june 2, 2021 bank of japan economic activity, prices, and monetary policy in japan speech at a meeting with local leaders in shizuoka ( via webcast ) adachi seiji member of the policy board ( english translation based on the japanese original ) i. recent developments in economic activity at home and abroad a. developments regarding the novel coronavirus ( covid - 19 ) i would like to begin my speech by talking about developments regarding covid - 19. the outbreak of covid - 19 was first identified in china in january 2020, spreading to europe from late february, and ultimately worldwide. the number of confirmed new cases continued to increase with large fluctuations across countries and regions. since the beginning of 2021, however, developments in such figures appear to have become somewhat polarized. that is, in countries where vaccinations are steadily progressing, such as the united states, the united kingdom, and israel, the number of cases peaked out and has turned toward a downtrend ; on the other hand, in emerging economies, which are falling behind in vaccinations, the number of cases has remained at a high level, partly affected by new variants ( chart 1 ). in japan, as the number of cases has been increasing again since early spring 2021, mainly in major metropolitan areas, the government declared a state of emergency for the third time. b. overseas economies with a view to suppressing the spread of covid - 19, many countries implemented measures to constrain economic activity around spring 2020 by imposing restrictions on going outside and on people's movement. therefore, the real gdp growth rates worldwide registered substantial declines for the april - june quarter that year. nevertheless, partly because the characteristics of covid - 19 came to light to a certain extent over time, there were no across - the - board restrictions on economic activity in subsequent waves of covid - 19, and business conditions have started to improve on a global basis ( chart 2 ). with regard to the manufacturing industry, world industrial production and the world trade volume already exceeded the pre - pandemic levels and have been on an expanding trend ( chart 3 ). this trend applies not only to advanced economies but also emerging economies, where covid - 19 has been spreading. in that sense, it can be said that the impact of the spread of covid - 19 is particularly notable in the face - to - face services industry. c. japan's economy turning to japan, the economy has been

of the special program from this october onward by carefully monitoring future developments in corporate financing. iii. in view of the post - covid - 19 era and toward achievement of the 2 percent price stability target a. importance of achieving the 2 percent price stability target in march 2021, the bank conducted an assessment of the positive and side effects of its monetary policy to date for the purpose of conducting further effective and sustainable monetary easing ( chart 7 ). while the assessment was detailed and multifaceted, what i found particularly noteworthy was how its findings reconfirmed that prices in japan are strongly influenced by the adaptive formation of inflation expectations - - in other words, people's perception of prices shaped in accordance with such factors as historical trends and observations. i have come to realize that, in achieving the 2 percent price stability target, a change must somehow be induced in this deeply entrenched perception of prices. of course, individual firms and households differ in their views on prices. as for the price stability target of 2 percent that the bank aims to achieve, i would not be surprised if a certain number of firms and households had the following concern. when the price stability target is achieved, would this not affect people's daily lives in the eyes of households? or, from the perspective of firms, would this not result in a worsening of profitability through an increase in costs? looking back at the so - called deflationary period in the past, many firms, in efforts to survive, sought to reduce labor costs by means of, for example, reviewing employment forms. this resulted in a vicious cycle : the income situation of households deteriorated due to a decrease in wages, restrained consumption led to a decline in firms'sales, and firms had no choice but to adjust their employment. the serious appreciation of the yen under deflation also caused prolonged deflation. the bold and large - scale monetary easing conducted by the bank since 2013 successfully put an end to the prolonged deflationary trend from which japan's economy had suffered. in this process, the employment situation recovered and firms, as they saw improvement in their earnings projections, came to sense labor shortage. it is my understanding that japan's labor shortage had already been widely acknowledged as a medium - to long - term challenge facing its economy prior to 2013. what, then, led the wider public to take up the issue from 2013 onward? i believe this was partly due to the fact that an increasing number of firms sought to continue with or