description
stringlengths 27
553
| text
stringlengths 0
341k
⌀ | bank
stringclasses 118
values | Year
int64 2k
2.03k
| Month
int64 1
12
|
|---|---|---|---|---|
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, hosted by the Naigai Josei Chosa Kai (Research Institute of Japan), Tokyo, 14 May 2020.
|
May 14, 2020 Bank of Japan Novel Coronavirus (COVID-19): Economic and Financial Developments and the Responses Taken by the Bank of Japan Speech via Webcast Hosted by the Naigai Josei Chosa Kai (Research Institute of Japan) in Tokyo KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction The novel coronavirus (COVID-19) pandemic has had a significant impact all over the world. Unfortunately, many lives have been lost and a large number of people are still suffering from the disease. I would like to extend my sincere condolences for the victims of COVID-19 and express my deepest gratitude to the medical professionals who are dedicating themselves to saving lives, and to all who are working to support people's livelihoods. To prevent the further spread of COVID-19, each country and region has continued to make strenuous efforts. In addition, as the global economy has suffered substantial damage from constrained economic activity, governments and central banks around the world have responded swiftly with large-scale measures to address the shock. In Japan, the government declared a state of emergency and formulated emergency economic measures with a project size of 117 trillion yen. The Bank of Japan, at two consecutive Monetary Policy Meetings (MPMs), decided to enhance monetary easing. Today, I would like to talk about the impact of COVID-19 on economic and financial developments at home and abroad, their outlook, and the Bank's policy responses. I. Economic and Financial Developments at Home and Abroad Reflecting the Spread of COVID-19 Current Developments in Economic Activity and Prices and Their Outlook The outbreak of COVID-19 was first identified in China and it spread rapidly worldwide, including to Asia, Europe, and the United States. Social and economic activities have been constrained significantly as a result of preventive measures against the spread taken by each country and region, such as restrictions on going outside and immigration/emigration, as well as orders to suspend business and production activities. Thus, the global economy has become depressed rapidly and Japan's economy has been in an increasingly severe situation. At the end of April, the Bank released the Outlook for Economic Activity and Prices (Outlook Report), which presents three points. First, downward pressure on the global economy is expected to be extremely significant as economic activity is likely to be constrained worldwide until the impact of the spread of COVID-19 wanes (Chart 1). The International Monetary Fund (IMF) projects that the global economy will register large negative growth of minus 3.0 percent for 2020, which is worse than at the time of the global financial crisis. In addition, the Bank expects that Japan's growth rate for fiscal 2020 will decline significantly to the range of minus 5.0 to minus 3.0 percent. It also expects that prices will be somewhat weak for the time being, mainly affected by the spread of COVID-19 and the decline in crude oil prices. Second, as the impact of the spread of COVID-19 wanes, the global economy is likely to head toward an improvement. In fact, a pick-up in economic activity has been observed in China, where the spread has subsided. While there are extremely high uncertainties over the outlook for economic activity, as I will address later, the Bank assumes in the April Outlook Report that the impact of the spread of COVID-19 will wane on a global basis through the second half of 2020, which generally is in line with the baseline scenario presented by the IMF. Based on this assumption, the growth pace of overseas economies is likely to increase from around the second half of 2020, supported also by the effects of aggressive macroeconomic policies. The IMF projects that the global economic growth rate for 2021 will be 5.8 percent. As the impact of the spread of COVID-19 wanes at home and abroad, Japan's economy also is likely to improve, supported by accommodative financial conditions and the government's largescale economic measures, as well as through the expected materialization of pent-up demand and a projected recovery in production from the decline brought about by the spread of COVID-19. The Bank projects that Japan's growth rate for fiscal 2021 will be in the range of 2.8 to 3.9 percent, and the inflation rate also will increase gradually with the economy improving. Third, there are extremely high uncertainties over the outlook for economic activity and prices and risks are skewed to the downside. To start with, it is highly unclear how long it will take for the spread of COVID-19 to subside. It also is difficult to project the impact of constrained economic activity, which differs from a typical economic downturn. Moreover, there are uncertainties over the pace of economic improvement after the spread of COVID-19 subsides. Although the latest Outlook Report is based on the assumption that firms' and households' medium- to long-term growth expectations will not decline substantially while the impact of the spread of COVID-19 remains, this assumption also entails high uncertainties. There is another important assumption for the aforementioned outlook; namely, that both financial system stability and accommodative financial conditions will be maintained and further downward pressure on the real economy from the financial side will be avoided. Financial Markets and Conditions Let me explain developments on the financial side. Global financial and capital markets have become unstable rapidly since late February, as seen globally in deterioration in investors' risk sentiment and a plunge in stock prices. Prices of credit assets including CP and corporate bonds have declined significantly, thereby exerting a considerable impact on corporate financing, mainly in countries with a large proportion of direct financing. Demand for safe assets, particularly the need to secure U.S. dollars, has increased suddenly reflecting growing uncertainties over the global economy and anxiety about COVID-19. This has led to an expansion of U.S. dollar funding premiums to a level not seen since the global financial crisis. In order to address these developments, the government and central bank in each country and region have taken measures swiftly and aggressively, also taking account of the lessons learned from the global financial crisis. As a result, financial markets have become somewhat stable. That said, the functioning of many markets has remained low, due in part to the impact of a shift to split operations, and investors' risk sentiment has remained cautious. The global financial system has been under severe stress. These developments can be seen in Japan as well. As deposit-taking financial institutions, which play important roles in financial intermediation, have maintained their active lending attitudes, credit contraction has been avoided thus far. However, financial conditions have been less accommodative in terms of corporate financing, as seen in a rise in the issuance rates for CP and deterioration in financial positions of large firms as well as small and medium-sized ones due to declines in their sales and profits. With the economy in an increasingly severe situation, the stress on the financial system has been growing in Japan, and it is necessary to pay further attention to the circumstances. Although tension in financial markets has abated somewhat, the markets have remained nervous due to a decline in liquidity. II. The Bank's Policy Responses Next, I would like to talk about the Bank's policy responses to these developments. Containment of the spread of COVID-19 is a top-priority task for Japan, but what is most important in terms of economic measures is to protect employment, businesses, and people's livelihoods until the spread almost subsides. While doing so, it is essential for the Bank to make policy responses so that downward pressure from the financial side on the real economy will not intensify. Monetary Policy Responses Let me start with monetary policy responses. What is needed is to prevent firms and sole proprietors from falling into difficulties in terms of financing and to ensure stability in financial markets, thereby providing a sense of security to market participants and the public. With these in mind, the Bank decided to enhance monetary easing in March and April (Chart 2). First, it decided and implemented two measures to ensure smooth financing. These are (1) an increase in purchases of CP and corporate bonds and (2) the establishment and strengthening of the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19). As for the first measure, the Bank decided to increase by four times the maximum amount outstanding of CP and corporate bonds to be purchased, from about 5 trillion yen to about 20 trillion yen in total. Since the domestic market sizes of CP and publicly-offered corporate bonds are in the range of 20-30 trillion yen and nearly 60 trillion yen, respectively, the Bank has become able to conduct a considerable amount of purchases relative to these sizes. Regarding the second measure, the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), the Bank decided to provide funds to financial institutions on favorable terms in order to encourage them to fulfill the functioning of financial intermediation for a wide range of private sectors. Moreover, it decided at the April MPM to swiftly consider a new measure to provide funds, on favorable terms, to financial institutions that conduct lending mainly to small and medium-sized firms through the government's programs to support financing in its emergency economic measures. This new measure aims at further supporting financing mainly of such firms. Next, mainly with a view to maintaining stability in financial markets, the Bank has implemented the following three measures: strengthening of the U.S. dollar funds-supplying operations based on an agreement reached by six major central banks; active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs); and further active purchases of Japanese government bonds (JGBs) and treasury discount bills (T-Bills). With regard to the first measure, since the Bank has provided U.S. dollars worth more than 20 trillion yen, U.S. dollar funding costs of internationally active Japanese financial institutions and firms have declined clearly. As for the second measure, the Bank decided to double the pace of ETF purchases to about 12 trillion yen per year for the time being, and this has led to constraining volatility in Japanese stock prices. Regarding the third measure, the Bank already has conducted large-scale JGB purchases. However, given a decline in liquidity in the bond market and the impact on that market of the increase in the amount of issuance of government bonds in response to the emergency economic measures, the Bank decided to conduct further active purchases of both JGBs and T-Bills with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. In line with this, the Bank clarified that it would purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields would remain at around zero percent. Coupled with the government's aggressive fiscal responses including the emergency economic measures, I expect that these monetary easing measures will enhance the effects of so-called policy mix of monetary and fiscal policies. The Bank's enhancement of monetary easing can be recognized in the context of international cooperation. Since this March, the central bank in each country and region has been exchanging information frequently at various levels, and it can be said that the strengthening of the U.S. dollar funds-supplying operations is the outcome of such cooperation. Of course, the specifics and size of monetary easing measures of each central bank vary in light of differences in financial conditions, financial systems, and market structures. That said, responses taken by the central bank of each country and region to address the global crisis stemming from the spread of COVID-19 have two things in common; namely, those central banks (1) provide liquidity at a large scale by, for example, increasing asset purchases, thereby stabilizing financial markets and (2) conduct funds-supplying measures to support lending and purchases of CP and corporate bonds, thereby ensuring smooth financing, such as of firms. Responses regarding the Financial System and Business Operations I will now move on to responses toward ensuring financial system stability. Such stability provides support for financing, such as of firms, and also is a prerequisite for monetary policy to exert maximum effects. On this front, there has been international cooperation. Given that financial institutions' capital and liquidity have been under considerable stress, prudential standards have been applied flexibly and operational burden in terms of regulation and supervision has been reduced. For example, the deferral of full implementation of the finalized Basel III standards by one year has been agreed and banks have been encouraged to use their regulatory capital and liquidity buffers. Similarly, in early April, the Financial Services Agency and the Bank announced an easing of regulation on the leverage ratio requirement, which leads to expanding financial institutions' lending capacity. In Japan, financial institutions have considerable resilience in terms of both capital and liquidity, and the financial system has maintained stability on the whole. However, if the impact of the spread of COVID-19 becomes prolonged, there is a risk that deterioration in the real economy will affect financial system stability, thereby exerting further downward pressure on the real economy. Although this risk is judged as not significant at this point, it is necessary to pay close attention to future developments. Let me also touch on the Bank's business operations. In reflection of the government's declaration of a state of emergency, the Bank, as a designated public institution, has established a system for continuing to provide essential central banking services, such as maintaining financial functioning and ensuring smooth settlement of funds, even while reducing some operations so as to prevent the spread of COVID-19. The Bank will continue to steadily conduct central banking operations that are necessary to people's livelihoods. Thinking on Future Policy Conduct The Bank recognizes that its responses mentioned earlier will contribute to supporting economic and financial activities, coupled with various measures by the Japanese government as well as those by the government and central bank of each country and region in response to the spread of COVID-19. On this basis, for the time being, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. In the meantime, it expects short- and long-term policy interest rates to remain at their present or lower levels. Lastly, I will talk about the Bank's mandate of ensuring price stability and its thinking on future monetary policy conduct. Prices in Japan are expected to be somewhat weak for the time being, affected by the extremely large shocks of the global spread of COVID-19 and the significant decline in crude oil prices. It is likely to take an extended period of time to achieve the price stability target of 2 percent, beyond the projection period. The inflation momentum is judged as being lost temporarily, and thus the Bank conducted additional monetary easing in March and April. That said, as the impact of the spread of COVID-19 wanes at home and abroad, the inflation rate is likely to increase gradually with the economy improving. Although it will take time, there is no change in the Bank's stance of aiming to achieve the price stability target. The Bank considers it extremely important in the current phase to maintain accommodative financial conditions and work toward ensuring economic and financial stability so that Japan's economy can return to the path toward achieving the price stability target after the impact of the spread of COVID-19 subsides. Conclusion Today, I talked about the impact of COVID-19 on economic and financial developments at home and abroad, their outlook, and the Bank's policy responses. The COVID-19 crisis is an extremely severe challenge for people all over the world. However, historically speaking, humankind has fought and overcome a number of pandemics, such as the plague in Europe in the 14th century and the Spanish flu in the early 20th century. In fact, economists have started to analyze what can be learned from past experiences. One example is shown in a paper written by economists including those of the Federal Reserve analyzing regional data in the United States at the time of the Spanish flu pandemic.1 According to the paper, in regions where public health measures such as requests to suspend business activities were firmly implemented, the subsequent economic recovery was remarkable, exceeding the negative impact stemming from public health measures on the economy. Taking into account, for example, the subsequent progress in globalization, this scenario cannot be simply applied Correia, S., Luck, S., and Verner, E., "Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu," Working Paper, 2020. to the case of COVID-19. However, it is reassuring that public health measures such as those currently in operation in Japan can be expected to have a positive impact on the economy from a long-term perspective. It also is important to consider how to make the most of the experience of the COVID-19 crisis. Medium- to long-term growth expectations could increase if active use of various types of information and communication technology in the face of the restrictions on going outside has positive effects on the field of digital technology. So far, there have been some arguments that the progress in information and communication technology has not led to a rise in productivity in the overall economy. One of the reasons is that we have not yet fully made use of the potential of such technology. In the current situation of self-restraint from going outside, however, there have been moves to work from home and continue with social activities by making the most of information and communication technology. It seems that the great potential of this technology has been recognized once again. If the progress in such innovation leads to a rise in productivity in the overall economy after the crisis recedes, the experience of the COVID-19 crisis can be transformed into positive effects. Thus, the top-priority task for the time being is to contain the spread of COVID-19 as soon as possible and protect employment, businesses, and people's livelihoods until that happens. In the meantime, the Bank's role is to ensure smooth financing and maintain stability in financial markets, and to this end, it is determined to do whatever it takes as a central bank while firmly cooperating with the government and foreign authorities. Thank you very much for your attention. Novel Coronavirus (COVID-19): Economic and Financial Developments and the Responses Taken by the Bank of Japan Speech via Webcast Hosted by the Naigai Josei Chosa Kai (Research Institute of Japan) in Tokyo May 14, 2020 KURODA Haruhiko Governor of the Bank of Japan Chart 1 Economic Forecast Global (IMF, April 2020) 6.0 y/y % chg. 6.0 2021: +5.8% 5.0 4.0 3.0 2.0 1.0 2019: +2.9% Average from 1980 through 2019: +3.5% 0.0 -1.0 2020: -3.0% -2.0 -3.0 -4.0 CY 2000 Projection Japan(BOJ's Outlook Report, April 2020) Note: Projection figures are those of the baseline scenario. Source: IMF. y/y % chg. y/y % chg. 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 -1.0 -1.0 -2.0 -2.0 -3.0 -3.0 -4.0 -4.0 -5.0 -5.0 -6.0 -6.0 FY 2015 Note: The solid line represents actual figures. Shaded areas, which correspond to the color-coded distribution below, indicate the number of the Policy Board members who forecasted the same figure. (Figures are shown in units of 0.1 percentage point.) The vertical lines indicate the forecasts of the majority of the Policy Board members. These forecasts are shown as a range excluding four figures -- namely, the two highest figures and two lowest figures among the forecasts of the nine members. (If a member submits the same forecast figure for the highest and lowest figures, it is counted as two separate figures.) member(s) Source: Bank of Japan. Enhancement of Monetary Easing (March 16 and April 27) Chart 2 Measures to Ensure Smooth Financing of Financial Institutions and Firms Increase in Purchases of CP and Corporate Bonds <until End-September 2020> ・Increase the maximum amount of purchases from about 5 trillion yen to about 20 trillion yen in total and substantially raise the maximum amounts outstanding of a single issuer's CP and corporate bonds to be purchased Establishment/Strengthening of the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) <until End-September 2020> ・Provide loans to financial institutions against private debt as collateral at the interest rate of 0 percent and apply a positive interest rate of 0.1 percent to the outstanding balances of current accounts held by financial institutions at the Bank corresponding to the amounts outstanding of loans ・Expand eligible counterparties to include member financial institutions of central organizations of financial cooperatives, which have a high proportion of loans to small and medium-sized firms Swift Consideration of a New Measure to Provide Funds to Financial Institutions ・With the aim of further supporting financing, mainly of small and medium-sized firms, the Bank will consider a new measure taking account, for example, of the government's programs to support financing such as those in its emergency economic measures. Measures to Maintain Stability in Financial Markets Enhancement of the U.S. Dollar Funds-Supplying Operations <for the Time Being> ・In line with a coordinated action by six central banks, the Bank's operation was enhanced by lowering the loan rate, offering U.S. dollars with longer maturities, and increasing the frequency of the provision; the Bank has provided U.S. dollars worth more than 20 trillion yen. Active Purchases of ETFs and J-REITs (Doubling the Purchasing Paces) <for the Time Being> ・ Purchase ETFs and J-REITs at annual paces with the upper limit of about 12 trillion yen and about 180 billion yen, respectively Further Active Purchases of JGBs and T-Bills ・Conduct further active purchases of both JGBs and T-Bills for the time being, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level ・Purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent
|
bank of japan
| 2,020 | 5 |
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 26 May 2020.
|
Statement by KURODA Haruhiko, Governor of the Bank of Japan, concerning the Bank's Semiannual Report on Currency and Monetary Control before the Committee on Financial Affairs, House of Councillors, on May 26, 2020 Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and present an overall review of the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. The global economy has become depressed rapidly, reflecting the impact of the novel coronavirus (COVID-19) pandemic. Economic activity has been disrupted significantly worldwide as a result of preventive measures against the spread of COVID-19 taken by each country and region, such as restrictions on going outside and immigration/emigration. According to the latest World Economic Outlook released by the International Monetary Fund (IMF), the global economy is projected to register large negative growth of minus 3.0 percent for 2020, which is worse than at the time of the global financial crisis. Japan's economy also has been in an increasingly severe situation due to the impact of the spread of COVID-19 at home and abroad, and for the time being, that is likely to remain the case. The year-on-year rate of change in the consumer price index (CPI) is expected to be somewhat weak for the time being, mainly affected by the spread of COVID-19 and the decline in crude oil prices. Thereafter, as the impact of the spread wanes at home and abroad, Japan's economy is likely to improve, supported by accommodative financial conditions and the government's economic measures, as well as through the expected materialization of pent-up demand and a projected recovery in production from the decline brought about by the spread of COVID-19. The year-on-year rate of change in the CPI also is expected to increase gradually. However, the outlook for economic activity and prices is extremely unclear, as it could change depending on the timing of the spread of COVID-19 subsiding and on the magnitude of the impact on domestic and overseas economies, and thus the Bank considers that risks are skewed to the downside. Meanwhile, global financial and capital markets have become unstable rapidly since late February with deterioration in investors' risk sentiment. As a result of swift and aggressive responses taken by the government and central bank in each country and region, tension in financial markets has abated somewhat. However, the markets have remained nervous due to a decline in liquidity. In addition, although Japan's financial system has maintained stability on the whole, financial conditions have become less accommodative in terms of corporate financing, as seen in deterioration in firms' financial positions. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. The Bank considers that the important thing in terms of monetary policy under the recent economic and financial situation is to support financing mainly of firms and maintain stability in financial markets. With this in mind, in March and April, it enhanced monetary easing. Moreover, at the unscheduled Monetary Policy Meeting held on May 22, the Bank decided to introduce a new fund-provisioning measure to further support financing mainly of small and medium-sized firms. The Bank has introduced and enhanced the following three measures since March: purchases of CP and corporate bonds, (2) the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), and (3) the new fund-provisioning measure. Through these three measures, which are referred to as the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) with the total size of about 75 trillion yen, it will actively support financing mainly of firms while cooperating with the government. In addition, with a view to maintaining stability in financial markets, the Bank has been providing ample yen and foreign currency funds without setting upper limits mainly through purchases of Japanese government bonds (JGBs) and the conduct of the U.S. dollar funds-supplying operations, and has been actively purchasing assets such as exchange-traded funds (ETFs). By conducting these measures, it will continue to contribute to supporting financing mainly of firms and maintaining stability in financial markets. The Bank recognizes that powerful monetary easing measures will contribute to supporting economic and financial activities, coupled with various measures by the Japanese government as well as those by the government and central bank of each country in response to the spread of COVID-19. On this basis, the Bank will closely monitor the impact of COVID-19 for the time being and will not hesitate to take additional easing measures if necessary. Thank you.
|
bank of japan
| 2,020 | 5 |
Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Virtual Event Co-Hosted by Harvard Law School (HLS) and the Program on International Financial Systems (PIFS), 26 June 2020.
|
Haruhiko Kuroda: The impact of COVID-19 on the Japanese economy and the Bank of Japan's response Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Virtual Event Co-Hosted by Harvard Law School (HLS) and the Program on International Financial Systems (PIFS), 26 June 2020. * * * Introduction It is my great pleasure to have the opportunity today to participate in this virtual discussion. In my opening remarks, I will talk about the impact of COVID-19 on Japan’s economy and the Bank of Japan’s response. The Impact of COVID-19 on Japan’s Economy The COVID-19 pandemic has had a severe impact on countries all over the world, and Japan is no exception. With the increasing number of confirmed cases, the Japanese government declared a state of emergency in April and implemented strict public health measures. As economic activity became significantly constrained, private consumption for April declined by about 20 percent from last year. New cases of infection decreased sharply thanks to the public health measures, and the state of emergency was lifted at the end of May. The total number of confirmed deaths is less than 1,000 in Japan, and economic activity has resumed gradually. That said, given the significant economic downturn, Japan’s economy is likely to remain in a severe situation for the time being. Thereafter, as the impact of COVID-19 wanes globally in the second half of the year, Japan’s economy is likely to improve, mainly on the back of pent-up demand and the effects of macroeconomic measures. Of course, there are significant uncertainties over the outlook for the economy. The COVID-19 pandemic continues on a global basis, and concern about a second wave of the virus has increased recently. Under these circumstances, there is a risk that the second-round effects of COVID-19 may push down the economy considerably. There are two important points in particular. The first is to ensure corporate financing. To this end, it is essential to maintain financial system stability and accommodative financial conditions, thereby avoiding further downward pressure on the real economy from the financial side. The second point is whether firms’ and households’ growth expectations will decline and lead to cautious attitudes toward spending. Some sort of hysteresis effects could arise after a large shock, as shown in protracted cautious firms’ behavior in Japan after the financial crisis in the 1990s. The Bank’s Response Next, I will talk about the Bank’s response. The Bank has enhanced monetary easing since March, implementing three measures as follows. The first is the Special Program to support financing mainly of firms. The total size of this program is about 110 trillion yen. Specifically, the Bank decided to purchase CP and corporate bonds within about 20 trillion yen, which is equivalent in size to a quarter of the Japanese market. In addition, it introduced funding measures of about 90 trillion yen to encourage lending by financial institutions. These include a scheme in which the government takes the credit risk of lending by financial institutions to small and medium-sized firms and the Bank provides funds to those financial institutions on favorable terms. This represents a case of cooperation between the government and central bank to support corporate financing, while making their respective 1/2 BIS central bankers' speeches roles clear. The second is an ample provision of yen and foreign currency funds. As for the yen funds, the Bank decided to purchase a necessary amount of JGBs without limit, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. Regarding foreign currency funds, the Bank has provided a large amount of U.S. dollar funds based on cooperation with five other major central banks. The third is active purchases of ETFs and J-REITs. The aim is to prevent firms’ and households’ sentiment from deteriorating through volatility in financial markets, thereby supporting positive economic activity. In addition to the enhancement of monetary easing, the Bank has made regulatory responses in order to ensure financial system stability. Based on an international agreement, the full implementation of the finalized Basel III standards has been deferred by one year, and banks have been encouraged to use their capital and liquidity buffers. Moreover, the Bank announced with the Financial Services Agency in April an easing of regulation on the leverage ratio requirement. Financial system stability provides support for corporate financing and is also a prerequisite for monetary policy to exert its maximum effect. The Bank’s response has already had considerable effects. Japan’s financial system has maintained stability on the whole, and the lending stance of financial institutions has been active. Under these circumstances, bank lending for May registered the highest increase in the last 30 years, and CP and corporate bond issuances have increased significantly. Tension in financial markets has abated. The Bank will continue to support financing mainly of firms and to maintain stability in financial markets by conducting the aforementioned three measures. Still, there are significant uncertainties over the impact of COVID-19 on the economy and finance. Therefore, for the time being, the Bank will closely monitor the impact of COVID-19 and will not hesitate to do whatever it takes as a central bank if necessary. Thank you for your attention. 2/2 BIS central bankers' speeches
|
bank of japan
| 2,020 | 8 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at the Japan National Press Club, Tokyo, 29 July 2020.
|
July 29, 2020 Bank of Japan Japan's Economy and Monetary Policy Speech at the Japan National Press Club AMAMIYA Masayoshi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my pleasure to have the opportunity to talk at the Japan National Press Club. Today, I would like to talk about the Bank of Japan's view on economic and financial developments at home and abroad, and about its thinking on the monetary policy conduct since March in response to the impact of the novel coronavirus (COVID-19). I have to say that there are still extremely high uncertainties over future developments regarding COVID-19 and their impact on economic activity. It is necessary to make monetary policy responses flexibly, depending on how the situation turns out. Therefore, in my speech, I would like to place particular focus on outlining the impact of the spread of COVID-19 on economic activity and prices, as well as the Bank's thinking on the monetary policy conduct. I. Economic and Financial Developments at Home and Abroad Affected by COVID-19 Features of Economic Developments Affected by Infectious Diseases Global economies, including Japan's, have been subject to pandemics on several occasions. During pandemics, changes in economic developments are unique and differ from a typical business cycle. Let me begin by outlining the features of economic developments at different phases of pandemics. The first phase is when the infectious disease spreads. In response to a severe pandemic, as in the current case with COVID-19, the top priority is placed on ensuring people's health and safety by containing the spread of the disease. In such a situation, strict public health measures are conducted, such as restrictions on people's movement and going outside, as well as orders to suspend business and production activities. Downward pressure on the economy stemming from these measures is significant since they directly constrain economic activity. The second phase is a transition one -- that is, after the rapid spread of the infectious disease is contained. In this phase, the strict preventive measures conducted in the first phase are eased gradually. Accordingly, the economy recovers from a state of being significantly depressed. That said, it does not immediately return to the level reached before the spread of the disease. In a situation where vigilance against the disease persists, people will continue to voluntarily make precautionary efforts. Therefore, downward pressure on the economy will remain. In addition, if there is a large-scale resurgence of the disease, the strict public health measures may be reinstated. In this transition phase, it is also necessary to pay attention to the second-round effects of the significant economic shock in the first phase; in other words, the impact on firms' and households' stance on spending. If their stance weakens significantly, the pace of economic recovery will be even slower. On the other hand, if a significant weakening in the stance is avoided, economic developments thereafter may become more firm, mainly through the materialization of pent-up demand. After this transition phase, the economy is expected to enter a new phase -- the so-called post-pandemic era -- from a somewhat long-term perspective. There are currently various discussions on what the economy will be like at that time; in other words, how people's behavior and the economic structure will change through the impact of the disease or in a situation where there is a need to live with the disease. I will touch on my view regarding this again at the end of my speech. Economic Developments at Home and Abroad and Their Outlook Domestic and overseas economies affected by COVID-19 have shown developments that are mostly in line with the aforementioned features. I would like to look back at economic developments since the turn of this year. Each country responded to the pandemic by taking preventive measures, such as restrictions on entry/travel and going outside, as well as orders to suspend business and production activities. Since economic activities were constrained substantially, the global economy became depressed significantly in the first half of this year (Chart 1). According to the latest World Economic Outlook (WEO) Update released by the International Monetary Fund (IMF), global growth for 2020 is projected to be minus 4.9 percent. In the IMF's forecasts, the projected growth rate for the global economy registered a negative figure only once since 1970: minus 0.1 percent during the Global Financial Crisis. Although there were no statistics of the same kind before then, and therefore it is not possible to make a precise comparison, the IMF judges that the projected growth rate in the latest WEO shows the largest decrease since the Great Depression in around 1930, exceeding the negative figure registered at the time of the Global Financial Crisis. In Japan, reflecting the increase in the number of confirmed cases from March, the government declared a state of emergency in April. Exports, including inbound tourism consumption, have declined significantly due to entry/travel restrictions in each country and to the significant depression in overseas economies. Private consumption, mainly in services such as eating and drinking as well as accommodations, decreased significantly due to self-restraint from going outside and conducting businesses. The real GDP growth rate for the January-March quarter of 2020 was minus 2.2 percent on an annualized quarter-on-quarter basis, and that for the April-June quarter also is likely to be substantially negative. As can be seen from these developments, both domestic and overseas economies became depressed significantly due to the impact of the spread of COVID-19 in the first half of 2020. Although domestic and overseas economies have continued to be in extremely severe situations, many countries have been resuming economic activities gradually and the situation has slightly changed from what it was before (Chart 2). The diffusion indices (DIs) for business sentiment on a global basis have remained below 50, which is the borderline between improvement and deterioration of business conditions perceived by firms, but they have picked up after bottoming out in April. In Japan, the state of emergency was lifted nationwide in late May and economic activity has resumed gradually thereafter. Looking at the DI for business conditions in the June 2020 Tankan (Short-Term Economic Survey of Enterprises in Japan), business sentiment has deteriorated significantly but is expected to bottom out. Based on various sources, such as high-frequency indicators, statistics published by industry organizations, and anecdotal information from firms, although consumption activities are still at low levels, they seem to be gradually heading toward a pick-up from June. The spread of COVID-19 has not yet subsided on a global basis and there is concern over the risk of a resurgence of COVID-19 in countries where the spread has subsided, including Japan. Under these circumstances, although a recovery path of domestic and overseas economies has not yet come into sight clearly, the economies seem to be starting to enter a transition phase toward recovery. Future developments in economic activity could continue to change unexpectedly depending on the consequences of COVID-19. However, based on the assumption that a second wave of COVID-19 will not occur on a large scale, as a baseline scenario, the global economy is expected to fully enter the transition phase and head toward a recovery (Chart 1). The IMF projects that the global economy will recover from the second half of 2020 and the growth rate will be 5.4 percent for 2021. Japan's economy also is likely to improve gradually from the second half of this year. However, as I mentioned earlier, while the impact of COVID-19 remains, voluntary efforts to prevent infections will continue to constrain economic activity, and thus the pace of improvement is expected to be only moderate. I have pointed out that, in a transition phase, it is necessary to pay attention to the impact of a significant economic shock brought about by infectious diseases on firms' and households' stance on spending. On this point, it is inevitable that corporate profits, employment, and income will be affected by COVID-19. However, in response to the impact of COVID-19, the government has conducted economic measures with a project size of 234 trillion yen, which largely exceed the size of measures taken at the time of the Global Financial Crisis. In addition, as I will explain later, the Bank has made efforts to support financing and maintain stability in financial markets by enhancing monetary easing to a large extent. These responses by the government and the Bank have provided strong support for sustaining businesses and employment. I will elaborate on this, focusing on both the corporate and household sectors. Let me start with the corporate sector (Chart 3). Corporate profits have deteriorated, reflecting the decline in sales due to COVID-19. In this situation, pressure that reduces business fixed investment seems to be strong, mainly for sectors that are severely affected by COVID-19. That said, looking at the business fixed investment plan in the June Tankan, business fixed investment is expected to remain positive on an annual basis for fiscal 2020. Although it is necessary to pay attention to the possibility that figures for the business fixed investment plan will be revised downward if uncertainties over COVID-19 continue, the investment is likely to be steady at this point compared with a significant decline in corporate profits. Based on anecdotal information from firms, they are likely to continue to undertake many of their medium- to long-term projects, such as research and development (R&D) and IT-related investments. This is because the financial positions of firms became more sound after the Global Financial Crisis, and many firms have adequate financial capacity to undertake necessary investment for growth areas even when they are faced with severe stress. In addition, together with the measures currently taken by the government and the Bank to support financing, financial institutions have been actively responding to meet firms' increasing demand for funds, and this seems to have eased pressure that reduces business fixed investment. Next, let us look at the household sector (Chart 4). The employment and income situation has been weak. The active job openings-to-applicants ratio has declined and the unemployment rate has risen to around 3 percent. The year-on-year rate of change in total cash earnings per employee has shown a relatively large decline recently. For the time being, the number of employees is expected to follow a decreasing trend and the year-on-year rate of change in total cash earnings is projected to be negative. That said, the employment adjustment subsidies, which have been expanded as part of the government's economic measures, are expected to somewhat halt job cuts. The government's and the Bank's measures to support financing are likely to help prevent firms from going bankrupt and discontinuing their businesses, thereby supporting employment. In fact, the number of bankruptcies of firms has not increased thus far. Thus, active macroeconomic policies taken in response to COVID-19 seem to have reduced the second-round effects of a shock brought about by COVID-19 to a certain extent, and have supported firms' and households' stance on spending. However, as seen in the case where firms' behavior became cautious for a prolonged period after the financial crisis in Japan in the 1990s, there is a risk that a large shock will lead to a decline in firms' and households' growth expectations and make their spending behavior cautious. While bearing this in mind, it is necessary to carefully monitor future developments. In the July 2020 Outlook for Economic Activity and Prices (Outlook Report), the Bank made public the outlook for Japan's economic growth rate (Chart 5). The thinking behind the projection is what I have explained thus far. According to the forecasts of the majority of the Policy Board members for the growth rates, the economy is projected to register significant negative growth in the range of minus 5.7 to minus 4.5 percent for fiscal 2020, but grow at a relatively high level ranging from 3.0 to 4.0 percent for fiscal 2021 and then continue to grow in the range of 1.3 to 1.6 percent for fiscal 2022. That said, this outlook entails high uncertainties and risks are skewed to the downside. Above all, the consequences of COVID-19 and their impact on domestic and overseas economies are highly unclear. In addition, the aforementioned outlook is based on the assumptions that a second wave of COVID-19 will not occur on a large scale and that a resultant reinstatement of the strict public health measures will not take place, but these assumptions entail uncertainties. Difference from the Global Financial Crisis Before I move on to the next topic, I would like to explain the difference between the current shock and the Global Financial Crisis in 2008. At the time of that crisis, the nature of the problem was that, triggered by the bursting of the global financial bubble, major financial institutions abroad went bankrupt successively and the functioning of the financial system declined significantly. What made the problem worse was a vicious cycle in which a decline in the functioning of the financial system led to deterioration in the real economy, which in turn affected stability in the financial system in the form of an increase in non-performing loans. In contrast, the current shock is caused by the spread of COVID-19. This is the same situation as experienced with the Global Financial Crisis, in that a decline in demand and weak production activity affect corporate financing and that developments in financial and capital markets can easily become unstable due to increasing uncertainties over the outlook for economic activity. However, the big difference between then and now is that the financial system has maintained its stability on the whole this time. Since the Global Financial Crisis, efforts have been made internationally to enhance the robustness of the financial system, and thus financial institutions have considerable resilience in terms of both capital and liquidity. Because the financial system is stable, the Bank's and the government's measures to support financing through private financial institutions can work effectively. Under these circumstances, although financing, mainly of firms, has been under stress, the environment for external funding, such as bank borrowing and the issuance of CP and corporate bonds, has remained accommodative (Chart 6). Issuance spreads for CP and corporate bonds expanded temporarily but have narrowed of late, and the year-on-year rate of increase in their amount outstanding has continued to be at a relatively high level. That in the amount outstanding of bank lending also has registered the highest growth in about 30 years. At the time of the Global Financial Crisis, with the amount outstanding of CP and corporate bonds becoming lower than the previous year due to the strengthening of investors' risk aversion, downward pressure on the real economy from the financial side intensified amid the situation of banks' cautious lending attitudes. However, such developments have been avoided this time. It is expected that stability of the financial system will not be hampered significantly and the economy will be supported from the financial side. That said, it is necessary to closely monitor future developments because, if the real economy deteriorates for a prolonged period, this could affect the financial system and the vicious cycle that I mentioned earlier could start operating. Price Developments Now, I will explain price developments in Japan (Chart 7). The year-on-year rate of change in the consumer price index (CPI) for all items less fresh food is likely to be negative for the time being. With economic activity remaining at a low level due to the impact of COVID-19, it is expected that prices of goods and services that are sensitive to economic activity will be pushed down. Crude oil prices, which declined significantly compared to a while ago, are projected to push down the CPI through energy prices. That said, when excluding the effects of energy prices, the inflation rate has remained marginally positive thus far. The inflation rates for food products and daily necessities that are sold at supermarkets have increased at relatively high levels. Although those for some items such as charges for accommodations have shown a relatively large decline, firms' price-setting behavior that aims at stimulating demand through price reductions -- as seen during the deflationary period in the past -- is not observed widely at this point. From a somewhat long-term perspective, with the economy improving, downward pressure on prices is projected to wane gradually and the effects of the decline in energy prices are likely to dissipate. Under these circumstances, the year-on-year rate of change in the CPI is expected to turn positive (Chart 5). In the latest Outlook Report, the forecasts of the majority of the Policy Board members for the CPI are in the ranges of minus 0.6 to minus 0.4 percent for fiscal 2020, 0.2 to 0.5 percent for fiscal 2021, and 0.5 to 0.8 percent for fiscal 2022. Thus, the year-on-year rate of change in the CPI is likely to increase gradually. That said, it is unlikely that the inflation rate will approach the price stability target of 2 percent with momentum during the projection period since rapid recovery in demand can hardly be expected. Thus far, I have explained the baseline scenario of the outlook for prices, but I would like to note that it is difficult to assess the impact of COVID-19 on prices. Even among economists, whether the impact will be deflationary or inflationary is a controversial subject. A decline in demand due to the impact of COVID-19 exerts downward pressure on prices of goods and services. I think that the impact of COVID-19 on prices through the demand side will be relatively large, but it also will be exerted on the supply side, mainly due to restructuring supply chains and limiting the number of customers to avoid crowds. In case of supply-side constraints, upward pressure could be exerted on prices. For example, firms that limited their number of customers could choose to keep or raise their prices to secure profits. Thus, there are unusual uncertainties over how firms will set their prices reflecting the impact of COVID-19, and their price-setting behavior warrants attention. II. The Bank's Conduct of Monetary Policy Next, I would like to explain the Bank's conduct of monetary policy. In response to the impact of COVID-19, the Bank considers it important in terms of monetary policy to ensure smooth financing, mainly of firms, and maintain stability in financial markets. On this basis, it has enhanced monetary easing since March and implemented three measures to achieve the following objectives (Chart 8). The first is to support financing, mainly of firms. To this aim, the Bank introduced the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19). The total size of this program is about 120 trillion yen. Specifically, this program consists of (1) purchases of CP and corporate bonds with the upper limit of about 20 trillion yen, which is equivalent in size to a quarter of the domestic market, and (2) the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), which is a fund-provisioning measure to encourage financial institutions' lending, mainly to firms. Through the latter operation, the Bank provides funds on favorable terms to private financial institutions that make loans in response to COVID-19, and the size of this operation will be about 100 trillion yen at maximum. In this operation, the Bank also cooperates with the government. That is, when effectively interest-free and unsecured loans, which are based on the government's economic measures, are provided mainly to small and medium-sized firms through private financial institutions, the Bank provides funds to such institutions on favorable terms. The second is to maintain stability in the financial markets. In order to achieve this, the Bank has adopted a framework through which further ample yen and foreign currency funds can be provided in a flexible manner. As for the yen funds, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level, the Bank decided to purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit, removing the indicative figure of an annual pace of increase in the amount outstanding, which was about 80 trillion yen. Regarding foreign currency funds, the Bank has provided a large amount of U.S. dollar funds in cooperation with five other major central banks. The third is to lower the risk premia in asset markets, and the Bank therefore decided to actively purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The aim of this measure is to prevent firms' and households' sentiment from deteriorating through volatility in asset markets, thereby supporting positive economic activity. These powerful monetary easing measures have exerted positive effects. Although financial and capital markets at home and abroad are still nervous amid high uncertainties over economic activity, tension has eased recently. In addition, as I mentioned earlier, although corporate financing has remained under stress, the environment for external funding -- such as bank borrowing and the issuance of CP and corporate bonds -- has stayed accommodative, owing to various measures taken by the Bank and the government, as well as active efforts made by financial institutions together with those measures. In responding to an emergency situation such as the current one, policy cooperation between the government and the central bank is effective. In fact, many countries have made policy responses in such a manner. The Bank's responses that I explained earlier take into account such effectiveness as well. That said, there are various opinions about the roles of fiscal and monetary policies in cooperating with each other. Let me make clear these roles by focusing on two points. The first is about the roles in purchasing JGBs. The government's aggressive fiscal measures and the Bank's monetary easing measures can have synergistic effects; namely, of a so-called policy mix of monetary and fiscal policies. That said, the Bank's purchases of JGBs are being conducted as part of monetary policy, and thus do not represent monetary financing of government debt. Further active purchases of JGBs decided in April were also based on the need for the conduct of monetary policy. That is, it aims at maintaining stability in the bond market as well as stabilizing the entire yield curve at a low level with a view to controlling short- and long-term interest rates. The second point is about the roles in supporting financing. In response to the current situation, the government and the Bank have taken various measures to support financing, and the government's measures and the Bank's fund-provisioning measures have worked together effectively. On this basis, as for measures that take into account the solvency problem, the government has established programs through which credit guaranteed loans as well as capital and quasi-capital funds can be provided. With regard to effectively interest-free and unsecured loans provided through private financial institutions, the credit risk of the loans is covered by credit guarantees. On the other hand, the fundamental role of the central bank is to provide liquidity. In fact, the Bank has been supporting financing, mainly of firms, while fulfilling this function. Taking into account the differences in the roles, the Bank will continue to pursue what it should do as a central bank. The Bank will continue to make efforts to provide financing support and maintain stability in financial markets through the three measures that I mentioned earlier. In doing so, I have to note that there are high uncertainties over the impact of COVID-19 on the economic and financial side. Thus, for the time being, the Bank will closely monitor the impact and will not hesitate to take additional easing measures if necessary. Conclusion Today, I talked about developments in economic activity and prices affected by COVID-19 and about the enhancement of monetary easing since March in response to the impact. To conclude, I would like to share my thoughts about the discussions on how, from a somewhat long-term perspective, COVID-19 could lead to changes in people's behavior and in the economic structure. Some argue that economic activity after the pandemic will not return to the same level as before. It cannot be denied that demand could decrease as people's behavior becomes cautious. However, there is a possibility that things will turn out to be different when taking a somewhat long-term perspective. To start with, changes in people's behavior may create new demand for goods and services. Since the outbreak of COVID-19, working-style reforms such as teleworking have gained momentum. Efforts to conduct activities online also have been moving ahead in fields such as education and medical care. If digitalization accelerates as a result, this will create demand for both hardware and software. In terms of private consumption, there have been changes such as increasing demand for home delivery services. Many may try to restructure supply chains. In doing so, not only efficiency but also safety and crisis management will likely be taken into account. In line with this, demand may also be created through firms' decisions to move factories and other sites back home. Another possibility is that the issue of COVID-19 could lead to further innovation by, for example, actively using information and communication technology to prevent infections as well as undertaking investments to meet new demand. While the importance of the potential of information and communication technology has been highlighted in the past, its use appears to have further accelerated for the purpose of preventing infections. Amid such changes, I believe it is necessary to push forward with efforts that will lead to enhancement in productivity even after COVID-19 subsides. The recent experience of COVID-19 could also encourage innovation in terms of payment systems by further increasing interest in cashless and digital payments. The Bank also needs to rigorously examine a payment system suitable to the digital economy. In this regard, so-called central bank digital currency (i.e., digital currency issued by the central bank) is one important matter for consideration. The Bank currently has no plans to issue central bank digital currency. However, since the environment is changing extremely rapidly, mainly in terms of trends in technology, I think the Bank needs to shift up a gear and press ahead with examining this matter in order to prepare to respond in an appropriate manner when necessary. For this reason, the Bank took a concrete step last week and established a section called the Digital Currency Group that is tasked with examining these matters. This group aims to deepen its understanding of central bank digital currency in terms of the features of functioning and technological feasibility through conducting experiments. It also will examine matters regarding central bank digital currency while cooperating with other central banks and with relevant entities at home and abroad. Thus, behavioral changes due to the impact of COVID-19 also have positive aspects, in that they may lead to the creation of new demand and further innovation. From a long-term perspective, how well we can take advantage of these positive changes is key in projecting future developments in economic activity. The Bank recognizes that, to this end, it is important to maintain accommodative financial conditions and ensure economic and financial stability during the current phase. These are also important for Japan's economy to return to a steady growth path. Thank you for your attention. Japan's Economy and Monetary Policy Speech at the Japan National Press Club July 29, 2020 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Chart 1 I. Economic and Financial Developments IMF's World Economic Outlook (June 2020) y/y % chg. 2021: +5.4% -1 Global Financial Crisis -0.1% -2 -3 -4 -5 -6 CY00 Source: IMF. 2020: -4.9% Contraction during the Great Depression (1929-32): about -10% IMF's projections Chart 2 I. Economic and Financial Developments Business Sentiment Global PMI Business Conditions DI (Tankan) s.a., DI DI ("favorable" - "unfavorable"), % points All industries Manufacturing Nonmanufacturing Firms' projections -20 Manufacturing "Favorable" Services -40 CY 18 "Unfavorable" -60 CY 18 Note: In the left chart, figures for manufacturing are the "J.P.Morgan Global Manufacturing PMI" and those for services are the "J.P.Morgan Global Services Business Activity Index." Sources: IHS Markit (© and database right IHS Markit Ltd 2020. All rights reserved.); Bank of Japan. Chart 3 I. Economic and Financial Developments Corporate Sector Corporate Profits Business Fixed Investment Plan 7 s.a., % y/y % chg. Private non-residential investment (SNA basis, nominal) Tankan (actual) Tankan (planned investment in current fiscal year as of the June survey of each year) Ratio of current profits to sales Ratio of operating profits to sales -5 -10 CY 05 -15 -20 FY05 Notes: 1. Figures in the left chart are based on the Financial Statements Statistics of Corporations by Industry, Quarterly and exclude "finance and insurance." Figures from 2009/Q2 exclude "pure holding companies." 2. In the right chart, the Tankan figures include software and R&D investments and exclude land purchasing expenses (R&D investment is not included until the December 2016 survey). The figures are for all industries including financial institutions and holding companies, etc. (figures up to the March 2020 survey exclude holding companies, etc.). Sources: Ministry of Finance; Cabinet Office; Bank of Japan. Chart 4 I. Economic and Financial Developments Household Sector Labor Market Conditions Nominal Wages s.a., ratio 7 s.a., % Unemployment rate (left scale) y/y % chg. 1.6 Active job openings-to-applicants ratio (right scale) 1.8 1.4 1.2 -2 1.0 Special cash earnings (bonuses, etc.) Non-scheduled cash earnings 0.8 -4 Scheduled cash earnings Total cash earnings 0.6 CY 05 0.4 -6 09 10 11 12 13 14 15 16 17 18 19 20 Note: In the right chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures from 2016/Q1 are based on continuing observations following the sample revisions. Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. Chart 5 I. Economic and Financial Developments The Bank's Forecasts for Economic Activity and Prices (July 2020 Outlook Report) y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 -5.7 to -4.5 [-4.7] -0.6 to -0.4 [-0.5] Forecasts made in April -5.0 to -3.0 -0.7 to -0.3 Fiscal 2021 +3.0 to +4.0 [+3.3] +0.2 to +0.5 [+0.3] Forecasts made in April +2.8 to +3.9 0.0 to +0.7 +1.3 to +1.6 [+1.5] +0.5 to +0.8 [+0.7] +0.8 to +1.6 +0.4 to +1.0 Fiscal 2022 Forecasts made in April Notes: 1. These figures show the forecasts of the majority of the Policy Board members and those in brackets indicate the medians. The forecasts are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which she or he attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. In the April Outlook Report, each Policy Board member made their forecasts as a range and submitted two figures within the range of 1.0 percentage point at most. 2. The direct effects of the October 2019 consumption tax hike on the CPI for fiscal 2020 are estimated to be 0.5 percentage point. The direct effects of policies concerning the provision of free education on the CPI for fiscal 2020 are estimated to be around minus 0.4 percentage point. Source: Bank of Japan. Chart 6 I. Economic and Financial Developments Corporate Financing CP Corporate Bonds y/y % chg. Lending by Domestic Banks y/y % chg. y/y % chg. -10 -20 -30 -5 COVID-19 Global Financial Crisis -40 -1 -10 -50 -12 -8 months -4 -2 -12 -8 months -4 -12 -8 months -4 Notes: 1. Month 0 is March 2020 for figures for COVID-19 and September 2008 for those for the Global Financial Crisis. 2. Figures for CP and corporate bonds are the amounts outstanding at the end of month. Figures for lending by domestic banks are monthly averages of the amount outstanding. Sources: Japan Securities Depository Center; Japan Securities Dealers Association; I-N Information Systems; Bank of Japan. Chart 7 I. Economic and Financial Developments Consumer Prices 2.0 y/y % chg. CPI (less fresh food) 1.5 CPI (less fresh food and energy) 1.0 0.5 0.0 -0.5 -1.0 CY14 Note: Figures exclude the effects of the consumption tax hike in April 2014. Source: Ministry of Internal Affairs and Communications. II. The Bank's Conduct of Monetary Policy Chart 8 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19: total size of about 120 tril. yen + α Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: about 100 tril. yen Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills: unlimited Enhancement of the U.S. Dollar Funds-Supplying Operations: unlimited Lowering Risk Premia in Asset Markets Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being) 8■
|
bank of japan
| 2,020 | 8 |
Speech by Mr Hitoshi Suzuki, Member of the Policy Board of the Bank of Japan, at a virtual Meeting with Business Leaders, Asahikawa, 27 August 2020.
|
August 27, 2020 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Business Leaders in Asahikawa (via webcast) SUZUKI Hitoshi Member of the Policy Board (English translation based on the Japanese original) I. Recent Economic and Price Developments A. Developments in Overseas Economies I would like to begin my speech by talking about overseas economies. Overseas economies have been depressed significantly, reflecting the novel coronavirus (COVID-19) pandemic. As the impact of COVID-19 wanes, they are likely to recover, partly supported by aggressive macroeconomic policies taken by each country and region. Nevertheless, the pace of recovery is expected to be only moderate, since firms and households are likely to remain vigilant against the risk of infection until effective medicines and vaccines are developed (Chart 1). Let me take a look at developments by major region. The U.S. economy has seen a continued pick-up mainly in its labor market indicators, reflecting moves to resume economic activity despite the ongoing spread of COVID-19. However, it is of concern whether the pace of economic recovery will be sustained, given the resurgence of COVID-19 and anxieties about the political and social situation. In Europe, some signs of heading toward a pick-up have been observed, with indications of a resumption in economic activity, as seen in border restrictions starting to be relaxed within and from outside the European Union (EU). Yet, the economy remains significantly depressed. Along with an increasing number of confirmed COVID-19 cases, there have recently been moves to retighten preventive measures to contain the spread of the infection. As for China, with COVID-19 subsiding for now and economic activity starting to normalize, the economy has picked up due to the emergence of the effects of aggressive macroeconomic policies and the materialization of pent-up demand. On the other hand, in emerging economies, such as Central and South America and India, the number of confirmed COVID-19 cases is still increasing. B. Current Situation of Economic Activity and Prices in Japan Based on the aforementioned developments in overseas economies, let me now move on to economic activity and prices in Japan. Japan's economy was greatly affected by the spread of COVID-19 particularly in the AprilJune quarter of 2020, with the declaration of a state of emergency; the real GDP growth rate registered significant negative growth of minus 7.8 percent from the previous quarter (Chart 2). COVID-19 has exerted considerable downward pressure on aggregate demand in Japan's economy through the following three major channels: (1) goods exports; (2) inbound tourism demand; and (3) domestic private consumption. The output gap -- which represents the balance between the aggregate demand and average supply capacity -- narrowed within positive territory for the January-March quarter, reaching almost 0 percent. Given the deterioration in the diffusion indices (DIs) related to employment and business fixed investment in the Bank of Japan's June 2020 Tankan (Short-Term Economic Survey of Enterprises in Japan), it is quite likely that the gap will become negative for the April-June quarter (Chart 3). In what follows, I will outline each of the three channels through which COVID-19 has exerted downward pressure on aggregate demand in Japan's economy. The first is exports. Exports, mainly of automobile-related goods to the United States and Europe, declined substantially in the April-May period, when each country imposed strict limits on movement in order to contain the spread of COVID-19, and the recovery thereafter has been sluggish. Meanwhile, exports to China, where economic activity resumed first, have continued to pick up. The second channel through which COVID-19 has exerted downward pressure is inbound tourism demand. Inbound demand centered on tourism had been one of the major driving forces in Japan's economy, as indicated by the fact that the number of visitors to Japan exceeded 30 million in 2019. Unfortunately, however, this demand has almost evaporated due to the global spread of COVID-19. The outlook for inbound tourism demand is extremely severe as it is expected to remain subdued for as long as entry restrictions continue. The last channel is domestic private consumption. This marked a large decline particularly in the April-May period, when the state of emergency was in place. Since then, it has been gradually heading toward a pick-up, along with the resumption of economic activity. Nevertheless, the pace of the pick-up will likely be quite moderate, mainly for dining-out and services for individuals, due to vigilance against COVID-19 and the need to ensure social distancing. In addition, the propensity to consume will likely remain at a somewhat low level compared with the past average, mainly due to a rise in concern over future developments. Since COVID-19 has been pushing down aggregate demand considerably through these three channels, corporate profits seem to have declined significantly recently. Weakness in the employment situation has also become evident, as seen in (1) the fact that the DI for employment conditions turned to a net "excessive" for manufacturing, accommodations, and eating and drinking services in the June Tankan; (2) a decline in the active job openings-toapplicants ratio; and (3) a rise in the unemployment rate (Chart 4). Next, I will 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 (the core CPI) has decelerated recently, mainly due to the effects of the decline in energy prices, and has been at around 0 percent. On the other hand, the rate of change in the CPI for all items less fresh food and energy has been in the range of 0.0-0.5 percent recently, albeit with fluctuations (Chart 5). On the price front, COVID-19 has affected not only energy but also such items as the following: (1) travel-related services such as charges for hotels and for overseas package tours; (2) water charges, which declined due to reductions and exemptions by local governments for those who have difficulty paying them; and (3) tutorial fees, which declined reflecting the introduction of online classes. Meanwhile, moves to reduce prices to stimulate demand seen during the deflationary period in the past are not widely observed at this point. In financial markets, tension has abated compared with the period from late February through March 2020, when the markets were extremely unstable. In the foreign exchange market, the yen can be considered to have been substantially stable against the U.S. dollar: it temporarily showed large fluctuations but has become increasingly range bound despite the reduction of the Federal Reserve's policy rate by as much as 2.25 percentage points in total since July 2019. In addition, the annual range of fluctuation for the dollar/yen exchange rate throughout 2019 was as narrow as around 8 yen, the smallest figure recorded since the adoption of the floating exchange rate system in 1973. I would like to point out the following as background to these developments. First, there was no significant difference in the volume of exports and imports for 2019 in Japan, with exports amounting to 76.9 trillion yen and imports amounting to 78.6 trillion yen. However, the proportion of dollar-denominated transactions in imports was higher, at nearly 70 percent, than that in exports, at almost 50 percent. Provided that the net amount of U.S. dollar funds required for exports and imports is raised by selling yen, calculations suggest that this creates demand for approximately 15 trillion yen worth of dollar purchases against the yen, although the result should be interpreted with a certain latitude. Put simply, a 10 percent appreciation of the yen against the dollar would result in an exchange rate profit of approximately 1.5 trillion yen for Japan's economy as a whole. Second, Japanese firms have been expanding their foreign direct investment mainly through overseas mergers and acquisitions (M&As), with the net figure for 2019 reaching a record high of approximately 27 trillion yen. Given that a considerable share of these transactions is denominated in U.S. dollars, they would induce a significant amount of dollar purchases against the yen, barring any currency hedging by the Japanese firms. 1 While speculative purchases of the yen may be discouraged when a substantial amount of the funds is based on sound economic activities, I will continue to pay close attention to developments in the foreign exchange market. C. Outlook for Economic Activity in Japan With the phased resumption of economic activity, Japan's economy is likely to improve gradually from the second half of this year through the materialization of pent-up demand, together with the support of accommodative financial conditions and the government's economic measures. However, the pace of recovery will likely be only moderate as firms and households remain vigilant against COVID-19 while it continues to have a worldwide impact. Therefore, it seems inevitable that the economy will register significant negative growth for Japan's net acquisitions of direct investment assets in 2019 included about 7 trillion yen of "reinvestment of earnings," which does not involve demand for dollar purchases against the yen. fiscal 2020. Thereafter, as the impact of COVID-19 wanes globally and overseas economies return to a steady growth path, the economy is likely to mark relatively high growth for fiscal 2021, and then continue to grow firmly for fiscal 2022. According to the Bank's July 2020 Outlook for Economic Activity and Prices (Outlook Report), the forecasts of the majority of the Policy Board members for the real GDP growth rate are in the range of minus 5.7 to minus 4.5 percent, 3.0 to 4.0 percent, and 1.3 to 1.6 percent for fiscal 2020, 2021, and 2022, respectively (Chart 6). D. Outlook for Prices in Japan Next, I will touch on the outlook for prices. In the July 2020 Outlook Report, the forecasts of the majority of the Policy Board members for the year-on-year rate of change in the core CPI are in the range of minus 0.6 to minus 0.4 percent, 0.2 to 0.5 percent, and 0.5 to 0.8 percent for fiscal 2020, 2021, and 2022, respectively (Chart 6). The background to these forecasts is as follows. First, as I mentioned earlier, COVID-19 will affect the prices of such items as energy and travel-related services in the short run. Prices of items that are sensitive to economic activity, such as food products, durable goods, clothes, and dining-out, are also highly likely to come under gradual downward pressure. Furthermore, mobile phone-related prices are projected to continue to show some weakness, reflecting intensifying competition in the industry. Nevertheless, in due course, movement toward price rises is expected again with the impact of COVID-19 waning and Japan's economy improving. From a somewhat long-term perspective, the inflation rate is likely to accelerate further through the second half of fiscal 2022 with a continued improvement in the output gap and a rise in medium- to long-term inflation expectations -- the perception of firms and households regarding future prices. E. Risks to Economic Activity and Prices However, it should be noted that the outlook for economic activity and prices is extremely unclear and that the balance of risk is skewed to the downside. The largest risk by far is the impact of COVID-19 on domestic and overseas economies. Until effective medicines and vaccines are developed, it is highly unclear how the COVID-19 pandemic will evolve and how long it will take for it to subside. Firms' and households' behavior, including price setting, is also uncertain, given the "new lifestyle" that requires the public to ensure social distancing and that will likely induce a rapid expansion of teleworking and online shopping. Furthermore, if COVID-19 has a larger impact than expected, there is a risk that deterioration in the real economy will affect financial system stability, thereby exerting further downward pressure on the real economy. I would like to elaborate on this later. II. Conduct of Monetary Policy A. Enhancement of Monetary Easing in Light of the Impact of COVID-19 Let me now turn to the Bank's policy conduct. Global financial and capital markets were unstable from late February through March 2020 due to the spread of COVID-19. Investors' risk sentiment deteriorated sharply, stock prices declined significantly, and credit spreads on CP and corporate bonds widened, while the costs of funding U.S. dollars as a safe asset rose rapidly. In addition, financial conditions have become less accommodative in terms of corporate financing, as seen in the deterioration in firms' financial positions due to declining sales and profits. Given these developments, at the regular Monetary Policy Meetings (MPMs) held in March and April and at an unscheduled MPM held in May, the Bank decided to take measures to enhance monetary easing with a view to doing its utmost to ensure smooth financing, such as of financial institutions and firms, and to maintaining stability in financial markets. These consist of three monetary easing measures, namely, (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) (the Special Program), (2) an ample provision of yen and foreign currency funds, and (3) active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) (Chart 7). I will next explain each of these measures. The first is the Special Program to support financing. The program consists of the Bank's purchases of CP and corporate bonds within about 20 trillion yen and introduction of funding measures of about 100 trillion yen to encourage lending by financial institutions. The latter includes a scheme in which the government takes the credit risk of lending by financial institutions to small and medium-sized firms and the Bank provides funds to those financial institutions on favorable terms. The second measure is an ample provision of yen and foreign currency funds. The Bank decided to purchase a necessary amount of Japanese government bonds (JGBs) without limit, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. It has also decided to provide a large amount of U.S. dollar funds based on cooperation with five other major central banks. The third measure is active purchases of ETFs and J-REITs. The aim is to prevent firms' and households' sentiment from deteriorating through volatility in financial markets, thereby supporting positive economic activity. B. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control The Bank has enhanced monetary easing in light of the impact of COVID-19, as I have just outlined, but the Bank has been pursuing powerful monetary easing for more than seven years since the introduction of QQE in 2013. Under powerful monetary easing, with a view to achieving the price stability target of 2 percent, the Bank has made clear its intention to continue with QQE with Yield Curve Control, as long as it is necessary for maintaining that target in a stable manner. Controlling short- and long-term interest rates -- so-called yield curve control -- facilitates the formation of the term structure of interest rates that is most appropriate for achieving the price stability target. Specifically, the Bank applies a negative interest rate of minus 0.1 percent to a portion of current account balances held at the Bank by financial institutions, and purchases JGBs so that 10-year JGB yields will remain at around zero percent (Chart 8). As a result of resolutely continuing with such powerful monetary easing, Japan's economy had continued, up until around 2019, on an expanding trend with a virtuous cycle from income to spending operating. As for prices, the underlying trend in the year-on-year rate of change in the CPI less fresh food and energy has been generally in positive territory for seven years, indicating that the economy is no longer in deflation in the sense of a sustained decline in prices. Unfortunately, however, the momentum toward achieving the price stability target has been lost temporarily due to COVID-19, and thus it is assumed that monetary easing will be prolonged further. C. Effects and Side Effects of Monetary Easing under Prolonged Low Interest Rates As just explained, the positive effects of the Bank's powerful monetary easing measures have materialized under the prolonged low interest rate environment. On the other hand, attention should be paid to the point that side effects have accumulated in this environment, and moreover, that the risk of these side effects exerting a negative impact on financial system stability will heighten due to COVID-19. I will now share my views on the side effects of monetary easing. Although firms' financial positions have deteriorated due to the impact of COVID-19, financial institutions' lending attitudes have remained accommodative so far, as they have been actively supporting their client firms with various measures taken by the Bank and the government to support financing. Nevertheless, financial institutions themselves are also facing a severe situation. According to the International Monetary Fund (IMF), in 2018 the proportion of global systematically important banks that had a return on equity (ROE) below 4 percent was less than 10 percent, but this is projected to increase to around 50 percent by the end of 2020.2 Furthermore, the IMF points out that, if the impact of COVID-19 persists, many banks in advanced economies may fail to generate profits above their cost of equity (COE) in 2025. If ROE does not exceed COE, financial institutions' profitability will gradually decline. This may be attributed to three factors: a narrowing of loan spreads; a decrease in investment income; and an increase in credit costs. I will now explain the situation surrounding these three factors in Japan. Let me first touch on the narrowing of loan spreads. Japan has been confronted with both limited demand for new loans, due to a decline in population and the number of firms across regions, and with prolonged low interest rates. In this situation, financial institutions' average contract interest rates on new loans and discounts have reached extremely low levels, owing in part to intensified competition among institutions. As a result, there has been a narrowing of net profit margins -- calculated by deducting overhead cost ratios from the interest rates. IMF, Global Financial Stability Report, April 2020. For example, the average net profit margin for regional banks -- specifically, member banks of the Regional Banks Association of Japan -- was around minus 2 basis points for fiscal 2019 (Chart 9).3 When considering the net profits of financial institutions, it is also necessary to deduct credit cost ratios -- the amount set aside for potential loan losses (Chart 10). In this situation, if lending rates decline further from the current level, financial institutions will not be able to generate profits unless they procure funds at negative interest rates. It is difficult, however, for deposit rates -- which account for the majority of financial institutions' funding costs -- to fall into negative territory. For this reason, we may be approaching a situation in which, even if market interest rates decline, lending rates do not fall, or the provision of loans does not increase. In addition, the amount of effectively interest-free loans expected to be provided to small and medium-sized firms through private financial institutions based on the government's support and the Bank's fund provisioning totals about 52 trillion yen. These loans will have a significantly positive effect since they serve as a support for firms that are having difficulties raising funds. On the other hand, these effectively interest-free loans are equivalent to almost 20 percent of the amount outstanding of loans to small and mediumsized firms provided by private financial institutions. Therefore, interest-free and unsecured loans currently provided to support corporate financing might put downward pressure on spreads on the ordinary loans that will be made, even after the impact of COVID-19 subsides. In this case, the narrowing of lending margins would become more prolonged. The second factor inducing a decline in financial institutions' profitability is the decrease in investment income. As financial institutions have fulfilled the functioning of financial intermediation by responding to the need for support of financing, mainly of firms, the amount outstanding of bank lending rose significantly for July, by 6.4 percent from the previous year. Meanwhile, the annual growth rate in the amount outstanding of deposits was higher, marking 8.3 percent, due mainly to an expansion in fiscal spending. In terms of value, while lending increased by 30 trillion yen, deposits rose by 60 trillion yen, exceeding the increase in lending by 30 trillion yen. Financial institutions invest such excess deposits in, for example, treasury discount bills (T-Bills) or current account deposits at the Bank, but their Estimated by using financial institutions' average contract interest rates on new loans and discounts (0.78 percent) and overhead cost ratios in the domestic business sector (0.80 percent; compiled by the Regional Banks Association of Japan). profitability declines because the yields on T-Bills and the interest rates on these deposits are extremely low. The third factor is the increase in credit costs. As financial institutions provide active support for firms whose financial positions have deteriorated due to COVID-19, a certain proportion of their loans could become nonperforming, leading to a rise in credit costs. The increase in these costs does not so far seem to be as serious as that observed after the Global Financial Crisis (GFC). However, if the impact of COVID-19 expands, along with potential second or third waves, credit costs could increase to almost the same level seen at the time of the GFC. With the narrowing of lending margins and further declines in JGB yields, financial institutions have actively extended loans to firms with relatively high credit risk and invested in high-risk overseas assets. It is therefore extremely important that the Bank monitor carefully whether a deterioration in the profits and soundness of financial institutions, and any resultant weakening in the functioning of financial intermediation, have a negative impact on Japan's economic activity and prices in the event of a phase shift in economic developments and credit cycles. If interest rates decline excessively with a decrease in financial institutions' profitability due to these three factors, a tightening of the capital constraints of those institutions that failed to secure adequate profits could induce a decline in bank lending. Interest rate levels that reverse the effects of monetary easing in this way are known as "reversal rates." As for now, with financial institutions maintaining their active lending stance, the year-onyear growth rate of loans outstanding has been in positive territory. Nevertheless, as I mentioned earlier, growth in deposits has exceeded that in lending, and the amount outstanding of net borrowings -- calculated by subtracting firms' deposits from their borrowings -- has fallen by around 20 percent over the past 11 years.4 In addition, according According to the Bank's Flow of Funds Accounts, while the amount outstanding of borrowings of private nonfinancial corporations rose from 375 trillion yen at the end of fiscal 2008, to 428 trillion yen at the end of fiscal 2019, the amount outstanding of yen-denominated deposits for the corresponding period increased from 164 trillion yen to 260 trillion yen. As a result, the amount outstanding of net borrowings -- calculated by subtracting deposits from borrowings -- decreased from about 210 trillion yen to about 168 trillion yen. to the Financial Statements Statistics of Corporations by Industry, Annually, for all industries excluding finance and insurance, firms' internal reserves accumulated through fiscal 2018 registered a record high of 463 trillion yen, increasing by about 65 percent over the last decade. This partly reflects the difficulties firms had in borrowing from financial institutions in the wake of the GFC. Cash and deposits accumulated using internal reserves have in fact supported corporate financing amid the recent decline in sales due to COVID-19. It should be noted, however, that the effects of monetary policy on firms' demand for funds could be limited if Japanese firms increasingly tend to accumulate their profits as cash and deposits rather than using them for wages and business fixed investment. The Bank assesses that its monetary policy framework is functioning effectively, and the positive effects of monetary easing outweigh the side effects at this point. In addition, financial institutions in Japan as a whole have considerable resilience in terms of both capital and liquidity, and the stability of the financial system has been maintained despite growing concern over deterioration in financial positions, mainly of firms. Thus, the smooth functioning of financial intermediation seems so far to have been ensured. However, the issue is what lies ahead. Even if the spread of COVID-19 subsides for now, it will take time for economic activity to return to the level before the spread of the disease. Moreover, if COVID19 has a larger impact than expected, there is a risk that deterioration in the real economy will affect the stability of the financial system, thereby exerting further downward pressure on the real economy. While paying due attention to this risk, the Bank should weigh the positive effects against the accompanying side effects more thoroughly when conducting monetary policy. I believe that it is particularly important to aim at achieving both price stability and financial system stability. This is because, as the GFC revealed, once the financial system destabilizes, it is extremely difficult for the Bank to ensure price stability, resulting in a failure to meet both objectives. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Business Leaders in Asahikawa (via webcast) August 27, 2020 SUZUKI Hitoshi Bank of Japan IMF World Economic Outlook Chart 1 (as of June 2020) real GDP growth rate, y/y % chg. projection projection World 3.6 2.9 -4.9 5.4 Advanced Economies 2.2 1.7 -8.0 4.8 United States 2.9 2.3 -8.0 4.5 Euro Area 1.9 1.3 -10.2 6.0 United Kingdom 1.3 1.4 -10.2 6.3 Japan 0.3 0.7 -5.8 2.4 Emerging Market and Developing Economies 4.5 3.7 -3.0 5.9 Emerging and Developing Asia 6.3 5.5 -0.8 7.4 China 6.7 6.1 1.0 8.2 ASEAN-5 5.3 4.9 -2.0 6.2 Russia 2.5 1.3 -6.6 4.1 Latin America and the Caribbean 1.1 0.1 -9.4 3.7 CY Source: World Economic Outlook Update, International Monetary Fund (IMF). Chart 2 Japan's Real GDP s.a., q/q % chg. Q3 Q4 Q1 Q2 -7.8 Real GDP 0.0 -1.8 -0.6 [ann., q/q] [0.2] [-7.0] [-2.5] [-27.8] Private consumption 0.4 -2.9 -0.8 -8.2 Private non-resi. investment 0.2 -4.7 1.7 -1.5 Private residential investment 1.2 -2.2 -4.2 -0.2 Public demand 0.9 0.4 0.0 0.0 Exports of goods & services -0.6 0.4 -5.4 -18.5 Source: Cabinet Office. Chart 3 Output Gap % reversed, DI ("excessive" minus "insufficient"), % points -40 Output gap (left scale) Tankan Tankanfactor factorutilization utilization index index (right (right scale) -30 -20 -10 -2 -4 -6 -8 CY 85 Source: Bank of Japan. Notes: 1. T he output gap is based on staff estimates. 2. T he Tankan factor utilization index is calculated as the weighted average of theproduction capacity DI and the employment conditions DI for all enterprises. The capital and labor shares are used as weights. T here is a discontinuity in the data in December 2003 due to a change in the survey framework. Chart 4 Labor Market Conditions Active Job Openings-to-Applicants Ratio and Unemployment Rate Diffusion Index (DI) for Employment Conditions reversed, DI ("excessive employment" minus "insufficient employment"), % points -80 -60 1.8 Insufficient employment All industries Manufacturing Construction Retailing Accommodations, eating & drinking services s.a., ratio s.a., % 1.6 1.4 -40 1.2 -20 1.0 0.8 0.6 0.4 CY 2005 Active job openings-to-applicants ratio for full-time employees (left scale) Active job openings-to-applicants ratio (left scale) Unemployment rate (right scale) Excessive employment 0.2 Source: Tankan (Short-Term Economic Survey of Enterprises in Japan), Bank of Japan. 0.0 CY 2005 Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. . Chart 5 CPI y/y % chg. 2.0 All items less fresh food (core CPI) 1.5 All items less fresh food and energy 1.0 0.5 0.0 -0.5 -1.0 CY 2013/Apr. Oct. 14/Apr. Oct. 15/Apr. Oct. 16/Apr. Oct. 17/Apr. Oct. 18/Apr. Oct. 19/Apr. Oct. 20/Apr. Source: Ministry of Internal Affairs and Communications. Note: Figures exclude the effects of the consumption tax hike in April 2014. Chart 6 Outlook for Economic Activity and Prices as of July 2020 Forecasts of the Majority of Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) -5.7 to -4.5 -0.6 to -0.4 [-4.7] [-0.5] -5.0 to -3.0 -0.7 to -0.3 +3.0 to +4.0 +0.2 to +0.5 [+3.3] [+0.3] +2.8 to +3.9 0.0 to +0.7 +1.3 to +1.6 +0.5 to +0.8 [+1.5] [+0.7] +0.8 to +1.6 +0.4 to +1.0 Fiscal 2020 Forecasts made in April 2020 Fiscal 2021 Forecasts made in April 2020 Fiscal 2022 Forecasts made in April 2020 Source: July 2020 Outlook for Economic Activity and Prices (Outlook Report), Bank of Japan. Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which he or she attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. In the April Outlook Report, each Policy Board member made their forecasts as a range and submitted two figures (i.e., the highest and lowest figures) within the range of 1.0 percentage point at most. The forecasts of the majority of the Policy Board members were shown as a range excluding four figures -- namely, the two highest figures and two lowest figures among the forecasts of the nine members. Thus, it should be noted that the definition of the forecasts of the majority of the Policy Board members in the April Outlook Report is different from that in the July Outlook Report. Chart 7 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19: total size of about 120 tril. yen + α Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: about 100 tril. yen Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills: unlimited Enhancement of the U.S. Dollar Funds-Supplying Operations: unlimited Lowering Risk Premia in Asset Markets Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen for the time being J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen for the time being Chart 8 Yield Curve Control 1.2 % 1.0 Target level of the long-term interest rate (10-year JGB yields): around zero percent 0.8 0.6 0.4 Short-term policy interest rate: minus 0.1 percent 0.2 0.0 -0.2 residual maturity, year Chart 9 Net Profit Margins Member Banks of the Regional Banks Association of Japan 2.5 % Average contract interest rates on new loans and discounts (total) Overhead cost ratios Net profit margins 1.5 0.5 -0.5 FY 2006 Sources: Bank of Japan; Regional Banks Association of Japan. Chart 10 Credit Cost Ratios 0.8 % Major banks Regional banks Shinkin banks 0.6 0.4 0.2 0.0 -0.2 FY 2006 Source: Bank of Japan.
|
bank of japan
| 2,020 | 8 |
Speech (via webcast) by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at an Economy and Monetary Policy Meeting with Business Leaders, Saga, 2 September 2020.
