period are taking place. let me highlight two of these changes. the first is that japanese firms are seeing record profits and their investment stance has become increasingly positive. the other change is that wages have clearly risen for the first time in two decades, reflecting that the tight labor market has brought about “ full employment ” – that is, a situation in which, from a statistical perspective, there is no unemployment other than that due to the frictional mismatch between job openings and job applicants. what i would like to focus on today are the remarkable changes that have been taking place in japan ’ s economy during the past two years under qqe. i would also like to review the transmission mechanism of qqe and how qqe has brought about those changes. i believe that at the end of my speech you will share our outlook for japan ’ s economy. bis central bankers ’ speeches i. changes in japan ’ s economy record profits and firms ’ positive investment stance i would like to start by touching on the improvement in the corporate sector. as i mentioned, japanese firms have been making record profits. in fact, their profits have considerably exceeded those around 1990 at the peak of the bubble economy ( chart 2 ). let me briefly review what has happened in japan ’ s economy over the past several years. japan ’ s economy was hit much harder than the u. s. economy by the global financial crisis triggered by the failure of lehman brothers in 2008, even though the united states had been the epicenter of the crisis caused by subprime mortgages. in fiscal 2008, industrial production in japan fell by more than 10 percent and real gdp contracted by about 4 percent. there were a number of reasons why japan ’ s economy was hit particularly hard. one notable factor is that, since japanese products and technologies play an essential part in global supply chains, the decline in global final demand affected japanese firms especially severely. subsequently, in 2011, japan was hit by the great east japan earthquake, which caused widespread damage to people and facilities. the situation was further exacerbated by the sharp appreciation of the yen. in sum, japan ’ s economy was confronted with a series of adverse shock during these years. in the face of this adversity, firms made progress in improving their efficiency and profitability through a wide range of efforts such as reorganizing production and shifting operations overseas. having survived the hardship of the recent past, japanese firms improved their profitability considerably. under abe

to remove such obstacles was also weak. but this time is different. since japanese firms now believe that deflation is over, there will be strong incentive for change. under deflation, sticking to the status quo was a reasonable business strategy. this is no longer the case and, aware of the drastic changes that have occurred in the domestic business environment, a growing number of japanese firms are now taking action. this should be a major driving force for removing regulatory and institutional obstacles. for instance, low labor participation by women has long been an issue for japan ’ s economy ; however, faced with a tight labor market, firms have recently made efforts to promote labor participation by women. at the same time, the government has also tried to do so by incorporating institutional reforms in the growth strategy. as a result, labor participation by women has finally increased. the key to raising the growth potential is “ action ” and there is no better time than now to move forward. the bank of japan will contribute to raising the growth potential of japan ’ s economy by achieving the price stability target of 2 percent at the earliest possible time through qqe and dispelling the deflationary mindset that has taken hold of japan. thank you very much for your attention. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches