november 29, 2018 bank of japan economic activity, prices, and monetary policy in japan speech at a meeting with business leaders in fukuoka takako masai member of the policy board ( english translation based on the japanese original ) i. developments in economic activity and prices i would like to start my speech with a look at developments in economic activity and prices. following the discussion at the monetary policy meeting ( mpm ) held on october 30 and 31, 2018, the bank of japan published the outlook for economic activity and prices, or the outlook report. in this report, the bank presented its projections for japan's economic activity and prices through fiscal 2020. i will explain developments in economic activity and prices by presenting the main content of the outlook report. a. overseas economies let me first touch on developments in overseas economies. the bank's assessment is that overseas economies have continued to grow firmly on the whole. looking at recent developments in overseas economies, their growth is losing momentum compared to a while ago, when the global economy was widely referred to as seeing synchronous growth. a virtuous cycle of overseas economic activity has been maintained, however, as seen in the fact that domestic demand in many economies has been firm. according to the world economic outlook ( weo ) released in october 2018 by the international monetary fund ( imf ), the real gdp growth rate of the global economy is projected to be 3. 7 percent on a year - on - year basis for both 2018 and 2019. the projections have been revised downward by 0. 2 percentage point for each year from the previous ones released three months before, and differences in growth rates among regions have widened to some extent. nonetheless, the growth rate of 3. 7 percent is by no means low, as this figure represents a level exceeding its past average. let me outline the bank's outlook for overseas economies by major region. the u. s. economy is expected to maintain its expansion, underpinned by expansionary fiscal measures. the european economy is projected to continue recovering, albeit at a gradually slowing pace. the chinese economy is likely to broadly follow a stable growth path as authorities conduct fiscal and monetary policy in a timely manner, although it is expected to be affected to some extent by the united states having raised tariffs imposed on china. b. japan's economy 1. current situation now i would like to move on to developments in japan's economy. the bank's assessment is that japan's economy is

increase against the background of positive interaction between the real and monetary side of an economy. however, this pattern does not seem to hold in the current situation because the financial system, still plagued by non - performing loans, is not sufficiently robust to propel the recovery of the real economy. i hasten to add that i do not mean to say that any severe financial constraint is acting as a drag on real economic activity. this can be confirmed in our tankan survey, which shows that while the number of small and medium - sized companies that feel the lending attitude of financial institutions is'severe'is still more than those who think it is'accommodative,'the figure is decreasing. as for large companies, the number of firms that feel the lending attitude is'accommodative'has been exceeding those who think it is'severe'since around september 1999. in light of these results and other micro - level information on corporate financing, corporate funding conditions as a whole seem to be steadily easing. yet, the pace of easing in this regard remains slower than warranted by the extremely low level of interest rates. without the resolution of financial system problems, we will continue to be susceptible to adverse side - effects on economic and financial conditions, whenever a problem in financial institution management surface. we have recently witnessed the successive failure of japanese life insurance companies and credit cooperatives, and such incidents tend to put the household and corporate sectors on the defensive. in connection with the financial conditions just mentioned, i would like to briefly explain the recent trend of monetary aggregates in japan. over the past several years, the highest growth of monetary aggregates was recorded in 1998 when japan was suffering economic deterioration and financial system instability. m2 + cds, the typical measure of monetary aggregates, was growing by roughly 5 % at that time, but gradually slowed to 3 - 4 % in 1999 and further declined to the 2 % level this year. undeniably, this monetary development does not fit well with the normal pattern in which economic recovery leads to higher monetary growth through robust corporate activity. however, there are several reasons for the recent downtrend of the monetary aggregates. first, although corporate cash flow remains plentiful thanks to recovering profits and restructuring effects, expenditures such as business investment are lower than this level. second, until last year, there was a widespread tendency on the part of the corporate sector to hold precautionary liquidity on hand amid prevailing concern over financial