|
September 2, 2020 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Saga (via webcast) WAKATABE Masazumi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction Good morning. First of all, I would like to offer my heartfelt sympathies to those who are suffering from the heavy rain that occurred in August 2019 and July this year. It would have been better if I could visit Saga Prefecture and talk in person to deepen my understanding of the regional economy, but it became difficult to do so due to the spread of the novel coronavirus (COVID-19) and this meeting had to be held online. Anyway, it is my great pleasure to meet you today, and I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Saga Office and Fukuoka Branch. The COVID-19 pandemic has had a severe impact on the global economy. Not only people's lives, but also employment, income, and business activities have been significantly affected. In addition, from a long-term perspective, human beings have undergone considerable development through globalization, urbanization, and a shift toward a service economy; in other words, by people gathering and closely interacting with each other. COVID-19 poses challenges to the driving force of such development. How can we tackle these challenges? In my speech, I would like to focus on three points. The first is developments since the outbreak of COVID-19; namely, how the Bank has responded to date to the current economic crisis brought about by COVID-19. The second is future developments; that is, how the crisis will affect the economy in the medium to long run and how the Bank will conduct monetary policy. Lastly, I will talk about the current situation of and outlook for Saga Prefecture's economy. I. Current Economic Crisis and Monetary Policy Responses Impact of COVID-19 and Policy Responses to Date Let me start by looking back at the impact that COVID-19 has had on the economic and financial sides and at the policy responses to date. COVID-19 spread worldwide within a short period (Chart 1). The outbreak of COVID-19 was first identified in China and it spread to almost every nation, from advanced economies such as Europe, the United States, and Japan to emerging economies like India, as well as Central and South America. From late February, when COVID-19 began to spread in Europe and the United States, investors' risk sentiment deteriorated and global capital and financial markets became rapidly unstable due to uncertainties over the outlook for the global economy and growing anxiety about COVID-19. Domestic and overseas economies were affected significantly (Chart 2). Many countries conducted strict public health measures such as restrictions on going outside and suspension of business and production activities. In Japan, the government declared a state of emergency in April. These kinds of measures are effective in containing the spread of infectious diseases, but at the same time they constrain economic activity substantially. As these measures were taken, the global economy became depressed significantly. In addition, firms' financial positions tightened rapidly due to a global plunge in their sales. Governments and central banks around the world have responded to the current global crisis swiftly and aggressively based on the lessons learned from the Global Financial Crisis. The government of each country has conducted various economic measures at an unprecedented scale, as seen in income support measures such as unemployment insurance and cash payments, as well as support for corporate financing, which includes loan guarantees. In Japan, the government has conducted economic measures with a project size of 234 trillion yen -- equivalent to approximately 40 percent of the country's GDP -- which largely exceeds the size of measures taken at the time of the Global Financial Crisis. Responses made by the central bank of each country and region have two things in common. One is ensuring stability in financial markets through large-scale provision of liquidity, mainly by purchasing government bonds, and the other is support for financing, mainly of firms, such as through funds-supplying measures to support lending as well as purchases of CP and corporate bonds. In addition, six central banks, including the Federal Reserve and the Bank of Japan, have cooperated to strengthen U.S. dollar funds-supplying operations, thereby rapidly facilitating the provision of U.S. dollar funds to the market. The Bank has swiftly enhanced monetary easing since March and implemented the following three measures in response to the current phase (Charts 3 and 4). First, the Bank introduced the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) in order to support financing, mainly of firms. The total size of this program is about 120 trillion yen. Specifically, this program consists of (1) purchases of CP and corporate bonds with the upper limit of about 20 trillion yen and (2) the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), which will be about 100 trillion yen at maximum. Through this special operation, the Bank provides funds on favorable terms to private financial institutions that make loans in response to COVID-19. The operation also is applied to effectively interest-free and unsecured loans, for which the government takes the credit risk, provided mainly to small and medium-sized firms through private financial institutions. This represents a case of cooperation between the Bank and the government to support financing, mainly of firms. Second, to maintain stability in financial markets, the Bank has adopted a framework through which further ample yen and foreign currency funds can be provided in a flexible manner. As for the yen funds, under yield curve control, the Bank decided to purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit. Regarding foreign currency funds, the Bank has provided a large amount of U.S. dollar funds through the strengthened U.S. dollar funds-supplying operations. Third, the Bank has actively purchased exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The aim of this measure is to lower the risk premia in asset markets, thereby preventing firms' and households' sentiment from deteriorating through volatility in asset markets and supporting positive economic activity. On May 22, Deputy Prime Minister and Finance Minister Aso and Bank of Japan Governor Kuroda together released a statement on countermeasures responding to COVID-19, making clear that the government and the Bank are "committed to making every effort to facilitate corporate financing and maintain stability in financial markets and doing whatever it takes to settle the situation, and will work together to bring the Japanese economy back again on the post-pandemic solid growth track."1 "Statement by Minister Aso and Governor Kuroda on Countermeasures Responding to the Novel Coronavirus (Covid-19)," May 22, 2020, https://www.boj.or.jp/en/announcements/press/danwa /dan2005a.pdf. The Bank's powerful monetary easing measures have had positive effects. Although financial markets are still nervous, tension has eased recently (Chart 5). In March, reflecting unstable conditions in global financial and capital markets, the volatility of stock prices increased to a level observed for the first time since the Global Financial Crisis. However, it has declined, although it remains at a high level compared with the pre-COVID-19 level. U.S. dollar funding costs rose significantly due to an increased precautionary demand for funds, but have decreased as a result of ample U.S. dollar funds provided through the strengthened U.S. dollar funds-supplying operations. Since governments and central banks around the world have responded swiftly and aggressively to the current crisis, global financial and capital markets, including stock markets, U.S. dollar funding markets, and foreign exchange markets, have regained stability within a relatively short period compared with the Global Financial Crisis, and thus have been able to avoid significant fluctuations. Corporate financing in Japan has continued to be under stress. That said, the environment for external funding has remained accommodative due to various measures taken by the Bank and the government as well as to active efforts made by financial institutions (Chart 6). Issuance spreads for CP and corporate bonds expanded temporarily but have narrowed, reflecting monetary easing. In this situation, the year-on-year rate of increase in their amount outstanding has registered high growth exceeding 10 percent. In addition, financial institutions' lending attitudes perceived by firms have remained accommodative and the amount outstanding of bank lending has marked a considerable increase of around 6.5 percent on a year-on-year basis. Current Situation of and Outlook for Economic Activity at Home and Abroad Next, I will talk about the current situation of and outlook for economic activity at home and abroad. Let me start with the global economy. Although it has been depressed significantly, many countries have been resuming economic activities gradually while containing the spread of COVID-19. The Global PMI has picked up from the bottom hit in April. Under these circumstances, the International Monetary Fund (IMF), for example, projects that the global economy will recover from the second half of 2020 (Chart 7). That said, the recovery is expected to be only moderate, with preventive measures, including voluntary ones, continuing to be taken, and the IMF states that "global GDP for the year 2021 as a whole is forecast to just exceed its 2019 level." Similarly to the global economy, Japan's economy is still in an extremely severe situation but economic activity has shown signs of a pick-up, although it remains at a low level. The spread of COVID-19 has not yet subsided globally and there are extremely high uncertainties over future developments. That said, Japan's economy is likely to improve gradually from the second half of this year. As with the global economy, however, preventive measures taken by firms and households will continue to act as a force constraining economic activity while vigilance against COVID-19 continues. Thus, it will likely take time for economic activity to return to the pre-COVID-19 level. The baseline scenario in the Bank's July 2020 Outlook for Economic Activity and Prices (Outlook Report) assumes that the timing of Japan's real GDP returning to the level of fiscal 2019 will be around fiscal 2022. As for prices, the year-on-year rate of change in the consumer price index (CPI) is expected to be negative for the time being, mainly affected by COVID-19 and the past decline in crude oil prices. Thereafter, it is likely to turn positive and accelerate gradually with the economy improving (Chart 8). As presented in the July Outlook Report, the CPI is projected to be in the ranges of minus 0.6 to minus 0.4 percent for fiscal 2020, 0.2 to 0.5 percent for fiscal 2021, and 0.5 to 0.8 percent for fiscal 2022. That said, the aforementioned outlook for economic activity and prices entails high uncertainties and risks are skewed to the downside. First and foremost, the risk is uncertainties over the consequences of COVID-19 and their impact on economic activity at home and abroad. If strict public health measures are reinstated, reflecting developments in COVID-19 in Japan, economic activity can be constrained to a large degree. The second risk factor is that, if the real economy remains depressed and the challenge for economic agents shifts from liquidity to a solvency problem, a vicious cycle will emerge in which the real economy is pushed down further through the impact on the financial sector. Third, attention also should be paid to the risks that medium- to long-term growth expectations of firms and households will decline and that their spending attitudes will become cautious. It is necessary to pay utmost attention to future developments regarding such risks. In addition to these, there are various risks such as an intensifying tension between the United States and China, geopolitical risks, the strengthening of protectionist moves, and natural disasters. Once the risks to economic activity materialize, prices will be affected considerably as a matter of course. Thus, since there are high uncertainties over the impact of COVID-19 on economic activity and prices, for the time being, the Bank will closely monitor the impact and will not hesitate to take additional easing measures if necessary. II. Living with COVID-19 and Future Conduct of Monetary Policy Characteristics of the COVID-19 Shock So far, I have talked about economic developments and the policy responses to date, as well as the baseline scenario of the outlook for economic activity and prices. Now, I will talk somewhat in depth about future developments -- which entail extremely high uncertainties -- while incorporating the medium- to long-term perspective. But before I move on to that, I would like to point out the characteristics of the current economic crisis while comparing it with past crises. First, the current crisis was caused by an external shock; that is, the spread of a new infectious disease.2 Taking past business cycles as an example, when a recession was due to a temporary external shock, the pace of economic recovery seemed to be fast. However, it should be noted that external shocks may persist due to the prolonged impact of COVID-19. In addition, if the external shock leads to instability in financial markets or a financial crisis, the current economic crisis may become more severe. Second, the current crisis has originated from shocks to both aggregate demand and supply. In economics, we usually distinguish shocks to the economy by whether they are shocks to Krugman, a Distinguished Professor at the Graduate Center of the City University of New York, suggests that past business cycles in the United States can be divided into two types: whether they were caused by external shocks or internal shocks accompanying a financial crisis. He notes that the economic recovery was fast when a shock was caused by external factors but took time when it was by internal ones. For details, see Krugman, P., "The Audacity of Slope: How Fast a Recovery?" webinar held by the Princeton Bendheim Center for Finance, May 15, 2020, 1:14:19, https://www.youtube.com/watch?v=h1ZiTIou0_8. aggregate demand or aggregate supply. That said, making such distinctions is not that simple because aggregate demand and supply are related to each other. The negative supply shocks -- caused by contracting COVID-19 and preventive measures such as short-time work, temporary store closures, business suspension, restrictions on people's movement, and ensuring social distancing -- may trigger the negative demand shocks through declines in income and spending.3 In addition, the relation between aggregate demand and supply may change depending on what kind of policy responses are to be made. The third characteristic is regarding uncertainties. For example, it is uncertain how the COVID-19 pandemic will turn out and whether effective vaccines and medicines will be developed. Households and firms may be reluctant to spend when there are such uncertainties.4 How will the COVID-19 shock, which has such characteristics, affect prices? Will they see an inflationary or a deflationary trend? The experience of past economic crises shows that prices will be deflationary when aggregate demand is lower than aggregate supply (Chart 9). Looking at examples of past pandemics, Silvana Tenreyro, an external member of the Monetary Policy Committee of the Bank of England, examined consumer prices in the United Kingdom since the 13th century and observed that the inflation rate tended to fall after a pandemic (Chart 10).5 Professor Guerrieri at the University of Chicago Booth School of Business and others suggest that, theoretically, assuming economies with multiple corporate sectors and taking into account the complementarity between the sectors, negative supply shocks can bring about negative changes in demand that outweigh the shocks. For details, see Guerrieri, V. et al., "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?" NBER Working Paper, no. 26918, 2020. 4 Bloom, N., "Fluctuations in Uncertainty," Journal of Economic Perspectives, vol. 28, no. 2 (Spring 2014): pp. 153-76; Morikawa, M., Sābisu rikkoku ron: Seijuku keizai o kasseika suru furontia (Tokyo: Nikkei Business Publications, 2016), pp. 275-88; Barrero, J. and Bloom, N., "Economic Uncertainty and the Recovery," paper presented at the 2020 Jackson Hole Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, August 28, 2020, https://www.kansascityfed.org/~/media/files/publicat/sympos/2020/20200806bloom.pdf. 5 Tenreyro, S., "Covid-19 and the Economy: What Are the Lessons So Far?" speech given at the London School of Economics webinar, July 15, 2020, https://www.bankofengland.co.uk/-/media /boe/files/speech/2020/covid-19-and-the-economy-speech-silvana-tenreyro.pdf. In addition, research that analyzed developments after past pandemics shows that the natural rate of interest, which is an important factor to take into account when conducting monetary policy, has a tendency to decline for about 20 years after a pandemic and take about another two decades to return to the pre-pandemic level.6,7 Attention should be paid to the fact that, deflationary pressure may be put on the economy unless real interest rates are lowered in accordance with a decline in the natural rate of interest. However, while history provides a useful guide, it should be used with care.8 This is because the natural rate of interest is also affected by the following: the impact of advancement in medical care and improvement in public health on the quality and quantity of the labor force; demographic changes; lifestyle changes; and deepening international interdependence. Moreover, one research study shows that large-scale fiscal policies will put upward pressure on the natural rate of interest.9 That said, in the short run, the negative shocks to aggregate demand caused by COVID-19 may outweigh those to aggregate supply, and households and firms may become cautious with their consumption and investment activities because of high uncertainties over As for explanation of the natural rate of interest, see Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Aomori, June 27, 2019, https://www.boj.or.jp/en/announcements/press/koen_2019/ko190627a.htm/. 7 A research paper examined the major European countries that experienced 19 pandemic events -since the Black Death in the 14th century through the Hong Kong flu after WWII -- where more than 100,000 people died. The results show that the natural rate of interest declines by around 1.5 percent for about 20 years after a pandemic and takes about another two decades to return to the pre-pandemic level. For details, see Jordà, Ò., Singh, S. R., and Taylor, A. M., "Longer-Run Economic Consequences of Pandemics," NBER Working Paper, no. 26934, 2020. 8 The following research paper discusses lessons learned from the experience of the influenza pandemic that occurred in 1918, the so-called Spanish flu. Beach, B., Clay, K., and Saavedra, M. H., "The 1918 Influenza Pandemic and Its Lessons for COVID-19," NBER Working Paper, no. 27673, 2020. As for points to note in general when central bankers use history as a guide, see Saunders, A., "Thinking Historically," Bank Underground, July 30, 2020, https://bankunderground.co.uk /2020/07/30/thinking-historically/#more-6698. 9 Goy, G. and van den End, J. W., "The Impact of the COVID-19 Crisis on the Equilibrium Interest Rate," VoxEU, April 20, 2020, https://voxeu.org/article/impact-covid-19-crisis-equilibrium-interest -rate. COVID-19. Therefore, for the time being, it is necessary to be vigilant against the risk of a decline in the inflation rate. In the medium to long run, attention also should be paid to developments in growth and inflation expectations as well as the savings rate. In particular, it should be noted that temporary external shocks could lead to persistent stagnation. Such risk is what has been described as the secular stagnation hypothesis among major advanced economies since before the outbreak of COVID-19, and it has been regarded as concern over "Japanification." This time, COVID-19 also may bring about hysteresis effects such as on people's attitudes and children's health.10 In order to address both upside and downside risks to prices, the Bank considers it necessary to continue to strongly commit itself to achieving the price stability target. Economic Society during the COVID-19 Era If effective vaccines and treatments are developed, the current crisis will end and economic society may return to what it was before the pandemic. However, even if vaccines and treatments become available, we may have to bear in mind the need to live with COVID-19. As I mentioned at the beginning, the pandemic poses challenges to globalization, urbanization, and the shift to a service economy. Human beings are social animals that like to mingle, and through close interaction between people, we have created new ideas, raised creativity and innovation, and improved productivity (Chart 11).11 Kozlowski, J., Veldkamp, L., and Venkateswaran, V., "Scarring Body and Mind: The Long-Term Belief-Scarring Effects of COVID-19," NBER Working Paper, no. 27439, 2020; Aksoy, C. G., Eichengreen, B., and Saka, O., "The Political Scar of Epidemics," IZA Discussion Paper Series, no. 13351, 2020, http://ftp.iza.org/dp13351.pdf. As for the effects on children's health, see Beach, Clay, and Saavedra, "The 1918 Influenza Pandemic and Its Lessons for COVID-19"; Nakata, D., "Pandemikku no chōki teki kadai: Kodomo e no eikyō o chūshin ni" in Korona kiki no keizaigaku: Teigen to bunseki, eds. Kobayashi, K. and Morikawa, M. (Tokyo: Nikkei Business Publications, 2020), pp. 331-44. 11 Fujita, M. and Hamaguchi, N., "Bunmei to shi te no toshi to korona kiki" in Korona kiki no keizaigaku, Kobayashi and Morikawa, pp. 301-14. Essentially, innovation is born out of social relationships of the time, such as developments in technology levels and social institutions, as well as human networks. 12 Globalization is another driving force behind improvement in productivity. When it comes to globalization, what is often highlighted is the growing international interdependence of people, goods, services, and money, but an important aspect we should not forget is the exchange of knowledge. It is well known that productivity and quality of patent are affected, for example, by exports and foreign direct investment of Japanese firms, research and development (R&D) activities of foreign firms in Japan, and international joint research.13 Cities, too, can essentially be regarded as places of knowledge creation where people interact with each other.14 Will the COVID-19 pandemic bring these patterns to an end? Among economic scholars and journalists, there have been active discussions about the demise of globalization, urbanization, the shift to a service economy, and even capitalism. In my view, while these patterns will be forcefully modified, they will not come to an end. The reason for this, above all, is that one of humans' inherent qualities is that we are social animals that like to mingle and try to stay connected in whatever ways possible. The current crisis has made it clear that imports of daily necessities and health-related goods as well as the global exchange of knowledge are extremely important. Above all, we are all waiting anxiously for the R&D activities of researchers around the world searching for vaccines and treatments for COVID-19 to bear fruit. Potts, J., Innovation Commons: The Origin of Economic Growth (Oxford: Oxford University Press, 2019). 13 According to Todō, Japanese firms can raise productivity by 2 percent through exports or foreign direct investment and their productivity also can be improved through R&D activities of foreign firms in Japan. He continues that data show that international joint research leads to a significant increase in the number of citations of patents obtained by Japanese firms -- that is, improvement in the quality of patents. For details, see Todō, Y., "Korona go no gurōbaru ka no yukue" in Korona kiki no keizaigaku, Kobayashi and Morikawa, p. 115. 14 Glaeser, E., Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier (New York: Penguin Press, 2011); Fujita and Hamaguchi, "Bunmei to shi te no toshi to korona kiki"; Duranton, G. and Puga, D., "The Economics of Urban Density," Journal of Economic Perspectives, vol. 34, no. 3 (Summer 2020): pp. 3-26. However, it is likely that there will be adaptations to COVID-19 and to various changes taking place in society. For example, global supply chains are likely to undergo restructuring, taking national security and public health matters into consideration more than before. Yet, excessive concentration of activities at home can also present a risk in an emergency situation, so it is necessary to strike a balance with economic necessities and risk factors such as natural disasters. While the restructuring of cities will likewise involve striking a balance between decentralization and concentration, telework may redefine the way people work and lead to migration from large cities to rural areas. In that case, however, rural areas taking in such "migrants" will need to devise ways to make themselves more attractive. Evolution of Monetary Policy Economic stabilization policy plays an essential role not only in mitigating fluctuations in income and employment due to the COVID-19 shock but also, from a somewhat long-term perspective, in making a desirable shift smoothly from the existing economy to one that is compatible with infectious disease.15 Taking this point into account, I would like to talk about what I consider important to the evolution of monetary policy. Based on experiences at the time of the Global Financial Crisis and lessons learned, central banks made swift responses to the current economic crisis and further cooperated with other central banks and their respective governments. I will elaborate on each of these points in what follows. First, as for liquidity provisioning -- a main component of central banks' swift responses -they have expanded its range and means, reflecting the characteristics of the current crisis. At the time of the Global Financial Crisis, central banks evolved from being the lenders of last resort -- put forward by Walter Bagehot -- to the market makers of last resort or the Looking back, a reversal of globalization, which advanced in the second half of 19th century, happened at the time of Great Depression in the 1930s, when the economy failed to stabilize. James, H., The End of Globalization: Lessons from the Great Depression (Massachusetts: Harvard University Press, 2001). global lenders of last resort.16 During the current crisis, a wide range of economic agents suddenly faced the disappearance of demand and issues of financing. In reflection of this, central banks provided liquidity, keeping in mind support for smooth financing of not only financial institutions but also firms, sole proprietors, and households. In addition, the strengthening of the U.S. dollar funds-supplying operations via the standing U.S. dollar liquidity swap line arrangements is the outcome of international cooperation, since it was led by information exchange between six major central banks including the Federal Reserve and the Bank of Japan. In order to support swift responses, the importance of high-frequency data, with their advantage in terms of promptness, has become recognized. Besides daily data for prices or sales, which have been used even before the current crisis, mobility information has started to be used so that developments in eating and drinking services can be captured via data on the nighttime populations of selected downtown areas, and developments in travel services also can be grasped by investigating the number of visitors at Cultural World Heritage Sites in Japan.17 However, at present, there are some challenges in using these high-frequency data.18 For many of these data, the samples are biased and seasonal adjustments are not conducted. Thus, there is room for improvement in the use of high-frequency data and they should be regarded not as alternatives but as complements to official data. In addition, background information with respect to changes in economic developments is necessary in interpreting these data. The Bank has conducted interviews with firms while making use of Nakaso, H., "Financial Crises and Central Banks' 'Lender of Last Resort' Function," remarks at the Executive Forum hosted by the World Bank titled "Impact of the Financial Crises on Central Bank Functions," April 22, 2013, https://www.boj.or.jp/en/announcements/press/koen_2013 /ko130423a.htm/. 17 See Boxes 1 and 2 in the April 2020 Outlook for Economic Activity and Prices (https://www.boj.or.jp/en/mopo/outlook/gor2004b.pdf) and Boxes 1 and 3 in the July 2020 Outlook for Economic Activity and Prices (https://www.boj.or.jp/en/mopo/outlook/gor2007b.pdf). 18 Regarding an example for those who see a great advantage in the use of high-frequency data, see Haldane, A. G., "The Second Quarter," speech held on June 30, 2020, https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/the-second-quarter-speech-by-andy -haldane.pdf. For cautious views on the use of such data, see "Why Real-Time Economic Data Need to Be Treated with Caution," The Economist, July 23, 2020, https://www.economist.com /finance-and-economics/2020/07/23/why-real-time-economic-data-need-to-be-treated-with-caution. the network of its Head Office and branches, and the insights it obtains remain crucial. Thus, in terms of making policy decisions, what is important is not only to look at official statistics, interviews with firms, and historical analysis to grasp the medium- to long-term trend in data but also to make effective use of high-frequency data as complements to these. Second, it is essential for the governments and central banks to cooperate with each other in terms of fiscal and monetary policies, while fulfilling their respective roles, in order to address such economic crises as the current one. Basically, central banks can provide liquidity through lending but cannot spend money. It is the private sector and the governments that can spend money.19 The role of central banks is to conduct monetary policy, while the governments are mainly in charge of fiscal policy and public health measures concerning infectious diseases, as well as growth, trade, and urban policies. Such cooperation will have positive effects on price developments as well. Assuming that an infectious disease exerts downward pressure on the natural rate of interest, large-scale fiscal policies may work to push up that rate. It is also important to raise people's growth expectations by enhancing market environments mainly through regulatory reforms. In particular, in order to further push forward with telework and digital transformation, what is essential is investment in information and communication technology (ICT), as well as investments in training of employees and reorganizing corporate structures, both of which complement such technology. With investment in general remaining weak, ICT investment Powell, Chair of the Federal Reserve, stated at the press conference held on April 29, 2020 as follows: "I would stress that these are lending powers and not spending powers. The Fed cannot grant money to particular beneficiaries. We can only make loans to solvent entities that the -- with the expectation that the loans will be repaid. Many borrowers will benefit from our programs, as will the overall economy." As for the transcript, see https://www.federalreserve.gov/mediacenter/files /FOMCpresconf20200429.pdf. in Japan has continued to stagnate since the 1990s (Chart 12).20 This investment should be regarded positively as one with an eye on the future, not as a cost that should be cut. Thus, with high uncertainties over developments in the economy that is currently facing the significant COVID-19 shock, cooperation between central banks and their governments not only can provide a sense of security to the people and financial markets but also can enhance the synergistic effects; namely, of a so-called policy mix of monetary and fiscal policies. Third, while taking these factors into account, it is necessary to constantly have deep discussions in order to improve monetary policy. Some other central banks have been reviewing their monetary policy frameworks. For example, there have been discussions over the "makeup strategies" in which central banks will compensate for past inflation shortfalls with policy stances to generate higher inflation in the future. As a background to their reviews of the frameworks, under the prolonged low growth, low inflation, and low interest rate environment since the Global Financial Crisis, the natural rate of interest has declined in advanced economies; consequently, the policy interest rates have easily reached the lower bound of nominal interest rates, thereby making it difficult to enhance the effectiveness of monetary policy. On August 27, 2020, the Federal Reserve adopted both average inflation targeting and a makeup strategy, in that it "seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time."21 As symbolized by the term "Japanification," Japan has faced the same challenges, and the Bank has continued to According to the material presented by Fukao Kyōji at a Cabinet Office workshop held on April 15, 2020, labor productivity in Japan is 59 percent of that seen in the United States in 2012, and is mostly lower in the nonmanufacturing sector. Regarding the gap between Japan and the United States, this is 52 percent attributable to the low capital equipment ratio (in other words, low amounts of investment) and 37 percent to the low total factor productivity (TFP). For details, see https://www5.cao.go.jp/keizai2/keizai-syakai/future2/20200415/shiryou1.pdf (available only in Japanese). 21 "Statement on Longer-Run Goals and Monetary Policy Strategy," August 27, 2020, https://www.federalreserve.gov/monetarypolicy/files/FOMC_LongerRunGoals.pdf. make various advanced efforts to overcome them. In September 2016, in particular, the Bank made a comprehensive assessment mainly based on experiences related to monetary policy conducted until then and introduced "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control," which is still conducted. Reflecting the current crisis, there will be further discussions on monetary policy.22 The Bank deems it necessary to give further consideration to what kind of monetary policy should be taken in the COVID-19 era while referring to discussions being held at other central banks. III. Current Situation of and Outlook for Saga Prefecture's Economy Now, I would like to move on to the economy of Saga Prefecture. As with other regions, economic activity has continued to be weak on the whole due to the impact of COVID-19, although signs of a pick-up have been seen. Like other regions of Japan, Saga Prefecture has been facing structural problems such as a declining and aging population. However, economic growth can be achieved even in this situation.23 The key in this regard is the constant creation and utilization of new knowledge. Regarding the various initiatives to achieve future growth that make use of the prefecture's features, I would like to focus on three areas. The first concerns the promotion of primary industries and the expansion of sales channels. The prefecture is endowed with the rich natural resources of the Saga Plain, Ariake Sea, and Genkainada Sea, and it is in the vicinity of Fukuoka, which is a major consumption center. By taking advantage of these, the industries of agriculture, fishing, and aquaculture have been flourishing since ancient times, and the prefecture has established a firm position as the largest producer nationwide of greenhouse-grown unshu mikan and cultivated seaweed. In addition, recently, joint efforts by the public and private sectors to further increase the value-added of local products have been moving ahead, such as the promotion of exports of high-quality "Saga Beef" and local As for discussions being held overseas, see Wakatabe, "Japan's Economy and Monetary Policy," speech in Aomori on June 27, 2019. 23 As for the relation between declining and aging population and economic growth, see Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Ehime, February 5, 2020, https://www.boj.or.jp/en/announcements/press/koen_2020/ko200205a.htm/. sake, and turning the Ichigosan strawberry developed in 2018 into a nationwide brand. Furthermore, I hear that, most recently, in response to COVID-19, efforts have focused on developing new sales channels by opening SAGA Marché to sell the prefecture's local specialties online. The second set of initiatives focuses on the accumulation of a wide variety of industries. Saga Prefecture was a pioneer in Japan's industrial modernization, including the creation of Japan's first reverberatory furnace, and I believe that this enterprising spirit has been inherited by the local manufacturing sector. With manufacturing firms in the automobileand electrical parts-related industries accumulating in the Kyushu region, the scope for local firms has expanded further. In addition, the Karatsu Cosmetics Project, which aims to build a cosmetics industry hub in the northern part of the prefecture, has steadily produced results. In the nonmanufacturing sector, the outskirts of Tosu City, an important transportation hub, represent one of the Kyushu region's major logistics bases. Moreover, local information technology (IT) firms have been carrying out a wide range of projects that combine cutting-edge technologies -- such as artificial intelligence (AI), the Internet of Things (IOT), and robotics -- with various types of businesses and industries, and I hear that there are a growing number of examples of IT firms from Tokyo and elsewhere opening up offices within the prefecture with the active support of the local government. I believe that such accumulation of various industries will be a major driving force for future growth of the local economy. The third area is tourism. Saga Prefecture is blessed with many tourist attractions such as the Yoshinogari remains, Arita, which is the birthplace of Japanese porcelain, the Mietsu Naval Dock, which is a Cultural World Heritage Site, as well as the Ureshino and Takeo hot springs with their history and tradition. While the tourism industry at present faces great challenges due to the impact of COVID-19, the Arita Ceramics Online Market held in May received more orders than expected, and I hear that it got a good response from those involved as a way to expand tourism, and as a practical sales channel. In addition, the prefecture is proposing longer trips that allow visitors to enjoy the open air, such as the promotion of cycle tourism encouraging visitors to cycle around sightseeing spots in the prefecture and the enhancement of an adventure park in harmony with nature. I believe that these efforts will lead to the creation of new tourism in the COVID-19 era. Saga Prefecture has had close overseas relations, as can be seen in the history of Asian trade by the Matsura party, the Nanban trade of goods such as Imari ware, and the Nagasaki guard. In addition, as represented by Nabeshima Kanso, a wise ruler of the Saga clan at the end of the Edo period, the people of Saga at that time worked hard to promote education as well as science and technology, enthusiastically absorbing and implementing knowledge from abroad. I hope that Saga Prefecture's economy will continue to grow through the enterprising spirit of its people. Conclusion As I mentioned at the beginning, the impact of COVID-19 is extremely severe. The Bank has made responses actively thus far to ensure stability in financial markets and to support financing, mainly of firms, but it is necessary to continue to exercise the utmost vigilance against economic and price developments with the impact of COVID-19 remaining. The Bank also will continue to respond to the crisis while working together with the government. Although COVID-19 poses a major challenge, humankind has always won the battle against infectious diseases. Following the outbreak of smallpox in the Saga clan in 1846, Nabeshima Kanso in 1849 ordered vaccination with the cowpox virus, the most up-to-date approach at that time.24 As part of this, Nabeshima's son Jun'ichirō (later Naohiro) and daughter Mitsuhime were also given the vaccine in an effort to raise awareness and disseminate scientific knowledge (Chart 13). I am confident that, with all its ingenuity, humanity will overcome the current challenges as well. Sugitani, A. et al., Saga-ken no rekishi, 2nd ed. (Tokyo: Yamakawa Shuppansha, 2013), p. 227. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Saga (via webcast) September 2, 2020 WAKATABE Masazumi Deputy Governor of the Bank of Japan Chart 1 I. Current Economic Crisis and Monetary Policy Responses COVID-19 Daily Confirmed New Cases 0.5 Stock Prices 10 thous., weekly average 0.4 Japan 0.3 China beg. of 2020=100 Japan United States Europe 0.2 0.1 Feb. Mar. Apr. May. 10 thous., weekly average United States Jun. June Jul. July Aug. Europe India, Brazil, Russia Feb. Mar. Apr. May. June Jun. July Jul. Aug. CY 07 Note: In the right-hand chart, figures for Japan are the Nikkei225 Stock Average, those for U.S. are the S&P500 and those for Europe are the EURO STOXX. Shaded areas for September 15, 2008 to March 31, 2009 correspond to the Global Financial Crisis and for March 1, 2020 onward to COVID-19. Sources: Haver; Bloomberg. Chart 2 I. Current Economic Crisis and Monetary Policy Responses COVID-19 Stringency Index of Preventive Measures against the Spread Business Sentiment points ↑Stricter s.a., DI Japan United States France Italy Jan. Feb. Mar. Apr. May. Jun. June Jul. July Aug. Manufacturing Services CY 07 Notes: 1. Figures in the left-hand chart are based on governments' preventive measures, such as school closures and travel restrictions. Calculated by the University of Oxford. 2. In the right-hand chart, figures for manufacturing are the "J.P.Morgan Global Manufacturing PMI" and those for services are the "J.P.Morgan Global Services Business Activity Index." Sources: Haver; IHS Markit (© and database right IHS Markit Ltd 2020. All rights reserved.). Chart 3 I. Current Economic Crisis and Monetary Policy Responses The Bank's Measures in Response to COVID-19 (Time Series) Support for Corporate Financing <Special Program> Providing Yen and Foreign Currency Funds to Stabilize Financial Markets Active Purchases of ETFs and J-REITs The spread of COVID-19 worldwide and global financial market turmoil March 16 MPM Introduced Special Funds-Supplying Operations to Facilitate Financing Increased the amount of purchases of CP and corporate bonds Upper limit: +2 tril. yen Total: about 7.4 tril. yen Enhanced the U.S. dollar funds-supplying operations Unlimited Provided yen funds through active purchases of JGBs Doubled the annual pace of purchases ETFs: 12 tril. yen J-REITs: 180 bil. yen Declaration of a state of emergency by the government (nationwide, April 16) April 27 MPM Strengthened the operations Increased the number of eligible counterparties Applied a positive interest rate of 0.1 percent Further increased the amount of purchases Total: 20 tril. yen Further active purchases Removed the indicative figure of 80 tril. yen, unlimited The Diet's approval of the budget related to the government's emergency economic measures (the first supplementary budget, April 30) May 22 Unscheduled MPM Further strengthened the operations Introduced a new measure for fund-provisioning against interest-free and unsecured loans Statement by Deputy Prime Minister Aso and Governor Kuroda (May 22) Chart 4 I. Current Economic Crisis and Monetary Policy Responses The Bank's Measures in Response to COVID-19 Support for Corporate Financing Special Program to Support Financing in Response to COVID-19: total size of about 120 tril. yen + α Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: about 100 tril. yen ・ Provide funds to private financial institutions on favorable terms for the loans that they make in response to COVID-19. ・ Eligible loans include effectively interest-free and unsecured loans to small and medium-sized firms through private financial institutions for which the government takes the credit risk. Providing Yen and Foreign Currency Funds to Stabilize Financial Markets Further active purchases of JGBs and T-Bills: unlimited Strengthening of the U.S. dollar funds-supplying operations: unlimited ・ In line with a coordinated action by six central banks, the Bank's operation was enhanced by lowering the loan rate, offering U.S. dollars with longer maturities, and increasing the frequency of the provision. Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being) Chart 5 I. Current Economic Crisis and Monetary Policy Responses Global Financial Markets Dollar Funding Premiums through Foreign Exchange Swaps Stock Price Volatility % 4 % United States Japan ↑Increase in funding costs ↑Higher volatility in stock prices yen/U.S. dollar, yen/euro Yen/U.S. dollar Yen/euro CY07 Foreign Exchange -1 CY07 CY 07 Notes: 1. Shaded areas for September 15, 2008 to March 31, 2009 correspond to the Global Financial Crisis and for March 1, 2020 onward to COVID-19. 2. In the left-hand chart, figures for the United States are the VIX Index and those for Japan are the Nikkei 225 Volatility Index. 3. As for the middle chart, figures are calculated as U.S. dollar funding rate from yen minus 3-months dollar LIBOR. Source: Bloomberg. Chart 6 I. Current Economic Crisis and Monetary Policy Responses Corporate Financing % 1.4 % points COVID-19 (Mar. 2020) 1.2 Lending by Domestic Commercial Banks Lending Attitudes of Financial Institutions Issuance Spread for CP (Rated a-1) COVID-19 (2020/Q1) 0.8 Global Financial Crisis (2008/Q3) Severe 0.6 COVID-19 (Mar. 2020) 1.0 Global Financial Crisis (Sept. 2008) y/y % chg. Accomodative Global Financial Crisis (Sept. 2008) Severe 0.4 -10 0.2 -1 -20 0.0 -12 -9 -6 months -3 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 quarters -2 -12 -9 -6 months -3 Notes: 1. For each chart, month 0 and quarter 0 are indicated in the legend for each event. 2. In the left-hand chart, the issuance spread is calculated as the issuance yield for CP minus the yield on 3-month T-Bills. Sources: Bloomberg; Japan Securities Depository Center; Bank of Japan. Chart 7 I. Current Economic Crisis and Monetary Policy Responses Outlook for Domestic and Overseas Economies Japan's Economy (The Bank's Outlook Report, July 2020) Global Economy (IMF, June 2020) CY 2019＝100 100.0 100.2 FY 2019＝100 100.0 99.9 95.1 98.4 95.3 Forecasts Forecasts CY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 FY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Sources: IMF; Bank of Japan. Chart 8 I. Current Economic Crisis and Monetary Policy Responses Forecasts for Economic Activity and Prices Forecasts of the Majority of the Policy Board Members (July 2020 Outlook Report) Risk Factors y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 -5.7 to -4.5 [-4.7] -0.6 to -0.4 [-0.5] Forecasts made in April 2020 -5.0 to -3.0 -0.7 to -0.3 Fiscal 2021 +3.0 to +4.0 [+3.3] +0.2 to +0.5 [+0.3] Forecasts made in April 2020 +2.8 to +3.9 0.0 to +0.7 Fiscal 2022 +1.3 to +1.6 [+1.5] +0.5 to +0.8 [+0.7] Forecasts made in April 2020 +0.8 to +1.6 +0.4 to +1.0 Risks are skewed to the downside, mainly due to the impact of COVID-19 Impact of COVID-19 on domestic and overseas economies Developments in the financial system From liquidity to solvency Firms' and households' medium- to long-term growth expectations Other various risks (intensifying tension between U.S. and China, geopolitical risks, protectionist moves, natural disasters, etc.） Notes: 1. These figures show the forecasts of the majority of the Policy Board members and those in brackets indicate the medians. The forecasts are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which she or he attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. In the April Outlook Report, each Policy Board member made their forecasts as a range and submitted two figures within the range of 1.0 percentage point at most. Thus, it should be noted that the definition of the forecasts is different between the figures presented in the April and July Outlook Report. 2. The direct effects of the October 2019 consumption tax hike on the CPI for fiscal 2020 are estimated to be 0.5 percentage point. Those of policies concerning the provision of free education on the CPI for fiscal 2020 are estimated to be around minus 0.4 percentage point. Source: Bank of Japan. Chart 9 II. Living with COVID-19 and Future Conduct of Monetary Policy Comparison with Past Economic Crises Period Causes 1929-1930s *Differ by country and region • Macroeconomic policy mistakes Postwar High Inflation in Japan 1945Beginning of • Destruction of production facilities by war Great Inflation 1970s *Differ by country and region • Continuation of extremely accommodative macro policy Great Recession after the Global Financial Crisis 2007-2009 *Differ by country and region Great Depression • Financial crisis Prices Extreme deflation • Aggregate supply>Aggregate demand • Demobilization 2020-? • Expansionary fiscal and monetary policy • Tightening of fiscal and monetary policy High inflation • Tightening of fiscal and monetary policy Deflation or low inflation • Liquidity provision • Expansionary fiscal and monetary policy • Aggregate supply<Aggregate demand • Fall in commodity prices, financial crisis • Aggregate supply>Aggregate demand • Self-restraint, lockdowns, social distancing to prevent the spread of COVID-19 COVID-19 Crisis • Moving away from gold standard High inflation • Aggregate supply<Aggregate demand • Oil shocks Policy Responses • No damages to production facilities, however, their economic value has changed. • From decline in aggregate supply to decline in aggregate demand →Aggregate supply>Aggregate demand? • Liquidity provision Deflation or low inflation? • Income compensation • Capital injection • Expansionary fiscal and monetary policy Chart 10 II. Living with COVID-19 and Future Conduct of Monetary Policy COVID-19 and Prices Outbreaks of Infectious Diseases in the United Kingdom and Consumer Price Index y/y % chg., 5 year rolling averages, % -5 -10 CY 1250 Note: The event lines indicate the start of infectious disease epidemics such as the Black Death, the plague, and influenza in the United Kingdom. The red lines highlight developments in the consumer price index following the start of each epidemic. Source: Tenreyro, S., "Covid-19 and the Economy: What Are the Lessons So Far?" speech given at London School of Economics webinar, July 15, 2020, https://www.bankofengland.co.uk /-/media/boe/files/speech/2020/covid-19-and-the-economy-speech-silvana-tenreyro.pdf. Chart 11 II. Living with COVID-19 and Future Conduct of Monetary Policy History of Globalization and Urbanization World Trade Volume to GDP Ratio % Urbanization Rate % CY 1960 Notes: 1. In the left-hand chart, figures for world trade volume are the sum of exports and imports. BCE CE 2. In the right-hand chart, figures are the percentages of the population living in urban areas. Sources: World Bank; Goldewijk, K. K., Beusen, A., and Janssen, P., "Long-Term Dynamic Modeling of Global Population and Built-Up Area in a Spatially Explicit Way: HYDE 3.1," The Holocene, vol. 20, issue 4 (2010): pp. 565-73. Chart 12 II. Living with COVID-19 and Future Conduct of Monetary Policy ICT Investment CY 1995＝100 Japan United States United Kingdom France CY 1980 Source: OECD. Conclusion Smallpox Vaccination in the Saga Clan "Naomasa kō shishi Jun'ichirō gimi shutō no zu" (Painting of the smallpox vaccination of Jun'ichirō, the heir of Nabeshima Kanso) Drawn by Jinnouchi Shōrei, owned by Saga-Ken Medical Centre Koseikan Chart 13
|
bank of japan
| 2,020 | 9 |
Speech (via webcast) by Mr Goushi Kataoka, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Okinawa, 2 September 2020.
|
September 3, 2020 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Business Leaders in Okinawa (via webcast) KATAOKA Goushi Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Overseas Economies I would like to start my speech by looking at developments in overseas economies. At the beginning of 2020, the growth pace of the global economy was expected to recover gradually. Economic developments took an unexpected turn, however, after the novel coronavirus (COVID-19) -- whose first case of infection was confirmed in China at the end of last year -- spread worldwide. Chart 1 shows how the number of newly confirmed cases increased in China from January to February 2020, and then from March to April cases increased explosively in Europe and the United States. A further spread has been seen among emerging and developing countries such as those in South America and South Asia, making COVID-19 the most virulent pandemic since the Spanish flu in the early 20th century. The pandemic continues to evolve, with uncertainty as to when the spread of the virus will subside. Chart 1 Daily New Cases of COVID-19 1,000 cases 1,000 cases United States Euro area Others China (right scale) 20-Jan 17-Feb 16-Mar 13-Apr 11-May 8-Jun 6-Jul 3-Aug 31-Aug Notes: 1. Figures are 7-day backward moving averages. 2. The latest figures are as of August 31, 2020. 3. Figures for the United States are based on data from the Centers for Disease Control and Prevention (CDC), while those for the Euro area and Others are based on data from the World Health Organization (WHO). For China, there is a discontinuity in the data for February 17 to 19 due to the difference in the basis, and figures for March 16 onward are based on data released by the Chinese government (those before March 16 are based on WHO data). Source: CEIC. Economic indicators declined markedly in many of the affected countries and regions as economic activity became significantly constrained worldwide, mainly reflecting the implementation of strict public health measures. The annualized quarter-on-quarter growth rates of real GDP for the April-June quarter were around minus 30 percent in the United States and around minus 40 percent in the European Union, resulting in record declines. Although the global economy has bottomed out, the pace of recovery is likely to be moderate for the time being. Chart 2 shows the June 2020 World Economic Outlook (WEO) Update released by the International Monetary Fund (IMF). According to the baseline scenario on the left-hand side of the chart, the timing of recovery for real GDP growth rates is expected to differ across regions, depending on the timing and severity of the spread of COVID-19 as well as the magnitude of the impact public health measures have on economic activity. In China, where the spread of the disease was contained at an early stage, the real GDP growth rate fell sharply for the January-March quarter, but returned to its pre-pandemic level for the April-June quarter, as projected. The scenario for advanced economies is quite different. Real GDP growth rates fell considerably -- more so than in China -- for the April-June quarter. Although the rates are likely to follow a recovery trend, they are expected to return to preChart 2 World Economic Outlook (IMF) Baseline Scenario (Forecasts for Real GDP) Risk Scenarios (Deviation from the Baseline Scenario) Q1 2019 = 100 % pts. Faster-than-expected recovery starting in the second half of 2020 Second major outbreak in 2021 World Advanced economies Emerging market and developing economies other than China China Q1 Q2 Q3 CY 2019 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -2 -4 -6 CY 2019 Note: Figures in the right-hand graph are deviation rates of global real GDP from the baseline scenario. Source: IMF, "World Economic Outlook (June 2020)." pandemic levels only in or after 2022. Meanwhile, the real GDP growth rates of emerging and developing economies other than China have declined less sharply and recovered with greater momentum relative to advanced economies. Nonetheless, their return to pre-pandemic levels is expected to lag behind China by about a year. The baseline scenario I have referred to assumes that the impact of COVID-19 will wane as early as the second half of this year. However, there is a distinct possibility that this assumption may not be realized, given that several countries have already either suffered or shown indications of a resurgence in cases. The right-hand side of Chart 2 provides two different risk scenarios from the IMF, in which global real GDP deviates from the baseline scenario: an upward deviation scenario that assumes a faster-than-expected recovery starting in the second half of 2020, and a downward deviation scenario that assumes a second major outbreak of COVID-19 next year. Specifically, the global real GDP is expected to deviate upward by approximately 3 percent in the first scenario and downward by about 5 percent in the second. Particularly, if the second scenario materializes, the global economic depression will intensify and become prolonged; thus, it is necessary to pay further attention to developments in the global economy and their effect on business and household sentiment as well as on global capital markets and the financial system. B. Japan's Economy Next, I would like to turn to economic developments in Japan, starting with real GDP growth rates. In Chart 3, the line graph shows developments in the real GDP growth rate and the bar graph shows the contribution of each demand component to the growth rate. The first preliminary estimate of the real GDP growth rate for April-June 2020 registered negative growth for the third consecutive quarter since October-December 2019, marking minus 7.8 percent on a quarter-on-quarter basis and minus 27.8 percent on an annualized basis. The decline for the April-June quarter is significantly larger than that for the January-March quarter of 2009, immediately after the collapse of Lehman Brothers. The chart shows a significant decline in both domestic demand -- mainly private consumption -- and exports, which reflects the stagnation in economic activity at home and abroad caused by the COVID-19 pandemic. Chart 3 Real GDP Growth Rate and Breakdown by Demand Component s.a., ann., q/q % chg. -5 -10 -15 Private consumption Government spending Imports Real GDP -20 -25 Private business fixed investment, etc. Exports Change in inventories, etc. -30 CY 2013 Source: Cabinet Office, "Quarterly Estimates of GDP for April-June 2020 (First Preliminary Estimates)." Chart 4 shows the outlook for Japan's economy. As presented in the July 2020 Outlook for Economic Activity and Prices (Outlook Report), the medians of the Bank of Japan Policy Board members' forecasts for real GDP growth rates are minus 4.7 percent for fiscal 2020, 3.3 percent for fiscal 2021, and 1.5 percent for fiscal 2022. Japan's economy is likely to improve gradually from the second half of 2020, but the pace is expected to be only moderate Chart 4 Outlook for Economic Activity and Prices (July 2020 Outlook Report) medians of Policy Board members' forecasts, y/y % chg. Real GDP CPI (all items less fresh food) (Reference) Excluding the effects of the consumption tax hike and policies concerning the provision of free education Fiscal 2020 -4.7 -0.5 -0.6 Fiscal 2021 +3.3 +0.3 Fiscal 2022 +1.5 +0.7 Note: The direct effect of the consumption tax hike on the CPI for fiscal 2020 is estimated to be 0.5 percentage point, and that of policies concerning the provision of free education is estimated to be minus 0.4 percentage point. Source: Bank of Japan, "Outlook for Economic Activity and Prices (July 2020)." while the impact of COVID-19 remains worldwide. Thereafter, as the impact subsides globally, the economy is projected to keep improving further with overseas economies returning to a steady growth path. However, as described in the July Outlook Report, risks to the outlook are tilted to the downside. I am of the view that real GDP growth rates will in fact be lower than the medians of the members' forecasts. In this regard, I will now examine major GDP components such as consumption, business fixed investment, and exports. Let me start with consumption, as shown in Chart 5. After declining considerably due to the consumption tax hike in October 2019, real consumption had shown signs of a moderate pick-up toward the beginning of this year, mainly in durable goods and services consumption. However, since COVID-19 started to spread nationwide this March, there has been a marked decline not only in some consumption of goods but also in services such as tourism, eating and drinking, and transport. This may be attributed to the following factors: (1) the direct effects of requests for self-restraint in going outside and temporary store closures following Chart 5 Real Consumption Jan. 2013 = 100 Durable goods Non-durable goods Services Overall (Consumption Activity Index, real) 112.5 96.0 89.1 79.0 CY 2013 Note: The latest figures are as of June 2020. Source: Bank of Japan, "Consumption Activity Index." the government's declaration of a state of emergency, and (2) the effect on consumer sentiment, namely, where consumers have become vigilant against consumption involving the "three Cs" -- closed spaces, crowded places, and close-contact settings -- in the midst of the spread of COVID-19. As for the outlook, with uncertainty as to when the spread of the virus will subside, it is likely that developments in consumption will be sluggish for the time being, considering that services consumption accounts for more than 50 percent of total consumption. Another factor that could weigh on the recovery in consumption is that, unlike durable goods consumption, only some of the services that people had temporarily stopped consuming are expected to recover after COVID-19 subsides. At this point, let us take a closer look at developments in the employment situation, which underpin private consumption. The left-hand side of Chart 6 shows that the employmentrelated diffusion index in the Economy Watchers Survey has deteriorated significantly since the turn of 2020. Almost simultaneously, the real wage income of employees has also declined. The right-hand side of the chart shows that, having stopped declining temporarily, the unemployment rate for July was 2.9 percent. However, the number of people who became involuntarily unemployed due to the circumstances of their employers or businesses increased to 380,000, registering a rise of 190,000 people from a year ago. Looking at the number of workers by industry, as shown on the left-hand side of Chart 7, there have been significant decreases in accommodations and eating and drinking services, in wholesale and retail trade, and in lifestyle-related and amusement services. This fall in employment figures can be considered a consequence of the decline in services consumption. The labor underutilization indicator on the right-hand side of the chart shows that in addition to the increase in "unemployed persons" for the April-June quarter of 2020, there was also an increase in "persons in time-related underemployment," namely, those who are currently employed but wish to work longer hours, and (2) the "potential labor force," which is comprised of those who are excluded from the labor force in the Labour Force Survey but are actually willing to work.1 Thus, the employment situation has been deteriorating due to the effects of the spread of COVID-19, and this is likely to weigh on the recovery in consumption. Regarding changes in Japan's labor market, including developments in the labor underutilization indicator, see Goushi Kataoka, "Economic Activity, Prices, and Monetary Policy in Japan: Speech at a Meeting with Business Leaders in Hakodate," Bank of Japan, September 2019, https://www.boj.or.jp/en/announcements/press/koen_2019/ko190912a.htm/. Chart 6 Labor Market Conditions Assessment of Current Employment Conditions and Real Wage Income Breakdown of Unemployment Figures by Reason for Seeking a Job DI, s.a. 75 CY 2011 = 100, s.a. Real wage income of employees Assessment of current economic conditions (employment-related, right scale) mil. persons %, s.a. Newly started to seek a job Quit a job involuntarily (circumstances of employers or businesses) Quit a job (other reasons) Unemployed persons (reasons other than the above) Unemployment rate (right scale) 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1 CY13 2.0 CY Sources: Cabinet Office, "Wage Income of Employees," "Economy Watchers Survey"; Ministry of Internal Affairs and Communications, "Labour Force Survey." Chart 7 Labor Market Conditions Change in Number of Employed Persons Information and communications Change in Labor Underutilization Indicator 4 2.0 Medical, health care and welfare % pts. Potential labor force Government Persons in time-related underemployment Services (others) 1.5 Real estate and goods rental and leasing Unemployed persons Research, professional and technical services Education, learning support 1.0 Transport and postal activities Compound services Finance and insurance 0.5 Agriculture and forestry Construction Manufacturing 0.0 Lifestyle-related and amusement services Wholesale and retail trade Accommodations, eating and drinking services -0.5 -60 -40 Q1 CY 2019 -20 (10,000 employees) Q2 Q3 Q4 Q1 Q2 Notes: 1. Figures in the left-hand graph show the difference from a year ago in the number of employed persons (average in the April-June quarter of 2020). 2. Figures in the right-hand graph show the difference from a year ago in the ratios to the sum of labor force and potential labor force. 3. "Labor Underutilization Indicator 4" is the sum of unemployed persons, persons in time-related underemployment, and the potential labor force. "Persons in time-related underemployment" includes employed persons who work less than 35 hours per week, but who wish to work additional hours and are able to do so. "Potential labor force" is composed of "unavailable jobseekers" and "available potential job seekers." "Unavailable jobseekers" are those who have engaged in job seeking activities within one month and are ready to work within two weeks but not immediately. "Available potential jobseekers" are those who have not engaged in any job seeking activities within one month, but who wish to work and are ready to do so if a job becomes available. Source: Ministry of Internal Affairs and Communications, "Labour Force Survey (Basic Tabulation and Detailed Tabulation)." I will now shift to business fixed investment. As shown in Chart 8, the amount outstanding of business fixed investment has recently turned to a decline, albeit marginally, after continuing on an increasing trend. This could be due to two underlying factors. First is the reactionary decline in demand after the tax hike. Second is the rapid shift in perception of both manufacturing and nonmanufacturing firms with regard to their production capacity as being excessive, mainly due to the decrease in consumption triggered by the spread of COVID-19. Looking at the business fixed investment plan in the Bank's June Tankan (ShortTerm Economic Survey of Enterprises in Japan), as shown in Chart 9, the investment plans of manufacturing firms remain positive on a year-on-year basis. However, a comparison with recent revision patterns reveals that the momentum of fixed investment is weak. The business fixed investment plan figure for nonmanufacturing firms is already negative, in sharp contrast with recent revision patterns. Firms in many industries will have no choice but to revise their future demand downward, if the impact of COVID-19 becomes prolonged and firms' medium- to long-term growth expectations decline. This could cause a further adjustment in business fixed investment. Chart 8 Business Fixed Investment and Production Capacity Private Non-Residential Investment diffusion index of "excessive capacity" minus "insufficient capacity," % pts., reversed tril. yen Production capacity DI (right scale) -10 -5 Nominal private nonresi. investment (left scale) CY 2005 Excessive capacity Insufficient capacity Production Capacity DI DI, % pts. Manufacturing Nonmanufacturing Excessive capacity Insufficient capacity -10 CY 2005 Note: Figures for the production capacity DI in the left-hand graph are those for large enterprises of all industries, and in the right-hand graph are those for large enterprises. Sources: Cabinet Office, "Quarterly Estimates of GDP for April-June 2020 (First Preliminary Estimates)"; Bank of Japan, "Tankan (Short-Term Economic Survey of Enterprises in Japan)." Chart 9 Developments in Business Fixed Investment Plans Manufacturing y/y % chg. Nonmanufacturing y/y % chg. -5 Mar. survey June survey Sep. survey FY 2017 FY 2019 Average (FY 2017 - 2019) Dec. survey Forecast Actual Mar. survey June survey Sep. survey Dec. survey Forecast Actual FY 2018 FY 2020 Note: Figures include software and R&D investments and exclude land purchasing expenses. Figures are for all enterprises. Source: Bank of Japan, "Tankan." Lastly, let me turn to exports. As can be seen in Chart 10, exports had been sluggish since 2019, and the rate of decline accelerated for the April-June quarter of 2020 when the effects of COVID-19 intensified. This decline is particularly evident in exports to Europe and the United States, and in exports of automobile-related goods, IT-related goods, and capital goods. Deterioration in external demand has likely bottomed out due to the easing of public health measures in many countries. However, it will take a considerable amount of time for countries to recover from the impact of COVID-19. Bearing this in mind, my view is that it will continue to be difficult to hold out high expectations for a recovery in exports as the momentum for recovery in external demand remains weak for the time being. Chart 10 Real Exports y/y % chg. CY Region Goods United States 2.4 1.7 EU 7.7 China Q2 May 0.4 -37.4 -20.1 8.2 45.3 -6.0 -0.2 -24.8 -11.4 10.9 -3.4 0.7 2.5 -5.1 5.4 5.5 -1.5 6.2 -0.6 1.0 -3.4 -8.4 -6.6 -5.8 14.7 -8.3 -2.9 -0.6 -2.2 -3.1 -2.0 -47.4 -22.2 21.4 33.4 4.1 -1.7 1.6 1.7 0.2 0.5 -14.9 -4.4 -2.7 5.9 2.2 -2.0 -0.4 1.1 -1.5 -1.8 -18.4 -5.9 1.7 7.4 Q3 Q4 2.8 -4.0 -6.1 0.4 -3.0 3.3 5.9 -3.3 0.8 Capital goods 5.3 -5.5 Motor vehicles and related goods 5.7 IT-related goods Real exports s.a., m/m % chg. s.a., q/q % chg. Q2 Q1 June July Source: Bank of Japan, "Developments in Real Exports and Real Imports." C. Recent Developments and Outlook for Prices Next, I will move on to price developments. The observed year-on-year rate of change in the consumer price index (CPI) for July 2020 was 0.0 percent for all items less fresh food and 0.4 percent for all items less fresh food and energy. Excluding the effects of the consumption tax hike and the introduction of free preschool education, the figures were minus 0.3 percent and plus 0.2 percent, as shown on the left-hand side of Chart 11. The inflation rate remained lower than before, reflecting the tax hike in October 2019, a decrease in demand against the background of the spread of COVID-19, and a drop in energy prices. The right-hand side of the chart shows that the indicators representing underlying changes in consumer prices have also continued to show relatively weak developments. Turning to the outlook for prices, according to the medians of the Policy Board members' forecasts presented in the July 2020 Outlook Report, the year-on-year rate of change in the CPI (all items less fresh food) is expected to increase gradually from minus 0.5 percent for fiscal 2020 to 0.3 percent for fiscal 2021, and to 0.7 percent for fiscal 2022, as shown in Chart 4. If we look at the output gap and medium- to long-term inflation expectations, both of which affect the underlying changes in prices, the output gap, shown on the left-hand side of Chart Chart 11 Consumer Prices Consumer Price Index 2.0 Underlying Trend in Inflation y/y % chg. 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 CPI (all items less fresh food) -1.5 Note: Figures are adjusted for changes in the consumption tax hike and the introduction of free preschool education. Source: Ministry of Internal Affairs and Communications, "Consumer Price Index." -2.0 11 12 CY 2011 -25 Trimmed mean Weighted median Diffusion index (right scale) -50 Note: The diffusion index is defined as the share of increasing items minus that of decreasing items. The share of increasing/decreasing items is the share of items in the CPI (less fresh food, consumption tax adjusted), for which the price increased/decreased from a year earlier. Sources: Bank of Japan, "Measures of Underlying Inflation"; Ministry of Internal Affairs and Communications. 12, reached its recent peak in the October-December quarter of 2018. The positive output gap shrank thereafter, and in the January-March quarter of 2020 was at around 0 percent, which indicates a state in which supply and demand are balanced. Inflation expectations have declined somewhat since the end of 2019, as confirmed in the right-hand side of the chart. Bearing in mind that the recovery pace of the economy is likely to be modest with uncertainty over when the spread of COVID-19 will subside, it is difficult to project that the output gap and inflation expectations will improve and that the inflation rate will gather momentum toward approaching the 2 percent price stability target. I will elaborate on this point, together with the Bank's conduct of monetary policy. -1.5 CPI (all items less fresh food and energy) -2.0 CY 11 2011 12 % pts. y/y % chg. Chart 12 Output Gap and Inflation Expectation Output Gap Synthetic Indicators of Inflation Expectations %, % pts. Labor input gap Capital input gap 2.0 Output gap y/y % chg. Firms, households, and experts (QUICK Survey) Firms, households, and experts (Consensus Forecasts) Firms, households, and experts (inflation swap rate) 1.5 1.0 -2 0.5 -4 -6 CY 1985 85 88 0.0 CY 2010 Notes: 1. The data for the output gap in the left-hand graph are the estimates by the Bank's staff as of July 3, 2020. 2. In the right-hand graph, inflation expectations of firms are taken from the Tankan (the output prices DI), and those of households are taken from the Opinion Survey on the General Public's Views and Behavior (the average of responses between minus 5 percent and plus 5 percent regarding annual inflation expectations). For experts' inflation expectations, the QUICK Survey, the Consensus Forecasts, and the inflation swap rate are used. Sources: Consensus Economics Inc., "Consensus Forecasts"; QUICK Corp., "QUICK Monthly Market Survey (Bonds)"; Bloomberg; Bank of Japan. II. Conduct of Monetary Policy Let me first outline the Bank's current monetary policy, based on the outlook for economic activity and prices that I have described. I would then like to express my opinion about the Bank's monetary policy conduct. A. Outline of the Current Monetary Policy The Bank conducts monetary policy under the framework of Quantitative and Qualitative Monetary Easing with Yield Curve Control, aiming to achieve the 2 percent price stability target. This current framework consists of three major components: yield curve control, the purchase of risk assets, and the Bank's public commitment regarding the future conduct of monetary policy. In addition to these three components, the Bank has, since March 2020, enhanced monetary easing in response to the spread of COVID-19. The measures broadly fall into the following three categories, as illustrated in Chart 13. Chart 13 Outline of the Bank's Measures in Response to COVID-19 (1) Special Program to Support Financing in Response to COVID-19: Total Size of about 120 Trillion Yen The Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: The Bank provides funds on favorable terms to financial institutions that make loans in response to COVID19 (providing funds at a zero interest rate with a maturity up to 1 year. An interest rate of 0.1% is applied to the outstanding balances of current accounts that correspond to the amounts outstanding of loans provided through the measure). Additional purchases of CP and corporate bonds: The Bank conducts additional purchases with the upper limit of the total amount outstanding of 20 trillion yen (almost quadrupled) until the end of March 2021. The maximum amounts outstanding of a single issuer ‘s CP and corporate bonds to be purchased has been raised substantially, and the maximum remaining maturity of corporate bonds to be purchased has been extended to 5 years. (2) Ample Provision of the Yen and Foreign Currency Funds: Unlimited Yen: The Bank purchases a necessary amount of JGBs without setting an upper limit (so that 10-year JGB yields will remain at around zero percent, and also with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level). Foreign Currencies: The Bank provides U.S. dollar funds in cooperation with 5 other major central banks by lowering the loan rate by 0.25 percent and introducing a fund-provisioning measure to provide funds with a longer maturity. (3) Active Purchases of ETFs and J-REITs : Doubled The Bank is to actively purchase ETFs and J-REITs for the time being so that their amounts outstanding will increase at annual paces with the upper limit of about 12 trillion yen and about 180 billion yen, respectively (both doubled). The first is the introduction of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19), which aims to support financing mainly of firms. This program consists of the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) -- through which the Bank encourages financial institutions' lending to firms -- and an increase in purchases of CP and corporate bonds. Through the Special Funds-Supplying Operations, the Bank, in cooperation with the government, supports firms' and households' financing by providing funds at a zero interest rate to financial institutions for the loans that they make in response to COVID-19 and for provision of interest-free and unsecured loans under the government's economic measures. The Bank applies a positive interest rate of 0.1 percent to the outstanding balances of current accounts held by financial institutions at the Bank that correspond to the amounts outstanding of loans provided through this operation, and has encouraged financial institutions to make use of the operation. In terms of an increase in purchases of CP and corporate bonds, the Bank has aimed to stabilize market interest rates and the financing conditions of financial institutions and firms, among others, by increasing the upper limit of the amount outstanding of CP and corporate bonds to be purchased by approximately four times, to about 20 trillion yen in total. This is equivalent to almost a quarter of the domestic market size. The total size of this special program, consisting of these two measures, is about 120 trillion yen. The second of the Bank's measures in response to COVID-19 is unlimited provision of yen and foreign currency funds. As for the yen funds, the Bank decided to purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit, removing the indicative figure of an annual pace of increase in the amount outstanding, which was about 80 trillion yen. This was carried out with a view to stabilizing the entire yield curve at a low level; meanwhile, the target rate of the long-term yield remains unchanged. Regarding foreign currency funds, the Bank has, in cooperation with five other major central banks, provided ample U.S. dollar funds through the U.S. dollar funds-supplying operations; specifically, the Bank lowered the loan rate by 0.25 percent and introduced a fund-provisioning measure to provide funds with a longer maturity. The third of the Bank's measures is active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower the risk premia in asset markets. The aim of this measure is to prevent firms' and households' sentiment from deteriorating, through volatility in asset markets, by doubling the upper limit of the pace of increase in their amounts outstanding of purchases for the time being. I hold the view that these three COVID-19 response measures have thus far contained the disturbance in the financial and capital markets and produced some positive effects on firms' financing. B. My Personal View on the Conduct of Monetary Policy In voting on the Bank's measures in response to COVID-19, I dissented from the following two points: yield curve control and the Bank's commitment regarding the future conduct of monetary policy. This was based on my view that the current situation calls for the need not only to support financing and provide liquidity but also to take preemptive action to contain any downward pressure that may be exerted on prices. Let me first give the reasons for my assumption that downward pressure on prices intensified as a result of the economic shock triggered by the global spread of COVID-19. The economic shock of COVID-19 differs in nature from other shocks, such as those brought about by natural disasters or a financial crisis in which the financial intermediation function becomes impaired.2 The latest shock is unique in that it combines aspects of both a supply shock, with sluggishness in production and trade, and a demand shock, with a sharp decline in services consumption. While a negative demand shock brings about a fall in prices, a negative supply shock on its own would theoretically lead to a rise in prices. In considering the impact of an economic shock on prices, it is therefore necessary to determine whether the supply and demand shocks are positive or negative and which of the two is dominant.3 Chart 14 shows estimates of supply and demand shocks by sector in terms of their effects on output prices, based on the Tankan, taking into account U.S. research findings. In the manufacturing sector, the relatively strong effect of a supply shock is particularly evident in automobiles, while in the nonmanufacturing sector the effect of a demand shock is estimated to be significantly large in services for individuals, and in accommodations and eating and drinking services in particular. Estimations across all sectors indicate that the shock to aggregate demand played a dominant role in determining changes in prices on the whole, with prices being pushed down. These findings should however be treated with some caution as they are based on a number of assumptions. Nonetheless, when all the relevant factors are considered -developments in the output gap and the decline in inflation expectations, the negative effects brought about by externalities, and the mutual effects of the supply and demand shocks -- the indications are that the economic shock of the spread of COVID-19 does indeed exert downward pressure on prices.4 For more details on the economic impact of COVID-19, see, for example, the following. Ministry of Economy, Trade and Industry. "White Paper on International Economy and Trade 2020" (Part I). https://www.meti.go.jp/report/tsuhaku2020/whitepaper_2020.html. 3 See Watanabe Tsutomu, "Shingata korona uirusu ga shōhi to bukka ni ataeru eikyō," Gekkan Shihon Shijō, no. 416, April 2020. Watanabe argues that, with regard to the economic shock of COVID-19, the shock to aggregate demand is dominant, as can be seen in the fact that GDP and prices have fallen in tandem as a global trend. 4 The following points should be taken into account: (1) until the impact of COVID-19 subsides, the economy may be depressed further as individuals have no choice but to follow strict preventive measures; (2) developments could be affected by externalities, namely, a decrease in demand acting as a constraint on spending of other households; (3) it may not be feasible in the short term to fully make up for lost demand through the substitution effect; and (4) supply shocks could lead to demand shocks. Chart 14 How Shocks Affect Output Prices (Estimates) degree of impact of shocks degree of impact of shocks Impact of demand shock Impact of supply shock shocks that push prices up Aggregate impact -1 -5 -2 -3 -10 -4 shocks that push prices down -5 -15 Total All industries Motor vehicles General machinery Manufacturing Total Services for individuals Accommodations, eating and drinking services Nonmanufacturing Notes: 1. Figures are for the first half of CY 2020. 2. Figures show the degree of the effect on output prices, estimated as follows. First, supply and demand shocks are estimated from the difference between the actual and forecast figures of DIs for Business Conditions and Output Prices. As the means and volatilities of DIs differ by sector, the differences are normalized prior to calculation. The effects are then obtained by multiplying the elasticity of prices by the estimated shocks. The aggregates of the March and June 2020 surveys are shown. One unit of impact corresponds to one standard deviation. The right scale shows figures for "Services for individuals" and "Accommodations, eating and drinking services," while the left scale shows the others. 3. For the method used to estimate shocks, see Bekaert, Geert, Eric Engstrom, and Andrey Ermolov (2020). "Aggregate Demand and Aggregate Supply Effects of COVID-19: A Real-time Analysis," Finance and Economics Discussion Series 2020-049. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2020.049. Based on the perception that downward pressure on prices intensified, I will now outline the monetary policy I would consider appropriate under the given circumstances. First, with regard to yield curve control, it is appropriate for the Bank to conduct active JGB purchases upon clarifying that the policy interest rate would be lowered rather than maintained. Since the start of 2020, nominal interest rates have been more or less flat while inflation expectations have fallen. Real interest rates -- the difference between the two figures -- have thus risen, suggesting that financial conditions may have become less accommodative. To counteract this, the Bank should alleviate the interest rate burden on firms and households by lowering the policy interest rate, thereby mitigating any deflationary pressure that may arise. As for the Bank's commitment regarding the future conduct of monetary policy, I consider it appropriate for the Bank, as the central bank, to revise the forward guidance to make it a more powerful one that does not allow deflation to take hold and such that the Bank commits itself to take specific actions under predetermined conditions. An effective way to do this is for the Bank to relate the policy interest rate to the price stability target and commit itself to conducting additional easing in the event that the gap between the observed inflation rate and the price stability target widens beyond a certain threshold. Given that price adjustments in financial markets normally incorporate speculation about central bank decisions, with such a commitment by the Bank, a self-sustained improvement can be expected in financial and economic conditions. Public confidence in the price stability target could also improve if the Bank, by taking specific actions, were to make clear its opposition to any decline in prices. In fact, the price stability target will likely be achieved earlier than would be the case if the Bank hesitated to conduct additional easing in response to a decline in prices, and the accumulative side effects of monetary easing may as a result be mitigated. 5 Possible side effects of monetary easing include those on the financial intermediation function and market functioning arising from a prolonged low interest rate environment.
|
bank of japan
| 2,020 | 9 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 62nd Annual Meeting of the National Association for Business Economics, 7 October 2020.
|
October 7, 2020 Bank of Japan COVID-19 and the Global Economy: Impact and Challenges -- From Asia's Perspective -Speech at the 62nd Annual Meeting of the National Association for Business Economics KURODA Haruhiko Governor of the Bank of Japan Introduction It is a great honor to be invited to speak at the 62nd Annual Meeting of the National Association for Business Economics. The worldwide spread of the COVID-19 pandemic has had a severe impact on the global economy. People all over the world are coming together and making a concerted effort to deal with this economic shock. At the same time, we are seeing a global determination to overcome the current crisis and turn it into an opportunity to achieve future growth. This year's theme, "Global Reset? Economics, Business, and Policy in the Pandemic," addresses not just the current issues but also the medium- and long-term implications of COVID-19. From this perspective, I would like to talk today about the impact of COVID-19 on the global economy and the relevant medium- and long-term challenges, with a particular focus on Asia. Based on my experience as Vice Minister for International Affairs at the Ministry of Finance in Japan, President of the Asian Development Bank, and Governor of the Bank of Japan, let me explore how best to overcome the challenges posed by COVID-19 and bring the global economy back on the path to growth. I. Recent Developments in the Global and Asian Economies The global spread of COVID-19 has significantly restrained economic activity worldwide. In many economies, the GDP growth rate for April-June 2020 registered significant negative growth. Since then, with many countries and regions gradually resuming economic activity, economies have started to pick up. However, the pace of improvement has remained moderate. The spread of COVID-19 has not yet subsided globally, and many economies continue to be severely affected. A full-fledged recovery seems much further down the road. Economic conditions in Asia also remain severe. According to the Asian Development Bank's Asian Development Outlook 2020 Update, released in September, developing Asian countries will suffer a contraction for the first time in about 60 years. COVID-19 has affected Asian economies mainly through three channels: (1) a decrease in exports, reflecting suppressed global economic activity; (2) a decrease in inbound-related demand, against the background of entry restriction measures and policies reducing travel; and (3) a decrease in domestic private consumption, reflecting business suspensions and people refraining from going outside. A fall in global and domestic demand has had a negative effect on corporate profits, wages, and business fixed investment. However, the severity of the impact has been mixed across Asian economies, depending on such factors as the extent of COVID-19 contagion, their industrial composition, and their room for fiscal maneuver. All in all, the downturn of the Asian economy has been moderate in comparison with other regions. This can be explained partly by the relatively moderate status of infection for most of Asia. Another contributing factor is the increased global demand for online services and the accompanying solid global demand for IT-related goods, which accounts for a large proportion of Asian economies. On the financial front, at the onset of COVID-19, some economies in the region experienced substantial capital outflows. However, Asian financial markets have gradually regained stability, and the overall impact on capital flows has been moderate compared with that of the Asian Currency Crisis in the 1990s or the Global Financial Crisis in the late 2000s. Asian financial markets have been able to weather the impact of COVID-19 in part due to increased resilience from the build-up of foreign currency reserves, and also to the swift and aggressive implementation of fiscal and monetary policy measures. Financial support through regional and international cooperation mechanisms, which have been developed and enhanced over the years, has provided an additional layer of protection. II. Roles and Future Challenges for Asian Economies A. Driving Forces for Asian Economies Asian economies have been the driver of global growth over the past few decades. The strength of Asian economies has been supported by three driving forces. First is the development of advanced regional supply chain networks, spanning raw materials and intermediate goods, as well as final goods. Second is the progress made in trade liberalization through the concerted enhancement of trade agreements both within and outside the region. Third is the self-sustained growth of domestic demand supported by rising incomes from increases in production and trading activities. The interaction of these three driving forces has enabled Asia to grow both as a manufacturing base ("Factory Asia") and a consumer base ("Consumer Asia"). However, COVID-19 has exposed some potential weaknesses in these driving forces. Supply chains in Asia have been disrupted due to strict public health measures, such as stay-at-home orders and business and production suspensions. Asian and global trading volumes have declined steeply, and demand in the travel and tourism sectors has virtually evaporated. Domestic demand has been weak in many Asian economies, reflecting the deterioration in employment and income conditions. In the short term, we need to contain the spread of COVID-19 while supporting economic activity. To this end, support measures for households and businesses that have been hard-hit need to be continued. But it is in times like these that we should keep moving forward and envision what may come after the crisis, to prepare ourselves for the next shock and achieve sustainable economic growth. In this sense, it is important for Asia to continue strengthening its role in the global economy as Factory Asia and Consumer Asia. B. Enhancing Resilience and Agility Strong economic growth in the Asian region has supported the global economy in its recovery from the Global Financial Crisis. In 2008, Asian economies accounted for about 30 percent of global GDP, but by 2019, this had increased to about 40 percent. Therefore, it is only natural that the world looks to Asia with expectation for its support and for it to be a driver of economic recovery in the current economic downturn. What, then, needs to be done for the Asian economy to regain momentum toward growth? Two key concepts that often appear in recent debates are "resilience" and "agility"; i.e., resilience against shocks and agility in terms of responding to sudden changes in environment.1 I will elaborate on Asian firms' responses based on these two concepts. Factory Asia The recent pandemic has exposed certain vulnerabilities in Asian supply chain networks, as many businesses have suffered disruptions to their supply chains and a decline in production. In response to this challenge, Asian firms have already started to reform their supply chains. In this regard, firms are not focusing exclusively on reshoring. Rather, in order to make their supply chains more resilient to shocks, they are looking to disperse and diversify production locations and procurement sources, and to establish multi-layered supply chains. Firms are also strengthening supply chain management to enhance agility in terms of responding to changes in environment, by visualizing the procurement, production, and supply situations of their particular business bases. Asia has traditionally been susceptible to supply chain disruptions caused by natural disasters, and some Asian firms had strengthened their supply chains accordingly. These firms have been rewarded with a swift recovery from the recent shock. Moving forward, more will leverage the lessons learned recently and take measures to further strengthen their supply chains. For example, see Pulakos, Elaine, and Robert B. (Rob) Kaiser, "To Build an Agile Team, Commit to Organizational Stability," Harvard Business Review, April 7, 2020, https://hbr.org/2020/04/to-buildan-agile-team-commit-to-organizational-stability; "Joint Media Statement of the 8th EAS Economic Ministers' Meeting," August 28, 2020, https://asean.org/storage/2020/08/JMS-of-the-8th-EASEMM.pdf; ASEAN+3 Macroeconomic Research Office (AMRO); and "Now What? Post-Pandemic Policy Considerations," AMRO Policy Perspectives, PP/20-01, July 2020, https://www.amroasia.org/wp-content/uploads/2020/08/20200720_AMRO-Policy_Perspectives_Post-Pandemic-Policy _Final.pdf. Consumer Asia COVID-19 has also brought significant changes to various aspects of our daily lives. This has led to changes in demand for goods and services. To exploit this new demand, many firms, including in Asia, have begun to shift and strengthen their business focus accordingly, even as they continue their fight against COVID-19. More than ever, companies must be agile in order to adapt to the changing environment and capture new demand arising from the expansion of digital networks, online healthcare and education services, as well as the growth of e-commerce. In the longer term, these business reforms are expected to boost productivity. Asia's services sector has long been noted for its low productivity. 2 However, the landscape has been changing dramatically in recent years, as illustrated by the especially strong growth of ecommerce in Asia. 3 This is expected to improve the resilience of Consumer Asia by generating new consumption and investment, as well as increasing wages. C. Sustainable Economic Growth From a longer-term perspective, Asia must address its challenges in order to achieve sustainable economic growth. The key to achieving this goal is to work toward realizing an inclusive, green, and digital economy. While this will involve a great deal of time and effort, the rewards are expected to outweigh the costs. There is no trade-off involved between moving toward an inclusive, green, and digital economy and achieving economic growth over the longer-term; rather, they are complementary. For example, see Asian Development Bank, "Developing the Service Sector as an Engine of Growth for Asia," October 2013, https://www.adb.org/sites/default/files/publication/31114/developingservice-sector-engine-growth-asia.pdf; and Kim, Jungsuk, and Jacob Wood, "Service Sector Development in Asia: an Important Instrument of Growth," Asian-Pacific Economic Literature, Volume 34, Issue 1, May 2020, https://onlinelibrary.wiley.com/doi/epdf/10.1111/apel.12282. 3 Asian Development Bank, "Embracing the E-commerce Revolution in Asia and the Pacific," June 2018, https://www.adb.org/sites/default/files/publication/430401/embracing-e-commerce-revolution .pdf. An Inclusive Economy One of the barriers to achieving an inclusive economy is the insufficient development of social security systems in many developing and emerging Asian countries. Gaps in social protection not only made it difficult to respond to the recent pandemic but also widened economic inequality. Developing and emerging Asian economies will need to find effective means to enhance their healthcare and social security systems and to promote investment in human capital, including education. These efforts will improve financial inclusiveness, and in turn act as a stepping-stone to decreasing poverty. On the financial front, progress in financial inclusion is becoming more crucial to the promotion of economic growth and the alleviation of inequality. A Green Economy Some regions in Asia are particularly vulnerable to the economic and social consequences of natural disasters and rising sea levels resulting from climate change.4 Therefore, the region has been striving to achieve the appropriate balance between economic development and environmental preservation, by strengthening environmental regulation and building ecofriendly physical infrastructures. The COVID-19 pandemic has led to an increased focus on climate change issues. Making the economy greener is a goal shared by both advanced and developing economies. In response to the demands of society and in order to achieve economic growth over the medium to long term, efforts should be stepped up on a global basis. Digitalization As for digitalization, this brings the greatest benefits to those who previously lacked sufficient access to goods, services, and information. In terms of financial services, FinTech not only McKinsey Global Institute, "Climate risk and response in Asia," August 2020, https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Asia%20Pacific/Climate%20ri sk%20and%20response%20in%20Asia%20Research%20preview/Climate-risk-and-response-inAsia-Future-of-Asia-research-preview-v3.pdf. facilitates financial inclusion but also stimulates economic activity by increasing investment and creating demand in relevant sectors. Asia accounts for more than 60 percent of all FinTech-related patents filed in the 20 years to 2018, 5 and offers huge potential in the FinTech sector. The recent pandemic has accelerated the move toward digitalization. It has become increasingly important that governments and the private sector collaborate to further pursue initiatives to facilitate digitalization, focusing both on developing physical infrastructures and on legal and regulatory frameworks. III. Regional and International Cooperation Lastly, I would like to talk about regional cooperation in Asia. Regional cooperation in Asia is conducted through various platforms including ASEAN and ASEAN+3. There are also frameworks such as APEC that extend to areas outside Asia. In the financial context, the Chiang Mai Initiative Multilateralisation (CMIM), a regional financing arrangement involving Japan, China, South Korea, and the 10 ASEAN member countries, has made steady progress in enhancing its effectiveness, thereby contributing to financial stability within the region. Central bank fora, including EMEAP and SEACEN, have also been effective. The COVID-19 pandemic has highlighted the importance of regional as well as international cooperation in implementing appropriate measures in response to economic shocks. External shocks with far-reaching effects, such as climate change, also require coordinated action. Going forward, regional and international cooperation will become even more essential. Conclusion Today, I have discussed the impact and the challenges posed by COVID-19 on the global economy, with a focus on Asian economies. Many of the challenges Asian economies now face are common to the global economy. The issues are wide-ranging and not easy to tackle. Asian Development Bank, "Harnessing Technology for More Inclusive and Sustainable Finance in Asia and the Pacific," 2018, https://www.adb.org/sites/default/files/publication/456936/technologyfinance-asia-pacific.pdf. However, by overcoming and learning from these challenges, the global economy will be better positioned to achieve sustainable and balanced development. There is a phrase in Japanese, fueki ryuko, which refers to the attitude of accepting and adapting to change even while continuing to uphold the basics that do not change. The recent pandemic has prompted us to rethink our views and actions. Globalization itself, which was the basis of global economic growth before the crisis, is now being questioned, and some have argued for the need to rewind. However, no matter how it may change in form or structure, the fundamental importance of globalization to the global economy will not change. I have had the honor today to connect virtually with a global audience, but in terms of human interaction, the significance of face-to-face communication is unchanged. Now we are faced with the challenge of identifying those of our views and actions that should not change and those that should in order to adapt to the new environment. I very much look forward to exchanging views with you again face-to-face in the near future. Thank you for your kind attention.
|
bank of japan
| 2,020 | 10 |
Speech (via webcast) by Mr Makoto Sakurai, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Fukui, 21 October 2020.
