very much for your attention. japan's economy and monetary policy speech at a meeting with business leaders in yamaguchi january 31, 2019 masayoshi amamiya deputy governor of the bank of japan introduction i. financial and economic developments ii. price developments iii. the bank's conduct of monetary policy conclusion chart 1 i. financial and economic developments developments in financial markets foreign exchange markets stock markets 25, 000 yen points fluctuations in fx rate on january 3 yen / u. s. dollar 3, 000 120 yen / u. s. dollar yen / u. s. dollar yen / u. s. dollar 2, 900 24, 000 2, 800 23, 000 2, 700 22, 000 2, 600 21, 000 2, 500 nikkei 225 stock average ( left scale ) 20, 000 sep. dec. yen depreciation yen appreciation yen appreciation 2, 400 s & p 500 ( right scale ) 19, 000 sep. dec. mar. jun. yen depreciation 2, 300 100 sep. dec. mar. jun. sep. 6 12 18 0 6 12 18 0 6 12 18 dec. o'clock jan. 2 jan. 3 jan. 4 sources : bloomberg ; thomson reuters. chart 2 i. financial and economic developments japan's economy real gdp output gap s. a., ann., tril. yen % excess demand - 2 - 4 - 6 cy 08 note : the output gap is based on boj staff estimations. sources : cabinet office ; bank of japan. - 8 cy 08 excess supply chart 3 i. financial and economic developments exports and production real exports industrial production s. a., cy 2015 = 100 s. a., cy 2015 = 100 cy 10 cy10 note : the figure for industrial production for 2018 / q4 is the october - november average. sources : ministry of finance ; ministry of economy, trade and industry ; bank of japan. chart 4 i. financial and economic developments corporate profits and business fixed investment business fixed investment plans ( december tankan ) corporate profits s. a., % s. a., ann., tril. yen ratio of current profits to sales ( all industries and enterprises, left scale ) private nonresidential investment ( sna, real, right scale ) y / y % chg. business fixed investment ( including land purchasing expenses ) - 5 - 10 - 15 cy 05 06 07 08 09 10 11 12 13 14 15 16 17 18 - 20

, and then examine the risks to the outlook, particularly regarding developments in overseas economies. to begin with, i will talk about economic developments in japan. the economy is expanding moderately, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors. in order to grasp the overall picture of economic activity, let us first take a look at an indicator called the output gap, which represents the balance between demand and supply in the economy as a whole ( chart 2 ). while a positive output gap shows excess demand and a negative output gap indicates excess supply, the gap has been clearly positive over the past two years. under these circumstances, the current economic recovery phase, which began in december 2012, has already lasted for a long period of about six years, almost reaching the longest post - war recovery on record. next, let me explain developments by economic entity. in the corporate sector, exports and production have maintained their increasing trend ( chart 3 ). although they were pushed down by the successive natural disasters in the july - september quarter last year, such effects were only temporary, and exports and production have turned to an increase since october. in this situation, corporate profits have been at high levels and business fixed investment has continued on an increasing trend ( chart 4 ). looking at fixed investment by sector, in manufacturing, there has been a notable increase in research and development investment in cutting - edge technologies such as self - driving systems and artificial intelligence ( ai ), in addition to investment intended for enhancing capacity. in nonmanufacturing, investment also has been increasing in a wide range of fields, such as that in office buildings accompanying urban redevelopment projects and in the construction of accommodation facilities to meet demand from inbound tourism. investment aimed at improving efficiency and saving labor in order to deal with the recent labor shortage also has maintained its high growth nationwide. such improvement in the corporate sector has had positive effects on the household sector. in the labor market, the active job openings - to - applicants ratio has been at a high level last seen during the period of high economic growth, and the unemployment rate has declined to around 2. 5 percent, the level observed during the bubble period ( chart 5 ). total cash earnings per employee have risen moderately but steadily. against the background of improvement in the employment and income situation, private consumption also has been increasing moderately, albeit with fluctuations. with regard to the outlook, japan's economy will likely continue on an expanding trend. the