of increase in the CPI in 2013, a dramatic reorientation of monetary
policy took place, and the decisive QQE introduced in the same year has been gradually
reflating the economy while simultaneously improving Japan's government debt
dynamics.10
III. The "High-Pressure Economy" and Real Economic Growth
Monetary easing measures stimulate the economy, bring about labor shortages, and exert
pressure on the economy to grow. While there are a variety of channels through which such
a "high-pressure economy" results in higher real growth rate, I would like to consider this in
terms of the results of growth accounting mentioned earlier.11 Following the introduction of
QQE, Japan's real growth rate recovered due to increases in growth in labor input as well as
TFP. However, capital input both in terms of ICT capital as well as other capital has been
decelerating.
The reason why labor input increased is because QQE succeeded in stimulating the
economy. While the number of unemployed will increase during a recession, those that
have been unemployed will start to work during an economic upturn, and with the
improvement in the employment situation, those who had given up looking for work will
also actively look for work again and then start working. As a result, labor input increases.
Moreover, because a recession means that there is less work, those who fortunately have
had a job will try hard not to lose it. Amid a lack of jobs, the so-called black firms will take
advantage of their employees that do not want to lose the job they managed to get,
subjecting them to harsh working conditions.12 Meanwhile, large firms, because they
cannot easily lay off employees, will be saddled with a lot of dissatisfied employees with an
uncertain career and future. Under these circumstances, profits and productivity are unlikely
to grow.
When the economy expands, low-productivity work tends to be reduced. In times of
recession, sales fall and retailers, restaurants, and so forth will try to increase demand, even
if only a little, by extending their business hours. The opposite occurs during an economic
upturn. If there are labor shortages, restaurants that used to stay open until midnight will
start to close early. If they open only during the busiest times of the day and in the evening,
labor productivity will increase.
If there are labor shortages, this makes it possible for people to switch jobs. Those working
at black firms will flee while those with an uncertain career and future will also try to
relocate in order to obtain new jobs. Since they will move to firms that value them more
highly, the economy's overall productivity will increase. This is not only a matter of
productivity. Engaging in a job in which they are valued more highly also raises their
degree of happiness. In other words, levels of both productivity and happiness rise at the
same time, and so will that of TFP.
Lastly, let me explain capital input. Why is capital input not increasing? This is similar to
asking why investment is not increasing in line with profits. Reasons for this include low
growth expectations, the self-fulfilling nature of growth expectations, and sluggish growth
in domestic business fixed investment caused by the strong appetite for overseas
investment.13 The latter reflects concerns over a shrinking of the domestic market due to
the declining population and the experience of intermittent surges in the value of the yen
amid its appreciating trend up until the introduction of QQE. Of these reasons, what I think
is particularly noteworthy is the self-fulfilling nature of growth expectations. Low growth in
the past and intermittent surges in the yen will reduce growth expectations and the expected
rate of return on investment. Therefore, in order for investment to recover, continued high
growth and stable exchange rates are vital. From 2012 until today, average annual growth
has remained just above 1 percent, the exchange rate has been stable, and investment has
been recovering, but most recently we appear to have entered a more difficult phase. This is
something I will discuss when talking about recent economic developments later.
IV. Low Interest Rates and the Profitability of Private Banks
As I have explained, while low interest rates have led to labor shortages and are likely to
have contributed to increased productivity and happiness, it frequently is argued that they
undermine the profitability of private banks.14 However, I think that deterioration in banks'
profitability actually is caused by the structural problem that they are accumulating deposits
despite there being no borrowers. Let me examine what would have happened to banks'
profitability if the Bank did not conduct bold monetary easing, namely QQE.
From the time of the introduction of QQE up until February 2019, loans by domestically
licensed banks increased by 71 trillion yen while deposits increased by as much as 144
trillion yen.15 I think that banks typically would react positively to monetary policy that
allows them to increase loans by as much as 71 trillion yen; on the contrary, they express
considerable criticism and dissatisfaction. This is because deposits are growing faster than
loans, which makes it difficult for some banks to invest these funds. Of course, deposits will
rise as lending increases as a result of the money multiplier mechanism, but this mechanism
alone does not lead to an increase in deposits twice as large as the increase in loans. In my
opinion, if banks are struggling to invest funds, it might be better if they tried not to
accumulate deposits.
In this context, news reports suggest that regional financial institutions are struggling to
attract personnel and that staff members are retiring early.16 While this is reported as
though it is troublesome, it consequently could lead to a reduction in the number of
personnel assigned to collecting more deposits than needed and in that of branches. I think
that this would increase the productivity of the banking sector, and thus of Japan's economy
as a whole.
I am aware, of course, of the criticism that the decline in the number of bank branches
would reduce convenience for users, and thus banks should not close branches.17 However,
banks would decide to close such branches because they only have few customers in the
first place. I agree with the argument that having a deposit account should be regarded as a
basic human right, but there are many other places to make a deposit account, such as post
offices, agricultural and fishery cooperatives, credit cooperatives, convenience stores, and
supermarkets that provide banking services. Deposit accounts can be held in a range of
places nowadays.