|
October 21, 2020 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Business Leaders in Fukui (via webcast) SAKURAI Makoto Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity at Home and Abroad A. Recent Developments in Overseas Economies I would first like to talk about developments in overseas economies, given the significant contraction in global economic activity caused by the worldwide spread of the novel coronavirus (COVID-19). The global economy grew at a rate of around 3-4 percent up through 2019 but faced the outbreak of COVID-19 at the turn of 2020. The impact of COVID-19 spread rapidly from China to other Asian countries including Japan, as well as Europe, the United States, and more or less the rest of the world in a short period of time. Economic globalization over the past four decades has been accompanied by a massive increase in the movement of people across countries. Partly as a result of this, the current pandemic has spread more rapidly and has had a greater impact on the global economy than pandemics in the past. Global economic activity and global trade both remain at low levels as measures to restrict economic activity, including temporary lockdowns of cities, continue to be implemented, albeit to varying degrees (Chart 1). According to the October 2020 World Economic Outlook released by the International Monetary Fund, the global growth rate for 2020 is projected to be minus 4.4 percent. By region, negative growth figures are large for advanced economies but relatively small for emerging economies; this mainly reflects the fact that COVID-19 has already begun to subside in China, which experienced the earliest outbreak. However, given the resurgence of infections in advanced economies and the further spread of COVID-19 in emerging economies, uncertainty regarding the outlook for infections is extremely high, and it is therefore necessary to be vigilant about the possibility of a further global economic downturn. B. Outlook for Overseas Economies At present, countries worldwide are struggling with issues such as a decline in output, a rise in the unemployment rate, and an increase in corporate bankruptcies due to restrictions on economic activity. Overall, however, economic activity has bottomed out and is in the process of picking up somewhat. While the full-scale resumption of global economic activity may be delayed as COVID-19 continues to spread in many emerging economies other than China, the global economy as a whole is likely to continue recovering, albeit at a moderate pace, as governments work toward striking a balance between the prevention of the spread of COVID19 and the improvement in socio-economic activities. Nevertheless, it should be carefully borne in mind that there are significant uncertainties regarding this outlook. A key issue in forecasting the pace of global economic recovery is whether policymakers around the world can prevent increases in corporate bankruptcies and unemployment and the extent to which they can avoid a loss of supply capacity. If firms can maintain their supply capacity, this will allow global supply chains, which for many years have supported global economic growth, to also be maintained without major disruptions. On the other hand, it is possible that new structural changes will emerge, such as a reconfiguration of global supply chains triggered by, for example, clarified differences across countries in terms of when COVID-19 subsides and how fast economic recovery progresses, intensified U.S.-China tension over trade and other issues, and the materialization of geopolitical risk. Accurately determining the direction of such changes is essential in forecasting the pace of global economic recovery. C. Recent Developments in Japan's Economy Next, I will talk about developments in Japan's economy. Real GDP growth fell sharply in the April-June quarter of 2020, registering minus 7.9 percent on a quarter-on-quarter basis, due to the economic contraction induced by the further spread of COVID-19 (Chart 2). With the exception of some innovation-related business fixed investment, almost all demand components -- such as exports, private consumption, and business fixed investment -- declined, production decreased significantly, and business conditions deteriorated considerably (Charts 3 and 4). From March onward, Japan, like other countries, swiftly formulated and put in place large-scale economic measures. Such largescale government measures and the introduction of monetary easing measures by the Bank of Japan have restored calm to financial and foreign exchange markets, which had become unstable, and although uncertainty remains high, tension has eased. The series of policy measures has to some extent kept increases in corporate bankruptcies and unemployment in check. Although COVID-19-related bankruptcies have been rising, the latest figure for the total number of bankruptcies for September is still more than 30 percent lower than that for December 2012 (Chart 5). Moreover, although unemployment rose from 2.4 percent in February 2020 to 3.0 percent in August, it remains fairly low compared to 4.3 percent registered in December 2012. Recent economic indicators show that economic activity bottomed out in the April-June quarter of 2020 and has already started to pick up, but the situation remains severe. For the time being, it is essential to aim to achieve both containment of the spread of COVID-19 and expansion of economic activity. However, given that it will take some time for economic activity to recover, it is necessary to persistently continue with the efforts to support corporate financing and to prevent corporate bankruptcies and unemployment from rising. D. Outlook for Japan's Economy Given that it is not clear when COVID-19 will subside, it is not easy to forecast the outlook for Japan's economy. However, considering that the economy has already bottomed out, I believe that a probable scenario is that the economy will gradually enter a recovery phase. Based on the assumption that Japan's economy will improve gradually from the second half of 2020, forecasts of the majority of the Policy Board members presented in the July 2020 Outlook for Economic Activity and Prices are as follows. The real GDP is expected to register substantial negative growth ranging from minus 5.7 to minus 4.5 percent for fiscal 2020. However, this is expected to be followed by relatively high growth in the range of 3.0-4.0 percent in fiscal 2021, considerably above the potential growth rate. In fiscal 2022, it is assumed that the economy will more or less normalize and that the virtuous cycle from income to spending will resume, with growth expected to be firm in the range of 1.3-1.6 percent (Chart 6). Moreover, in forecasting the pace of recovery, I believe that it is worthwhile to be attentive to developments in innovation-related and labor-saving business fixed investment, in which Japanese firms have been actively engaged. Interviews with firms and other sources of information suggest that firms have solidly maintained their investment plans for innovationrelated projects, including those related to 5G communication technology. Given that exports in this area are also likely to grow, innovation-related business fixed investment can be expected to be a driving force for future economic recovery. In addition, taking into account that labor shortages are likely to continue in the medium to long term given Japan's demographics, labor-saving investment, which had been expanding over the past several years, is expected to return to an uptrend in the economic recovery phase. Another point to note is that firms have been making new business fixed investment, supported by steady progress in the diffusion of teleworking as well as in the active use of IT in response to restrictions on economic activity caused by the spread of COVID-19. If these structural changes born out of the spread of COVID-19 fully take root, they may lead to the creation of new business models. Thus, looking ahead, if Japan's economy steadily recovers and the virtuous cycle from income to spending that operated before the outbreak of COVID-19 reemerges, a sustained expansion of business fixed investment that drives such structural changes forward can be expected. At the same time, the key to restoring this virtuous cycle is to provide support from the monetary policy side so that inflation expectations remain somewhat positive. If the private sector expects inflation to be negative, consumption and investment are more likely to be put off, and the virtuous cycle may stop operating. In this sense, I believe that the Bank's current monetary policy stance -- in which the Bank sets a price stability target and commits itself to continuing to expand the monetary base until the target is achieved in a stable manner; that is, it commits to maintaining accommodative financial conditions -- plays a vital role. II. Prices A. Recent Price Developments and Their Background Next, I will turn to price developments. Prices are currently under strong downward pressure (Chart 7). This is due in part to the sharp drop in aggregate demand owing to the restrictions on economic activity, as well as the significant decline in energy prices reflecting market expectations for further easing in the supply-demand conditions for energy in line with a decrease in global energy demand. The output gap has also turned negative recently, and the momentum toward inflation has been lost. On the other hand, this is not a situation where prices are continuing to plunge. When there is a lull in demand because of unavoidable restrictions on economic activity, as seen recently, firms recognize that demand will not pick up even if they lower sales prices and that lowering prices will make it impossible for them to cover costs. This seems to have prevented an acceleration in downward pressure on prices. Naturally, there is no upward pressure on prices when the output gap is negative, so inflation is expected to continue to be relatively weak for the time being. B. Outlook For the inflation rate to turn positive, it is necessary that the economy recover steadily and the output gap return to positive territory. Even if the inflation rate turns positive again at an early stage, however, it is unlikely to accelerate further for a while. Looking back at the situation prior to the spread of COVID-19, the inflation rate did not accelerate despite the economy being close to full employment and continuing to register a positive output gap. This phenomenon is not unique to Japan as inflation rates in most major advanced economies have been slowing, albeit to varying degrees (Chart 8). I think that the question of why inflation has not been accelerating needs to be seriously revisited. It is often pointed out that the reason for Japan's sluggish inflation rate is an entrenched deflationary mindset among consumers that is born out of their past experiences with deflation, making it difficult for firms to fully pass on upward pressure on wages to sales prices. In addition, structural changes that began in the years prior to the outbreak of COVID19 have made the inflation mechanism more complex. Specifically, these changes include the establishment of global supply chains, which resulted in low and stable goods prices worldwide, (2) the shift to a service economy in Japan in response to globalization, (3) the resulting increased sensitivity of prices to service sector wages, (4) the increase in laborsaving investment as well as improvements in labor productivity by firms to address labor shortages, and (5) the tendency of firms to absorb the upward pressure on wages by improving productivity rather than passing it on to sales prices. Similar structural changes can also be observed in other major advanced economies, and, while they have boosted job opportunities, they also appear to have acted to curb increases in wages and prices on the whole. Given the possibility that these structural changes will regain momentum once COVID-19 subsides, it is difficult at this point to clearly judge whether inflation will accelerate immediately even if it turns positive again. However, as I mentioned earlier, it goes without saying that, even if actual inflation is sluggish, keeping inflation expectations somewhat positive is important from the perspective of ensuring that spending behavior in the private sector is forwardlooking. I believe that the impact of these structural changes on prices will need to be examined in more detail. I will return to the structural changes in Japan and changes in the inflation mechanism later. III. Monetary Policy A. Current Monetary Easing Policy and Its Basic Framework Next, I will touch upon the Bank's conduct of monetary policy. The Bank has enhanced a wide range of its monetary easing measures since March and implemented the following three measures in response to the instability in financial markets accompanying the spread of COVID-19 as well as concern over financial strains faced by firms stemming from the decrease in sales due to restrictions on economic activity (Chart 9). First, the Bank introduced the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) in order to support financing, mainly of firms. The total size of this program will be about 130 trillion yen. Specifically, this program consists of (1) purchases of CP and corporate bonds with an upper limit of about 20 trillion yen and (2) the Special FundsSupplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID19), which is a fund-provisioning measure with a size of up to about 110 trillion yen to encourage lending to firms by financial institutions. Through the latter operation, the Bank provides funds on favorable terms to private financial institutions that make loans in response to COVID-19, which links up with the government's economic measures to provide effectively interest-free and unsecured loans, mainly to small firms through private financial institutions. Second, to maintain stability in financial markets, the Bank has adopted a framework through which further ample yen and foreign currency funds can be provided in a flexible manner. As for the yen funds, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level, the Bank decided to purchase the necessary amount of Japanese government bonds (JGBs) without setting an upper limit. Regarding foreign currency funds, the Bank has provided U.S. dollar funds in cooperation with five other major central banks. Third, the Bank has been actively purchasing exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower risk premia in asset markets; in other words, to prevent a deterioration in firms' and households' sentiment through volatility in asset markets with the aim of providing support to forward-looking economic activity. These powerful monetary easing measures have exerted positive effects. Although financial and foreign exchange markets, which were highly volatile from March through April, remain nervous, tension has eased. Moreover, even though corporate funding conditions are still severe, the environment for funding has eased owing to the various measures taken by the Bank and the government, as well as active efforts made by financial institutions in line with these measures (Chart 10). B. Future Conduct of Monetary Policy For the time being, the Bank will continue to provide support for financing and maintain stability in financial markets under the framework of the aforementioned three measures. Furthermore, in light of concern that a slower-than-expected rebound from the COVID-19 crisis could adversely affect Japan's economy and financial system, I believe that it is important to continue working together with the government as well as with other major central banks and take swift and appropriate policy responses as necessary. Next, I will elaborate on my own thinking about policy responses going forward. IV. Economic Recovery, Structural Change, and the Role of Monetary Policy: A Look Ahead The biggest and most urgent challenge for macroeconomic policy in Japan is to steadily work toward economic recovery while striking a balance between containing COVID-19 and resuming and expanding economic activity. I would like to mention some new challenges in the economic recovery process, including the role of monetary policy, based on the structural changes in Japan prior to the spread of COVID-19 and the experience with regard to policy responses to these changes. A. Structural Change and Monetary Policy in Japan: The Experience of the Past Seven Years Japan's economy achieved moderate positive growth from 2013 to 2019, supported by a policy mix of fiscal and monetary easing policies. This was accompanied by gradual structural changes, which can be summarized as follows.1 In response to macroeconomic policies, (1) financial markets stabilized, (2) a virtuous cycle from income to spending was established in Japan's economy, (3) outward investment grew in line with advances in globalization, and (4) the inflation mechanism began to change. I would like to touch briefly on each of these points. Starting with financial markets, these have generally been stabilizing against the backdrop of a policy mix of large-scale monetary easing and fiscal policies since 2013. Despite some short-term fluctuations, financial and foreign exchange markets have remained stable, particularly since the second half of 2016. This remains the case even now, despite the ongoing impact of COVID-19. Likely reasons include the lack of any significant differences in the direction and scale of monetary easing policies implemented in major countries to stabilize their own economies, the absence of significant adjustment pressures between currencies, as seen in the narrowed interest rate differentials between major economies, and the narrowing of the inflation gap between major economies, which affect long-term nominal exchange rate adjustment pressures (Chart 11).2 The next change is that a virtuous cycle became established. Persistent monetary easing in Japan has led to a steady improvement in labor market conditions, bringing the economy For details on structural changes as a result of globalization and advances in IT and artificial intelligence (AI), see Richard Baldwin, The Great Convergence: Information Technology and the New Globalization (Cambridge: The Belknap Press of Harvard University Press, 2016); Richard Baldwin, The Globotics Upheaval: Globalisation, Robotics, and the Future of Work (Oxford: Oxford University Press, 2019); and Branko Milanovic, Capitalism, Alone: The Future of the System That Rules the World (Cambridge: The Belknap Press of Harvard University Press, 2019). See Sakurai Makoto, "Economic Activity, Prices, and Monetary Policy in Japan," speech at a meeting with business leaders in Hyogo, November 27, 2019, https://www.boj.or.jp/en/announcements/press/koen_2019/ko191205b.htm/. close to full employment. Against this backdrop, and with the government's growth strategy, more women and seniors newly joined the labor market, employee income rose steadily, and private consumption became firm. In addition, spurred by a growing belief among Japanese firms that labor shortages would continue on the back of expectations that the economy would continue to grow at a moderate pace, and aided by advances in IT and AI, domestic business fixed investment, especially labor-saving investment, shifted to a period of sustained growth. These factors combined to make possible a virtuous cycle from income to spending based on moderate sustained growth. Another structural change is the growth in outward investment over the past two to three decades. This is clearly reflected in changes in Japan's balance of payments structure. That is, since the 2000s, Japan's trade balance has been more or less in equilibrium while the current account has continued to register a large surplus, the bulk of which is attributable to outward investment income (Chart 12). This trend has continued despite the drastic downturn in economic activity brought about by the spread of COVID-19. The upswell in outward investment partly stems from the fact that such investment promises higher rates of return than domestic investment and that the risk to firms' balance sheets from exchange rate fluctuations has decreased. The growth in outward investment means that Japan's nominal gross national income (GNI) consistently exceeds nominal GDP, by a margin of as much as 3-4 percent of nominal GDP. It is therefore fair to say that Japan is essentially an outward investment-oriented nation. With their global supply chains well established, many Japanese firms have come to make domestic and international investment decisions in an integrated manner, carefully taking into account the medium-term growth expectations for individual economies, differences in labor and capital costs, and the need to guard against technology leakages. Lastly, as in other advanced economies, advances in globalization have shifted the balance of Japan's economy toward services industries, which in turn has affected its inflation mechanism. That is, the establishment of global supply chains to serve the manufacturing sector has engendered stable and low prices of goods across major advanced economies. As a result, inflation now seems to be increasingly determined by the rate of increase in the prices of services, which are relatively labor intensive and thus more susceptible to domestic labor market conditions. In this environment, growth in labor-saving investment to address labor shortages -- which I mentioned earlier -- has made it possible for firms to offset upward pressure on personnel expenses by improving their labor productivity. This in turn has absorbed upward pressure on wages, acting as a constraint on inflation. Looking at these four structural changes as a whole, it can be said that they have arisen in large part from the Bank's persistent monetary easing, which laid the groundwork for a macrofinancial environment that encouraged firms to pursue forward-looking investment. Monetary policy can exert influence on the economy only indirectly through financial markets and financial institutions, and cannot directly bring about structural changes through a redistribution of resources in the way that fiscal policies or growth strategies can. That said, Japan's experience, in which monetary policy has indirectly supported such structural changes, has important implications for the Bank when considering the direction of monetary policy in a post-COVID-19 era. B. Challenges during a Post-COVID-19 Recovery and Future Structural Changes It was in the midst of these structural changes that Japan's economy, like the rest of the world, was struck by the pandemic. Top priority in the initial stage of the outbreak was given to preventing increases in corporate bankruptcies and unemployment as much as possible by supporting corporate financing and ensuring the availability of funds for firms struggling with a sharp deterioration in their business. Recognizing this, the Bank has successively introduced measures to strengthen monetary easing, which, coupled with the government's measures and initiatives taken by private financial institutions, have resulted in limiting increases in corporate bankruptcies and unemployment so far. In considering the direction of monetary policy going forward, the key points to keep in mind are the amount of time required for the economy to recover and the risks and challenges to be addressed if the recovery takes longer than expected. If COVID-19 were to persist longer than expected, the financial situation of firms struggling with their sales would become more strained over time, causing them to eventually become insolvent, which in turn would lead to an upsurge in corporate bankruptcies and a deterioration in the employment situation. This would diminish the supply capacity and hence the growth potential of Japan's economy. Moreover, if the amount of nonperforming loans were to rise as corporate credit risks materialize, this could impair the soundness of the financial institutions that support such firms, leading to a deterioration in the functioning of the financial system itself. Concern over risks to the financial system could then exert further downward pressure on the real economy. At the moment, financial institutions hold adequate capital and there is little concern that the financial system might become unstable. However, it is important to be prepared to take prompt action as needed while closely monitoring both the real economy and the financial system. With the financial system remaining stable, if the economy makes a steady rebound once COVID-19 subsides, it will become possible to increase the robustness of the economy by moving ahead with full-fledged efforts to address medium- and long-term challenges. In doing so, the following two issues will be crucial. The first is whether globalization will return to pre-COVID-19 trends or whether new structural changes will emerge. The second is whether Japan's economy can make the structural changes needed to respond adequately to the new global economy. Regarding the first question, what is clear is that firms will reconfigure their production locations, for example, to multiple supply chains to avoid a breakdown in their overall supply chains in case production is suspended in a certain region. Moreover, firms may reorganize their production locations if the U.S.-China conflict over trade and other issues intensifies. Nevertheless, in view of the cost advantages provided, it is unlikely that the system of global supply chains itself will come to an end. And if that is the case, a return to the former trend of globalization is likely as COVID-19 subsides. In addition, new structural changes may emerge based on the experience of the pandemic. For instance, the use of IT and AI is expected to make further inroads in a variety of areas; for example, making teleworking as common in Japan as in other countries. Further, with the shift to services likely to continue in advanced economies and with labor shortages expected to continue due to demographic trends, a key challenge for Japan's economy will be to boost labor productivity through the active use of IT and AI. C. Expanding Role of Monetary Policy and Challenges Ahead Lastly, I would like to touch upon monetary policy challenges going forward, taking into account the structural changes expected in the post-COVID-19 era. First, in a situation where it is necessary to strike a balance between containing COVID-19 and helping the economy to recover, the immediate challenge for monetary policy is to support Japan's economy from the financial side. Specifically, the key priorities are to continue with large-scale monetary easing under the current monetary policy framework, maintain financial market stability, support corporate financing, and contain increases in corporate bankruptcies and unemployment. In doing so, it is necessary to continue working together with the government and other major central banks in order to respond flexibly in terms of macroeconomic policy and to ensure market stability. Next, in conducting monetary policy, one of the medium- to long-term challenges facing the Bank is to ensure stability of the financial system. If economic recovery takes longer than expected, it is possible that an upsurge in corporate bankruptcies could impair the soundness of financial institutions, placing the financial system at risk. If financial institutions -- which play a key role in providing financial support for corporate business activities -- can no longer fulfill their financial intermediation function, this would exert downward pressure on the real economy, which, if the situation were to persist, could potentially weaken the growth potential of Japan's economy. Developments such as the transformation of working styles through the use of IT and AI can have a positive impact in terms of revitalizing regional economies. In light of this, it is essential to firmly maintain financial system stability over the medium to long term to allow financial institutions to effectively carry out their roles in promoting new structural changes. The Bank will take the necessary responses to enable the appropriate functioning of financial intermediation. In closing, let me reiterate that the virtuous cycle from income to spending achieved over the past seven years is mainly due to the fact that the Bank, as part of a policy mix of fiscal and monetary policies, has persistently maintained accommodative financial conditions, which encouraged forward-looking investment among firms. In terms of monetary policy going forward, the Bank will work together with the government and other major central banks as necessary, taking timely and appropriate responses to achieve price stability to contribute to the sound development of the national economy while ensuring stability of financial markets. I am hopeful that, in this way, a virtuous cycle will be restored in Japan's economy after COVID-19 subsides, and that the economy will continue to experience sustained growth under new economic structures. Thank you for your attention. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Business Leaders in Fukui (via webcast) October 21, 2020 SAKURAI Makoto Member of the Policy Board Bank of Japan Chart 1 Global Economy IMF growth projections (as of October 2020) World trade volume real GDP growth rate, y/y % chg., % points 2018 2019 World 3.5 2.8 2.2 1.7 United States 3.0 2.2 Euro area 1.8 1.3 Japan 0.3 0.7 4.5 3.7 China 6.8 6.1 ASEAN 5 5.3 4.9 Advanced economies Emerging market and developing economies projection projection ‐4.4 （+0.8） ‐5.8 (+2.3) ‐4.3 (+3.7) ‐8.3 (+1.9) ‐5.3 （+0.5） ‐3.3 （‐0.2） 1.9 （+0.9） ‐3.4 （‐1.4） 5.2 （‐0.2） 3.9 （‐0.9） 3.1 （‐1.4） 5.2 （‐0.8） 2.3 （‐0.1） 6.0 （+0.2） 8.2 (0.0) 6.2 (0.0) y/y % chg. Emerging economies ‐5 Advanced economies World ‐10 ‐15 ‐20 CY 20 12 Notes: 1. In the left‐hand chart, figures in parentheses are the difference from the June 2020 projections. 2. In the right‐hand chart, figures are those for real imports. The figure for 2020/Q3 is that for July. Sources: IMF; CPB Netherlands Bureau for Economic Policy Analysis, etc. Chart 2 GDP and Real Exports Real GDP Real exports contribution ratio, s.a., ann., q/q % chg. s.a., 2013/Q1 = 100 Real exports -5 -10 -15 Private demand -20 Public demand -25 Net exports Real GDP -30 -35 CY2011 19 20 Note: In the right‐hand chart, figures are based on staff calculations. Sources: Ministry of Finance; Bank of Japan. CY201 3 Chart 3 Private Consumption contribution ratio, s.a., y/y % chg. ‐5 ‐10 Durable goods <9.4> Nondurable goods <39.1> Services <51.5> ‐15 Consumption Activity Index ‐20 CY 2 0 0 7 0 8 Note: Figures in angle brackets show the share in the Consumption Activity Index. Nondurable goods include goods classified as "semi‐durable goods" in the SNA. Sources: Cabinet Office; Ministry of Economy, Trade and Industry; Ministry of Internal Affairs and Communications; Bank of Japan, etc. Chart 4 Business Fixed Investment Developments in business fixed investment plans Vintage (equipment age) years CY 1992 Notes: 1. In the left‐hand chart, figures are based on the Tankan. All industries, including financial institutions. Including software and research and development (R&D) investment and excluding land purchasing expenses (R&D investment is excluded through the December 2016 survey). 2. In the right‐hand chart, figures are for all enterprises. Fixed assets excluding land (including construction in progress). Current year vintage = {(prior year vintage + 0.25 year) x (prior year‐end balance – current year retired) + 0.25 year x new construction} / current year‐end assets. Based on the "National Wealth Survey," the vintage at the end of 1970 was set at 8.2 years. Sources: Ministry of Finance; Bank of Japan. Chart 5 Corporate Financing and Labor Market Conditions Number of corporate bankruptcies Labor market conditions cases per month 1,800 2.0 s.a., ratio s.a., % Number of corporate bankruptcies 1,600 1,400 1.5 1,200 1,000 1.0 0.5 Active job openings-to-applicants ratio (left scale) Unemployment rate (right scale) CY20 08 0.0 CY20 08 Note: In the left‐hand chart, the number of corporate bankruptcies is that with debt over 10 million yen. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Tokyo Shoko Research, Ltd. Chart 6 Outlook for Economic Activity and Prices as of July 2020 Forecasts of the Policy Board Members y/y % chg. FY 2020 Forecasts made in April 2020 FY 2021 Forecasts made in April 2020 FY 2022 Forecasts made in April 2020 Real GDP CPI (all items less fresh food) -5.7 to -4.5 [-4.7] -0.6 to -0.4 [-0.5] -5.0 to -3.0 -0.7 to -0.3 +3.0 to +4.0 [+3.3] +0.2 to +0.5 [+0.3] +2.8 to +3.9 0.0 to +0.7 +1.3 to +1.6 [+1.5] +0.5 to +0.8 [+0.7] +0.8 to +1.6 +0.4 to +1.0 Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate ‐‐ namely, the figure to which he or she attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. In the April Outlook Report, each Policy Board member made their forecasts as a range and submitted two figures (i.e., the highest and lowest figures) within the range of 1.0 percentage point at most. The forecasts of the majority of the Policy Board members were shown as a range excluding four figures ‐‐ namely, the two highest figures and two lowest figures among the forecasts of the nine members. Thus, it should be noted that the definition of the forecasts of the majority of the Policy Board members in the April Outlook Report is different from that in the July Outlook Report. 4. Figures for CPI include the effects of the October 2019 consumption tax hike and policies concerning the provision of free education. Source: Bank of Japan. Chart 7 CPI and Output Gap Output gap CPI 2.0 y/y % chg. % reversed, DI ("excessive" ‐ "insufficient"), % points Capital input gap (left scale) Labor input gap (left scale) Output gap (left scale) Tankan factor utilization index (right scale) ‐40 1.5 1.0 ‐20 0.5 ‐10 0.0 -0.5 ‐2 ‐4 CPI (all items less fresh food and energy) ‐6 ‐8 CY2007 08 09 10 11 12 13 14 15 16 17 18 19 20 -1.0 -1.5 CPI (all items less fresh food) -2.0 CY20 11 Notes: 1. In the left‐hand chart, figures exclude the effects of the consumption tax hikes and policies concerning the provision of free education. 2. In the right‐hand chart, the output gap is based on staff estimates. The Tankan factor utilization index is calculated as the weighted average of the production capacity DI and the employment conditions DI for all enterprises. The capital and labor shares are used as weights. Sources: Cabinet Office; Ministry of Internal Affairs and Communications; Bank of Japan. ‐30 Chart 8 Developments in Inflation Rates 3.5 y/y % chg., 5‐year moving avg. 3.0 2.5 2.0 1.5 Japan 1.0 United States 0.5 Euro area 0.0 ‐0.5 ‐1.0 CY 2000 Note: Japan's figures incorporate the effects of the consumption tax hikes. Figures for the United States and euro area are based on the IMF's World Economic Outlook Database (annual average). Sources: IMF; Ministry of Internal Affairs and Communications. Chart 9 The Bank's Measures in Response to COVID‐19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID‐19: total size of about 130 tril. yen Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously, about 5 tril. yen) Special Funds‐Supplying Operations to Facilitate Financing in Response to COVID‐19: about 110 tril. yen Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs: unlimited amount Enhancement of the U.S. Dollar Funds‐Supplying Operations: unlimited amount Lowering Risk Premia in Asset Markets Active Purchases of ETFs and J‐REITs ETFs: annual pace of increase of about 6 tril. yen → annual pace of increase with an upper limit of about 12 tril. yen (for the me being) J‐REITs: annual pace of increase of about 90 bil. yen → annual pace of increase with an upper limit of about 180 bil. yen (for the me being) Chart 10 Corporate Funding DI, % points More demand for funds, more agressive lending stance Forecast ‐10 ‐20 ‐30 CY 2007 Firms' demand for funds Note: The latest figure is the forecast for the next 3 months as of July 2020. Source: Bank of Japan. Lending stance for small firms Chart 11 Monetary Policy Similarities Central banks' balance sheets Exchange rate yen/U.S. dollar Fed's total assets (end of 2007 = 1) 2014 2015 CY20 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 BoJ's total assets (end of 2007 = 1) Note: The left‐hand chart is depicted as a log scale. The figure for 2020 is as of September 30. Sources: Bloomberg; FRB; Bank of Japan. Chart 12 External Demand‐Driven Growth and Outward Investment Current account GNI sum of the latest 4 quarters, tril. yen tril. yen Others Portfolio investment income Direct investment income Trade balance Current account % Net income (left scale) GDP (left scale) GNI (left scale) Net income/GDP (right scale) ‐10 ‐20 CY20 01 Note: In the right‐hand chart, GDP and GNI are nominal figures. Sources: Cabinet Office; Ministry of Finance; Bank of Japan. CY 1995
|
bank of japan
| 2,020 | 10 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at a meeting with business leaders, Nagoya, 4 November 2020.
|
November 4, 2020 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya (via webcast) KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Chubu region. I would like to take this chance to express my sincerest gratitude for your cooperation with activities of the Bank of Japan's Nagoya Branch. The biggest issue since the last time we met one year ago is the novel coronavirus (COVID-19) pandemic, which has been widely affecting economic and financial activities, as well as social life. Actually, given the impact of COVID-19, it has been decided that this year's meeting will be held online. Today, while outlining the Outlook for Economic Activity and Prices (Outlook Report) released last week, I would like to explain the Bank's view on Japan's economic activity and prices, which have been affected by COVID-19, and its thinking behind the recent conduct of monetary policy. I. Developments in Economic Activity and Prices Let me start by talking about economic developments. Japan's economy has picked up with economic activity resuming, although it has remained in a severe situation due to the impact of COVID-19. Unlike around spring, when economic activity was constrained, Japan is now taking targeted preventive measures and improving economic activity simultaneously. In this situation, it is becoming evident that the economy has bottomed out in the April-May period. On the other hand, it has been reconfirmed that there is less of a likelihood that the economy will improve steadily and smoothly, as seen in a pause in the pick-up in services consumption around summer, when the number of confirmed new cases of COVID-19 increased. Next, I will briefly explain developments in respective demand components behind the outlook for Japan's economy. First is developments in overseas economies and external demand. Overseas economies have picked up from a state of significant depression. The GDP growth rates for the April-June quarter registered the largest-ever negative figures in many countries. Thereafter, those for the July-September quarter seem to have turned positive, mainly due to a resumption of economic activities and the materialization of pent-up demand. Overseas economies are likely to continue improving, but the pace is expected to be only moderate with the continuing impact of COVID-19 (Chart 1). According to the latest World Economic Outlook (WEO) released by the International Monetary Fund (IMF), the global growth rate is projected to register a significant negative figure of minus 4.4 percent for 2020 and be 5.2 percent for 2021. The level of global GDP for 2021 is expected to be only slightly above that for 2019. In addition, the IMF projects that a recovery in the global economy will be "uneven and uncertain." The impact of COVID-19 varies across industries, showing a relatively large decline in face-to-face services consumption. The IMF's projections for the growth rates for 2020 also show variations across countries; while the global growth rate has been revised upward, the rates for mainly emerging economies have been revised downward. There is concern that COVID-19 has been spreading again in Europe and the United States recently. Under these circumstances, Japan's exports have increased recently. As for the outlook, they are expected to continue increasing for the time being, mainly for automobile-related goods. Thereafter, although there are high uncertainties, exports are likely to do so for a wide range of goods, including capital goods, with the impact of COVID-19 waning globally. Second is developments in domestic demand. As for the corporate sector, business fixed investment has declined due to significant deterioration in corporate profits and uncertainties over future developments (Chart 2). The business fixed investment plan in the September Tankan (Short-Term Economic Survey of Enterprises in Japan) has been revised downward from the previous survey that was conducted three months ago, showing a marginal negative figure on a year-on-year basis. Firms have been increasingly selecting projects to invest in, as seen in the fact that investment for domestic capacity expansion in the manufacturing industry and opening of new stores in the services industry have been postponed. That said, appetite for investment for growth areas and digital-related investment has not been impaired. The software investment plan in the September Tankan shows that the investment is likely to increase firmly compared with the previous fiscal year. Business fixed investment is projected to remain on a declining trend for the time being. However, as a baseline scenario, with accommodative financial conditions being maintained, it is expected that the capital stock adjustment will not be as significant as that seen at the time of the Global Financial Crisis (GFC) and that business fixed investment will return to a moderate increasing trend with the impact of COVID-19 waning. Turning to the household sector, private consumption has picked up gradually on the whole (Chart 3). Although consumption, mainly of services such as eating and drinking as well as accommodations, has remained at a low level, private consumption has been backed by various measures to support income and stimulate demand. It is likely to continue picking up, but while vigilance against COVID-19 continues, the pace is expected to be quite moderate, mainly for face-to-face services consumption. Thereafter, with households and firms adapting to a "new lifestyle" and the impact of COVID-19 waning, an uptrend in private consumption is likely to become evident gradually. The employment and income situation, which shows the underlying developments in private consumption, has been weak. The number of employed persons has decreased; in particular, a remarkable decline in non-regular employees has been seen, such as in the eating and drinking as well as travel-related industries. The year-on-year rate of change in nominal wages has been negative. However, expansion in the employment adjustment subsidies, for example, has somewhat halted job cuts. In addition, a significant increase in bankruptcies of firms has been avoided on the back of the government's and the Bank's various measures. Against this background, the employment and income situation is likely to turn to an improving trend, with domestic and external demand recovering. Based on these developments, the outlook for economic activity is as follows (Chart 4). As a baseline scenario, Japan's economy, with economic activity resuming and the impact of COVID-19 waning gradually, is likely to continue to follow an improving trend. That said, the pace is expected to be only moderate while vigilance against COVID-19 continues. According to the forecasts of the majority of the Policy Board members for the growth rates, the economy is projected to register significant negative growth in the range of minus 5.6 to minus 5.3 percent for fiscal 2020, but grow in the range of 3.0 to 3.8 percent for fiscal 2021 and then in the range of 1.5 to 1.8 percent for fiscal 2022. Let me move on to price developments (Chart 5). The year-on-year rate of change in the consumer price index (CPI) is likely to be negative for the time being, mainly affected by COVID-19, the past decline in crude oil prices, and the "Go To Travel" campaign. That said, since one of the reasons for the decrease in demand is vigilance against COVID-19, price cuts that aim at stimulating demand -- which were seen during the period of deflation -have not been observed widely to date. As for the outlook, downward pressure on prices is projected to wane gradually along with economic improvement, and the effects of such factors as the decline in crude oil prices are likely to dissipate. The year-on-year rate of change in the CPI is expected to turn positive and then increase gradually (Chart 4). In the latest Outlook Report, it is projected that the rate of change will be in the ranges of minus 0.7 to minus 0.5 percent for fiscal 2020, 0.2 to 0.6 percent for fiscal 2021, and 0.4 to 0.7 percent for fiscal 2022. That said, there are high uncertainties over the outlook for economic activity and prices, and risks are skewed to the downside. The spread of COVID-19 has not subsided globally, including Europe and the United States, and public health measures have been tightened in European countries. Under these circumstances, the consequences of COVID-19 and the magnitude of their impact on domestic and overseas economies are highly unclear. In addition, attention needs to be paid to whether firms' and households' growth expectations will decline, leading to cautious spending attitudes. Moreover, although financial system stability has been maintained and the Bank considers that the economy will continue to be smoothly supported from the financial side, it is necessary to pay attention to the possibility that the financial system will be affected if the economy deteriorates more than expected. Taking these factors into consideration, the Bank will continue to closely examine developments in economic activity and prices as well as financial conditions. II. The Bank's Conduct of Monetary Policy Now, I would like to talk about the Bank's conduct of monetary policy. The Bank has enhanced monetary easing since March in response to COVID-19 (Chart 6). Specifically, it has conducted the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) an ample provision of yen and foreign currency funds without setting upper limits, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations; and (3) active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). These responses have had positive effects, coupled with the government's measures and efforts by financial institutions. Global financial markets are still nervous, but tension has eased. Although firms' financial positions have been weak, the environment for external funding, such as the issuance of CP and corporate bonds as well as bank borrowing, has remained accommodative. In response to the COVID-19 shock, the Bank has conducted monetary policy with a view to supporting corporate financing and maintaining stability in financial markets. Let me explain in some detail why we consider these two points as crucial. The first is with regard to supporting corporate financing. There is a dilemma that the demand stimulus measures for the overall economy could constrain economic activity if they lead to an increase in the number of confirmed cases of COVID-19. Given that the spread of COVID-19 continues, demand stimulus measures for targeted areas are effective, since prevention of infection and improvement in economic activity can be achieved simultaneously. In this situation, it is important to prevent firms and sole proprietors affected by COVID-19 from facing difficulties in financing and to provide an environment where they can quickly restart their businesses as COVID-19 subsides. Taking into account these points, governments and central banks around the world have focused on protecting businesses and employment in response to the current crisis. The Bank has supported corporate financing through the Special Program with a total size amounting to about 130 trillion yen. The second point regards maintaining stability in financial markets. The economy will fall into a vicious cycle should the following happen: if uncertainties increase over future developments in the economy, financial markets are more likely to become unstable, and turmoil in the markets may negatively affect the real economy through deterioration in firms' and households' sentiment. With a view to preventing this vicious cycle, measures to maintain stability in financial markets are important at the time of a crisis. Thus, in the current crisis, the government and central bank of each country have swiftly made policy responses on a large scale, also based on the lessons learned at the time of the GFC. So far, I have explained that the Bank has conducted powerful monetary easing with a view to supporting corporate financing and maintaining stability in financial markets, thereby encouraging economic and financial activities. Maintaining accommodative financial conditions during the severe economic situation will mitigate the negative impact on firms and households and support their positive efforts. If these efforts result in expansion in businesses suitable for the new environment, I believe that Japan's economy will more likely return to a sustainable growth path after the impact of COVID-19 subsides. Thus, the Bank will continue to firmly conduct the current monetary easing measures. Since the impact of COVID-19 on economic and financial activities is highly uncertain, the Bank, for the time being, will closely monitor this impact and not hesitate to take additional measures if necessary. Conclusion Before closing my speech, I would like to touch on economic developments in the Tokai region. While vigilance against COVID-19 continues, the region's economy has remained in a severe situation, mainly in terms of consumption of face-to-face services, such as eating and drinking as well as accommodations. That said, the economy has been picking up recently, mainly led by the automobile-related sector, which accounts for a major share in its economy. The region's economy has been leading the pick-up in Japan's economy. Firms in this region have taken advantage of the experiences gained from past crises to further innovation. In the current phase, they are making good use of their experiences from the GFC and the Great East Japan Earthquake, as seen in the flexible adjustment of production, maintenance in business fixed investment for future growth, and active support by financial institutions. In addition, efforts to encourage innovation, including government-private cooperation in supporting start-up firms, have been made. I am convinced that the economy of the Tokai region will use the current crisis as a springboard for further growth. I would like to close my speech today by making clear that the Bank will pursue powerful monetary easing, thereby providing its utmost support for your corporate activities. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya (via webcast) November 4, 2020 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Developments in Economic Activity and Prices II. The Bank's Conduct of Monetary Policy Conclusion Chart 1 I. Developments in Economic Activity and Prices Global Economy and External Demand Real Exports Global Growth Rate (IMF, October 2020) y/y % chg. 2021: +5.2% 2019: +2.8% s.a., 2012/Q1=100 -2 2020: -4.4% -4 Forecasts -6 CY 00 CY12 Note: In the right-hand chart, figures are based on staff calculations. Sources: IMF; Ministry of Finance; Bank of Japan. Chart 2 I. Developments in Economic Activity and Prices Business Fixed Investment Business Fixed Investment Plans (Tankan) y/y % chg. Software Investment Plans (Tankan) FY 2020 FY 2015-2019 average FY 2004-2019 average y/y % chg. FY 2020 FY 2015-2019 average FY 2004-2019 average -2 Mar. June Sept. Dec. Forecast Actual Mar. June Sept. Dec. Forecast Actual Notes: 1. Figures are for all industries and enterprises. 2. In the left-hand chart, figures include software and R&D investments and exclude land purchasing expenses (R&D investment is not included before the March 2017 survey). 3. In the right-hand chart, figures show the amount of newly recorded software investment under intangible fixed assets. Source: Bank of Japan. Chart 3 I. Developments in Economic Activity and Prices Private Consumption, Employment, and Income Private Consumption 110 s.a., CY2011=100 Number of Employed Persons y/y % chg. Nominal Wages y/y % chg. -1 Consumption Activity Index (travel balance adjusted, real) CY12 13 14 15 16 17 18 19 20 -2 Self-employed workers, family workers, etc. Non-regular employees Regular employees Employed persons -3 CY12 13 14 15 16 17 18 19 20 -1 -2 Special cash earnings (bonuses, etc.) Non-scheduled cash earnings Scheduled cash earnings Total cash earnings -3 CY12 13 14 15 16 17 18 19 20 Notes: 1. In the left-hand chart, figures exclude inbound tourism consumption and include outbound tourism consumption. Based on staff calculations. Figures for 2020/Q3 are July-August averages. 2. As for the middle chart, "self-employed workers, family workers, etc." includes executives of companies or corporations. Figures prior to 2014 are based on the "detailed tabulation" in the Labour Force Survey. Figures for 2020/Q3 are July-August averages. 3. In the right-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions. Sources: Bank of Japan; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. Chart 4 I. Developments in Economic Activity and Prices The Bank's Forecasts for Economic Activity and Prices (October 2020 Outlook Report) Forecasts of the Majority of the Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 -5.6 to -5.3 [-5.5] -0.7 to -0.5 [-0.6] Forecasts made in July 2020 -5.7 to -4.5 [-4.7] -0.6 to -0.4 [-0.5] Fiscal 2021 +3.0 to +3.8 [+3.6] +0.2 to +0.6 [+0.4] Forecasts made in July 2020 +3.0 to +4.0 [+3.3] +0.2 to +0.5 [+0.3] Fiscal 2022 +1.5 to +1.8 [+1.6] +0.4 to +0.7 [+0.7] Forecasts made in July 2020 +1.3 to +1.6 [+1.5] +0.5 to +0.8 [+0.7] Risk Factors Risks are skewed to the downside, mainly due to the impact of COVID-19 Impact of COVID-19 on domestic and overseas economies The outlook is based on the assumptions that, with progress in efforts to take preventive measures against COVID-19 and improve economic activities simultaneously, COVID19 will not spread again on such a large scale that the wide-ranging public health measures will need to be reinstated. Firms' and households' medium- to long-term growth expectations Developments in the financial system Notes: 1. These figures show the forecasts of the majority of the Policy Board members and those in brackets indicate the medians. The forecasts are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which she or he attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. 2. The direct effects of the October 2019 consumption tax hike on the CPI for fiscal 2020 are estimated to be 0.5 percentage point. In addition, based on a specific assumption, the direct effects of policies concerning the provision of free education on the CPI for fiscal 2020 are estimated to be around minus 0.4 percentage point. The direct effects of the "Go To Travel" campaign on the CPI are estimated to be minus 0.2 percentage point for fiscal 2020 and 0.2 percentage point for fiscal 2021. Source: Bank of Japan. Chart 5 I. Developments in Economic Activity and Prices Consumer Prices y/y % chg. Effects of the "Go To Travel" campaign Effects of the consumption tax hikes and free education policies Items other than energy Energy CPI (less fresh food) -1 -2 CY Notes: 1. Energy consists of petroleum products, electricity, and gas, manufactured & piped. 2. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. II. The Bank's Conduct of Monetary Policy Chart 6 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19: total size of about 130 tril. yen + α Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: about 110 tril. yen Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills: unlimited Enhancement of the U.S. Dollar Funds-Supplying Operations: unlimited Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being)
|
bank of japan
| 2,020 | 11 |
Speech (via webcast) by Ms Takako Masai, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Eastern Hokkaido, 16 November 2020.
|
November 16, 2020 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Eastern Hokkaido (via webcast) MASAI Takako 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 in October 2020, 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 from fiscal 2020 through fiscal 2022. 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 the current situation of overseas economies. The Bank assesses that they have picked up from a state of significant depression. After hitting bottom this April, when around half of the world's population of 7.8 billion people were forced to stay at home, global economic growth rebounded to a relatively high level temporarily in the July-September quarter, mainly reflecting a resumption of economic activity, the materialization of pent-up demand, and a recovery in production. Indeed, the Global Purchasing Managers' Index (PMI) for both manufacturing and services for this period regained the boom-or-bust dividing line of 50. Global production and the world trade volume also seemed to have picked up. As for the outlook, with the impact of the novel coronavirus (COVID-19) waning gradually, overseas economies are likely to improve, partly supported by aggressive macroeconomic policies taken by each country and region. That said, it is noteworthy that the recent pace of improvement is uneven across business sectors and countries. It can be said that there is also a high level of uncertainty regarding this improvement, given that public health measures have been tightened again, mainly in Europe, which could temporarily push down economic activity. By sector, a clear V-shaped recovery has been seen in some, whereas a recovery in demand is still not in sight in others. I believe this contrast between sectors has started to become gradually more evident than that observed at the time of the Global Financial Crisis (GFC). In particular, comparing the impact of COVID-19 on goods and services, that on services has been conspicuous recently. For example, regarding private consumption in the United States, consumption of goods such as automobiles and recreational goods (e.g., video game machines and televisions) is firm due to the materialization of pent-up demand and a shift from demand for services. On the other hand, weakness in consumption of services is evident, mainly in face-to-face services, including dining-out, accommodations, and entertainment. This trend is also observed in China, where economic activity resumed earlier than elsewhere. The International Monetary Fund (IMF), in the World Economic Outlook released in October 2020, revised upward its projection for global growth for 2020 by 0.8 percentage point, from minus 5.2 percent to minus 4.4 percent. By country and region, there are variations; while the estimates for developed economies and China were revised upward, those for emerging economies, including India, were revised downward. As demand for tourism and travel has fallen even more steeply compared with other face-to-face services, it is highly likely that the impact of COVID-19 will be prolonged and the pace of improvement will be only moderate in countries and regions where travel income has a large share in the economy. Indeed, when we look at the economic growth estimates in the Autumn 2020 Economic Forecast released by the European Commission this month, that for the euro area in 2020 turned out to be higher than that released in the summer, while those for Spain and Malta, where tourism and other services sectors have large shares, were lower.1 I will touch upon risks brought by this unevenness later. Looking at the euro area's growth rate for 2020, the estimated rate in the autumn forecast was revised upward to minus 7.8 percent on a year-on-year basis from minus 8.7 percent in the summer forecast. On the other hand, Spain's growth rate for 2020 was revised downward to minus 12.4 percent on a year-on-year basis from the estimated minus 10.9 percent. B. Japan's Economy 1. Current situation The Bank assesses that Japan's economy has picked up with economic activity resuming, although it remains in a severe situation due to the impact of COVID-19 at home and abroad. In the April-June quarter, real GDP recorded a growth rate of minus 8.2 percent on a quarteron-quarter basis (minus 28.8 percent on an annualized basis), reflecting sharp declines, mainly in exports (including inbound tourism consumption, which is classified as services exports) and private consumption. This was the largest negative growth since 1980, from when comparable data are available. The first preliminary estimate of the real GDP growth rate for the July-September quarter, which was released today, is 5.0 percent on a quarter-onquarter basis (21.4 percent on an annualized basis). On the other hand, the impact of COVID-19 remains significant, particularly in face-to-face services such as dining-out, travel, and entertainment.2 For example, a consumption indicator based on credit card transaction data indicates that services consumption, compared with goods consumption, not only registered a sharp decline for the April-May period but also has seen a marked delay in a subsequent pick-up. In addition, mobility changes based on location tracking data -- which have a high correlation with selective expenditures for services -temporarily followed a pick-up trend after the state of emergency was lifted, but the pick-up leveled off during the summer in reflection of a resurgence in the number of confirmed new COVID-19 cases. In this respect, the results of a questionnaire survey indicate a cautious stance on going out or coming in contact with others, mainly among seniors. This is probably a factor constraining an increase in the pace of recovery in consumption. Moreover, with regard to inbound tourism demand, which recorded remarkable growth over the past several years, there continue to be almost no inbound visitors with entry and travel restrictions remaining in place in order to contain the spread of COVID-19. This, coupled with a decrease in opportunities for going out because of the expansion in teleworking, has weakened demand for cosmetics. This is one example of the widespread effects of the pandemic. However, there have been encouraging developments for face-to-face services, with the government's demand stimulus measures, such as the "Go To" campaign having been effective. This For statistical purposes, expenditures in face-to-face services include healthcare expenses, which are mostly classified as government expenditure. includes the "Go To Travel" campaign -- a domestic tourism promotion program -- having been expanded to include trips to and from Tokyo since October as the spread of COVID-19 has been contained relative to other countries. 2. Outlook With regard to the outlook, the Bank's baseline scenario is as follows: Japan's economy is likely to follow an improving trend with economic activity resuming and the impact of COVID-19 waning gradually, but the pace is expected to be only moderate while vigilance against COVID-19 continues. Thereafter, as the impact subsides globally, the economy is projected to keep improving further with overseas economies returning to a steady growth path. Looking at details of the outlook for each fiscal year, in the second half of fiscal 2020, with economic activity resuming and the impact of COVID-19 waning gradually, the economy is expected to continue picking up, mainly for exports and production, although downward pressure is expected to remain strong in the services industry in particular. Thereafter, in fiscal 2021, as the impact of COVID-19 wanes at home and abroad and the growth rates of overseas economies rise, an improving trend in the economy is expected to become evident, partly supported by accommodative financial conditions. In fiscal 2022, the economy is expected to continue growing firmly, with demand at home and abroad increasing in a well-balanced manner. In terms of the medians of the Policy Board members' forecasts in the October 2020 Outlook Report, the real GDP growth rate is minus 5.5 percent for fiscal 2020, 3.6 percent for fiscal 2021, and 1.6 percent for fiscal 2022. However, this outlook is based on the assumption that COVID-19 will not spread again on such a large scale that the wide-ranging public health measures will need to be reinstated. It also is based on the premises that, while the impact of COVID-19 remains, firms' and households' medium- to long-term growth expectations will not decline substantially and the smooth functioning of financial intermediation will be ensured with financial system stability being maintained. However, the assumption and premises entail high uncertainties. Within the Bank's baseline scenario, I support the assessment of the current situation but have a cautious view on the future outlook for the following two reasons. First, I expect that the world trade volume will continue to grow firmly for the time being. At the same time, there is high uncertainty as to whether the growth trend will be maintained through the second half of the projection period given that the rate of increase had been slowing since around the middle of 2018, before the outbreak of COVID-19, mainly affected by the U.S.-China trade friction. Indeed, Japan's export and production levels had already been on a downtrend prior to the outbreak, which I believe warrants attention. Second, nonmanufacturing industries, mainly the services sector, are projected to recover at only a moderate pace globally. In this situation, I believe that recovery in the services sector is indispensable to Japan's economy returning to an expanding trend given that it has provided substantial support for economic growth over the past several years through business fixed investment, mainly construction investment, and that it has had a growing presence in Japan's labor market in recent years. 3. Risks to the outlook Regarding the outlook for the economy, risks up until the impact of COVID-19 subsides include the following: (1) the impact of COVID-19 on domestic and overseas economies; firms' and households' medium- to long-term growth expectations; and (3) developments in the financial system. Furthermore, attention should continue to be paid to, for example, U.S.China tension, the future consequences of the trade negotiations between the United Kingdom and the European Union, geopolitical risks, and developments in global financial markets under these circumstances. The risk that I particularly bear in mind is the potential impact on the global economy of the uneven recovery, with the pace varying across countries and regions. At present, many countries and regions have been conducting fiscal and monetary policies in the same direction in response to the globally common shocks, and this appears to have contributed to the stability in financial markets thus far. However, as I stated in my earlier overview, a synchronous global economic recovery comparable to the one in 2017 is unlikely to occur over the coming years. The expectation is that the process of recovery will be long lasting and that the pace will vary widely across countries and regions. In my view, it should be noted that such unevenness could result in differences in policy direction across countries and regions. In particular, as Gita Gopinath, Director of the Research Department at the IMF, has pointed out, the shortfall in GDP growth in 2020 to 2021 relative to pre-COVID-19 growth projections is expected to be larger for emerging and developing economies, except for China, than that for developed economies. In this situation, it warrants attention that the underlying trend in international fund flows could change if the recent global convergence in income level and current account balance turn to divergence once again. In this regard, I believe that measures to mitigate such risk, including the extension of the Debt Service Suspension Initiative (DSSI) for developing economies, which was agreed upon at the recent G20 meeting, will become increasingly important in the future. C. Price Developments 1. Current situation Next, I will turn to price developments in Japan. The year-on-year rate of change in the consumer price index (CPI) for all items less fresh food has decelerated and become slightly negative, mainly due to the impact of COVID-19, the past decline in crude oil prices, and a decrease in hotel charges that reflects a discount through the "Go To Travel" campaign. However, the rate of change in the CPI for all items less fresh food and energy, excluding the effects of temporary factors of the consumption tax hikes, policies concerning the provision of free education, and the "Go To Travel" campaign, has been slightly positive recently. As for the indicators for capturing the underlying trend in the CPI, the rate of change in the trimmed mean decreased after the turn of the year, reflecting a decline in such items as those related to energy (electricity as well as manufactured and piped gas charges) and those related to travel (hotel charges and charges for package tours to overseas), both of which have large weights in the CPI, and it has been at around 0 percent recently. Regarding the mode, which is less susceptible to developments in CPI items with large weights, the rate of increase is in the range of 0.0-0.5 percent. 2. Outlook for prices With regard to the outlook for prices, the year-on-year rate of change in the CPI for all items less fresh food is likely to be negative for the time being, mainly affected by COVID-19, the past decline in crude oil prices, and the "Go To Travel" campaign. Thereafter, it is expected to turn positive and then increase gradually, since downward pressure on prices is projected to wane gradually along with economic improvement, and the effects of such factors as the decline in crude oil prices are likely to dissipate. In terms of the medians of the Policy Board members' forecasts in the October 2020 Outlook Report, the year-on-year rate of change in the CPI for all items less fresh food is minus 0.6 percent for fiscal 2020, 0.4 percent for fiscal 2021, and 0.7 percent for fiscal 2022. 3. Risks to prices Risks specific to prices include (1) uncertainties over firms' price-setting behavior amid the impact of COVID-19 on both the demand and supply sides of economic activity and (2) future developments in foreign exchange rates and international commodity prices. I believe that greater emphasis needs to be placed on both of these risk factors. Regarding the first risk, it is not assessed at present that price cuts that aim at stimulating demand have been observed widely, since one of the reasons for the current decrease in demand due to constrained economic activity is vigilance against COVID-19. However, total hours worked continue to decrease and the positive effects of the government's provision of special cash payments on disposable income have gradually dissipated. If the employment and income situation of households becomes more severe, this could affect firms' pricesetting behavior. I will therefore closely monitor future developments. With regard to the second risk, global financial markets are still nervous with the outlook for economic activity being unclear, although tension has eased. I therefore find it necessary to remain vigilant with regard to the extent to which these developments will spread to import prices and domestic prices. II. The Bank's Monetary Policy Next, I will talk about the Bank's monetary policy. A. The Current Conduct of Monetary Policy From late February through March 2020, when the effects of the spread of COVID-19 began to materialize, growing uncertainties over the global economy brought about developments including the following. Investors' risk sentiment deteriorated rapidly in global financial and capital markets, and stock prices worldwide plunged, including in Japan, with their volatility increasing to a level observed for the first time since the GFC. Long-term interest rates also temporarily declined substantially, with those in the United States and Germany reaching historically low levels. The commodity market was another such example, where prices such as of crude oil and copper declined significantly. As these developments suggest, global financial and capital markets remained unstable during this time as the effects of the sudden market turmoil became widespread. Meanwhile, financial conditions rapidly became less accommodative worldwide, to the extent that the U.S. Federal Reserve inevitably implemented successive measures in response, such as unlimited purchases of U.S. government bonds and purchases of CP and corporate bonds. Particularly in the case of Japan, firms -- ranging from large firms to small and medium-sized as well as micro firms -- suffered a rapid worsening of business conditions due to the spread of COVID-19, which happened to coincide with the end of their accounting period at end-March. In my view, this was cause for concern that these firms might not be sufficiently prepared to deal with the given situation. Indeed, there was a risk that corporate financing in Japan would be under a significant amount of stress in the form of, for example, an expansion of issuance spreads for CP and corporate bonds. Given these circumstances, the Bank brought forward the MPM scheduled for March, at which time it decided to enhance monetary easing with a view to doing its utmost to ensure smooth corporate financing and to maintaining stability in financial markets. At a subsequent MPM in April and an unscheduled one in May, it introduced measures to further enhance monetary easing. Such swift and aggressive measures by the Bank effectively draw on lessons learned from its experiences during the GFC. The Bank has implemented the following three measures to enhance monetary easing in response to the current phase. First, it introduced the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) in order to support financing, mainly of firms. The total size of this program exceeds 140 trillion yen. Specifically, the program consists of (1) purchase of CP and corporate bonds with an upper limit of about 20 trillion yen and (2) the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), which will be about 120 trillion yen at maximum. Through the special operations, the Bank provides funds on favorable terms to financial institutions that make loans in response to COVID-19. The operations also are applied to loans for which the government takes the credit risk. This therefore represents a case of cooperation between the Bank and the government to support financing, mainly of firms. Second, to maintain stability in financial markets, the Bank has adopted a framework through which ample yen and foreign currency funds can be provided in a flexible manner. As for the yen funds, under yield curve control, the Bank decided to purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit. Regarding foreign currency funds, the Bank has provided ample U.S. dollar funds through U.S. dollar fundssupplying operations, strengthened based on the cooperation of six major central banks including the Bank of Japan. Third, the Bank has actively purchased exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) with the purpose of lowering risk premia in asset markets. The aim of this measure is to prevent firms' and households' sentiment from deteriorating through volatility in asset markets and supporting positive economic activity. In addition to these three measures, the Bank has made regulatory responses to ensure financial system stability, including an easing of the leverage ratio requirement it announced with the Financial Services Agency in April. It can be assessed that such responses have produced the intended effects so far; for example, avoiding the kind of significant tightening of financial conditions that initially had been anticipated. Next, I would like to mention two points that I bore in mind in the process leading up to the Bank's series of policy decisions. The first is the importance of maintaining accommodative financial conditions, mainly through the provision of ample funds. For example, if the issuance market mainly for CP and corporate bonds were to dry up, as was the case at the time of the GFC, firms might rush to banks to take out large-lot loans, a situation that could result in a further credit contraction. In addition, even though it can be said that financial institutions have significantly increased their robustness compared with the time of the crisis, instability in financial markets will have a considerable impact on their stance on credit provision. I assume that many still vividly recall the experience following the GFC, in which a serious delay was caused in the issuance of letters of credit on international shipments of goods. The second point is the importance of maintaining firms' and households' sentiment and providing financial support to small and medium-sized firms as well as micro firms with a sense of urgency, given that the impact of COVID-19 has sent rapid, enormous shockwaves through a broad range of corporate activities regardless of firm size or business sector. In terms of the former, it is important for the Bank to clarify its policy stance, as uncertainty about future developments is extremely high. Thus, the Bank has changed its forward guidance for policy rates to one stating that it "will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary" from the previous one stating that it "will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost." Regarding the latter, I believe top priority should be placed on taking measures to support financial and economic activities, including coordinated actions with the government and overseas central banks. B. Future Conduct of Monetary Policy Since April 2013, the Bank has implemented Quantitative and Qualitative Monetary Easing with the aim of achieving the price stability target of 2 percent at the earliest possible time. As a result, it can be said that Japan's economy is no longer in deflation in the sense of a sustained decline in prices. Even so, the January 2020 Outlook Report, which was released immediately before the outbreak of COVID-19, assessed that "the momentum toward achieving the price stability target of 2 percent is maintained but is not yet sufficiently firm, and thus developments in prices continue to warrant careful attention." As this suggests, the path toward achieving the price stability target was not expected to be easy even without COVID-19. The impact of the pandemic added to the difficulty, causing the inflation momentum to be lost temporarily. Given the impact of COVID-19, it is likely for the time being that the output gap, an indicator of labor and capacity utilization, will remain rather deep in negative territory and the pace of its improvement will be moderate. It also is likely to take time before medium- to long-term inflation expectations, which are weakening somewhat at present, start to rise again. Therefore, I consider it necessary to be strongly aware of the possibility that it will take more time to achieve the price stability target. In light of these points, it is necessary to assume that monetary easing will be prolonged further. In other words, monetary policy should be conducted while taking into account such prolongation. Specifically, I expect that it will become crucial to give more consideration to the side effects of prolonged monetary easing and to take policy responses from a broader perspective in order to ensure the sustainability of the policy. For example, regarding ETF purchases, the Bank aims to bring about positive effects to the economy and prices by lowering risk premia in the stock market. However, it is also true that 10 years since the introduction of the purchase program, the amount outstanding of ETFs held by the Bank has increased to a considerable extent. In this situation, in July 2018, the Bank, with a view to persistently continuing with powerful monetary easing, shifted to a flexible purchasing method for ETFs under which it may increase or decrease the amount of purchases depending on market conditions. The Bank has also introduced an ETF lending facility with the aim of improving the liquidity in domestic ETF markets. I believe that it will become increasingly important to discuss how to maintain the effects of monetary easing while ensuring the sustainability of the policy, including in terms of increasing flexibility in ETF purchases and developing the market further. III. Toward Sustainable Economic Growth More than four years have passed since I joined the Bank's Policy Board. I feel that the paces of technological development and changes in social norms have accelerated over this period. Moreover, the global spread of COVID-19 is rapidly changing people's behavioral patterns. In particular, in the United States and Europe, where the spread has been severe, various organizations and individuals seem to be accumulating new experiences, an example being that the U.S. Federal Reserve's policy decisions since the outbreak have principally been made via remote work. In order for Japan to ensure sustainable economic growth in this situation, it is becoming increasingly important to move in step with these global developments. In what follows, let me introduce the Bank of Japan's initiatives in this regard based on the two points that I consider important. A. Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) Factors First, both the public and private sectors have stepped up their efforts toward achieving the SDGs to realize sustainable economic growth since the United Nations adopted the 2030 Agenda for Sustainable Development in September 2015.3 The Japanese government has announced its aim to reduce greenhouse gas emissions to virtually net-zero by 2050. From the perspective of contributing to financial system stability, which is the central bank's mission, climate change has been drawing global attention, and many central banks and supervisors are strengthening activities in line with this trend. For example, in December 2017, the Network for Greening the Financial System was established. This is a group of willing central banks and supervisors, joined by the Bank of Japan in November 2019. As discussion on climate-related risks focuses mainly on matters with a medium- to long-term horizon, I do not view that these risks will pose an immediate threat to financial stability. However, it is important to actively participate in and contribute to international discussions and communicate necessary information in a timely manner while keeping abreast of viewpoints in the international community. To support firms proactively investing in physical and human capital, the Bank has been purchasing ETFs comprised of such firms' stocks at an annual pace of about 300 billion yen. For an overview and Japan's related efforts, see https://www.mofa.go.jp/mofaj/gaiko/oda/sdgs/pdf/ 000101401.pdf; https://www.mofa.go.jp/policy/oda/sdgs/pdf/Japans_Effort_for_Achieving_the _SDGs.pdf. In addition, it provides funds to support private financial institutions' efforts in strengthening the foundations for Japan's economic growth (Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth). The Bank does not consider these measures as an inducement for ESG finance. However, I hope that capital market participants will develop further interest in firms that are proactively engaging in ESG-related activities through, for example, investment in physical and human capital, amid the Bank's implementation of such initiatives. B. Digital Transformation (DX) Second, it is also important to take advantage of DX development, which has been making significant progress in recent years, to pave the way for sustainable economic growth. There is no doubt that the increased need for non-face-to-face or no-contact interactions due to the spread of COVID-19 has accelerated DX development. This could in turn bring wide-ranging economic and social benefits through not only greater efficiency but also higher value-added services and the creation of new services. In order to maximize the benefits of digital technology while fully guarding against cybersecurity risk, which is the greatest threat to the digital world, it is becoming increasingly important for the public and private sectors to cooperate in further improving the DX environment. Against this background, the Bank announced its approach to Central Bank Digital Currency in October 2020. Considering that digitalization has advanced in various areas at home and abroad on the back of rapid development of information communication technology, it is important for a central bank to make necessary preparations such as conducting experiments and exploring institutional arrangements. I hope that such activities, coupled with resourceful initiatives by private-sector business entities, will lead to the development of safe and efficient payment and settlement infrastructures suited for a digital society. It is expected that Japan's overall productivity will improve through efforts related to SDGs, ESG factors, and DX. I believe that this will lead to sustainable economic growth, thus helping the Bank to eventually achieve its price stability target. However, I think that the road ahead is in no way smooth. Therefore, it can be said that this is the critical juncture at which the Bank firmly supports the efforts of each economic entity through monetary policy and actively provides support for financial institutions' initiatives from the viewpoint of contributing to financial system stability.
|
bank of japan
| 2,020 | 11 |
Article by Mr Makoto Sakurai, Member of the Policy Board of the Bank of Japan, 6 November 2020.
|
November 6, 2020 Bank of Japan An Essay on Japan's Monetary Policy Experience and Lessons SAKURAI Makoto Member of the Policy Board KIMATA Tomonori Director, Secretariat of the Policy Board (The views expressed here, as well as any remaining errors, are those of the authors and should not be ascribed to the Bank of Japan.) I. Introduction1,2 Japan's monetary policy has been consistently accommodative over the past three decades. However, especially in times of global economic shocks, there have been cases when the intended policy effect did not materialize due to differences with macroeconomic policies in other countries. In what follows, we look back at the spillover effects of monetary policies abroad and implications for the conduct of monetary policy in Japan. II. Relationship between Money Demand and Supply and Economic Activity Monetary policy is carried out by central banks in order to affect the real economy through private financial institutions as well as financial and capital markets. In general, monetary policy is effective when the following conditions hold: (1) The relationship between the monetary base and the money stock is stable (i.e., the money multiplier is stable). (2) The relationship between money demand, which is determined by interest rates, future growth expectations, etc., and the level of activity in the economy as a whole is stable (i.e., the money demand function and the investment multiplier are stable). If (1) is satisfied, the central bank can estimate the level of the monetary base, which it can directly control, that is necessary to achieve the desired level of economic activity. If (2) is satisfied, it can estimate the extent of interest rate cuts necessary to stimulate private sector demand for funds and hence investment. Looking back at the period from the early 1990s to the present, Japan has experienced the bursting of the domestic bubble economy, the Asian Financial Crisis and the financial system crisis in Japan, and the Great Recession caused by the Global Financial This article forms part of joint research with Hamada Koichi (Yale University) and was written solely by Sakurai Makoto and Kimata Tomonori. It was prepared as part of the presentation at the Fifth Annual Conference of the Japan Economy Network, which was canceled due to COVID-19. The discussion regarding the data and the theoretical analysis were jointly written by Sakurai Makoto and Kimata Tomonori, while the evaluation of the monetary policy response is based on Sakurai Makoto's personal assessment. Crisis (GFC), and it is currently experiencing a major depression caused by the novel coronavirus (COVID-19) pandemic. Although monetary policies in Japan remained accommodative almost throughout, the economy did not decisively overcome economic stagnation and deflation. One reason that monetary easing was unable to stimulate sufficient demand is that the money stock did not rise enough relative to the monetary base (i.e., the money multiplier fell), due in part to the decline in the functioning of credit intermediation, especially during the crisis of Japan's financial system in the late 1990s. Furthermore, since the money demand function became unstable with growth expectations declining as deflationary sentiment took hold and interest rates approaching the zero lower bound, the effectiveness of accommodative monetary policies may have declined accordingly. Thus, it is likely that accommodative monetary policies that would have been quite powerful based on conventional standards had a much smaller effect than expected. This raises the question whether the scale of monetary easing was sufficient. III. Monetary Policy under Globalization The main objectives of monetary policy can be summarized as (domestic) price stability and sound development of the national economy, such as maximizing employment or maintaining an appropriate balance of supply and demand. Central banks conduct monetary policy to achieve these goals in line with the particular conditions of their domestic economy. However, in a globalized world economy, monetary policies in one country are inevitably affected by the economic conditions and monetary policies of other countries. The transition from a fixed to a floating exchange rate system in the 1970s and the subsequent advances in globalization have meant that macroeconomic policies, including monetary policies, and their effectiveness must be considered within the framework of international finance (open macroeconomics). The move to a floating exchange rate system has led to the so-called "trilemma of international finance," which is summarized in Table 1. Table 1: The Trilemma of International Finance Regime Monetary policy International capital flows Exchange rate Fixed exchange rate Similar Regulated Fixed Similar (due to similar economic trends) Stable flows Stable Independent Free flows Variable Floating exchange rate The trilemma of international finance refers to the fact that economies cannot maintain (1) a fixed exchange rate, (2) independent monetary policy, and (3) free international capital flows all at the same time. One of the three must be relinquished. Giving up (1) results in a floating exchange rate regime, while giving up (2) results in a fixed exchange rate regime. Under a floating exchange rate regime, central banks conduct monetary policy independently based on domestic economic and price conditions. Under independent monetary policy, the direction of individual economies' monetary policy differs in the short term depending on their own financial and economic conditions. That said, when the global economy as a whole is growing steadily, the direction of monetary policy in different economies tends to become similar, leading to a situation where exchange rate fluctuations are limited and exchange rates ultimately become close to being fixed. In fact, looking back over the past 50 years, periods of major economic swings caused by global crises such as the oil shocks, the bursting of various bubbles, the GFC, and the latest COVID-19 shock, have alternated with periods of relatively stable economic expansion under an accommodative financial environment. The former can be described as periods in which monetary policy tends to differ and the latter as periods in which monetary policy tends to become similar. Since the transition to a floating exchange rate system, there have been constant advances in the liberalization of international capital flows. Although, in the short term, capital flows sometimes have been highly volatile, from a long-term perspective, international capital flows have been relatively stable and growing steadily. The increasingly global nature of supply chains (at least until the start of the COVID-19 pandemic) reflects these free capital flows. In sum, the period of stable global economic growth can be characterized as one in which, although economies were able to pursue independent monetary policy and enjoy the benefits of free capital flows, the monetary policies they pursued ultimately were very similar. This can be interpreted as a situation in which, despite a floating exchange rate system, exchange rates were generally stable (without any institutional constraints to fix exchange rates). In fact, a glance at recent exchange rates shows that, while they may have fluctuated in the short term due to temporary fluctuations in capital flows, they have been stable in the long run. The fact that monetary policies in major economies have become increasingly similar may have contributed to this. It should be noted, however, that the expression "similar monetary policies" here does not simply refer to a shared policy stance in the direction of monetary easing. The reason is that differences across major economies in the strength of accommodative monetary policies, especially in response to a global crisis, can have economic spillover effects through the exchange rate. That is, even if countries adopt similar accommodative monetary policies in response to a major global economic shock, the relative strength of the policy responses will have repercussions. For instance, a country with relatively weak monetary easing will experience upward pressure on its currency, and if this country is highly dependent on external demand, the currency appreciation will put downward pressure on the economy through a decline in exports. In the following, we look back at Japan's economy and monetary policy since the 1990s. IV. Japan's Economy and Monetary Policy Regime Changes since the 1990s Over the past three decades, Japan's economy has experienced major economic fluctuations and prolonged economic stagnation. In the early 1990s, Japan experienced the bursting of the domestic asset bubble, followed by the Asian Financial Crisis of 1997, which occurred outside of Japan but coincided with a crisis in Japan's financial system. The result of these shocks was a prolonged period of economic stagnation. Economic stagnation accompanied by deflation continued thereafter. However, after the strengthening of monetary easing in 2013, the economy started to recover at a moderate pace and improved to the point where it was no longer experiencing deflation. With domestic growth remaining sluggish, Japanese firms continued to actively invest overseas, building increasingly global supply chains. Looking back at Japan's monetary policy over the past three decades, while the Bank of Japan (BOJ) has almost consistently pursued a policy of monetary easing since the bursting of the bubble, the strength of monetary easing has varied considerably over time. In addition, there have been major changes in the environment, including changes in the main policy instruments and in the effectiveness of monetary policy as a result of monetary policies pursued in other economies. In the following, we will focus on these "regime changes" in monetary policy and look back at Japan's accommodative monetary policy. Looking back at Japan's monetary policy since the 1990s, three major regime changes can be identified, all of which occurred in response to the global recession triggered by the GFC. 2008-2012 (Regime 1): Unintentional Regime Change The first, unintentional regime change was triggered by the GFC in 2008, and the regime can be thought to have continued through the second half of 2012. Although the BOJ strengthened its accommodative monetary policy in response to the GFC, the extent of easing was much smaller than the quantitative monetary easing of the United States, which was facing a crisis of its financial system. 3 Thus, although both Japan and the United States implemented monetary easing policies, there was a substantial difference in scale, as seen, for example, in terms of the balance sheets of the BOJ and the Federal Reserve (Fed). As a result, the yen appreciated against the U.S. dollar, which, coupled with the evaporation of global demand, led to weak exports, slow domestic growth, and deflationary tendencies. The analysis in this article assesses the extent of monetary easing in terms of the growth in the size of central banks' balance sheets. Figure 1 shows changes in the relative size of the Fed's and BOJ's balance sheets, which serve as a proxy for the monetary base, from the end of 2007 onward. The period from 2008 to 2012 is denoted by the blue circle near the vertical axis. By the end of 2012, the Fed's assets had expanded about 3.3-fold, while the BOJ's assets had grown only about 1.4-fold. The rapid appreciation of the yen in the period from 2008 to 2012 can thus be regarded as the result of diverging monetary policies in the two economies. Even though the direction of monetary policy -- toward easing -- was the same in Japan and the United States, their magnitude differed greatly, leading to substantial changes in the exchange rate. This period can be regarded as an unintended regime change caused by the Fed's massive monetary policy accommodation. Figure 1: Relative Developments in the Fed's and BOJ's Balance Sheets (Total Assets, Log Scale) Fed's total assets (end of 2007 = 1) Regime 3 Regime 2 2014 2015 Regime 1 BOJ's total assets (end of 2007 = 1) Notes: 1. The figure for 2020 is as of September 30. 2. Regime 1, Regime 2, and Regime 3 refer to the periods 2008-2012, 2013-2016, and 20162019, respectively. Figure 2: Exchange Rate yen/U.S. dollar Regime 2 Regime 3 Regime 1 20 CY 2013-2016 (Regime 2): Substantial Monetary Policy Regime Change to Catch Up with the United States The introduction of Quantitative and Qualitative Monetary Easing (QQE) by the BOJ in 2013 represents a significant monetary policy regime change. The BOJ embarked on an expansionary policy, which closed the gap vis-à-vis U.S. monetary easing that arose in Regime 1. With the quantitative easing (QE) introduced in Japan in Regime 2 much larger in scale than previous easing measures, the process of closing the gap was more or less completed by the second half of 2016. Further, this regime was widely regarded as a major change that encompassed economic policy overall, consisting of a framework for policy cooperation between the government and the BOJ. The closing of the gap meant that, by the end of 2016, the BOJ's balance sheet had expanded to the same extent vis-à-vis the level in 2007 as the Fed's balance sheet, as shown in Figure 1. In hindsight, it can be argued that QE had reached a point where some of its objectives had been achieved. The economy was close to full employment and inflation as of the second half of 2016 had become -- and remained -- positive. The negative spillovers from monetary policies abroad during Regime 1 had disappeared by then. However, although inflation remained positive from 2016 onward, it did not accelerate, and the link between QE and inflation appears to have become less clear. The reason is that the link between the monetary base and the money stock as well as the link between output and the demand for money became less stable. In addition, tightening in the labor market due to sustained moderate economic growth led to an increase in labor-saving capital investment, which allowed firms to respond to upward pressures on labor costs without passing on rising costs to sales prices, resulting in weak inflation. A possible interpretation of these developments is as follows. Thanks to the prolonged demand-side support through monetary policy, the economy neared full employment; at the same time, this brought about changes on the supply side -- such as laborsaving capital investment -- that counteracted upward pressure on prices, resulting in sluggish inflation. However, despite such developments in prices, it seems fair to say that monetary easing policies during this period did have a certain effect. 2016-2019 (Regime 3): Regime Change to Yield Curve Control The next regime change, from the second half of 2016 onward, was a switch in the nature of monetary easing from QE to monetary easing via the control of interest rates through yield curve control (YCC). During this period, (1) Japan's economy was close to full employment, (2) it experienced positive inflation, and (3) on the international front, there were no longer major differences in monetary policies across economies. These conditions allowed Japan to achieve the monetary easing effects necessary to sustain a moderate economic expansion by implementing monetary easing of a scale comparable to that of other central banks. Since monetary easing through YCC is conducted mainly by controlling interest rates, YCC has the advantage that there is no crowding-out of fiscal stimulus measures, making it possible to maximize the effects of policy cooperation with fiscal policy. On the other hand, keeping interest rates at a low level has the side effect that it may impede the functioning of financial intermediation by reducing financial institutions' profitability through the narrowing of lending margins (i.e., there may be a so-called "reversal interest rate" effect, where the impact of low interest rates is reversed). Therefore, it is important for central banks to conduct monetary policy while taking its impact on the financial system into account. Looking back on the period since the introduction of YCC, Japan's economy has continued to expand at a moderate pace, which implies that, at the least, the necessary degree of monetary easing was maintained. Meanwhile, fluctuations in the U.S. dollar-yen exchange rate during this period remained within a narrow range. In other words, the direction and scale of monetary policies in the major economies have been quite similar, leading to a situation close to the fixed exchange rate regime shown in Table 1. What is critically important is to understand that the fact that this situation came about is not a coincidence but is the result of the similarity of monetary policies of major economies. Meanwhile, in most major economies, the expected acceleration in inflation so far has not occurred. Given the increasingly complex mechanisms underlying general inflation, in order to avoid sudden market swings and achieve a gradual expansion of economic activity on a global basis, it seems desirable to prioritize full employment and avoid deflation (i.e., maintain a positive rate of inflation). This means that, even if the expected rise in inflation does not materialize, central banks should avoid implementing aggressive policy measures in the short run and instead respond gradually over time. V. The COVID-19 Crisis and Its Policy Implication Japan's long experience with monetary easing, and in particular the three different regimes just described, provides important lessons. The experience of the 2008-2012 period suggests that monetary policy should be flexible, bold, and responsive to external shocks. Moreover, the experience of the two policy regimes between 2013 and 2019 shows that, by applying the lessons of international macroeconomics, the BOJ was able to flexibly adjust monetary policy, taking into account the domestic implications of overseas monetary policies. The current global spread of COVID-19 has brought about a global depression, and it is difficult to predict future developments. That said, faced with a crisis of global scale, all major economies have implemented large-scale economic measures, reflecting the experience of the Great Depression of the 1930s and the Great Recession caused by the GFC in 2008. What is noteworthy about the current response is that policy coordination between governments and central banks in major economies and close cooperation among major central banks, such as the expansion of U.S. dollar funds-supplying operations, have been established quickly and are functioning effectively. As a result, despite some temporary swings, exchange rates between the major economies have remained stable. The challenges currently facing Japan's economy are of a similar scale as those facing other major economies, but so are Japan's policy responses. Based on the experience of the GFC, the BOJ has used all possible tools at its disposal. It will need to continue to cooperate closely with the government and other central banks to implement flexible and bold policies in a timely and appropriate manner. Appendix: Theoretical Background Model This appendix presents a two-country model describing the interdependence of monetary policy in the two countries. In the model, central banks choose the extent of monetary creation to achieve their inflation target taking into account spillover effects of the monetary policy of the other central bank. The following notation is used: M and M*: the monetary base at home (Japan) and abroad (United States). Hereafter, the asterisk denotes variables referring to the United States. , ≡ , e: exchange rate (an increase in e implies a depreciation of the yen), P: price level, p: inflation rate, π: inflation target, Y: real GDP, y: GDP growth, and m: excess monetary creation, which is . Based on the money demand function and purchasing power parity, the long-run exchange rate can then be expressed as follows: M/P ∗ kY, / ∗ ∗ ∗ , ∗ ∗ e ∙ ∗ ∗ ∗ ∗ ∗ ∗ ̂ ∗ ∗ ∗ ∗ Thus, the exchange rate is expressed as a decreasing function of monetary expansion in the United States and an increasing function of monetary expansion in Japan. The two countries try to achieve their inflation targets by adjusting their monetary bases. We assume that under price rigidities, there is a short-run negative spillover effect as a result of monetary policy interdependence, the so-called "beggar-thy-neighbor effect of monetary policy." The optimization functions are: Min m Min ∗ γ m ∗ γ ∗ m for Japan, and ∗ for the United States where γ is a positive coefficient (of less than 1) representing the spillover effect. Solving these yields the first order conditions: γ m γ γ ∗ ∗ γm π ∗ for Japan, and for the United States. These optimal monetary policy reactions can be expressed on the scatter plot as below. The 45-degree line is the set of monetary bases that yield the same exchange rate. Points above and to the left of the line correspond to an appreciation of the yen, while those below and to the right correspond to a depreciation. Figure A.1: Analytical Framework m* (U.S.) Under flexible exchange rates, each country can essentially choose its best point. Japan's Reaction Curve (RC) U.S. Reaction Curve P ∗ ∗ m (Japan) Using this framework, it is possible to depict the monetary policy reactions of the BOJ and the Fed after the GFC. The QE by the Fed would be represented by an upward shift of the reaction curve for the United States, while QQE by the BOJ would be represented by a shift to the right of the reaction curve for Japan. Figure A.2: Central Bank Reactions in Regimes 1 and 2 RC (Japan) at the QQE end of Regime 1 by the BOJ m* (U.S.) Yen appreciation P' RC (Japan) at the end of Regime 2 RC (U.S.) after the GFC P* RC (U.S.) before the GFC QE by the Fed The points of intersection denote the different regime changes: P…End of 2007 P*…Beginning of 2013 P'…Around 2016 P m (Japan) References Amamiya, M. "History and Theories of Yield Curve Control," keynote speech at the Financial Markets Panel Conference to Commemorate the 40th Meeting, January 11, 2017. https://www.boj.or.jp/en/announcements/press/koen_2017/data/ko170111a1.pdf. Dekle, R. and Hamada, K. "Japanese Monetary Policy and International Spillovers." Journal of International Money and Finance 52 (April 2015): 175–199. Dornbusch, R. "Expectations and Exchange Rate Dynamics." Journal of Political Economy 84, no. 6 (December 1976): 1161–1176. Eichengreen, B. and Sachs, J. "Exchange Rates and Economic Recovery in the 1930s." Journal of Economic History 45, no. 4 (December 1985): 925–946. Fratzscher, M., Lo Duca, M., and Straub, R. "On the International Spillovers of US Quantitative Easing." IMES Discussion Paper Series, no. 2015-E-7, July 2015. Hamada, K. "A Strategic Analysis of Monetary Interdependence." Journal of Political Economy 84, no. 4, part 1 (August 1976): 677–700. Hamada, K. and Okada, Y. "Monetary and International Factors behind Japan's Lost Decade." Journal of the Japanese and International Economies 23, no. 2 (June 2009): 200–219. Hamada, K. and Sakurai, M. "International Transmission of Stagflation under Fixed and Flexible Exchange Rates." Journal of Political Economy 86, no. 5 (October 1978): 877–895. Johnson, Harry G. "The Monetary Approach to Balance-of-Payments Theory." Journal of Financial and Quantitative Analysis 7, no. 2 (March 1972): 1555–1572. Kimura, T., Kobayashi, H., Muranaga, J., and Ugai, H. "The Effect of the Increase in the Monetary Base on Japan's Economy at Zero Interest Rates: An Empirical Analysis." BIS Papers 19 (October 2003): 276–312. Kimura, T. and Nakajima, J. "Identifying Conventional and Unconventional Monetary Policy Shocks: A Latent Threshold Approach." B.E. Journal of Macroeconomics 16, no. 1 (December 2015): 277–300. Kuroda, H. "'Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control': New Monetary Policy Framework for Overcoming Low Inflation," speech at the Brookings Institution in Washington, D.C., October 8, 2016. https://www.boj.or.jp/en/announcements/press/koen_2016/data/ko161009a.pdf. Masaki, K. "'Chōtan kinri sousa tsuki ryōteki shitsuteki kin'yū kanwa' no kangaekata" [How to Interpret Quantitative and Qualitative Monetary Easing with Yield Curve Control]. Shūkan Kin'yū Zaisei Jijō (October 17, 2016): 10–17. Negishi, T. "Bertrand's Duopoly Considered as an Edgeworth's Game of Exchange," Osaka Economic Papers 40, no. 3/4 (March 1991): 55–62. Nurkse, R. International Currency Experience: Lessons of the Interwar Period. Geneva: League of Nations, 1944. Uchida, S. "'Kin'yū seisaku no soukatsu kenshō' no hyōka" [Evaluation of the Comprehensive Assessment of Monetary Policy]. Nikkei, September 29, 2016.
|
bank of japan
| 2,020 | 11 |
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 24 November 2020.
|
Haruhiko Kuroda: The Bank's Semiannual Report on Currency and Monetary Control Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 24 November 2020. * * * Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and present an overall review of the Bank’s conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Overseas economies have picked up from a state of significant depression. They are likely to continue improving, but the pace is expected to be only moderate with the continuing impact of the novel coronavirus (COVID-19). Japan’s economy also has picked up with economic activity resuming, although it has remained in a severe situation due to the impact of COVID-19. Exports and industrial production have increased, reflecting developments in overseas economies. Private consumption has picked up gradually on the whole, although consumption of services, such as eating and drinking as well as accommodations, has remained at a low level. On the other hand, business fixed investment has been on a declining trend, against the background of deterioration in corporate profits. With economic activity resuming and the impact of COVID-19 waning gradually, Japan’s economy is likely to follow an improving trend, supported by accommodative financial conditions and the government’s economic measures. However, the pace of improvement is expected to be only moderate while vigilance against COVID-19 continues. The year-on-year rate of change in the consumer price index (CPI) is likely to be negative for the time being, mainly affected by COVID-19, the past decline in crude oil prices, and the “Go To Travel” campaign. Thereafter, it is expected to turn positive and then increase gradually along with the effects of such factors as the decline in crude oil prices dissipating and the economy improving. II. Conduct of Monetary Policy Next, I will explain the Bank’s conduct of monetary policy. The Bank has enhanced monetary easing in response to COVID-19. Specifically, it has conducted the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) ensuring stability in financial markets through an ample provision of funds; and (3) active purchases of assets such as ETFs. These measures have had positive effects, coupled with the government’s responses and active efforts by financial institutions. Global financial markets are still nervous, but tension has eased. Although firms’ financial positions have been weak, the environment for external funding, such as the issuance of CP and corporate bonds as well as bank borrowing, has remained accommodative. That said, there are high uncertainties over the outlook for economic activity and prices, and the Bank recognizes that risks are skewed to the downside. As the spread of COVID-19 has not 1/2 BIS central bankers' speeches subsided globally, the consequences of COVID-19 and the magnitude of their impact on domestic and overseas economies are highly unclear. In addition, the outlook is based on the premises that, while the impact of COVID-19 remains, growth expectations will not decline substantially and financial system stability will be maintained, but these premises also entail uncertainties. Moreover, with regard to risks to the financial side from a somewhat long-term perspective, prolonged downward pressure on financial institutions’ profits might lead to a gradual pullback in financial intermediation, given the existing factors — such as the prolonged low interest rate environment and the declining population — as well as the recent impact of COVID-19. On the other hand, under these circumstances, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. These risks are judged as not significant at this point, mainly because financial institutions have sufficient capital bases. However, it is necessary to pay close attention to future developments. Based on such recognition, the Bank will continue to firmly conduct the current monetary easing measures and to support financing, mainly of firms, and maintain stability in financial markets. In addition, for the time being, it will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. Thank you. 2/2 BIS central bankers' speeches
|
bank of japan
| 2,020 | 11 |
Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Virtual Conference, co-hosted by the International Monetary Fund and the University of Tokyo, 24 November 2020.
|
November 24, 2020 Bank of Japan Policy Measures to Date and in the Future, in Response to the Spread of COVID-19 -- Lessons from the Global Financial Crisis -Opening Remarks at the Virtual Conference Co-Hosted by the International Monetary Fund and the University of Tokyo KURODA Haruhiko Governor of the Bank of Japan Introduction It is my great honor to speak today at this virtual conference co-hosted by the International Monetary Fund (IMF) and the University of Tokyo. It has been a decade since the global financial crisis -- or GFC -- and two decades since Japan's financial crisis and the Asian financial crisis. Today, we are facing a new crisis, triggered by the spread of COVID-19. This conference is intended to learn from our past experience and to gain insight into how best to respond to these extremely challenging circumstances. In this sense, the conference could hardly be more timely. I. Policy Responses to Date regarding COVID-19 The spread of COVID-19 has had an even greater impact on the global economy than the GFC. The GDP growth rate for the April-June quarter of 2020 declined substantially in many countries. Moreover, due to concerns over the deterioration in the real economy, global financial markets temporarily became volatile in March: there was a sudden drop in the prices of stocks and credit assets; the CP and corporate bond markets became frozen; and there were substantial outflows of capital from emerging economies. In response to these developments, governments, central banks, and international organizations have been swift to implement policy response measures, both fiscal and monetary, on an unprecedented scale. These responses have helped economic entities with their financing, markets to regain stability earlier than in the case of the GFC, and the global economy to start picking up. I would point to three particularly important elements in the policy responses taken so far to address the impact of COVID-19. The first is that swift and abundant liquidity provision by central banks and international organizations prevented the materialization of a negative feedback loop between economic and financial activities. One of the lessons learned from the GFC is that if market confidence is undermined amid heightening uncertainty, there is the possibility of the real economy and finance falling into an adverse spiral. There would be a significant credit contraction as financial institutions' funding becomes difficult. Mindful of these risks, central banks have played a considerable role in recovering market confidence, acting as the global lender of last resort, with ample liquidity provisioning and U.S. dollar swap line arrangements. These measures have worked as a bulwark against a global negative feedback loop. Unlike the GFC, the spread of COVID-19 has been a shock to the real economy. Nevertheless, a risk common to both the GFC and the COVID-19 crisis was that the erosion of market confidence would trigger a negative feedback loop. However, liquidity provisioning this time was conducted decisively. Many central banks enhanced swap line arrangements and conducted U.S. dollar funds provisions and asset purchases, while the IMF promptly reinforced its emergency financial assistance. I believe that these actions were driven by common concern over risks, built upon the experience of the GFC. The second key element of the COVID-19 policy responses is the coordination of fiscal and monetary policies, implemented to stabilize the economy and the financial system. This was seen at the time of the GFC, but the coordination this time has been more prompt and comprehensive. Amid the rapid decline in income due to the impact of COVID-19, governments have implemented large-scale economic measures, including income support and loan guarantees to firms and households, while central banks have introduced powerful monetary easing measures aimed at supporting corporate financing and stabilizing financial markets. Regarding corporate financing support in particular, fiscal measures provided credit enhancement through government guarantee programs, while monetary policy provided liquidity. As fiscal and monetary policy measures fulfill their respective roles, business operations and employment have been underpinned through the smooth functioning of financial intermediation. The third important element centers on regulation and supervision. Namely, while financial institutions had already been increasing their robustness in line with international financial regulations, financial authorities swiftly implemented the necessary measures. The strengthening of international financial regulations in the wake of the GFC has led to financial institutions building up ample capital and liquidity. This worked as intended, providing a backstop against the negative feedback loop, as the financial sector absorbed the shock to the real economy rather than exacerbating it. Moreover, I believe the deferral of the full implementation of the Basel III standards by one year and encouragement for banks to use their capital and liquidity buffers, among other measures, have contributed to securing the smooth functioning of financial intermediation. II. What Will Be Required of Future Policy Responses Next, I would like to consider what will be required of future policy responses. There continues to be considerable uncertainty reflecting the resurgence of the spread of COVID-19. It is therefore essential, for the time being, to ensure the stability of the economy and the financial system by continuing steadily with the responses to date. On this point, due attention must be paid to the possibility that a shift in the challenges facing firms and households from liquidity to solvency could affect the future financial system. In the long run, the risk of new financial imbalances must also be borne in mind. After Japan's financial crisis and the GFC, such imbalances, including balance-sheet adjustments due to excess debt, exerted prolonged downward pressure on the economy. Moreover, just as the GFC was followed by regulatory and supervisory reforms in the financial sector, it will be important to learn from the experience of COVID-19. For example, destabilization of the markets at the time of the outbreak highlighted the growing importance in financial intermediation of non-banks, namely, MMFs and investment funds. It will be necessary to examine carefully the structural changes in the financial system. Society as a whole must prepare for such structural changes in the relatively long run as the impact of COVID-19 is likely to eventually subside. Some of these changes were with us before the spread of the disease, such as demographic changes and climate change. Moreover, digitalization and cyber security are becoming increasingly important with the spread of COVID-19. These initiatives are likely to be a driving force for raising the potential growth rate of the global economy in the post-COVID-19 era. Concluding Remarks Facing such an uncertain future, international cooperation is increasingly important in tackling these challenges. Now more than ever, it is essential to share the knowledge we have gained and make progress in cooperation with each other. I would like to close my remarks with the heartfelt wish that this conference will be an important step toward this goal. Thank you for your kind attention.
|
bank of japan
| 2,020 | 11 |
Speech by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders in Nagano (via webcast), 12 November 2020.
