the economy has been turning toward a moderate expansion amid the recovery in overseas economies. the annual real gdp growth rate in fiscal 2016 was 1. 3 percent, higher than the potential growth rate, which is estimated to be in the range of 0. 5 - 1. 0 percent, and the output gap has clearly climbed into positive territory. going forward, japan ’ s economy is likely to continue its moderate expansion for the time being, on the back of the continuing recovery in overseas economies as well as progress in the implementation of the government ’ s economic stimulus measures, helped, moreover, by a strengthening of synergy effects between economic stimulus measures and accommodative financial conditions. in the bank ’ s april 2017 outlook for economic activity and prices ( hereafter the outlook report ), the median of policy board members ’ forecast of real gdp growth was 1. 6 percent for fiscal 2017 and 1. 3 percent for fiscal 2018. as the economy is likely to continue growing at a relatively high pace above its potential, the positive output gap is also expected to steadily widen. let us look at japan ’ s growth by expenditure item. since the latter half of 2016, the growth momentum of exports has become more pronounced in line with the recovery in overseas economies. exports to emerging economies — which had continued to be relatively sluggish — have recently shown a marked increase, led by exports of electronic parts and capital goods to asia. going forward, exports are expected to follow a moderate increasing trend in line with the moderate rise in growth in overseas economies. corporate profits have been at historically high levels, supported not only by the increase in demand at home and abroad but also by the depreciation of the yen since late 2016. under these circumstances, business sentiment has steadily improved. in the bank ’ s march 2017 tankan ( short - term economic survey of enterprises in japan ), the diffusion index for business conditions for all industries and enterprises ( the proportion of firms responding that business conditions were “ favorable ” minus the proportion of those responding that they were “ unfavorable ” ) suggested that business conditions have improved for three consecutive quarters, reaching a level last seen in march 2014 just prior to the consumption tax hike to 8 percent. as for the outlook, corporate profits are projected to follow a steady increasing trend, supported by the rise in demand at home and abroad on the back of the improvement in overseas economies and the effects of economic stimulus measures. business fixed investment has been on a moderate increasing trend as

january 31, 2018 bank of japan japan's economy and monetary policy speech at a meeting with business leaders in oita kikuo iwata deputy governor of the bank of japan ( english translation based on the japanese original ) introduction it is my pleasure to have the opportunity today to exchange views with administrative, financial, and business leaders in oita 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 oita branch. at the monetary policy meeting ( mpm ) held last week, the bank updated its projections for japan's economic activity and prices through fiscal 2019 and released them in the january 2018 outlook for economic activity and prices ( outlook report ). today, i would like to talk about the bank's outlook for japan's economic activity and prices as well as its thinking behind the conduct of monetary policy, while outlining the outlook report. i. the current situation of economic activity and its outlook let me start by talking about economic developments. japan's economy is expanding moderately, with a virtuous cycle from income to spending operating. the real gdp growth rate for the july - september quarter of 2017 was 2. 5 percent on an annualized basis, representing positive growth for seven consecutive quarters ( chart 1 ). the benefits of the economic improvement have been spreading to a wide range of economic entities, and according to the bank's tankan ( short - term economic survey of enterprises in japan ) released in december 2017, the diffusion indexes ( dis ) for business conditions have continued to be positive, not only for large enterprises and manufacturers but also for small enterprises and nonmanufacturers. by region, in the bank's january 2018 regional economic report, all nine regions across the country, including the kyushu region, showed positive economic assessments, using phrases such as moderate recovery and expansion. in what follows, i would like to talk about the current situation of japan's economic activity and its outlook in more detail. overseas economies i would first like to touch upon developments in overseas economies. looking back, overseas economies remained subdued following the global financial crisis in 2008. however, since around the second half of 2016, the positive effects of economic recovery in advanced economies have started to spread to emerging economies, and so - called synchronous growth has been achieved recently, with advanced and emerging economies growing in tandem. in this situation, production and trade activity of the manufacturing