kikuo iwata : japan ’ s economy and monetary policy – growing uncertainties surrounding overseas economies and enhancement of monetary easing speech by mr kikuo iwata, deputy governor of the bank of japan, at a meeting with business leaders, kanagawa, 4 august 2016. * * * accompanying charts can be found at the end of the speech or on the bank of japan ’ s website. introduction it is my pleasure to have the opportunity today to exchange views with administrative, financial, and business leaders in kanagawa prefecture. i would also like to take this opportunity to express my sincere gratitude for your cooperation with the activities of the bank of japan ’ s yokohama branch. at the monetary policy meeting ( mpm ) held at the end of last week, the bank released the outlook for economic activity and prices ( outlook report ) and published its projections for japan ’ s economic activity and prices through fiscal 2018. at the same time, taking account of heightened uncertainties surrounding overseas economies, including those associated with the united kingdom ’ s vote to leave the european union ( eu ), the bank decided to further enhance monetary easing in order to prevent these uncertainties from leading to a deterioration in business confidence and consumer sentiment as well as to ensure smooth funding in foreign currencies by japanese firms and financial institutions, thereby supporting their proactive economic activities. today, i would like to first explain the bank ’ s view on japan ’ s economic and financial developments, followed by the bank ’ s thinking on the monetary policy management, including the policy measures taken this time. i. developments in overseas economies more than half this year has already passed : since the turn of the year, japan ’ s economy has been significantly affected by the developments in overseas economies. in early 2016, global financial markets were volatile against the backdrop of the further decline in crude oil prices and uncertainties over future developments in emerging and commodity - exporting economies, particularly the chinese economy. in order to preempt the manifestation of the risk that conversion of the deflationary mindset might be delayed, resulting from such uncertainties about overseas economies and financial markets, the bank decided to introduce “ quantitative and qualitative monetary easing ( qqe ) with a negative interest rate ” at the mpm in january. thereafter, global financial markets gradually regained some calmness and a situation where market turbulence would lead to the substantial slowdown in the global economy was avoided, partly reflecting additional monetary easing by the european central bank ( ec

). in sum, although exports and production have been sluggish, due mainly to the effects of the slowdown in emerging economies, a virtuous cycle from income to spending is being maintained in both the household and corporate sectors, and, looking ahead, japan ’ s economy is likely to be on a moderate expanding trend. to start with the corporate sector, despite the headwind from overseas economies explained earlier, corporate profits have remained at high levels, especially in the nonmanufacturing sector, and business fixed investment has been on a moderate increasing trend on the back of such favorable profits. this also was evidenced in the june short - term economic survey of enterprises in japan ( tankan ), although most responded to the survey prior to the united kingdom ’ s referendum ( chart 3 ). in the household sector, the employment and income situation has continued to improve steadily. labor market conditions have continued to tighten and the active job openings - toapplicants ratio stood at 1. 37 in june, which is the highest since 1991. the unemployment rate has been at a low level in the range of 3. 0 – 3. 5 percent recently ( chart 4 ). wages have been rising moderately. in the annual spring labor - management wage negotiations, base pay was raised for a third consecutive year, but to a smaller extent than last year, and wage increases have been spreading steadily to small firms and non - regular employees. under these circumstances, private consumption has been resilient, although relatively weak developments have been seen in some indicators. this seems to be due to the negative wealth effects brought about by the decline in stock prices since the turn of the year, as well as the negative impact on consumer sentiment resulting from the kumamoto earthquake and the united kingdom ’ s vote to leave the eu. given the continued solid increase in employee income, private consumption is projected to pick up with financial markets regaining their calmness. moreover, a “ stimulus package ” decided by the cabinet recently is of a significantly large scale, amounting to over 28 trillion yen in project size, and is expected to stimulate the bis central bankers ’ speeches economy considerably in both fiscal 2016 and 2017. the upward revision to the growth rate compared to the april outlook report is mainly attributable to the effects of such economic measures. iii. price developments in japan let me now turn to the price developments in japan. the year - on - year rate of change in the consumer price index ( cpi, all