|
November 12, 2020 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Nagano (via webcast) ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Impact of the Novel Coronavirus (COVID-19) and Economic Developments at Home and Abroad A. Developments regarding COVID-19 I would like to begin my speech by talking about developments regarding COVID-19. The outbreak of COVID-19 was first identified in China in January 2020, spreading to Europe from late February. The number of confirmed cases in Europe and the United States peaked out temporarily in around April, but thereafter the disease spread rapidly to emerging economies other than China. Developments regarding COVID-19 continue to warrant attention as a resurgence in confirmed cases has been observed recently in the United States and Europe (Chart 1). Meanwhile, in Japan, the number of confirmed cases surged from late March, and the government declared a state of emergency in April. Although the state of emergency was lifted in May, the number of cases started to increase again from around July and then turned to a decline; thereafter, the number has been fluctuating (Chart 1). However, the pace of increase in the number of cases in Japan has been moderate compared with other major economies, with severe cases and confirmed deaths remaining contained. B. Overseas Economies With a view to suppressing the spread of COVID-19, many countries have implemented measures to constrain economic activity by imposing restrictions on going outside and on people's movement. It is worth remembering that it is as a result of these measures that the real GDP growth rate of these countries registered a substantial decline for the first two quarters of 2020, particularly the April-June quarter (Chart 2). However, as economic activity resumed gradually thereafter, led mainly by advanced economies, the global economy seems to have bottomed out and have started to pick up generally since around summer. According to data from the Purchasing Managers' Index (PMI), which show business sentiment, the indices have been above 50 -- the borderline between improvement and deterioration in business conditions as perceived by firms (Chart 3). In addition, the World Economic Outlook released in October by the International Monetary Fund (IMF) shows that growth projections for 2020 have been revised upward for many countries and regions (Chart 4). C. Japan's Economy Turning to Japan, the economy seems to be picking up after reaching its lowest point in the April-June quarter, as with advanced economies in Europe and the United States. In particular, the recovery trend has gradually become evident in production in the manufacturing sector, including automobile- and IT-related goods, along with the pick-up in exports to Europe, the United States, and China (Chart 5). However, the impact of the spread of COVID-19 varies significantly depending on business sector and household attributes. Thus, although Japan's economy as a whole has started to pick up, the pace of recovery differs by attribute. This situation is also observed in other major economies. With regard to corporate activity, while the recovery in the manufacturing sector has been relatively firm, that in the nonmanufacturing sector has been moderate. As for the latter, business conditions have been favorable for some firms in the information and communications industry, such as Internet-related firms, due partly to an increase in teleworking. On the other hand, quite a few firms in consumption-related industries have not really felt that their business conditions have recovered. Among retailers, business conditions of some firms have improved, supported by an expansion in stay-at-home consumption as seen in increased sales of household electrical appliances and online shopping; however, for face-to-face services such as travel and accommodations as well as eating and drinking, business conditions remain severe (Chart 6). It is the employment situation that shows a considerable difference in the impact of the spread of COVID-19, depending on business sector and household attributes. In Japan, the unemployment rate is currently 3.0 percent, which is low compared with other countries (Chart 7). As I will explain later, this seems partly because policy responses by the government and the Bank of Japan have had a positive impact. However, looking at the number of employed persons by employment status, the year-on-year rate of change in the number of regular employees has remained positive, while the rate of change for non-regular employees has decreased, mainly in face-to-face service industries (Chart 7). I consider it necessary to closely monitor developments in non-regular employment. II. Policy Responses and Their Effects A. Policy Responses by the Government and the Bank of Japan Governments and central banks around the world have taken countermeasures quite swiftly against the rapid deterioration in the global economy caused by the spread of COVID-19. In particular, policy measures commonly taken by major countries are as follows: income support measures implemented by the government sector, such as unemployment insurance and cash payments; and support for corporate financing, including loan guarantees and central banks' aggressive funds-supplying measures. In addition, central banks have actively purchased assets such as government bonds, corporate bonds, and CP, while six central banks, including the Federal Reserve and the Bank of Japan, have conducted U.S. dollar fundssupplying operations. These asset purchases and dollar operations are considered to have played a significant role in preventing the sharp drop in stock prices and the rise in long-term interest rates that were seen globally this March from deteriorating into a worldwide financial crisis. Since March, the Bank has taken policy responses in line with the large-scale economic measures conducted by the government. Specifically, the Bank's measures fall broadly into the following three categories (Chart 8). First, the Bank introduced the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) in order to support financing, mainly of firms. The total size of this program amounts to about 140 trillion yen. The program consists of purchases of CP and corporate bonds with the upper limit of about 20 trillion yen, and the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), which will be a maximum of about 120 trillion yen. Through this special operation, the Bank provides funds on favorable terms to private financial institutions that make loans in response to COVID-19. The operation is also applied to effectively interest-free and unsecured loans made mainly to small and mediumsized firms through private financial institutions, for which the government takes the credit risk by providing credit guarantees. Second, to maintain stability in financial markets, the Bank has adopted a framework through which ample yen and foreign currency funds can be provided in a flexible manner. As for the yen funds, under yield curve control, the Bank decided to purchase a necessary amount of Japanese government bonds without setting an upper limit. Regarding foreign currency funds, the Bank has provided a large amount of U.S. dollar funds through the strengthened U.S. dollar funds-supplying operations. Third, the Bank has actively purchased exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The aim of this measure is to lower the risk premia in asset markets, thereby preventing firms' and households' sentiment from deteriorating through volatility in asset markets and providing continued support for positive economic activity. In deciding these policy measures, the Bank brought forward the March Monetary Policy Meeting (MPM). At an unscheduled MPM on May 22, the Bank decided on such measures as the introduction of a new fund-provisioning measure to support financing mainly of small and medium-sized firms. Deputy Prime Minister and Finance Minister Aso and Bank of Japan Governor Kuroda then released a statement together, communicating to the public at home and abroad that the government and the Bank "are committed to making every effort to facilitate corporate financing and maintain stability in financial markets . . . and doing whatever it takes to settle the situation, and will work together to bring the Japanese economy back again on the post-pandemic solid growth track." I believe that the clear stance of the government and the Bank has helped build a sense of assurance regarding the outlook for Japan's economy. B. Reflections on Policy Effects The policy responses undertaken to date by the government and the Bank have generally been effective. This is indicated by the fact that the rise in the number of unemployed and corporate bankruptcies has so far been limited, despite economic activity being rapidly and significantly depressed due to the impact of COVID-19. For example, the Bank's estimate of the output gap in Japan's economy for the April-June quarter this year was minus 4.83 percent, the largest negative figure since the minus 5.40 percent for the January-March quarter of 2009, immediately after the Global Financial Crisis (GFC), and the minus 5.53 percent for the quarter following that. This is because working hours and capital utilization rates declined sharply against the background of the spread of COVID-19 and preventive measures strongly constraining firms' and households' economic activities. Even though the figures for the output gap show that the extent of deterioration in economic activity this time has generally been the same as at the time of the GFC, the degree of employment adjustments has remained relatively small so far. This seems attributable to the fact that increases in corporate bankruptcies, discontinuation of businesses, and unemployment have been constrained to some extent, due to the swift implementation of various policy responses, such as the expansion of employment adjustment subsidies and support for financing. III. Japan's Economy in the COVID-19 Era A. From Waiting for the Pandemic to End, to Learning to Live with COVID-19 During the initial phase of the COVID-19 outbreak, policy priority was focused on preventing an increase in unemployment or corporate bankruptcies so that the economy could withstand the spread of the disease, in preparation for the resumption of economic activity after the disease subsided. This is why policy management has been conducted partly with the aim of recovering pre-COVID-19 economic conditions. I personally think that the policy objectives are generally being achieved, in the sense that they are helping the economy to withstand the spread of COVID-19. On the other hand, even after more than half a year has passed since the spread of the disease took hold, people seem to be increasingly recognizing that it will take time to envision a path toward normalization where the risk of infection has been completely dispelled. In this regard, restricting economic activity with measures such as lockdowns is indeed effective if the priority is to contain the spread of COVID-19. However, it has also become clear that such measures have a significant impact on social life. In Japan, COVID-19 has not yet subsided, but the country has so far been able to avoid large spikes in the number of severe cases and confirmed deaths. For these reasons, there has been a gradual increase recently in moves to find ways of pursuing economic activity while living with COVID-19, rather than waiting for the pandemic to end. B. Signs of Change from the Perspective of Living with COVID-19 Next, I would like to talk about the changes that are being brought about by the COVID-19 era. Since the GFC, economists have been concerned about the limits of global economic growth or the drying up of growth frontiers. One example of these concerns is the secular stagnation hypothesis presented by Professor Lawrence Summers of Harvard University and others. While it had already been acknowledged that potential economic growth rates might be on the decline, especially in advanced countries, concerns are now growing that the recent spread of COVID-19 will further exacerbate secular stagnation. In particular, the pandemic is having a strong adverse impact on the factors that are thought to have driven global economic growth since the 2000s, including globalization, urbanization, and the shift toward a service economy. If it turns out that we are going to have to live with COVID-19 for the next few years, it will likely become harder to return to the growth path observed before the outbreak. Considering the recent signs of economic change from the viewpoint of living with COVID19, several possibilities come into view. The first is the move toward digitalization. With the spread of COVID-19 showing no signs of subsiding, investment in digitalization is exhibiting relatively steady growth, and firms are maintaining an active stance toward such investment. Investment in digitalization is indispensable for continuing to conduct business while containing the spread of infection, as seen in the widespread adoption of teleworking. Face-to-face service industries, which have been hit especially hard by the spread of COVID-19, are facing a severe business environment. Since these industries are highly labor-intensive by nature and raising productivity has been a challenge, promoting investment in digitalization may carry greater implications for them than simply overcoming this adverse business environment. The expansion of investment in digitalization is also expected to lead to growth in new demand in various related areas, including cloud services. The second possibility is the decentralization of urban functions. The United States has seen an outflow of people from urban areas to the suburbs to avoid the risk of infection. In Japan also, headlines reported that the outflow of people from Tokyo in July, August, and September exceeded inflow. It is too early to tell if these developments indicate a permanent shift to a COVID-19 era, but in the long run, it is possible that phenomena such as the widespread adoption of teleworking will affect the decentralization of urban functions. The third possibility is the reassessment of corporate locations. The spread of COVID-19 has had a major impact on global distribution networks. As a result, some firms are reconsidering the location of their production and distribution sites with a view to building optimal supply chains. In his book The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity, urban economist Richard Florida points out that the innovations that bring about new growth processes are born out of the adversity of severe recessions, arguing convincingly from the example of the low-growth period in the United States during the Great Depression before World War II. If adversity can indeed be the source of new growth, it is possible that the foundations for next-generation innovation will be established during the process of pursuing the structural reforms in society to adapt to the COVID-19 era. In this sense, I consider it necessary to continue monitoring carefully the changes in society as it adjusts to the COVID-19 era. IV. Living with COVID-19, and Monetary Policy in the Future Since joining the Bank's Policy Board this March, I have stressed that, in response to the spread of COVID-19, the Bank should first and foremost avoid any rise in unemployment or corporate bankruptcies by providing ample liquidity to firms. This is because I consider it appropriate for the Bank to conduct monetary policy that in some way supports households and firms that have been negatively affected by the government's measures to restrain economic activity with the aim of containing the spread of the disease. I also believe that monetary policy aimed at achieving the price stability target of 2 percent should be revisited after COVID-19 subsides, in a post-COVID-19 economic context. Looking at recent developments, however, it is difficult to envision a post-COVID-19 economy, at least for the time being. It seems to me that the need to consider the new shape of society and the economy emerging from the COVID-19 era is becoming ever more pressing. In this context, the Federal Reserve this August announced a change in its framework for conducting monetary policy. Notable in the altered framework was the introduction of average inflation targeting, which allows temporary upswings in the inflation rate, while at the same time maintaining the goal of achieving maximum employment. In other words, the Federal Reserve seems to be seeking to adopt a policy that aims at achieving the greatest possible employment even if this means being willing to accept inflation rising above the target level to some extent. My personal opinion is that this change seems to reflect an underlying shift in thinking behind monetary policy, with greater attention being paid to marginal changes in employment, which is susceptible to deterioration in economic conditions. These points that are being discussed mainly in the context of the United States are very interesting when considering monetary policy. Although the spread of COVID-19 in Japan has been relatively contained compared with other countries, there seems to be no significant difference in the difficulty of envisioning a post-COVID-19 economy. In such an environment, the government is actively promoting various reforms. In general, it is undeniable that the process of making drastic changes to the socioeconomic structure can be painful. This is why a safety net to alleviate this pain will become even more important. In the COVID-19 era, I believe that it is worth considering whether monetary policy might be able to act as a sort of safety net by providing accommodative financial conditions, rather than as a means of directly promoting such reforms. In the medium to long term, maintaining accommodative financial conditions will provide the foundations for normalization of economic activity and achievement of the price stability target. So far, although weakness has been observed, there seem to be no major problems regarding corporate financing, partly due to the effects of various liquidity provisions by the Bank. However, uncertainty remains high regarding the outlook, and if the pace of economic recovery is much slower than expected, it is not possible to completely rule out the risk that firms' positive stance toward the outlook will be lost or that corporate bankruptcies and discontinuation of businesses will increase. To avoid such a situation, I believe that it remains necessary in the COVID-19 era to maintain an accommodative monetary policy stance while carefully monitoring economic developments. Thank you for your attention. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Nagano (via webcast) November 12, 2020 ADACHI Seiji Member of the Policy Board Bank of Japan Chart 1 Daily Confirmed New Cases of COVID-19 thous. Euro area thous. China United States Major emerging countries Japan 1 20 Jan. 3 20 Mar. 5 20 May July7 20 9 20 Sept. 1 20 Jan. 3 20 Mar. 5 20 May 7 20 July 9 20 Sept. Notes: 1. Figures for the United States are from the Centers for Disease Control and Prevention (CDC). Those for Taiwan and Hong Kong are from the Taiwan Ministry of Health and Welfare and the Hong Kong Centre for Health Protection, Department of Health, respectively. Figures for Japan are from the Ministry of Health, Labour and Welfare, while those for the euro area, major emerging countries except Taiwan and Hong Kong, as well as China are from the World Health Organization (WHO). Figures are 7-day backward moving averages. 2. Major emerging countries include the NIEs, ASEAN, India, Latin America, the Middle East, Russia, and Turkey. Sources: CEIC; Ministry of Health, Labour and Welfare. Chart 2 Overseas Economies: Real GDP % 19/Q2 19/Q3 19/Q4 20/Q1 20/Q2 United States 3.0 2.2 1.5 2.6 2.4 -5.0 -31.4 Euro area 1.8 1.3 0.5 1.3 0.2 -14.1 -39.5 China 6.7 6.1 6.2 6.0 6.0 -6.8 3.2 India 6.8 4.9 5.2 4.4 4.1 3.1 -23.9 Brazil 1.3 1.1 1.1 1.2 1.7 -0.3 -11.4 Russia 2.5 1.3 1.1 1.5 2.1 1.6 -8.0 Emerging countries Note: Figures for the United States and the euro area are seasonally adjusted and annualized quarter-on-quarter changes. Those for emerging countries are year-on-year changes. Sources: Statistics released by the respective government or central bank; European Commission. Chart 3 Overseas Economies: PMI Manufacturing PMI Services PMI s.a., DI s.a., DI Global Advanced economies China Emerging and commodity-exporting economies (excluding China) Jan. Jan. Apr. July Jan.2020 Jan. Apr. July Notes: 1. Figures for the global economy are the "J.P. Morgan Global PMI," and those for China are the "Caixin China PMI." Figures for the services PMI are the "Services Business Activity Index." 2. Figures for advanced economies are the weighted averages of the PMIs for the United States, the euro area, the United Kingdom, and Japan using their global GDP shares from the IMF as weights. As for figures for emerging and commodity-exporting economies excluding China, those for manufacturing are the weighted averages of the PMIs for 19 countries and regions and those for services are the weighted averages of the PMIs for 3 countries, both using their global GDP shares from the IMF as weights. Sources: IHS Markit (© and database right IHS Markit Ltd 2020. All rights reserved.); IMF; Haver. Chart 4 IMF World Economic Outlook y/y % chg., % points Projections Advanced economies 1.7 -5.8 ( 2.3) 3.9 ( -0.9) 2.9 United States 2.2 -4.3 ( 3.7) 3.1 ( -1.4) 2.9 Euro area 1.3 -8.3 ( 1.9) 5.2 ( -0.8) 3.1 United Kingdom 1.5 -9.8 ( 0.4) 5.9 ( -0.4) 3.2 Japan 2.3 ( -0.1) 1.7 0.7 -5.3 ( 0.5) Emerging market and developing economies 3.7 -3.3 ( -0.2) 6.0 ( 0.2) 5.1 Emerging and developing Asia 5.5 -1.7 （ -0.9） 8.0 ( 0.6) 6.3 China 6.1 1.9 ( 0.9) 8.2 ( 0.0) 5.8 India 4.2 -10.3 ( -5.8) 8.8 ( 2.8) 8.0 0.0 -8.1 ( 1.3) 3.6 ( -0.1) 2.7 1.1 -5.8 ( 3.3) 2.8 ( -0.8) 2.3 2.1 -4.6 ( 1.2) 3.9 ( -0.3) 3.4 1.3 -4.1 ( 2.5) 2.8 ( -1.3) 2.3 2.8 -4.4 ( 0.8) 5.2 ( -0.2) 4.2 Latin America and the Caribbean Brazil Emerging and developing Europe Russia World Notes: 1. Figures are as of October 2020. 2. Differences from the June 2020 projections are shown in parentheses. 3. For India, figures are presented on a fiscal year basis. Source: IMF. Chart 5 Industrial Production Industrial Production s.a., CY 2015=100 Production by Industry s.a., CY 2015=100 Production Inventories CY 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Transport equipment <1796.5> General-purpose, production and business oriented machinery <1436.6> Electronic parts and devices <580.8> CY 15 Notes: 1. The production figures for 2020/Q4 are based on projections by the Ministry of Economy, Trade and Industry (METI) for October and November 2020. The inventories figure for 2020/Q3 is that for September. 2. In the right-hand chart, figures in angle brackets show the share of each industry in total production on a value added basis (total production = 10,000). Source: METI. Chart 6 Private Consumption Developments in Activity in the Face-to-Face Services Industry Consumption Activity Index (Real) s.a., change from Jan. 2020, % -5 -10 -15 s.a., Jan. 2020=100 Eating and drinking places, take out and delivery services Accommodations Services for amusement and hobbies -20 Services <51.5> Nondurable goods <39.1> Durable goods <9.4> Consumption Activity Index (travel balance adjusted) -25 20/1 Jan. 2020 Feb. Mar. Apr. May June July Aug. Medical and other health services Jan. 2019 Apr. Apr. July July Oct. Jan. 2020 Oct. Apr. Apr. July July Notes: 1. Figures in the left-hand chart are based on staff calculations. Those for the Consumption Activity Index (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. Figures for the components are not adjusted for the travel balance. 2. In the left-hand chart, nondurable goods include goods classified as "semi-durable goods" in the SNA. 3. In the left-hand chart, figures in angle brackets show the weights in the Consumption Activity Index. Sources: METI; Bank of Japan, etc. Chart 7 Employment Unemployment Rates in Major Countries % Number of Employed Persons in Japan United States Euro area y/y % chg. Self-employed workers, family workers, etc. Non-regular employees Regular employees Employed persons Japan -1 -2 CY 00 -3 CY 05 Note: In the right-hand chart, "self-employed workers, family workers, etc." includes executives of companies or corporations. Figures prior to 2014 are based on the "detailed tabulation" in the "Labour Force Survey." Sources: U.S. Bureau of Labor Statistics; Eurostat; Ministry of Internal Affairs and Communications. Chart 8 The Bank's Measures in Response to COVID-19 Support for Corporate Financing Special Program to Support Financing in Response to COVID-19: total size of about 140 tril. yen + α Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously, amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: about 120 tril. yen ・ Provide funds to private financial institutions on favorable terms for the loans that they make in response to COVID-19. ・ Eligible loans include effectively interest-free and unsecured loans to small and medium-sized firms through private financial institutions, for which the government takes the credit risk. Providing Yen and Foreign Currency Funds to Stabilize Financial Markets Further active purchases of JGBs and T-Bills: unlimited Strengthening of the U.S. dollar funds-supplying operations: unlimited ・ In line with a coordinated action by six central banks, the Bank's operation was enhanced by lowering the loan rate, offering U.S. dollars with longer maturities, and increasing the frequency of the provision. Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being)
|
bank of japan
| 2,020 | 12 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Akita (via webcast), 2 December 2020.
|
Masayoshi Amamiya: Japan's economy and monetary policy Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at ameeting with local leaders, Akita (via webcast), 2 December 2020. * * * Introduction It is my pleasure to have the opportunity today to exchange views with leaders in administrative, financial, and economic areas in Akita Prefecture, which is taking place online due to the continuing impact of the novel coronavirus (COVID-19). I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan’s Akita Branch. At the outset of this meeting, I would like to talk about the Bank’s view on economic and financial developments at home and abroad, as well as its thinking behind the conduct of monetary policy since March in response to the impact of COVID-19. In addition, I will explain the purpose of the new facility that the Bank recently decided to introduce in order to enhance the resilience of the regional financial system. I. Developments in Economic Activity and Prices Economic Developments I will start by talking about economic developments. Japan’s economy has picked up with economic activity resuming, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad (Chart 1). The GDP growth rate for the April-June quarter marked a significant negative figure of minus 8.2 percent on a quarter-on-quarter basis but turned positive for the July-September quarter to 5.0 percent. That said, with the impact of COVID-19 remaining, the recovery has been only moderate and economic activity has been at a low level. What is unique about the current shock is that the pace of economic improvement varies significantly, mainly depending on the industry or size of firms, as well as household attributes. On this basis, I will briefly explain developments in overseas economies and then talk about Japan’s exports as well as household and corporate sectors in some detail. 1/1 BIS central bankers' speeches
|
bank of japan
| 2,020 | 12 |
Speech (via webcast) by Mr Hitoshi Suzuki, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Fukushima, 3 December 2020.
|
December 3, 2020 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Fukushima (via webcast) SUZUKI Hitoshi Member of the Policy Board (English translation based on the Japanese original) I. Recent Economic and Price Developments A. Developments in Overseas Economies I would like to begin my speech by talking about overseas economies. Overseas economies have picked up from a state of significant depression. Specifically, the growth rates for the April-June quarter of 2020 were substantially negative in many economies that implemented measures such as lockdowns in response to the spread of the novel coronavirus (COVID-19), mainly in Europe and the United States. However, the growth rates of these economies for the July-September quarter turned significantly positive, partly reflecting the materialization of pent-up demand and the effects of a recovery in production from the decline brought about by COVID-19, amid a resumption of economic activity. As for the outlook, overseas economies are likely to continue improving, partly supported by aggressive macroeconomic policies taken by each country and region, with the impact of COVID-19 waning gradually. However, the pace of improvement is expected to be only moderate. This is because many countries and regions are projected to experience negative growth for 2020, given that Europe and the United States are currently facing a serious resurgence of infectious cases, and also because firms and households are likely to remain vigilant against the risk of infection until effective medicines and vaccines are developed and widely distributed (Chart 1). B. Recent Developments in Japan's Economy Based on the aforementioned developments in overseas economies, let me now move on to economic activity and prices in Japan. Japan's economy has picked up with economic activity resuming, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad. In the April-June quarter of 2020 -- the period most affected by the spread of COVID-19 as the state of emergency was in place -- the real GDP growth rate registered the largest-ever decline since 1980, from when comparable data are available, marking minus 8.2 percent on a quarter-onquarter basis; however, the growth rate for the July-September quarter turned positive as economic activity resumed at home and abroad (Chart 2). Exports have increased with the pick-up in overseas economies. Especially with respect to exports of automobile-related goods, a recovery in automobile sales in the United States, Europe, and China has had a positive spillover effect on production of parts, materials, and other goods. Regarding IT-related exports, firm developments have been seen in parts for data centers and those related to personal computers, both of which are associated with teleworking. Furthermore, exports of capital goods, which were on the decline amid a global postponement of business fixed investment, have bottomed out recently. Private consumption has picked up gradually on the whole. That said, there is a difference in the speed of recovery in the consumption of goods and that of services. Durable goods such as household electrical appliances and automobiles have been partly buoyed by the government's provision of special cash payments to all individuals living in Japan and by pent-up demand, while nondurable goods such as food and daily necessities have remained firm on the back of the expansion in stay-at-home consumption. By contrast, consumption of services, such as eating and drinking as well as accommodations, has remained at a low level, although it has headed toward a pick-up from the bottom hit in the April-May period, when the state of emergency was in place. Despite demand stimulus measures such as the "Go To" campaign having yielded hopeful signs since autumn, primarily in eating and drinking as well as accommodations, COVID-19 has resurged recently and its impact warrants concern. With regard to the outlook, private consumption is likely to continue picking up on the whole. Nevertheless, the pace of the pick-up is highly likely to remain quite moderate, particularly with regard to dining-out and services for individuals, due to strong vigilance against COVID19, mainly among seniors. As just explained, exports and goods consumption have been recovering. On the other hand, the prolonged impact of COVID-19, especially in services such as eating and drinking as well as accommodations, has been exerting downward pressure on business fixed investment and the employment and income situation. Business fixed investment has been on a declining trend against the background of a deterioration in corporate profits and uncertainties over future developments, both stemming from COVID-19. This downtrend is likely to continue for the time being, mainly in terms of investment in the construction of stores and accommodation facilities by the eating and drinking as well as accommodation industries. That said, software investment has remained firm; the software investment plan for fiscal 2020 in the Bank of Japan's September Tankan (Short-Term Economic Survey of Enterprises in Japan) has been revised upward from the June survey, and the year-on-year rates of increase have been at relatively high levels, mainly in the communications, information services, and retail industries (Chart 3). The factors behind this are likely to be the continuing trend since before the outbreak of COVID-19 of enhancing business efficiency and undertaking labor-saving investment, as well as firms' active fixed investment in growth areas such as e-commerce and teleworking amid the prolonged impact of the pandemic. Weakness can be seen in employment: the diffusion index for employment conditions showing a net "excessive" for both the manufacturing industry and the accommodations as well as eating and drinking services industry in the September Tankan, a decline in the active job openings-to-applicants ratio, and a rise in the unemployment rate (Chart 4). Moreover, with respect to wages, non-scheduled cash earnings have decreased, reflecting a decline in working hours. Bonuses, which lag behind corporate profits by about half a year, are expected to be weak this winter. C. Recent Price Developments Let me 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 recently decelerated, registering minus 0.7 percent for October (Chart 5). Factors contributing to the decline in the CPI include the past decline in crude oil prices, a downturn in charges for hotels and for package tours to overseas, a deceleration in the rate of increase in prices of food products that are sensitive to economic activity, and a decline in prices of clothing. Contributing factors also include the decrease in hotel charges that reflects discounts offered under the "Go To Travel" campaign and the dissipation of the upward pressure on prices generated by the consumption tax hike in 2019. From a macroeconomic perspective, the output gap, which indicates the supply-demand balance, declined substantially in the AprilJune quarter of 2020. Subsequently, it is likely to head toward a pick-up, mainly for the manufacturing industry. However, the gap is expected to register a relatively large negative figure, with the impact of COVID-19 exerting downward pressure on working hours and the capital utilization rate in the nonmanufacturing industry (Chart 6). In these circumstances, medium- to long-term inflation expectations, which represent the perception of firms and households regarding future prices, have weakened somewhat (Chart 7). On the other hand, price cuts that aim at stimulating demand have not been observed widely. This is because cutting prices cannot be expected to boost demand when the primary cause of the decrease in demand is consumers' vigilance against COVID-19, as is the case with face-to-face services. Another reason is that firms are finding it difficult to make price cuts that would lead to a further deterioration in their profits, given the current public health necessity of limiting customer numbers to avoid crowding. D. Outlook for Economic Activity in Japan With economic activity resuming and the impact of COVID-19 waning gradually, Japan's economy is likely to continue on an improving trend, supported by accommodative financial conditions and the government's economic measures. However, the pace of recovery is expected to be only moderate as firms and households remain vigilant against COVID-19 while it continues to have a worldwide impact. Thereafter, as the impact subsides globally, the economy is projected to keep improving with overseas economies returning to a steady growth path. Given these factors, in the Bank's October 2020 Outlook for Economic Activity and Prices (Outlook Report), the forecasts of the majority of Policy Board members for the real GDP growth rate are in the range of minus 5.6 to minus 5.3 percent, 3.0 to 3.8 percent, and 1.5 to 1.8 percent for fiscal 2020, 2021, and 2022, respectively (Chart 8). E. Outlook for Prices Next, I will touch on the outlook for prices. In the October Outlook Report, the forecasts of the majority of Policy Board members for the year-on-year rate of change in the core CPI are in the range of minus 0.7 to minus 0.5 percent, 0.2 to 0.6 percent, and 0.4 to 0.7 percent for fiscal 2020, 2021, and 2022, respectively (Chart 8). The background to these forecasts is as follows. First, as I mentioned earlier, COVID-19 will affect the prices of such items as energy and travel-related services in the short run. Prices of items that are sensitive to economic activity, such as food products, durable goods, clothing, and dining-out, are also highly likely to come under gradual downward pressure. Furthermore, mobile phone-related prices are projected to continue showing some weakness, reflecting the price-setting stance of major carriers and competitiveness in the industry. Nevertheless, in due course, movement toward price rises is expected to resume with the impact of COVID-19 waning and Japan's economy improving. In other words, the downward pressure from the decline in crude oil prices and the "Go To Travel" campaign will dissipate, while upward pressure on prices of goods and services that are sensitive to economic activity will gradually heighten along with improvement in the output gap. Against this background, medium- to long-term inflation expectations also are expected to rise again. F. Risks to Economic Activity and Prices However, the outlook for economic activity and prices remains extremely unclear. In particular, the impact of COVID-19 on domestic and overseas economies continues to require close and careful monitoring. Until effective medicines and vaccines are developed and widely distributed, it is highly unclear how the COVID-19 pandemic will evolve and how long it will take for it to subside. It is also uncertain how firms' and households' behavior, including price setting, will change as they struggle to live with COVID-19. Moreover, if COVID-19 has a larger impact than expected, there is a risk that deterioration in the real economy will affect financial system stability, thereby exerting further downward pressure on the real economy. II. Conduct of Monetary Policy A. Enhancement of Monetary Easing in Light of the Impact of COVID-19 Let me now turn to the Bank's policy conduct. With COVID-19 spreading worldwide, global financial and capital markets have been unstable, while financial conditions have become less accommodative in terms of corporate financing, as seen in the deterioration in firms' financial positions due to declining sales and profits. Given these developments, the Bank has enhanced monetary easing since March by implementing the following three measures with a view to supporting corporate financing and maintaining stability in financial markets (Chart 9). The first measure is the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19). This program consists of the Bank's purchases of CP and corporate bonds within about 20 trillion yen and the introduction of funds-supplying operations of about 120 trillion yen to encourage lending by financial institutions. The latter includes a scheme in which the government takes the credit risk of lending by financial institutions to small and medium-sized firms and the Bank provides funds to those financial institutions on favorable terms. The second measure is an ample provision of yen and foreign currency funds. The Bank decided to purchase a necessary amount of Japanese government bonds (JGBs) without limit, with a view to maintaining stability in the bond market and stabilizing the entire yield curve at a low level. It has also decided to provide a large amount of U.S. dollar funds based on cooperation with five other major central banks. The third measure is active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The aim is to prevent firms' and households' sentiment from deteriorating through volatility in financial markets, thereby supporting positive economic activity. The Bank assesses that these three measures have been functioning effectively. Specifically, tension in financial markets has eased, although they are still nervous. In addition, despite weakness in financial positions of firms, the environment for external funding, such as bank borrowing and the issuance of CP and corporate bonds, has remained accommodative, partly owing to private financial institutions having actively fulfilled the functioning of financial intermediation. B. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control While the Bank has enhanced monetary easing in light of the impact of COVID-19, as I have just outlined, it has been pursuing powerful monetary easing for more than seven and a half years since the introduction of QQE in 2013. Under powerful monetary easing, with a view to achieving the price stability target of 2 percent, the Bank has made clear its intention to continue with QQE with Yield Curve Control, as long as it is necessary for maintaining that target in a stable manner. Controlling short- and long-term interest rates -- so-called yield curve control -- facilitates the formation of the term structure of interest rates that is most appropriate for achieving the price stability target. Specifically, the Bank applies a negative interest rate of minus 0.1 percent to a portion of financial institutions' current account balances at the Bank, and purchases JGBs so that 10-year JGB yields will remain at around 0 percent (Chart 10). As a result of resolutely continuing with such powerful monetary easing, Japan's economy had continued, up until around 2019, on an expanding trend with a virtuous cycle from income to spending operating. As for prices, the underlying trend in the year-on-year rate of change in the CPI less fresh food and energy had been generally in positive territory for seven years. Unfortunately, however, the momentum toward achieving the price stability target has been lost temporarily due to COVID-19, and thus it is assumed that monetary easing will be prolonged further. III. Monetary Policy in Prospect of Further Prolongation of Low Interest Rates As just explained, the positive effects of the Bank's powerful monetary easing measures have materialized under the prolonged low interest rate environment. On the other hand, although more than seven and a half years have passed since the Bank introduced QQE, the projected rate of increase in the core CPI for fiscal 2022 is still only about 0.7 percent, which is far below the target. It is therefore certain that monetary easing will be prolonged further. It is likely to take more time for prices to rise, in part because the negative output gap will exert downward pressure on prices for the time being, and because medium- to long-term inflation expectations will weaken somewhat through the adaptive expectation formation mechanism while the rate of change in the CPI is expected to be negative. In addition to these, I am paying close attention to three factors from the standpoint of the general public. A. Potential Factors Constraining Price Rises The first factor concerns wages. According to an announcement by the Japanese Trade Union Confederation (Rengo), base pay rose for a seventh consecutive year in the annual spring labor-management wage negotiations in 2020. However, the average rate of increase over those seven years was around 0.5 percent, which is only marginal in terms of the price stability target. Unfortunately, given the deterioration in corporate profits brought about by the impact of COVID-19, it seems unlikely that the pace of increase in wages will boost its momentum in fiscal 2021. In addition, partly because winter bonuses are expected to be weak, as I mentioned earlier, wages are likely to remain under downward pressure for the time being. Furthermore, an increasing number of firms have started to replace seniority-based wage systems with merit-based systems, and to pursue greater labor mobility through such initiatives as a shift from lifetime employment to job-based employment. These trends are desirable and necessary in the medium to long term for firms and Japan's economy to increase productivity. On the other hand, there are concerns that average wages and the propensity to consume may be negatively affected by the gradual loss of wage and employment systems that enable workers to feel that their wages are steadily rising in line with the number of years worked. The second factor is the decline in land prices. Looking at prices as of July 1 at representative locations, released in September, the year-on-year rate of change in the nationwide average turned to a decline for the first time in three years, registering minus 0.6 percent. This is likely to be due to the sharp drop in the number of visitors to Japan and voluntary stay-at-home behavior, both resulting from the impact of COVID-19. Since land, relative to stocks, is larger in terms of total asset value and in terms of proportion held by individuals, there is concern over how the decline in land prices will affect consumer sentiment. The third is the impact on future sentiment of many consumers facing an unforeseen decline in income. Since before the outbreak of COVID-19, concern over public pension funds -namely, whether they will provide adequate benefits -- is likely to have constrained consumption among the young and middle-aged generations. For seniors, the constraining factor is said to be the "longevity risk," or in other words, the risk that their savings will be insufficient to cover a rise in healthcare expenditure and living expenses as they live longer than expected. In the wake of COVID-19, another potential factor constraining consumption has arisen -- that is, the risk that future income will decline unexpectedly due to such incidents as the spread of the pandemic. There is concern that this might further raise households' propensity to save and that downward pressure on consumption might be exerted accordingly. B. Sustainability and Flexibility of Monetary Easing Given that it is expected to take more time to achieve the price stability target, due in part to the impact of COVID-19, I think it will become even more important for monetary easing measures to be sustainable and flexible. Let me now share my thoughts on this. Stability of the financial system is indispensable for monetary easing measures to have a sustained impact. I have repeatedly stressed the view that it is particularly important to aim at achieving both price stability and financial system stability when conducting monetary policy. This is because, as the Global Financial Crisis (GFC) revealed, once the financial system destabilizes, it is extremely difficult for the Bank to ensure price stability, resulting in a failure to meet both objectives. Smooth functioning of financial intermediation has so far been ensured due to financial institutions' robust financial bases, both in terms of capital and liquidity, as well as policy responses by the Bank and the government. However, if these institutions' financial soundness deteriorates further due to a fall in lending rates and an increase in credit costs, the smooth functioning of financial intermediation could be impaired, posing a risk that downward pressure will be exerted on the real economy. On this point, financial institutions' lending rates have been at extremely low levels, partly reflecting intensified competition among institutions, in a situation where demand for new loans is limited due to declines in population and the number of firms across regions, and where the low interest rate environment is prolonged. In addition, attention should be paid to the point that the program of interest-free and unsecured loans currently implemented to support corporate financing might exert downward pressure on spreads on regular loans that are made without the support of the program, even after the impact of COVID-19 subsides. Credit costs could increase, as financial institutions provide active support for firms whose financial positions have deteriorated due to COVID-19, and a certain proportion of the loans could become nonperforming. So far, the increase in credit costs does not seem to be as serious as that observed after the GFC; however, as COVID-19 may have a protracted impact on corporate sales and profits, attention should continue to be paid to future developments. Furthermore, even since before the outbreak of COVID-19, financial institutions have been actively extending loans to firms with relatively high credit risk and investing in high-risk overseas assets, with the narrowing of lending margins and declines in JGB yields under prolonged monetary easing. This may be another risk factor to the outlook. Under these circumstances, developments in super-long-term interest rates will be key to maintaining stability of financial institutions' financial conditions. Specifically, financial institutions raise funds through such means as deposit taking or the Bank's operations, and invest these funds, mainly through lending or JGB purchases. In doing so, they raise funds in the short term and invest them in the long term; in other words, the differences in maturities between funding and investment will be the basic revenue sources for these institutions. While this is somewhat technical, under the concept of asset liability management, these differences represent interest rate risk, and banks gain profits by taking this risk. While financial institutions have been increasing their lending, it seems that they have a strong incentive to hold long-term JGBs since the share of loans with long-term fixed interest rates is generally not large. One of the objectives behind the Bank's introduction of yield curve control was to prevent an excessive flattening of the yield curve, which might raise concerns about the sustainability of financial functioning in a broad sense and exert adverse effects on consumer sentiment, mainly through limited investment opportunities in terms of pension and insurance products. Super-long-term interest rates rose over the six months or so following the introduction of yield curve control, but they have recently been at slightly lower levels than at that time. It is desirable for the yield curve for super-long-term JGBs to become steeper at a moderate pace with the Bank keeping 10-year JGB yields at around 0 percent, in that financial institutions can improve profits on their investment and the Bank can achieve financial system stability while monetary easing is prolonged. Next, I would like to talk about the sustainability and flexibility of ETF and J-REIT purchases. As one component of its policy framework for achieving the price stability target, the Bank has been purchasing these assets to exert a positive influence on economic activity and prices by lowering the risk premia in the stock and REIT markets. Such asset purchases have proven effective in supporting firms' and households' positive economic activity by preventing their sentiment from deteriorating, mainly through volatility in financial markets. As I explained earlier, ETF and J-REIT purchases played a major role, particularly when financial markets became unstable due to the impact of COVID-19. Moreover, it is necessary to continue with such purchases in a situation where achieving the price stability target is likely to take more time. Given that monetary easing is expected to be further prolonged due in part to the impact of COVID-19, the Bank should look for additional ways to enhance the sustainability and flexibility of the policy measures so that it will not face difficulty in conducting ETF and J-REIT purchases when an appropriate lowering of risk premia of asset prices is absolutely necessary. C. Raising Japan's Economic Growth Rate As just outlined, I think it has become increasingly important to enhance the sustainability and flexibility of the Bank's policy measures given the prospect of prolonged monetary easing. At the same time, however, boosting Japan's growth potential is also essential to achieving the price stability target. In this regard, as society and firms make efforts to raise the economic growth rate by realizing growth strategies and thereby bringing about changes in the economic structure, it has become vital to consider how monetary policy can contribute to these efforts. As Japan's economy is in the process of recovering from the downturn caused by the impact of COVID-19, it is essential, for the time being, for the government and the Bank to support sustaining firms' businesses and employment through their various measures. However, there could be cases where less productive businesses continue to operate and even inefficient firms that would otherwise have shut down remain in business. This may induce side effects whereby Japan's productivity growth is weighed down over the long term. Therefore, I think it will become more important for society to move toward promoting such developments as digitalization and greater labor mobility, and for firms to allocate their capital to highly productive business areas based on sound growth strategies. Even prior to the outbreak of COVID-19, the secular decline in the potential growth rate was a major issue for Japan, which has been facing structural problems such as the declining and aging population. Although Japan's economy has suffered a serious blow from the pandemic, there has been growth in businesses compatible with the new lifestyle that takes into consideration infection prevention, and teleworking is rapidly becoming widespread. Against this background, digitalization has gained momentum. From a medium- to long-term perspective, all of these factors are likely to act as a driving force that will shift Japan's economy toward achieving a higher growth rate. For the time being, the Bank needs to do its utmost to conduct monetary policy with a view to supporting financing, mainly of firms, and maintaining stability in financial markets. However, from a medium- to long-term perspective, it is also important for the Bank to support from the financial side the efforts by society and firms to push forward with structural reforms and growth strategies. In doing so, it is of course essential that the Bank maintain accommodative financial conditions, thereby continuing to provide a solid foundation on which firms can take on risks and pursue change. At the same time, I think it is also important to encourage firms' investment in growth areas, mainly through financial institutions' expertise in examining the creditworthiness of firms and through the market mechanism, so that the potential growth rate will rise accordingly. Thank you for your attention. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Fukushima (via webcast) December 3, 2020 SUZUKI Hitoshi Bank of Japan IMF World Economic Outlook (as of October 2020) real GDP growth rate, y/y % chg. projection projection World 2.8 -4.4 5.2 Advanced Economies 1.7 -5.8 3.9 United States 2.2 -4.3 3.1 Euro Area 1.3 -8.3 5.2 United Kingdom 1.5 -9.8 5.9 Japan 0.7 -5.3 2.3 Emerging Market and Developing Economies 3.7 -3.3 6.0 Emerging and Developing Asia 5.5 -1.7 8.0 China 6.1 1.9 8.2 ASEAN-5 4.9 -3.4 6.2 Russia 1.3 -4.1 2.8 Latin America and the Caribbean 0.0 -8.1 3.6 CY Source: World Economic Outlook, IMF. Chart 1 Chart 2 Japan's Real GDP s.a., q/q % chg. Q3 Q4 Q1 Q2 Q3 Real GDP 0.0 -1.8 -0.6 -8.2 5.0 [ann., q/q] [0.2] [-7.1] [-2.3] [-28.8] [21.4] Private consumption 0.4 -2.9 -0.7 -8.1 4.7 Private non-resi. investment 0.2 -4.8 1.7 -4.5 -3.4 Private residential investment 1.3 -2.3 -4.0 -0.5 -7.9 Public demand 0.9 0.4 0.0 -0.1 1.9 Exports of goods & services -0.6 0.4 -5.3 -17.4 7.0 Source: Cabinet Office. Chart 3 Software Investment Plans (Tankan) y/y % chg. FY 2020 FY 2015-2019 average FY 2004-2019 average Mar. June Sept. Dec. Forecast Actual Source: Bank of Japan. Note: Figures show the amount of newly recorded software investment under intangible fixed assets. Figures are for all industries and enterprises. Chart 4 Labor Market Conditions Active Job Openings-to-Applicants Ratio and Unemployment Rate Employment Conditions DI (Tankan) -80 reversed, DI ("excessive employment" minus "insufficient employment"), % points -60 All industries Insufficient employment Manufacturing Construction Retailing Accommodations, eating & drinking services 1.8 s.a., ratio s.a., % 1.6 1.4 -40 1.2 -20 1.0 0.8 0.6 0.4 CY 2005 Active job openings-to-applicants ratio for full-time employees (left scale) Active job openings-to-applicants ratio (left scale) Unemployment rate (right scale) Excessive employment 0.2 Source: Bank of Japan. 0.0 CY 2005 Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 5 CPI 2.0 y/y % chg. All items less fresh food (core CPI) 1.5 All items less fresh food and energy 1.0 0.5 0.0 -0.5 -1.0 CY 2013/Apr. Oct. 14/Apr. Oct. 15/Apr. Oct. 16/Apr. Oct. 17/Apr. Oct. 18/Apr. Oct. 19/Apr. Oct. 20/Apr. Oct. Source: Ministry of Internal Affairs and Communications. Note: Figures exclude the effects of the consumption tax hike in April 2014. Chart 6 Output Gap 3.0 % Excess demand (upward pressure on prices) 2.0 1.0 0.0 -1.0 -2.0 -3.0 Excess supply (downward pressure on prices) -4.0 -5.0 -6.0 CY 2013/Q1 Q3 14/Q1 Q3 15/Q1 Source: Bank of Japan. Note: Based on staff estimates. Q3 16/Q1 Q3 17/Q1 Q3 18/Q1 Q3 19/Q1 Q3 20/Q1 Chart 7 Inflation Expectations y/y, ann. avg., % 2.5 Households (over the next five years) 2.0 Firms (five years ahead) 1.5 1.0 0.5 0.0 CY 2005 Source: Bank of Japan. Notes: 1. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method. 2. Figures for firms are those for the Average of Enterprises' Inflation Outlook for all industries and enterprises in the Tankan. Chart 8 Outlook for Economic Activity and Prices as of October 2020 Forecasts of the Majority of Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) -5.6 to -5.3 -0.7 to -0.5 [-5.5] [-0.6] -5.7 to -4.5 -0.6 to -0.4 +3.0 to +3.8 +0.2 to +0.6 [+3.6] [+0.4] +3.0 to +4.0 +0.2 to +0.5 +1.5 to +1.8 +0.4 to +0.7 [+1.6] [+0.7] +1.3 to +1.6 +0.5 to +0.8 Fiscal 2020 Forecasts made in July 2020 Fiscal 2021 Forecasts made in July 2020 Fiscal 2022 Forecasts made in July 2020 Source: October 2020 Outlook for Economic Activity and Prices, Bank of Japan. Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which he or she attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. Chart 9 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19: total size of about 140 tril. yen + α Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously, amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19: about 120 tril. yen Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills: unlimited Enhancement of the U.S. Dollar Funds-Supplying Operations: unlimited Lowering Risk Premia in Asset Markets Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being) Chart 10 Yield Curve Control 1.2 % 1.0 Target level of the long-term interest rate (10-year JGB yields): around 0 percent 0.8 0.6 0.4 Short-term policy interest rate: minus 0.1 percent 0.2 0.0 -0.2 residual maturity, year
|
bank of japan
| 2,020 | 12 |
Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at a webinar hosted by the Center on Japanese Economy and Business (CJEB) at Columbia Business School, 5 August 2020.
|
Haruhiko Kuroda: The Bank of Japan's responses to the impact of COVID-19 Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at a webinar hosted by the Center on Japanese Economy and Business (CJEB) at Columbia Business School, 5 August 2020. * * * It is my great pleasure to participate in this webinar. Today, I will talk about the Bank of Japan’s responses to the impact of COVID-19. The global spread of COVID-19 has had a severe impact worldwide. Global financial markets became rapidly unstable from late February amid deterioration in investors’ risk sentiment. Domestic and overseas economies became depressed significantly in the first half of the year because economic activity was restrained by preventive measures taken since March, such as stay-at-home orders and business suspension. Governments and central banks responded to this situation swiftly and aggressively based on their experience with the Global Financial Crisis through international cooperation. As for central banks’ actions, the enhancement of the U.S. dollar operations is the outcome of international cooperation. Although the details and size of the responses to the current crisis vary among central banks, they are based on two common perspectives. One is ensuring smooth corporate financing through funds-supplying measures to support lending and purchases of CP and corporate bonds. The other is stabilizing financial markets through large-scale provision of liquidity including asset purchases. In line with these perspectives, the Bank of Japan has enhanced monetary easing since March and implemented the following three measures. The first is the Special Program to support corporate financing. The total size of this program is about 120 trillion yen. It consists of purchases of CP and corporate bonds with the upper limit of about 20 trillion yen and the Special Funds-Supplying Operations, which can amount to 100 trillion yen. Through this operation, the Bank provides funds on favorable terms to financial institutions that make loans in response to COVID-19. This operation also includes a scheme in which the government takes the credit risk while the Bank provides liquidity, thereby supporting financing together. The second is an ample provision of the yen and foreign currency funds. As for the yen, under yield curve control, the Bank decided to purchase a necessary amount of JGBs without limit. Regarding foreign currencies, the Bank has provided ample U.S. dollars through the enhanced U.S. dollar operations. The third is active purchases of ETFs and J-REITs. The aim is to prevent firms’ and households’ sentiment from deteriorating through volatility in financial markets, thereby supporting positive economic activity. Regulatory responses also have been made to ensure financial system stability. Based on an international agreement, full implementation of the finalized Basel III standards has been deferred by one year, and banks have been encouraged to use their capital and liquidity buffers. Moreover, the Bank announced with the Financial Services Agency in April an easing of the leverage ratio requirement. These responses have been effective. Although financial markets are still nervous, tension has eased. Premiums for U.S. dollar funding, which expanded through the increased demand, have declined. Although corporate financing is still stressed, the environment for external funding has remained accommodative. Financial institutions’ lending attitudes have remained eased, and 1/2 BIS central bankers' speeches issuance conditions for CP and corporate bonds have been favorable, as seen in a narrowing in issuance spreads that expanded temporarily. Under these circumstances, the year-on-year rate of increase in the amount outstanding of bank lending has been about 6.5 percent and that of CP and corporate bonds has been exceeding 10 percent, with both at high levels. Now, let me turn to the outlook for Japan’s economy. The spread of COVID-19 has not subsided globally, and domestic and overseas economies have remained in extremely severe situations. However, since many countries have been resuming economic activities gradually while containing the spread, the situation has changed slightly. In Japan, after the government lifted the state of emergency in late May, economic activity has resumed gradually. Despite extremely high uncertainties, domestic and overseas economies are likely to improve gradually from the second half of this year. However, the pace of improvement is expected to be only moderate, since preventive measures will constrain economic activity while vigilance against COVID-19 continues. In the July Outlook Report, the growth rates of Japan’s economy are projected to be significantly negative, in the range of minus 5.7 to minus 4.5 percent for fiscal 2020, but enter the ranges of 3.0 to 4.0 percent for fiscal 2021 and 1.3 to 1.6 percent for fiscal 2022. The inflation rate is likely to be negative for the time being, mainly affected by COVID-19 and crude oil prices. Thereafter, with the economy improving, it is expected to turn positive and then increase gradually. The CPI for all items less fresh food is projected to be in the ranges of minus 0.6 to minus 0.4 percent for fiscal 2020, 0.2 to 0.5 percent for fiscal 2021, and 0.5 to 0.8 percent for fiscal 2022. Of course, this outlook entails extremely high uncertainties, since it depends on the consequences of COVID-19 and their impact on domestic and overseas economies. If the strict public health measures are reinstated, economic activity could be constrained significantly again. Moreover, attention should be paid to whether the second-round effects of a shock from COVID19 will significantly depress the economy. Specifically, whether the liquidity problem will shift to a solvency one and affect the financial system, thereby further pushing down the real economy, should be monitored. It also matters whether firms’ and households’ growth expectations will decline, leading to cautious spending attitudes. At present, it seems possible to avoid these risks owing to the government’s and the Bank’s responses, but future developments warrant attention. Lastly, let me touch on the Bank’s thinking on future conduct of monetary policy. The Bank considers it important to continue providing support for financing and maintaining stability in financial markets by conducting the three measures, which have been effective. Since the economic and financial impact of COVID-19 is highly uncertain, the Bank, for the time being, will closely monitor this impact and not hesitate to do whatever it takes as a central bank if necessary. Thank you. 2/2 BIS central bankers' speeches
|
bank of japan
| 2,020 | 12 |
Speech by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the meeting of Councillors of Nippon Keidanren (Japan Business Federation), Tokyo, 24 December 2020.
|
December 24, 2020 Bank of Japan Response to COVID-19 and Medium- to Long-Term Challenges for Japan's Economy: With an Eye on the Post-COVID-19 Era Speech at the Meeting of Councillors of Nippon Keidanren (Japan Business Federation) in Tokyo KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is a great honor to have this opportunity to address such a distinguished gathering of business leaders in Japan today. For eight years now, I have delivered a speech at this end-of-year meeting, and I can say that this year we have experienced enormous changes in the social and economic environment due to the shock of the novel coronavirus (COVID-19). As we wrap up 2020, I would first like to take a look back at economic developments this year, mainly focusing on the impact of COVID-19, and talk about the outlook for economic activity and prices. Then, I will explain the Bank of Japan's thinking behind its policy responses. In relation to the conduct of monetary policy, I will also touch on the conduct of the assessment for further effective and sustainable monetary easing, which the Bank decided at the Monetary Policy Meeting (MPM) held last week. Lastly, I would like to talk about what is necessary in taking advantage of lessons to be learned from overcoming the current crisis for future growth -- that is, challenges regarding Japan's economy as a whole that should be addressed when also looking ahead to the post-COVID-19 era from a medium- to long-term perspective. I. Economic and Price Developments during the COVID-19 Era and Their Outlook Impact of COVID-19 on the Economy Let me start with a look back at economic developments this year, mainly focusing on the impact of COVID-19. COVID-19 started to spread from the beginning of the year and became a pandemic within a short period toward early spring (Chart 1). Governments around the world took strict and wide-ranging public health measures in order to prevent the spread. Under these circumstances, the global economy became depressed significantly. However, since the summer season, as public health measures have been eased, the global economy has picked up from that state of significant depression, as seen in the growth rates of each country turning positive on a quarter-on-quarter basis. Similar developments have been observed in Japan. The quarter-on-quarter GDP growth rate for the April-June quarter registered a considerably negative figure of minus 8.3 percent with wide-ranging economic activities being constrained. However, that for the July-September quarter turned positive, to 5.3 percent, and Japan's economy has picked up from the bottom, although it has remained in a severe situation. The economic fluctuation this time is different in nature from what was seen in the past. Most of the fluctuations since World War II were triggered by cyclical adjustments in business fixed investment and in inventory investment, or by financial imbalances. On the other hand, the current fluctuation is exceptional, in that it stemmed from a shock caused by an infectious disease, which is not inherent in the economy, and that economic activity has been constrained exogenously with a view to preventing the spread of the disease. In other words, such activity has been affected largely by an epidemiologic factor. Reflecting the characteristics of COVID-19, economic activities that involve social interaction are particularly affected, and this is another point that is unique to the current case (Chart 2). Looking at economic activities of firms in Japan by sector, a significant decline has been seen in the industry of face-to-face services such as eating and drinking as well as accommodations -- where firms are relatively small -- and amusement services including events. In terms of household spending, consumption of services has declined considerably compared with that of goods. A constraint on services consumption is due to vigilance against COVID-19, and the differences in consumption behavior of each age group reflect the degree of their vigilance. That is, services consumption by the younger generation has recovered rapidly, whereas that by seniors, who are strongly vigilant against COVID-19, saw a significant decline and has picked up at a slower pace. In contrast, manufacturing and retail firms, which produce and sell goods, have been relatively less affected. Goods transactions worldwide have picked up at a comparatively faster pace (Chart 3). A decline in global trade activity has been small compared with at the time of Global Financial Crisis (GFC) and a rapid recovery has been observed. Under these circumstances, the level of Japan's exports has returned to that seen prior to the COVID-19 outbreak, and at a rapid pace. This has led to manufacturers' relatively steady production activity. As I have explained thus far, the impact of the shock of COVID-19 is uneven and largely varies for attributes such as the industry and size of firms as well as consumers' ages. At the current phase in particular, this suggests the need to closely examine economic developments not only by looking at the aggregate or average values of data, but also through analyzing developments in different attributes of each economic entity. Outlook for Economic Developments Now, let me move on to the outlook for Japan's economy. In the baseline scenario, it is projected that, with the impact of COVID-19 waning gradually, Japan's economy will follow an improving trend, albeit moderately, also supported by a pick-up in overseas economies (Chart 4). Compared with early spring, many countries have been making responses while striking a balance between preventive measures and economic activity. It is true that the pace of economic recovery is likely to remain only moderate with the continuing impact of COVID-19. However, it is also true that, taking advantage of the experiences since this spring, the level of economic activity has increased gradually, with society overall adapting to a "new lifestyle" while taking targeted preventive measures. As a baseline scenario, it is expected that these developments will continue. That said, this outlook entails high uncertainties, and risks are skewed to the downside. Although recent positive news on vaccines is certainly encouraging, it is still likely to take time for them to become widely available. On the other hand, it is necessary to pay attention to the fact that the spread of COVID-19 has been continuing globally and that the number of confirmed cases has been resurging in Japan as well. In addition, there are uncertainties over whether, while the impact of COVID-19 remains, growth expectations will not decline substantially and financial system stability will be maintained. Thus, the Bank will continue to closely examine economic developments at home and abroad. Recent Developments in and Outlook for Prices Next, let us look at price developments in Japan (Chart 5). The year-on-year rate of change in the consumer price index (CPI) excluding fresh food has been negative. This is attributable to temporary factors such as the past decline in crude oil prices and a discount on hotel charges through the "Go To Travel" campaign. However, even though a decrease in demand due to the impact of COVID-19 has constrained inflation, the year-on-year rate of change in the CPI has been slightly positive when excluding the effects of these temporary factors. The year-on-year rate of change in the CPI is likely to be negative for the time being. Thereafter, it is expected to turn positive and then increase gradually with the effects of temporary factors that push down prices dissipating and the economy improving (Chart 4). At present, the Bank judges that prices will not see an overall and sustained decline; in other words, the economy will not return to deflation. However, attention should also continue to be paid to price developments given that the pace of economic improvement is only moderate and uncertainties over the economic outlook are significant. II. The Bank's Conduct of Monetary Policy Monetary Policy Conduct in Response to COVID-19 and Financial Developments So far, I have talked about developments in economic activity and prices. Now, I will explain the Bank's thinking behind the monetary policy conduct in response to COVID-19. To address the global shock of COVID-19, governments and central banks around the world have swiftly made policy responses on a large scale. Governments have implemented large-scale economic measures including income support and loan guarantees to firms and households. Central banks have conducted monetary easing measures, and their responses have two things in common. One is providing support for financing to firms and sole proprietors affected by COVID-19 so that they can sustain their businesses. The other is maintaining stability in financial markets in order to prevent a vicious cycle between turmoil in the markets and deterioration in the real economy. In this regard, the Bank has conducted powerful monetary easing since March in response to COVID-19 through the following three measures (Chart 6). Specifically, the first is the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) to provide support mainly for corporate financing. The second is an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations, to ensure stability in financial markets. The third is active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower risk premia in asset markets. The Bank's responses have had positive effects, coupled with the government's measures and active efforts by financial institutions (Chart 7). As for financial conditions, although firms' financial positions have been weak, the environment for external funding has remained accommodative. The year-on-year rate of change in the amount outstanding of bank lending has registered the highest increase in about 30 years on the back of banks' accommodative lending attitudes. That in the aggregate amount outstanding of CP and corporate bonds has been at a high level that exceeds 10 percent. Thus, the smooth functioning of financial intermediation has been ensured, and this is a big difference from the time of the GFC, when downward pressure from the financial side on the real economy intensified. In addition, global financial markets, which had been highly volatile, have regained stability earlier this time than in the case of the GFC due to large-scale responses made by governments and central banks around the world, including the Bank of Japan. Extension of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) However, economic activity and prices are projected to remain under downward pressure for a prolonged period due to the impact of COVID-19 (Chart 8). Given this situation, with a view to supporting the economy and thereby achieving the price stability target of 2 percent, the Bank decided at the last week's MPM upon the following two responses to be made respectively for the time being and from a somewhat long-term perspective. The first one is the extension of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19). With the economy improving at only a moderate pace, corporate financing is likely to remain under stress for the time being. Given these circumstances, the Bank decided to extend the duration of the Special Program until the end of September 2021, and will consider further extension if necessary. The Bank will continue to firmly support corporate financing. Assessment for Further Effective and Sustainable Monetary Easing The second response is the conduct of an assessment for further effective and sustainable monetary easing with a view to achieving the price stability target of 2 percent. Its findings will be made public, likely at the March 2021 MPM. The Bank has been pursuing large-scale monetary easing since 2013. In summer 2016, three years after its introduction, the Bank conducted a comprehensive assessment to examine its effects. The findings indicate that, under the large-scale monetary easing, financial conditions improved significantly, as seen in the correction of the past excessive appreciation of the yen and decline in stock prices, and that this led to improvement in corporate profits and economic activity. On this point, I would think you have recognized these developments through a significant improvement in the business environment compared with the past. On the other hand, findings with regard to prices reveal the following two points. First, although the economy, with the CPI being positive on the whole, is no longer in deflation in the sense of a sustained decline in prices, the price stability target of 2 percent has not been achieved. Second, people's mindset and behavior based on the assumption that wages and prices will not increase easily have been deeply entrenched under prolonged deflation, and it turns out that it will still take a long time for such mindset and behavior to change. In addition, the findings also make clear that monetary easing could have a cumulative negative impact on financial institutions' profits as well as on life insurance and pension funds, which in turn could adversely affect the functioning of financial intermediation. As a policy response based on these findings of the comprehensive assessment, the Bank introduced "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control" in September 2016. Through this framework, it controls policy interest rates to appropriate levels while taking into consideration both the positive and side effects of monetary easing, thereby maintaining favorable economic and financial conditions -- that is, a favorable business environment for business managers -- created by large-scale monetary easing. The upcoming assessment will be conducted with the findings of the comprehensive assessment in mind. "QQE with Yield Curve Control" has worked well for four years since its introduction to date, including the past 10 months during the COVID-19 pandemic. Thus, the Bank judges that there is no need to change its framework. Under this framework, it will assess whether the manner of operation and the various policy tools, including asset purchases, have had their intended effects. In pursuit of further effective and sustainable monetary easing toward achieving the price stability target of 2 percent, if there is anything more that can be done, the Bank will do so. The key is "effective" and "sustainable" monetary easing. Since monetary easing inevitably will be prolonged due to the impact of COVID-19, the Bank will devise ways to continue conducting "QQE with Yield Curve Control." That said, simply maintaining it for a prolonged period is not enough. If the conduct becomes too rigid, it will not work appropriately. As evidenced by the sudden occurrence of the current shock of COVID-19, various shocks may happen in the future. Thus, it is necessary to be nimble in making effective responses when needed to counter possible changes in economic activity and prices, as well as financial conditions. This should be a matter of course for business managers like you all, but any measures incur costs, as with monetary policy measures. Prolonged low interest rates have a negative impact on financial institutions' profits, and purchases of various assets such as JGBs and ETFs affect the market functioning. Such costs or side effects need to be minimized. That said, the management goals cannot be achieved only by curbing costs. I believe business management is about producing significant positive effects at low costs. Anything that is unnecessary and inefficient should be avoided, but the focus of our assessment is not on lowering costs or mitigating side effects. Instead, the Bank will adopt a forward-looking perspective of how to achieve stability in economic activity and prices by pursuing further effective monetary easing while mitigating side effects. III. Strengthening Japan's Economic Growth Potential with an Eye on the Post-COVID-19 Era The COVID-19 pandemic is still affecting the global economy on an enormous scale, and many people in Japan have been making strenuous efforts toward it. Above all, it is necessary to simultaneously contain the spread of COVID-19 and improve economic activity in order to overcome the current crisis. At the same time, given the current situation and also looking ahead to the time when we overcome the crisis -- that is, the post-COVID-19 era -- it is important to focus on challenges regarding Japan's economy as a whole and firmly push forward with addressing them while making good use of insights gained from this experience. Looking at the past experiences of bursting of bubbles and financial crises, a major shock is often followed by a period of prolonged low growth (Chart 9). Examples include Japan in the aftermath of the bursting of the bubble economy and the financial crisis of the second half of the 1990s, as well as developed economies overall following the GFC. What happened with Japan's economy, which suffered from deflation, clearly illustrates that the social costs of addressing prolonged low growth ex post are high. Based on these experiences, governments and central banks around the world have made every effort to prevent as much as possible the COVID-19 shock from creating "scarring effects," which are long-lasting aftereffects on the economy. Generally speaking, the growth potential of an economy is determined by three factors: labor input, capital input, and total factor productivity, which represents technological progress. The reasons for prolonged low growth in the wake of a major shock are often divided into the following three causes: (1) hysteresis effects, where, for example, an increase in unemployment at the time of the shock affects labor input during the recovery period; (2) stagnation of capital input due to constraints on business fixed investment; and (3) stagnation of technological progress. It is important to address these issues in order to get the economy back on a steady growth path once the impact of COVID-19 subsides. I would like to talk about these three issues, which I believe will be crucial from a mediumto long-term perspective. Labor Input: Maintaining and Improving Workers' Skills The first issue is labor input. The hysteresis effects of economic crises with regard to labor input refer to the fact that those who lost their jobs due to employment adjustments face a decline in their skills or an exit from the labor market, which consequently has effects on subsequent labor input. While this problem has often been highlighted in Europe and the United States, it also warrants attention in Japan, as evidenced by the fact that the so-called employment ice age generation, which first became an issue nearly two decades ago, is still a problem today. In order not to make the issue of hysteresis effects with regard to labor input worse, it is important to contain the number of those unemployed as much as possible in the event of a shock. In response to the current shock, many countries have provided support for retaining employees and sustaining businesses, and this also is effective in terms of addressing the issue regarding hysteresis effects of labor input. Japan, too, has not experienced a significant increase in unemployment or bankruptcies due to the efforts made by firms and financial institutions together with the government's employment adjustment subsidies and subsidies for sustaining businesses, as well as the government's and the Bank's support for financing (Chart 10). However, more will need to be done in the longer run in terms of labor input. That is, firms need to upgrade the skills of their employees so that they will be able to adapt to structural changes in the economy. Since there are major changes in the business environment as a result of the pandemic, firms will not be able to sustain adequate competitiveness by simply maintaining their workers' skills. Even before the outbreak of COVID-19, it has been often the case that the shortage of relevant human resources has constrained the expansion of businesses. With the ongoing efforts toward digitalization, the shortage of human resources for information technology is a pressing issue. In order to respond boldly to the major changes, firms have made efforts not only to improve workers' skills through in-house training but also to acquire new skills through the exchange of human resources with other industries. It is important for firms to further step up efforts that they already have made to improve their workers' skills in order to adapt to structural changes. Capital Input: Capital Stock Accumulation through Business Fixed Investment The next issue is capital input. One of the reasons for prolonged low growth after a major crisis is that the accumulation of the necessary capital stock is hampered. That is, in the aftermath of a crisis in which corporate profits deteriorate, economic uncertainties increase, and the funding environment worsens, business fixed investment will be constrained excessively, and firms' continuing cautious stance will lead to prolonged stagnation in capital accumulation. Let us look at the past business fixed investment stance of firms in Japan (Chart 11). Following the bursting of the bubble economy, they remained reluctant to make fixed investment for a long period under prolonged deflation. However, as I mentioned at this meeting last year, firms surely had become more active with their fixed investment in recent years, mainly on the back of high levels of profits. During this situation, early this year, we were hit by the shock of COVID-19. It is true that the high levels of savings that remained on hand even after making active investment have mitigated the impact of the shock. However, the important thing is that being excessively cautious with investment based on this experience will negatively affect future competitiveness. I think that firms are well aware of this point. Many are saying that, despite the shock, they will continue to make necessary investment, given that they significantly constrained fixed investment after the GFC and subsequently lost their competitiveness. When looking ahead to the post-COVID-19 era as well, I think it is important not to interrupt the positive trend seen before the outbreak, which was to invest aggressively for the future. Technological Progress: Continued Investment for Growth Technological progress is also important (Chart 12). There are many examples like the GFC where, in the aftermath of a crisis, technological progress stagnated and productivity growth in the economy as a whole remained weak accordingly. One of the reasons is the lack of research and development (R&D) investment. When firms become reluctant to make such investment, innovation is less likely to happen because the introduction of advanced technologies is delayed. Thus, what is necessary for technological progress is to make investment for growth from a medium- to long-term perspective and make innovative efforts based on such investment. In this regard, it is a noteworthy sign that, in spite of the current severe economic environment, moves toward further digitalization have been seen at various levels of our country, including firms. In fact, software investment has remained steady compared with overall business fixed investment. It is very encouraging to see that firms have maintained their stance of creating innovation through such investment for growth. Thus far, I have explained the key points to bring Japan's economy back on a sustainable growth path from a medium- to long-term perspective based on labor input, capital input, and technological progress. Of course, no one knows at this point what the so-called new normal economy will look like once the pandemic has subsided. However, as I talked about at this meeting in the past, when facing a significant change, firms can achieve substantial growth by being one step ahead and turning such change into opportunity. Progress in efforts to address environmental issues with a view to achieving the Sustainable Development Goals (SDGs) is one such example. I believe that many firms consider that addressing such issues will not only meet social demands but will also enhance their competitiveness in the social setting to come. I hope that firms will boldly take on the various challenges with a view to raising their future growth potential. Conclusion Today, I talked about developments in Japan's economy, its outlook, the Bank's response to COVID-19, as well as the efforts that are required when also looking ahead to the post-COVID-19 era. The pandemic has reminded us of the importance of social interaction. While people have taken advantage of using virtual tools to continue their daily communication, I believe that the craving for everyday uncomplicated, face-to-face interaction has been the driving force for such actions as the development of vaccines. Such strong motivation can be a catalyst for great change. The challenge for us is how society as a whole can make the most of the harsh experience of COVID-19. As I have mentioned today, if we can turn economic changes into opportunities, I believe that Japan's economy will not stagnate post-pandemic, but instead will leap forward. To make this happen, active efforts by the private sector are essential. Of course, the public sector will firmly support its efforts. The Bank will continue to provide accommodative financial conditions in order to strongly support such transformative moves. Lastly, I would like to conclude my speech today by wishing you all a wonderful year ahead. Thank you for your attention. Response to COVID-19 and Medium- to Long-Term Challenges for Japan's Economy: With an Eye on the Post-COVID-19 Era Speech at the Meeting of Councillors of Nippon Keidanren (Japan Business Federation) in Tokyo December 24, 2020 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Economic and Price Developments during the COVID-19 Era and Their Outlook II. The Bank's Conduct of Monetary Policy III. Strengthening Japan's Economic Growth Potential with an Eye on the Post-COVID-19 Era Conclusion Chart 1 I. Economic and Price Developments during the COVID-19 Era and Their Outlook COVID-19 Daily Confirmed New Cases Major Economies′ Real GDP 10 thous., weekly average 10 thous., weekly average 2.5 s.a., q/q % chg. United States (left scale) Jan.-Mar. Europe (left scale) India, Brazil, Russia (left scale) 2.0 Apr.-June July-Sept. China (right scale) Japan(right scale) 1.5 1.0 -5 0.5 0.0 Jan. Mar. May. July Jul. Sept. Sep. Nov. -10 -15 China Japan United States Euro area Sources: Haver; OECD. Chart 2 I. Economic and Price Developments during the COVID-19 Era and Their Outlook Impact on Economic Activity Economic Activity by Sector Household Consumption CY 2019 = 100 CY 2019 = 100 Manufacturing Retail trade Eating and drinking places, take out and delivery services Goods Services for amusement and hobbies Services 18/Q1 2 Accomodations Jan. Apr. July Jul. Oct. Jan. Apr. July Jul. Oct. 4 19/Q1 2 4 20/Q1 2 Note: In the left-hand chart, figures for manufacturing are the "Indices of Industrial Production" and those for other sectors are the "Indices of Tertiary Industry Activity." Sources: Ministry of Economy, Trade and Industry; Cabinet Office. Chart 3 I. Economic and Price Developments during the COVID-19 Era and Their Outlook Trade Activity of Goods Japan's Exports of Goods (Real Exports) World Trade Volume COVID-19: Jan. 2020 = 100 GFC: Aug. 2008 = 100 COVID-19: Jan. 2020 = 100 GFC: Aug. 2008 = 100 COVID-19 GFC COVID-19 GFC -12 -9 -6 months -3 12 15 18 21 24 -12 -9 -6 months -3 12 15 18 21 24 Sources: CPB Netherlands Bureau for Economic Policy Analysis; Bank of Japan; Ministry of Finance. Chart 4 I. Economic and Price Developments during the COVID-19 Era and Their Outlook The Bank's Forecasts for Economic Activity and Prices (October 2020 Outlook Report) y/y % chg. Fiscal 2020 Forecasts made in July 2020 Fiscal 2021 Forecasts made in July 2020 Fiscal 2022 Forecasts made in July 2020 Real GDP CPI (all items less fresh food) -5.6 to -5.3 [-5.5] -5.7 to -4.5 [-4.7] -0.7 to -0.5 [-0.6] -0.6 to -0.4 [-0.5] +3.0 to +3.8 [+3.6] +3.0 to +4.0 [+3.3] +0.2 to +0.6 [+0.4] +0.2 to +0.5 [+0.3] +1.5 to +1.8 [+1.6] +1.3 to +1.6 [+1.5] +0.4 to +0.7 [+0.7] +0.5 to +0.8 [+0.7] Notes: 1. These figures show the forecasts of the majority of the Policy Board members and those in brackets indicate the medians. The forecasts are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which she or he attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. 2. The direct effects of the October 2019 consumption tax hike on the CPI for fiscal 2020 are estimated to be 0.5 percentage point. In addition, based on a specific assumption, the direct effects of policies concerning the provision of free education on the CPI for fiscal 2020 are estimated to be around minus 0.4 percentage point. The direct effects of the "Go To Travel" campaign on the CPI are estimated to be minus 0.2 percentage point for fiscal 2020 and 0.2 percentage point for fiscal 2021. Source: Bank of Japan. Chart 5 I. Economic and Price Developments during the COVID-19 Era and Their Outlook Consumer Prices y/y % chg. Effects of the "Go To Travel" campaign Effects of the consumption tax hikes and free education policies Energy Items other than energy CPI (less fresh food) -1 -2 CY Notes: 1. Energy consists of petroleum products, electricity, and gas, manufactured & piped. 2. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. II. The Bank's Conduct of Monetary Policy Chart 6 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills Enhancement of the U.S. Dollar Funds-Supplying Operations Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being) Chart 7 II. The Bank's Conduct of Monetary Policy Financial Conditions Lending Attitudes of Financial Institutions as Perceived by Firms DI ("accomodative" - "severe"), % points Amount Outstanding of Bank Lending, CP, and Corporate Bonds y/y % chg. Lending by domestic commercial banks CP and corporate bonds "accomodative" "severe" -10 Large firms -20 Small and medium-sized firms -30 -40 CY 05 -4 -8 CY05 Notes: 1. In the left-hand chart, figures are for all industries. 2. In the right-hand chart, figures for lending by domestic commercial banks are monthly averages. Figures for CP and corporate bonds are those at the end of the period. Lending by domestic commercial banks includes loans to firms, individuals, and local governments. Sources: Bank of Japan; Japan Securities Depository Center; Japan Securities Dealers Association; I-N Information Systems. Chart 8 II. The Bank's Conduct of Monetary Policy Key Points of Decisions Made at the December MPM Economic activity and prices have remained under prolonged downward pressure due to the impact of COVID-19. In this situation, there is a need to support the economy and thereby achieve the price stability target of 2%. Extension of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) Extension by 6 months: end-March 2021 → end-September 2021 * Further extension will be considered if necessary. Adjustments to the Special Program Purchases of CP and corporate bonds: combine the maximum amount of additional purchases for each asset, making a total of 15 tril. yen Special Operations to facilitate financing: remove the upper limit of 100 bil. yen on funds provided to each eligible counterparty against loans that financial institutions make on their own Assessment for Further Effective and Sustainable Monetary Easing to Achieve the Price Stability Target of 2% The Bank judges that there is no need to change the framework of "QQE with Yield Curve Control." The Bank will assess various measures under this framework and make public its findings, likely at the March 2021 MPM. Chart 9 III. Strengthening Japan's Economic Growth Potential with an Eye on the Post-COVID-19 Era Low Growth After the Crises CY 1990 = 100 Advanced Economies (After the GFC) Japan (After the Financial Crisis in the 1990s ) Japan (After the Bubble Economy) CY 1997 = 100 Real GDP Real GDP Real GDP Trend line for 5 years prior to the crisis Trend line for 5 years prior to the crisis CY85 CY 2007 = 100 CY92 Trend line for 5 years prior to the crisis CY02 Source: IMF. Chart 10 III. Strengthening Japan's Economic Growth Potential with an Eye on the Post-COVID-19 Era Labor Input: Avoiding Hysteresis Effects Unemployment Rate Number of Corporate Bankruptcies s.a., % 1,600 cases 1,400 1,200 1,000 CY 06 Note: In the right-hand chart, figures show 6-month backward moving averages. Sources: Ministry of Internal Affairs and Communications; Tokyo Shoko Research Ltd. CY 06 Chart 11 III. Strengthening Japan's Economic Growth Potential with an Eye on the Post-COVID-19 Era Capital Input: Avoiding Stagnation of Business Fixed Investment Corporate Profits and Business Fixed Investment s.a., ann., tril. yen Investment-Cash Flow Ratio s.a., ann., tril. yen % Current profits (left scale) Investment / (operating cash flows + personnel expenses) Business fixed investment (right scale) FY 85 88 91 94 97 00 03 06 09 12 15 18 FY85 88 91 94 97 00 03 06 09 12 15 18 Notes: 1. In the left-hand chart, figures for current profits are based on the "Financial Statements Statistics of Corporations by Industry, Quarterly." Excluding "finance and insurance." Figures from 2009/Q2 onward exclude "pure holding companies." 2. In the right-hand chart, operating cash flows = net income - dividends + depreciation expenses + Δprovisions - Δinventories - Δtrade credits - Δnet amount of other current assets. Investment includes land purchasing expenses and excludes software and R&D investment. Sources: Cabinet Office; Ministry of Finance. Chart 12 III. Strengthening Japan's Economic Growth Potential with an Eye on the Post-COVID-19 Era Technological Progress: Encouraging Investment for Growth Stagnation of Total Factor Productivity After the Crisis 1.2 y/y % chg. Research and Development Investment Before the GFC 1.0 After the GFC 0.8 0.6 y/y % chg. Before the GFC After the GFC 0.4 0.2 -1 0.0 -2 United States United Kingdom Germany Japan United States Notes: 1. In the left-hand chart, figures are averages of year-on-year changes for 7 years before and after the GFC. 2. In the right-hand chart, figures are averages of year-on-year changes for 3 years before and after the GFC. Sources: EU KLEMS; OECD. United Kingdom Germany Japan
|
bank of japan
| 2,020 | 12 |
Speech by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at a meeting with local leaders in Kanagawa, virtual, 3 February 2021.
