haruhiko kuroda : the bank's semiannual report on currency and monetary control statement by mr haruhiko kuroda, governor of the bank of japan, before the committee on financial affairs, house of councillors, tokyo, 6 december 2018. * * * 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 developments in japan ’ s economy and present an overall review of the bank ’ s conduct of monetary policy. i. economic and financial developments in japan i will first explain economic and financial developments in japan. japan ’ s economy is expanding moderately, with a virtuous cycle from income to spending operating. although the real gdp growth rate for the july - september quarter was slightly negative, this is likely to be mainly due to the effects of temporary factors such as natural disasters. looking at this in more detail, exports have been on an increasing trend amid overseas economies continuing to grow firmly on the whole. business fixed investment has continued on an increasing trend, with corporate profits following their improving trend and business sentiment staying at a favorable level. private consumption has been increasing moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. going forward, japan ’ s economy is likely to continue its moderate expansion. risks to the outlook are skewed to the downside, particularly regarding developments in overseas economies, including the consequences of protectionist moves and their effects. on the price front, the year - on - year rate of change in the consumer price index ( cpi ) has been positive but has continued to show relatively weak developments compared to the economic expansion and the labor market tightening. this is largely attributable to the fact that firms ’ cautious wage - and price - setting stance as well as households ’ cautiousness toward price rises have been deeply entrenched, due mainly to the experience of prolonged low growth and deflation. in addition, such factors as the large room to raise productivity, mainly in the nonmanufacturing sector, and the technological progress in recent years have allowed firms to maintain their cautious stance toward raising prices, even amid the economic expansion. with regard to the outlook, however, the year - on - year rate of change in the cpi is likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and mediumto long - term inflation expectations rising.

outlook, although public investment is expected to increase, distinct narrowing in the output gap is hardly expected toward the first half of 1999, as private demand is likely to remain sluggish. furthermore, the decline in wages and the appreciation of the yen since autumn 1998 are likely to continue exerting downward pressure on prices. hence, prices are expected to remain on a downtrend. this report was written based on data and information available when the bank of japan monetary policy meeting was held on february 12, 1999. the bank ’ s view on recent economic and financial developments, determined by the policy board at the monetary policy meeting held on february 12, as the basis of monetary policy decisions. in the financial markets, the japan premium and euro - yen interest rates ( both on three - month contracts ) remain stable despite the approach of the fiscal year - end. this reflects the abatement of the market ’ s anxiety about liquidity and credit risks of japanese banks against the background of the bank of japan ’ s maintenance of a decisive stance on easy monetary policy as well as the formulation of the framework to restore the stability of japan ’ s financial system. yields on japanese government bonds have risen again reflecting the market ’ s concern over the prospective expansion of fiscal deficits. in the foreign exchange market, the trend has been toward a higher yen. stock prices continue to be weak. considering that these developments can be a hindrance to an economic recovery, their ensuing developments require close attention. with regard to corporate finance, credit demand for economic activities remains weak, as a result of the significant decrease in business fixed investment. firms ’ moves to increase their on - hand liquidity in the face of difficult fund - raising conditions are gradually settling down. although private banks have basically retained their cautious lending stance, they continue to actively utilize the credit guarantee system. as a result, the previously tightened credit conditions are easing somewhat. nevertheless, private banks and capital market participants are still cautious of corporate credit risk, and thus firms with relatively low credit ratings remain under severe fund - raising conditions. the situation continues to warrant careful monitoring, particularly with regard to how corporate finance develops toward the end of the fiscal year. * * *