may 26, 2021 bank of japan economic activity, prices, and monetary policy in japan speech at a meeting with local leaders in yamaguchi ( via webcast ) suzuki hitoshi member of the policy board ( english translation based on the japanese original ) i. recent economic and price developments a. economic developments i would like to begin my speech by talking about overseas economies. overseas economies have recovered on the whole, albeit with variation across countries and regions. specifically, the economy has continued to recover in china, where the spread of the novel coronavirus ( covid - 19 ) subsided earlier than any other places, and the u. s. economy has also recovered, partly due to the effects of the additional economic measures since the end of 2020. on the other hand, european economies, mainly for the services industry, have continued to be pushed down with the impact of the resurgence of covid - 19 remaining. as for the outlook, overseas economies are likely to continue recovering on the whole, led by growth in china and the united states for the time being. nevertheless, the pace of economic improvement is highly likely to be uneven across countries and regions, mainly due to differences in the future course of covid - 19, the pace of the vaccine rollout, and the stance on fiscal policy conduct ( chart 1 ). the recovery in overseas economies has been apparent particularly in the manufacturing sector, and the production level and trade volume have evidently exceeded the pre - pandemic levels. against this background, japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of covid - 19 at home and abroad ( chart 2 ). covid - 19 has put strong downward pressure on the face - to - face services sector, including dining - out and travel, particularly at times when the number of confirmed cases has increased or remained high, such as from late december through early january and again recently, but the degree to which covid - 19 constrains economic activity has lessened considerably in other sectors. in this situation, a virtuous cycle has gradually started in the overall corporate sector ; profits have improved, supported by an increase in exports and the effects of various policy measures, and this has led to a pick - up in business fixed investment as well as the bottoming - out of the overall number of employed persons, including regular employees. let me elaborate on this by demand component. first, exports have continued to increase, reflecting the

orders of " rolling machines " ( i. e., railway vehicles ) and " motor vehicles " by the transportation industry. however, business fixed investment as a whole has picked up with improvement in corporate profits. a leading indicator shows that machinery investment has been supported not only by the manufacturing industry but also by investment related to base stations and 5g networks by the telecommunications industry, logistics facilities - related investment by the wholesale and retail trade industries, and digital - related investment by the construction industry. regarding construction investment, there has been an increase in construction of warehouses on the back of expansion in e - commerce and progress in urban redevelopment projects. in the bank of japan's march 2021 tankan ( short - term economic survey of enterprises in japan ), the plan for fiscal 2021 shows that business fixed investment is likely to increase by 2. 4 percent on a year - on - year basis, indicating relatively high growth compared with the past march tankan surveys. 1 the employment and income situation has remained weak due to the impact of covid - 19. with regard to the number of employed persons, while the number of regular employees has continued to increase moderately, mainly in the information and communications as well as the medical, healthcare, and welfare services industries, that of non - regular employees has decreased, mainly in the face - to - face services industry. in addition, the unemployment rate and the active job openings - to - applicants ratio have been more or less flat, albeit with fluctuations ( chart 5 ). as for wages, the year - on - year rate of change in non - scheduled cash earnings registered a negative figure due to a decline in hours worked, while winter bonuses in 2020 also saw a significant decline from the previous year. nevertheless, employee income is likely to bottom out and thereafter return to a moderate uptrend as the number of employed persons, non - scheduled cash earnings, and special cash earnings turn to an increase, reflecting a pick - up in economic activity and improvement in corporate profits. b. price developments let me now elaborate on price developments in japan. the year - on - year rate of change in the consumer price index ( cpi ) for all items less fresh food, or the core cpi, has been minus 0. 1 percent recently ( chart 6 ). since april, the negative contribution of a reduction in mobile phone charges has been somewhat significant. from a macroeconomic perspective, the output gap, which indicates the supply - demand balance, became significantly negative for the april -