|
February 3, 2021 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Kanagawa (via webcast) WAKATABE Masazumi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction Good morning. It is my pleasure to have the opportunity today to exchange views with leaders in administrative, financial, and economic areas in Kanagawa Prefecture, which is taking place online due to the continuing impact of the novel coronavirus (COVID-19). I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Yokohama Branch. Also, it is an honor to join this meeting, as I was born in Yokohama and raised in Fujisawa. At the January Monetary Policy Meeting (MPM), the Bank released the Outlook for Economic Activity and Prices (Outlook Report) in which it presented the outlook for Japan's economic activity and prices through fiscal 2022. Today, I will first talk about the Bank's view on economic and financial developments at home and abroad by providing you an overview of the Outlook Report, and then explain the future conduct of monetary policy while touching on the thinking behind the upcoming assessment for further effective and sustainable monetary easing. I also would like to describe economic developments in Kanagawa Prefecture at the end of my speech. I. Developments in Economic Activity and Prices A. Developments in the Global Economy The current crisis is characterized by significant uncertainties depending on the course of COVID-19 and unevenness of its impact across industries and attributes.1 Let me start by looking at developments in the global economy. It has picked up from a state of significant depression in the first half of 2020, although the impact of a resurgence of COVID-19 has been seen in part (Chart 1). However, with the number of confirmed new cases rising again in such places as the United States and Europe since last autumn, downward pressure has been exerted on the overall economy, particularly in the face-to-face services industry. This has been evident especially in Europe. That said, production activity of the manufacturing industry and the trade volume have continued to recover, almost Gopinath, G., "A Race Between Vaccines and the Virus as Recoveries Diverge," IMF Blog, January 26, 2021, https://blogs.imf.org/2021/01/26/a-race-between-vaccines-and-the-virus-asrecoveries-diverge/. returning to the pre-pandemic level. Business sentiment globally has remained on an improving trend on the whole, although the pace of a pick-up is different between the manufacturing industry and the services industry. As for the outlook, the global economy is likely to continue improving, partly supported by aggressive macroeconomic policies taken by each country and region. That said, it is projected that the pace will be only moderate for the time being, partly due to the impact of the resurgence of COVID-19, mainly in the United States and Europe. The International Monetary Fund (IMF) also projects in the latest World Economic Outlook (WEO) Update that the global GDP will decline significantly in 2020 and recover in 2021 but to a level that somewhat exceeds its 2019 level. In addition, we should pay attention to multilayered risks in the global economy, including various ones related to geopolitics and climate change. B. Developments in Japan's Economy Next, I will talk about developments in Japan's economy. Although the economy has remained in a severe situation due to the impact of COVID-19, it has picked up as a trend from the bottom hit in the April-May period last year, when a wide range of economic activities were constrained. The impact has been relatively small on production and transactions of goods, whereas it has been large on face-to-face services. Such unevenness is becoming much more evident recently. With these factors in mind, let me explain each component in some detail. Exports and production have continued to increase since goods transactions, including trade activity, have picked up at a relatively rapid pace (Chart 2). Looking at real exports by goods, exports of automobile-related goods have continued to increase clearly, reflecting the materialization of pent-up demand, and an uptrend in IT-related exports has been evident. Exports of capital goods have turned to an increase due to a global recovery in production activity. As for the outlook, with the global economy continuing to improve, exports and production are likely to increase for a wide range of goods, including capital goods and IT-related goods. Business fixed investment has stopped declining on the whole, albeit with variations across industries (Chart 3). Machinery investment, which had continued to decline, has picked up recently, reflecting increases in exports and production. On the other hand, construction investment has remained on a moderate declining trend due to a decrease in construction of stores and accommodation facilities by the face-to-face services industry. According to the business fixed investment plans in the December 2020 Tankan (Short-Term Economic Survey of Enterprises in Japan) released by the Bank, the year-on-year rate of change in business fixed investment for fiscal 2020 is minus 2.4 percent. Although it should be noted that the plan for this fiscal year has been gradually revised downward, the rate is negative only to a small degree when compared with that of the decline in economic activity. This seems to be largely attributable to the fact that large-scale adjustments in business fixed investment have been avoided due to accommodative financial conditions. An analysis by the Bank's staff suggests that financial institutions' lending attitudes that have remained accommodative in the current phase will have an effect of pushing up the overall amount of business fixed investment to a fair degree, mainly led by small and medium-sized firms.2 As for the outlook, business fixed investment is likely to pick up for the time being, led by machinery investment, and then increase further, supported by accommodative financial conditions, the government's economic measures, and improvement in corporate profits. Private consumption has picked up gradually as a trend, but downward pressure has increased recently on consumption of face-to-face services, such as eating and drinking as well as accommodations (Chart 4). The Consumption Activity Index (CAI) shows that goods consumption has continued to pick up on the whole, whereas improvement in services consumption has leveled off due to the resurgence of COVID-19. As the state of emergency has been reinstated for 11 prefectures, including Kanagawa Prefecture, private consumption, particularly in face-to-face services, is likely to remain under strong downward pressure for the time being. It is necessary to pay attention to future developments in the face-to-face services industry and their impact on the employment See Box 3 "Extent of Transmission of the COVID-19 Shock across Employment and Business Fixed Investment" in the January 2021 Outlook Report (https://www.boj.or.jp/en/mopo/outlook /gor2101b.pdf). situation since the proportion of small firms and non-regular employees is high in the industry. The employment and income situation, which shows the underlying developments in private consumption, has remained weak (Chart 5). The year-on-year rate of change in the number of employees has continued to register a negative figure, mainly due to a decrease in non-regular employees. Total cash earnings per employee have declined, mainly due to a decrease in non-scheduled cash earnings. Employee income therefore has declined. However, the government's Employment Adjustment Subsidy, which had been expanded, has somewhat halted job cuts. Bankruptcies of firms have been at low levels, mainly due to the Bank's and the government's measures to support financing. Suspension and discontinuation of businesses have not surged.3 Under these circumstances, the decline in the number of employed persons has been constrained compared with a significant decline in economic activity. Employment and income are projected to remain under downward pressure for the time being but likely to turn to an improving trend thereafter, with domestic and external demand recovering. Let me sum up the outlook for Japan's economy (Chart 6). Downward pressure, reflecting the resurgence of COVID-19, is likely to remain strong for the time being, particularly in face-to-face services consumption. That said, although there are high uncertainties, the Bank projects as a baseline scenario that Japan's economy thereafter will follow an improving trend, albeit only moderately, supported by a recovery in external demand, accommodative financial conditions, and the government's economic measures. In terms of the medians of the Policy Board members' forecasts in the January 2021 Outlook Report, The number of suspensions and discontinuations of businesses should be interpreted with some latitude since there are several statistics with different survey subjects and methods, and there are large fluctuations in the results. That is, according to the Statistics on Registration released by the Ministry of Justice, which compiles the number of firms that discontinued their businesses through registration procedure, the year-on-year rate of change is minus 3.2 percent for the January-November period of 2020. Statistics compiled by the Teikoku Databank, which include the number of firms that discontinued and suspended their businesses without such procedure, show that the year-on-year rate of change is minus 5.3 percent for 2020. On the other hand, statistics compiled by Tokyo Shoko Research Ltd. indicate that the year-on-year rate of change is 14.6 percent for 2020. the real GDP growth rate is projected to register a significant negative figure of minus 5.6 percent for fiscal 2020, 3.9 percent for fiscal 2021, and 1.8 percent for fiscal 2022. By fiscal year, real GDP will only return to its 2019 level in around fiscal 2022. The risks to the aforementioned baseline scenario are skewed to the downside. COVID-19 has resurged at home and abroad, and the extent to which the impact will push down economic activity is highly uncertain. It is encouraging that vaccination has started in some countries, but the pace of distribution and the effects of the vaccines entail uncertainties. For the time being, attention should continue to be paid to the consequences of COVID-19 and their impact on domestic and overseas economies. In addition, while the impact of COVID-19 remains, it is also uncertain whether growth and inflation expectations will not decline substantially and financial system stability will be maintained. With these factors in mind, the Bank will continue to examine developments in domestic and overseas economies carefully. C. Price Developments Let me move on to price developments (Chart 7). The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) has been negative. That said, when excluding the effects of temporary factors such as the decline in energy prices and discounts on hotel charges through the "Go To Travel" campaign, the rate has been slightly positive. According to anecdotal information from firms, price cuts that aim at stimulating demand have not yet been observed widely to date, and the economy has not returned to deflation despite a significant decline in economic activity. At present, a price decline has been seen only to a limited degree compared with that of a decline in the output gap. The year-on-year rate of change in the CPI is likely to be negative for the time being, but thereafter is expected to turn positive and then increase gradually with the effects of temporary factors dissipating and the economy improving (Chart 6). The medians of the Policy Board members' forecasts of the inflation rate in the January Outlook Report indicate that the CPI is projected to be minus 0.5 percent for fiscal 2020, 0.5 percent for fiscal 2021, and 0.7 percent for fiscal 2022. The Bank has not judged thus far that prices will see an overall and sustained decline and that the economy will return to deflation. That said, attention should be paid not only to the impact of COVID-19 but also to risks that are specific to prices. The latest Outlook Report points to two risks, which are uncertainties over firms' price-setting behavior and developments in foreign exchange rates and international commodity prices. In particular, we pay great and utmost attention to the possible impact of developments in foreign exchange rates on prices. II. The Bank's Conduct of Monetary Policy Now, I will talk about the Bank's conduct of monetary policy. COVID-19 has been significantly affecting developments in economic activity and prices as well as financial conditions. In this situation, the Bank judges that the following responses are important to address the COVID-19 shock first and foremost: to provide support for corporate financing so that firms can sustain their businesses and to maintain stability in financial markets in order to prevent deterioration in the real economy, such as in employment. 4 At the same time, given that downward pressure is likely to be exerted on economic activity and prices for a prolonged period due to the impact of COVID-19, it is necessary to consider the appropriate future conduct of monetary policy. A. Monetary Policy Responses to the Impact of COVID-19 Let me start with responses to be made for the time being (Chart 8). The Bank has conducted powerful monetary easing since last spring in response to COVID-19 through the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) to provide support mainly for corporate financing; (2) an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations; and (3) active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The Bank's responses have had positive effects (Chart 9). Global financial markets became highly volatile last spring but have regained stability due to large-scale responses made by governments and central banks around the world, including the Bank of Japan. Although These responses would prevent as much as possible the impairment of human capital and firms' organization capital. As for organization capital, see Prescott, E. C. and Visscher, M., "Organization Capital," Journal of Political Economy, vol. 88, no. 3 (June 1980): pp. 446-61. firms' financial positions have been weak, the environment for external funding has remained accommodative owing to the Bank's and the government's responses as well as active efforts made by financial institutions. Financial institutions' lending attitudes have remained accommodative. The year-on-year rate of change in the amount outstanding of bank lending and that in the aggregate amount outstanding of CP and corporate bonds have continued to register high growth. However, with the economy improving at only a moderate pace, corporate financing is likely to remain under stress. Under these circumstances, the Bank decided at the December MPM last year to extend the duration of the Special Program by six months until the end of this September, thereby continuing to provide support for corporate financing. It will continue to firmly conduct the current monetary easing, including this program. It also will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. B. Assessment for Further Effective and Sustainable Monetary Easing Next, I will talk about responses to be taken in the future. The Bank decided to conduct an assessment for further effective and sustainable monetary easing, with a view to achieving the price stability target of 2 percent, and make public its findings, likely at the March MPM. I would like to first touch on the global environment surrounding the monetary policy conduct. Since the Global Financial Crisis (GFC) during 2007 through 2008, amid the situation of a declining trend in the natural rate of interest -- which balances the economy's gross demand and potential GDP -- low growth, low inflation, and low interest rates have been prolonged in advanced economies and the term "Japanification" has been discussed frequently.5,6 As the policy interest rates likely will fall to the effective lower bound, the For developments in the natural rate of interest in the United States, Canada, the euro area, and the United Kingdom, see Holston, K., Laubach, T., and Williams, J. C., "Measuring the Natural Rate of Interest: International Trends and Determinants," Journal of International Economics, vol. 108, pp. S59-S75, 2017. For those in Japan, see Sudo, N., Okazaki, Y., and Takizuka, Y., "Determinants of the Natural Rate of Interest in Japan: Approaches Based on a DSGE Model and OG Model," BOJ Research Laboratory Series, no. 18-E-1, 2018. central banks of those economies have faced the common challenges of how to enhance the effectiveness and credibility of monetary policy. With these challenges in mind, the central banks in the United States and Europe -- the Federal Reserve and the European Central Bank (ECB) -- have reviewed their frameworks of monetary policy recently. The Bank has faced these challenges earlier than these central banks. It started to pursue large-scale monetary easing from 2013 by introducing quantitative and qualitative monetary easing (QQE). In summer 2016, it conducted a comprehensive assessment, which is equivalent to a review of the framework of monetary policy. Based on its findings, the Bank introduced "QQE with Yield Curve Control" in September 2016. This consists of yield curve control, in which the Bank controls short- and long-term interest rates, and an inflation-overshooting commitment, in which the Bank commits itself to expanding the monetary base until the year-on-year rate of increase in the actual CPI exceeds 2 percent and stays above that level in a stable manner. Under this framework, the Bank has continued with the large-scale monetary easing to date. The inflation-overshooting commitment is a commitment to strongly influencing people's inflation expectations with the aim of attaining a situation where the inflation rate is 2 percent on average over the business cycle. In this regard, the Federal Reserve conducted a review of the monetary policy framework in terms of strategy, tools, and communications, and announced last summer that it would "seek to achieve inflation that averages 2 percent over time" as a makeup strategy.7,8 The Federal Reserve's thinking behind this review has some commonalities with the Bank's that has been adopted already for the conduct of monetary policy. Given that we have been addressing the same challenges, the Bank would like to take advantage of other central banks' discussions and experiences. As for "Japanification," see Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Ehime, February 5, 2020, https://www.boj.or.jp/en/announcements /press/koen_2020/ko200205a.htm/. 7 "Statement on Longer-Run Goals and Monetary Policy Strategy," August 27, 2020, https://www.federalreserve.gov/monetarypolicy/files/FOMC_LongerRunGoals_202008.pdf. 8 A makeup strategy is the idea that central banks compensate for past inflation shortfalls with policy stances to generate higher inflation in the future. As for the Bank's upcoming assessment, it should start with examining the effects of "QQE with Yield Curve Control" on financial conditions as well as developments in economic activity and prices. Let us remind ourselves of how the transmission mechanism of monetary easing works. The mechanism is assumed to be as follows (Chart 10). First of all, through yield curve control, nominal interest rates become stable at low levels across the entire yield curve. At the same time, inflation expectations are raised through the inflation-overshooting commitment. As a result, real interest rates, which are calculated by subtracting inflation expectations from nominal interest rates, stay at low levels. The key here is real interest rates. When the economy is in deflation, firms' and households' debt burden in real terms hovers at a high level even if nominal interest rates are low. 9 The low real interest rates improve financial conditions through low funding costs as well as favorable financial and capital markets, thereby encouraging economic activity and improving the output gap. Improvement in the output gap in turn pushes up the actual inflation rate, together with a rise in inflation expectations. In 1923, the British economist John Maynard Keynes explained this as follows: "Economists draw an instructive distinction between what are termed the 'money' rate of interest and the 'real' rate of interest. If a sum of money worth 100 in terms of commodities at the time when the loan is made is lent for a year at 5 per cent interest, and is only worth 90 in terms of commodities at the end of the year, the lender receives back, including his interest, what is only worth 941/2. This is expressed by saying that while the money rate of interest was 5 per cent, the real rate of interest had actually been negative and equal to minus 51/2 per cent. In the same way, if at the end of the period the value of money had risen and the capital sum lent had come to be worth 110 in terms of commodities, while the money rate of interest would still be 5 per cent the real rate of interest would have been 151/2 per cent. "Such considerations, even though they are not explicitly present to the minds of the business world, are far from being academic. The business world may speak, and even think, as though the money rate of interest could be considered by itself, without reference to the real rate. But it does not act so. The merchant or manufacturer, who is calculating whether a 7 per cent bank rate is so onerous as to compel him to curtail his operations, is very much influenced by his anticipations about the prospective price of the commodity in which he is interested." Keynes, J. M., A Tract on Monetary Reform (London: Macmillan and Co., Limited, 1923), pp. 20-21. Economic and financial developments since the introduction of QQE in 2013 have been more or less in line with the assumed mechanism (Charts 11, 12, and 13). 10 Real interest rates have been clearly negative due to nominal interest rates that are extremely low and inflation expectations that are higher than those prior to the introduction of QQE. In this situation, the year-on-year rate of change in the amount outstanding of bank lending has continued to be at around 2 percent. In financial and capital markets, foreign exchange rates have been stable on the whole and stock prices have been on an uptrend. The output gap has continued to expand since 2017, when it turned clearly positive.11 The unemployment rate has declined, the active job openings-to-applicants ratio has increased, and the number of employed persons has risen.12 Base pay increases have continued for seven consecutive years, and the positive annual CPI inflation has taken hold. The economy is no longer in deflation in the sense of a sustained decline in prices. However, the price stability target of 2 percent has not yet been achieved. Even though upward pressure on wages has increased steadily, as can be seen in a rise in scheduled cash earnings per hour of part-time employees, the rate of increase in inflation expectations has not expanded. This is because people's mindset and behavior based on the assumption that prices will not increase easily have been deeply entrenched under prolonged deflation and it has been taking time for such mindset and behavior to change. Also, firms' room to raise productivity and the high elasticity of labor supply have absorbed inflationary pressure. Under these circumstances, the COVID-19 shock occurred last spring. Because of this additional impact, inflation expectations have weakened somewhat and the output gap has deteriorated significantly. Since downward pressure on economic activity and prices is For a recent academic assessment on the policy, see Honda, Y. and Inoue, H., "The Effectiveness of the Negative Interest Rate Policy in Japan: An Early Assessment," Journal of the Japanese and International Economies, vol. 52 (June 2019): pp. 142-53. 11 The estimation of the output gap should be interpreted with some latitude since the results could be different depending on the estimation methods. 12 Such favorable employment market outcomes have not resulted from a declining population. For details, see Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Aomori, June 27, 2019, https://www.boj.or.jp/en/announcements/press /koen_2019/ko190627a.htm/. likely to continue for a prolonged period, it will take considerable time to achieve the price stability target of 2 percent. On this basis, the Bank will conduct an assessment for further effective and sustainable monetary easing, with a view to supporting the economy and thereby achieving the price stability target of 2 percent. In doing so, since the price stability target of 2 percent and the framework of "QQE with Yield Curve Control" have been working well to date, the Bank judges that there is no need to change them. There are mainly three reasons for this. First, the price stability target of 2 percent has been, and remains, the starting point for pursuing monetary easing. In the reviews of other central banks, which are facing challenges common to Japan, they are trying to seek more effective ways to achieve the target level, rather than lower it.13 Second, as I mentioned earlier, economic and financial developments have been more or less in line with the assumed mechanism under "QQE with Yield Curve Control." Despite the unexpected shock of COVID-19, the basic stance of the monetary policy conduct toward achieving the price stability target of 2 percent is reasonable. Third, "QQE with Yield Curve Control" is a framework through which a policy mix of fiscal and monetary policies can be effectively achieved while the independence of a central bank is maintained. In response to COVID-19, the government has been increasing the issuance of JGBs to implement its economic measures while making use of the low interest rate environment. Meanwhile, the Bank has set the target level of policy interest rates as part of the monetary policy measures, taking into account developments in economic activity and prices as well as financial conditions, and has been achieving accommodative financial conditions accordingly. Under "QQE with Yield Curve Control," the Bank and the government can cooperate with each other while fulfilling their respective roles. 14 Therefore, changing the price stability target from a point to a range, say from 1 to 3 percent, could be regarded as a weakening of a commitment to monetary easing. 14 For an academic discussion on a policy mix, see Bartsch, E. et al., It's All in the Mix: How Monetary and Fiscal Policies Can Work or Fail Together, Geneva Reports on the World Economy 23, December 2020, https://voxeu.org/content/it-s-all-mix-how-monetary-and-fiscal-policies-can -work-or-fail-together. Thus, based on the assumption that the Bank will continue with "QQE with Yield Curve Control," it will conduct an assessment on the manner of operations and various measures such as asset purchases. Whether to make changes to various measures depends on the findings of the assessment, so it is not appropriate to make any specific comments at this point. That said, the assessment will be conducted with the following points in mind. First, the Bank should conduct effective monetary easing while containing so-called costs of policy measures as much as possible. "QQE with Yield Curve Control" is a framework for conducting monetary easing while striking a balance between costs and benefits, but it is necessary to seek more effective ways to conduct monetary policy in terms of finding such a balance. Second, while it is expected that monetary easing will be prolonged, the Bank should enhance the sustainability of the conduct of monetary policy during normal times and be nimble in responding to changes in developments in economic activity and prices as well as financial conditions. The Bank could conduct monetary policy more flexibly in a prioritized manner depending on changes in such developments. In conducting the upcoming assessment, I would like to emphasize that the Bank does not intend to tighten monetary easing. It also does not aim at only containing costs of policy measures. Rather, the Bank will consider how to be nimble in conducting effective monetary easing while taking care of costs. So far, I have explained the Bank's thinking on its monetary policy conduct. Communication is an important factor in conducting monetary policy. The central banks' intentions are not necessarily interpreted in the way they meant, and some recent research has clarified this difficulty and proposed some ways to improve their communications.15 The Bank has communicated widely to the public through various channels such as speeches, press conferences, opportunities to exchange views like today's meeting, its website, and SNS. It will continue to make efforts and seek ways to explain its thinking on the monetary policy conduct, including the content of the upcoming assessment, as clearly as possible. As for the recent paper on how central banks should enhance their communications, see Candia, B., Coibion, O., and Gorodnichenko, Y., "Communication and the Beliefs of Economic Agents," NBER Working Paper, no. 27800, 2020. III. Current Situation of and Outlook for Kanagawa Prefecture's Economy Next, I would like to talk about the economy of Kanagawa Prefecture. As with Japan's economy as a whole, the prefecture's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19. However, the pace of improvement is likely to be only moderate while vigilance against COVID-19 continues. In addition, the population of Kanagawa Prefecture is expected to start declining within the next few years, and the impact of the declining and aging population on the economy is likely to intensify. However, the declining and aging population will not automatically lead to an economic decline. The important thing is how to address and tackle the issue. Kanagawa Prefecture seems to be very active in its efforts to achieve economic growth while looking to the future. Here, I would like to focus on three of the most notable examples. The first is the concentration of research and development (R&D) centers. While Kanagawa Prefecture has always had the largest number of people engaged in R&D in Japan, the concentration of R&D centers has accelerated in recent years. For example, leading companies at home and abroad, as well as universities, have actively moved their R&D facilities and campuses into the Keihin Coastal Area Life Innovation International Strategic Comprehensive Special Zone and the Minato Mirai 21 district of Yokohama City, and these areas have become a major R&D center in Japan. Industry-academia-government research collaboration should give rise to internationally competitive leading industries, which will serve as an engine for technological innovation. The second notable example is the development of logistics centers. With its international trading ports of Yokohama, Kawasaki, and Yokosuka, Kanagawa Prefecture has long been a logistics hub for Japan, acting as a major window connecting the country with the rest of the world. With the further development of the expressway network that directly connects to the capital, large-scale logistics facilities equipped with state-of-the-art equipment have started to be constructed one after another in recent years, mainly in the central part of the prefecture along these expressways. More efficient and upgraded logistics will contribute to raising productivity regardless of industry. The importance of Kanagawa Prefecture as a key logistics hub is expected to continue increasing in the future. The third example is developments linked to tourism. Kanagawa Prefecture is blessed with many tourist resources, including Yokohama City, an urban tourist destination, Hakone, one of the best hot spring resorts in Japan, Kamakura, a place of history and culture, and Shonan/Enoshima, an area for marine sports. However, at present, the number of visitors to these tourist spots has been declining significantly with the COVID-19 pandemic, and the situation has been extremely severe. That said, I have heard that, even in this situation, many firms have responded flexibly to the changes in consumer behavior due to the pandemic and have made efforts to meet the needs, for example, of those who want to stay longer in one place and enjoy leisure time and meals. There is also active promotion of tourism from a longer-term perspective. For example, Kamakura City is working to increase the number of tourists in response to the fact that the city is the setting for the 2022 NHK Taiga Drama (the annual year-long historical drama television series produced by NHK [Japan Broadcasting Corporation]) "Kamakura-dono no 13-nin (13 Samurais of the Kamakura Shogunate)." In addition, Yokohama City is scheduled to host the World Horticultural Exhibition in 2027. These various efforts are expected to boost further development of the tourism industry. Kanagawa Prefecture has a long history of close ties with foreign countries. It opened its ports to the world about 160 years ago with the arrival of Commodore Perry. As it developed as the gateway to Japan, new cultures, knowledge, and ways of thinking flowed in along with people and goods, and the economy of the prefecture grew while taking them in with flexibility. This flexibility, I believe, has been the driving force for the prefecture to respond to the recent various changes in the environment and has led to active efforts to foster and develop industry. I hope that Kanagawa Prefecture maximizes its potential and continues to make strong strides toward further growth. Conclusion Lastly, I would like to briefly touch on the medium- to long-term economic issues confronting Japan. There is concern that the COVID-19 shock we are facing will remain for a long time as scarring effects.16 In Japan, after major shocks such as the bursting of the bubble economy and the GFC, their effects lasted for a prolonged period as sort of hysteresis effects; people's sentiment deteriorated and the growth rate suddenly decelerated (Chart 14). It is important to avoid such "scarring effects" on the economy as much as possible in order to create a situation where Japan's economy will return to a sustainable growth path without any sudden deceleration once the impact of COVID-19 subsides. Therefore, the top priority is to overcome the crisis as swiftly as possible; at the same time, it is also important to strengthen the growth potential while making the most of lessons learned from this crisis. While COVID-19 has had a significant impact on social and economic activities, this also could be an opportunity to reform the economic structure that will strengthen the growth potential. In fact, there have been various efforts to use information and communication technology (ICT) in such areas as telework and online medical care. It is essential to see how society as a whole can make the most of the harsh experience of COVID-19. Active investment, particularly in human capital, is necessary in order to strengthen the growth potential.17 While the leading role in this regard falls on the private sector, the public sector will actively support their efforts. In this regard, central banks can provide liquidity through lending but cannot spend money. It is the private sector and the governments that can spend As for concern over the impact of COVID-19 on people's sentiment, see Eichengreen, B., "An Infrastructure Inoculation for America's Recovery," Project Syndicate, January 13, 2021, https://www.project-syndicate.org/commentary/us-economic-recovery-biden-infrastructure-plan-bybarry-eichengreen-2021-01. 17 A delay in Japan's ICT investment is discussed in Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Saga, September 2, 2020, https://www.boj.or.jp/en/announcements/press/koen_2020/ko200902a.htm/. In addition, in Japan, the amount of money that firms spend on capability development of their employees accounts for 0.1 percent of GDP. This is lower than the ratio in other countries, which is 2.1 percent in the United States, 1.8 percent in France, and slightly more than 1 percent in the United Kingdom, Germany, and Italy. For details, see Ministry of Health, Labour and Welfare, Ideal Human Resource Development that Varies According to Diversified Work Styles, Analysis of the Labour Economy, September 2018. money. The Bank is committed to fully support Japan's economy in crisis from the monetary policy side while working together with the government. Thank you very much for your kind attention. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Kanagawa (via webcast) February 3, 2021 WAKATABE Masazumi Deputy Governor of the Bank of Japan Introduction I. Developments in Economic Activity and Prices II. The Bank's Conduct of Monetary Policy III. Current Situation of and Outlook for Kanagawa Prefecture's Economy Conclusion Chart 1 I. Developments in Economic Activity and Prices Global Economy Global Economy (IMF, January 2021) Global PMI s.a., DI CY 2019＝100 106.1 100.0 101.8 96.5 Forecasts % Manufacturing Services CY 2021 CY 2022 -3.5 +5.5 +4.2 y/y % chg. CY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 CY 2020 CY07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Note: In the left-hand chart, figures for manufacturing are the "J.P.Morgan Global Manufacturing PMI" and those for services are the "J.P.Morgan Global Services Business Activity Index." Sources: IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.); IMF. Chart 2 I. Developments in Economic Activity and Prices Exports and Production Real Exports by Type of Goods Real Exports and Industrial Production s.a., CY 2015=100 s.a., CY 2015=100 Real exports Motor vehicles and related goods Industrial production IT-related goods Capital goods CY 05 Sources: Bank of Japan; Ministry of Finance; Ministry of Economy, Trade and Industry. Jan. Apr. Jul. July Oct. Jan. Apr. Jul. July Oct. Chart 3 I. Developments in Economic Activity and Prices Business Fixed Investment yen 13 s.a., ann., tril.Machinery orders (private sector, excluding volatile orders) Construction starts (private, nonresidential, estimated construction costs) Estimated Amount of Increase in Business Fixed Investment Business Fixed Investment Plans (Tankan) Machinery Orders and Construction Starts y/y % chg. 4.0 FY 2020 FY 2015-2019 average tril. yen 3.5 Small enterprises FY 2004-2019 average 3.0 Large enterprises 2.5 2.0 1.5 -2 CY 05 07 09 11 13 15 17 19 -4 1.0 0.5 0.0 Mar. June Sept. FY 20 Dec. Forecast Actual Notes: 1. In the left-hand chart, volatile orders are orders for ships and orders from electric power companies. Figures for machinery orders for 2020/Q4 are October-November averages. 2. In the middle chart, figures are for all industries and enterprises, including financial institutions. Figures include software and R&D investments and exclude land purchasing expenses (R&D investment is not included before the March 2017 survey). 3. For details relevant to the right-hand chart, see Box 3 in the January 2021 Outlook Report. Sources: Cabinet Office; Ministry of Land, Infrastructure, Transport and Tourism; Bank of Japan; Bloomberg; Ministry of Finance, etc. Chart 4 I. Developments in Economic Activity and Prices Private Consumption Consumption Activity Index s.a., CY 2011=100 Consumption Activity Index (Durable Goods, Nondurable Goods, Services) s.a., CY 2011=100 Durable goods Nondurable goods Services CY15 CY15 Note: In the left-hand chart, figures are based on staff calculations that exclude inbound tourism consumption and include outbound tourism consumption. Sources: Bank of Japan, etc. Chart 5 I. Developments in Economic Activity and Prices Employment and Income Number of Corporate Bankruptcies Employee Income y/y % chg. All Industry Activity and Number of Employed Persons 1,600 cases 3 y/y % chg. y/y % chg. 10 1,400 1,200 -2 1,000 -1 -5 -2 -4 Total cash earnings Number of employees -6 -3 -4 Employed persons (left scale) Employee income -8 CY 09 -10 -5 CY 09 -15 Indices of All Industry Activity (right scale) -6 CY 09 -20 Notes: 1. In the left-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Employee income = total cash earnings ("Monthly Labour Survey") × number of employees ("Labour Force Survey"). Figures from 2016/Q1 are based on continuing observations following the sample revisions of the "Monthly Labour Survey." 2. In the middle chart, figures show 6-month backward moving averages. 3. In the right-hand chart, figures for the "Indices of All Industry Activity" from August 2020 onward are calculated using the growth rate of the weighted average of the "Indices of Industrial Production" and the "Indices of Tertiary Industry Activity." Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Tokyo Shoko Research Ltd.; Ministry of Economy, Trade and Industry. Chart 6 I. Developments in Economic Activity and Prices The Bank's Forecasts for Economic Activity and Prices (January 2021 Outlook Report) Forecasts of the Majority of the Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 -5.7 to -5.4 [-5.6] -0.7 to -0.5 [-0.5] Forecasts made in Oct. 2020 -5.6 to -5.3 [-5.5] -0.7 to -0.5 [-0.6] Fiscal 2021 +3.3 to +4.0 [+3.9] +0.3 to +0.5 [+0.5] Forecasts made in Oct. 2020 +3.0 to +3.8 [+3.6] +0.2 to +0.6 [+0.4] Fiscal 2022 +1.5 to +2.0 [+1.8] +0.7 to +0.8 [+0.7] Forecasts made in Oct. 2020 +1.5 to +1.8 [+1.6] +0.4 to +0.7 [+0.7] Real GDP FY 2019＝100 100.0 99.8 98.1 94.4 Forecasts FY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Notes: 1. In the left-hand chart, figures show the forecasts of the majority of the Policy Board members and those in brackets indicate the medians. The forecasts are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which she or he attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. 2. The direct effects of the October 2019 consumption tax hike on the CPI for fiscal 2020 are estimated to be 0.5 percentage point. In addition, based on a specific assumption, the direct effects of policies concerning the provision of free education on the CPI for fiscal 2020 are estimated to be around minus 0.4 percentage point. The direct effects of the "Go To Travel" campaign on the CPI are estimated to be minus 0.2 percentage point for fiscal 2020 and 0.1 percentage point for both fiscal 2021 and 2022. Source: Bank of Japan. Chart 7 I. Developments in Economic Activity and Prices Consumer Prices Inflation Rate and Output Gap Consumer Price Index (CPI) y/y % chg. Effects of the "Go To Travel" campaign Effects of the consumption tax hikes and free education policies Energy Items other than energy y/y % chg. 8 % -2 -1 CPI (less fresh food) -2 -4 Output gap (left scale) -1 -3 -6 CPI (less fresh food and energy, right scale) -2 CY 1 4 -8 CY85 -4 Notes: 1. In the left-hand chart, energy consists of petroleum products, electricity, and gas, manufactured & piped. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. 2. In the right-hand chart, the CPI figures exclude the effects of the consumption tax hikes, policies concerning the provision of free education, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. The figures from 2020/Q2 onward are based on staff estimations and exclude the effects of measures such as free higher education introduced in April 2020. The output gap is based on staff estimations. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. II. The Bank's Conduct of Monetary Policy Chart 8 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills Enhancement of the U.S. Dollar Funds-Supplying Operations Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being) Chart 9 II. The Bank's Conduct of Monetary Policy Financial Conditions Lending Attitudes of Financial Institutions as Perceived by Firms DI ("accomodative" - "severe"), % points Amount Outstanding of Bank Lending, CP, and Corporate Bonds y/y % chg. Lending by domestic commercial banks CP and corporate bonds "accomodative" "severe" -10 Large firms -20 Small and medium-sized firms -30 -40 CY 05 -4 -8 CY05 Notes: 1. In the left-hand chart, figures are for all industries. 2. In the right-hand chart, figures for lending by domestic commercial banks are monthly averages. Figures for CP and corporate bonds are those at the end of the period. Lending by domestic commercial banks includes loans to firms, individuals, and local governments. Sources: Bank of Japan; Japan Securities Depository Center; Japan Securities Dealers Association; I-N Information Systems. Chart 10 II. The Bank's Conduct of Monetary Policy Mechanism of "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control" " QQE with Yield Curve Control" Yield curve control Inflation-overshooting commitment Forward-looking expectations formation Nominal interest rates － Inflation expectations ＝ Real interest rates Improvement in financial conditions Funding costs, financial and capital markets, etc. Adaptive expectations formation Exports, business fixed investment, private consumption, etc. Observed inflation rates ＝ Inflation expectations ＋ Improvement in output gap Chart 11 II. The Bank's Conduct of Monetary Policy Financial and Economic Developments after the Introduction of QQE 2.0 1.5 y/y % chg. <Ⅰ> Real Interest Rates Nominal Interest Rate Inflation Expectations <Ⅱ> <Ⅲ> Synthetic indicator of firms', households', and economists' inflation expectations 2.0 % 1.0 % Real interest rate (Consensus Forecasts) Real interest rate (QUICK) 10-year JGB yield 0.5 1.5 0.0 1.0 -0.5 1.0 0.5 -1.0 0.5 0.0 0.0 CY 07 09 11 13 15 17 19 -1.5 -2.0 CY 07 09 11 13 15 17 19 -0.5 CY 07 09 11 13 15 17 19 Notes: 1. Shaded area <I> indicates the period after the introduction of QQE (2013/Q2-), <II> indicates the period after the introduction of yield curve control (2016/Q3-), and <III> indicates the period after the outbreak of COVID-19 (2020/Q1-). 2. In the left-hand chart, inflation expectations of firms, households, and economists are represented by the Tankan, the "Opinion Survey," and the "Consensus Forecasts," respectively. 3. In the right-hand chart, figures for the real interest rate are calculated as the 10-year JGB yield minus the respective long-term inflation forecast. Sources: Bank of Japan; Bloomberg; Consensus Economics Inc., "Consensus Forecasts"; QUICK, "QUICK Monthly Market Survey (Bonds)." Chart 12 II. The Bank's Conduct of Monetary Policy Financial and Economic Developments after the Introduction of QQE y/y % chg. % Lending by domestic commercial banks (left scale) Bank lending rate (right scale) 2.0 yen/U.S. dollar thous. yen % % 15 -2 10 -4 CY07 09 11 13 15 17 19 Yen/U.S. dollar (left scale) Output Gap and Unemployment Rate Foreign Exchange Rate and Stock Prices Amount Outstanding of Bank Lending and Bank Lending Rate Nikkei 225 index (right scale) 1.5 1.0 -2 -4 CY07 09 11 13 15 17 19 0.5 Output gap (left scale) Unemployment rate (right scale) -6 CY07 09 11 13 15 17 19 Note: In the left-hand chart, figures for lending by domestic commercial banks are monthly averages. Lending by domestic commercial banks includes loans to firms, individuals, and local governments. Figures for the bank lending rate are the long-term average contract interest rate on new loans and discounts by domestically licensed banks. Sources: Bank of Japan; Bloomberg; Ministry of Internal Affairs and Communications. Chart 13 II. The Bank's Conduct of Monetary Policy Financial and Economic Developments after the Introduction of QQE Base Pay Increase and Scheduled Cash Earnings Consumer Prices Index (CPI) y/y % chg. y/y % chg. Base pay increase CPI (less fresh food and energy) Scheduled cash earnings (full-time employees) Hourly scheduled cash earnings (part-time employees) -1 -2 -1 FY 90 CPI (less fresh food) -3 CY 07 Notes: 1. In the left-hand chart, figures for scheduled cash earnings from 2016/Q1 onward are based on continuing observations following the sample revisions of the "Monthly Labour Survey." 2. In the right-hand chart, the CPI figures exclude the effects of the consumption tax hikes, policies concerning the provision of free education, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. The figures from April 2020 onward are based on staff estimations and exclude the effects of measures such as free higher education introduced in April 2020. Sources: Ministry of Health, Labour and Welfare; Japanese Trade Union Confederation (Rengo); Ministry of Internal Affairs and Communications. Chart 14 Conclusion Scarring Effects of External Shocks After the GFC After the Bubble Economy CY 1990 = 100 CY 2007 = 100 Real GDP CY 85 Real GDP Trend line for 5 years prior to the crisis Source: Cabinet Office. CY 02 Trend line for 5 years prior to the crisis
|
bank of japan
| 2,021 | 2 |
Speech (via webcast) by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Kochi, 10 February 2021.
|
February 10, 2021 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kochi (via webcast) NAKAMURA Toyoaki Member of the Policy Board (English translation based on the Japanese original) I. Recent Economic and Price Developments A. Economic Developments I will begin my speech by talking about overseas economies. The growth rates for the April-June quarter of 2020 were substantially negative in many countries due to measures such as lockdowns implemented in response to the spread of the novel coronavirus (COVID-19). However, those for the July-September quarter turned significantly positive amid a resumption of economic activity (Chart 1). The pace of economic improvement for the October-December quarter varied across regions and sectors; the growth rates of the United States and China were positive for two consecutive quarters while that of the European Union turned negative due to the tightening of public health measures following a resurgence of COVID-19. As for the outlook, overseas economies are likely to improve, partly supported by aggressive macroeconomic policies, although the pace is likely to be moderate for the time being. Downside risks are high because developments in each country are likely to remain dependent on the course of COVID-19. Japan's economy has picked up as a trend, although it has remained in a severe situation (Chart 2). Exports and production have continued to increase clearly, mainly for automobilerelated goods, and also for a wide range of goods, including capital goods and IT-related goods. However, stagnation has become more noticeable again in the nonmanufacturing industry, particularly for face-to-face services, mainly due to a third wave of COVID-19. Business fixed investment continued to decline until the July-September quarter of 2020. Nevertheless, machinery investment by the manufacturing industry has been picking up, reflecting the recovery in exports and production. According to the Bank of Japan's December Tankan (Short-Term Economic Survey of Enterprises in Japan), however, the proportion of firms responding that current business conditions are "unfavorable" continued to exceed the proportion of those responding that they are "favorable." The same result was observed for future business conditions. Sales forecasts for all industries and enterprises for fiscal 2020 declined by almost 10 percent on a year-on-year basis. It is a matter of concern that the yearon-year rate of growth in research and development (R&D) investment plans for all industries and enterprises for fiscal 2020 was negative. Given that the impact of COVID-19 has been expanding after the release of the Tankan, downside risks to business fixed investment have been significant, mainly in the face-to-face services industry. With regard to the substantial decline in the real GDP growth rate for the April-June quarter of 2020 and the pick-up for the subsequent quarter, it seems that Japan's recovery lacked momentum compared with that in the United States and Europe (Chart 3). A comparison shows that domestic demand components, such as business fixed investment and private consumption, have been relatively weak in Japan compared with those of the United States in particular (Chart 4). The relative weakness in private consumption in Japan could be attributable to the fact that there is a large population of seniors, who remain strongly vigilant against COVID-19. Such weakness in business fixed investment could be because Japanese firms have not been as active as U.S. firms in making digital investments. In my view, the lack of momentum in economic recovery in Japan is due to various challenges it has been facing for a long time. I will return to this later. B. Price Developments Let me move on to price developments. 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 negative since spring 2020, when the impact of COVID-19 intensified (Chart 5). Its recent decrease is partly affected by the past decline in crude oil prices and a discount on hotel charges through the "Go To Travel" campaign -- the government's program to promote domestic tourism. These factors are likely to eventually push up the CPI, mainly through a rise in the purchasing power of consumers. It is becoming increasingly important to clearly identify and examine demand trends of individual items composing the CPI baskets and information gained through interviews with firms and individuals, instead of focusing solely on the fact that the core CPI has been negative. For instance, the December 2020 Opinion Survey on the General Public's Views and Behavior shows that the proportion of respondents who answered that prices have gone up compared with one year ago and of those who answered that prices would go up one year from now were both about 60 percent. Less than 10 percent of respondents answered that prices would go down for the same question (Chart 6). Based on the survey results and other information, price cuts that decrease value-added of firms have not been observed widely yet. C. Outlook for Economic Activity and Prices Now I would like to explain the Policy Board members' baseline scenario regarding the outlook for economic activity and prices. Japan's economy is likely to follow an improving trend with the impact of COVID-19 waning gradually, but the pace is expected to be only moderate. Thereafter, as the impact subsides globally, the economy is projected to keep improving further with overseas economies returning to a steady growth path. Given these factors, in the Bank's January 2021 Outlook for Economic Activity and Prices (Outlook Report), the forecasts of the majority of Policy Board members for the real GDP growth rate are in the range of minus 5.7 to minus 5.4 percent, 3.3 to 4.0 percent, and 1.5 to 2.0 percent for fiscal 2020, 2021, and 2022, respectively (Chart 7). As for the outlook for prices, the year-on-year rate of change in the core CPI is likely to be negative for the time being, mainly affected by a widening of the negative output gap and the temporary price declines that I noted earlier. Thereafter, it is expected to turn positive and then increase gradually, since downward pressure on prices is projected to wane gradually along with economic improvement and as the effects of such factors as the decline in crude oil prices are likely to dissipate. In the January Outlook Report, the forecasts of the majority of Policy Board members for the year-on-year rate of change in the core CPI are in the range of minus 0.7 to minus 0.5 percent, 0.3 to 0.5 percent, and 0.7 to 0.8 percent for fiscal 2020, 2021, and 2022, respectively (Chart 7). The risk of an overall and sustained decline in prices is judged as not significant at present. However, the level of corporate profits is expected to be lower than that prior to the COVID19 outbreak, and the employment and income situation is likely to remain weak for the time being. This is because it is more likely to take time for the economy to recover, mainly for the nonmanufacturing industry, due to the recent resurgence of COVID-19. In addition, a decline in actual prices is prone to have stronger effects on people's perception of prices in Japan than in the United States and Europe, given that Japan suffered from prolonged deflation. Taking these factors into account, price developments continue to warrant attention. II. Conduct of Monetary Policy Let me now turn to the Bank's policy conduct. The Bank has conducted powerful monetary easing since March 2020 in response to COVID19 through the following three measures (Chart 8). The first is the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) (the Special Program) to provide support, mainly for corporate financing. The second is an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations. The third is active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower risk premia in asset markets. The Bank's responses have had positive effects, coupled with the government's measures and active efforts by financial institutions. Some nervousness has been seen in financial markets recently, while there remain various uncertainties. However, tension has eased compared with the spring and summer period of 2020. Firms' financial positions are no longer deteriorating, although they have been weak, and the environment for funding, such as bank borrowing as well as the issuance of CP and corporate bonds, has remained accommodative. Thus, the smooth functioning of financial intermediation has been ensured, and this is a big difference from the time of the Global Financial Crisis (GFC), when downward pressure from the financial side on the real economy intensified. However, downward pressure on economic activity and prices due to the impact of COVID19 is likely to persist. Given this situation, the Bank decided at the December 2020 Monetary Policy Meeting (MPM) to extend the duration of the Special Program until the end of September 2021 and to conduct an assessment for further effective and sustainable monetary easing with a view to achieving the price stability target of 2 percent. In summer 2016, three years after the introduction of Quantitative and Qualitative Monetary Easing (QQE) in 2013, the Bank conducted a comprehensive assessment to examine its effects. The findings indicate that, (1) under the large-scale monetary easing, financial conditions improved significantly, as seen in the correction of the past excessive appreciation of the yen and decline in stock prices, and that (2) this led to improvement in business performance and economic activity. On the other hand, findings with regard to prices reveal the following points. First, although the economy is no longer in deflation in the sense of a sustained decline in prices, the CPI has not reached the price stability target of 2 percent. Second, people's mindset and behavior based on the assumption that prices will not increase easily have been deeply entrenched under prolonged deflation, and it will still take a long time for such mindset and behavior to change. In addition, the findings also confirm that monetary easing could have a cumulative negative impact on financial institutions' profits as well as on the investment income of life insurance companies and pension funds, which in turn could adversely affect the functioning of financial intermediation. As a policy response based on these findings of the comprehensive assessment, the Bank introduced yield curve control in September 2016. Through this framework, it controls policy interest rates to appropriate levels while taking into consideration both the positive and side effects of monetary easing. Also, in July 2018, the Bank, with a view to persistently continuing with powerful monetary easing, shifted to more flexible market operations and asset purchases so that long-term interest rates may move upward and downward to some extent and the amounts of its ETF and J-REIT purchases may increase or decrease depending on market conditions. The upcoming assessment of monetary easing measures is driven by the same motivations as the comprehensive assessment. The current framework of QQE with Yield Curve Control has been working well for about four years since its introduction, including the COVID-19 era. The Bank, under this framework, will assess whether operational practices and the policy tools, including various asset purchases, have had their intended effects. Furthermore, because monetary easing inevitably will be prolonged due to the lingering impact of COVID19, the Bank is open to any options in pursuit of further effective and sustainable monetary easing. As the findings of the assessment are scheduled to be made public at the March MPM, I cannot draw any conclusions in advance. However, let me express my views on ETF purchases. In Japan, based on past experience, a destabilization of the stock market tends to bring about a deflationary mindset. Given this unique factor, I think ETF purchases have been effective in dispelling such mindset and will continue to be a necessary policy tool. That said, it is necessary to bear in mind that large-scale purchases and prolonged holding of assets -not limited to ETFs -- could affect market functioning. While I will continue to consider the details of a possible response with careful examination of the effects and side effects, it is important to be prepared to respond in a timely and effective manner to counter possible changes in economic activity and prices, as well as financial conditions. III. Challenges Facing Japan's Economy and the Need to Strengthen Growth Potential A. Challenges Facing Japan's Economy Next, I would like to talk about the challenges facing Japan's economy from a longer-term perspective. Up until the 1985 Plaza Accord, the yen remained weak against the U.S. dollar despite the first and second petroleum crises. In that situation, Japanese firms concentrated their fixed investment exclusively in Japan and enhanced rationalization and efficiency. Thus, Japan became a so-called processing trade country, leveraging strong price competitiveness to drive exports and acquiring foreign currency. The driven exports increased corporate profits and household income, which were eventually poured into financial institutions as deposits and then passed on to firms, mainly to be used for fixed and R&D investments. Consequently, a virtuous cycle operated in the Japanese industry. With this in place, firms and employees built a "win-win" relationship, in which firms gave employees a sense of assurance that their wages would rise constantly based on lifetime employment and seniority-based wages, and employees contributed to improving business performance with a sense of loyalty to their firms. At the same time, a unique culture took root in Japan -- namely, whereby "diligence" and an emphasis on "group over individual" were considered important. After the Plaza Accord, in the latter half of the 1980s, the yen appreciated against the U.S. dollar from around 230 yen per dollar to the level of 120 yen. Then, under circumstances in which Japan had to grapple with the non-performing loan problem after the bursting of the bubble economy, there was a rise in newly industrialized economies with strong price competitiveness that was realized through exploiting their cheap labor. Furthermore, Japan's population was rapidly aging and its birth rate was declining; the working age population began to decrease after reaching its peak in 1995. With these changes surrounding the Japanese industry taking place, the existing business structure was no longer able to sustain firms' price competitiveness. Japanese firms thus faced the need to bolster their innovation capabilities and reform the industrial structure. However, the traditional employment practices and working style were slow to be changed. Many firms chose squeezing fixed expenses as the main cost reduction measure in case their earnings deteriorated. Therefore, their labor and depreciation cost reduction was prioritized and the realignment of their business portfolio, which would enhance their value-added, was postponed. As a result, these firms continued to maintain low-profit or less-competitive businesses. Their investment was distortedly affected -- R&D investment, for instance -- and they delayed strengthening their promising businesses. Furthermore, along with waning profitability, I think that firms have been biased further toward avoiding risks for fear of occurrence of unexpected major economic shocks. It seems that the combination of these factors has led to a 30-year slump in productivity and to low growth, and Japan has been left behind in the tide of global growth. Looking at trends in Japanese enterprises' labor productivity by size, that of large enterprises, after marking a significant decline due to the GFC, finally surpassed in fiscal 2018 the fiscal 2007 level. On the other hand, labor productivity of medium-sized enterprises and small and medium enterprises (SMEs) only showed a small decline at the time of the GFC. However, the improvement observed thereafter for both types of enterprises has been only moderate, and thus not strong enough to drive the productivity growth of Japan's economy as a whole (Chart 9). B. Changes in Economic Conditions and the Need for Structural Reforms Japan faces major changes, such as digitalization and carbon reduction. As digitalization progresses further, people will be free from time and space constraints. In Society 5.0 -- the concept of a future society proposed by the Japanese government -- cyber and real space will be highly integrated. In such a society, overcoming challenges and creating new value will be more appreciated, not just increasing business scale and efficiency. With regard to carbon reduction, the automobile industry, which has underpinned Japan's growth and employment for many years, is confronted with the worldwide trend toward ending new sales of gasolinepowered vehicles. As electric vehicles come to be used widely, it seems possible that the market environment could change drastically into a highly commoditized or digital-oriented one. Under these circumstances, the Japanese government declared in its action plan1 that the next driving forces of growth would be digital and green areas, and that it would support reinforcement of Japan's R&D capabilities in the long term to this end. The government also made clear its aim to create an environment where startups and SMEs in Japan grow, and to support SMEs' efforts to raise productivity, grow larger, and take on the challenge of entering overseas markets. In fact, deregulation and market expansion through free trade agreements such as the Trans-Pacific Partnership Agreement will create a prime opportunity for Japan, which faces a population decline and other structural issues. Now that drastic changes are occurring in the environment, it is crucial for firms to enhance innovation capabilities, be one step ahead in pursuing change, and realize growth. To this end, it will be important to realize an expansion in business scale by strengthening business foundations, as set forth by the government.2 Firms have been taking the initiative in view of the pressing need for digital utilization, as well as reforms to employment practices, working styles, and business portfolios. In other words, transformation of the typical Japanese style of doing business has begun to progress. For instance, an increasing number of firms have been promoting greater mobility in employment and shifting to job-based employment and performance-based wage systems. In addition, some firms have been pursuing business realignment and integration beyond corporate boundaries, acquisitions and divestitures, and business alliances. I expect that restructuring of business portfolios will move forward, thereby enhancing productivity through creation of value-added and business growth. The action plan was decided at the Committee on the Growth Strategy on December 1, 2020. See footnote 1. C. Need for the Growth of SMEs Since GDP is the sum of value-added through firms' business activities, I think it necessary in terms of Japan's future growth to increase the productivity and value-added of firms. To this end, as a driver of economic growth, it is essential for an increasing number of startups and SMEs to grow larger; for example, startups being developed into so-called unicorns with a valuation of over 1 billion U.S. dollars. According to a report by a U.S. research company, there are 518 unicorns in the world; 249, about half of the total, are in the United States, followed by 122 in China. There are only four unicorns in Japan, compared with 13, 26, and 11 in Germany, India, and South Korea, respectively, although Japan's economic scale is bigger than that of those countries (Chart 10). This suggests that technologies and services that can be one step ahead to respond to changes in the economic environment, such as fintech and online services, are attracting investment funds for growth. It is not an easy task to achieve sustainable growth and increase corporate value. From my own experience in management, I can say that, in order to turn environmental change into opportunity, firms need to strengthen their business resources not by relying solely on their own resources but by making effective use of personnel with different backgrounds and knowledge. They also need to take the lead in pursuing change and to reform their business structure without delay, and thereby realize growth. To this end, it is important to carry out deregulation aimed at facilitating free business activities and to create a market in which firms can obtain ample investment funds that enable them to implement their growth strategies and thereby achieve sustainable growth. In what follows, I talk about the roles both direct and indirect financing are expected to play in terms of firms' fund raising. D. Expected Roles for Direct Financing First, let me talk about direct financing, in which firms issue stocks to raise funds directly. As of the end of September 2020, Japanese households held about 1,900 trillion yen in financial assets, of which about 1,000 trillion yen was in cash and deposits and about 500 trillion yen was in insurance and pension plans. This means that, while a great deal of money is poured into financial institutions, not much flows directly to firms actually doing business. Funds raised through initial public offerings (IPOs) and public offerings (POs) in Japan in 2019 remained small, amounting to about 10 billion U.S. dollars, which is only one tenth of the amount raised in the United States. In addition, looking at venture investment by investment funds, the amount of funds invested by venture capital (VC) funds in the United States in 2020 was 16 trillion yen (156.2 billion U.S. dollars), continuing to increase even during the COVID-19 pandemic.3 On the other hand, in Japan, the amount invested by VC funds in 2019 was about 200 billion yen, and there was a decline of about 30 percent for the January-September period of 2020 compared to a year earlier.4 In the United States, where ample funds flow to firms, startups with disruptive technologies and business models bolster their innovation capabilities by steadily raising funds, and some of them become unicorns. Such unicorns continue to raise funds directly from financial markets even after going public, eventually growing into major firms. On the other hand, in Japan, the total market capitalization of firms listed on the First Section of the Tokyo Stock Exchange (TSE) at the end of 2020 amounted to 667 trillion yen, exceeding 591 trillion yen at the end of 1989, which was within the bubble period.5 Over the same time frame, the number of listed firms increased by about 1,000. This suggests that listed firms as a whole have not achieved growth in terms of the average capitalization per firm. Market capitalization reflects investors' growth expectations. For those expectations to be grounded in fundamentals, listed firms have to realize investors' growth expectations and raise investment funds to this end. Based on the data from the U.S. National Venture Capital Association and PitchBook. Based on the data from Venture Enterprise Center. Firms listed on the First Section of the TSE as of the end of 2020 include the 37 firms that listed on July 16, 2013, with the integration of the cash equity markets of the TSE and the Osaka Securities Exchange. Recently, more cases have started to be seen where overseas investment and VC funds invest in startups in Japan. In this regard, Prime Minister Suga declared in his policy speech the creation of a framework for financial markets that attract green investment at home and from abroad.6 I hope that the direct financing market will increase in size and liquidity as a market in which a wide range of investors supply long-term funds to support firms' growth. I also expect investment for startups by VC funds to be active, mainly because the growth areas of Japan's economy -- namely, digital and green areas -- are clear now. E. Expected Roles for Indirect Financing Next, I would like to touch on indirect financing, in which firms raise funds from financial institutions. Japan's advantage lies in the fact that there is an infrastructure needed for economic growth; that is, necessary working capital and business fixed investment funds are supplied steadily through financial institutions to firms. However, the business environment facing regional financial institutions has grown more challenging due to the impact of COVID-19 in addition to structural factors such as the declining birthrate, aging population, and population outflow, as well as the continued low interest rate environment. Amid these circumstances, the Bank decided in 2020 to introduce the Special Deposit Facility to Enhance the Resilience of the Regional Financial System. The aim of this facility is to encourage regional financial institutions' initiatives to strengthen their business foundations so that they may firmly support regional economies into the future and smoothly fulfill their financial intermediation function. Let me express my view with regard to the regional financial system. While the geographic coverage of regional financial institutions' business is often divided on a prefectural basis, value chains are not. As the population shrinks further and it becomes difficult to achieve business growth only within a limited geographic area, an increasing number of firms are pursuing growth in productivity and business scale. Even if growth-oriented startups and SMEs can provide excellent technologies and services, they lack resources such as personnel, See "Policy Speech by the Prime Minister to the 204th Session of the Diet," delivered on January 18, 2021. materials, and money, as well as a strong customer base. Thus, to help them address this insufficiency, regional financial institutions are expected to provide high-value services and thereby support local SMEs' sustainable growth while leveraging the information the institutions have on these SMEs, such as their capabilities and growth potential. I think that this initiative is in line with expectations of these institutions' borrowers -- namely, local SMEs. Given that data and information are what create value today, regional financial institutions are expected to expand the data and information networks beyond geographic boundaries and offer the value demanded by their borrowers, such as by providing solutions to the borrowers' business challenges. For regional financial institutions to provide strong and sustained support for local SMEs' initiatives to achieve growth, business integration and mergers are one option for them. At the same time, various other alliances, including partnering with different types of businesses, can also be effective. To give an illustration from this region, let us look at Ryoma Sakamoto, a hero during the closing days of the Tokugawa shogunate who was born in Kochi Prefecture. Even in an era when movement in Japan was strictly regulated, he led the Kameyama Shachū, the equivalent of a modern trading company. With his sights set on the resources and strategies of the Satsuma and Chōshū clans, which were both geographically and temperamentally far removed from one another, Sakamoto helped bring the Satsuma-Chōshū Alliance to realization and developed human resources and networks that ultimately led to Japan's transformation at the Meiji Restoration. My hope is that Kochi Prefecture today will see further movement toward transformation. With an eye on the post-COVID-19 era, both direct and indirect financing play a major role in efforts to increase the productivity and business scale of SMEs, including startups. It is necessary for the risk money markets to harness their expertise, particularly in terms of business growth potential, and for banks and other financial institutions to harness theirs in terms of business sustainability. I expect to see increased interaction between business managers and the markets, a shift in the mindset of managers toward a focus on sustainable growth, proactive procurement of investment funds for growth, and reforms to business models and portfolios. I hope that these factors will increase productivity in the economy as a whole. At present, the management and staff of all firms, SMEs in particular, have been making strenuous efforts to address a significant environmental change caused by the COVID-19 pandemic. Given that the global economy has experienced a period of prolonged low growth following a major shock, governments and central banks around the world have made every effort to prevent as much as possible the COVID-19 shock from creating "scarring effects," which are long-lasting aftereffects on the economy. On the other hand, when facing a significant change, firms can achieve substantial growth by being one step ahead and turning such change into opportunity. Although Japan suffered from prolonged low growth and deflation, I expect that its long-standing challenges that are attracting closer attention due to the COVID-19 pandemic will finally be resolved at this time, and the Bank will encourage such efforts through monetary easing measures. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kochi (via webcast) February 10, 2021 NAKAMURA Toyoaki Bank of Japan Chart 1 IMF World Economic Outlook (as of January 2021) 120 (Real GDP index, 2019/Q4 = 100) Advanced economies China Emerging market and developing economies excluding China 2019/Q4 Source: IMF. 20/Q1 Q2 Q3 Q4 21/Q1 Q2 Q3 Q4 22/Q1 Q2 Q3 Q4 Chart 2 Japan's Real GDP s.a., q/q % chg. Q3 Q4 Q1 Q2 Q3 Real GDP 0.2 -1.9 -0.5 -8.3 5.3 [ann., q/q] [0.7] [-7.2] [-2.1] [-29.2] [22.9] Private consumption 0.5 -3.1 -0.6 -8.3 5.1 Private non-resi. investment 1.0 -4.6 1.4 -5.7 -2.4 Private residential investment 0.0 -1.8 -3.7 0.5 -5.8 Public demand 0.8 0.6 -0.2 0.6 2.3 Exports of goods & services -0.5 0.2 -5.3 -17.1 7.0 Source: Cabinet Office. Chart 3 Pace of the Recent Pick-Up in Economic Activity: Comparison between Japan, the United States, and Europe Real GDP Sources: Cabinet Office; Bureau of Economic Analysis (BEA); Eurostat. Chart 4 Pace of the Recent Pick-Up in Economic Activity: Comparison between Japan, the United States, and Europe Real Business Fixed Investment Real Private Consumption Note: In the left panel, figures for the euro area are those for gross fixed capital formation excluding housing investment. Sources: Cabinet Office; BEA; Eurostat. Chart 5 Japan's CPI (Less Fresh Food) Notes: 1. Energy consists of petroleum products, electricity, and gas, manufactured & piped. 2. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 6 Opinion Survey on the General Public's Views and Behavior (December 2020 Survey) 1. Perception of the Present Price Levels (Compared with One Year Ago) 2. Outlook for Price Levels One Year from Now Source: Bank of Japan. Chart 7 Outlook for Economic Activity and Prices as of January 2021 Forecasts of the Majority of Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 -5.7 to -5.4 [-5.6] -0.7 to -0.5 [-0.5] Forecasts made in October 2020 -5.6 to -5.3 [-5.5] -0.7 to -0.5 [-0.6] Fiscal 2021 +3.3 to +4.0 [+3.9] +0.3 to +0.5 [+0.5] Forecasts made in October 2020 +3.0 to +3.8 [+3.6] +0.2 to +0.6 [+0.4] Fiscal 2022 +1.5 to +2.0 [+1.8] +0.7 to +0.8 [+0.7] Forecasts made in October 2020 +1.5 to +1.8 [+1.6] +0.4 to +0.7 [+0.7] Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which he/she attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. Source: Bank of Japan. The Bank's Measures in Response to COVID-19 Chart 8 Chart 9 Labor Productivity (Value-Added per Employee) mil. yen Large enterprises Medium-sized enterprises SMEs FY 2003 Note: Enterprises with capital of 1 billion yen or more are large enterprises, those with capital of 100 million yen to less than 1 billion yen are medium-sized enterprises, and those with capital of less than 100 million yen are SMEs. Source: Ministry of Finance. Chart 10 Unicorn Companies (as of January 11, 2021) Unicorns by Country Percentage of Unicorns by Industry Nominal GDP (CY 2019; bil. USD) Number of unicorns United States 21,433 China 14,402 Japan 5,080 Germany 3,862 India 2,869 United Kingdom 2,831 France 2,716 Italy 2,001 Brazil 1,839 Canada 1,736 Russia 1,702 South Korea 1,647 Spain 1,394 Australia 1,387 Sources: IMF; CB Insights. Fintech 14% Other 24% Internet software & services 14% Cybersecurity 4% Auto & transportation 5% E-commerce & direct-toconsumer 13% Supply chain, logistics, & delivery 5% Mobile & telecommunications 6% Health 7% Artificial intelligence 8%
|
bank of japan
| 2,021 | 2 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at the Yomiuri Economic Forum in Tokyo, Akita (via webcast), 8 March 2021.
|
March 8, 2021 Bank of Japan Monetary Policy during and after the COVID-19 Era Speech at the Yomiuri Economic Forum in Tokyo (via webcast) AMAMIYA Masayoshi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my pleasure to have the opportunity to talk at the online seminar of the Yomiuri Economic Forum today. This week marks the 10th anniversary of the Great East Japan Earthquake. Recovery from this disaster has made steady progress, including the restoration of social infrastructure such as transportation networks and of the living environment. I would like to express my heartfelt respect for all those involved in the reconstruction efforts. However, it is also true that there are still many issues that need to be resolved, such as the harsh reality that more than 40,000 people continue to live as evacuees. The Bank of Japan has been supporting the restoration and reconstruction efforts from the financial side, mainly through the Funds-Supplying Operation to Support Financial Institutions in Disaster Areas, which was introduced in April 2011, a month after the disaster. In March last year, the Bank revised the operation so that the necessary support can be continued; it decided to abolish the deadline of the operation and extend the duration of loans from one year to two years. The Bank will continue to contribute to the recovery of the affected areas. It is almost a year since the onset of the novel coronavirus (COVID-19) pandemic. Positive steps have been taken, such as the start of the vaccination rollout in Japan last month. That said, COVID-19 has continued to have a significant impact on social and economic activities, and economic activity and prices are projected to remain under downward pressure for a prolonged period. In this situation, it is necessary for the Bank to support the economy and thereby achieve the price stability target of 2 percent. To this end, it is important to first respond to COVID-19 and, as monetary policy measures during the COVID-19 era, the Bank has been conducting powerful monetary easing since March 2020. From a somewhat long-term perspective, while also looking ahead to the post-COVID-19 era, the Bank's challenge is to conduct further effective and sustainable monetary easing with a view to achieving the price stability target of 2 percent. The Bank is currently conducting an assessment in this regard and plans to make public its findings at the Monetary Policy Meeting (MPM) to be held next week. Today, I would like to first talk about developments in economic activity and prices as well as the Bank's responses to COVID-19. I will then explain in some detail the motivation and thinking behind the assessment. I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 Developments in Economic Activity and Prices Let me start by looking at economic developments. Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 (Chart 1). The real GDP growth rate for the October-December quarter of 2020 was 3.0 percent on a quarter-on-quarter basis, being positive for two consecutive quarters. Exports increased clearly on the back of a recovery in external demand. In addition, with regard to private demand, business fixed investment turned positive for the first time in three quarters and private consumption, of services in particular, increased through around November, partly due to demand stimulus measures such as the "Go To" campaign. Real GDP declined significantly for the April-June quarter of 2020 to 10 percent lower than the pre-pandemic level (the 2019 average) but recovered to just 2.4 percent lower for the October-December quarter. However, downward pressure stemming from the impact of a resurgence of COVID-19 since last autumn has remained strong to date, particularly in face-to-face services consumption, such as eating and drinking as well as accommodations (Chart 2). Economic activity in the face-to-face services industry already had decreased as of the end of last year, and high-frequency data and anecdotal information suggest that it has declined further after the turn of this year. In contrast, unlike last spring, when economic activity in a wide range of industries was constrained, that in industries other than face-to-face services has been maintained to a large degree. Looking at the breakdown of private consumption, although services consumption declined further through January, it is still higher than the level seen around last summer, and goods consumption has been firm on the back of stay-at-home consumption. In addition, external demand has recovered and the world trade volume, which had declined significantly, has already returned to the pre-pandemic level. With such steadiness in goods demand at home and abroad, production has increased, and this has continued to have positive effects on business fixed investment, mainly for machinery investment. Although uncertainties regarding the outlook are high, with the impact of COVID-19 waning gradually, Japan's economy is likely to follow an improving trend, albeit moderately, supported by a recovery in external demand, accommodative financial conditions, and the government's economic measures. As shown in our -- the Policy Board members' -economic forecasts released in January, the real GDP growth rate is projected to register a significant negative figure of minus 5.6 percent for fiscal 2020 but is expected to turn clearly positive to 3.9 percent for fiscal 2021, rebounding from the contraction seen in fiscal 2020 and partly due to the effects of the government's additional economic measures. Let me move on to price developments (Chart 3). The year-on-year rate of change in the consumer price index (CPI) has been negative since the second half of 2020. However, this is mainly attributable to the facts that the past decline in crude oil prices has pushed down energy prices such as electricity charges with a time lag, and that subsidies on hotel charges through the "Go To Travel" campaign have been recorded as price cuts in the statistical calculation of the CPI. When excluding the effects of these temporary factors that push down prices, the rate of change in the CPI has been slightly positive. Firms' price cuts that aim at stimulating demand have not been observed widely, and price developments have continued to be firm compared with the degree of deterioration in economic activity. As for the outlook, the year-on-year rate of change in the CPI is likely to continue to be negative for the time being, but thereafter is expected to increase with the effects of temporary factors that push down prices dissipating and the economy improving. This is the baseline scenario for the outlook for economic activity and prices, in which risks remain skewed to the downside. Even with encouraging news on the vaccine front, the pace of the rollout and the effects entail uncertainties. For the time being, attention should continue to be paid to the consequences of COVID-19 and their impact. The Bank's Responses to COVID-19 Under these circumstances, the Bank has conducted powerful monetary easing since March 2020 in response to COVID-19 through the following three measures (Chart 4). Specifically, the first is the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) to provide support mainly for corporate financing. The second is an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations, to ensure stability in financial markets. The third is active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower risk premia in asset markets. These responses have had positive effects. Global financial markets became highly volatile last spring but have regained stability. Although firms' financial positions have been weak, the environment for external funding has remained accommodative owing to the Bank's and the government's responses as well as active efforts made by financial institutions (Chart 5). Two points are noted as characteristics of financial conditions in Japan during the COVID-19 shock. One is a characteristic observed when comparing the current situation with that at the time of the Global Financial Crisis (GFC). In 2009, which was after the GFC, banks' lending attitudes became significantly cautious and the amount outstanding of CP and corporate bonds decreased due to the strengthening of investors' risk aversion. These developments intensified downward pressure on the real economy from the financial side. In contrast, during the COVID-19 pandemic, financial institutions' lending attitudes as perceived by firms have remained accommodative, and the year-on-year rate of change in the amount outstanding of bank lending and that in the aggregate amount outstanding of CP and corporate bonds have continued to register high growth. The financial system has maintained its stability on the whole and worked well in supporting economic activity. This is a big difference from the GFC, when an adverse feedback loop between finance and the real economy occurred. The other characteristic is seen when comparing Japan's financial conditions with those of the United States and Europe. There is a clear contrast in financial institutions' credit standards, in that, since the outbreak of COVID-19, they have tightened in the United States and Europe while those in Japan have eased. This suggests that the funding environment for borrowing money from financial institutions has been accommodative in Japan compared with that in the United States and Europe. The Bank decided at the December 2020 MPM to extend the duration of the Special Program by six months until the end of this September, thereby continuing to provide support mainly for corporate financing. It also will consider a further extension as necessary. In addition, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. II. Motivation and Thinking behind the Assessment Now, I will talk about the assessment for further effective and sustainable monetary easing. The Bank has been conducting large-scale monetary easing since the introduction of quantitative and qualitative monetary easing (QQE) in April 2013 with a view to achieving the price stability target of 2 percent. In September 2016, the Bank conducted a comprehensive assessment of developments in economic activity and prices since the introduction of QQE as well as its policy effects. Based on the findings, a new policy framework of QQE with Yield Curve Control was introduced. Owing to large-scale monetary easing, developments in economic activity and prices have improved and the economy is no longer in deflation. However, the price stability target of 2 percent has not yet been achieved. It is expected to take time to accomplish this because economic activity and prices are projected to remain under downward pressure for some period of time due to the impact of COVID-19 since last spring. Under these circumstances, the Bank decided to conduct an assessment for further effective and sustainable monetary easing, with a view to achieving the price stability target of 2 percent. Let me explain three points that underlie the assessment. First, with a view to achieving the price stability target of 2 percent, it is appropriate for the Bank to maintain accommodative financial conditions while continuing to pursue QQE with Yield Curve Control. Second, in order to carry this out, the key is to enhance the sustainability of monetary easing by minimizing the policy costs during normal times. Third, at the same time, it is important to be prepared to make nimble and effective responses when needed to counter changes in developments in economic activity and prices, as well as in financial conditions. I will elaborate on each of these three points. A. Continuation of Monetary Easing Let me start by talking about the current framework of QQE with Yield Curve Control, which aims at maintaining accommodative financial conditions. This framework consists mainly of yield curve control and an inflation-overshooting commitment. Unlike the conventional measure that targets short-term interest rates, yield curve control is a framework for market operations that targets all interest rates at the short and long end, which in other words is the yield curve. Given the expectation that monetary easing will be prolonged, the Bank aims to control those rates to the appropriate levels while taking into consideration both the positive and side effects of monetary easing. The inflation-overshooting commitment is to continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2 percent and stays above the target in a stable manner. Through this commitment, the Bank aims to strengthen the formation of inflation expectations. It implements the idea of a "makeup strategy," in which central banks conduct monetary easing so that the inflation rate stays above the target for a sustained period of time to compensate for the observed inflation rate that continued to fall below the target. Last summer, the Federal Reserve adopted this makeup strategy, which has been consistent with the Bank's thinking on monetary policy. QQE with Yield Curve Control has had positive effects in line with the intended mechanism (Chart 6). Under yield curve control, nominal interest rates in Japan have been kept at extremely low levels, even amid a rise in interest rates abroad. While inflation expectations have been higher than those prior to the introduction of QQE, real interest rates, which are calculated by subtracting inflation expectations from nominal interest rates, have been in negative territory. The low real interest rates have improved financial conditions, mainly through low funding costs as well as favorable financial and capital markets (Chart 7). Issuance rates for CP and corporate bonds have been at extremely low levels, and lending rates have been at around historical low levels. In financial and capital markets, foreign exchange rates have been stable on the whole and stock prices have been on an uptrend. As a result, economic activity has improved (Chart 8). In 2017, the output gap turned clearly positive, which represents excess demand, and expanded thereafter. Corporate profits have increased and the employment situation has improved, as seen in the unemployment rate declining to the range of 2.0-2.5 percent for the first time in about 30 years and the active job openings-to-applicants ratio in all prefectures being above one. Under these circumstances, wages have increased moderately, as seen in the fact that base pay, which did not rise during the period of deflation, has increased for seven consecutive years, and underlying inflation has taken hold in positive territory. In addition, as a result of acute labor shortage, labor force participation of women and seniors has increased and firms have improved their labor productivity. With economic developments continuing to be favorable, positive moves toward addressing the medium- to long-term challenges facing Japan's economy have been observed. That said, the situation where the inflation rate does not rise easily has continued. The main reason for this is that the formation of inflation expectations is largely adaptive in Japan. In other words, such expectations are susceptible to the observed inflation rate. This implies that it will take time for them to rise when the observed inflation rate is low. The adaptive formation of expectations reflects not only actual prices at the time but also people's past experiences, as well as norms that were cultivated through those experiences. Studies have shown that the adaptive expectations formation therefore is relatively complex and sticky. This means that changing people's mindset and behavior based on the assumption that prices will not increase easily, which have become deeply entrenched under prolonged deflation, will take time. In addition, elastic labor supply and an enhancement of firms' labor productivity are positive for Japan's economy as a whole but have constrained inflation (Chart 9). As I have mentioned, labor force participation, mainly of women and seniors, has accelerated since the mid-2010s with labor shortage intensifying, and this is desirable for Japan, which faces the problem of a declining population. Many new workers have entered the labor market without a significant increase in wages, due partly to improvement in their working environment. Moreover, firms have enhanced labor productivity, mainly through labor-saving and efficiency-improving investments. While these efforts are favorable in terms of raising productivity of the overall economy, they have absorbed upward pressure on costs, and thus prices have not increased easily. Although it may take time, the situation where the inflation rate does not rise easily is likely to eventually head toward a resolution as economic activity improves. Since the labor supply has a limitation, upward pressure on wages will increase if labor shortage continues. In addition, the fact that the adaptive formation of inflation expectations is entrenched implies the following: when people actually experience inflation, it likely will be incorporated in the assumption on which their mindset is based, suggesting that inflation expectations also are highly likely to rise. In short, it is appropriate for the Bank to persistently maintain accommodative financial conditions under the current framework of monetary policy, with a view to achieving the price stability target of 2 percent. B. Enhancement of the Sustainability Next, let me talk about the second point that underlies the assessment, which is policy conduct aimed at enhancing the sustainability of monetary easing, by taking yield curve control as an example. Under yield curve control, even amid intensifying upward pressure on JGB yields, mainly stemming from a rise in interest rates abroad and an increase in issuance of JGBs, an appropriate shape of the yield curve that provides accommodative financial conditions has been formed in a stable manner through flexible purchases of JGBs. It has been possible for the Bank to control short- and long-term interest rates because it has conducted meticulous purchases of JGBs. The Bank has made use as necessary of a powerful tool called "fixed-rate purchase operations," through which it purchases an unlimited amount of JGBs at a certain yield level. Stabilizing short- and long-term interest rates at extremely low levels under yield curve control inevitably brings about side effects on the functioning of JGB markets (Chart 10). In fact, many indicators suggest that the functioning has decreased since the introduction of yield curve control. In conducting yield curve control in a sustainable manner, it is important to strike an appropriate balance between maintaining market functioning and controlling interest rates. The Bank believes that it can find more ways to achieve this balance because, although significant fluctuations in interest rates could lead to undesirable consequences, fluctuations within a certain range could have positive effects on the functioning of JGB markets without losing the effects of monetary easing. To this end, the Bank made clear at the July 2018 MPM that interest rates might move upward and downward to some extent, mainly depending on developments in economic activity and prices. There is no change in this stance even though there have been times when the range of actual fluctuations in interest rates has become narrow again. There also is no change in the recognition that an excessive decline in super-long-term interest rates could have an impact of lowering the rates of return on insurance and pension products, for example. That said, with the economy hit by the impact of COVID-19, what is important now is to maintain the stability in the bond market and stabilize the entire yield curve at a low level, and it is necessary for the Bank to bear this in mind in conducting yield curve control for the time being. C. Nimble and Effective Responses Lastly, I will talk about the third point, which is nimble and effective responses to counter changes in the situation. In order to persistently continue with monetary easing, it is important for the Bank not only to ensure the sustainability but also to be nimble in making effective responses when needed, such as in the wake of a large shock to the real economy and financial markets. Let me illustrate this by looking at two examples. The first is a cut in short- and long-term interest rates. Cutting short- and long-term interest rates is one of the essential options for additional easing measures. The Bank provides a clear guideline for the levels of short- and long-term interest rates, in which it expects them to "remain at their present or lower levels" as long as it is necessary to pay attention to the impact of COVID-19. In other words, the Bank will cut short- and long-term interest rates appropriately when necessary. However, a further decline in interest rates could affect the functioning of financial intermediation. In addition, it is true that because of this possible negative impact, one view in the market is that the Bank finds it difficult to further cut short- and long-term interest rates. With these factors in mind, it is appropriate to ensure that the Bank can cut them with consideration for the impact on the functioning of financial intermediation. Sharing this recognition with market participants and various economic entities will further enhance the effectiveness of a cut in short- and long-term interest rates as an option for additional easing. The second example is purchases of ETFs and J-REITs. Some lessons can be learned from the Bank's responses to COVID-19 last spring (Chart 11). As financial markets became significantly volatile at that time, the Bank decided to actively purchase ETFs and J-REITs with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding. Such decisive purchases have had significant positive effects in terms of easing market sentiment, which had deteriorated considerably. The aim of purchasing ETFs and J-REITs is to lower risk premia, such as in the stock market, in order to create positive effects on economic activity and prices by preventing volatile developments in financial markets from leading to deterioration in firms' and households' sentiment. A survey conducted by a private institute indicates that ETF purchases by the Bank are assessed as having positive effects on the markets when they are unstable, in that stock prices decline and volatility heightens. Based on lessons learned to date, including from the case in last spring, it has become evident that large-scale purchases at the time of volatile financial markets will have significant positive effects. The Bank will further analyze the difference in the effects of purchases according to market conditions and will examine whether it can create maximum positive effects by decisively conducting active purchases when necessary. Conducting purchases flexibly in a prioritized manner will lead to enhancing the sustainability of monetary easing. Conclusion I have outlined the motivation and thinking behind the assessment for further effective and sustainable monetary easing. The keywords are "sustainable" and "nimble." That is, it is important for the Bank to enhance the sustainability of monetary easing by minimizing the policy costs during normal times and to be prepared to make nimble and effective responses to counter changes in the situation. At the MPM next week, we would like to have a discussion from this perspective and make public the findings of the assessment. About eight years have passed since the introduction of QQE in 2013. Although this has been a protracted effort, it is clear that the economy has improved significantly during this period and is no longer in deflation. If the Bank continues to refine the framework and persist with monetary easing, the price stability target of 2 percent can be achieved. In addition, the thinking behind yield curve control introduced by the Bank and the "makeup strategy," which is implemented through an inflation-overshooting commitment, are under discussion at other central banks. As advanced economies have faced the common challenges of low growth, low inflation, and low interest rates, many central banks, including the Bank of Japan, have been pursuing ways to enhance the effectiveness and credibility of their monetary policies. The Bank will continue to hold constructive discussions to carry out its mandate of achieving price stability while taking advantage of experiences of other central banks. Thank you very much for your attention. Monetary Policy during and after the COVID-19 Era Speech at the Yomiuri Economic Forum in Tokyo (via webcast) March 8, 2021 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Introduction I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 II. Motivation and Thinking behind the Assessment Conclusion Chart 1 I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 Real GDP Pace of Economic Recovery Decomposition 6 s.a., q/q % chg., contribution 102 s.a., CY 2019 average = 100 -2.4% -5.3% -10.0% -2 -4 Net exports Private demand -6 Public demand -8 Real GDP 20/Q1 -10 18/Q1 Q3 19/Q1 Q3 20/Q1 Q3 Q2 Q3 Q4 Source: Cabinet Office. Chart 2 I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 Impact of a Resurgence of COVID-19 Consumption Activity Index (Real) Economic Activity by Sector s.a., CY 2019 = 100 s.a., CY 2019 = 100 Durable goods Nondurable goods Services Manufacturing Accommodations, eating and drinking services Services for amusement and hobbies Transport Nonmanufacturing Jan. Apr. Jul. July Oct. Jan. Apr. Jul. July Oct. Jan. Jan. Apr. July Jul. Oct. Jan. Apr. July Jul. Note: In the left-hand chart, figures for manufacturing are the "Indices of Industrial Production" and those for other sectors are the "Indices of Tertiary Industry Activity." Figure for nonmanufacturing exclude accommodations, eating and drinking services, services for amusement and hobbies, and transport. Sources: Ministry of Economy, Trade and Industry; Bank of Japan, etc. Oct. Jan. Chart 3 I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 Consumer Price Index (CPI) y/y % chg. Effects of the "Go To Travel" campaign Effects of the consumption tax hikes and free education policies Energy Items other than energy CPI (less fresh food) -1 -2 CY 1 4 1 5 1 6 1 7 1 8 1 9 2 0 Note: Energy consists of petroleum products, electricity, and gas, manufactured & piped. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 Chart 4 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills Enhancement of the U.S. Dollar Funds-Supplying Operations Lowering Risk Premia in Asset Markets Active Purchases of ETFs and J-REITs ETFs: annual pace of about 6 tril. yen → annual pace with the upper limit of about 12 tril. yen (for the time being) J-REITs: annual pace of about 90 bil. yen → annual pace with the upper limit of about 180 bil. yen (for the time being) Chart 5 I. Developments in Economic Activity and Prices and the Bank's Responses to COVID-19 Financial Conditions Lending Attitudes of Financial Institutions as Perceived by Firms DI ("accomodative" - "severe"), % points Financial Institutions' Credit Standards (Loan Survey) Amounts Outstanding of Bank Lending, CP, and Corporate Bonds y/y % chg. Lending by domestic commercial banks CP and corporate bonds 80 DI, % points Japan -10 -20 -20 ↓ "Tightened" -40 -4 Small and mediumsized firms -30 "Eased" ↑ Large firms Euro area United States -60 -8 CY07 09 11 13 15 17 19 21 -40 CY 07 09 11 13 15 17 19 -80 CY 07 09 11 13 15 17 19 Notes: 1. In the left-hand chart, figures are for all industries. 2. In the middle chart, figures for lending by domestic commercial banks are monthly averages. Figures for CP and corporate bonds are those at the end of the period. Lending by domestic commercial banks includes loans to firms, individuals, and local governments. 3. In the right-hand chart, figures for Japan and the United States are small firms. Figures for the Euro area are small and medium-sized enterprises. The DI for Japan is "eased" - "tightened" and that for the United States and the Euro area are "easing" - "tightening." Sources: Bank of Japan; Japan Securities Depository Center; Japan Securities Dealers Association; I-N Information Systems; FRB; ECB. Chart 6 II. Motivation and Thinking behind the Assessment Economic and Financial Developments after the Introduction of QQE with Yield Curve Control Nominal Interest Rates (10-year yields) 2.0 % <Ⅰ> <Ⅱ> <Ⅲ> % Real Interest Rates Inflation Expectations 6.0 2.0 y/y % chg. 1.0 % Japan (left scale) 1.5 United States (right scale) 4.5 1.5 Synthetic indicator of firms', households', and economists' inflation expectations 0.5 Real interest rate (Consensus Forecasts) Real interest rate (QUICK) 0.0 1.0 3.0 1.0 0.5 -0.5 1.5 -1.0 0.0 0.0 -0.5 CY 07 09 11 13 15 17 19 -1.5 0.5 -1.5 0.0 CY 07 09 11 13 15 17 19 -2.0 CY 07 09 11 13 15 17 19 Notes: 1. Shaded area <I> indicates the period after the introduction of QQE (2013/Q2-), <II> indicates the period after the introduction of yield curve control (2016/Q3-), and <III> indicates the period after the outbreak of COVID-19 (2020/Q1-). 2. In the middle chart, inflation expectations of firms, households, and economists are represented by the Tankan, the "Opinion Survey," and the "Consensus Forecasts," respectively. 3. In the right-hand chart, figures for the real interest rate are calculated as the 10-year JGB yield minus the respective long-term inflation forecast. Sources: Bloomberg; Bank of Japan; Consensus Economics Inc., "Consensus Forecasts"; QUICK, "QUICK Monthly Market Survey (Bonds)." Chart 7 II. Motivation and Thinking behind the Assessment Economic and Financial Developments after the Introduction of QQE with Yield Curve Control Foreign Exchange Rate and Stock Prices Funding Costs 2.0 % thous. yen yen/U.S. dollar Yen/U.S. dollar (left scale) 1.5 Nikkei 225 index (right scale) 1.0 0.5 0.0 Bank lending rate CP (3-month) -0.5 Corporate bonds (AA) -1.0 CY 07 CY 07 Note: In the left-hand chart, figures for the bank lending rate are the long-term average contract interest rate on new loans and discounts by domestically licensed banks. Figures for issuance yields for CP up to September 2009 are the averages for CP (3-month, rated a-1 or higher). Those from October 2009 onward are the averages for CP (3-month, rated a-1). Figures for issuance yields for corporate bonds are the averages for domestically issued bonds launched on a particular date. Bonds issued by banks and securities companies, etc. are excluded. Figures for issuance yields for corporate bonds show 6-month backward moving averages. Sources: Bank of Japan; Japan Securities Depository Center; Capital Eye; I-N Information Systems; Bloomberg. Chart 8 II. Motivation and Thinking behind the Assessment Economic and Financial Developments after the Introduction of QQE with Yield Curve Control Base Pay Increase and Scheduled Cash Earnings Output Gap and Unemployment Rate % 4 % y/y % chg. Base pay increase Scheduled cash earnings (full-time employees) Hourly scheduled cash earnings (part-time employees) -2 -4 Output gap (left scale) Unemployment rate (right scale) -6 CY 07 -1 FY 07 Note: In the right-hand chart, figures for scheduled cash earnings from 2016/Q1 onward are based on continuing observations following the sample revisions of the "Monthly Labour Survey." Sources: Bank of Japan; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Japanese Trade Union Confederation (Rengo). Chart 9 II. Motivation and Thinking behind the Assessment Elastic Labor Supply and Enhancement of Labor Productivity International Comparison of Labor Productivity Labor Participation by Women and Seniors Women Seniors 3.0 2.5 2.0 Level (left scale) 1.0 0.8 0.6 1.0 0.5 0.4 0.2 0.0 -0.5 62 -1.0 -0.4 CY10 CY 10 12 14 16 18 20 Note: In the right-hand chart, figures are real labor productivity per hour denominated by PPP exchange rates. Sources: Ministry of Internal Affairs and Communications; Conference Board. United States 0.0 0.0 -0.2 France 0.2 Labor force participation rate (right scale) 1.5 0.6 0.4 1.2 25 100 Germany 0.8 Labor force participation rate (right scale) 1.4 Growth rate (right scale) Italy 1.0 Labor force (left scale) ann., y/y % chg., CY 2010-2019 average CY 2010-19 average, 26 120 U.S.=100 United Kingdom 1.2 3.5 % Canada 1.4 Labor force (left scale) 4.0 change from CY 2010, mil. persons Japan 1.6 change from CY 2010, mil. persons % Chart 10 II. Motivation and Thinking behind the Assessment Functioning of JGB Markets Range of Fluctuations in JGB Yields 1.2 % 120 tril. yen 20-year 1.0 10-year 5-year 0.8 Transaction volume in JGB markets 6-months backward moving average "high" - "low", % points Improve -10 0.6 0.4 Market Functioning (Bond Market Survey ) Transaction Volume in JGB Markets CY 2016-2017 average -20 -30 -40 0.2 0.0 CY13 14 15 16 17 18 19 20 21 CY 13 14 15 16 17 18 19 20 21 Notes: 1. In the left-hand chart, figures are maximum minus minimum values in JGB yields within the past 6 months. 2. In the middle chart, figures are the gross amount of outright purchases by banks, investors, and bond dealers. Sources: Bloomberg; Japan Securities Dealers Association; Bank of Japan. -50 -60 CY15 Chart 11 II. Motivation and Thinking behind the Assessment Flexible Purchases of ETFs and J-REITs 2.0 tril. yen bil. yen 50 COVID-19 ETFs (left scale) 1.6 J-REITs (right scale) 1.2 0.8 0.4 0.0 Jan. Mar. May. May Jul. July Sep. Sept. Nov. Jan. Source: Bank of Japan. 11■
|
bank of japan
| 2,021 | 3 |
Speech (via webcast) by Mr Goushi Kataoka, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Gunma, 3 March 2021.
