may 10, 2017 bank of japan outlook for economic activity and prices and monetary policy speech at a meeting held by the naigai josei chosa kai ( research institute of japan ) in tokyo haruhiko kuroda governor of the bank of japan ( english translation based on the japanese original ) introduction it is my great honor to have the opportunity to address you today at the naigai josei chosa kai. at the monetary policy meeting ( mpm ) held at the end of april, the bank formulated its projections for japan's economic activity and prices as well as risk factors through fiscal 2019, and released them in the 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. current situation of japan's economic activity and its outlook stronger global economic growth momentum let me start by talking about global economic developments. in the first half of 2016, pessimistic views about the global economy prevailed amid turbulence in global financial markets against the background of the slowdown in emerging economies and uncertainties regarding those economies. with the benefit of hindsight, however, it appears that the global economy hit bottom in the first half of 2016. since mid - 2016, the global economy has continued to improve steadily, and its growth momentum now seems to be strengthening further. in particular, a global improvement in the manufacturing sector and trade activity has become clear. for example, an indicator of the overall business conditions in the manufacturing sector has continued on an improving trend in advanced economies as well as emerging and commodity - exporting economies ( chart 1 ). in addition, with regard to the world trade volume - - calculated by adding up imports in each country - - a pick - up in the trade volumes has been spreading globally, mainly for asia and the united states ( chart 2 ). the world trade volume had tended to grow at a slower pace than world economic growth for a long period since the global financial crisis, and such deceleration in growth of the world trade volume is called " slow trade. " as regards the background to this, structural factors such as a pause in the expansion of the global supply chain have been pointed out, in addition to a cyclical decline in demand. the recent global improvement in the manufacturing sector and trade activity draws attention as this may suggest a change is finally

at around 2 percent of late. as for scheduled cash earnings of full - time employees, many firms are expected to raise their base pay for the fourth consecutive year in the annual spring labor - management wage negotiations this year. base pay rises are especially evident this year in small and medium - sized firms that face higher labor shortages. against the background of such improvement in the employment and income situation, private consumption has been resilient. although relatively weak developments had been seen in some of its indicators in the first half of 2016, it has picked up thereafter, due mainly to an improvement in consumer sentiment. the consumption activity index ( cai ) - - which the bank calculates by combining various sales and supply - side statistics - - has followed a moderate increasing trend since the second half of 2016 ( chart 8 ). outlook for japan's economic activity with regard to the outlook, japan's economy is likely to continue its moderate expansion. specifically, with the growth rates in overseas economies increasing moderately, a virtuous cycle from income to spending is likely to be maintained in both the corporate and household sectors, on the back of highly accommodative financial conditions and fiscal spending through the government's large - scale stimulus measures. under such circumstances, the economy is likely to continue expanding and maintain growth at a pace above its potential, mainly through fiscal 2018. at present, japan's potential growth rate as estimated by the bank is in the range of 0. 5 - 1. 0 percent ; the medians of the policy board members'forecasts of the growth rates for fiscal 2017 and 2018 were 1. 6 percent and 1. 3 percent, respectively ( chart 9 ). these projections are more or less unchanged from those presented in the january 2017 outlook report. in fiscal 2019, for which the outlook was newly formulated in the latest outlook report, the growth pace is projected to decelerate, although the economy is expected to continue expanding. the first reason for the forecast concerns cyclical adjustments in capital stock. that is, the current economic expansion phase has been continuing since end - 2012, and it would have lasted for a considerably long period by fiscal 2019. considering the business cycle, therefore, business fixed investment in particular is likely to decelerate. furthermore, peaking out of the olympic games - related demand would also exert an impact on the cyclical adjustments. the second reason is the scheduled consumption tax hike. in the april 2017 outlook report, economic projections were formulated based on