Haruhiko Kuroda: The Bank's semiannual report on currency and
monetary control
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Committee meeting on
Financial Affairs, House of Representatives, 5 April 2022.
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Introduction
The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary
Control every June and December. I am pleased to have this opportunity today to talk about
recent economic and financial developments and about the Bank's conduct of monetary policy.
I. Economic and Financial Developments
I will first explain recent economic and financial developments.
Japan's economy has picked up as a trend, although some weakness has been seen in part,
mainly due to the impact of the novel coronavirus (COVID-19). Overseas economies have
recovered on the whole, albeit with variation across countries and regions. However, in the wake
of Russia's invasion of Ukraine, global financial and capital markets have been volatile and prices
of commodities such as crude oil have risen significantly. In this situation, Japan's exports and
production have continued to increase as a trend, despite the remaining effects of supply-side
constraints. Although the March 2022 Tankan (Short-Term Economic Survey of Enterprises in
Japan) shows that business sentiment has deteriorated slightly, corporate profits have continued
to improve on the whole and business fixed investment has picked up. On the other hand, a
pickup in private consumption has paused due to increased downward pressure stemming from the
spread of the Omicron variant since the beginning of the year. With regard to the outlook, Japan's
economy, although expected to be affected by a rise in commodity prices, is likely to recover,
with downward pressure stemming from COVID-19 and the effects of supply-side constraints
waning and with support from fiscal and monetary policies.
The year-on-year rate of change in the consumer price index (CPI) has been at around 0.5
percent recently. It is likely to increase clearly in positive territory for the time being due to a
significant rise in energy prices, a pass-through of raw material cost increases, and dissipation
of the effects of a reduction in mobile phone charges. Meanwhile, the underlying inflationary
pressure is projected to increase, mainly on the back of improvement in the output gap and a rise
in medium- to long-term inflation expectations.
Concerning risks to the outlook, the course of COVID-19, including variants, and its impact on
domestic and overseas economies continue to warrant attention. In addition, there are extremely
high uncertainties over how the situation surrounding Ukraine will affect Japan's economic
activity and prices, mainly through developments in global financial and capital markets,
commodity prices, and overseas economies. Japan's financial system has maintained stability
on the whole, despite the pandemic. Regarding financial risks from a longer-term perspective,
there is a possibility that prolonged downward pressure on financial institutions' profits may lead
to a gradual pullback in financial intermediation. Meanwhile, the vulnerability of the financial
system could increase, mainly due to the search for yield behavior. Although these risks are
judged as not significant at this point, it is necessary to pay close attention to future
developments.
II. Conduct of Monetary Policy
Next, I will explain the Bank's conduct of monetary policy.
Japan's GDP has remained below the pre-pandemic level. Although the year-on-year rate of
change in the CPI is likely to increase clearly in positive territory in the short run, this is expected
to occur mainly due to an increase in energy prices. Inflation resulting from higher import costs
could push down Japan's economy through a decline in households' real income and
deterioration in corporate profits.
Given such developments in economic activity and prices, the Bank will persistently continue
with the current powerful monetary easing centered on yield curve control, aiming to firmly
support Japan's economic activity, which is on its way to recovery from the pandemic, and
thereby achieve the price stability target of 2 percent in a sustainable and stable manner.
On this basis, while closely monitoring developments at home and abroad, the Bank will continue
to ensure stability in financial markets through, for example, providing ample liquidity; it will also
continue to do its utmost to support financing, mainly of small and medium-sized firms, by
providing funds through the Special Funds-Supplying Operations to Facilitate Financing in
Response to the Novel Coronavirus (COVID-19) at a low interest rate to financial institutions that
make loans in response to COVID-19.
Thank you.