|
March 3, 2021 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Gunma (via webcast) KATAOKA Goushi Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Overseas Economies I would like to start my speech by looking at developments in overseas economies. In 2020, developments in the global economy took an unexpected turn after the novel coronavirus (COVID-19) began to spread worldwide. Chart 1 shows that the number of confirmed new cases has generally stayed at a high level, although having declined after a resurgence since last autumn, mainly in advanced economies such as the United States and the euro area. Under these circumstances, the global economy has picked up on the whole, although the impact of the resurgence of COVID-19 has been seen in part. The pace of the pick-up, however, has been moderate. While production activity and the trade volume of the manufacturing industry continue to recover, downward pressure has been exerted on the services industry, which is heavily affected by COVID-19. Chart 1 Daily Confirmed New Cases of COVID-19 1,000 cases 1,000 cases United States (left scale) Euro area (left scale) Other (left scale) China (right scale) Jan. Jan. 2020 Apr. Jul. Oct. Jan. Jan.2021 Notes: 1. Figures are 7-day backward moving averages. 2. Figures for the United States are based on data from the Centers for Disease Control and Prevention (CDC), while those for the euro area and "Other" are based on data from the World Health Organization (WHO). For China, there is a discontinuity in the data for February 17 to 19 of 2020 due to the difference in the basis compared with other periods, and figures for March 16 onward are based on data released by the Chinese government (those before March 16 are based on WHO data). Source: CEIC. As for the outlook, for the time being the pace of recovery is expected to be moderate on the whole. It is also likely to vary across countries and regions depending on the severity of the spread of COVID-19 and the impact of public health measures, as well as of macroeconomic policies taken by the respective governments and central banks. Chart 2 shows the January 2021 World Economic Outlook (WEO) Update released by the International Monetary Fund (IMF) as compared with the Update released a year ago, before the worldwide spread of COVID-19. Looking at developments by country and region, the Chinese economy has achieved an expansion of domestic demand through increases in employment and income while successfully capturing external demand. China's real GDP growth rate has already surpassed its pre-pandemic level, and is expected to grow roughly in line with the January 2020 WEO projection. This is likely to be attributed to China's early containment of COVID-19 and the government's effective economic measures. In contrast, advanced economies as well as emerging market and developing economies other than China have seen a delay in economic recovery, and the real GDP growth rates of these economies are expected to return to pre-pandemic levels only in the second half of 2021. Moreover, there are various risk factors with respect to the outlook for the global economy, such as developments regarding COVID-19, geopolitical factors, and climate change issues. Thus, accompanying downside risks continue to warrant particular attention. Chart 2 World Economic Outlook (IMF) 2019/Q4=100 China (Jan. 2021 WEO Update) AEs (Jan. 2021 WEO Update) EMDEs (Jan. 2021 WEO Update) China (Jan. 2020 WEO Update) AEs (Jan. 2020 WEO Update) EMDEs (Jan. 2020 WEO Update) 2019/Q4 20/Q1 2019/Q4 Q3 21/Q1 Q3 22/Q1 Q3 Note: WEO = World Economic Outlook; AEs = advanced economies; EMDEs = emerging market and developing economies excluding China. Source: IMF, "World Economic Outlook Update (January 2020, January 2021)." B. Japan's Economy Next, I would like to turn to Japan's overall economic trends, starting with real GDP growth rates. In Chart 3, the line graph shows developments in the real GDP growth rate and the bar graph shows the contribution of demand components, such as consumption and investment, to the growth rate. The first preliminary estimate for the October-December quarter of 2020 marked a real GDP growth rate of 3.0 percent on a quarter-on-quarter basis and 12.7 percent on an annualized basis. The economy registered positive growth for the second consecutive quarter, with private consumption, exports, business fixed investment, and public demand all contributing to the positive growth. Nevertheless, the annual real GDP growth rate for 2020 was minus 4.8 percent, demonstrating that economic recovery from the plunge for the AprilJune quarter was still weak. Chart 3 Real GDP Growth Rate and Breakdown by Demand Component s.a., ann., q/q % chg. -5 -10 -15 Private consumption Government spending Imports Real GDP -20 -25 -30 -35 CY 2013 Private business fixed investment, etc. Exports Change in inventories, etc. Source: Cabinet Office, "Quarterly Estimates of GDP for October-December 2020 (First Preliminary Estimates)." Chart 4 shows the outlook for Japan's economy. As presented in the January 2021 Outlook for Economic Activity and Prices (Outlook Report), the medians of the Bank of Japan Policy Board members' forecasts for real GDP growth rates are minus 5.6 percent for fiscal 2020, 3.9 percent for fiscal 2021, and 1.8 percent for fiscal 2022. Japan's economy is likely to follow an improving trend from the second half of 2020, with the impact of COVID-19 waning gradually, but the pace is expected to be only moderate while vigilance against COVID-19 continues. Thereafter, as the impact subsides globally, the economy is projected to keep improving further, with overseas economies returning to a steady growth path. Chart 4 Outlook for Economic Activity and Prices medians of Policy Board members' forecasts, y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 -5.6 -0.5 Fiscal 2021 +3.9 +0.5 Fiscal 2022 +1.8 +0.7 Source: Bank of Japan, "Outlook for Economic Activity and Prices (January 2021)." Having said that, risks to the outlook seem to be skewed to the downside, mainly due to the impact of COVID-19. In particular, the future course of COVID-19 at home and abroad as well as accompanying downside risks to economic activity and prices continue to warrant close attention. I would now like to examine developments in major GDP components such as private consumption, business fixed investment, and exports. Let me start with private consumption. As Chart 5 shows, from March through May 2020, the period when COVID-19 started to spread nationwide, there was a marked decline in real consumption -- mainly services consumption, such as tourism, accommodation, eating and drinking, and recreation. Thereafter, while goods consumption has recovered to the level seen at the start of 2020, services consumption has been slow to pick up, due in part to the impact of the resurgence of COVID-19. Given uncertainty as to when the pandemic will subside, consumption will likely remain weak for some time. Chart 5 Real Consumption CY 2019=100 104.6 98.2 93.3 87.3 CY2013 Durable goods Non-durable goods Services Overall (Consumption Activity Index, real) Source: Bank of Japan, "Consumption Activity Index." Let us take a closer look at developments in the employment situation, which underpin private consumption. As presented in the left panel of Chart 6, the unemployment rate, after having climbed to 3.1 percent, improved slightly to 2.9 percent; however, the rate remains at a high level compared with that prior to the COVID-19 outbreak. To examine in more detail changes in the number of employed persons, Chart 7 compares the number of employed persons by gender and age group between the average for the 2013-2019 period and the total for 2020, with the latter reflecting the impact of COVID-19. The chart reveals that, for each age group, in 2020 the number of employed persons started to trend downward. This is primarily attributed to the decrease in the number of non-regular employees, with the younger generations and women exhibiting significant changes. Yet, for women aged 25-64, there was an increase in the number of regular employees, despite the extent of the decrease in the number of non-regular employees. As can be seen in the right panel of Chart 6, the year-onyear rate of change in nominal wages has been negative since April 2020. In particular, it saw a larger decline again at the end of 2020, primarily reflecting a decrease in special cash earnings; how this will affect future consumption is a matter of concern. Chart 6 Labor Market Conditions Unemployment Rate Nominal Wages and Labor Force Participation Rate % % y/y % chg. 61 -1 60 -2 Unemployment rate (left scale) 58 -4 Source: Ministry of Internal Affairs and Communications, "Labour Force Survey (Basic Tabulation)." Chart 7 Special cash earnings Total cash earnings Labor force participation rate (right scale) CY85 1985 90 Contractual cash earnings 59 -3 CY 16 2016 Changes in Number of Employed Persons Female 10,000 persons 10,000 persons -20 -10 -40 -20 -30 Note: Figures are based on continuing observations following the sample revisions of the Monthly Labour Survey. Source: Ministry of Health, Labour and Welfare, "Monthly Labour Survey." Male Past CY Past CY Past CY average 2020 average 2020 average 2020 15-24 years old 25-64 years old Regular employees -60 65 years old and above Past CY Past CY Past CY average 2020 average 2020 average 2020 15-24 years old 25-64 years old Non-regular employees Other workers 65 years old and above Total Note: Figures show the change in the annual average number of employed persons over the year. Figures for "Past average" are averages for the period from 2013 through 2019. Figures for "Other workers" include self-employed workers and executives of corporations. Source: Ministry of Internal Affairs and Communications, "Labour Force Survey (Detailed Tabulation)." I will now shift to business fixed investment. As shown in Chart 8, although the business fixed investment ratio, which represents the share of the amount outstanding of business fixed investment to nominal GDP, has recently been picking up somewhat, the level remains below that observed until 2019. Firms' perception of their production capacity, as indicated by the production capacity diffusion index (DI) in the Bank's Tankan (Short-Term Economic Survey of Enterprises in Japan), has shifted toward being significantly "excessive," in line with the spread of COVID-19. Looking at the business fixed investment plan in the December 2020 Tankan, as shown in Chart 9, the investment plans of manufacturing firms turned negative on a year-on-year basis for fiscal 2020. The plans of nonmanufacturing firms also fell further into negative territory. These developments suggest that business fixed investment will remain weak for the time being. Chart 8 DI ("excessive capacity" minus "insufficient capacity"), % points, reversed % -10 -5 Excessive capacity CY2005 Insufficient capacity Business Fixed Investment Ratio Business fixed investment ratio (left scale) Production capacity DI (right scale) Note: Figures for "Business fixed investment ratio" represent the ratio of nominal private nonresidential investment to nominal GDP. Figures for "Production capacity DI" are those for large enterprises of all industries. Sources: Cabinet Office, "Quarterly Estimates of GDP for October-December 2020 (First Preliminary Estimates)"; Bank of Japan, "Tankan." Chart 9 Developments in Business Fixed Investment Plans Manufacturing y/y % chg. -5 Mar. survey June survey FY 2017 Sep. survey Dec. survey FY 2018 Forecast Nonmanufacturing y/y % chg. -5 Actual Mar. survey June survey FY 2019 FY 2020 Sep. survey Dec. survey Forecast Actual Average (FY 2017 - 2019) Note: Figures are for all enterprises, including software and R&D investments and excluding land purchasing expenses. Source: Bank of Japan, "Tankan." Lastly, let me turn to exports. As can be seen in Chart 10, real exports saw a significant drop in the April-June quarter of 2020 when the impact of COVID-19 intensified. This drop is evident in exports to Europe and the United States, and in exports of automobile-related goods, IT-related goods, and capital goods. Thereafter, exports saw an upturn, and as of the end of 2020, generally recovered to the level posted before the impact of COVID-19 grew most intense. IT-related exports have since continued the firm recovery trend into 2021 to date. Regarding the outlook, exports are likely to remain on an increasing trend, particularly for IT-related goods and capital goods, on the premise that recovery in the Chinese and U.S. economies will continue. Chart 10 Real Exports Breakdown by Region Breakdown by Type of Goods s.a., CY 2019=100 United States EU China Real exports s.a., CY 2019=100 CY152015 CY152015 Automobile-related goods IT-related goods Capital goods Source: Bank of Japan, "Developments in Real Exports and Real Imports." C. Recent Developments and Outlook for Prices Next, I will move on to price developments. The observed year-on-year rate of change in the consumer price index (CPI) for January 2021 was minus 0.6 percent for all items less fresh food and 0.1 percent for all items less fresh food and energy, as seen in the left panel of Chart 11. The right panel shows developments in the indicators for capturing the underlying trend in the CPI. It shows that the underlying inflation trend has been declining moderately, with the trimmed mean decreasing further into negative territory and other measures of underlying inflation showing smaller growth. Chart 11 Consumer Prices Consumer Price Index 2.0 Measures of Underlying Inflation y/y % chg. 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.5 y/y % chg. % points -1.0 CPI (less fresh food) CPI (less fresh food and energy) CPI estimates (less fresh food, energy, and policy effects) -2.0 11 12 CY 2011 -1.5 -2.0 21 CY 2011 11 12 -25 Trimmed mean (left scale) Weighted median (left scale) Diffusion index (right scale) -50 Notes: 1. In the left panel, figures are adjusted for consumption tax hikes and the introduction of free preschool education. In addition to the above, figures for "CPI estimates (less fresh food, energy, and policy effects)" also exclude the effects of policies concerning the provision of free higher education and the "Go To Travel" campaign. 2. In the right panel, "Diffusion index" is defined as the share of increasing items minus that of decreasing items. Sources: Ministry of Internal Affairs and Communications, "Consumer Price Index"; Bank of Japan, "Measures of Underlying Inflation." Turning to the outlook for prices, according to the medians of the Policy Board members' forecasts presented in the January 2021 Outlook Report, the year-on-year rate of change in the CPI (all items less fresh food) is expected to increase gradually from minus 0.5 percent for fiscal 2020 to 0.5 percent for fiscal 2021, and to 0.7 percent for fiscal 2022, as shown in Chart 4. If we look at the output gap and medium- to long-term inflation expectations -- both of which affect the underlying trend in prices -- the output gap, shown in the left panel of Chart 12, continues to indicate a significant excess supply, although the gap itself had narrowed after having recorded an excess supply of over 4 percent in the April-June quarter of 2020. Inflation expectations have declined since the end of 2019, as confirmed in the right panel of the chart. Bearing in mind that the pace of economic recovery is likely to be modest, with uncertainty over when the spread of COVID-19 will subside, it is difficult to project at this stage that the inflation rate will gather momentum toward approaching the 2 percent price stability target, with the output gap shifting to excess demand and inflation expectations rising.1 Chart 12 Output Gap and Inflation Expectations Output Gap Synthetic Indicators of Inflation Expectations %, % points Labor input gap Capital input gap Output gap 2.0 y/y % chg. Firms, households, and experts (QUICK Survey) Firms, households, and experts (Consensus Forecasts) Firms, households, and experts (inflation swap rate) 1.5 1.0 -2 0.5 -4 -6 CY85 1985 88 0.0 CY 2010 Note: In the right panel, inflation expectations of firms are taken from the Tankan (output prices DI), and those of households are taken from the Opinion Survey on the General Public's Views and Behavior (average of responses for annual inflation expectations between minus 5 percent and plus 5 percent). For experts' inflation expectations, the QUICK Survey, the Consensus Forecasts, and the inflation swap rate are used. Sources: Consensus Economics Inc., "Consensus Forecasts"; QUICK Corp., "QUICK Monthly Market Survey <Bonds>"; Bloomberg; Bank of Japan. II. Conduct of Monetary Policy Let me first outline the Bank's current monetary policy, based on the outlook for economic activity and prices that I have described. I would then like to express my opinion about the Bank's monetary policy conduct. As for the outlook, some factors could put upward pressure on prices. Real disposable income and savings rates have increased significantly on the back of the impact of COVID-19 and the government's economic measures. When the pandemic subsides, savings rates are likely to return to pre-pandemic levels. Accordingly, the inflation rate may rise if consumption and investment, both of which have been constrained so far, see an upsurge. A. Outline of the Current Monetary Policy The Bank conducts monetary policy under the framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the 2 percent price stability target. This current framework consists of three measures: yield curve control, the purchase of risk assets, and the Bank's public commitment regarding the future conduct of monetary policy. In addition to these measures, the Bank has taken the following three actions to address the pandemic since March 2020, as shown in Chart 13: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) to provide support mainly for corporate financing; (2) an ample and flexible provision of funds to ensure stability in financial markets; and (3) active purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower the risk premia in asset markets. I hold the view that these actions taken in response to COVID-19 have thus far contained the disturbance in the financial and capital markets and produced some positive effects on financing, mainly of firms. Chart 13 Actions Taken by the Bank to Address COVID-19 (1) Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 • Purchases of CP and corporate bonds: maximum amount outstanding of about 20 tril. yen (previous amount outstanding of about 5 tril. yen) • Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 (2) Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds • Further active purchases of JGBs and T-Bills • Enhancement of the U.S. Dollar Funds-Supplying Operations (3) Actively Purchasing ETFs and J-REITs ETFs: annual pace of about 6 tril. yen annual pace with the upper limit of about 12 tril. yen for the time being J-REITs: annual pace of about 90 bil. yen annual pace with the upper limit of about 180 bil. yen for the time being However, with the moderate pace of economic improvement and significant downside risks, financing, mainly of firms, is likely to remain under stress for the time being. To address this situation, the Bank decided at the December 2020 Monetary Policy Meeting (MPM) to extend the duration of the Special Program by six months until the end of September 2021, thereby continuing to support financing, mainly of firms. The Bank will continue to closely monitor the impact of COVID-19 and not hesitate to take additional easing measures -- including further extension of the Special Program -- if necessary. Moreover, as a forward-looking approach, the Bank has decided to conduct an assessment for further effective and sustainable monetary easing, with a view to supporting the economy and thereby achieving the price stability target of 2 percent. Based on the premise that the Bank will maintain the current framework of QQE with Yield Curve Control, it will assess various measures and make public its findings, likely at the March 2021 MPM. B. My View on the Conduct of Monetary Policy I voted for the Bank to take the aforementioned actions in response to COVID-19, but I have continued to dissent from the majority decision on the following two measures: yield curve control and the Bank's commitment regarding the future conduct of monetary policy. This was based on my view that it is necessary not only to support financing and provide liquidity but also to implement measures to contain any downward pressure that may be exerted on prices and thereby support Japan's economy to return to a powerful growth path. I would first like to present my view on the transmission channels through which changes in the number of confirmed cases of COVID-19 and subsequent public health measures affect economic activity and prices. A surge in the number of COVID-19 cases, for example, will lead to the tightening of public health measures. This will in turn not only curb private consumption directly but could also dampen private consumption and firms' fixed investment indirectly, through deterioration in consumer sentiment and increased uncertainty over economic and financial conditions. These developments will exert downward pressure on prices through deterioration in the output gap toward excess supply. Judging from a model that assumes the aforementioned transmission channels and estimating future price developments based on Japan's situation regarding COVID-19 to date, the risk of prices becoming stagnant has increased further. If the timing of a turnaround in the output gap toward excess demand is delayed due to the resurgence of COVID-19, prices are expected to remain under downward pressure for a longer period, compared with a scenario in which there is no resurgence. Moreover, given that the formation of inflation expectations is highly adaptive in Japan, the longer the rate of inflation remains stagnant, the less likely inflation expectations are to rise. As I have explained, if there are repeated resurgences of COVID-19, prices are expected to remain stagnant for a protracted period, with both the output gap and inflation expectations being pushed down. Based on this recognition, I consider that the Bank needs to strengthen monetary easing in terms of yield curve control and its commitment regarding the future conduct of monetary policy. As for yield curve control, with a view to encouraging firms to make investment for growth, such as through active business fixed investment for the post-COVID-19 era, it is appropriate for the Bank to lower short- and long-term interest rates by actively purchasing Japanese government bonds (JGBs). I believe that supporting investment for growth through monetary easing does not necessarily involve a trade-off with the spread of COVID-19. In terms of the Bank's commitment regarding the future conduct of monetary policy, in order to avoid Japan's economy returning to deflation, further coordination of fiscal and monetary policy is necessary, and it is appropriate for the Bank to revise the forward guidance for the policy rates to make such guidance more powerful by relating it to the price stability target, so as to enable the Bank to take actions based on concrete conditions. As for the assessment for further effective and sustainable monetary easing, I consider it necessary first and foremost to thoroughly analyze and examine the effects on economic activity and prices in terms of each measure -- namely, yield curve control, the purchase of risk assets, forward guidance for policy rates, and the inflation-overshooting commitment. In addition, the Bank needs to take into account the current situation, in which it is difficult to envision the path for achieving the price stability target, with economic activity and prices remaining under downward pressure for a prolonged period due to the impact of the spread of COVID-19. On this basis, I believe that it is necessary for the Bank to carefully assess the current measures, and then, together with the findings of such assessment, consider and explain its future strategies. As a member of the Policy Board of the Bank, I will continue to do my utmost to achieve and maintain the price stability target. Thank you.
|
bank of japan
| 2,021 | 3 |
Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the FIN/SUM 2021, 16 March 2021.
|
Haruhiko Kuroda: Integrating information and financial systemsbeyond as-a-service Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the FIN/SUM 2021, 16 March 2021. * * * Introduction I am delighted to be given this opportunity to speak to you at the FIN/SUM 2021 through a video message. Rise of As-a-Service The main theme of this year’s FIN/SUM is “Fintech as a Service, in search for a platform for digitalized society.” The term “as-a-Service,” appearing more frequently nowadays, seems to indicate servitization of product functions or, to put it simply, a business model for providing “services” on customer demand, instead of “sales” to sell products out to customers. For example, a software service used to consist of a combination of purchase and usage. In the internet society, however, we only have to call for necessary services when they are needed. When we make a restaurant reservation on a smartphone, we only receive a reservation service. As for business activities, various business applications are available — for services such as accounting, ordering and invoicing, customer management and sales support, and human resources and labor management — as Software as a Service (SaaS) to be called on demand. These developments are not limited to software. Various types of as-a-Service are appearing one after another, partly with the shift toward a service economy. These include Mobility as a Service (MaaS) — where a user purchases a mobility service instead of owning a car — and Infrastructure as a Service (IaaS) — where a user purchases a service to use IT infrastructure, including servers, instead of owning the hardware. These are sometimes collectively referred to as “Everything as a Service” (XaaS). As-a-Service in Finance The trend of as-a-Service is also emerging in Finance. The financial businesses of banking, securities, and insurance are industries that require large fixed costs and strict compliance with regulations. For this reason, instead of recreating financial businesses from scratch, it has become mainstream for fintech providers to utilize deposit and loan services of traditional financial institutions through an open Application Programming Interface (open API) to create new customer services and convenient and comfortable user experiences. The bearers of these services are wide-ranging. They are not limited to startups but include large firms with core businesses in telecommunications, media, transport, and electronic commerce and internet business firms who are managing touchpoints with a large-scale customer base. Conversely, there are also financial institutions that actively adopt services of fintech providers. As for Fintech as a Service — the theme of this year’s FIN/SUM — there are cases where financial institutions utilize the advanced electronic know-your-customer (e-KYC) and fraud detection services of fintech providers in their applications. There is also a recent trend toward unbundling financial services that financial institutions used to provide as tightly coupled, thereby enabling componentized financial services to be combined with services of non-financial firms. This is referred to as “Banking as a Service” (BaaS), also known as embedded finance. It allows, for example, consumer firms issuing discount coupons 1/3 BIS central bankers' speeches or providing loyalty points on their applications to enhance the usability of the coupons or points by plugging in cashless payment services provided as BaaS to their applications. There are also non-financial firms that seek to improve customer convenience and customer marketing by providing banking services under their own brands together with their businesses through BaaS. Integrating Information and Financial Systems In this way, a broad range of enterprises and entrepreneurs is creating new businesses through neue Kombination (new combinations). The term neue Kombination was originally introduced by Schumpeter in his book The Theory of Economic Development, and it was later interpreted as describing innovation. According to Schumpeter, innovation is not necessarily about invention but is more about creating or changing combinations. Needless to say, it is digitalization in various fields that is currently accelerating the creation of neue Kombination. Neue Kombination 2.0, brought about by digitalization, is reinforced by linking what were traditionally two separate systems: (1) the information systems assisting people’s livelihoods and business activities and (2) the systems supporting financial services. For example, most economic activities involve payments as financial activities. While commercial data such as billing and payments have been leveraged to improve the business efficiency of a supply chain, they have not been shared with financial services. This means that neue Kombination, or innovation, could occur if the matching of commercial and payment data is enabled by linking commercial systems and payment services. For example, large volumes of invoice receipts could be automatically matched with payment records, thereby improving business efficiency, and potentially enabling real-time visualization of business management. These developments could further enable a grasp of business conditions, cash flow management, the production of credit information, automated lending, and management consultation. The benefits of linking these two systems are not limited to improving the efficiency of economic activities. For example, data on deposit account activities contain various kinds of information on the account holder’s livelihoods. Elaborating on the information on the customer’s lifestyle obtained from these business data could help identify where there is a hidden potential demand for financial and non-financial services. In this regard, online businesses and consumer businesses have taken the lead in adopting personalized marketing, or a strategy to increase customer satisfaction. It is likely that financial institutions will accelerate their efforts to utilize the information that they have as a business asset and find neue Kombination with other business categories. Thus, linking the information systems assisting people’s livelihoods and business activities and the systems supporting financial services, which were traditionally separated, could improve the convenience of both financial and non-financial services, thereby leading to the creation of new services. On this basis, it is important to understand as-a-Service — which I introduced as a business model earlier — not merely as a methodology, but as a concept that provides the perspective of creating new services and expanding demand through continuous improvements to achieve economic growth and an affluent society. For example, some may think that banks are only playing a behind-the-scenes role to assist actors, or their partner firms, to provide financial services in BaaS. There is also a potential, however, for banks to play a role as a director who manages the production of a digitalized neue Kombination 2.0, by being actively involved in the creation of new services and maximizing the potential of the platforms. Digital Transformation Integrating information and financial systems first requires advances in the digitalization of each system. A system needs to be put in place that supports end-to-end automatic processing, from information input on a smartphone or a business system screen, to service completion as well 2/3 BIS central bankers' speeches as database preparation for the analysis and high value-added conversion of information for the subsequent information business. To this end, changes need to be made in the current way of work that remains bound to paperbased processes or manual transcription of information. Moreover, the way work is transformed should aim at not only improving business efficiency but also creating new business models by linking information. Neue Kombination 2.0 is only possible if this digital transformation takes place. In BaaS, the componentization and loose coupling of a bank’s internal systems have enabled its systems to be linked in a costless, fast, and flexible manner. In other words, the loose coupling within a bank at the micro level has enabled service creation in coordination with other industries, which leads to a redesign of the industrial structure at the macro level. Moreover, improvements in development costs and speed through technological innovation and development method innovation have enabled high-speed cycles of Continuous Integration and Continuous Delivery (CI/CD). The advantage of these IT systems that tolerate trial and error has also become the trigger for transforming the corporate culture of the financial industry. Originally, the financial industry was an information industry as well as an equipment industry. Financial institutions and the financial service industry therefore have the potential to leverage the benefits of digitalization to their fullest. I believe that we are currently facing digital transformation challenges in the move toward neue Kombination 2.0. Central Bank Digital Currency Finally, I would like to touch upon central bank digital currency (CBDC). Since the release of “The Bank of Japan’s Approach to Central Bank Digital Currency” in October 2020, the Bank of Japan has been preparing to conduct experiments in accordance with this approach. We are finally scheduled to begin these experiments in spring 2021. While there is no change in the Bank’s stance that it “currently has no plan to issue CBDC,” from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, we consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner. Central banks share the view that it is not an appropriate policy response to start considering CBDC only when the need to issue CBDC arises in the future. According to a recent survey of 65 central banks conducted by the Bank for International Settlements (BIS), 86 percent were exploring the benefits and drawbacks of CBDC issuance for some forms of work and about 60 percent were conducting experiments or a Proof-of-Concept (PoC). As for the Bank, amid significant changes that are occurring with the advent of the digital society, we will take this opportunity to carefully consider the way in which we should provide central bank money, or, using expressions from today’s theme, “Central Banking as a Service." Closing Remarks We are delighted to see a rich variety of participants attending this year’s FIN/SUM, including those from the financial and technology sectors with the help of online technology despite being in the midst of the COVID-19 infection, as in FIN/SUM 2020. I would like to close my remarks by expressing my hope that interactions between the participants will lead to many neue Kombination. Thank you for your attention. 3/3 BIS central bankers' speeches
|
bank of japan
| 2,021 | 3 |
Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the International Research Workshop on Climate-related Financial Risks, hosted by the Financial System and Bank Examination Department, Bank of Japan, 25 March 2021.
|
March 25, 2021 Bank of Japan Addressing Climate-related Financial Risks -- From a Central Bank's Perspective -Opening Remarks at the International Research Workshop on Climate-related Financial Risks Hosted by the Financial System and Bank Examination Department, the Bank of Japan KURODA Haruhiko Governor of the Bank of Japan Introduction It is a great honor for us to welcome experts from many countries today to the International Research Workshop on Climate-related Financial Risks, hosted by the Bank of Japan's Financial System and Bank Examination Department. On behalf of the organizers, I would like to thank you for your attendance. I wish we could meet face to face, but at the same time, I recognize the benefit of online meetings, as we can join discussions across the world without the burden of travel. The topic of this workshop is climate-related financial risks, that is, the risks that climate change might destabilize the financial system through a variety of channels. This workshop is the first event held by the Bank of Japan on how climate change interacts with the economy and the financial system. Today, I would like to begin by offering my thoughts on the relationship between climate change and central banks. I will then share my view on climaterelated financial risks, and outline the efforts being made by the Bank of Japan. To conclude my remarks, I would like to touch on what we can expect from the discussions at this workshop. I. Climate Change and Central Banks It is becoming widely accepted that climate change brings dangers that could have a profound effect on society and the economy around the globe, and that the reduction of greenhouse gas emissions is essential for the sustainable development of civilization. The rise in global average temperature and the increase in large-scale natural disasters suggest that climate change is already in evidence. Furthermore, increased scientific understanding, including reports published by the Intergovernmental Panel on Climate Change (IPCC) in 2013 and 2014, reveals that climate change has been induced by human activity. Naturally, setting a course toward reducing greenhouse gas emissions is primarily the responsibility of governments; and of course, national governments have been working to reduce emissions. In Japan, the government made a commitment in 2020 on a long-term objective to achieve net zero carbon emissions by 2050. Meanwhile, climate change is having a significant effect on central banks' policy management. Given its powerful influence over economic activity and the financial system in the medium to long term, central banks must take necessary measures against the impact of climate change. When conducting monetary policy, central banks need to assess the economic situation and price conditions. This assessment should no doubt take into account climate change and the effects of government policy responses to climate change. Whether a central bank should be more proactive in introducing measures to support sustainable finance deserves further discussion in the context of the central bank's mandate and the market neutrality of monetary policy measures. These issues relating to monetary policy will not be discussed in detail at this workshop. Nevertheless, they are important topics, and the Bank of Japan will continue to explore them. Climate change and financial system stability, the topic of this workshop, has come to be recognized as an important issue to be addressed by central banks, as climate change could destabilize the financial system in the medium to long run. II. Increasing Understanding of Climate-related Financial Risks Against this background, there has been remarkable progress in the understanding and management of climate-related financial risks. This progress is due to the work of participants in this workshop today, along with policy makers, academics, and the private sector, including financial institutions. In the following, I would like to note four points in relation to this progress. The first is the deeper understanding gained of the transmission channels of climate-related financial risks. The idea has become widely shared that the impact of climate change on the financial system through the real economy comes mainly through "physical risks" and "transition risks." "Physical risks" refers to the risks that physical phenomena triggered by climate change, such as large-scale disasters and rising sea levels, will cause damage to firms and households. "Transition risks" refers to the risks of an economic impact on firms and households due to changes in policy, technology, or consumer preference as we move toward a low-carbon economy. The second is the methodology for measuring climate-related financial risks. As past experience is not necessarily an appropriate guide when measuring climate-related financial risks, it is difficult to rely on conventional methods to measure risks, such as value-at-risk. With this in mind, some financial authorities and financial institutions have taken the initiative in conducting research about how to measure climate-related financial risks, and have begun to explore new measurement methods, including stress tests. The third is the disclosure of climate-related financial risks. In this regard, the Task Force on Climate-related Financial Disclosures, or TCFD, was created in 2015, to develop climaterelated financial risk disclosures. In the final report by the TCFD released in 2017, a proposal was made on the basic elements to be disclosed regarding the impact of climate change on finance. In this way, the TCFD has established a framework to help firms understand climaterelated financial risks and encourage disclosure. This framework is being used by an increasing number of firms. The fourth point in which much progress has been made is international cooperation. In recent years, international cooperation has been promoted to improve the methods for understanding and managing climate-related financial risks. The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) has been playing a major role in such cooperation, and the Bank of Japan has been a member of this network. The NGFS has released climatechange scenarios, compiled guides for measuring risks using these scenarios, and identified future research issues. International organizations such as the Basel Committee on Banking Supervision and the Financial Stability Board have also been advancing their deliberations on climate-related financial risks, which they consider to be a high-priority issue. III. Challenges to Understanding and Managing Climate-related Financial Risks As our recognition of climate-related financial risks deepens, the extent of the challenges to our understanding and management of such risks has become clear. A number of complex issues must be tackled, such as the interaction between the two transmission channels mentioned earlier -- physical risks and transition risks -- and, moreover, the feedback loop between finance and climate change must be considered. This is one of the perspectives to be shared in this workshop. When it comes to stress testing, there are a number of difficulties in setting scenarios. For example, the time span until risks materialize is considerably long. There are even more problems on the practical front, such as insufficiency in data for measuring climate-related financial risks. Therefore, for the moment at least, climate-related stress tests are thought to have different features and objectives from the standard stress tests, which are regularly conducted to examine resilience within a matter of only a few years against possible financial and economic shocks. IV. Efforts Made by the Bank of Japan Given the potential size of the risks, the progress made to date, and the remaining challenges, how should the Bank of Japan establish a framework appropriate to managing these risks? I would like to point out three basic ideas. First, the size and number of challenges is no reason to delay addressing this issue. Rather, central banks must take forward-looking steps and make steady progress in overcoming these issues in cooperation with other stakeholders. In the past, financial authorities have established frameworks based on their experience of previous crises in order to avoid another. However, this pattern cannot be repeated in the case of climate-related financial risks. Second, when central banks respond to climate change issues, they have to respond in line with their mandates. In the context of climate-related financial risks, any response must be considered in line with the central bank's responsibility to ensure the stability of the financial system. I would also like to note that the central bank's response made from the viewpoint of ensuring financial system stability is consistent with market participants' understanding of what is necessary for financial markets and financial intermediation to function better so that they promote investment toward the reduction of greenhouse gas emissions. Financial institutions will find it easier to exercise appropriate control of climate-related financial risks, and their financial transactions will increase, if climate change risks are accurately reflected in financial asset prices through disclosures, product design, and reinforcement of transaction practices. This will lead to improvement in the financial intermediation function in the environmental field. Financial authorities can support these market participants' efforts by making use of their knowledge of financial system stability. Third, in discussing specific measures to address climate-related financial risks, central banks must choose the best option based on their knowledge and the data available at that moment. In the current situation, the most pressing issue is to engage in an in-depth dialogue with financial institutions about measuring climate-related financial risks and about a framework and methods to manage the risks. Meanwhile, when considering revisions to financial regulations, it is a prerequisite that a framework for measuring risks is prepared and that discussion based on solid evidence becomes possible. Bearing these basic ideas in mind, the Bank of Japan is engaged in active dialogue with financial institutions on how to grasp and manage climate-related financial risks. The Bank intends to further accelerate these initiatives. At the same time, the Bank of Japan itself has to extend its knowledge of the methods used to measure these risks, such as stress testing. Given the significance and complexity of the issues surrounding climate change, international cooperation with various stakeholders, including financial practitioners and scholars, is essential, and so initiatives like this workshop become important. I have talked about the Bank's initiatives from the financial system aspect, but as I pointed out at the beginning of my speech, the effects of climate change extend beyond this aspect. Therefore, the Bank of Japan is enhancing its structure for promoting information sharing and cooperation, and for addressing the issues related to climate change. For example, the Bank has launched an integrated committee structure within the Bank called the Climate Coordination Hub. V. Expectations for This Workshop This workshop will be discussing topics I consider important in addressing climate-related financial risks. We, central bankers, must consider climate change in the context of central bank responsibilities. However, at the same time, we should not forget the broader picture of the effects of climate change on society and the economy around the globe. I believe Professor Sachs of Columbia University, who will next take the floor, will share with us his broad perspective on this. In the paper session after that, one of the Bank's economists will provide an overview of the latest academic studies on climate-related financial risks. Then, leading scholars in this field will take the floor. Research on climate-related financial risks is advancing rapidly, and the field is wide-ranging. From the perspective of financial stability, this workshop covers studies that focus on the impact of climate change on bank behavior and the factoring of the risks into asset prices. I hope discussions at this workshop will help to deepen our understanding of the complex relationship between climate change and finance. As for policy panel discussion and closing remarks, I believe fruitful suggestions will be provided by my colleague central bankers and bank supervisors; specifically, insights on how to grasp and manage climate-related financial risks, their philosophy in addressing this issue, the latest responses made to climate change, and the challenges we face. Thank you for your kind attention.
|
bank of japan
| 2,021 | 3 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Kisaragi-kai Meeting, Tokyo, 30 March 2021.
|
Ma rch 3 0 , 2 02 1 Bank of Japan Further Effective and Sustainable Monetary Easing Speech at the Kisaragi-kai Meeting in Tokyo （via webcast） KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to speak at the Kisaragi-kai meeting. The global economy has been hit by the extremely large shock of the novel coronavirus (COVID-19) over the past year. In the first half of last year, it became depressed more significantly than at the time of the Global Financial Crisis. Fortunately, owing to swift and aggressive responses made by the governments and central banks around the world, it has picked up from the bottom. Japan's economy has shown similar developments to those of the global economy. That said, COVID-19 has continued to affect economic activity considerably. Due to its impact, Japan's economic activity and prices are projected to remain under downward pressure for a prolonged period. The Bank considers it crucial to support the economy under these circumstances and thereby achieve the price stability target of 2 percent. In doing so, it is important first of all to address the impact of COVID-19, and since March 2020, the Bank therefore has been conducting powerful monetary easing to support financing, mainly of firms, and ensure stability in financial markets. In addition, from a somewhat long-term perspective, the Bank's challenge is to conduct further effective and sustainable monetary easing, with a view to achieving the price stability target of 2 percent. To this end, the Bank conducted an assessment at the latest Monetary Policy Meeting (MPM) and took policy actions based on the findings. Today, I will first talk about developments in Japan's economic activity and prices as well as the Bank's responses to the impact of COVID-19. Then, I will elaborate on the policy actions that have been decided based on the findings of the latest assessment. I. Developments in Economic Activity and Prices and the Bank's Policy Responses to the Impact of COVID-19 Developments in Economic Activity and Prices Let me start by talking about developments in economic activity and prices. Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 (Chart 1). Real GDP continued to register positive growth in the second half of 2020 after hitting bottom in the April-June quarter, when it declined significantly due to the COVID-19 shock. For the October-December quarter, the level of real GDP recovered to 2.6 percent lower than the 2019 average. However, since the turn of 2021, downward pressure stemming from the impact of a resurgence of COVID-19 from last autumn has intensified in the face-to-face services sector, such as eating and drinking as well as accommodations. That said, unlike last spring, when economic activity in a wide range of sectors was constrained, that in sectors other than face-to-face services has been maintained to a large degree in the current phase, mainly supported by a recovery in world trade and stay-at-home consumption. Although economic developments are still susceptible to the impact of COVID-19, a pick-up trend has been maintained. Japan's economy, with the impact of COVID-19 waning gradually, is likely to follow an improving trend, albeit moderately, supported by a recovery in external demand, accommodative financial conditions, and the government's economic measures. The real GDP growth rate for fiscal 2021, which is starting in a few days, is expected to be clearly positive, rebounding from the contraction seen in fiscal 2020 and partly due to the effects of the government's additional economic measures. The year-on-year rate of change in the consumer price index (CPI) has been negative due to the impact of COVID-19 and temporary factors that push down prices, such as the past decline in crude oil prices. That said, when excluding the effects of the temporary factors, the rate of change has been slightly positive, and price developments have continued to be firm compared with the degree of deterioration in economic activity. As for the outlook, the year-on-year rate of change in the CPI is likely to continue to be negative for the time being, but thereafter it is expected to turn positive and then increase with the effects of temporary factors that push down prices dissipating and the economy improving. This is the baseline scenario for the outlook for economic activity and prices, in which risks remain skewed to the downside. Although the wider vaccination rollout is a positive move, attention should continue to be paid for the time being to the consequences of COVID-19 and their impact. The Bank's Policy Responses to the Impact of COVID-19 With COVID-19 affecting the economy, the Bank has conducted powerful monetary easing since March 2020 through three measures (Chart 2). These measures have been effective in supporting the economy, mainly through maintaining an accommodative funding environment. The Bank decided at the December 2020 MPM to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) until the end of this September in order to continue to support corporate financing. Depending on the impact of COVID-19, it also will consider a further extension, as necessary. The Bank will continue to firmly conduct the current monetary easing measures, including the Special Program. In addition, it will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. II. Continuation of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control Now, I will talk about the Assessment for Further Effective and Sustainable Monetary Easing. Under QQE with Yield Curve Control, the Bank has continued to conduct powerful monetary easing in order to achieve the price stability target of 2 percent. This assessment started off by examining developments in economic activity and prices under the framework of QQE with Yield Curve Control as well as its policy effects. QQE with Yield Curve Control is a monetary policy framework that was introduced in September 2016 (Chart 3). This framework consists of two major components: yield curve control and an inflation-overshooting commitment. Yield curve control is a framework for market operations that targets all interest rates at the short and long ends; in other words, the yield curve. The Bank aims to control short- and long-term interest rates to the appropriate levels while taking into consideration both the positive and side effects of monetary easing. The inflation-overshooting commitment is to continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2 percent and stays above the target in a stable manner. The key to this commitment is that the Bank promises to continue with monetary easing based on observed CPI inflation rather than the outlook for CPI inflation. The Bank aims to strengthen the formation of inflation expectations with this extremely strong commitment. In addition, through this commitment, it is implementing the idea of a "makeup strategy," in which monetary easing is conducted so that the inflation rate stays above the target for a sustained period of time to compensate for the observed inflation rate that continued to fall below the target. This strategy was examined in this assessment using an economic model, and the results reconfirmed that it is appropriate to employ this strategy as the Bank's monetary policy conduct. Yield curve control and the inflation-overshooting commitment are both indispensable elements of QQE with Yield Curve Control. With these two components, the main transmission mechanism is to achieve accommodative financial conditions by maintaining low real interest rates -- which are calculated by subtracting inflation expectations from nominal interest rates -- and thereby exert positive effects on economic activity and prices. Developments in economic activity and prices since QQE with Yield Curve Control was introduced indicate that it has had positive effects in line with the intended mechanism. Nominal interest rates in Japan have been kept at extremely low levels through yield curve control. With inflation expectations being higher than those prior to the introduction of QQE, real interest rates have been clearly negative. The low real interest rates have improved financial conditions, mainly through a decline in funding costs as well as favorable conditions in financial and capital markets (Chart 4). In fact, bank lending and the aggregate amount outstanding of CP and corporate bonds have continued to increase. In financial and capital markets, foreign exchange rates have been stable on the whole and stock prices have been on an uptrend. As a result, these developments have pushed up economic activity, and corporate profits and the employment situation have improved. The output gap, which shows the balance between aggregate demand and supply, turned clearly to excess demand in 2017 and then expanded within positive territory. In this situation, wages have increased moderately, as seen in the fact that base pay -- which did not rise during the period of deflation -- has increased for seven consecutive years, and underlying inflation has taken hold in positive territory. An analysis using an economic model shows that QQE with Yield Curve Control has been effective in pushing up economic activity and prices (Chart 5). The Bank carried out simulations to compare actual developments in real GDP and the CPI with simulated developments obtained assuming that the Bank's powerful monetary easing had not been introduced. The simulation results show that actual figures are higher than the counterfactual estimates; on average, the level of real GDP is between around 0.9 and 1.3 percent higher and the year-on-year rate of change in the CPI is between around 0.6 and 0.7 percentage points higher. This suggests that monetary easing has had positive effects to those extents on economic activity and prices. In addition, on the back of improved economic activity and tightened labor market conditions under QQE with Yield Curve Control, important changes have occurred, in that labor force participation of women and seniors has increased and firms have improved their labor productivity. These changes are desirable for Japan, which faces the problem of a declining population and the need to increase productivity in the economy as a whole. With economic developments continuing to be favorable, positive moves toward addressing the medium- to long-term challenges facing Japan's economy have been observed. That said, the situation where inflation rates do not rise easily has continued. The main reason is that the mechanism of adaptive inflation expectations formation in Japan is complex and sticky. On this point, the Bank conducted several analyses in the latest assessment, and the results suggest that the formation of inflation expectations in Japan is deeply affected by not only the observed inflation rate at the time but also past experiences and the norms developed in the process. In other words, changing people's mindset and behavior based on the assumption that prices will not increase easily, which have become deeply entrenched because of the experience of prolonged deflation, will take time. However, this also suggests the high possibility that when people actually experience prolonged inflation, this likely will be gradually incorporated into the assumption on which their mindset is based. Based on the explanation so far, with a view to achieving the price stability target of 2 percent, it is appropriate for the Bank to continue with QQE with Yield Curve Control, which has been effective in pushing up economic activity and prices. To this end, the Bank judged it important to take the following basic stance on monetary policy: (1) to continue with monetary easing in a sustainable manner and (2) to make nimble and effective responses without hesitation to counter changes in developments in economic activity and prices, as well as in financial conditions. Combining these two approaches is essential to continuing with monetary easing for a long time and to enhancing its effectiveness. With this in mind, at the March MPM, the Bank conducted an assessment of various policy measures and decided upon policy actions based on the findings. I will now explain this in detail. III. Policy Actions to Conduct Further Effective and Sustainable Monetary Easing The Bank has decided to take three major policy actions (Chart 6). Establishment of the Interest Scheme to Promote Lending First is the establishment of the Interest Scheme to Promote Lending. This scheme enables the Bank to cut short- and long-term interest rates nimbly without hesitation while considering the impact on the functioning of financial intermediation. Cutting those rates is an important option as a nimble and effective additional easing measure. That said, it seems that fewer market participants expect interest rate cuts as an additional easing measure option because of the impact on the functioning of financial intermediation. Thus, the Bank decided to set up in advance a scheme that takes into account this impact at the time of rate cuts, thereby enhancing the effectiveness of the additional easing measure of short- and long-term interest rate cuts. Through the Interest Scheme to Promote Lending, the Bank applies certain interest rates as an incentive to financial institutions' current account balances, corresponding to the amount outstanding of funds that the Bank has been providing through its various fund-provisioning measures to promote financial institutions' lending, and the incentives will be raised when the short-term policy interest rate is lowered. This scheme can mitigate the impact on financial institutions' profits to a certain degree at the time of rate cuts depending on the amount of their lending. The applied interest rates, or the incentives, are categorized into three groups. In one category, the rate is the absolute value of the short-term policy interest rate. Since the short-term policy interest rate is currently minus 0.1 percent, a positive interest rate of 0.1 percent is applied for this category. The rates higher and lower than said category are applied respectively to the other two categories; they are set at 0.2 percent and 0 percent at the moment. Under the scheme, the Bank also classifies its fund-provisioning measures into these three categories, or in other words, "boxes," in accordance with the purpose of the measures. It has been decided that the highest interest rate of 0.2 percent will be applied to funds provided through the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) against loans that financial institutions make on their own. The aim is to further actively provide support to financial institutions to make loans, mainly to small and medium-sized firms, in response to COVID-19 at their own risk. An interest rate of 0.1 percent is applied to funds provided through the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) against loans other than those that financial institutions make on their own and against private debt pledged as collateral, and 0 percent to funds provided through the Loan Support Program and the Funds-Supplying Operation to Support Financial Institutions in Disaster Areas. The list of fund-provisioning measures eligible for each category, or "box," will be changed at the MPMs as necessary depending on the situation. This scheme enables the effects of monetary easing to further permeate the economy by promoting financial institutions' lending under a negative interest rate. When short- and long-term interest rates are lowered as an additional easing measure, the applied interest rates on a portion of financial institutions' current account balances will be raised through this scheme and their lending thereby will be promoted further. In this way, the scheme will play a complementary role for the additional easing effects. In addition, the latest policy actions include technical adjustments to the method to calculate the portion of financial institutions' current account balances at the Bank to which a negative interest rate is applied. I will not go into details today, but these adjustments also will contribute to further smooth conduct of the negative interest rate policy and to enhancing the effectiveness of the additional easing measure of cutting short-term interest rates. Conduct of Yield Curve Control The second policy action is with regard to the conduct of yield curve control. The Bank made clear at the latest MPM that the range of fluctuations in long-term interest rates, or 10-year JGB yields, will be between around plus and minus 0.25 percent from the target level, which is set at "around zero percent." The effects of yield curve control on the functioning of the JGB market are, in a sense, an inevitable consequence of maintaining interest rates stably at extremely low levels. That said, in order to conduct yield curve control sustainably, it is important to strike a balance between maintaining market functioning and appropriately controlling interest rates. In fact, the examination made in the assessment reconfirmed that fluctuations within a certain range have positive effects on the functioning of the JGB market without impairing the effects of monetary easing. When the framework for continuous powerful monetary easing was strengthened in July 2018, the Bank announced that it would allow long-term interest rates to move upward and downward in about double the range, which was previously between around plus and minus 0.1 percent from the target level. Thereafter, the range of fluctuations in long-term interest rates widened and the functioning of the JGB market improved. However, since then, there have been times when the range of actual fluctuations has become narrow. Given these developments and the findings of the assessment, the Bank at the latest MPM judged it appropriate to make clear its thinking on the range of long-term interest rate fluctuations. In order to secure the effects of monetary easing while conducting yield curve control flexibly during normal times, it is necessary to firmly stop a significant rise in interest rates if such a rise happens. Thus, the Bank decided at the latest MPM to further strengthen the fixed-rate purchase operations, through which it purchases an unlimited amount of JGBs with certain maturities at fixed rates. That is, "fixed-rate purchase operations for consecutive days" have been introduced, through which the fixed-rate purchase operations will be conducted consecutively for a certain period of time. Through this new operation, the Bank can set, when necessary, an upper limit on interest rates more powerfully than before. On the other hand, when interest rates temporarily fall below the lower limit in day-to-day movements, the Bank will not strictly respond to such developments because they will not impair the effects of monetary easing. This is the basic thinking on the conduct of yield curve control and the policy actions that have been decided at the latest MPM. That said, under the continuing impact of COVID-19 in particular, it is important to stabilize the entire yield curve at a low level. Thus, for the time being, the Bank will conduct yield curve control with priority on such stabilization. Exchange-Traded Fund (ETF) and Japan Real Estate Investment Trust (J-REIT) Purchases The third policy action concerns ETF and J-REIT purchases. These purchases aim at exerting positive effects on economic activity and prices by lowering risk premia in the markets. In the latest assessment, the Bank found that large-scale purchases of ETFs during times of heightened market instability are effective in terms of containing risk premia. Given this finding, the sustainability and nimbleness of ETF and J-REIT purchases can be enhanced by conducting them more flexibly in a prioritized manner. In order to realize such purchases, the Bank decided at the latest MPM to revise the guideline for ETF and J-REIT purchases. Specifically, it decided to maintain the upper limits on annual paces of increase in the amounts outstanding of ETFs and J-REITs at about 12 trillion yen and about 180 billion yen, respectively, even after COVID-19 subsides, although these limits were decided in March last year as a temporary measure in response to the impact of COVID-19. With these upper limits, the Bank will conduct purchases as necessary while taking into account market conditions. Moreover, in order to avoid the Bank's indirect shareholding ratio from rising in some particular ETF component firms, the Bank decided at the latest MPM to only purchase ETFs tracking the Tokyo Stock Price Index (TOPIX), which is an index with the largest number of component stocks. The Bank has been addressing the issue of a rising indirect shareholding ratio to date by increasing the share of purchases of ETFs tracking the TOPIX, and thus the latest decision is an extension of such increase. Further Attention to the Financial System In addition to these three policy actions, given that monetary easing is expected to be continued for a long time, it has been decided that staff of the Financial System and Bank Examination Department, which is in charge of monitoring developments in the financial system, will attend the meeting and explain those developments to the Policy Board at the MPMs when the Outlook for Economic Activity and Prices is decided. While the Bank has been examining risks of financial imbalances in the conduct of monetary policy, it will pay further attention to developments in the financial system. Conclusion I have talked about the Bank's policy actions decided lately in view of conducting further effective and sustainable monetary easing. Through these actions, the sustainability and nimbleness of the respective measures that comprise QQE with Yield Curve Control have been enhanced and the framework itself has been strengthened further, accordingly. These actions will enable the Bank to pursue monetary easing more strongly than before. The Bank has continued with large-scale monetary easing since the introduction of QQE in 2013. In this situation, with economic activity improving significantly, wages have increased moderately and the economy is no longer in deflation. The Bank considers that it is possible to achieve the price stability target of 2 percent by continuing with monetary easing, although it has been taking time. The sustainability and nimbleness of QQE with Yield Curve Control has been enhanced through the latest policy actions. In addition, the effectiveness of the inflation-overshooting commitment has been confirmed in the assessment. Under the current framework, the Bank will carry out its mandate of achieving the price stability target of 2 percent by continuing to persistently conduct powerful monetary easing. Thank you very much for your attention. Further Effective and Sustainable Monetary Easing Speech at the Kisaragi-kai Meeting in Tokyo (via webcast) March 30, 2021 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Developments in Economic Activity and Prices and the Bank's Policy Responses to the Impact of COVID-19 II. Continuation of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control III. Policy Actions to Conduct Further Effective and Sustainable Monetary Easing Conclusion I. Developments in Economic Activity and Prices and the Bank's Policy Responses to the Impact of COVID-19 Chart 1 Recent Developments in Economic Activity and Prices Pace of Economic Recovery Economic Activity by Sector (Real GDP, Level) s.a., CY 2019 average = 100 s.a., CY 2019 = 100 Consumer Price Index (CPI) y/y % chg. Effects of the "Go To Travel" campaign -5.2% -10.0% -2.6% Effects of the consumption tax hikes and free education policies Energy Excluding the effects of the above temporary factors CPI (less fresh food) Manufacturing Accommodations, eating and drinking services 20/Q1 Services for amusement and hobbies -1 T ransport Nonmanufacturing Q2 Q3 Q4 Jan. Jul. July Jan. Jul. July Jan. -2 CY 14 15 16 17 18 19 20 21 Notes: 1. In the middle chart, figures for manufacturing are the "Indices of Industrial Production" and those for other sectors are the "Indices of Tertiary Industry Activity." Figures for nonmanufacturing exclude accommodations, eating and drinking services, services for amusement and hobbies, and transport. 2. In the right-hand chart, energy consists of petroleum products, electricity, and gas, manufactured & piped. Figures for "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Sources: Cabinet Office; Ministry of Economy, Trade and Industry; Ministry of Internal Affairs and Communications; Bank of Japan. I. Developments in Economic Activity and Prices and the Bank's Policy Responses to the Impact of COVID-19 Chart 2 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Further active purchases of JGBs and T-Bills Enhancement of the U.S. Dollar Funds-Supplying Operations Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen Chart 3 II. Continuation of QQE with Yield Curve Control QQE with Yield Curve Control Yield Curve Control Inflation-Overshooting Commitment 1.0 % 0.8 "The Bank will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds the price stability target of 2 percent and stays above the target in a stable manner." Target level of the long-term interest rate: around zero percent 0.6 0.4 Short-term policy interest rate: minus 0.1 percent 0.2 "Achieving the price stability target means attaining a situation where the inflation rate is 2 percent on average over the business cycle." 0.0 -0.2 Source: Bank of Japan, policy statement (Sept. 2016 MPM) Recent -0.4 -0.6 0 1 2 3 4 5 6 7 8 9 10 15 20 residual maturity, year Sources: Bank of Japan; Bloomberg. Chart 4 II. Continuation of QQE with Yield Curve Control Economic and Financial Developments since the Introduction of QQE with Yield Curve Control Amounts Outstanding of Bank Lending, CP, and Corporate Bonds y/y % chg. <I> < II > Foreign Exchange Rate and Stock Prices < III > Amount outstanding of bank lending Amount outstanding of CP and corporate bonds yen/U.S. dollar thous.yen Nikkei 225 (right scale) -4 -8 CY 07 CY 07 Output Gap and Unemployment Rate -2 Output gap (left scale) -4 -6 CY 07 Unemployment rate (right scale) Wages % % Yen/U.S. dollar (left scale) y/y % chg. Base pay increase Scheduled cash earnings (full-time employees) Hourly scheduled cash earnings (part-time employees) -1 FY 07 Note: Shaded area <I> denotes the period since the introduction of QQE (2013/Q2), <II> denotes the period since the introduction of QQE with Yield Curve Control (2016/Q3), and <III> denotes the period since the outbreak of COVID-19 (2020/Q1). Sources: Bank of Japan; Japan Securities Depository Center; Japan Securities Dealers Association; I-N Information Systems; Bloomberg; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Japanese Trade Union Confederation (Rengo). Chart 5 II. Continuation of QQE with Yield Curve Control Examination on Policy Effects The Bank conducted an analysis using a macroeconomic model to estimate simulated developments in real GDP and the CPI assuming QQE had not been introduced. The differences between the counterfactual figures (A to E) and actual figures are regarded as the policy effects. Real GDP (Level) s.a., tril. yen 2.0 CPI (y/y chg.) y/y % chg. 1.5 1.0 0.5 0.0 -0.5 Actual A B -1.0 C D E -1.5 CY 08 09 10 11 12 13 14 15 16 17 18 19 20 Actual A B C D E -2.0 CY 08 09 10 11 12 13 14 15 16 17 18 19 20 Policy Effects (Average since the Introduction of QQE) A B C D E (rate of deviation between counterfactual and actual figures, %) A B C D E +0.7 +0.6 +0.6 +0.6 +0.6 CPI y/y chg. Real GDP Level +1.3 +1.2 +1.0 +0.9 +1.0 (less fresh food and energy, deviation between counterfactual and actual figures, % points) Note: Five types of counterfactual figures (A to E) were estimated based on different counterfactual paths of economic activity and prices. For details of simulations, see Appendix 2 in the Assessment for Further Effective and Sustainable Monetary Easing released in March 2021. Sources: Cabinet Office; Ministry of Internal Affairs and Communications, etc. III. Policy Actions to Conduct Further Effective and Sustainable Monetary Easing Chart 6 Policy Actions to Conduct Further Effective and Sustainable Monetary Easing Aim: Further Effective and Sustainable Monetary Easing "enhancing sustainability of monetary easing" & "nimble responses to counter changes in the situation" 1. Establishment of the Interest Scheme to Promote Lending Enable the Bank to cut short- and long-term interest rates more nimbly while considering the impact on the functioning of financial intermediation 2. Clarification of the range of fluctuations in long-term interest rates (±0.25%) <Interest Scheme to Promote Lending> Apply incentives (linked to the short-term policy interest rate) to financial institutions' (FIs') current account balances, corresponding to the amount outstanding of funds provided through fund-provisioning measures to promote lending ― Mitigate the impact on FIs' profits at the time of rate cuts depending on the amount of lending ― The applied interest rates and the eligible fund-provisioning measures for each category will be changed as necessary at MPMs depending on the situation. Strike a balance between securing effects of monetary easing and maintaining market functioning Introduction of "fixed-rate purchase operations for consecutive days" 3. New guideline for ETF and J-REIT purchases Purchase ETFs and J-REITs as necessary with upper limits of about 12 tril. yen and about 180 bil. yen, respectively, on annual paces of increase in their amounts outstanding (abolish the guideline for purchasing these assets, in principle, at annual paces of increase in their amount outstanding of about 6 tril. yen and about 90 bil. yen, respectively) Purchase only ETFs tracking the TOPIX <Decision at the March 2021 MPM> Category I Category II Category III Applied interest rate Eligible fund-provisioning measure 0.2% • Special Operations in Response to COVID-19, when funds are provided against loans made by FIs on their own Higher than the rate for Category II 0.1% Absolute value of the short-term policy interest rate 0% Lower than the rate for Category II • Special Operations in Response to COVID-19, when funds are provided against loans other than those for Category I and against private debt pledged as collateral • Loan Support Program • Operation to Support FIs in Disaster Areas
|
bank of japan
| 2,021 | 3 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at a meeting held by the Naigai Josei Chosa Kai, 19 May 2021.
|
May 19, 2021 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) (via webcast) KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my pleasure to have the opportunity to address you today at the Naigai Josei Chosa Kai. When I made a speech at this meeting a year ago, the global economy was significantly affected by the novel coronavirus (COVID-19) and was in the midst of deterioration that was more severe than at the time of the Global Financial Crisis (GFC). Since governments and central banks around the world have responded swiftly and at a large scale to this economic shock, the global economy fortunately hit bottom and has picked up since the second half of 2020. In the meantime, positive developments have been seen, such as vaccinations starting globally. However, COVID-19 continues to have an impact on the global economy. In this situation, at the Monetary Policy Meeting (MPM) held at the end of April, the Bank of Japan updated its projections for Japan's economic activity and prices through fiscal 2023 and released them in the April 2021 Outlook for Economic Activity and Prices (Outlook Report). In addition, at the preceding MPM in March, based on the projection that economic activity and prices will remain under downward pressure for a prolonged period due to the impact of COVID-19, the Bank conducted the Assessment for Further Effective and Sustainable Monetary Easing, with a view to supporting the economy and thereby achieving the price stability target of 2 percent. Given the findings of the assessment, it decided on policy actions at that MPM. Today, I would like to talk about the Bank's view on Japan's economic activity and prices while touching on the content of the Outlook Report, and explain its thinking on the conduct of monetary policy, focusing on the findings of the assessment and the policy actions decided based on them. I. Economic Developments Current Situation of Japan's Economy Japan's economy remains susceptible to the impact of COVID-19 (Chart 1). The real GDP growth rate continued to be positive in the second half of 2020, after hitting a bottom for the April-June quarter, when the rate plunged due to the impact of COVID-19. That said, affected by the resurgence of COVID-19 since last autumn, downward pressure on the face-to-face services sector intensified after the turn of this year, and the real GDP growth rate for the January-March quarter was negative. Since April, the state of emergency has been in effect and priority measures to prevent the spread of disease have been implemented in some regions, against the background of COVID-19 spreading along with an increase in variant cases. Downward pressure has continued to be exerted through these factors on economic activity, mainly in the face-to-face services sector. That said, as I will describe later, the global economy has seen an acceleration in its pace of recovery, mainly led by the United States and China. In addition, under the targeted public health measures, Japan's economic activity in sectors other than face-to-face services has been maintained to a large degree, and it seems that the economy has continued to pick up. I will explain this in more detail. First, let us look at the household sector. Although private consumption picked up from the significant decline seen in the first half of 2020, the pick-up has paused since the turn of this year due to increased downward pressure on consumption of services, such as eating and drinking as well as accommodations. By type, services consumption picked up only moderately in the second half of 2020 and has declined since the turn of this year. On the other hand, consumption of durable goods, such as personal computers and household electrical appliances, has continued to be on an uptrend on the back of an expansion in so-called stay-at-home demand and a demand shift from services. Turning to the corporate sector, exports and production have continued to increase against the background of a recovery in the global economy. By goods, the paces of increase in exports and production of automobile-related goods have leveled off, partly affected by a supply shortage of semiconductors. However, exports and production of IT-related goods have increased clearly because digital-related demand has been firm. Those of goods related to business fixed investment have also increased, reflecting a global recovery in production activity. With increases in exports and production, corporate profits have improved on the whole. On this basis, business fixed investment has picked up. By industry, construction investment in stores and accommodation facilities by the face-to-face services industry has decreased, but a pick-up has been seen in machinery investment and digital-related investment by the manufacturing industry and the nonmanufacturing industry other than face-to-face services. Outlook for Japan's Economy In sum, Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19. With regard to the outlook, the economy is likely to recover, with the impact waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government's economic measures (Chart 2). Thereafter, as the impact of COVID-19 subsides, it is projected to continue growing. After having registered a significant negative figure of minus 4.6 percent for fiscal 2020, the real GDP growth rate is projected to be 4.0 percent for fiscal 2021, 2.4 percent for fiscal 2022, and 1.3 percent for fiscal 2023 in terms of the medians of the Policy Board members' forecasts in the April 2021 Outlook Report. Compared with the previous Outlook Report released in January, the projected growth rates are higher, mainly for fiscal 2022. This upward revision is against the background that (1) the global economy is likely to continue to recover and (2) a virtuous cycle is expected to intensify in Japan. Let me elaborate on these factors. Recovery in the Global Economy First, the global economy declined significantly in the first half of 2020 due to the impact of COVID-19 but has recovered on the whole (Chart 3). By region, economic activity resumed earlier than elsewhere in China last year, and its economy has continued to recover. The U.S. economy also has seen a notable recovery since large-scale additional economic measures have been taken and restrictions on economic activity have been lifted in stages on the back of an acceleration in the pace of vaccinations. By industry, a recovery in the manufacturing industry has been evident. Due to favorable developments in the digital-related industry, business sentiment of the manufacturing industry has continued to improve clearly on a global basis. In fact, global production and trade volume have evidently recovered to levels that exceed those seen prior to the pandemic. As for the outlook, with the impact of COVID-19 waning gradually, the global economy is likely to continue growing, partly supported by aggressive macroeconomic policies taken mainly in advanced economies. The International Monetary Fund (IMF) projects in the World Economic Outlook (WEO) released this April that, after registering a large decline of minus 3.3 percent for 2020, the growth rate of the global economy will see a significant increase of 6.0 percent for 2021. This projection indicates that, within 2021, global GDP is likely to recover to a level that exceeds the pre-pandemic one. The global economy is projected to register high growth for 2022 as well; the growth rate is expected to be 4.4 percent, exceeding the past average. These IMF growth rate forecasts have been revised upward from the previous ones made in January, on the back of the conduct of additional economic measures in advanced economies and progress with vaccinations. It should be noted that the recovery in the global economy is projected to continue to vary across countries, regions, and industries, which is described by the IMF as "divergent recoveries." Furthermore, in the United States, some academic economists and market participants have shown concern regarding the risks that a rise in inflationary pressure and a resultant surge in long-term interest rates may not only prevent the economy from recovering but also could destabilize the global financial markets. That said, Federal Reserve Chair Powell expressed the view that the inflation rate could rise due to a rebound in spending that reflects a reopening of the economy and to the base effect of comparing the rate with the previous year, when prices were pushed down substantially by the impact of COVID-19, but this rise in the inflation rate will only be transitory. Nonetheless, it is necessary to continue to closely monitor developments in global financial markets and the global economy. Virtuous Cycle in Japan The second perspective is with regard to the mechanism for economic recovery in Japan (Chart 4). A pick-up in Japan's economy thus far has owed mainly to a rebound from the significant decline in economic activity seen in the first half of 2020. In the outlook, however, it is expected that the economy will return to a sustainable growth path as the virtuous cycle from income to spending starts to be seen in a wider range of sectors. Let us now look at the corporate and household sectors in terms of the cycle. First, in the corporate sector, the virtuous cycle from income to spending has already started to be seen. That is, current profits for the October-December quarter of 2020 recovered to slightly above the pre-pandemic level. The improvement in corporate profits is attributable to a recovery in sales due to increases in exports and production, firms' efforts to improve business efficiency as a result of the pandemic, and the government's various measures to support firms. As I mentioned earlier, such improvement in corporate profits has started to contribute to a pick-up in business fixed investment. According to the March 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan), the business fixed investment plan for fiscal 2021 shows that investment is likely to increase by 2.4 percent on a year-on-year basis. This result is relatively high, exceeding the average of the past March Tankan surveys. As for the outlook, an uptrend in business fixed investment is expected to become clear on the back of continued improvement in corporate profits. This mainly reflects an increase in machinery investment, digital-related investment, and investment in logistics facilities accompanied by an expansion in e-commerce. In addition, as the impact of COVID-19 subsides, corporate profits are likely to remain on a firm improving trend, and this is projected to lead to an increase in a wide range of business fixed investment, including by the face-to-face services industry. Thus, the virtuous cycle from income to spending in the corporate sector is likely to intensify. Second, in order for the virtuous cycle to operate in the household sector as well, employee income is the key (Chart 5). Although the employment and income situation has remained weak, it has not deteriorated significantly. The unemployment rate, which increased to around 3 percent last year, has been more or less flat recently. In addition, the result of the labor-management wage negotiations held this spring, although tentative, indicates that wage increases for this fiscal year have decelerated only marginally from last fiscal year. The reasons for the situation having not deteriorated significantly are that various support measures, such as by the government, have been effective and that industries where corporate activities had long been constrained by labor shortage have been motivated to recruit people with a pick-up in economic activity. Regarding the outlook, employee income is likely to stop declining, reflecting improvement in corporate profits, and increase moderately with a time lag following the recovery in domestic and external demand. Furthermore, as the impact of COVID-19 subsides, the virtuous cycle from income to spending is likely to operate on the back of improvement in employee income, and an uptrend in private consumption, including that of face-to-face services, is projected to become evident. Risks to Economic Activity There are high uncertainties over the baseline scenario of the outlook for economic activity, which I have explained thus far. The biggest risk factors are the consequences of COVID-19 and their impact on domestic and overseas economies. In the Bank's outlook, it is assumed that the impact of COVID-19 will almost subside in the middle of the projection period, which is through fiscal 2023, due mainly to progress with vaccinations. However, the pace of vaccine rollout and the effectiveness of the vaccines entail uncertainties, and thus there is a risk that downward pressure on economic activity will increase. It is also uncertain how the varying paces of the rollout across countries and regions will affect global economic activity. In addition, attention should be paid to whether growth expectations will not decline substantially and financial system stability will be maintained until the impact of COVID-19 subsides. On the other hand, with economic measures conducted particularly in advanced economies, such as those in response to the impact of COVID-19, the pace of recovery in domestic and overseas economies could be faster than expected. Given these various uncertainties, risks to economic activity are skewed to the downside for the time being, mainly due to the impact of COVID-19. Thus, it is necessary to closely monitor future developments. II. Price Developments Next, I would like to talk about price developments. The year-on-year rate of change in the consumer price index (CPI) has been slightly negative, affected by COVID-19 and the past decline in crude oil prices (Chart 6). It is likely to remain so for the time being, mainly affected by COVID-19 and a reduction in mobile phone charges. That said, the reduction is a temporary factor that pushes down prices, and when its effects are excluded, the underlying trend in the year-on-year rate of change in the CPI is expected to be steady. Although weakness in demand amid the situation of COVID-19 has an impact on prices, anecdotal evidence gained mainly through interviews with firms suggests that firms' price cuts that aim at stimulating demand have not been observed widely, given that one of the reasons for the decrease in demand is vigilance against COVID-19 and that there have been supply-side constraints and cost increases because of taking preventive measures against COVID-19. In addition, it is expected that the year-on-year rate of change in energy prices will turn positive sooner or later on the back of a pick-up in crude oil prices since last autumn. The year-on-year rate of change in the CPI is expected to turn positive and then increase gradually, on the back of economic activity improving and the effects of the temporary factor that pushes down prices dissipating (Chart 2). In terms of the medians of the Policy Board members' forecasts in the April 2021 Outlook Report, the year-on-year rate of change in the CPI is projected to be 0.1 percent for fiscal 2021, 0.8 percent for fiscal 2022, and 1.0 percent for fiscal 2023. Compared with the previous report, the projected rate of increase in the CPI for fiscal 2021 is lower due to the effects of the reduction in mobile phone charges, but that for fiscal 2022 is more or less unchanged. As shown by these forecasts, the Bank considers that the economy will not fall into deflation again, in which prices see an overall and sustained decline. That said, price developments continue to warrant attention, given, for example, that risks to economic activity are skewed to the downside for the time being, mainly due to the impact of COVID-19, and that firms' price-setting behavior entails uncertainties. III. The Bank's Conduct of Monetary Policy Now, let me move on to the Bank's conduct of monetary policy (Chart 7). Policy Responses to the Impact of COVID-19 In response to the impact of COVID-19, the Bank has conducted powerful monetary easing since March 2020 through the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19), (2) an ample and flexible provision of yen and foreign currency funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations, and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). These measures have contributed mainly to maintaining an accommodative funding environment, thereby supporting the economy. At the end of 2020, the Bank decided to extend the duration of the Special Program until the end of September 2021 in order to continue to provide support for financing. Depending on the impact of COVID-19, it also will consider a further extension, as necessary. The Bank will continue to firmly conduct the current monetary easing measures, including the Special Program. In addition, it will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. Further Effective and Sustainable Monetary Easing In terms of the conduct of monetary policy, it is important for the time being to address the impact of COVID-19 by supporting financing, mainly of firms, and maintaining stability in financial markets. From a somewhat long-term perspective, based on the projection that economic activity and prices will remain under downward pressure for a prolonged period, the Bank's challenge is to conduct further effective and sustainable monetary easing, with a view to achieving the price stability target of 2 percent. To this end, the Bank conducted an assessment at the March MPM and decided on policy actions based on the findings (Chart 8). Given the findings of the assessment, with a view to achieving the price stability target, the Bank judged it appropriate to continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, which has been effective in pushing up economic activity and prices. Before I explain the specific policy actions, let me reiterate the significance of the price stability target of 2 percent, which forms the basis for the Bank's stance on continuing with monetary easing. It goes without saying that the price stability target of 2 percent is important. There are three reasons. First, the CPI has an upward bias -- a tendency to demonstrate a relatively high inflation rate compared with the actual price developments. Second, it is better to secure room for interest rate cuts as a policy response in the case of a decline in economic activity. Third, setting the inflation target at 2 percent has been a global standard. When major central banks have a common inflation target, international financial markets, including foreign exchange markets, will likely become stable, which consequently will contribute to stability in the global economy. Based on this recognition, central banks around the world have been working toward achieving the inflation target by maintaining the balance between aggregate demand and supply -- or, the output gap -- at an optimal level and anchoring inflation expectations at appropriate levels. The Bank of Japan is not an exception. By stabilizing short- and long-term interest rates at low levels through yield curve control, it provides highly accommodative financial conditions with a view to expanding the positive output gap. The Bank also strongly works on people's inflation expectations through the inflation-overshooting commitment, in which the Bank commits to continuing to conduct monetary easing until the year-on-year rate of increase in the observed CPI exceeds 2 percent and stays above the target in a stable manner. In fact, as has been confirmed in the assessment conducted in March, the Bank's large-scale monetary easing has been effective, as evidenced by positive inflation taking hold. However, as also confirmed in the assessment, it should be noted that the mechanism of inflation expectations formation in Japan is adaptive, complex, and sticky. In other words, changing people's mindset and behavior based on the assumption that prices will not increase easily, which have become deeply entrenched because of the experience of prolonged deflation, will take time. Given such characteristics of the mechanism, an appropriate approach in conducting monetary policy is to enhance sustainability by minimizing the policy costs during normal times and to secure room for policy responses so that the Bank can make nimble and effective responses without hesitation to counter changes in economic activity and prices, as well as in financial conditions. From this perspective, the Bank decided on three major policy actions at the March MPM. Policy Actions Decided in March First is the establishment of the Interest Scheme to Promote Lending. By setting up a scheme in advance which takes into account the impact of interest rate cuts on the functioning of financial intermediation, the Bank aims to enhance the effectiveness of the additional easing measure of short- and long-term interest rate cuts. Specifically, through this scheme, the Bank applies certain interest rates as an incentive to financial institutions' current account balances, corresponding to the amount outstanding of funds that the Bank has been providing through its various fund-provisioning measures to promote financial institutions' lending, and the incentives will be raised when the short-term policy interest rate is lowered. This scheme can mitigate the impact on financial institutions' profits to a certain degree at the time of rate cuts depending on the amount of their lending. The second policy action is with regard to the conduct of yield curve control. The Bank made clear that the range of fluctuations in long-term interest rates, or 10-year JGB yields, would be between around plus and minus 0.25 percent from the target level, which is set at "around zero percent." The aim is to flexibly conduct yield curve control at normal times while striking an appropriate balance between maintaining the functioning of the JGB market and controlling interest rates. On this basis, in order to secure the effects of monetary easing, the Bank introduced "fixed-rate purchase operations for consecutive days" as a measure to firmly stop a significant rise in interest rates. This new operation enables the Bank to conduct the fixed-rate purchase operations, through which it purchases an unlimited amount of JGBs with certain maturities at fixed rates, consecutively for a certain period of time. The third policy action concerns ETF and J-REIT purchases. These purchases aim at exerting positive effects on economic activity and prices by lowering risk premia in the markets. In the assessment, the Bank found that large-scale purchases of ETFs during times of heightened market instability are effective in terms of containing risk premia. In order to conduct purchases more flexibly in a prioritized manner, the Bank revised the guideline for ETF and J-REIT purchases. Specifically, it abolished the guideline to purchase ETFs and J-REITs at annual paces of increase in their amounts outstanding of, in principle, about 6 trillion yen and about 90 billion yen, respectively, and decided that it would purchase them as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding while taking into account market conditions. All of these policy actions have been devised to enhance both sustainability and nimbleness of monetary easing while striking a balance between its positive effects and side effects. Although it will take time, the Bank considers that it is possible to achieve the price stability target of 2 percent with the enhanced monetary easing. Conclusion Thus far, I have explained the Bank's thinking on its conduct of monetary policy, mainly regarding the policy actions based on the assessment. The Bank has conducted monetary policy measures, including the latest actions, by paying careful attention to not only the positive effects but also the side effects of monetary easing, which has continued to be pursued for a long period. As a consequence, policy measures seem to have become complicated. However, the Bank's stance itself is clear: to conduct monetary easing with the aim of achieving the price stability target. This stance has been consistent since the introduction of the target in 2013. While the Bank has continued to conduct large-scale monetary easing, the economy has improved significantly and is no longer in deflation. Under the framework of QQE with Yield Curve Control, of which sustainability and nimbleness have been enhanced owing to the policy actions based on the assessment, the Bank will carry out its mandate of achieving price stability by continuing to persistently conduct powerful monetary easing. To this end, it is important to address the impact of COVID-19 for the time being. The Bank will firmly pursue current monetary easing through the three measures, thereby supporting the economy. Thank you very much for your attention. Outlook for Economic Activity and Prices and Monetary Policy Speech at a Meeting Held by the Naigai Josei Chosa Kai (Research Institute of Japan) (via webcast) May 19, 2021 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. The Bank's Conduct of Monetary Policy Conclusion Chart 1 I. Economic Developments Recent Developments in Economic Activity Consumer Activity Index (Real) Real GDP s.a., CY 2019 = 100 120 s.a., CY 2019 = 100 s.a., CY 2019 = 100 Durable goods Nondurable goods Exports and Production Services 19/Q1 Real exports Industrial production Q3 20/Q1 Q3 21/Q1 Jan. July Jul. Jan. July Jul. Jan. Jan. Jul. July Jan. Jul. July Jan. Sources: Cabinet Office; Bank of Japan; Ministry of Economy, Trade and Industry; Ministry of Finance, etc. Chart 2 I. Economic Developments The Bank's Forecasts for Economic Activity and Prices (April 2021 Outlook Report) Forecasts of the Majority of the Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2020 (actual figures) -4.6 -0.4 Fiscal 2021 +3.6 to +4.4 [+4.0] 0.0 to +0.2 [+0.1] +3.3 to +4.0 [+3.9] +0.3 to +0.5 [+0.5] +2.1 to +2.5 [+2.4] +0.5 to +0.9 [+0.8] +1.5 to +2.0 [+1.8] +0.7 to +0.8 [+0.7] +1.2 to +1.5 [+1.3] +0.7 to +1.0 [+1.0] Forecasts made in January 2021 Fiscal 2022 Forecasts made in January 2021 Fiscal 2023 Note: Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which they attach the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. Source: Bank of Japan. Chart 3 I. Economic Developments Developments in the Global Economy Major Economies′ Growth Rates (IMF's April 2021 WEO) Global Growth Rate (IMF's April 2021 WEO) y/y % chg., % pts World 2.8 Advanced economies 1.6 2.2 United States 1.3 Euro area United Kingdom 1.4 0.3 Japan Emerging market and developing economies 3.6 5.8 China 4.0 India Latin America 0.2 [Forecast] [Forecast] -3.3 6.0 4.4 (0.5) (0.2) -4.7 5.1 3.6 (0.2) (0.8) (0.5) -3.5 6.4 3.5 (-0.1) (1.3) (1.0) -6.6 4.4 3.8 (0.6) (0.2) (0.2) -9.9 5.3 5.1 (0.8) (0.1) -4.8 3.3 2.5 (0.3) (0.2) (0.1) -2.2 6.7 5.0 (0.2) (0.4) (0.0) 2.3 8.4 5.6 (0.0) (0.3) (0.0) -8.0 12.5 6.9 (0.0) (1.0) (0.1) -7.0 4.6 3.1 (0.4) (0.5) (0.2) CY 2022: +4.4% CY 2021: +6.0% (0.2) (0.1) y/y % chg. CY 2019: +2.8% Average from 1980 through 2019: +3.5% -1 -2 CY 2020: -3.3% -3 -4 IMF forecasts -5 -6 CY 00 Note: In the left-hand chart, figures in parentheses are the difference from the forecasts in the January 2021 World Economic Outlook (WEO). Source: IMF. Chart 4 I. Economic Developments Corporate Profits and Business Fixed Investment Corporate Profits Business Fixed Investment Plans (Tankan) s.a., ann., tril. yen y/y % chg. Average from FY 2004 through 2019 FY 2021 FY 2019 FY 2020 -5 Current profits -10 FY 2009 (After the GFC) -15 CY 07 -20 Mar. June Sept. Dec. Forecast Actual Notes: 1. In the left-hand chart, figures are based on the "Financial Statements Statistics of Corporations by Industry, Quarterly." Excluding "finance and insurance." Figures from 2009/Q2 onward exclude "pure holding companies." 2. In the right-hand chart, figures are for all industries and enterprises. Including software and R&D investments and excluding land purchasing expenses (R&D investment is not included before the March 2017 survey). There is a discontinuity in the data in December 2009 due to a change in the survey sample. Sources: Ministry of Finance; Bank of Japan. Chart 5 I. Economic Developments Employment and Income Situation Employee Income Unemployment Rate y/y % chg. s.a., % -2 Nominal -4 Real -6 -8 07/Q1 09/Q1 11/Q1 13/Q1 15/Q1 17/Q1 19/Q1 21/Q1 CY 07 Note: In the left-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. The figure for 2021/Q1 is that for March. Employee income = total cash earnings ("Monthly Labour Survey") × number of employees ("Labour Force Survey). Real employee income is based on staff calculations using the CPI (less imputed rent). Sources: Ministry of Health, Labour and Welfare; Bank of Japan; Ministry of Internal Affairs and Communications. Chart 6 II. Price Developments Consumer Prices y/y % chg. Effects of the "Go To Travel" campaign Effects of the consumption tax hikes and free education policies Energy Excluding the effects of the above temporary factors CPI (less fresh food) -1 -2 CY 14 Notes: 1. Energy consists of petroleum products, electricity, and gas, manufactured & piped. 2. Figures for "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. III. The Bank's Conduct of Monetary Policy Chart 7 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Active purchases of JGBs and T-Bills U.S. Dollar Funds-Supplying Operations Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen III. The Bank's Conduct of Monetary Policy Chart 8 Key Points of Decisions Made at the March MPM Aim: Further Effective and Sustainable Monetary Easing "enhancing sustainability of monetary easing" & "nimble responses to counter changes in the situation" Outline of the Bank's Policy Actions 1. Establishment of the Interest Scheme to Promote Lending Mitigate the impact on financial institutions' profits at the time of rate cuts ― Apply incentives (linked to the short-term policy interest rate) to financial institutions' current account balances, corresponding to the amount outstanding of funds provided through fund-provisioning measures to promote lending Enable the Bank to cut short- and long-term interest rates nimbly while considering the impact on the functioning of financial intermediation 2. Clarification of the range of fluctuations in long-term interest rates (±0.25%) Strike a balance between securing effects of monetary easing and maintaining market functioning Introduction of "fixed-rate purchase operations for consecutive days" 3. New guideline for ETF purchases Purchase ETFs as necessary with an upper limit of about 12 tril. yen on the annual pace of increase in the amount outstanding (abolish the guideline to purchase them at the annual pace of increase in the amount outstanding of about 6 tril. yen, in principle) Purchase only ETFs tracking the TOPIX
|
bank of japan
| 2,021 | 5 |
Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2021 BOJ-IMES Conference hosted by the Institute for Monetary and Economic Studies, Bank of Japan, 24 May 2021.
