august 31, 2022 bank of japan economic activity, prices, and monetary policy in japan speech at a meeting with local leaders in hakodate nakagawa junko member of the policy board ( english translation based on the japanese original ) i. economic activity and prices in japan : current situation and outlook a. outlook presented in the july 2022 outlook for economic activity and prices i would like to begin my speech by talking about the outlook for japan's economic activity and prices. the bank of japan decided the outlook for economic activity and prices ( outlook report ) at the july monetary policy meeting ( mpm ) and released its outlook through fy2024 ( chart 1 ). in terms of economic activity, the bank's baseline scenario is that the economy is likely to recover toward the middle of the projection period - - with the impact of the novel coronavirus ( covid - 19 ) and supply - side constraints waning and with support from an increase in external demand, accommodative financial conditions, and the government's economic measures - - although it is expected to be under downward pressure stemming from a rise in commodity prices. also, the bank projects that a virtuous cycle from income to spending is likely to intensify gradually in the overall economy from the middle of the projection period. this outlook is based on the following basic mechanism : ( 1 ) overseas economies are expected to achieve steady growth as commodity prices and the global inflationary trend gradually start to show stability ; ( 2 ) factors that had exerted downward pressure on japan's economy, such as the covid - 19 pandemic and supply - side constraints, are projected to dissipate gradually ; and ( 3 ) the employment and income situation will likely improve as the economy picks up. nevertheless, this outlook entails various uncertainties. as risk factors, the outlook report points to the course of covid - 19 at home and abroad and its impact, developments in the situation surrounding ukraine, as well as developments in commodity prices, overseas economic activity and prices, and global financial markets. b. economic developments abroad before looking at japan's economy in detail, let me first discuss developments in overseas economies. with the prolongation of the effects of the situation surrounding ukraine, inflationary pressure has been intensifying globally against the background of elevated commodity prices and supply - side constraints. in this situation, although overseas economies have been under downward pressure, due in part to monetary tightening, they seem

overnight call rate continues to move at around zero percent. longer - term interest rates remain steady at low levels. yields on long - term government bonds declined further until mid - june, as investors increased their demand for the bonds. after that, the yields rose sharply partly because the bonds were sold at a profit on a large scale. recently, they are moving at around 1. 0 percent. meanwhile, yield spreads between private bonds ( bank bonds and corporate bonds ) and government bonds continue to be at low levels. stock prices are recovering, reflecting a gradual improvement in market participants ’ view on the outlook for japan ’ s economy and foreign investors ’ active investment stance on japanese stocks. the nikkei 225 stock average is recently moving at the 9, 500 - 10, 000 yen level. in the foreign exchange market, the yen depreciated toward the end of the month, due mainly to an improvement in some u. s. economic indicators. after that, the yen rebounded reflecting further investment in japanese stocks by foreign investors, and is currently traded in the range of 117 - 119 yen to the u. s. dollar. with regard to corporate finance, private banks remain cautious in extending loans to firms with high credit risks, while they continue to be more active in extending loans to blue - chip companies. their lending attitudes seem to be becoming slightly more accommodative in areas such as interest margin charges. meanwhile, the lending attitudes of financial institutions as perceived by firms are improving somewhat, although small firms continue to perceive them as severe. in the corporate bond and cp markets, the issuing environment for firms with high credit ratings continues to be favorable on the whole, although some firms seem to be taking a wait - and - see stance in the corporate bond issuance market in view of the rise in long - term interest rates. credit demand in the private sector continues to follow a downtrend mainly because business fixed investment is at low levels and firms are continuously reducing their debts. amid these developments, private banks ’ lending continues to decline by about 2. 0 - 2. 5 percent on a year - on - year basis. the amount outstanding of corporate bonds and cp issued is slightly above the previous year ’ s level. meanwhile, according to business surveys, financial positions of firms are improving slightly, although those of small firms in particular remain severe. the year - on - year growth rate of the monetary base rose and is around 20 percent. the year - on - year growth rate of