To examine the impact of the Bank's easing policy on banks' profits, Chart 2 compares the
actual deposit-taking and lending-related profit as a result of the increase in lending and
decline in interest rates since the introduction of QQE (where profit is calculated by
subtracting interest on deposits from interest on loans) as well as hypothetical
deposit-taking and lending-related profit had QQE not been introduced. In particular, two
counterfactual scenarios are considered. In the first, Case 1, it is assumed that without QQE
lending would not have increased and interest rates would have continued declining,
following the past trend. Next, although I think that it is correct to assume that interest rates
would have continued to drop as a trend due to the decline in prices and in real GDP growth
rate, as pointed out earlier, the second counterfactual scenario, Case 2, assumes that interest
rates would not have declined.
Chart 2 Simulation of Deposit-Taking and Lending-Related Profit
tril. yen Introduction of QQE
6.0
5.8
5.6
5.4
5.2
5.0
4.8
4.6
4.4
4.2
4.0
FY 2011 12 13 14 15 16 17
Actual values Case 1 Case 2
Note: All banks (domestic business sector). Deposit-taking and lending-related profit is calculated by
subtracting interest on deposits (including negotiable certificates of deposits) from interest on
loans (including bills discounted). In Case 1, data from fiscal 2013 onward -- those for yields on
loans, yields on deposits, amount outstanding of loans, and amount outstanding of deposits and
negotiable certificates of deposits -- were estimated using the trends calculated from the time-series
data from fiscal 2002 through 2012. In Case 2, the only difference from Case 1 is that figures for
yields on loans from fiscal 2013 onward were set at the same level as that of fiscal 2012.
ginkō kessan
Sources: Japanese Bankers Association, "Zenkoku happyō," "Financial Statements of All
Banks"; Bank of Japan, "Financial Institutions Accounts."
Comparing the actual deposit-taking and lending-related profit with the hypothetical cases,
the profit in Case 1 in fiscal 2017 would have been 0.2 trillion yen higher than the actual
profit. In Case 2, it would have been 1 trillion yen higher. Adding up the differences from
fiscal 2013, the cumulative total would be 0.9 trillion yen in Case 1 and 3.4 trillion yen in
Case 2. However, the economy improved, stocks rose, and interest rates declined due to
QQE, so credit costs have decreased and realized gains/losses on stockholdings and
bondholdings have increased as a result of QQE. If we cumulate these gains/losses from
fiscal 2013, they reach 4.0 trillion yen by fiscal 2017, which is greater than the cumulative
total in Case 1 or 2 during the same period.18 It could be said that, until fiscal 2017, banks'
profits were actually higher as a result of QQE than they would have been otherwise. The
argument that banks' profits have decreased as a result of QQE is based on the implausible
assumption that profits would have increased by more if only interest rates had not declined,
completely ignoring the fact that the decline in interest rates brought about the improvement
in the economy.
V. Recent Economic Developments and Monetary Policy
I have talked about the importance of creating a "high-pressure economy" with the
monetary easing policy. I now would like to talk about recent economic developments.
Charts 3 and 4 provide an overview of key economic indicators. Almost all the indicators --
for production, investment (the aggregate supply of capital goods), exports, and world trade
-- had been improving. However, there are many indicators that are falling currently.
Chart 3 Production, Investment, Exports, and World Trade
Inauguration Introduction Consumption Expansion Introduction of Introduction of
of the second of QQE tax hike of QQE QQE with a Negative QQE with Yield
Abe Cabinet Apr. 2013 Apr. 2014 Oct. 2014 Interest Rate Curve Control
Dec. 2012 Jan. 2016 Sep. 2016
s.a., CY 2012 = 100
125
120
115
110
105
100
95
90
└ 2012 └ 13 └ 14 └ 15 └ 16 └ 17 └ 18 └19
Industrial production World trade volume
Aggregate supply of capital goods Real exports
Sources: Ministry of Economy, Trade and Industry, "Indices of Industrial Production," "Indices of Industrial
Domestic Shipments and Imports"; CPB Netherlands Bureau for Economic Policy Analysis,
"CPB World Trade Monitor"; Bank of Japan, "Developments in Real Exports and Real Imports."
Chart 4 looks at wages, employment, employee income (wages multiplied by the number of
19
employees), and consumption. Real wages per worker have not increased, but real
19
In my past speeches, I defined real employee income as the number of regular employees
multiplied by real wages based on the Monthly Labour Survey. However, taking into account the
decline in the level of the number of regular employees for January 2018, I have redefined real
employee income as the product of the number of employed based on the Labour Force Survey and
real wages based on the Monthly Labour Survey.
employee income (real wages multiplied by the number of employees) has grown more or
less steadily except for fiscal 2014, the year of the consumption tax hike. The
unemployment rate also has declined.
Among the different indicators, the one showing weak improvement is real consumption.
Consumption as measured by the consumption activity index is still below the level in
2013; that is, before the spike in demand due to the frontloading of purchases prior to the
consumption tax hike. However, it is true that consumption generally has been recovering.
Chart 4 Employment, Income, and Consumption
Inauguration Introduction Consumption Expansion Introduction of Introduction of
of the second of QQE tax hike of QQE QQE with a Negative QQE with Yield
Abe Cabinet Apr. 2013 Apr. 2014 Oct. 2014 Interest Rate Curve Control
D