|
Haruhiko Kuroda: Opening remarks Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2021 BOJ-IMES Conference hosted by the Institute for Monetary and Economic Studies, Bank of Japan, 24 May 2021. * * * I. Introduction It is my great pleasure to welcome you all to our BOJ-IMES Conference. This is the 26th conference, and for the first time in its history since 1983, the conference is being held online. On behalf of the conference organizers, I would like to thank you all for your participation. The theme of this year’s conference is “Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic.” More than a year has passed since the outbreak of the pandemic, during which time it has caused enormous loss and damage to people all over the world. Finally, we are beginning to see the light at the end of this dark tunnel as effective vaccines are being rolled out. It is at this juncture that our conference poses the following questions: what will the so-called new normal look like that emerges after the pandemic? and, how are we going to adapt to this new normal? These questions are the central theme of the conference. As a starting point, I would like to provide some common ground for developing our discussions. Specifically, I would like to focus on three issues: the economic perspectives, policy challenges, and the nature of the post-pandemic new normal. II. Economic Perspectives A. Uneven Recession and Recovery In considering the economic perspectives, let me begin by touching on the characteristics of the recession caused by the pandemic and of the following recovery. Simply put, the most important feature of both the recession and the recovery is their unevenness. Each recession is different, but this time, the difference in the severity of the downturn among industries, business types, and occupations has been particularly dramatic. People have changed their behavior under the pandemic and in response to the containment measures. Demand for goods and services that require in-person contact has plummeted. These industries have taken a huge hit and their recovery has been slow. The unevenness of the recession and the ongoing recovery could reinforce three trends that have continued since around the global financial crisis of the late 2000s. The first trend is an increase in saving. Against the backdrop of uncertainty over the course of the pandemic and recovery, saving has increased substantially. The second trend is an increase in economic inequality. The impact of the pandemic appears to be uneven and regressive, as the negative impact has been more tilted toward low-income earners and young workers. There are therefore concerns over an increase in income and wealth inequality. The third trend is an increase in debt. Be it public or private, borrowing is essential to smooth economic activity and to mitigate the negative impact of the pandemic. As a result of the necessary response to tackle the pandemic, debt has been mounting in many countries. The trio of increased saving, inequality, and debt is considered to be intertwined in practice and may theoretically reduce the natural interest rate. Academic research on this topic is already underway. Further research and discussion is to be encouraged to promote our understanding of the new economy that will emerge after the recovery from the health crisis. B. Structural Change 1/3 BIS central bankers' speeches Besides these three trends, another important area to consider when we look at the postpandemic economy is the underlying structural changes emerging in technology and industry and the accompanying changes in the behavior of households and firms. Perhaps the most important change we have seen during the health crisis is the wide and rapid spread of digitalization. Many areas of the economy have been affected by the shift from in-person to online activities. While the movement of people across national borders has almost completely stopped, digital technology has removed geographical restrictions and eased the potential economic downturn caused by the health crisis. New businesses that use digital technology have been emerging in a wide range of areas. Looking ahead, the important point is whether these structural changes lead to a wide-spread increase in productivity in the economy, and whether the fruits of growth are widely shared throughout the society. Advances in digitalization are expected to enhance productivity and benefit a wide range of individuals and firms by promoting innovation and efficient resource allocation. On the other hand, it is necessary to pay attention to the possibility that, if the fruits of growth are concentrated in a small fraction of society and inequality increases, it may be difficult to achieve inclusive economic growth. III. Policy Challenges Next, I would like to review the policy challenges facing central banks. There are two features common to the policy responses implemented during the pandemic. The first feature is the speed of the policy responses. Major central banks immediately provided massive amounts of liquidity in response to the dislocations in domestic and foreign financial markets. By doing so, central banks cut off the negative loop between financial markets and the real economy. We have certainly made full use of our experience in the global financial crisis. The second feature is the coordination of fiscal and monetary policies. While central banks provided liquidity lifelines, governments strengthened safety nets such as income-support and job-retention measures. The division of labor between fiscal and monetary policies has generated synergy effects and contributed to preventing the economy from sliding into a free-fall. Looking to the future, the challenges facing policymakers will likely change. The initial phase has been liquidity support. This will likely change to solvency and corporate viability problems, and then to resource re-allocation in response to structural changes in the economy. At the same time, policymakers face the additional challenges of the economic inequality that has become even more apparent during this health crisis, and the response to increasing worldwide concerns over climate change. Likewise, the nature of the policy responses will also shift from temporary first aid measures to medium- to long-term structural policies. To one degree or another, this set of challenges is related to the stability of inflation, the real economy, and the financial system. In this sense, we are seeing a widening in the scope of issues that central banks should take into account. IV. Adapting to the New Normal So far, I have touched on the economic perspectives and on policy challenges. These factors will in part shape the post-pandemic new normal, although exactly how remains to be seen. One thing for certain, however, is that the world we live in will not be the same as that before the pandemic. After more than a year of living with the pandemic, we have seen a drastic change in the way our society works. In particular, the expansion of digital technology has led to a fundamental transformation in society, in ways that we could not have imagined. As I noted earlier, the shift from in-person to online activities has taken place in all aspects, such as of work, business, education, and health. Expansion in the areas of remote working, online shopping, remote learning, and telemedicine is just a few examples. I myself have participated in many online 2/3 BIS central bankers' speeches international meetings over the past year. I have benefited considerably from digital technology that allows me to reach people in different places all over the world, all at the same time. Indeed, it is thanks to the online format of this conference that I am able to welcome you all together today. Of course, there are two sides to any new technology, both positive and negative, and we cannot ignore the importance of the kind of exchange that can only come through face-to-face communication. In that respect, I do feel a certain ambivalence toward digital technology. And yet, even after we have overcome the pandemic, a full return to the less digital pre-pandemic world seems unlikely. Society has undergone irreversible change as it has adapted to the pandemic by expanding and accelerating digitalization. By building on our discoveries and experience during this health crisis, we should forge ahead and shape the new society and economy — the new normal. V. Conclusion Over the past 15 years, we have been through two global crises: the financial crisis and the health crisis. In addressing these two crises, cooperation among central banks, international institutions, and academia has deepened further, and the theory and practice of economic policies have evolved. In the current crisis, academic disciplines, including economics, have made a significant contribution. Cross-discipline approaches are providing timely policy suggestions, as, for example, through joint research in epidemiology and economics, or the use of digital technology to analyze mobility data. We are beginning to see the light at the end of this pandemic tunnel, but the light does not clearly reveal the shape of the society and economy we are approaching. Therefore, the theme of our conference, “Perspectives and Policy Challenges after the COVID-19 Pandemic,” is going to cover a wide range of issues. Given the considerable uncertainty we face, it is only natural that we will have different views on the relative importance of the issues involved and the direction our discussions should take. For the time being, we do not have to agree on all the details; the important thing is for participants from central banks, international institutions, and academia to present their views and share their ideas. Although we have only a few hours today and tomorrow, it is very encouraging to be able to welcome representatives from various institutions and from academia to participate in these discussions. I look forward to hearing a broad spectrum of views and insights into the post-pandemic economy and policies. Thank you. 3/3 BIS central bankers' speeches
|
bank of japan
| 2,021 | 6 |
Speech (via webcast) by Mr Hitoshi Suzuki, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Yamaguchi, 26 May 2021.
|
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 recovery in overseas economies (Chart 3). By goods, the pace of increase in exports of automobile-related goods has leveled off, mainly affected by a peaking-out of pent-up demand and a shortage of semiconductors. Meanwhile, IT-related exports have increased clearly because demand has been firm for a wide range of goods, including those related to smartphones and personal computers, as well as parts for data centers and on-board equipment for motor vehicles. Exports of capital goods have also increased, partly supported by a global rise in machinery investment and by firm exports of semiconductor production equipment that reflect the expansion in digital-related demand. As for the outlook, although the pace of increase is likely to decelerate for the time being, mainly for automobile-related goods, affected by such factors as a shortage of semiconductors, exports are projected to continue increasing firmly on the back of a steady expansion in digital-related demand and a global recovery in business fixed investment. Turning to private consumption, a pick-up has paused due to increased downward pressure on consumption of services, such as eating and drinking as well as accommodations (Chart 4). By type, durable goods have been on an uptrend from the bottom hit around spring 2020, on the back of an expansion in stay-at-home demand and the effects of a demand shift from services. As for nondurable goods, food and daily necessities have been firm on the back of an expansion in stay-at-home consumption, albeit with some fluctuations depending on the situation with COVID-19, while clothes have dropped since the turn of 2021, mainly reflecting the effects of the resurgence of COVID-19. In addition, as public health measures have been tightened for a period that includes the long holiday weekend from end-April through early May, consumption of services, such as eating and drinking as well as accommodations, is once again in a severe phase. In the outlook, private consumption, mainly of face-to-face services, is likely to remain at a relatively low level for the time being due to the impact of COVID-19. Thereafter, it is expected to pick up again with the impact waning gradually and supported also by the government's economic measures. As for business fixed investment, weakness has been seen in some industries; for example, there has been a decrease in construction of stores and accommodation facilities by the eating and drinking as well as accommodations industries and a downtrend in 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- Business fixed investment in the Tankan is on the basis close to GDP definition; that is, business fixed investment -- including software and research and development (R&D) investments but excluding land purchasing expenses -- in all industries and enterprises including financial institutions. June quarter of 2020 but then narrowed within negative territory for two consecutive quarters, reflecting a pick-up in economic activity (Chart 7). That said, improvement in the output gap seems to have paused temporarily for the January-March quarter of 2021, affected by the resurgence of COVID-19 and the reinstatement of the state of emergency. In these circumstances, medium- to long-term inflation expectations, which represent the perception of firms and households regarding future prices, have been more or less unchanged. Meanwhile, firms' price cuts that aim at stimulating demand have not been observed widely. This is mainly because (1) cutting prices cannot be expected to boost demand when the primary cause of the decrease in demand is consumers' vigilance against COVID-19, as is the case with face-to-face services, (2) firms are finding it difficult to make price cuts that would lead to a further deterioration in their profits, in a situation where they are taking measures such as conducting temperature checks and disinfection steps or reducing the number of seats, and (3) stay-at-home demand for goods, of which prices are sensitive to economic activity, has expanded while demand for services, of which prices are less so, has declined. C. Outlook for and Risks to Economic Activity and Prices Japan's economy is likely to recover, although the level of economic activity, mainly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being. That is, with the impact of COVID-19 waning gradually and the economy being supported by an increase in external demand, accommodative financial conditions, and the government's economic measures, a virtuous cycle from income to spending is expected to operate. Thereafter, as the impact subsides, the economy is projected to continue growing with the virtuous cycle intensifying. Given these factors, in the Bank's April 2021 Outlook for Economic Activity and Prices (Outlook Report), the forecasts of the majority of Policy Board members for the real GDP growth rate are in the range of 3.6 to 4.4 percent, 2.1 to 2.5 percent, and 1.2 to 1.5 percent for fiscal 2021, 2022, and 2023, respectively (Chart 8). Turning to prices, they are likely to be under considerable downward pressure from the effects of a particular factor -- namely, the significant decline in mobile phone charges. However, as for other items, price cuts that aim at stimulating demand have not been and are not likely to be observed widely. Thereafter, the year-on-year rate of change in the CPI is expected to increase gradually, on the back of the output gap continuing to improve along with economic recovery and the effects of the reduction in mobile phone charges dissipating. In the April Outlook Report, the forecasts of the majority of Policy Board members for the year-on-year rate of change in the core CPI are in the range of 0.0 to 0.2 percent, 0.5 to 0.9 percent, and 0.7 to 1.0 percent for fiscal 2021, 2022, and 2023, respectively (Chart 8). However, the outlook for economic activity and prices remains highly unclear. In particular, the impact of COVID-19 on domestic and overseas economies continues to require close and careful monitoring. The outlook is based on the assumption that the impact of COVID-19 will wane gradually and then almost subside in the middle of the projection period. However, the pace of the vaccine rollout and the effectiveness of the vaccines entail uncertainties, and thus there is a risk that downward pressure on economic activity will increase. It is also uncertain how firms' and households' appetite for spending and their behavior, including price setting, will change due to the shock caused by COVID-19 that has pushed down the economy considerably. Moreover, if COVID-19 has a larger impact than expected, attention should be paid to the risk that deterioration in the real economy will affect financial system stability, thereby exerting further downward pressure on the real economy. II. Conduct of Monetary Policy With regard to the Bank's policy conduct, I would like to talk about (1) policy responses in light of the impact of COVID-19 and (2) further effective and sustainable monetary easing. A. Policy Responses in Light of the Impact of COVID-19 Let me first touch on policy responses in light of the impact of COVID-19. The Bank has conducted powerful monetary easing since March 2020 in response to COVID-19 through three measures (Chart 9). Specifically, the first is the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) -- the Special Program -- to provide support for financing to firms and sole proprietors so that they can sustain their businesses. The second is an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations, to ensure stability in financial markets. The third is purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) to lower risk premia in asset markets. These three measures have been functioning effectively so far. Specifically, although weakness in firms' financial positions continues to be seen, the environment for external funding, such as bank borrowing and the issuance of CP and corporate bonds, has remained accommodative owing to the Bank's and the government's responses as well as to private financial institutions having actively fulfilled the functioning of financial intermediation. In addition, financial markets, which became highly volatile in spring 2020, have regained stability on the whole. However, there continues to be high uncertainty regarding the impact of COVID-19 on domestic and overseas economies. In this situation, the Bank decided in December 2020 to extend the duration of the Special Program by six months until the end of September 2021 in order to continue to support corporate financing. While closely monitoring the impact of COVID-19, it will consider a further extension of the Special Program and take additional easing measures if necessary. B. Further Effective and Sustainable Monetary Easing Now, I will elaborate on further effective and sustainable monetary easing. In a situation where Japan's economic activity and prices are projected to remain under downward pressure for a prolonged period due to the impact of COVID-19, the Bank conducted the Assessment for Further Effective and Sustainable Monetary Easing in March, with a view to supporting the economy and thereby achieving the price stability target of 2 percent. Based on the findings, the Bank judged that the following basic stance on monetary policy was important: with a view to achieving the target, the Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control in a sustainable manner and make nimble and effective responses without hesitation to counter changes in developments in economic activity and prices, as well as in financial conditions. QQE with Yield Curve Control consists of two major components: yield curve control and an inflation-overshooting commitment (Chart 10). Yield curve control is a framework for market operations that facilitates the formation of the yield curve -- that is, the term structure of interest rates that is most appropriate for achieving the price stability target. Specifically, the Bank applies a negative interest rate of minus 0.1 percent to a portion of financial institutions' current account balances at the Bank and purchases a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around 0 percent. The inflation-overshooting commitment is to continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2 percent and stays above the target in a stable manner. Through this commitment, the Bank is implementing a so-called makeup strategy, in which monetary easing is conducted taking into account instances when the observed inflation rate continued to stay below 2 percent, and thereby aims to strengthen the formation of inflation expectations. Effects of Monetary Easing The findings of the assessment in March confirmed that QQE with Yield Curve Control had had positive effects in line with the intended mechanism (Chart 11). To start with, nominal interest rates have been kept at extremely low levels through yield curve control, and inflation expectations have been higher than those prior to the introduction of QQE. As a result, real interest rates -- the difference between the two figures -- have been clearly negative, and funding costs for firms and households have been kept low. In addition, conditions in financial and capital markets have remained favorable, with foreign exchange rates being stable on the whole and stock prices following an uptrend. These developments have pushed up economic activity, and corporate profits and the employment situation have improved. Turning to prices, underlying inflation has taken hold in positive territory in a situation where aggregate demand has continued to exceed average supply capacity and wages have increased moderately. That said, the situation where inflation rates do not rise easily has continued. One reason behind this is that it will take time to change people's mindset and behavior based on the assumption that prices will not increase easily, which have become deeply entrenched because of the experience of prolonged deflation. The findings of the assessment confirmed that (1) the Bank's JGB purchases had statistically significant effects on long-term interest rates in terms of lowering them, and (2) a decline in interest rates had been effective in pushing up economic activity and prices, mainly through a decrease in funding costs and favorable conditions in financial and capital markets. Looking at the effects on economic activity and prices of a decline in interest rates with different maturities, the results of the examination indicate that (1) the degree to which a decline in real interest rates affects economic activity and prices is relatively large for short- and medium-term interest rates and becomes smaller the longer the maturity and (2) a decline in super-long-term interest rates has a negative impact on consumer sentiment. With regard to the inflation-overshooting commitment, which is the second component of QQE with Yield Curve Control, an analysis using an economic model reconfirmed that it was appropriate to employ the makeup strategy as the Bank's monetary policy conduct. Effects on the Functioning of the JGB Market and Financial Intermediation The assessment also touches on the effects of QQE with Yield Curve Control on the functioning of the JGB market and financial intermediation (Chart 12). First, it is suggested that the functioning of the JGB market has decreased since the introduction of yield curve control, with the range of fluctuations in interest rates having narrowed. This is, in a sense, an inevitable consequence of maintaining interest rates stably at low levels. However, in terms of the sustainable conduct of yield curve control, it is important to strike an appropriate balance between maintaining market functioning and controlling interest rates. On this point, the findings of the assessment conducted in March showed that fluctuations in interest rates within a certain range could have positive effects on the functioning of the JGB market without impairing the effects of monetary easing. Next is the effects on the functioning of financial intermediation. Reflecting the prolonged low interest rate environment and structural factors such as the decrease in loan demand due to, for example, the declining population, financial institutions' core profitability has continued to decline as a trend and likely will keep doing so. Thus, attention needs to be paid to the risk that prolonged downward pressure on their profits may lead to a gradual pullback in financial intermediation and to the possibility that the vulnerability of the financial system will increase, mainly as a result of financial institutions' search for yield behavior. Fewer market participants expect short-term interest rate cuts by the Bank, and an increasing number of those who are not expecting interest rate cuts tend to point to the impact on the functioning of financial intermediation as a reason. Policy Actions Based on the findings of the assessment, the Bank decided to mainly take the following policy actions (Chart 13). First, with a view to enabling it to cut short- and long-term interest rates nimbly while considering the impact on the functioning of financial intermediation, the Bank established the Interest Scheme to Promote Lending. In this scheme, the Bank applies certain interest rates, which are linked to the short-term policy interest rate, as an incentive to financial institutions' current account balances, corresponding to the amount outstanding of funds that have been provided through its various fund-provisioning measures to promote financial institutions' lending. When the short-term policy interest rate is lowered, the applied interest rates on a portion of financial institutions' current account balances will be raised through this scheme and their lending thereby will be promoted further. Second, in order to conduct yield curve control flexibly during normal times, the Bank made clear that the range of 10-year JGB yield fluctuations would be between around plus and minus 0.25 percent from the target level, which was previously referred to as about double the range of around plus and minus 0.1 percent. At the same time, it decided to introduce "fixed-rate purchase operations for consecutive days" as a powerful tool to stop a rise in interest rates when necessary. On this basis, under the continuing impact of COVID-19 in particular, the Bank will conduct yield curve control with a priority on stabilizing the entire yield curve at a low level. Third, regarding ETF and J-REIT purchases, the Bank decided to maintain the upper limits on annual paces of increase in the amounts outstanding of ETFs and J-REITs at about 12 trillion yen and about 180 billion yen, respectively, even after COVID-19 subsides, although these limits were decided as a temporary measure in response to COVID-19. It will conduct such purchases more flexibly in a prioritized manner while taking into account market conditions. The decision reflects the fact that ETF and J-REIT purchases have been containing instability in the market by lowering risk premia, and that the effects of purchases tend to be greater the higher the instability in financial markets and the larger the size of purchases (Chart 12). With regard to ETF purchases, the Bank decided to only purchase ETFs tracking the Tokyo Stock Price Index (TOPIX), which is an index with the largest number of component stocks, so as to prevent as much as possible the Bank's purchases from disproportionately affecting individual stocks. III. My Views Based on the Assessment for Further Effective and Sustainable Monetary Easing Next, I would like to share my views on the aforementioned policy actions. It is expected to take more time to achieve the price stability target, due in part to the impact of COVID-19. In this situation, I consider that all policy actions decided at the Monetary Policy Meeting (MPM) in March to enhance the sustainability and nimbleness of monetary easing are desirable. Let me now elaborate on the following three points: (1) yield curve control, purchases of ETFs and J-REITs, and (3) financial system stability. First, with regard to yield curve control, the Bank made clear that the range of 10-year JGB yield fluctuations would be between around plus and minus 0.25 percent. This is important for maintaining the price stabilization function in the bond market. This market consists of participants -- such as banks, pension funds, and insurance companies -- who seek long-term holdings of bonds with maturities that match their investment-management needs, as well as investors such as arbitrageurs and speculators. Many of these investors are said to have exited the bond market as they lost their profit opportunities due to smaller fluctuations in interest rates that resulted from the introduction of yield curve control. If interest rates fluctuate to some extent again and such investors stay in the market, this will help maintain the price stabilization function in the market during periods of high volatility. I think that the Bank's clarification regarding the range of JGB yield fluctuations will also contribute to financial system stability. More specifically, in a situation where the increase in deposits continues to far exceed that in loans and domestic banks' needs to invest their excess funds have been growing further, fluctuations in 10-year JGB yields between around plus and minus 0.25 percent mean that there are favorable buying or selling opportunities. How to take advantage of these opportunities depends on each financial institution, but I consider that meeting the investment-management needs through market functioning will also contribute to maintaining financial system stability. Second, I think that it is important for the Bank to conduct purchases of ETFs and J-REITs while paying attention to its financial soundness. The Bank has been purchasing these assets with a view to achieving the price stability target of 2 percent, and it certainly is necessary to continue with such purchases. Traditionally, however, assets purchased by the Bank are composed mainly of government securities that are free from principal risk, as most of the Bank's liabilities consist of its current account deposits, the original funds of which are perceived to be bank deposits placed by the general public, as well as banknotes. The Bank has taken measures to ensure its financial soundness, such as provisions for possible losses. However, as the Bank's ETF and J-REIT holdings increase, the impact on the Bank's balance sheet will become large. Therefore, as for purchases of ETFs and J-REITs, I think that it is desirable for the Bank to constrain the paces of increase in their amounts outstanding as much as possible by conducting the purchases flexibly; it will decisively conduct them on a large scale during times of heightened market instability while refraining from conducting them during normal times. In this regard, I consider that it was appropriate for the Bank to make clearer its stance that it would purchase these assets more flexibly in a prioritized manner while taking into account market conditions, based on the findings of the assessment conducted in March. The third point is financial system stability. The Bank will persistently continue with further effective and sustainable monetary easing to achieve the price stability target of 2 percent. For monetary easing measures to have a sustained impact, maintaining the stability of the financial system is indispensable. Therefore, it is necessary to assess minutely not only the positive effects of monetary easing on economic activity and prices but also its side effects on the functioning of financial intermediation and financial markets that accumulate over time. In relation to this, based on the findings of the assessment in March, along with the aforementioned three policy actions, the Policy Board decided to bring in participation by the Financial System and Bank Examination Department, a section that is in charge of ensuring financial system stability, at the MPMs when the Outlook Report is decided. In my opinion, this decision is of great importance in making clearer that the Bank aims to conduct monetary policy while taking account of financial system stability. The Bank will continue to conduct monetary policy in an appropriate manner so as to fulfill the two missions of achieving price stability and ensuring the stability of the financial system. Thank you for your attention. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Yamaguchi (via webcast) May 26, 2021 SUZUKI Hitoshi Bank of Japan IMF World Economic Outlook (as of April 2021) real GDP growth rate, y/y % chg. projection projection World -3.3 6.0 4.4 Advanced Economies -4.7 5.1 3.6 United States -3.5 6.4 3.5 Euro Area -6.6 4.4 3.8 United Kingdom -9.9 5.3 5.1 Japan -4.8 3.3 2.5 Emerging Market and Developing Economies -2.2 6.7 5.0 Emerging and Developing Asia -1.0 8.6 6.0 China 2.3 8.4 5.6 ASEAN-5 -3.4 4.9 6.1 Russia -3.1 3.8 3.8 Latin America and the Caribbean -7.0 4.6 3.1 CY Source: World Economic Outlook, IMF. Chart 1 Chart 2 Japan's Real GDP s.a., q/q % chg. Q1 Q2 Q3 Q4 Q1 -0.5 -8.1 5.3 2.8 -1.3 [ann., q/q] [-1.9] [-28.6] [22.9] [11.6] [-5.1] Private consumption -0.8 -8.3 5.1 2.2 -1.4 Private non-resi. investment 1.3 -6.1 -2.1 4.3 -1.4 Private residential investment -3.7 0.6 -5.7 0.1 1.1 Public demand 0.1 0.5 2.4 1.6 -1.6 Exports of goods & services -4.7 -17.5 7.3 11.7 2.3 Real GDP Source: Cabinet Office. Chart 3 Real Exports and Real Imports s.a., CY 2015=100 Real exports Real imports CY 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Sources: Ministry of Finance; Bank of Japan. Note: Figures for 2021/Q2 are those for April. Chart 4 Consumption Activity Index (Real) s.a., CY 2011=100 Consumption Activity Index (travel balance adjusted) CY 2009 Consumption Activity Index 20 21 Sources: Cabinet Office; Ministry of Economy, Trade and Industry; Ministry of Internal Affairs and Communications; Bank of Japan, etc. Notes: Figures for the Consumption Activity Index (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. The component indexes whose source data for March 2021 are not yet available are extrapolated for the month by using the average month-on-month rates of change for March 2016-2018 in order to avoid the impact of COVID-19. Chart 5 Labor Market Conditions 1.8 s.a., ratio s.a., % 1.6 1.4 1.2 1.0 0.8 0.6 0.4 Active job openings-to-applicants ratio for full-time employees (left scale) Active job openings-to-applicants ratio (left scale) Unemployment rate (right scale) 0.2 0.0 CY 2005 Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 6 CPI y/y % chg. 2.0 All items less fresh food (core CPI) 1.5 All items less fresh food and energy 1.0 0.5 0.0 -0.5 -1.0 -1.5 Apr. 2013 Oct. Apr. 14 Oct. Apr. 15 Oct. Apr. 16 Oct. Apr. 17 Oct. Apr. 18 Oct. Apr. 19 Oct. Apr. 20 Oct. Apr. 21 Source: Ministry of Internal Affairs and Communications. Note: Figures exclude the effects of the consumption tax hike in April 2014. Chart 7 Output Gap 3.0 % Excess demand (upward pressure on prices) 2.0 1.0 0.0 -1.0 -2.0 -3.0 Excess supply (downward pressure on prices) -4.0 -5.0 -6.0 CY 2013/Q1 Q3 14/Q1 Q3 15/Q1 Source: Bank of Japan. Note: Based on staff estimates. Q3 16/Q1 Q3 17/Q1 Q3 18/Q1 Q3 19/Q1 Q3 20/Q1 Q3 Chart 8 Outlook for Economic Activity and Prices as of April 2021 Forecasts of the Majority of Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) +3.6 to +4.4 0.0 to +0.2 [+4.0] [+0.1] +3.3 to +4.0 +0.3 to +0.5 +2.1 to +2.5 +0.5 to +0.9 [+2.4] [+0.8] +1.5 to +2.0 +0.7 to +0.8 +1.2 to +1.5 +0.7 to +1.0 [+1.3] [+1.0] Fiscal 2021 Forecasts made in January 2021 Fiscal 2022 Forecasts made in January 2021 Fiscal 2023 Source: April 2021 Outlook for Economic Activity and Prices, Bank of Japan. Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which they attach the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. Chart 9 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previously, about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Active purchases of JGBs and T-Bills U.S. Dollar Funds-Supplying Operations Purchasing ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen Chart 10 Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (1) Yield Curve Control (2) Inflation-Overshooting Commitment % 1.0 The Bank will continue expanding the 0.8 monetary base until the year-on-year rate Target level of the long-term interest rate: around zero percent of increase in the observed CPI (all items less fresh food) exceeds the price stability 0.6 target of 2 percent and stays above the target in a stable manner. 0.4 Achieving the price stability target means 0.2 attaining a situation where the inflation Short-term policy interest rate: minus 0.1 percent rate is 2 percent on average over the 0.0 business cycle. (Statement released after the MPM in Sept. 2016) -0.2 0 1 2 3 4 5 6 7 8 9 10 15 residual maturity, year Assessment for Further Effective and Sustainable Monetary Easing Chart 11 QQE with Yield Curve Control has had positive effects in line with the intended mechanism Decline in funding costs: (nominal interest rates)↓ - (inflation expectations)↑ = (real interest rates)↓ -- The Bank's JGB purchases have statistically significant effects on long-term interest rates in terms of lowering them. Favorable conditions in financial and capital markets (Foreign exchange rates have been stable on the whole and stock prices have followed an uptrend.) Economic activity has been pushed up, and corporate profits and the employment situation have improved. Underlying inflation has taken hold in positive territory. Effects of a Decline in Interest Rates with Different Maturities on Economic Activity and Prices The effects were relatively large for short- and medium-term interest rates and became smaller the longer the maturity. An excessive decline in super-long-term yields could have a negative impact on economic activity by, for example, undermining people's sentiment. Inflation-Overshooting Commitment The "makeup strategy," which this commitment is implementing, is appropriate. Chart 12 Assessment for Further Effective and Sustainable Monetary Easing (cont'd) Effects on the Functioning of the JGB Market With the range of fluctuations in interest rates having narrowed, the functioning of the JGB market has decreased. Yield fluctuations within a certain range have positive effects on the functioning of the JGB market without impairing the effects of monetary easing. Effects on the Functioning of Financial Intermediation Financial institutions' core profitability has declined due to prolonged low interest rates and structural factors. It is necessary to pay attention to both overheating and pullback risks to the financial system. ETF and J-REIT Purchases Large-scale purchases during times of heightened market instability are effective. Chart 13 Policy Actions to Conduct Further Effective and Sustainable Monetary Easing Aim: Further Effective and Sustainable Monetary Easing "enhancing sustainability of monetary easing" & "nimble responses to counter changes in the situation" 1. Establishment of the Interest Scheme to Promote Lending Enable the Bank to cut short- and long-term interest rates more nimbly while considering the impact on the functioning of financial intermediation 2. Clarification of the range of fluctuations in long-term interest rates (±0.25%) Strike a balance between securing effects of monetary easing and maintaining market functioning <Interest Scheme to Promote Lending> Apply incentives (linked to the short-term policy interest rate) to financial institutions' (FIs') current account balances, corresponding to the amount outstanding of funds provided through fund-provisioning measures to promote lending ― Mitigate the impact on FIs' profits at the time of rate cuts depending on the amount of lending ― The applied interest rates and the eligible fund-provisioning measures for each category will be changed as necessary at MPMs depending on the situation. <Decision at the March 2021 MPM> Introduction of "fixed-rate purchase operations for consecutive days" Category 3. New guideline for ETF and J-REIT purchases Purchase ETFs and J-REITs as necessary with upper limits of about 12 tril. yen and about 180 bil. yen, respectively, on annual paces of increase in their amounts outstanding (abolish the guideline for purchasing these assets, in principle, at annual paces of increase in their amount outstanding of about 6 tril. yen and about 90 bil. yen, respectively) Purchase only ETFs tracking the TOPIX Eligible fund-provisioning measure Applied interest rate I 0.2% II Category III Special Operations in Response to COVID-19, when funds are provided against loans made by FIs on their own • Special Operations in Response to COVID-19, when funds are provided against loans other than those for Category I and against private debt pledged as collateral • • Loan Support Program Operation to Support FIs in Disaster Areas Higher than the rate for Category II 0.1% Category • Absolute value of the short-term policy interest rate 0% Lower than the rate for Category II
|
bank of japan
| 2,021 | 6 |
Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2021 BOJ-IMES Conference, 24 May 2021.
|
Haruhiko Kuroda: Opening remarks – 2021 BOJ-IMES Conference Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2021 BOJ-IMES Conference, 24 May 2021. * * * I. Introduction It is my great pleasure to welcome you all to our BOJ-IMES Conference. This is the 26th conference, and for the first time in its history since 1983, the conference is being held online. On behalf of the conference organizers, I would like to thank you all for your participation. The theme of this year’s conference is “Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic.” More than a year has passed since the outbreak of the pandemic, during which time it has caused enormous loss and damage to people all over the world. Finally, we are beginning to see the light at the end of this dark tunnel as effective vaccines are being rolled out. It is at this juncture that our conference poses the following questions: what will the so-called new normal look like that emerges after the pandemic? and, how are we going to adapt to this new normal? These questions are the central theme of the conference. As a starting point, I would like to provide some common ground for developing our discussions. Specifically, I would like to focus on three issues: the economic perspectives, policy challenges, and the nature of the post-pandemic new normal. II. Economic Perspectives A. Uneven Recession and Recovery In considering the economic perspectives, let me begin by touching on the characteristics of the recession caused by the pandemic and of the following recovery. Simply put, the most important feature of both the recession and the recovery is their unevenness. Each recession is different, but this time, the difference in the severity of the downturn among industries, business types, and occupations has been particularly dramatic. People have changed their behavior under the pandemic and in response to the containment measures. Demand for goods and services that require in-person contact has plummeted. These industries have taken a huge hit and their recovery has been slow. The unevenness of the recession and the ongoing recovery could reinforce three trends that have continued since around the global financial crisis of the late 2000s. The first trend is an increase in saving. Against the backdrop of uncertainty over the course of the pandemic and recovery, saving has increased substantially. The second trend is an increase in economic inequality. The impact of the pandemic appears to be uneven and regressive, as the negative impact has been more tilted toward low-income earners and young workers. There are therefore concerns over an increase in income and wealth inequality. The third trend is an increase in debt. Be it public or private, borrowing is essential to smooth economic activity and to mitigate the negative impact of the pandemic. As a result of the necessary response to tackle the pandemic, debt has been mounting in many countries. The trio of increased saving, inequality, and debt is considered to be intertwined in practice and may theoretically reduce the natural interest rate. Academic research on this topic is already underway. Further research and discussion is to be encouraged to promote our understanding of the new economy that will emerge after the recovery from the health crisis. B. Structural Change 1/3 BIS central bankers' speeches Besides these three trends, another important area to consider when we look at the postpandemic economy is the underlying structural changes emerging in technology and industry and the accompanying changes in the behavior of households and firms. Perhaps the most important change we have seen during the health crisis is the wide and rapid spread of digitalization. Many areas of the economy have been affected by the shift from in-person to online activities. While the movement of people across national borders has almost completely stopped, digital technology has removed geographical restrictions and eased the potential economic downturn caused by the health crisis. New businesses that use digital technology have been emerging in a wide range of areas. Looking ahead, the important point is whether these structural changes lead to a wide-spread increase in productivity in the economy, and whether the fruits of growth are widely shared throughout the society. Advances in digitalization are expected to enhance productivity and benefit a wide range of individuals and firms by promoting innovation and efficient resource allocation. On the other hand, it is necessary to pay attention to the possibility that, if the fruits of growth are concentrated in a small fraction of society and inequality increases, it may be difficult to achieve inclusive economic growth. III. Policy Challenges Next, I would like to review the policy challenges facing central banks. There are two features common to the policy responses implemented during the pandemic. The first feature is the speed of the policy responses. Major central banks immediately provided massive amounts of liquidity in response to the dislocations in domestic and foreign financial markets. By doing so, central banks cut off the negative loop between financial markets and the real economy. We have certainly made full use of our experience in the global financial crisis. The second feature is the coordination of fiscal and monetary policies. While central banks provided liquidity lifelines, governments strengthened safety nets such as income-support and job-retention measures. The division of labor between fiscal and monetary policies has generated synergy effects and contributed to preventing the economy from sliding into a free-fall. Looking to the future, the challenges facing policymakers will likely change. The initial phase has been liquidity support. This will likely change to solvency and corporate viability problems, and then to resource re-allocation in response to structural changes in the economy. At the same time, policymakers face the additional challenges of the economic inequality that has become even more apparent during this health crisis, and the response to increasing worldwide concerns over climate change. Likewise, the nature of the policy responses will also shift from temporary first aid measures to medium- to long-term structural policies. To one degree or another, this set of challenges is related to the stability of inflation, the real economy, and the financial system. In this sense, we are seeing a widening in the scope of issues that central banks should take into account. IV. Adapting to the New Normal So far, I have touched on the economic perspectives and on policy challenges. These factors will in part shape the post-pandemic new normal, although exactly how remains to be seen. One thing for certain, however, is that the world we live in will not be the same as that before the pandemic. After more than a year of living with the pandemic, we have seen a drastic change in the way our society works. In particular, the expansion of digital technology has led to a fundamental transformation in society, in ways that we could not have imagined. As I noted earlier, the shift from in-person to online activities has taken place in all aspects, such as of work, business, education, and health. Expansion in the areas of remote working, online shopping, remote learning, and telemedicine is just a few examples. I myself have participated in many online 2/3 BIS central bankers' speeches international meetings over the past year. I have benefited considerably from digital technology that allows me to reach people in different places all over the world, all at the same time. Indeed, it is thanks to the online format of this conference that I am able to welcome you all together today. Of course, there are two sides to any new technology, both positive and negative, and we cannot ignore the importance of the kind of exchange that can only come through face-to-face communication. In that respect, I do feel a certain ambivalence toward digital technology. And yet, even after we have overcome the pandemic, a full return to the less digital pre-pandemic world seems unlikely. Society has undergone irreversible change as it has adapted to the pandemic by expanding and accelerating digitalization. By building on our discoveries and experience during this health crisis, we should forge ahead and shape the new society and economy — the new normal. V. Conclusion Over the past 15 years, we have been through two global crises: the financial crisis and the health crisis. In addressing these two crises, cooperation among central banks, international institutions, and academia has deepened further, and the theory and practice of economic policies have evolved. In the current crisis, academic disciplines, including economics, have made a significant contribution. Cross-discipline approaches are providing timely policy suggestions, as, for example, through joint research in epidemiology and economics, or the use of digital technology to analyze mobility data. We are beginning to see the light at the end of this pandemic tunnel, but the light does not clearly reveal the shape of the society and economy we are approaching. Therefore, the theme of our conference, “Perspectives and Policy Challenges after the COVID-19 Pandemic,” is going to cover a wide range of issues. Given the considerable uncertainty we face, it is only natural that we will have different views on the relative importance of the issues involved and the direction our discussions should take. For the time being, we do not have to agree on all the details; the important thing is for participants from central banks, international institutions, and academia to present their views and share their ideas. Although we have only a few hours today and tomorrow, it is very encouraging to be able to welcome representatives from various institutions and from academia to participate in these discussions. I look forward to hearing a broad spectrum of views and insights into the post-pandemic economy and policies. Thank you. 3/3 BIS central bankers' speeches
|
bank of japan
| 2,021 | 6 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at the NIKKEI Financial Online Seminar, held by Nikkei, 8 June 2021.
|
June 8, 2021 Bank of Japan LIBOR Transition in the Final Stage: There will be No Deus ex Machina Speech at the NIKKEI Financial Online Seminar Held by Nikkei AMAMIYA Masayoshi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my pleasure to have the opportunity to speak to you today about the LIBOR transition at the NIKKEI Financial Online Seminar. The LIBOR transition refers to the replacement of LIBOR with alternative interest rate benchmarks in financial products referencing LIBOR. It is a significant issue that we have been facing not only in Japanese financial markets but also in global financial markets, to ensure smooth transactions going forward. This year, a landmark event took place on March 5 with regard to the LIBOR transition. On that day, the future cessation and loss of representativeness of all the LIBOR currency tenor settings were formally determined.1 Accordingly, the publication of LIBOR will be ceased for most of the currency tenor settings, including those of Japanese yen, at the end of this year. On the other hand, major U.S. dollar LIBOR tenor settings that are most widely used will be ceased at the end of June 2023. Many market participants had already been aware of the possibility of the cessation of LIBOR long before this event; nevertheless, it was still significant that these official announcements on the future cessation of LIBOR were actually made. In other words, it was fully clarified that yen LIBOR, which had been used so widely, would no longer be available at the end of this year for sure. Now that the deadline for the transition is unarguably fixed, we only have less than seven months until the permanent cessation of yen LIBOR. If we compare a series of events related to the LIBOR transition to a play, then we can say that the final act of the play, which originated in the manipulation scandal that came to light in 2012, has started with these official announcements of the cessation of LIBOR publication. At this moment, however, there are still many transactions in Japan that are not prepared for the transition away from LIBOR to alternative interest ICE Benchmark Administration (IBA), the administrator of LIBOR, published the results of its public consultation on its intention to cease the publication of LIBOR. In response, the U.K Financial Conduct Authority (FCA) issued an announcement confirming the timing of the future cessation and loss of representativeness of the LIBOR on the same day. rate benchmarks. We still have many difficult issues to solve in this final stage, although the time we have left is very limited. Speaking of "the final act of the play" that I just mentioned, in ancient Greek theater, a plot device called deus ex machina was sometimes employed, where the absolute god revealed itself and solved all the difficult issues in the hardships. The term was coined after the Latin word machina ("machine") as the actors playing the god were brought onto stage using a crane-like machine. In the final stage of the yen LIBOR transition, however, there will be no deus ex machina by any means. Most of the necessary tools to achieve a smooth LIBOR transition have been already provided, thanks to the deliberation and efforts made by relevant groups and bodies at home and abroad to facilitate each transition activity. Within the remaining time, the success of the LIBOR transition essentially depends on whether each individual market participant will make a good use of those tools and take necessary actions in a steady and swift manner. We are no longer in a phase to consider the feasibility of the LIBOR transition; we are already in the phase to be fully determined to make steady progress in the transition activities for the completion of the LIBOR transition. Today I would like to briefly look back on the events leading up to the current situation. Then I would like to focus on the yen LIBOR transition and present points that each individual market participant should take note of in implementing their own transition activities. I. LIBOR Transition A. Background First of all, let me start by briefly reflecting on the course of events concerning the LIBOR transition and corresponding initiatives in Japan. We can divide the past events related to the LIBOR transition into three different stages in retrospect. The first stage started in 2012, when it came to light that there had been a market manipulation and false reporting of LIBOR. As a result, the interest rate benchmark reform soon gained momentum internationally, but the focus of the reform at that time was still on how to improve the robustness of LIBOR as an interest rate benchmark, on the premise that LIBOR publication would be continued. Subsequently, in July 2017, the second stage began with a speech given by then Chief Executive Andrew Bailey of the U.K. Financial Conduct Authority (FCA). In his speech, he strongly suggested for the first time the possibility of the permanent cessation of LIBOR at the end of 2021. The speech shifted the nature of the interest rate benchmark reform dramatically, from the pursuit of LIBOR enhancement based on the assumption that its publication would be continued to initiatives for the transition to new interest rate benchmarks on the assumption that LIBOR would be permanently ceased. Then, as I mentioned in the beginning, the third and final stage of the LIBOR transition started in March 2021 against a background of the formal announcement with regard to the permanent cessation of LIBOR for all currencies in the future. Let me turn to the initiatives taken in Japan corresponding to each of these three stages (Chart 1). In the first stage, where the continuation of LIBOR publication remained intact, various efforts were made to enhance the robustness of the Tokyo InterBank Offered Rate (TIBOR), a financial benchmark based on interbank rates in the Tokyo market, within the framework of the interest rate benchmark reform in conjunction with yen LIBOR. In July 2017, such efforts came to fruition and important improvements were made, including increased transparency of the calculation and determination processes of submission rates for TIBOR. Moreover, the identification of a Japanese yen risk-free rate based on the rates of actual overnight transactions as a new interest rate benchmark was also considered. Consequently, in December 2016, the uncollateralized overnight call rate calculated and published by the Bank of Japan was identified as the yen risk-free rate in Japan. Thereafter, in the second stage, where the preparations for the possible permanent cessation of LIBOR became a critical issue, the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (hereafter the "Committee") was established in August 2018. The Committee, of which the Bank of Japan serves as its secretariat, consists of a wide range of market participants from various businesses, including financial institutions and non-financial corporates. It conducted necessary deliberations from various viewpoints to help benchmark users to appropriately choose and use Japanese yen interest rate benchmarks as alternatives to yen LIBOR. In the current third and final stage, which determines the success of the yen LIBOR transition, the focus has shifted to the actual implementation of the yen LIBOR transition activity by each individual market participant, as necessary tools to facilitate each transition activity are already set ready for use in general, reflecting further progress made in deliberations by relevant bodies, including the Committee. B. Alternative interest rate benchmarks to LIBOR Now, let me briefly explain what options are available for alternative benchmarks to yen LIBOR (Chart 2). There are three options available in Japan. One of the options is TIBOR, which I mentioned earlier. TIBOR is calculated and published by the Japanese Bankers Association (JBA) TIBOR Administration based on interbank rates submitted by 15 financial institutions in Japan, including major banks. Another option we have is overnight (O/N) risk-free reference rate (RFR) Compounding (Fixing in Arrears) (hereafter "compounding in arrears"), which uses the uncollateralized overnight call rate in Japan.2 I will go into a little more in detail, because the term may not sound familiar to everyone. For example, the 3-month floating rate referencing the compounding in arrears is essentially derived from cumulative interest calculated by rolling over the borrowing with the uncollateralized overnight call rate for every day of the preceding 3 months before the next payment date. The compounding in arrears should be the most robust interest rate benchmark as it is calculated using the uncollateralized overnight call rate reflecting actual transactions. The amount of the next payment based on the compounding in arrears It is called the Tokyo Overnight Average rate (TONA) in Japan. only becomes known just before the timing of the actual payment. Hence it may be less compatible with existing operations and systems that are based on the condition that the amount of the next payment is well known in advance. The introduction of the compounding in arrears could require relatively higher costs compared to other options. The last option is a term risk-free rate, called TORF (Tokyo Term Risk Free Rate) in Japan. TORF is an interest rate benchmark based on the overnight index swaps (OIS) rate, a fixed interest rate exchanged in the interest rate swaps (IRS) to a floating rate calculated using the compounding in arrears over each coupon period. Since the amount of the payment with TORF is well known in advance, like the case of LIBOR, TORF may be relatively more compatible with the existing operations and systems. However, there are important issues with the use of TORF to be addressed in terms of robustness as a financial benchmark, such as the establishment of the governance structure, the improvement of transparency in the calculation process, and the sufficiency of market liquidity of the underlying OIS market. As I have just laid out, there are multiple options for alternative interest rate benchmarks to yen LIBOR. Under these circumstances, market participants need to consider the optimal selection of the benchmark options according to the financial products they have, the nature of transactions they face, and their own individual business needs, and then to begin new transactions or make changes to their legacy contracts with the chosen alternative benchmark. To support initiatives by each of market participants, the Committee has provided the results of various discussions and deliberations and some recommendations concerning the LIBOR transition. Among those provided by the Committee is "Roadmap to Prepare for the Discontinuation of Japanese Yen LIBOR" (hereafter the "Roadmap"), which indicates milestones that market participants should take into account in the making of their own roadmap for transition.3 Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (2021), " Roadmap to Prepare for the Discontinuation of Japanese Yen LIBOR." In the next section, I would like to explain three points that market participants should note, mainly by addressing major milestones in the Roadmap. II. Toward the acceleration of the LIBOR transition A. Cessation of the issuance of new transactions referencing yen LIBOR First, according to the Roadmap, the issuance of new transactions for loans and bonds referencing yen LIBOR needs to be ceased by the end of this June (Chart 3). The Roadmap is based on the consensus of major market players in a wide range of businesses, which was reached through a series of their deliberations with related international discussions taken into account. Given the existence of the consensus, it is important that market participants complete their preparations for conducting new transactions referencing alternative interest rate benchmarks within the remaining time of less than one month. Tools necessary for ceasing the issuance of new transactions by the end of this June are already available. In July 2019, the Committee carried out its first public consultation on the choice of alternative interest rate benchmarks to yen LIBOR, including the ones for new loans and bonds, in order to solicit comments from a wide range of market participants. The results of the first public consultation were then published in November the same year. They showed that a term risk-free rate received the most support as an alternative benchmark, although neither its calculating and publishing entity nor its name was determined at that time.4 Following the results, QUICK Corp. was selected later by the Committee as a calculating and publishing entity of the term risk-free rate. Subsequently, the publication of prototype rate started, with the name of the term risk-free rate, derived from OIS rates, decided to be TORF. Then, strenuous efforts of the relevant bodies and authorities continued for the establishment of the governance system and the improvement in the transparency of the calculation process of TORF. Consequently, the publication of a production rate Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (2019), "Final Report on the Results of the Public Consultation on the Appropriate Choice and Usage of Japanese Yen Interest Rate Benchmarks." In the report, the term risk-free rate is indicated as the Term Reference Rate. for TORF designed for the use in actual transactions started on April 26 this year, about two months ahead of its initial schedule.5 Accordingly, all of the three alternative benchmarks necessary for new transactions -- TIBOR, the compounding in arrears, and TORF -- are now available. Some market participants had commented that it was difficult to start new transactions referencing an alternative benchmark unless all the options for alternative benchmarks became available, for example, for comparing the level of an interest rate based on each of the options. Now, such a point is no longer an impediment to the cessation of the issuance of new transactions referencing yen LIBOR. I strongly expect that market participants will appropriately carry out new transactions for loans and bonds referencing alternative interest rate benchmarks from the end of this June onward. B. Substantial reduction in legacy contracts referencing yen LIBOR Second, according to the Roadmap, the amount outstanding of legacy contracts for loans and bonds referencing yen LIBOR needs to be reduced substantially by the end of this September (Chart 4). To achieve this milestone, market participants are expected either to immediately renew the terms of legacy contracts concerning the reference to yen LIBOR into new terms of contracts referencing alternative benchmarks, or to incorporate an appropriate fallback provision in the contracts. The incorporation of fallback provisions in legacy contracts is an approach where contracting parties reach an agreement in advance to make sure, with a robust fallback provision, that yen LIBOR will be surely replaced with a replacement rate using an alternative benchmark, given the permanent cessation of yen LIBOR. It is significant in the sense that a robust fallback provision can ensure a future reduction in the amount outstanding of legacy contracts. Therefore, it is important for market participants to make progress in the TORF was designated as a "Specified Financial Benchmark" under the Financial Instruments and Exchange Act on April 27, 2021. QUICK Benchmarks Inc., the administrator of TORF established by QUICK Corp., was designated as a "Specified Financial Benchmark Administrator" under the Act. As a result, the calculation and publication of TORF is administered under the supervision of the Financial Services Agency (JFSA). incorporation of the robust fallback provision, in addition to transitioning to alternative benchmarks, so that the yen LIBOR transition for legacy contracts will be fully taken care of before its permanent cessation. Tools necessary for the incorporation of the fallback provision are also available now. In August 2020, the Committee carried out its second public consultation on the recommended fallback provision with its waterfall structure in legacy loans and bonds. The results of the second public consultation were published in November the same year, which showed that many market participants supported the recommendation by the Committee to give TORF the first priority and the compounding in arrears the second priority as fallback rates in the waterfall structure for both legacy loans and bonds.6 All the options of alternative benchmarks in the fallback provision are also available, as I mentioned earlier. With regard to bilateral loans and syndicated loans, samples of the fallback provision are made available on the websites of the JBA and Japan Syndication and Loan-trading Association (JSLA). I would like to ask market participants yet again to proceed steadily with the incorporation of the fallback provision by the end of this September with the use of these tools. Without the backstop of the fallback provision, market participants are highly likely to face a chaotic situation in the execution of legacy contracts referencing yen LIBOR whose maturity date arrives after the end of this year. In this connection, let me stress a point here: investors need to take more active roles in the LIBOR transition concerning the incorporation of the fallback provision to legacy contracts. In order to incorporate the new fallback provision, issuers of bonds referencing yen LIBOR need to either hold a bondholders' meeting and change the terms of its contracts by a majority vote, or to obtain the consent for such changes from all the bondholders without holding a bondholders' meeting. In particular, for the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (2020), "Final Report on the results of the Second Public Consultation on the Appropriate Choice and Usage of Japanese Yen Interest Rate Benchmarks." In the report, the first priority for the fallback rates to be used in the fallback provision is indicated as a Term Reference Rate. But, currently, TORF is the only term riskfree rate with their production rates available. latter case requiring consents of all the bondholders, active participation of those bondholders in the discussions and negotiations is essential for the success of the amendment. In the LIBOR transition for bonds referencing yen LIBOR, the roles and responsibilities of issuers are always visible; however, bondholders also bear important roles. In the limited time left before the permanent cessation of yen LIBOR, it is extremely important for both issuers and bondholders to recognize their own roles in the transition activities concerning legacy contracts, including the incorporation of the fallback provision. C. Transition from yen LIBOR swaps to OIS The last point that I will touch upon in my speech today concerns derivatives, not loans and bonds. Specifically, let me talk about the need to cease new transactions of yen LIBOR swaps and thereby to transition to those of OIS (Chart 5). The Committee published a statement entitled "Preparations for the discontinuation of LIBOR in the JPY interest rate swaps market" in late March this year.7 It requested that market participants should cease the initiation of new transactions of yen LIBOR swaps by no later than the end of this September, and they should do so as early as possible, if practicable. It also clarified that OIS should be the dominant option which would replace yen LIBOR swaps. The statement by the Committee is well in line with the global standard concerning the LIBOR transition in derivatives, as proposed by the Financial Stability Board (FSB). It is therefore important for market participants in the yen interest rate swap markets to make transition to OIS as early as possible, in accordance with the statement. That will also lead to an enhancement of the liquidity of OIS, thereby resulting in more robustness of TORF referenced in loans and bonds. Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (2021), "Preparations for the discontinuation of LIBOR in the JPY interest rate swaps market." Conclusion In my speech today, focusing on several milestones that I would like market participants to note, I have talked about my expectations for them to utilize various tools that the Committee and industry groups have prepared and thereby to swiftly proceed with the LIBOR transition going forward. There is no doubt that the LIBOR transition is very challenging. That is because many market participants have to pay great costs in their transition activities, in terms of changes in the current operations and revision of related systems. Accordingly, the judgment will be made in a more careful and cautious manner, given the virtual irreversibility of the decision due to those costs. As a result, in the LIBOR transition, market participants tend to have more incentives to postpone their decisions by taking more time to see how others will be proceeding and how market standards will be developing along the way. However, if many market participants collectively postpone their decisions on the LIBOR transition, it would not only be socially undesirable but also undermine their own benefits. Out of all the contracts referencing yen LIBOR among the surveyed financial institutions, the amount outstanding of those maturing after the end of 2021 amounted to a total of 2,000 trillion yen as of the end of 2020. 8 The continued postponement of decisions in the yen LIBOR transition is highly likely to make an orderly transition of this massive amount of LIBOR-related contracts very difficult to achieve, which might in turn result in significant impacts on our financial system and financial markets, thus hindering the sound economic activity of individual entities in its extreme cases. To avoid those risks, the Committee and industry groups have been making efforts to provide various tools to facilitate individual transition activities, including the provision of recommendations, samples, and milestones. There is only limited time left before the cessation of yen LIBOR at the end of this year. The success of the orderly transition away from yen LIBOR relies on whether each of market participants will proceed with their own LIBOR transition plan in a JFSA and the Bank of Japan (2021), "Key Results of the Survey on the Use of LIBOR." steady and swift manner, with the use of tools available to them. Let me stress again that deus ex machina will not appear in this final act of the play. As the secretariat for the Committee and the central bank, the Bank of Japan will continue to firmly support the initiatives by market participants in the remaining time, while coordinating with the Financial Services Agency (JFSA) and paying attention to overseas developments on the LIBOR transition. Thank you very much for your attention. LIBOR Transition in the Final Stage: There will be No Deus ex Machina Speech at the NIKKEI Financial Online Seminar Held by Nikkei June 8, 2021 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Chart 1 Initiatives for the LIBOR transition in Japan 1st stage (2012-) Both yen LIBOR and TIBOR (calculated based on interbank rates in the Tokyo market) became subject to the enhancement of robustness as benchmarks The uncollateralized overnight call rate was identified as the yen risk-free rate in Japan 2nd stage (July 2017-) The Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (the Committee) was established. It promoted considerations on the choice and usage of alternative interest rate benchmarks replacing yen LIBOR Final stage (March 2021-) With more progress made in the considerations, tools necessary for the transition are ready -> Now the focus is on the actual transition activities by individual market participants Chart 2 Three options for alternative interest rate benchmarks TIBOR Based on interbank rates submitted by 15 financial institutions in Japan, including major banks O/N RFR Compounding (Fixing in Arrears) Based on the uncollateralized overnight call rate used in actual transactions The most robust benchmark, but it may be less compatible with the existing administrations and systems because the interest amount is only finalized just before the next payment TORF（Tokyo Term Risk Free Rate） The term risk-free rate in Japan Based on the OIS rate, a fixed interest rate exchanged in the interest rate swaps (IRS) to a floating rate calculated using the uncollateralized overnight call rate compounded in arrears It may be more compatible with the existing operations and systems but how to establish its robustness is a critical issue Chart 3 Toward the acceleration of the LIBOR transition Milestone The issuance of new transactions for loans and bonds referencing yen LIBOR needs to be ceased by the end of June 2021 Tools for the success The Committee indicated in the results of its first public consultation that the term riskfree rate received the most support as an alternative benchmark The publication of a production rate for TORF started on April 26, 2021 (about two months ahead of its initial schedule) Chart 4 Toward the acceleration of the LIBOR transition Milestone The amount outstanding of legacy contracts for loans and bonds referencing yen LIBOR needs to be reduced substantially by the end of September 2021 Tools for the success The Committee indicated in the results of its second public consultation that its recommendation to give TORF the first priority and the O/N RFR Compounding (Fixing in Arrears) the second priority as fallback rates was supported by many market participants Industry groups, including the JBA, published samples for fallbacks in loans Chart 5 Toward the acceleration of the LIBOR transition Milestone New transactions of yen LIBOR swaps needs to be ceased and transitioned to those of OIS Tools for the success The Committee published "Preparations for the discontinuation of LIBOR in the JPY interest rate swaps market" New transactions of yen LIBOR swaps should be ceased by no later than the end of September 2021 OIS should be the dominant option replacing yen LIBOR swaps 5■
|
bank of japan
| 2,021 | 6 |
Speech (via webcast) by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Shizuoka, 2 June 2021.
|
June 2, 2021 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Shizuoka (via webcast) ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Recent Developments in Economic Activity at Home and Abroad A. Developments regarding the Novel Coronavirus (COVID-19) I would like to begin my speech by talking about developments regarding COVID-19. The outbreak of COVID-19 was first identified in China in January 2020, spreading to Europe from late February, and ultimately worldwide. The number of confirmed new cases continued to increase with large fluctuations across countries and regions. Since the beginning of 2021, however, developments in such figures appear to have become somewhat polarized. That is, in countries where vaccinations are steadily progressing, such as the United States, the United Kingdom, and Israel, the number of cases peaked out and has turned toward a downtrend; on the other hand, in emerging economies, which are falling behind in vaccinations, the number of cases has remained at a high level, partly affected by new variants (Chart 1). In Japan, as the number of cases has been increasing again since early spring 2021, mainly in major metropolitan areas, the government declared a state of emergency for the third time. B. Overseas Economies With a view to suppressing the spread of COVID-19, many countries implemented measures to constrain economic activity around spring 2020 by imposing restrictions on going outside and on people's movement. Therefore, the real GDP growth rates worldwide registered substantial declines for the April-June quarter that year. Nevertheless, partly because the characteristics of COVID-19 came to light to a certain extent over time, there were no across-the-board restrictions on economic activity in subsequent waves of COVID-19, and business conditions have started to improve on a global basis (Chart 2). With regard to the manufacturing industry, world industrial production and the world trade volume already exceeded the pre-pandemic levels and have been on an expanding trend (Chart 3). This trend applies not only to advanced economies but also emerging economies, where COVID-19 has been spreading. In that sense, it can be said that the impact of the spread of COVID-19 is particularly notable in the face-to-face services industry. C. Japan's Economy Turning to Japan, the economy has been on a recovery trend, led mainly by external demand, on the back of rapid economic recovery, particularly in the United States and China. This trend is characterized by increases in demand in the machinery industry, where Japanese firms have a competitive advantage, and the IT sector, both reflecting the growing momentum toward a global expansion in business fixed investment. Looking at Japan's exports by type of goods, it can be confirmed that those of IT-related goods and capital goods have increased clearly of late (Chart 4). That said, it is not only the manufacturing industry that has seen an improving trend in business conditions. Among domestic demand-oriented firms in the nonmanufacturing industry, business conditions of retailers, which provide goods, have been generally firm despite temporary store closures and other restrictions, supported by stay-at-home consumption by households that have lost opportunities for going out due to the spread of COVID-19. Some retailers have discovered the business opportunity of expanding online sales channels and started to make active investment in e-commerce, which is one of the factors underpinning business fixed investment in Japan. Furthermore, even in the face-toface services industry, which has been placed in a severe situation during the pandemic, some firms that are motivated to provide high-end and high value-added services have yielded added value by implementing thorough infection control and captured growing demand from customers. As just explained, the impact of the spread of COVID-19 varies significantly depending on business attributes, and the pace of recovery differs as well. This situation is also observed in other major economies. D. Policy Effects Since the outbreak of COVID-19, the government and the Bank have been working in coordination and implementing various measures to underpin Japan's economy. As a result of these measures, a tightening of firms' funding conditions has been averted and the environment for external funding, such as bank borrowing and the issuance of CP and corporate bonds, has remained accommodative. The numbers of corporate bankruptcies and discontinued businesses have also been at extremely low levels. At the press conference at the end of March 2020 upon my appointment as a Member of the Policy Board, I noted that the first priority was to support corporate financing and that the Bank should actively provide liquidity. Thereafter, at the Monetary Policy Meetings (MPMs) held in April and May 2020, the Bank swiftly set out a strengthening of liquidity provision measures with a view to supporting corporate financing. Such policy responses, coupled with the government's economic measures, have been effective in preventing a further pandemic-driven deterioration of Japan's economy. II. Outlook for Economic Activity at Home and Abroad A. Uncertainties regarding the Outlook As I described earlier, economic activity at home and abroad has continued on an improving trend so far. That said, I think there remain extremely high uncertainties regarding the outlook. I would like to point to the following three uncertainties. The first concerns the pace of progress with vaccinations in Japan. Unless considerable progress is made and the overall society succeeds in achieving herd immunity, there is concern that economic activity may be constrained in the face-to-face services industry, such as eating and drinking as well as accommodations, every time COVID-19 cases resurge, and that this could delay the industry's recovery. Repeating this situation will make it difficult to envisage sustainable improvement in consumer sentiment. I will closely monitor developments in the pace of vaccination progress in Japan, as it is an important factor when envisioning sustainable economic recovery. In relation to this, services consumption in the United States, which almost inevitably was suppressed from last year, has started to recover rapidly, mainly supported by an acceleration in vaccinations and large-scale economic measures (Chart 5). Looking back, I find that such quick recovery in consumption is similar to the rapid expansion seen in the country at the time of the transitional period after World War II. Back then, demand for consumption of durable goods and services, which had been restrained during the war, was unleashed upon its end. As for the current COVID-19 crisis, attention is warranted on whether a decline in the number of confirmed cases resulting from vaccinations would unleash the suppressed demand. As I will elaborate on later, I personally believe that, if consumption expands rapidly and significantly in Japan as in the United States post-war, this may provide a great opportunity to resolve Japan's protracted deflation. The second uncertainty involves developments in global financial markets, particularly the U.S. stock market. In global financial markets, market sentiment has continued on an improving trend and prices of risk assets such as stocks have risen, due to heightened expectations for a recovery in the global economy, mainly on the back of progress with vaccinations and the additional economic measures taken in some advanced economies (Chart 6). As I mentioned earlier, U.S. consumption has started to recover rapidly. However, it is necessary to bear in mind the potential impact on the U.S. stock market of a shift in the flow of funds from one that likely had been into that market to one into markets for goods and services. This is because there is a risk that such market developments may affect the U.S. real economy and in turn Japan's external demand, which has been underpinning its economic recovery. The third uncertainty concerns "geoeconomical" risks. Here, I would like to use the term "geoeconomical" rather than "geopolitical." My view is that, in recent international affairs, diplomatic and security policies and economic policies tend to be discussed in a more integrated manner. In general, geopolitics take into account diplomatic and security policies, whereas geoeconomics equally incorporate economic policies. Taking U.S.-China relations as an example, while various discussions may be held on such topics as transferring technology and capital across borders, attention is warranted on how the course of these discussions will potentially affect corporate activities and trade in Japan, among other factors. As illustrated, I believe that uncertainties surrounding domestic and overseas economies remain extremely high and it is necessary to assess the outlook without preconception. B. Policy Responses Going Forward In the face of such uncertainties, I consider one of the Bank's policy challenges for the time being to be the treatment of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19), for which the duration at present is until end-September 2021. The environment surrounding corporate financing has generally remained stable so far, including the situation regarding bankruptcies of firms, and industries strongly affected by the spread of COVID-19 appear to be becoming limited. In fact, the issue with corporate financing is shifting from liquidity to solvency. Accordingly, the funding needs of some firms have begun to shift from borrowing to securing capital funds. These developments suggest that the environment surrounding the Special Program is changing. At the same time, it is difficult to envisage a clear recovery in face-to-face services consumption until herd immunity is achieved through widespread vaccinations. Thus, as long as COVID-19 cases resurge repeatedly, we cannot rule out the possibility of firms having funding difficulties. Taking into account such environmental changes surrounding corporate financing, the Bank needs to deepen discussions on the treatment of the Special Program from this October onward by carefully monitoring future developments in corporate financing. III. In View of the Post-COVID-19 Era and toward Achievement of the 2 Percent Price Stability Target A. Importance of Achieving the 2 Percent Price Stability Target In March 2021, the Bank conducted an assessment of the positive and side effects of its monetary policy to date for the purpose of conducting further effective and sustainable monetary easing (Chart 7). While the assessment was detailed and multifaceted, what I found particularly noteworthy was how its findings reconfirmed that prices in Japan are strongly influenced by the adaptive formation of inflation expectations -- in other words, people's perception of prices shaped in accordance with such factors as historical trends and observations. I have come to realize that, in achieving the 2 percent price stability target, a change must somehow be induced in this deeply entrenched perception of prices. Of course, individual firms and households differ in their views on prices. As for the price stability target of 2 percent that the Bank aims to achieve, I would not be surprised if a certain number of firms and households had the following concern. When the price stability target is achieved, would this not affect people's daily lives in the eyes of households? Or, from the perspective of firms, would this not result in a worsening of profitability through an increase in costs? Looking back at the so-called deflationary period in the past, many firms, in efforts to survive, sought to reduce labor costs by means of, for example, reviewing employment forms. This resulted in a vicious cycle: the income situation of households deteriorated due to a decrease in wages, restrained consumption led to a decline in firms' sales, and firms had no choice but to adjust their employment. The serious appreciation of the yen under deflation also caused prolonged deflation. The bold and large-scale monetary easing conducted by the Bank since 2013 successfully put an end to the prolonged deflationary trend from which Japan's economy had suffered. In this process, the employment situation recovered and firms, as they saw improvement in their earnings projections, came to sense labor shortage. It is my understanding that Japan's labor shortage had already been widely acknowledged as a medium- to long-term challenge facing its economy prior to 2013. What, then, led the wider public to take up the issue from 2013 onward? I believe this was partly due to the fact that an increasing number of firms sought to continue with or expand their businesses into the future as the prospect of overcoming deflation came into sight. Until then, the issue of labor shortage, which stemmed from a declining and aging population, may have been obscured because firms had to consider downsizing on the assumption that deflation would continue. As such, the deflationary environment surrounding Japan's economy has eased considerably, but there is still room for further improvement. Needless to say, if we take a look at Japan's employment situation, those who have the willingness to work but are unable to participate in the labor market still exist, as do many small and medium-sized firms, particularly local firms, facing severe business conditions. In other words, I believe that, in Japan, there remains economic slack that should be fully exploited, and achieving the 2 percent price stability target would support efforts to absorb this in terms of monetary policy. Achievement of the target is not intended to solely raise prices. Rather, let me clarify that achieving the optimal price level that would bring about the most favorable economic environment would significantly enhance our standard of living. I would like to stress once again that the 2 percent price stability target is a key policy objective that the Bank must steadfastly work to achieve. B. Toward Achievement of the 2 Percent Price Stability Target The findings of the Bank's latest assessment confirmed that prices in Japan are strongly influenced by the adaptive formation of inflation expectations. To achieve the 2 percent price stability target, the Bank needs to change the deeply entrenched perception of prices. In doing so, it would be crucial to raise the inflation expectations of firms and households in tandem with a sustained increase in the expected growth rate. This implies that we must anticipate a long battle toward achieving the 2 percent price stability target. How the Bank should take part in boosting the expected growth rate is a quite complex issue. At present, there is no doubt that Japan's expected growth rate is low (Chart 8). In my view, the role the Bank can play in raising growth expectations for Japan's economy is to persistently continue with the current monetary easing and thereby, for example, encourage improvement in corporate productivity, such as through expanded business fixed investment. Moreover, if we are bracing for a long battle, it is possible that some kind of external shock will exert significant downward pressure on Japan's economy in the meantime. If this happens, the Bank must not hesitate to take additional easing measures. It reviewed its policy measures at the March 2021 MPM to enable such sustainable and nimble policy conduct, in light of the findings of its assessment (Chart 9). C. Post-COVID-19 Era and Achievement of the Price Stability Target I believe the Bank can achieve the 2 percent price stability target by persistently continuing with monetary easing under the revised policy measures. I am also paying close attention to the possibility that behavioral changes within Japanese firms and households drawn from the experience of the pandemic will alter the existing price perception. Although COVID-19 will subside eventually, it is difficult to imagine the virus being eradicated. While vaccinations are expected to have a reasonable effect, the face-to-face services industry in particular, such as eating and drinking as well as accommodations, may need to continue to bear significant costs related to infection control, considering that living with COVID-19 is unavoidable. In addition, given the increasingly aging population in Japan, one possibility is that consumption of high value-added goods and services, even at high prices, will drive overall private consumption. In that case, wages of workers capable of providing such high value-added goods and services will naturally be set higher. With these factors in mind, I have come to think that the post-COVID-19 phase may be an opportunity for the services industry to raise the prices of their services while improving their quality. As Japan's past deflationary phase is characterized by the fact that there were almost no price rises in the domestic demandoriented services industry, the post-COVID-19 era may afford a prime opportunity to achieve the 2 percent price stability target. Of course, this view entails high uncertainties. How things actually play out will depend on firms' business strategies based on their prospects for the post-COVID-19 era. I sometimes get feedback that firms in Japan may find it difficult to raise sales prices because of concern that a vague uneasiness about the future might hinder improvement in consumer sentiment. The Bank will continue to support Japan's economy in fostering an economic environment where some degree of occasional price rises is socially tolerated. There are also other factors suggesting that prices may rise more than expected. One example is firms' environmental, social, and governance (ESG) initiatives. In particular, I am following the Impact-Weighted Accounts Initiative headed up by Professor George Serafeim of Harvard Business School in the United States.1 I believe this project represents vital research that will foster the spread of ESG investment amid heightening global awareness of climate change risks. One facet of this research is the attempt to incorporate carbon dioxide emissions, a cause of global warming, into financial accounts as a corporate cost. What I am keenly interested in is the concept that generous worker compensation increases the well-being of society, which is the underlying value of economic activity. Based on this concept, the project attempts to reflect wages in financial accounts, not as a cost to firms but as added value produced by them. If these attempts create a new trend in corporate accounting, higher wages may in turn contribute to an increase in prices. The Impact-Weighted Accounts Initiative attempts to reflect in the financial statements the environmental and social impact of firms' activities in terms of numerical value so that firms and investors, in their decision-making, can take that into account, and not just the financial impact. D. Learning from History As I noted earlier, we need to brace for a long battle to achieve the 2 percent price stability target. While the Bank has been conducting bold monetary easing, some may say that it is better to review monetary policy at an early stage once there are solid prospects of postCOVID-19 economic normalization in Japan. However, one lesson taken from the Great Depression and other economic crises is that a hasty revision of monetary policy would actually undermine a nascent economic recovery and end up triggering a new crisis. As a policymaker, I take this lesson to heart. On this score, the Bank, under the current policy framework, commits to continued expansion of the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI) excluding fresh food exceeds 2 percent and stays above this target level in a stable manner. The intention here is to enhance the credibility of achieving the price stability target of 2 percent through an extremely strong commitment, in that the Bank promises to continue with monetary easing based on observed CPI inflation rather than the outlook for CPI inflation. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Shizuoka (via webcast) June 2, 2021 ADACHI Seiji Member of the Policy Board Bank of Japan Chart 1 COVID-19 Share of Vaccinated People Confirmed New Cases of COVID-19 ten thous. persons United States Europe India Latin America Other emerging economies % Israel United Kingdom United States European Union India Latin America NIEs and ASEAN Jan.1/2020 Apr. 1 July 1 Oct.1 Jan.1/21 Apr.1 Dec.1/2020 Jan.1/21 Feb.1 Mar.1 Apr.1 May 1 Notes: 1. In the left-hand chart, figures for the United States, Taiwan, and Hong Kong are from the Centers for Disease Control and Prevention (CDC), the Taiwan Ministry of Health and Welfare, and the Hong Kong Centre for Health Protection, Department of Health, respectively. All other figures are from the World Health Organization (WHO). Figures for Europe are the sum of figures for the European Union and the United Kingdom. Figures for Latin America are the sum of figures for the major economies in the region. Figures for other emerging economies are the sum of figures for South Africa, Russia, Turkey, and the major economies in the NIEs and ASEAN and the Middle East. Figures show 7-day backward moving averages. 2. The right-hand chart shows the share of the total population who received at least one dose of the COVID-19 vaccine. Figures for Latin America and the NIEs and ASEAN are for the major economies in the respective regions. In the case of missing figures, the latest figure available prior to the relevant date is used. Sources: CEIC; United Nations. Chart 2 Global Purchasing Managers' Index (PMI) s.a., DI Manufacturing Services Jan. 2020 Apr. July Oct. Jan. 2021 Apr. Note: Figures for manufacturing are the "J.P. Morgan Global Manufacturing PMI." Figures for services are the "J.P. Morgan Global Services Business Activity Index." Source: IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.). Chart 3 World Industrial Production and World Trade Volume 2019/Q4=100 World industrial production World trade volume Oct. 2019 Jan. 2020 Apr. July Note: Figures for the world trade volume are those for real imports. Source: CPB Netherlands Bureau for Economic Policy Analysis. Oct. Jan. 2021 Chart 4 Real Exports by Type of Goods s.a., 2016/Q1=100 s.a., 2016/Q1=100 Intermediate goods <21.2> IT-related goods <21.9> Motor vehicles and related goods <21.8> Capital goods <17.4> CY 2016 21 2016 Notes: 1. Based on staff calculations. Figures in angular brackets show the share of each type of goods in Japan's total exports in 2020. 2. Figures for 2021/Q2 are those for April. Sources: Bank of Japan; Ministry of Finance. Chart 5 U.S. Private Consumption CY 2019=100 1966/Q1=100 Retail sales (left scale) Restaurant sales (left scale) Consumer confidence (right scale) Jan. 2020 Mar. May July Sept. Nov. Jan. 2021 Mar. May Notes: 1. Figures for retail sales exclude those of motor vehicle and parts dealers, gasoline service stations, building material stores, and restaurants. Figures for restaurant sales are those for retail sales of restaurants. Figures for consumer confidence refer to the University of Michigan's consumer sentiment index. 2. The latest figures for sales and consumer confidence are as of April and May 2021, respectively. Source: Haver. Chart 6 Selected Stock Prices monthly avg., Jan. 2007=100 Japan (Nikkei 225 Stock Average) United States (S&P500) Europe (EURO STOXX) Emerging markets (MSCI) 07 08 CY 2007 Note: Figures for emerging markets are based on the MSCI Emerging Markets Index calculated in the local currencies. Source: Bloomberg. Chart 7 Assessment for Further Effective and Sustainable Monetary Easing QQE with Yield Curve Control has had positive effects in line with the intended mechanism Economic activity, employment, and profits have improved, and the economy is no longer in deflation. Positive moves toward addressing the medium‐ to long‐term challenges facing Japan's economy have been observed. That said, changing people's mindset and behavior based on the assumption that prices will not increase easily, which have become deeply entrenched because of the experience of prolonged deflation, will take time. ⇒ The Bank judges it appropriate to continue with QQE with Yield Curve Control with a view to achieving the price stability target of 2 percent. Yield Curve Control Yield curve control has been effective in pushing up economic activity and prices through a decline in funding costs and favorable conditions in financial and capital markets. Yield fluctuations within a certain range have positive effects on the functioning of the JGB market without impairing the effects of monetary easing. An excessive decline in super‐long‐term yields could have a negative impact on economic activity by, for example, undermining people's sentiment. ETF and J‐REIT Purchases Large‐scale purchases during times of heightened market instability are effective. Inflation‐Overshooting Commitment The "makeup strategy," which this commitment is implementing, is appropriate. Effects on the Functioning of Financial Intermediation Financial institutions' core profitability has declined due to prolonged low interest rates and structural factors. It is necessary to pay attention to both overheating and pullback risks to the financial system. Chart 8 Expected Growth Rate 5.0 % 4.5 Japan's expected real growth rate (over the next 3 years) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 CY 1985 Note: Based on the Annual Survey of Corporate Behavior. Figures show the result for listed firms in a particular survey year for the next three years ahead. Source: Cabinet Office. Chart 9 Further Effective and Sustainable Monetary Easing: Policy Actions To achieve the price stability target of 2 percent, the Bank will (1) continue with monetary easing in a sustainable manner and (2) make nimble and effective responses without hesitation to counter changes in the situation. <Interest Scheme to Promote Lending> Conduct of Yield Curve Control Establishment of the Interest Scheme to Promote Lending (see the box on the right) Clarification of the range of fluctuations in long‐term interest rates Expect long‐term interest rates to move within the range of around ±0.25% from the target level Introduction of "fixed‐rate purchase operations for consecutive days" Apply incentives (linked to the short‐term policy interest rate) to financial institutions' current account balances, corresponding to the amount outstanding of funds provided through fund‐provisioning measures to promote lending ― Mi gate the impact on financial ins tu ons' profits at the me of rate cuts depending on the amount of lending ― The applied interest rates and the eligible fund‐provisioning measures for each category will be changed as necessary at MPMs depending on the situation. <Decision at the March 2021 MPM> Strengthen the fixed‐rate purchase operations, which stop a significant rise in interest rates Applied interest rate Conduct for the time being Prioritize stabilizing the entire yield curve at a low level under the continuing impact of COVID‐19 in particular ETF and J‐REIT Purchases Purchase as necessary with upper limits* on the annual paces of increase, and maintain these limits even after COVID‐19 subsides * ETFs： about 12 tril. yen J‐REITs： about 180 bil. yen 0.2% Category I Higher than the rate for Category II Category Absolute value of the short‐term policy interest rate 0.1% II Category III Purchase only ETFs tracking the Tokyo Stock Price Index (TOPIX) Financial System and Bank Examination Dept. staff will make a briefing at the MPMs when the Outlook Report is decided (four times a year). 0% Lower than the rate for Category II Eligible fund‐provisioning measure • Special Operations in Response to COVID‐19, when funds are provided against loans made by financial institutions on their own • Special Operations in Response to COVID‐19, when funds are provided against loans other than those for Category I and against private debt pledged as collateral • • Loan Support Program Operation to Support Financial Institutions in Disaster Areas ⇒ Enable the Bank to cut short‐ and long‐term interest rates more nimbly while considering the impact on the functioning of financial intermediation In addition, adjustments to the Complementary Deposit Facility will be made to narrow the gap between the actual Policy‐Rate Balances and the "hypothetical" Policy‐Rate Balances.
|
bank of japan
| 2,021 | 6 |
Speech (via webcast) by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Niigata, 21 July 2021.
|
July 21, 2021 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Niigata (via webcast) AMAMIYA Masayoshi 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 leaders in administrative, financial, and economic areas in Niigata Prefecture, which is taking place online due to the continuing impact of the novel coronavirus (COVID-19). I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Niigata Branch. At the outset of this meeting, I would like to explain the Bank's view on economic and financial developments while touching on the content of the July 2021 Outlook for Economic Activity and Prices (Outlook Report) released last week, and also talk about its thinking on the conduct of monetary policy. In addition, I will outline the Bank's comprehensive strategy on climate change that was made public last week, focusing on its monetary policy actions. I. Developments in Economic Activity and Prices Economic Developments I will start by talking about economic developments. Downward pressure has continued to be exerted on Japan's economic activity -- mainly in the face-to-face services sector, such as eating and drinking as well as accommodations -- since the impact of COVID-19 has remained, as evidenced by the state of emergency now in place in Tokyo and Okinawa Prefecture. However, on the back of a clear recovery in overseas economies, exports and production have continued to increase. In the corporate sector, a virtuous cycle in which a recovery in profits leads to an increase in business fixed investment has started to operate. Thus, Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19. Before moving on to economic activity in the corporate and household sectors, let me explain developments in overseas economies. Overseas economies have recovered on the whole, albeit with variation across countries and regions (Chart 1). The International Monetary Fund (IMF) projected last October that the growth rate of the global economy for 2021 would be 5.2 percent. Since then, the projection has been revised upward twice, and the IMF forecasts in the latest projection made this April that the growth rate for this year will be 6.0 percent. It also projects that the global economy will grow at 4.4 percent for 2022, largely exceeding the past average of 3.5 percent. The recovery in overseas economies becoming clearer recently is attributable to the economic measures in the United States and the acceleration in vaccinations in advanced economies. Economic activity, including services consumption, has improved in the United States and Europe amid progress with vaccinations. Such improvement, along with a continuing recovery in the Chinese economy, has been pushing up the global economy as a whole through trade activity. Turning to the corporate sector in Japan, exports and production have increased steadily, supported by the recovery in overseas economies (Chart 2). According to the June 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan), while many firms in the face-to-face services industry have continued to view their business conditions as "unfavorable," overall business conditions have improved for four consecutive quarters. On the back of improvement in corporate profits as a whole, business fixed investment has picked up, mainly for machinery and digital-related investments, albeit with weakness in some industries. The business fixed investment plans in the June 2021 Tankan indicate that the year-on-year rate of change in such investment for fiscal 2021 is likely to show a steady increase of 9.4 percent. Thus, in the corporate sector, a virtuous cycle from profits to business fixed investment has been seen, triggered by an increase in external demand that reflects the recovery in overseas economies. As for the outlook, corporate profits are likely to continue improving on the whole on the back of a recovery in domestic and external demand, despite being pushed down by cost increases due to a recent rise in international commodity prices. Under these circumstances, an uptrend in business fixed investment is expected to become clear. Turning to the household sector, the pace of improvement has been slower than in the corporate sector. Private consumption has been stagnant with public health measures remaining in place (Chart 3). Consumption of durable goods has been steady, partly on the back of an expansion in stay-at-home demand. On the other hand, that of services, including eating and drinking as well as accommodations, has remained well below the pre-pandemic level. For the time being, private consumption, mainly of face-to-face services, is likely to be at a relatively low level due to the impact of COVID-19. That said, the situations in other countries where vaccinations are progressing ahead of Japan suggest that private consumption, including that of face-to-face services, is expected to pick up again in Japan. The employment and income situation, which shows the underlying developments in private consumption, has remained weak but not deteriorated significantly. The unemployment rate rose last year but subsequently has been at around 3 percent. Against this background, employee income has turned positive on a year-on-year basis. It is likely to start picking up with a time lag following the recovery in domestic and external demand, and then increase moderately. In sum, an uptrend in private consumption is expected to become evident as the impact of COVID-19 wanes gradually and employee income increases. It is projected that the virtuous cycle that has started to operate in the corporate sector will spread to the household sector, thereby intensifying the cycle in the overall economy. The Bank presented the projected real GDP growth rates in its Outlook Report released last week (Chart 4). What I have explained so far outlines the background of the outlook for economic activity. In terms of the medians of the Policy Board members' forecasts, the real GDP growth rate is projected to be relatively high at 3.8 percent for fiscal 2021, and then be 2.7 percent for fiscal 2022 and 1.3 percent for fiscal 2023. This baseline scenario of the outlook for economic activity entails high uncertainties regarding the consequences of COVID-19 -- including the spread of variants -- and their impact, and thus risks are skewed to the downside for the time being. That said, there is a possibility that the vaccine rollout will accelerate and economic activity will improve by more than expected. With the global economy recovering from the depression triggered by the impact of COVID-19, international commodity prices have risen recently. Attention should be paid to future developments in these prices and their impact on Japan's economy. The Bank will continue to closely examine developments in economic activity at home and abroad. Price Developments Next, let me talk about price developments (Chart 5). The year-on-year rate of change in the consumer price index (CPI) excluding fresh food dropped to minus 1 percent last December, mainly reflecting a decline in energy prices and the effects of the "Go To Travel" campaign on price indices. However, when excluding the effects of various temporary factors, it has remained slightly positive and been steady compared with the degree of deterioration in the economy. The reason for this steadiness is that price cuts that aim at stimulating demand have not been observed widely in the current phase. Since services consumption has been constrained due to people's vigilance against COVID-19, it will not increase even with price cuts. In addition, cost increases stemming from various preventive measures against COVID-19 have made it difficult for firms to cut prices. Since this spring, the year-on-year rate of change in the CPI has been at around 0 percent, despite being significantly pushed down by a reduction in mobile phone charges. The underlying trend in prices, which excludes the effects of temporary factors such as the rise in energy prices, has been slightly positive. Globally, prices had been pushed down due to the impact of COVID-19, but they have seen acceleration in their rates of increase as economic activity has resumed. In Japan, prices are no longer on the declining trend that was seen from last year and have been turning to a rise. The year-on-year rate of change in the CPI is likely to be at around 0 percent in the short run (Chart 4). Thereafter, it is expected to increase gradually as economic activity continues to improve and firms' price-setting stance becomes active. In terms of the medians of the Policy Board members' forecasts in the July 2021 Outlook Report, the year-on-year rate of change in the CPI is projected to be 0.6 percent for fiscal 2021, 0.9 percent for fiscal 2022, and 1.0 percent for fiscal 2023. However, it has taken time in Japan to change people's mindset and behavior, which are based on the assumption that prices will not increase easily. There are high uncertainties over how firms' price-setting stance will change as the economy recovers from the shock of COVID-19, and thus this should be carefully monitored. II. The Bank's Conduct of Monetary Policy I would now like to explain the Bank's conduct of monetary policy (Chart 6). In response to the impact of COVID-19, the Bank has continued to support financing, mainly of firms, and maintain stability in financial markets by conducting powerful monetary easing since March 2020 through the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) an ample and flexible provision of yen and foreign currency funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). These responses have been effective, coupled with the government's measures and efforts by financial institutions. That said, firms' financial positions have remained weak. Since it is expected to take some time for the impact of COVID-19 to subside, they are likely to remain under stress. The Bank therefore decided at the June MPM to extend the duration of the Special Program by six months until the end of March 2022. It will continue to firmly conduct the current monetary easing measures. For the time being, the Bank will also closely monitor the impact of COVID-19 and not hesitate to take additional easing measures if necessary. In terms of the conduct of monetary policy, it is important for the time being to address the impact of COVID-19. Now, let me touch on the Bank's stance on policy conduct from a somewhat long-term perspective. As I have explained, although the CPI is expected to increase gradually, it is likely to take time to achieve the price stability target of 2 percent. While the inflation rate has risen clearly of late in the United States and other countries, it has been sluggish in Japan. Given this, it is necessary for the Bank to persistently continue to conduct powerful monetary easing with a view to achieving the price stability target. III. The Bank's Efforts on Climate Change To conclude my discussion on monetary policy, I would like to talk about the Bank's efforts on climate change (Chart 7). Climate change is a global challenge that will have a broad impact on our society and economic activity into the future. In order to address this challenge, it is essential for various economic entities to play their roles, and firms and financial institutions are strongly aware of the need to deal with it over the long run. Major economies, including Japan, have pursued policy actions with the goal of decarbonization. Although climate-related policies essentially are the responsibility of governments and legislative bodies, climate change is also related to central banks' mandates to achieve price stability and financial system stability. In other words, it could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective. Under these circumstances, central banks around the world have taken necessary actions based on their own respective mandates. With an intention of furthering its efforts on climate change from a central bank standpoint, the Bank last week made public its comprehensive strategy on climate change, which covers a wide range of areas including monetary policy, the financial system, research, and international finance. As monetary policy actions, the Bank decided to introduce a new fund-provisioning measure to support private financial institutions in their efforts to address climate change (Chart 8). In making its decision, the Bank gave consideration to avoiding specific intervention as much as possible in the allocation of resources to certain industries or individual firms. While policy actions to address climate change may include regulation of greenhouse gas emissions and subsidies for the development of new technologies, policies that directly involve micro-level resource allocation should be implemented by governments and legislative bodies. In contrast, central banks' monetary policies essentially target the overall economy and should be conducted while avoiding such involvement as much as possible. From these perspectives, with the new fund-provisioning measure, the Bank decided to take the approach of providing funds to financial institutions against investment or loans they make to address climate change based on their own decisions. On this basis, financial institutions that wish to be provided with funds will be asked to disclose a certain level of information on their efforts to address climate change so that discipline can be exercised. The Bank's approach of providing funds through this new measure has the advantage of being flexible under the fluid external environment. The criteria and categorization -- so-called taxonomies -- for deciding which efforts would be regarded as contributing to addressing climate change are still under discussion both at home and abroad, and it is possible that they may change in the future. If we wait for these debates to be settled, this will delay the actions on climate change. In this regard, the Bank's approach is sufficiently flexible to respond to changes in the situation, allowing it to tackle this important challenge as promptly as possible. The Bank presented specific conditions for the fund-provisioning in the preliminary outline. The interest rate of 0 percent will be applied and the implementation period will last until the end of fiscal 2030. Through this measure, the Bank will support financial institutions' efforts on climate change over a long period. It will work out further details through an exchange of opinions with financial institutions and other entities and will likely start its fund-provisioning within 2021. Addressing climate change is becoming an inevitable business challenge for firms and financial institutions. I hope that the private sector's efforts on climate change will be further encouraged through the Bank's new measure, which could be the world's first such attempt, in that it ensures flexibility while avoiding involvement in micro-level resource allocation as much as possible. Conclusion Lastly, I would like to talk about the economy of Niigata Prefecture. While the economy of Niigata Prefecture has remained in a severe situation due to the impact of COVID-19, it has been picking up. It is expected to continue recovering, but there is still a need to be aware of downside risks as the future course of COVID-19 remains uncertain. However, looking at the development trajectory of the economy, I believe that Niigata Prefecture is well equipped with the innovative capabilities to weather the uncertain post-pandemic era. For example, Niigata's rice and sake, which are famous throughout Japan, are not simply products of nature; their production has grown into high value-added industries that were developed through research and development to make the most of the local climate and water quality. There are also many examples of technologies and know-how handed down in the region that have become the basis of world-renowned local industries, such as metal processing in the Tsubame-Sanjo area, which developed from the casting of Japanese nails in the Edo period, and hemp fabric in the Uonuma region, which is famous for its "snow bleaching" during the agricultural off-season. Speaking of the accumulation of experience and facilities, Niigata, which has produced oil and natural gas from long ago, is also one of Japan's leading energy prefectures, equipped with technology for resource development and recycling, and pipelines that connect to the Tokyo metropolitan area. While the society as a whole is making efforts to address climate change, I hope that Niigata will take advantage of its environment to boldly take on the challenge of entering new businesses and thereby lead the country in terms of making such efforts. Next year will mark the 100th anniversary of the opening of the Ohkouzu diversion channel on Shinano River. Japan's first weir equipped with modern technology has protected the Echigo Plain from devastating damage caused by the overflowing of Shinano River and has supported the development of Niigata. I would like to close my remarks by expressing my respect for the great innovations of our ancestors and my hope for the further development of Niigata Prefecture's economy in the post-pandemic era. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Niigata (via webcast) July 21, 2021 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Introduction I. Developments in Economic Activity and Prices II. The Bank's Conduct of Monetary Policy III. The Bank's Efforts on Climate Change Conclusion Chart 1 I. Developments in Economic Activity and Prices Global Growth Rate (IMF Forecasts in the World Economic Outlook) y/y % chg. CY 2021: +6.0% CY 2022: +4.4% CY 2019: +2.8% Average from 1980 through 2019: +3.5% -1 -2 CY 2020: -3.3% -3 -4 IMF forecasts (April 2021 WEO) -5 -6 CY 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: IMF. Chart 2 I. Developments in Economic Activity and Prices Corporate Sector Business Conditions DI (Tankan) Exports and Production s.a., CY 2015 = 100 Business Fixed Investment (Tankan) 40 DI ("favorable" - "unfavorable"), % points y/y % chg. Actual Planned investment in current fiscal year as of the June survey of each year -20 -40 -5 Real exports Industrial production CY 06 08 10 12 14 16 18 20 -60 All industries -80 Accommodations, eating & drinking services Services for individuals -100 CY 06 08 10 12 14 16 18 20 -10 -15 -20 FY 06 08 10 12 14 16 18 20 Note: In the right-hand chart, figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for all industries and enterprises including financial institutions. Sources: Ministry of Finance; Ministry of Economy, Trade and Industry; Bank of Japan. Chart 3 I. Developments in Economic Activity and Prices Household Sector Private Consumption Employment and Income Situation Employee Income Unemployment Rate 120 s.a., CY 2015 = 100 s.a., % y/y % chg. Services Goods -2 -4 Nominal Real -6 Jan. Jul. July Jan. Jul. July CY 06 08 10 12 14 16 18 20 Jan. -8 06/Q1 10/Q1 14/Q1 18/Q1 Note: In the right-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Employee income = Total cash earnings ("Monthly Labour Survey") × Number of employees ("Labour Force Survey"). Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the "Monthly Labour Survey." Figures for real employee income are based on staff calculations using the CPI (less imputed rent). Sources: Bank of Japan; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare, etc. Chart 4 I. Developments in Economic Activity and Prices The Bank's Forecasts for Economic Activity and Prices (July 2021 Outlook Report) Real GDP Growth Rate y/y % chg. CPI (All Items Less Fresh Food) The medians of the Policy Board members' forecasts Fiscal 2023 +1.3% y/y % chg. The medians of the Policy Board members' forecasts Fiscal 2022 +0.9% Fiscal 2021 +3.8% Fiscal 2022 +2.7% Fiscal 2023 +1.0% Fiscal 2021 +0.6% -1 -2 -1 -3 -4 -5 -6 FY13 -2 FY 13 Note: In the right-hand chart, figures exclude the direct effects of the consumption tax hike in April 2014. Sources: Cabinet Office; Bank of Japan; Ministry of Internal Affairs and Communications. Chart 5 I. Developments in Economic Activity and Prices Consumer Price Index (CPI) y/y % chg. Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) -1 -2 CY Notes: 1. Figures for energy consist of those for petroleum products, electricity, and gas, manufactured & piped. 2. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. II. The Bank's Conduct of Monetary Policy Chart 6 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Active purchases of JGBs and T-Bills U.S. Dollar Funds-Supplying Operations Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen Chart 7 III. The Bank's Efforts on Climate Change The Bank's Strategy on Climate Change Climate change is a global challenge and could have a broad impact into the future. Various entities in society and the economy need to actively play their roles. The Bank, with an intention of furthering its efforts on climate change consistent with its mandate of achieving price stability and ensuring the stability of the financial system, decided the comprehensive strategy. Monetary policy Financial system Research International finance Operations & communication The impacts of climate change on economic activity, prices, and the financial system are highly uncertain and could greatly vary over time. The Bank will constantly review its measures and make adjustments where needed. Chart 8 III. The Bank's Efforts on Climate Change Fund-Provisioning Measure to Support Efforts on Climate Change From a central bank standpoint, the Bank provides funds to financial institutions for investment or loans they make to address climate change based on their own decisions. Amid the fluid external environment, it can respond flexibly to changes in circumstances while avoiding direct involvement in micro-level resource allocation as much as possible. Eligible Counterparties Eligible Investment/Loans Counterparties make investment/loans based on their own decisions. Discipline will be exercised through a certain level of disclosure. Financial institutions that disclose a certain level of information on their efforts to address climate change Of the investment/loans made by counterparties as part of their efforts, those that contribute to Japan's actions to address climate change Terms and Conditions Long-term support for financial institutions' efforts Interest rate: 0% -- The measure will fall under Category III (applied interest rate: 0%) in the Interest Scheme to Promote Lending Twice as much as the amount outstanding of funds that counterparties receive will be added to the Macro Add-on Balances in their current accounts at the Bank Duration of fund-provisioning: 1 year; rollovers can be made until the end of the implementation period → Effectively, long-term financing from the Bank Implementation period: in principle, until the end of fiscal 2030 8■
|
bank of japan
| 2,021 | 7 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Japan National Press Club, 27 July 2021.
|
Haruhiko Kuroda: The Bank of Japan's strategy on climate change Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Japan National Press Club, 27 July 2021. * * * Introduction It is my pleasure to have the opportunity to speak to you at the Japan National Press Club. Today, I would like to talk about climate change. Climate change has recently been a major issue at central bank governors’ meetings. Looking broadly at the financial field, climate change issues have been recognized from an early stage. For example, in development finance, the Asian Development Bank (ADB), where I served as President, has been active since the early 2000s in providing financing support for projects such as those in response to climate change. It is well known that the private sector has also been increasing environmental, social, and governance (ESG) investment or loans in recent years. In this way, efforts to address climate change have been expanding across jurisdictions as a global policy issue in the field of finance. I think this is a reflection of the growing awareness among people, in the face of frequent large-scale natural disasters around the world, that responding to climate change is an urgent priority. In this situation, it is becoming more and more important for central banks to take necessary responses in line with their mandates. Therefore, in the following, I would first like to outline the characteristics of climate change issues and overseas initiatives aimed at addressing them. I will then elaborate on the Bank of Japan’s Strategy on Climate Change, released on July 16, 2021, including an outline of the fundprovisioning measure to support efforts on climate change that is currently being prepared for introduction. I. Externalities of Climate Change Climate change is a global challenge that will have a broad impact on our society and economic activity into the future. Individual firms and households have engaged in economic activities without due consideration of the impact of greenhouse gas emissions, and this has resulted in an excessive amount of greenhouse gas emissions in society and the economy as a whole. If this situation were to continue, rising temperatures and a further increase in large-scale natural disasters globally, would result in significant negative social and economic costs. This is a classic example of “negative externalities” in economics. The key point is that the effects of excessive greenhouse gas emissions are not limited to one country but spread to other countries. Moreover, today’s excessive greenhouse gas emissions will have far-reaching future effects. Therefore, global action and continuous efforts into the future are required if we are to overcome these externalities. Various groups and organizations that make up society will need to take responsible action for the sake of the planet. Firms have been acting to reduce greenhouse gas emissions under their own initiative, while at the same time maintaining their accountability to a wide range of stakeholders, such as investors and consumers, through disclosure and other means. Financial institutions have also played an important role. They have been stepping up their efforts in such areas as green finance and supporting firms from the financial side. Consumers have also become more conscious of the environment, using reusable shopping bags and energy efficient electronic appliances, and purchasing electric vehicles. In terms of policy responses to solve climate change issues, governments and legislative bodies play an important role. Many countries have been setting greenhouse gas reduction targets and implementing initiatives to reduce greenhouse gas emissions to a socially optimal level. These 1/6 BIS central bankers' speeches initiatives include reviewing regulations or introducing carbon pricing, such as emissions trading and carbon taxes, through which the costs of climate change will be explicitly reflected in the decision making of firms and households. The Japanese government has declared its aim of reducing greenhouse gas emissions in Japan to net-zero and achieving carbon neutrality by 2050. It has also stated that, under its “Green Growth Strategy,” it will promote policies that contribute to growth centered on decarbonization, including carbon pricing. In this way, through the active initiatives of firms and households, together with the government’s measures, the externalities of climate change that were originally not recognized are now gradually becoming reflected and “internalized” in the decision making of a wide range of agents. The key to addressing climate change issues is how to reinforce these trends. II. Overseas Initiatives In recent years, climate change has been a major issue not only at central bank governors’ meetings, as I mentioned earlier, but also at various international forums and organizations. Created under the Financial Stability Board (FSB), which monitors and makes recommendations about the global financial system, the Task Force on Climate-related Financial Disclosures (TCFD) published its final report in 2017 on recommendations for climate-related financial disclosures. These recommendations are being followed by an increasing number of firms, and Japan now has the largest number of firms supporting the TCFD recommendations. Also in 2017, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) was launched as a forum in which central banks and financial regulators discuss how to respond to climate change. The Bank joined the NGFS in 2019 and has participated in discussions on the effects of climate change on economic activity and the financial system. In 2020, the NGFS published its first set of climate scenarios, based on the idea that using scenario analysis is effective in assessing climate-related risks to the financial system. A number of central banks and financial regulators are currently conducting analyses of the financial system using the NGFS scenarios. The Group of Seven (G7) and the Group of Twenty (G20) have also been discussing climate change as a main issue. Specifically, there are discussions on the need to promote firms’ financial disclosures based on the TCFD recommendations and the importance of scenariobased financial system analysis. The effects of climate change have also been discussed at the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP). Asia accounts for about half of global carbon dioxide emissions and is also the region most vulnerable to the negative effects of climate change, such as floods. For this reason, Asian policymakers are showing particular interest in the responses to climate change. Individual central banks have also been stepping up their efforts. The Bank of England has been conducting scenario analysis that quantitatively assesses the impact of climate change on the financial system. Since 2020, it has also been publishing its own climate-related financial disclosure in line with the TCFD recommendations. Furthermore, the Bank of England has been considering how to “green” the Corporate Bond Purchase Scheme (CBPS), one of its monetary policy measures. The European Central Bank has been conducting scenario analysis covering financial institutions in the euro area and published its overview this year. It has also decided on a comprehensive action plan to further incorporate climate change considerations into its policy framework, based on its recently completed monetary policy strategy review. This year, the Federal Reserve Board set up two committees to assess the effects of climate change on financial institutions and the financial system, one from a microprudential perspective, the other from a macroprudential perspective. These initiatives show there has been a global response in recent years to the challenges of climate change, both at the level of international forums and organizations, and at the level of individual central banks. 2/6 BIS central bankers' speeches III. Central Bank’s Mandate and Market Neutrality As the central bank of Japan, the Bank has been actively engaging in these international discussions and communicating with financial institutions. In addition, the Bank has set up an internal network, the Climate Coordination Hub, to enhance bank-wide initiatives on climate change. As I mentioned earlier, various stakeholders across jurisdictions have recently accelerated their efforts concerning climate change. With the intention of furthering its efforts on climate change, on July 16, 2021, the Bank released the Bank of Japan’s Strategy on Climate Change and decided to implement a range of measures. I will elaborate on the issues of a central bank’s mandate and market neutrality in the context of implementing these measures, and then talk about the measures in detail. Responses to Climate Change and the Central Bank’s Mandate From a medium- to long-term perspective, climate change could have an extremely large impact on developments in economic activity and prices as well as financial conditions. From a central bank standpoint, with its mandate of achieving price stability and ensuring the stability of the financial system, supporting the private sector’s efforts on climate change will help stabilize the macroeconomy in the long run. Now let us look at the effects of climate change in detail, starting from the economic perspective. There has recently been an increase in constraints on economic activity, such as supply chain disruptions caused by natural disasters. In the medium to long run, there is the possibility that a decrease in investment and employment in industries with significant greenhouse gas emissions will exert downward pressure on economy activity. On the other hand, there will be new opportunities, such as an increase in investment related to renewable energy. The future course of economic activity is highly uncertain. Prices and wages could be affected by both natural disasters and the various measures introduced for the transition to a carbon-neutral society. On the financial system front, assessment of “physical risk” and “transition risk” will be important. Here, “physical risks” refers to the risks that physical phenomena triggered by climate change, such as large-scale disasters and rising sea levels, will have a negative impact on firms and households. “Transition risks” refers to the risks of an economic impact on firms and households due to changes in policy, technology, or consumer preference as we move toward a carbonneutral society. Depending on our responses, both risks could adversely affect the financial system by changing the investment or lending behavior of financial institutions, both qualitatively and quantitatively. Responses to Climate Change and Market Neutrality Let me next look at responses to climate change and the issue of market neutrality. This is particularly important in considering monetary policy measures. I will first talk about the basic thinking of market neutrality. Central bank operations affect society and the economy in many ways. In conducting operations, central banks should try to affect the overall macroeconomy while avoiding involvement in micro-level resource allocation as much as possible. However, when central banks provide funds by purchasing financial assets, either through conventional or unconventional monetary policies, they not only change the macro interest-rate level but also affect the relative prices of individual financial products. Therefore, when considering the impact of central bank policies, I think that market neutrality needs to be interpreted with some latitude. When focusing on climate change issues, there is the question whether the neutrality of resource allocation is ensured simply by treating existing investment or loans equally. If private sector investment or loans are decided without taking into account the “negative externalities” caused by greenhouse gases, does this not affect the neutrality of resource allocation? If there were a portfolio comprising private sector investment or loans that took into consideration these 3/6 BIS central bankers' speeches negative externalities, it may be socially desirable for central banks to provide funds to correspond to such a portfolio. As I mentioned earlier, society as a whole has been tackling the negative externalities by intensifying efforts to address climate change. As this trend is expected to continue, providing support for such society-wide initiatives can be interpreted as falling within the broad definition of market neutrality. That said, it is certainly necessary for central banks to devise ways to avoid involvement in specific resource allocations as much as possible. IV. The Bank’s Measures In formulating the Bank of Japan’s Strategy on Climate Change, the Bank examined various measures in view of the aforementioned issues of a central bank’s mandate and market neutrality. In what follows, I will explain each measure in detail. Monetary Policy With regard to monetary policy, the Bank decided to introduce a new fund-provisioning measure, through which it provides funds to financial institutions against investment or loans they make to address climate change based on their own decisions. The Bank considers this measure as a new approach to support efforts on climate change from the monetary policy side, while giving consideration to the abovementioned market neutrality and avoiding direct involvement in microlevel resource allocation as much as possible. This structure will also enable us to respond flexibly to changes in the situation under the fluid external environment surrounding climate change issues. In recent years, firms and financial institutions have been intensifying their efforts to address climate change. However, they have faced a number of difficulties. There are considerable uncertainties over various factors such as changes in greenhouse gas emissions, large-scale natural disasters, and technical innovations in response to climate change. Accordingly, best practices and responses could change over time. Firms take account of the changing situation when they engage in their business activities and investment, and financial institutions provide the necessary funds. Central banks can take a variety of approaches to support these efforts. Central banks in Europe are currently discussing measures to change the way in which corporate bonds are purchased and collateral is handled by taking into account the impact of climate change, based on certain rules. I think, however, that in Japan, there are many points to be considered in terms of market neutrality, since our discussions on the guidelines and taxonomy on climate change are still in progress. In this regard, under the Bank’s new fund-provisioning measure, financial institutions make decisions on which investment or loans contribute to addressing climate change, so that they can respond flexibly to firms’ funding needs. The Bank will also devise ways to exercise market discipline by asking financial institutions to disclose a certain level of information. This measure is a new attempt to support efforts on climate change through the conduct of monetary policy. The Bank believes that the new measure will accelerate the efforts of firms and financial institutions in Japan to address climate change. Financial System I will next talk about the financial system. Through the aforementioned channels of “physical risk” and “transition risk,” climate change could significantly affect the businesses of financial institutions, and consequently the stability of the financial system. In addition, the proper functioning of financial intermediation is vital for decarbonizing our society and the economy. The Bank will actively support financial institutions in identifying and managing their climate-related financial risks, with a view to maintaining the stability of the financial system and the smoothfunctioning of financial intermediation. The areas of particular focus are as follows. 4/6 BIS central bankers' speeches Through on-site examinations and off-site monitoring, the Bank will have in-depth discussions with financial institutions on their efforts to address climate-related financial risks and on their engagement with corporate customers in pursuit of decarbonization. In doing so, the quantitative assessment of climate-related financial risks is important. In this regard, there is a growing recognition among authorities and financial institutions that scenario analysis, which sets certain assumptions on the extent of climate change and its impact on the economy, is useful in measuring relevant risks. Taking account of the work of the NGFS and other authorities, the Bank, in collaboration with the Financial Services Agency, is working on pilot exercises in scenario analysis targeting large financial institutions by using common scenarios. The Bank will encourage financial institutions to enhance their disclosures, both qualitatively and quantitatively, based on the TCFD framework, which has been incorporated in the revised “Japan’s Corporate Governance Code." Research Research is extremely important in examining monetary policy measures and responses regarding the financial system. The Bank has hosted the International Research Workshop on Climate-related Financial Risks and published research papers. The Bank will deepen its analysis of how climate change will affect the macroeconomy, including economic activity and prices, financial markets, and the financial system, and make efforts in collecting climate-related data and refining analytical tools in order to better conduct surveillance and identify risks. It will also examine the functioning of financial markets and infrastructure and consider ways to address issues relevant to payment systems and market infrastructures. The findings will be shared and discussed with stakeholders at home and abroad. International Finance The Bank’s Strategy on Climate Change was formulated partly in response to international discussions about climate change. The Bank will contribute to the development of measures against climate change by learning from other jurisdictions’ experience at international forums, such as the G7, the G20, and EMEAP, sharing the experience gained through its measures, and taking part in multilateral discussions. On the financial system front, in close collaboration with the Financial Services Agency, the Bank will contribute to building an international framework for addressing climate-related financial risks at such forums as the Basel Committee on Banking Supervision, the FSB, and the NGFS. Regarding data gaps, the Bank will work with financial institutions and the relevant authorities to contribute to international initiatives to improve the availability of data necessary for assessing climate-related financial risks. In cooperation with other central banks, the Bank will strengthen its efforts to promote investment in climate-related financial products, such as green bonds, with the aim of fostering the development of financial markets. The Bank has been investing in the Asian Bond Fund launched by EMEAP to support the development of local currency-denominated bond markets in Asia. To help promote the local currency-denominated green bond market, it will consult with other EMEAP member central banks and stakeholders to expand the scope of investment in the Asian Bond Fund. The Bank’s foreign currency assets have been managed in accordance with principles that call for a high degree of safety and liquidity. The amount outstanding of green bonds in the global market is on an increasing trend, and this trend is likely to continue. Given this situation, the Bank will purchase foreign currency-denominated green bonds issued by governments and other foreign institutions under the existing management principles. The Bank’s Business Operations and External Communication The Bank, as a business entity, will pay due consideration to climate change in undertaking its business operations. To date, the Bank has been making efforts to reduce greenhouse gas 5/6 BIS central bankers' speeches emissions and to save energy in order to achieve the targets set by central and local governments and has strengthened its business continuity plan to deal with the increasing risk of flood damage. The Bank will continue with such efforts. As for external communication, the Bank will take into account the TCFD recommendations when making disclosures, and will enhance its communication with the public on climate-related issues in general. The newly launched page on climate change on the Bank’s website will serve as a useful tool for the Bank’s external communication. Conclusion The impact of climate change on economic activity, prices, and the financial system is highly uncertain and could change significantly over time. There is still much discussion of taxonomy, both within countries and at international meetings. It is uncertain whether a consensus can be reached on specific guidelines, and even so, it could take some time. The ways in which the impact of decarbonization on specific corporate and economic activities might be reflected in the price-formation mechanism of various financial assets are currently under development. However, waiting until specific guidelines and ideas are fixed will only delay our response to the urgent global issue of climate change. In addressing climate change, it will be important to adopt a learning-by-doing approach: implement the crucial measures first, then make adjustments when necessary. The Bank will follow appropriately the evolving nature of climate-related issues, exchange dialogue with domestic and foreign stakeholders, including through active participation in international discussions, and will constantly review its measures and make adjustments where needed. Thank you very much for your attention. 6/6 BIS central bankers' speeches
|
bank of japan
| 2,021 | 8 |
Speech (via webcast) by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Hiroshima, 1 September 2021.
|
September 1, 2021 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Hiroshima (via webcast) WAKATABE Masazumi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction Good morning. It is my pleasure to have the opportunity today to exchange views with leaders in administrative, economic, and financial areas in Hiroshima Prefecture, although it is most regrettable that this meeting had to be held online due to the continuing impact of the novel coronavirus (COVID-19). First of all, I would like to offer my heartfelt sympathies to those who are suffering from the heavy rain that occurred in August. In addition, I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Hiroshima Branch. Today, September 1st, is the day the Hiroshima sub-branch was established in 1905. It is a great honor to hold this meeting on this anniversary. Speaking of the anniversary, this year marks a century since the publication of Risk, Uncertainty and Profit by the American economist Frank H. Knight and A Treatise on Probability by the British economist John M. Keynes. 1 Both of them make distinctions between risks, which can be measured by normal statistical probability, and "true," fundamental uncertainties, which cannot be explained by probability theory and thus are unmeasurable. They both emphasize the importance of true uncertainties in economic society. It seems that such uncertainties remain with regard to COVID-19 and its impact on the economy. In my speech today, while focusing on uncertainties, I will first outline the current situation of and outlook for Japan's economy, and then explain the challenges for central banks today, including the thinking behind central bank efforts to address climate change. Lastly, I will talk about recent and future economic activity in Hiroshima Prefecture. Knight, F. H., Risk, Uncertainty and Profit (Boston and New York: Houghton Mifflin, 1921); Keynes, J. M., A Treatise on Probability (London: Macmillan, 1921). The following paper explores the two books and their implications for the current economy: Dimand, R. W., "Keynes, Knight, and Fundamental Uncertainty: A Double Centenary 1921-2021," Review of Political Economy, vol. 33, issue 4 (2021): pp. 570-84. I. Current Situation of and Outlook for Japan's Economy A. Economic Developments and Mechanism for Recovery Let me start with economic developments. Domestic and overseas economies have experienced significantly large changes since last year, mainly due to the impact of COVID-19, and it is more necessary than before to carefully interpret various economic indicators.2 With this in mind, let me explain the current situation of Japan's economy. The economy has remained in a severe state, mainly for the household sector, due to downward pressure stemming from COVID-19 (Chart 1). The real GDP growth rate, which excludes the effects of price fluctuations, was negative for the January-March quarter of 2021, mainly because of a decline in private consumption. Thereafter, the rate for the April-June quarter remained more or less flat and real GDP is still below the pre-pandemic level. That said, the Bank judges that the pick-up trend in the economy as a whole has been maintained, supported by positive developments in the corporate sector on the back of a firm recovery in overseas economies. Regarding the outlook, positive developments are likely to spread from the corporate sector to the household sector as the impact of COVID-19 wanes gradually, mainly due to progress with vaccinations, and the economic recovery is expected to become clear. The key to realizing this outlook is whether a virtuous cycle operates firmly; in other words, whether an increase in domestic and overseas demand expands household income and corporate profits, and in turn leads to a further rise in spending (Chart 2). Looking back at the past period of deflation, a vicious cycle continued, in that households and firms became reluctant to consume or invest and postponed spending, which consequently decreased income and led to a further decline in spending. This vicious cycle ended with the introduction of quantitative and qualitative monetary easing (QQE) in 2013. Thereafter, Specifically, attention should be paid to the following points: (1) the base effects, in which a rebound from the previous year's significant declines in economic activity and price levels arithmetically gives high economic growth and inflation rates this year, and (2) the compositional effects, in which average wages apparently heighten since workers with relatively low wages become unemployed. These effects have been seen in other countries, as have been referred to in the following speech: Bailey, A., "It's a Recovery, but Not as We Know It," speech given at the Mansion House, July 1, 2021, https://www.bankofengland.co.uk/speech/2021/july/andrew-bailey-speech -at-the-mansion-house-financial-professional-services-event. amid a virtuous cycle operating between income and spending, Japan's economy has managed to avoid falling into deflation. However, this positive economic cycle has halted temporarily since last spring due to COVID-19, a new shock that is putting strong downward pressure on economic activity. I will now talk about the corporate and household sectors, first by looking at the current situation of income and spending and then the outlook for each sector. B. Current Situation of the Corporate and Household Sectors In the corporate sector, profits -- which are firms' income -- have improved on the whole, although weakness has been seen in some industries such as face-to-face services (Chart 3). The Financial Statements Statistics of Corporations by Industry, Quarterly (FSSC) show that current profits for all industries and enterprises have already exceeded the pre-pandemic level for the January-March quarter of 2021. This is because Japan's exports and production have increased steadily as the global economy has recovered on the whole, albeit with unevenness. In the United States and Europe, public health measures have been lifted in stages on the back of progress with vaccinations, and therefore a recovery in economic activity has become evident, including for services consumption, which had been constrained. This recovery in the U.S. and European economies -- together with the Chinese economy's recovery, which has happened ahead of theirs -- has had positive effects on the global economy through trade. Under these circumstances, business fixed investment -which is firms' spending -- has picked up in Japan, led by machinery investment by the manufacturing industry. Business fixed investment plans in the Bank's Tankan (Short-Term Economic Survey of Enterprises in Japan) show that investment is expected to see a solid increase for fiscal 2021. These factors suggest that, in the corporate sector, a virtuous cycle from profits to business fixed investment has resumed, triggered by an increase in external demand on the back of a recovery in overseas economies. Turning to the household sector, the employment and income situation has remained weak, although significant deterioration has been avoided, partly owing to policy support (Chart 4). The number of employed persons declined due to the impact of COVID-19, mainly for non-regular employees in the face-to-face services sector, and has remained at a relatively low level to date. The unemployment rate has been at around 3 percent recently, which is somewhat higher than the pre-pandemic level. The unemployment rate that takes into account "employed persons not at work" has been 6 percent, and labor underutilization indicator 4 (LU4), which is the unemployment rate that also includes potential labor force, has been 7.3 percent.3 Turning to wages, statistical features warrant attention. Wages in the Monthly Labour Survey are shown as an average and thus are susceptible to changes in composition of employment status. Some point out that real wages have not risen since the introduction of QQE. To accurately grasp the actual situation regarding wages, however, it is necessary to consider the compositional effects. For example, when the economy recovers, low-wage workers who have been unemployed will return to the labor market, and thus the average wages will be pushed down.4 Apparently, the year-on-year rate of change in total cash earnings per employee had been sluggish even when the economy was recovering. However, the rate of change has been positive of late. This is attributable to a rebound from the decline seen last year, a fall in the share of part-time employees, whose wage levels are low, and rising wages in the medical, healthcare, and welfare services industry, which faces a severe labor shortage. In addition, the year-on-year rate of increase in scheduled cash earnings of full-time employees, which are less susceptible to changes in composition of employment status, has expanded recently. As a result, employee income, obtained by multiplying the number of employees by total cash earnings, has turned to a pick-up lately (Chart 5). Nevertheless, private consumption has been stagnant due to strong downward pressure stemming from the impact of COVID-19. In particular, consumption of services, which includes eating and drinking as well as accommodations, has continued to be well below the pre-pandemic level due to the resurgence of COVID-19 and the resultant enactment of public health measures that has been having prolonged effects. In sum, 3 For the differences between these unemployment rates, see the "detailed tabulation" in the Labour Force Survey by the Statistics Bureau of Japan. 4 To be more precise, changes in the employment status and working hours need to be taken into consideration when calculating real wages. The Basic Survey on Wage Structure distinguishes regular employees from part-time workers, such as non-regular employees. Based on this, real hourly wages -- a term closer to real wages per employee -- are calculated. The estimation shows that real wages for regular employees hired for an indefinite period rose by 4.5 percent from 2012 to 2019, and those for non-regular employees (among part-time workers) increased by 8 percent during the same period. For details, see Iwata, K., "Nihon-gata kakusa shakai" kara no dakkyaku (Tokyo: Kobunsha Shinsho, 2021), pp. 192-3. That said, the Basic Survey on Wage Structure is released only once a year and thus is too infrequent to properly track developments in wages in real time. uncertainties surrounding COVID-19 are still strongly constraining consumption activity, and a virtuous cycle from income to spending therefore is not yet seen in the household sector. C. Key in Forecasting the Outlook What is most important in terms of the outlook is that the degree of uncertainty over COVID-19 constraining economic activity decreases on the back of, for example, further progress with vaccinations, so that private consumption will no longer be sluggish. We cannot be optimistic about developments in domestic and overseas economies because the number of variant cases has kept increasing globally; however, as the impact of COVID-19 almost subsides, the virtuous cycle is expected to be seen not only in the corporate sector but also in the household sector. Furthermore, key to recovery in the overall economy gaining more strength is developments in "standby" funds, which are saved for future use, in each of the household and corporate sectors. "Standby" Funds in the Two Sectors Let me explain standby funds in the household sector (Chart 6). Since the COVID-19 pandemic, funds on hand have accumulated significantly in the household sector.5 This is because savings have increased due to the loss of consumption opportunities -- which mainly reflects restrictions on going out -- and to uncertainties over the future, and because subsidies have been provided under the economic measures. As constraints stemming from COVID-19 wane and uncertainties decline, pent-up demand is likely to materialize, mainly in face-to-face services, which has been restrained thus far, and then private consumption is expected to recover. Given that dining-out and travel have been restricted under the pandemic for a long time, the size of their pent-up demand is expected to become significant. Standby funds that have accumulated in the household sector are also projected to support the materialization of this demand. For standby funds in the household sector, see Box 3 "Effects of Widespread Vaccinations and Outlook for Private Consumption" in the Outlook for Economic Activity and Prices (Outlook Report) released in April 2021 (https://www.boj.or.jp/en/mopo/outlook/gor2104b.pdf). Standby funds also have been accumulating recently in the corporate sector, although not to as remarkable a level as seen in the household sector. From the deflationary period, since Japanese firms tended to constrain business fixed investment relative to their amount of profits, savings clearly kept exceeding investment for a long period. This tendency of having excess savings in the corporate sector was not evident after the introduction of QQE. However, it has intensified again since the COVID-19 pandemic, partly due to growing uncertainties, including those over financial positions, and thus funds on hand have been accumulating. Attention is paid to whether the withdrawal of standby funds will encourage an increase in business fixed investment as the impact of COVID-19 wanes and uncertainties decline. Two "Expectations" In order for standby funds to be actually used, thereby leading to an increase in propensity to spend, it is important for firms and households to have a positive outlook for economic activity and prices (Chart 7). In this regard, the results of the Annual Survey of Corporate Behavior show that listed firms' growth expectations do not seem to have decreased remarkably even after experiencing a significant negative shock to economic activity brought about by COVID-19.6 Such steady expectations at present are clearly different from those at the time of the Global Financial Crisis (GFC), when they decreased considerably. This seems mainly because, in the face of the current worldwide pandemic crisis, governments and central banks around the world, including Japan, have made extremely prompt fiscal and monetary policy responses on an unprecedented scale (Chart 8). In fact, these timely policy responses have ensured the flow of funds to firms and households and have supported firms powerfully to sustain their businesses and employment. In addition to growth expectations, developments in inflation expectations are extremely important (Chart 7). If households or firms expect that prices will decline in the future, their incentives to postpone consumption or investment will increase and a virtuous cycle from However, it should be noted that, as for the forecasts made by medium-sized firms and SMEs regarding the real economic growth rate over the next three years, the rate was 0.7 percent for fiscal 2020, declining slightly from 0.8 percent for fiscal 2019. income to spending will not operate. Various indicators for inflation expectations temporarily weakened somewhat after the outbreak of COVID-19, partly due to a significant decline in crude oil prices, but they recently have moved out of that phase, being more or less unchanged. Some indicators even show a pick-up, partly reflecting the effects of the recent rise in international commodity prices. That said, further recovery in growth and inflation expectations of firms and households is necessary to achieve the price stability target of 2 percent. The Bank will closely examine whether this recovery can intensify the virtuous cycle in the overall economy. D. Price Developments Let me touch on price developments before moving on to the next topic (Chart 9). The rebasing of the consumer price index (CPI), which is conducted every five years, took place last month, and the year-on-year rates of change since this spring were revised downward by about 0.7 percentage points. This is mainly because a reduction in mobile phone charges made a further negative contribution with the rebasing. 7 Temporary factors such as a change in price plans for mobile phone charges and large fluctuations in energy prices should be excluded to capture actual developments in prices. When excluding these factors, the rebased CPI has been marginally positive. This is another example of difficulties in interpreting economic indicators, which I mentioned at the outset, and thus it is necessary to carefully examine relevant data, including the underlying factors behind developments in price indicators. Given the rebasing, the year-on-year rates of change in the CPI (all items less fresh food) were revised downward from minus 0.4 percent to minus 0.5 percent for January through March 2021 and from 0.1 percent to minus 0.6 percent for April through June. The negative contribution of mobile phone charges to the rates of change in the CPI for April through June expanded from about minus 0.5 percentage points to about minus 1.1 percentage points. This reflects a rise in weight of mobile phone charges in the CPI, a resetting of the index level of such charges, and revision to the model formula used for calculating them. II. Challenges for Central Banks Today A. Actions on Climate Change The situation surrounding central banks continues to change. In July, the Bank released its strategy on climate change (Chart 10).8 I would like to explain the thinking behind this strategy. In recent years, there has been growing interest in the issue of climate change. 9 Various central banks, together with financial regulatory and supervisory authorities, formed an organization called the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in December 2017, which the Bank of Japan joined in November 2019.10 In addition, central banks such as the Bank of England (BOE) and the European Central Bank (ECB) have begun to take policy actions to address climate change.11 Essentially, climate change can be regarded as a global market failure. Greenhouse gases are emitted as a result of economic activity. If they cause climate change, economic activity results in so-called negative externalities, which may bring about excessive greenhouse gas emissions. When market failures, including negative externalities, occur, public institutions such as governments may be in a position to make responses.12 Details of the Bank's efforts to address climate change can be found at https://www.boj.or.jp/en/about/climate/index.htm/. 9 According to the Peoples' Climate Vote, a survey of 1.22 million people in 50 countries conducted by the United Nations Development Programme (UNDP) and Oxford University, 64 percent of respondents considered climate change to be a global emergency. The percentage was higher in small island developing states (74 percent) and high-income countries (72 percent), while it was lower in middle-income countries (62 percent) and least developed countries (58 percent). The percentage in Japan was 79 percent, the highest after the 81 percent both in the United Kingdom and Italy. For details, see https://www.undp.org/publications/peoples-climate-vote. 10 For details on the NGFS, see https://www.ngfs.net/en. 11 Details of the responses to climate change by the BOE can be found on its web site at https://www.bankofengland.co.uk/climate-change and the responses by the ECB on its web site at https://www.ecb.europa.eu/ecb/climate/html/index.en.html. 12 To be more precise, the correction of market failures does not necessarily require the involvement of government. When the Coase theorem in economics holds, it is theoretically possible to ensure through voluntary negotiations among parties that negative externalities are internalized. However, a prerequisite is that the cost of negotiation is low, and therefore this would not work as a response to climate change, which involves a myriad of entities. However, whether and how central banks should address climate change is controversial, even among economists.13 Issues of debate include the following. First, there are extremely high uncertainties over the mechanism of climate change and its impact.14 There are two types of risks associated with climate change: physical risks and transition risks. Physical risks refer to an increase in natural disasters such as floods caused by climate change. Transition risks emerge as a result of complying with environmental regulations and changing industrial structures to reduce greenhouse gas emissions. As for the former risks, the recent flood damage around the world caused by heavy rains comes to mind. The torrential rains in Hiroshima Prefecture in July 2018 and this August also are fresh in our memories, and many have been suffering from them. Various scientists are carrying out research on climate change from the physical science basis and discussions are still underway. 15 While the number of natural disasters appears to be increasing worldwide, the number of deaths related to natural disasters has been decreasing (Chart 11).16 On the other hand, there is the "risk of doing For example, some point to the risk of central banks doing nothing about climate change and urge them to be involved in terms of financial regulation. Eichengreen, B., "New-Model Central Banks," Project Syndicate, February 9, 2021, https://www.project-syndicate.org/commentary/central -banks-have-tools-for-climate-change-and-inequality-by-barry-eichengreen-2021-02. Others are more skeptical about central banks' involvement. Blanchard, O., "Looking Forward: Monetary Policy Post-Covid" in Monetary Policy and Central Banking in the Covid Era, eds. English, B., Forbes, K., and Ubide, A. (London: CEPR Press, 2021), pp. 417-24. 14 For various uncertainties regarding climate change and the policy responses, see Pindyck, R. S., "What We Know and Don't Know about Climate Change, and Implications for Policy," Environmental and Energy Policy and the Economy, vol. 2 (2021): pp. 4-43. 15 Scientific knowledge on climate change is regularly updated. In August, the Intergovernmental Panel on Climate Change (IPCC) released Climate Change 2021: The Physical Science Basis, the Working Group I contribution to the Sixth Assessment Report. In this report, the assessment has been updated, stating it is likely that the global proportion of major (Category 3-5) tropical cyclone occurrences has increased over the last four decades and that this cannot be explained by internal variability alone; in other words, it likely is caused by human activities. That said, the assessed level of confidence is low for long-term trends in the frequency of all-category tropical cyclones (https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM.pdf). 16 The increase in the number of natural disasters since the 1970s may be due to improvement in the accuracy of statistics. Inui, T., "Shizen saigai to keizai seichō," Keizai Seminā, no. 706 (February/March 2019): pp. 22-5. nothing." If we do not take action now, significant negative effects may become evident or increase 20 or 30 years later. This is called the "tragedy of the horizon."17 The second issue is whether central bank actions on climate change relate to their mandate. Of course, the very existence of central banks is a product of history, and their mandate has evolved over the years as they have responded to market failures.18 In the case of Japan, the Bank's current mandate, as stipulated in the Bank of Japan Act, is to maintain price stability and financial system stability. The purpose of maintaining price stability is to "contribute to the sound development of the national economy," and climate change, in terms of associated physical and transition risks, is likely to affect such development through prices and the financial system. As such, central banks can address climate change within the scope of their mandate, and this is not mission creep. However, even when they take action, it is extremely important to appropriately cooperate and divide labor with their governments.19 The third issue concerns the specific tools that central banks have at their disposal. Central banks are institutions that supply money and liquidity to the economy. The Bank's mandate to stabilize prices and the financial system also derives from this purpose. The Bank has two tools at its disposal: (1) monetary policy measures such as fund-provisioning and on-site examinations and off-site monitoring. The Bank's strategy on climate change released this July clearly indicates that its actions will be taken mainly through these two tools for the time being. The term "tragedy of the horizon" became famous in the speech by the former governor of the BOE. Carney, M., "Breaking the Tragedy of the Horizon: Climate Change and Financial Stability," speech given at Lloyd's of London, September 29, 2015, https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-changeand-financial-stability. 18 For the history of central banks, see Bordo, M. D. and Siklos, P. L., "Central Banks: Evolution and Innovation in Historical Perspective" in Sveriges Riksbank and the History of Central Banking, eds. Edvinsson, R., Jacobson, T., and Waldenström, D. (Cambridge: Cambridge University Press, 2018), pp. 26-89. 19 Nordhaus, W., The Climate Casino: Risk, Uncertainty, and Economics for a Warming World (New Haven and London: Yale University Press, 2013). In light of uncertainties, further studies and research are needed. From the perspective of accountability, the collection of data as well as analysis of and assessment on policy effects are also required. In addition, since climate change is a global market failure, it should be addressed at a global level. Thus, not only Japan's actions but also collaboration among countries around the world is necessary (Chart 12). B. Price Stability The Bank addresses climate change with the aim of achieving price stability in the medium to long run. That said, it also places high priority on achieving price stability in the short run and on overcoming deflation. Price stability is essential to achieving the economic virtuous cycle I mentioned earlier. However, why is the price stability target set at 2 percent? There are three reasons: securing policy room in order for interest rates not to stick to the lower bound, an upward bias in price statistics, and a global standard of 2 percent. Let me elaborate a little on the third point. In countries and regions that allow free capital movement under the floating exchange rate system, an increasing number of central banks has adopted inflation targeting recently. If monetary policy is conducted autonomously in places with free capital mobility, foreign exchange rates will fluctuate (Chart 13). However, if central banks around the world aim at achieving the same target inflation rate, nominal foreign exchange rates will eventually become less volatile.20 Either a review or assessment of the monetary policy frameworks With regard to historical significance of inflation targeting in the global financial system, see Rose, A. K., "A Stable International Monetary System Emerges: Inflation Targeting Is Bretton Woods, Reversed," Journal of International Money and Finance, vol. 26, issue 5 (September 2007): pp. 663-81. The following paper focuses on a recent decline in volatility in foreign exchange rates. Ilzetzki, E., Reinhart, C. M., and Rogoff, K. S., "Will the Secular Decline in Exchange Rate and Inflation Volatility Survive COVID-19?" NBER Working Paper, no. 28108, 2020. In addition, regarding analysis on the foreign exchange rate regime with a focus on the relative size of balance sheets of the Federal Reserve and the Bank, see Sakurai, M. and Kimata, T., "An Essay on Japan's Monetary Policy Experience and Lessons," November 6, 2020, https://www.boj.or.jp/en/announcements/press/koen_2020/data/ko201106a.pdf. was conducted by the Federal Reserve in August 2020, by the Bank in March 2021, and by the ECB in July 2021. As a result, they reconfirmed or strengthened the commitment toward achieving the 2 percent target, and this has further encouraged the convergence of their policy frameworks. In addition, all of these central banks have continued with the low interest rate policy, and the yield differentials have been stable among these countries and regions. In reflection of these developments, volatility in exchange rates among the U.S. dollar, the euro, and the yen has decreased in recent years (Chart 14). Japan's economy has managed to avoid falling into deflation despite being affected by COVID-19, and this may be because the Bank has firmly maintained an active stance on monetary easing under the 2 percent target. This also implies, however, that changing the current monetary policy framework should be avoided because it might lead to volatile foreign exchange markets. There used to be a prevailing view that inflation targeting is for lowering inflation rates and not for overcoming deflation. However, in fact, central banks in the 2000s that had adopted inflation targeting conducted monetary easing measures when the actual inflation rates fell below the target rates. In addition, reflecting a decline in the actual inflation rates due to the impact of COVID-19, the Federal Reserve adopted average inflation targeting and the ECB redefined its 2 percent inflation target as "symmetric." The Bank introduced the inflation-overshooting commitment in September 2016 and has been conducting monetary policy under it since. As can be seen from these responses, inflation targeting has been used to raise inflation rates as well. It should be noted that, even though the monetary policy frameworks of central banks around the world are converging, appropriate policy measures are not the same everywhere. For example, even if the inflation rate in the United States exceeds the 2 percent target and the Federal Reserve starts to tighten monetary policy given the achievement of average inflation targeting, this does not mean that the Bank will adjust its monetary policy. The Real foreign exchange rates, which are adjusted for the inflation rate, could be stable even if the target inflation rates are different among countries. However, in this case, nominal foreign exchange rates will appreciate in places that adopt lower targets, and this will consequently reduce production and employment, leading to a decline in prices. Provided that these adjustment costs are substantial, stability in nominal exchange rates is desirable. Bank is focused on achieving its price stability target of 2 percent and maintaining the inflation rate at that level in a stable manner in Japan. Reflecting rises in energy and commodity prices, Japan's CPI for all items excluding fresh food, or the "core CPI," also has seen an increase in its rate of change recently. However, the core CPI is not the only price indicator the Bank looks at in deciding its policy measures, and the rises in energy and commodity prices may even be transitory. In addition, it is necessary to pay attention to the fact that, with such price rises, the terms of trade deteriorate and income flows out of Japan. If this happens, it will become desirable to expand the macroeconomic policy with a view to maintaining income. Since such policy may further push up the inflation rate, we should pay attention to developments in inflation expectations. In any event, we have learned from the history of the Great Inflation, which occurred from the second half of the 1960s, that unless domestic demand expands continuously, inflation will not be sustained just by cost-push factors.21 Furthermore, in Japan, there is still a long way to go to achieve the price stability target of 2 percent. As has been confirmed in the assessment conducted in March 2021, the Bank's inflation-overshooting commitment incorporates the strategy of making up for the past deflation. This means the Bank will allow the inflation rate to overshoot the target of 2 percent even if it temporarily reaches that level. It is essential not to tighten the current accommodative financial conditions prematurely by only looking at developments in the core CPI in the short run. C. Financial System Stability The Bank's other mandate is to ensure financial system stability. The Policy Board has been receiving reports and explanations from time to time regarding business conditions of Japanese financial institutions and risk assessment of the financial system. In addition, starting from this April, the staff members of the Financial System and Bank Examination 21 The Great Inflation started before the oil shocks in the 1970s. For example, see Meltzer, A. H., A History of the Federal Reserve, Volume II, Book 1, 1951-1969 (Chicago and London: The University of Chicago Press, 2010), pp. 667-81; Wakatabe, M., Kiki no keizai seisaku: Naze okita no ka, nani wo manabu no ka (Tokyo: Nippon Hyoron Sha, 2009), pp. 73-126; Bordo, M. D. and Orphanides, A., eds., The Great Inflation: The Rebirth of Modern Central Banking (Chicago and London: The University of Chicago Press, 2013). Department have been explaining developments in the financial system at the MPMs when the Outlook Report is decided, which is four times a year. The underlying idea is that financial system stability is essential for achieving price stability. That said, price stability and financial system stability are interdependent; for instance, under deflation where prices of goods, services, and assets fall, investment is constrained due to a rise in the real interest rate, firms' real debt burden increases, and credit costs of financial institutions rise.22 This suggests that price stability contributes to financial system stability. How to interpret warning signals from the financial system and reflect what we learn from them in monetary policy is an ongoing challenge. To understand the current situation of the financial system from various indicators in the Financial System Report, such as the heat map and GDP-at-risk (GaR), it is necessary to also take into account other information regarding economic and financial conditions available at that time.23 For example, in the Financial System Report released this April, the heat map showed that four Financial Activity Indexes (FAIXs) were "red," which signals an upward deviation from the past trend, but we do not see this as an indication of overheating of financial activities. Rather, this reflects the fact that, amid a plunge in nominal GDP of Japan's economy due to the impact of COVID-19, firms' financial positions have been supported by active financial This idea originally dates back to the Debt-Deflation Theory of Great Depressions by the American economist Irving Fisher. See Fisher, I., Booms and Depressions: Some First Principles (New York: Adelphi, 1932); Fisher, I., "The Debt-Deflation Theory of Great Depressions," Econometrica, vol. 1, no. 4 (October 1933): pp. 337-57. Regarding a well-known model formulated in the context of the modern world, see Bernanke, B. S., Essays on the Great Depression (Princeton: Princeton University Press, 2000), pp. 84-9. The following paper applies the model to the nonperforming loan problem in Japan in the 1990s: Ohnishi, S., Nakazawa, M., and Harada, Y., "Deflation and Excess Debt," Financial Review, no. 66 (December 2002): pp. 143-77 (abstract available in English). 23 GaR quantitatively measures the risk to economic growth by showing that the growth rate may fall below X percent over the next Y years with the probability of Z percent. This indicator has been used by central banks around the world and various international organizations. The Bank has been releasing the results of GaR from the October 2018 Financial System Report. intermediation, which mainly results from policy measures to support corporate financing.24 As such, it is still challenging to interpret indicators and evaluate the state of financial system stability.25 III. Recent and Future Economic Activity in Hiroshima Prefecture Next, I would like to talk about the economy of Hiroshima Prefecture. Economic activity in the prefecture has been on a moderate pick-up trend recently, although downward pressure has remained. The pick-up in private consumption, especially for services, has come to a halt due to the lingering impact of COVID-19. Exports and production, mainly for automobiles, have remained under downward pressure due to the effects of supply-side constraints such as the semiconductor shortage, but the moderate pick-up trend has been maintained. As for the outlook, the economy is likely to gradually head toward improvement, as vaccinations progress and supply-side constraints ease. In the medium to long run, addressing issues such as the declining and aging population, as well as challenges that have become apparent during the pandemic, will be important for sustainable growth. That said, I have always thought that the impact of the declining and aging population is being overestimated. In fact, the global trend shows that there is no clear correlation between the population growth rate and the economic growth rate per capita, and gross prefectural product per capita in Hiroshima Prefecture has been on an uptrend, albeit with fluctuations, in recent years even though its population has declined (Chart 15). 24 In relation to this, the so-called zombie firms stay alive or die depending on macroeconomic conditions; they stay alive during a recession and die in a boom period. Gagnon, J. E., "Zombies Are a Symptom of Economic Weakness, Not a Cause," Peterson Institute for International Economics, May 17, 2021, https://www.piie.com/commentary/op-eds/zombies-are-symptom-economic -weakness-not-cause. 25 As for an overview of developments in academic research on financial crises, see Sufi, A. and Taylor, A. M., "Financial Crises: A Survey," NBER Working Paper, no. 29155, 2021. In my view, it should be informative to learn from history to obtain qualitative information. For example, see Rockoff, H., "Oh, How the Mighty Have Fallen: The Bank Failures and Near Failures That Started America's Greatest Financial Panics," The Journal of Economic History, vol. 81, issue 2 (June 2021): pp. 331-58. This paper traces the history of financial crises in the United States, explaining that once "reputable" shadow banks go bankrupt en masse during a financial crisis, typically because of excessive investment in real estate. In any event, the challenge for local economies is to make their regions more attractive in terms of livability for residents. Overcoming this challenge will require those in industry, academia, government, and finance to make active investment and accelerate various innovations in technology, institutions, and policy. In the case of Hiroshima Prefecture, it seems that efforts to revitalize its economy are underway through their collaboration. I would like to focus on efforts in three areas. The first is efforts to enhance and strengthen urban functions. In Hiroshima Prefecture, redevelopment projects are being carried out in the central part of Hiroshima City, in Kure City, and in Fukuyama City. Moreover, to develop next-generation transportation networks so that convenience for users improves, the introduction and trials of Mobility as a Service (MaaS), which seamlessly connects various transportation systems using information and communication technology (ICT), have been conducted in Hiroshima City, Higashihiroshima City, Fukuyama City, as well as the semi-mountainous city of Shobara. These projects, with participation by firms, financial institutions, local governments, and universities in the prefecture, are expected to make the cities highly livable for residents and those contemplating a move from other places. Although one of the reasons for the declining population in Hiroshima Prefecture is that more young people, such as those in their 20s, are moving out of the prefecture than into it, Hiroshima Prefecture in recent years often ranks high on the list of desirable places to move to. The hope is that the urban redevelopment projects will further enhance the attractiveness of cities in the prefecture. The second area is the use of digital technology. In Hiroshima Prefecture, collaborative efforts among private firms, organizations, and universities have been made in various fields. For example, in addition to efforts to achieve 24/7/365 unattended operations in manufacturing through the use of artificial intelligence (AI), trials for the use of AI and the Internet of Things (IoT) in agriculture and those to reduce the burden on nursery school teachers through the use of IoT in the childcare field have been conducted. The use of digital technology also has been supported by the "Hiroshima Prefecture DX Promotion Community" and the "Hiroshima Sandbox," which the prefectural government launched earlier than any other prefectures. These public-private initiatives are expected to contribute to the revitalization and growth of the prefecture's economy through enhanced productivity and technological innovation. The third area is efforts with regard to tourism. Hiroshima Prefecture has some of the best tourism resources in Japan, including two World Heritage Sites as well as other tourist spots such as the Shimanami Kaido Cycling Course, which is said to be a magnet for cyclists, and Kure, which was an important base for the former Imperial Japanese Navy. Since last year, the number of visitors to the prefecture's tourist spots and the number of overnight guests have remained at low levels due to the impact of COVID-19, but the Hiroshima Tourism Association and other organizations are working toward attracting individual travelers by making the congestion status of tourist facilities visible on their web sites. Moreover, with the privatization of Hiroshima Airport, which is being carried out with the participation of local firms as well, efforts have begun to create tourism demand in view of the post-pandemic era. It is hoped that such efforts will bear fruit during that era, leading to an increase in domestic and international travel consumption and revitalization of the tourism industry. Hiroshima Prefecture was devastated by air raids and the atomic bomb at the end of the Pacific War, and the post-war economic recovery was driven by the united efforts of the prefecture's citizens, local firms and financial institutions, and government agencies. The three efforts I have outlined are also based on such cooperation. Moreover, there are growing social demands for action to address climate change. This is an important issue that should be tackled through cooperation among those in industry, academia, government, and finance while taking into account -- or even because of -- the impact on the economy of Hiroshima Prefecture. The Bank, through its Hiroshima Branch, will continue to gather information and exchange views in order to contribute in any way possible to the various efforts to revitalize the region. Conclusion The American economist Knight, whom I mentioned at the beginning of my speech, points out in his book that uncertainties could be reduced by increasing knowledge of the future through scientific research and accumulation of data, clubbing uncertainties through large-scale organization of various forms, and increasing control over the future.26 As the nature of COVID-19 becomes clearer and the system to deal with the pandemic is better organized with an increase in our knowledge, uncertainties are expected to gradually turn into predictable risks, and I believe this is beginning to happen. As the aforementioned economist Keynes emphasized, governments and central banks are a part of practical responses to uncertainties. That said, uncertainties are inherent to a changing society and climate change has emerged as a new uncertainty. Knight mentions that another option for reducing uncertainties is to delay progress itself. This option, or perhaps "de-growth" in today's terms, of course takes direct costs, in that we give up the outcomes of progress and growth that human beings have cherished. What is important in addressing climate change is to aim for a balance with achieving economic growth. Economic growth has brought considerable benefits to human beings, such as longer average life expectancy, and the economy must have sufficient leeway to transition to a carbon-neutral one where natural disasters are less likely to occur. In order to achieve a carbon-neutral economy, new technologies that currently do not exist or are not used in light of cost effectiveness are also needed.27 The development and application of new technologies require new investments in research and development, machinery and equipment, and software, and economic growth is essential to such investments. De-growth or zero-growth would make it extremely difficult to solve climate change because either would preserve old technologies and machines that emit greenhouse gases. Therefore, it could be said that the "sound development of the national economy" is also necessary for 26 Knight, Risk, Uncertainty and Profit, p. 347. Gates, B., How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need (New York: Penguin Random House, 2021), pp. 198-205; Lomborg, B., False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet (New York: Basic Books, 2020), pp. 167-83. addressing climate change. 28 The challenge we face is to strike a balance between achieving economic growth and dealing with uncertainties. Generally, technological innovation is embodied in capital in the form of machinery and equipment as well as software. In the history of Japan's post-war economy, economic growth has improved energy efficiency. The greatest increase in efficiency was seen during the period of rapid economic growth from 1955 through 1973. Nomura, K., Nihon no keizai-seichō to enerugī: Keizai to kankyō no ryōritsu wa ikani kanō ka (Tokyo: Keio University Press, 2021). Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Hiroshima (via webcast) September 1, 2021 WAKATABE Masazumi Deputy Governor of the Bank of Japan Chart 1 I. Current Situation of and Outlook for Japan's Economy The Bank's Forecasts for Economic Activity (July 2021 Outlook Report) s.a., ann., tril. yen Real GDP Nominal GDP Fiscal 2023 +1.3% Fiscal 2022 +2.7% 19/Q3 563 tril. yen Fiscal 2021 +3.8% 19/Q3 558 tril. yen 21/Q2 546 tril. yen 21/Q2 539 tril. yen FY 06 Note: Percentage figures indicate the medians of the Policy Board members' forecasts (point estimates). Sources: Cabinet Office; Bank of Japan. Chart 2 I. Current Situation of and Outlook for Japan's Economy Cycle from Income to Spending Upward pressure on prices Increase in Income Decrease in Income Downward pressure on prices Increase in sales, improvement in employment and wages Virtuous Cycle Inflation Decrease in sales, constraints on employment and wages Vicious Cycle Contraction Deflation Expansion in Spending in Spending Negative stance toward consumption and business fixed investment Active stance toward consumption and business fixed investment Chart 3 I. Current Situation of and Outlook for Japan's Economy Corporate Sector Corporate Profits Exports and Production s.a., CY 2015 = 100 25 s.a., tril. yen Business Fixed Investment (Tankan) 19/Q4 Current profits Industrial production CY 06 08 10 12 14 16 18 20 Planned investment in current fiscal year as of the June survey of each year -5 Real exports Actual y/y % chg. -10 -15 CY 06 08 10 12 14 16 18 20 -20 FY 06 08 10 12 14 16 18 20 Notes: 1. In the middle chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly, excluding "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. 2. In the right-hand chart, figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for all industries and enterprises including financial institutions. Sources: Ministry of Finance; Ministry of Economy, Trade and Industry; Bank of Japan. Chart 4 I. Current Situation of and Outlook for Japan's Economy Household Sector Unemployment Rate Number of Employed Persons s.a., mil. persons s.a., CY 2019 = 100 12 % Employed persons (left scale) Wages Labor underutilization indicator 4 (LU4) Regular employees (right scale) Non-regular employees (right scale) y/y % chg. (Unemployed persons + Employed persons not at work) / Labor force Unemployment rate -1 -2 -3 Nominal wages -4 Real wages -5 CY 06 08 10 12 14 16 18 20 Nominal scheduled cash -6 06/Q1 CY 06 08 10 12 14 16 18 20 earnings of full-time employees 10/Q1 14/Q1 18/Q1 Notes: 1. In the left-hand chart, figures for regular employees and non-regular employees prior to 2013 are based on the "detailed tabulation" in the Labour Force Survey. 2. In the middle chart, LU4 shows the ratio of the sum of unemployed persons, persons in time-related underemployment, and potential labor force to the sum of labor force and potential labor force (quarterly). Figures for "(Unemployed persons + Employed persons not at work) / Labor force" and the unemployment rate are seasonally adjusted. 3. In the right-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions. Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. Chart 5 I. Current Situation of and Outlook for Japan's Economy Household Sector Employee Income (Number of Employees× Total Cash Earnings) y/y % chg. Private Consumption 120 s.a., CY 2015 = 100 Total real private consumption Goods Services -2 Real -4 Nominal -6 Real (excluding the effects of the consumption tax hikes and free education policies) -8 06/Q1 08/Q1 10/Q1 12/Q1 14/Q1 16/Q1 18/Q1 20/Q1 Jan. Jul. July Jan. Jul. July Jan. Notes: 1. In the left-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey). Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the Monthly Labour Survey. Figures for "real" and "real (excluding the effects of the consumption tax hikes and free education policies)" are based on staff calculations using the CPI (less imputed rent) and CPI (less imputed rent and excluding the effects of consumption tax hikes and free early childhood education), respectively. 2. In the right-hand chart, figures are based on the Consumption Activity Index (CAI) compiled by the Bank. Figures for total real private consumption are those for real CAI (travel balance adjusted). Sources: Bank of Japan; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare, etc. Chart 6 I. Current Situation of and Outlook for Japan's Economy "Standby" Funds in Household and Corporate Sectors Private Consumption and Loss of Consumption Opportunities s.a., tril. yen Excess Savings in Corporate Sector Special cash payments (SCPs) 100 s.a., ann., tril. yen Savings other than "forced savings" "Forced savings" Disposable income, etc. (excl. SCPs) Consumption of households (excl. the impact of COVID-19) Consumption of households -20 -40 -60 -80 Excess investment CY 17 Excess savings Household sector Corporate sector General government Domestic savings-investment balance -100 FY 85 Note: Regarding details for the left-hand chart, see Box 3 "Effects of Widespread Vaccinations and Outlook for Private Consumption" in the April 2021 Outlook Report. Sources: Bank of Japan; Cabinet Office, etc. Chart 7 I. Current Situation of and Outlook for Japan's Economy Two "Expectations" Growth Expectations Remaining Steady % Inflation Expectations Being More or Less Unchanged 2.5 Forecasts of Japan's real economic growth rate (over the next 3 years) y/y, ann. avg., % Households (over the next 5 years) Firms (5 years ahead) 2.0 1.5 1.0 0.5 CY85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 0.0 CY 05 Market participants (QUICK, 2 to 10 years ahead) Notes: 1. In the left-hand chart, figures are based on the Annual Survey of Corporate Behavior (listed firms). 2. In the right-hand chart, figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: Cabinet Office; QUICK, QUICK Monthly Market Survey <Bonds>; Bank of Japan. Chart 8 I. Current Situation of and Outlook for Japan's Economy Actions of Governments and Central Banks Large-Scale Fiscal Support in Response to COVID-19 Expanding Central Bank Balance Sheets % of nominal GDP 30 % of nominal GDP Japan United States Euro area CY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Japan United States Europe Emerging economies Note: In the right-hand chart, figures are based on estimates in U.S. dollars released by the IMF in its April 2021 Fiscal Monitor. They include only fiscal support that affects the fiscal balance immediately. Tax deferrals, government guarantees for banks, firms, and households, etc. are excluded. The figure for Europe is the sum of figures for Germany, France, Italy, Spain, and the United Kingdom. The figure for emerging economies is the sum of figures for 29 economies. Sources: Haver; IMF; Bank of Japan, etc. Chart 9 I. Current Situation of and Outlook for Japan's Economy Consumer Price Index (CPI) y/y % chg. Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) -1 -2 CY Notes: 1. Figures for energy consist of those for petroleum products, electricity, and gas, manufactured & piped. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 10 II. Challenges for Central Banks Today The Bank's Strategy on Climate Change Climate change is a global challenge and could have a broad impact into the future. Various entities in society and the economy need to actively play their roles. The Bank, with an intention of furthering its efforts on climate change consistent with its mandate of achieving price stability and ensuring the stability of the financial system, decided the comprehensive strategy. Monetary policy Financial system Operations & communication International finance Research The impacts of climate change on economic activity, prices, and the financial system are highly uncertain and could greatly vary over time. The Bank will constantly review its measures and make adjustments where needed. Chart 11 II. Challenges for Central Banks Today Natural Disasters Increase in Number of Global Reported Natural Disaster Events cases Decrease in Number of Global Deaths from Natural Disasters 4.0 Other 3.5 Drought 3.0 Earthquake Storm Flood 2.5 2.0 1.5 1.0 0.5 CY 1900 mil. persons 0.0 CY 1900 Source: EM-DAT: The Emergency Events Database - Université catholique de Louvain (UCL) - CRED, D. Guha-Sapir - www.emdat.be, Brussels, Belgium. Chart 12 II. Challenges for Central Banks Today Carbon Dioxide Emissions 12 bil. tonnes China United States Japan Germany United Kingdom India CY 1900 Source: Ritchie, H. and Roser, M., "CO₂ and Greenhouse Gas Emissions," OurWorldInData.org., 2020, https://ourworldindata.org/co2-and-other-greenhouse-gas-emissions. Chart 13 II. Challenges for Central Banks Today Trilemma of International Finance Free Capital Mobility Gold Standard Stable Foreign Exchange Rates Floating Exchange Rate System/ Inflation Targeting Bretton Woods System Independent Monetary Policy Chart 14 II. Challenges for Central Banks Today Decrease in Volatility of Nominal Foreign Exchange Rates U.S. Dollar/Yen yen Euro/U.S. Dollar 0.40 U.S. dollar 0.35 0.30 0.25 0.20 0.15 0.10 0.05 CY 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 0.00 CY 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Note: Figures are the difference between the highest and lowest intra-day prices in a year. Figures for 2021 are those up through July. Source: Bloomberg. Chart 15 III. Recent and Future Economic Activity in Hiroshima Prefecture Population Growth Rate and GDP Population Growth and GDP Growth per Capita in the World real GDP per capita (1961-2019 average, y/y % chg.) Population and Gross Prefectural Product per Capita in Hiroshima Prefecture FY 2000 = 100 ten thous. persons Population (left scale) Real gross prefectural product per capita (right scale) 0.0 0.5 1.0 1.5 2.0 2.5 population (1961-2019 average, y/y % chg.) FY 00 Note: In the left-hand chart, figures are those for 23 OECD member countries for which data from 1961 onward are available. Sources: World Bank; Cabinet Office.
|
bank of japan
| 2,021 | 9 |
Speech (via webcast) by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Miyazaki, 25 August 2021.
|
August 25, 2021 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Miyazaki (via webcast) NAKAMURA Toyoaki Member of the Policy Board (English translation based on the Japanese original) I. Economic and Price Developments at Home and Abroad A. Recent Developments in Economic Activity and Prices I will begin my speech by talking about recent developments in economic activity and prices. Overseas economies have recovered on the whole, led by advanced economies and China, despite the growing impact of the spread of the novel coronavirus (COVID-19) and its variants (Chart 1). Against this background, Japan's economy has picked up as a trend, although it remains in a severe situation (Chart 2). Exports and production continue to increase steadily. Business performance of firms also has improved on the whole. On the other hand, private consumption has been stagnant due to weakness in consumption of face-to-face services, such as eating and drinking as well as accommodations. On the price front, 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 at around 0 percent recently, mainly due to the rise in energy prices, despite being affected by COVID-19 and the reduction in mobile phone charges (Chart 3).1 The rate of change in the core CPI remains slightly positive and has been steady when excluding the temporary effects of energy prices and mobile phone charges. Given that the recent large reduction in charges for mobile phones is a temporary price change in one specific sector, it is rather unlikely to affect people's medium- to long-term inflation expectations. Nonetheless, I will continue to closely monitor price developments. B. Outlook for Economic Activity and Prices Let me touch on future developments in overseas and domestic economies. As the impact of COVID-19 wanes due to progress with vaccinations, overseas economies are likely to continue growing, albeit with variation across countries and regions, supported also by aggressive macroeconomic policies taken mainly in advanced economies. With the base year of the CPI being changed from 2015 to 2020, the year-on-year rate of change in the core CPI for the April-June quarter of 2021 was revised downward by about 0.7 percentage point from 0.1 percent for the 2015 base to minus 0.6 percent for the 2020 base. This is mainly because the negative contribution of mobile phone charges to the year-on-year rate of change in the core CPI increased from about minus 0.6 percentage point to about minus 1.1 percentage points. In this situation, Japan's goods exports are projected to continue increasing steadily, supported mainly by an expansion in digital-related demand and a recovery in business fixed investment, both on a global basis. Private consumption and inbound tourism consumption, the latter of which is categorized under services exports, are expected to be substantially affected by COVID-19 for the time being but likely to recover as the impact of the pandemic wanes due to, for example, the progress with vaccinations both at home and abroad and with strengthening of domestic medical response capabilities. As the economy recovers, the yearon-year rate of change in the CPI is expected to increase moderately (Chart 4). C. Risk Factors for Economic Activity and Prices I should note that the outlook is subject to considerable uncertainty and call particular attention to downside risks for the time being, mainly due to the impact of the spread of COVID-19, caused in particular by variants across Japan and abroad. Considering developments in the more distant future, I am particularly attentive to the following three factors. The first is pent-up demand for services consumption. In the United States, the amount outstanding of household cash and deposits increased by 3.1 trillion dollars relative to the trend as of end-March 2021 (Chart 5). Economic activity in the country has been buoyed by the materialization of pent-up demand with the vaccination progress. Similarly in Japan, the amount outstanding reached a historical high of 1,056 trillion yen as of end-March 2021, increasing by 37 trillion yen relative to the trend. If Japan's vaccine rollout and strengthening of medical response capabilities make progress and this contributes to reducing the impact of COVID-19, households will try to make up for lost spending opportunities, thereby increasing consumption by more than in normal times. This is expected to result in a materialization of pent-up demand, thereby stimulating economic activity. My view is that the timing of such materialization has been somewhat delayed, mainly due to the impact of the resurgence of COVID-19, but economic activity thereafter could become more vigorous than expected. The second factor is firms' price-setting behavior. Reducing prices is not an effective measure to attract customers under the current circumstances as vigilance against COVID-19 continues. Firms also suffer higher costs due to infection prevention measures and to rises in prices of imported raw materials with the global economic recovery. I therefore consider that firms' price cuts that aim at stimulating demand will still not be observed widely. Having said that, as seen in some cases in the United States, it is important from a longer-term perspective that firms improve their profitability through, for example, passing on cost increases by raising prices at the time of the materialization of pent-up demand in order to repay the loans that have grown, mainly in the face-to-face services sector, due to the decline in sales. I am closely monitoring whether firms will adopt a price-setting behavior that reflects the improvement in demand so that their loan repayments and efforts to increase productivity will make steady progress. The third factor is the path of firms' medium- to long-term growth expectations. In the Bank of Japan's June 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan), the business conditions DI for all industries and enterprises improved for the fourth consecutive quarter. The survey also showed an 8.1 percent decrease in the business fixed investment plan for all industries and enterprises, including financial institutions, for fiscal 2020 from the previous fiscal year and a subsequent 9.4 percent increase in the plan for fiscal 2021, returning to a level broadly similar to that of the fiscal 2019 plan (Chart 6). Thus, there has been no evidence of a decline in firms' medium- to long-term growth expectations. However, attention should be paid to the fact that the business fixed investment plan for fiscal 2021 includes investment carried over from the previous fiscal year. I am paying careful attention to firms' investment behavior, because in order for the economy to achieve sustainable growth, firms' investment to accelerate structural reforms so as to address digitalization and climate change -- I will revisit these issues later -- needs to lead to a sustainable improvement in productivity and in turn an increase in their medium- to long-term growth expectations. II. Conduct of Monetary Policy Let me now turn to the Bank's policy conduct. The Bank has conducted powerful monetary easing since March 2020 in response to COVID19 through the following three measures (Chart 7). The first is the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) to provide support, mainly for corporate financing. The second is an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar fundssupplying operations. The third is purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). As indicated in the findings of the Assessment for Further Effective and Sustainable Monetary Easing released in March 2021, the Bank's responses have had positive effects, coupled with the government's measures and active efforts by financial institutions. Climate change -- which has increasingly been regarded both at home and abroad as an issue that requires innovative changes -- could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective. Thus, it is relevant to the Bank's mandate to achieve price stability and financial system stability. From this perspective, the Bank, at the Monetary Policy Meeting held in July 2021, decided on the preliminary outline of a new fund-provisioning measure to support financial institutions' efforts on climate change (Chart 8). In this measure, the Bank takes the approach of providing funds to financial institutions for investment or loans they make to address climate change based on their own decisions. The aim is to avoid its direct involvement as much as possible in micro-level resource allocation. The guidelines, or taxonomies, for classifying economic activities depending on the contribution to addressing climate change are still under discussion both at home and abroad. However, if we wait for these debates to be settled, this will considerably delay the actions on climate change. I believe that the Bank's approach has the advantage of enabling it to support private sector initiatives to tackle this important challenge as promptly as possible while also ensuring flexibility in responding to changes in the situation. The Bank will consider the details of this new measure to increase effectiveness through an exchange of opinions with financial institutions and other entities, and will likely start the fund-provisioning under the measure within 2021. To realize a sustainable society, I believe that financial institutions' investment or loans to address climate change are important in supporting the efforts of firms that aim to meet Japan's target of reducing greenhouse gas emissions and in increasing firms' medium- to long-term growth expectations. Thus, I hope that the Bank's new measure will further encourage such investment and lending activities by financial institutions. III. Structural Changes in Japan's Economy A. The "Lost Two Decades" and Deflation Next, I would like to share my view on structural changes in Japan's economy and the challenges they pose from a longer-term perspective, based on my experience at a private firm I worked at from 1975 to 2020. Up until the 1985 Plaza Accord, the yen remained weak against the U.S. dollar, generally hovering above 200 yen (Chart 9). In that situation, Japan's economic growth was export driven. At the same time, industrial clusters were formed that incorporated small and mediumsized firms within the country. Firms took advantage of the growth in overseas economies by way of product exports and distributed their profits to households through sustained increases in employment of domestic workers and labor income. Against this background, a virtuous cycle operated in Japan where (1) households deposited their surplus funds at banks and profited from the high interest income brought about by the strong growth of the domestic economy, ultimately increasing consumption, (2) banks earned interest margins on the loans they made to firms, and (3) firms used borrowed funds for fixed and research and development (R&D) investments to drive exports and production. After the Plaza Accord, in the second half of the 1980s, the yen appreciated against the U.S. dollar to 120-130 yen. Partly because the government encouraged a structural change of the economy from one that is export driven to one that is driven by domestic demand, manufacturers started to transfer their production bases overseas. Furthermore, in Japan, the nonmanufacturing industry saw rapid growth, fueled by strong private consumption on the back of an increase in household disposable income (Chart 10). There was a view at the time that Japan's economy had achieved domestic demand-driven growth.2 Economic Planning Agency, Economic Survey of Japan (Economic White Paper), August 1989 (available only in Japanese). However, after the bubble burst in the first half of the 1990s, firms were burdened by the "three excesses" in employment, production capacity, and debt. 3 The working styles that involve traditional employment practices were slow in changing. Many firms addressed the decline in earnings by means of cost structure reforms, mainly by squeezing fixed expenses such as labor and depreciation costs and shifting their production bases to developing economies with cheap labor costs. Therefore, the realignment of their business portfolio, which would enhance their value-added, was postponed. Given this, as well as the further appreciation of the yen, Japan slipped into deflation from the latter half of the 1990s. Let me elaborate on the effects of deflation from the viewpoint of firms, albeit in simplified terms (Chart 11). Amid deflation, which persisted for about 15 years, Japanese firms were met with higher prices of imported raw materials brought about by the growth of overseas economies and with inflows of low-priced goods from developing economies. As a result, they experienced decreases in sales and profits as well as lower productivity. Firms then took measures to reduce fixed expenses. However, as I recall, in many cases they (1) prioritized maintaining employment of their workers, mainly due to the traditional practice of lifetime employment, (2) postponed the realignment of their business portfolio, which would enhance their value-added otherwise, and (3) held down wage growth due to sluggish productivity growth. They also had little choice but to restrain fixed and R&D investments, which led to delayed development of attractive and competitive new products and services. Consequently, firms were in a vicious cycle of sluggish demand, excluding that for daily necessities such as food, and of further price cuts to maintain demand. Moreover, the prolonged deflation undermined firms' prospects for future increases in sales and profits and reduced their capacity to invest in innovative initiatives such as digital utilization. Turning to households, about 70 percent of those employed in Japan work for small and medium-sized firms. Many of these firms were met with cost competition from developing economies and weak domestic demand owing to structural problems of Japan's economy -namely, the declining birth rate, the aging population, and the drop in the working-age population. Therefore, they had little room to raise the wages of their workers, and the Economic Planning Agency, Economic Survey of Japan (Economic White Paper), July 1999 (available only in Japanese). workers in turn hardly benefited from the growth of overseas economies. Under these circumstances, households did not have hopes for a sustained increase in wages based on the lifetime employment practice and seniority-based wages, which created anxiety for the future. To prepare for uncertainty, I think that households were increasingly inclined to hold back on risky asset investment and instead hoard cash and deposits. As illustrated, both firms and households postponed innovation and investment, being entrenched in deflation that persisted for about 15 years. Consequently, Japan lagged other countries in the pace of innovation, which in turn led to sluggish productivity growth. B. Progress of Globalization and Household Income Structures Subsequently, bold monetary easing policy and flexible fiscal policy -- part of a strategy that the Bank started implementing in 2013 -- served to arrest the deflationary trend. Various other measures were also put in place to tap into growth in overseas economies, including ones to stimulate demand from inbound tourism, which is classified as service exports, and this caused such exports to assume a larger role in driving growth (Chart 12). Likewise in the private sector, following the Global Financial Crisis, major manufacturers seeking to capture foreign demand made further inroads into overseas markets4 while firms, including leading nonmanufacturing firms, turned increasingly to acquisitions from around 2013, leading to further growth in outward direct investment (Chart 13). Reflecting these developments, the surplus in primary income -- or the positive balance associated with foreign investment -- has expanded, serving as the main factor in the current account surplus (Chart 14). The achievement of globalization has not been without its share of pain brought about by needed structural reforms, but it has enabled leading firms to tap into growth in overseas economies in their improved consolidated performance and in the form of higher dividends and royalties from overseas subsidiaries. Growth in consolidated performance is reflected in stock prices and feeds into higher dividends paid out to shareholders. These efforts to reform corporate structure have borne fruit: developments in the Tokyo Stock Price Index (TOPIX), which represents the corporate value of listed Japanese firms, have been increasingly inclined to follow the world's trend of nominal GDP (Chart 15). Cabinet Office, Annual Report on the Japanese Economy and Public Finance 2013, July 2013. Let me turn to the income structure of Japanese households over this period. Employee compensation has risen moderately since around 2013, but only to the extent of making up for former decreases (Chart 10). After peaking in 1991, interest income continued to slide until 2005, after which it has languished. Dividend income has increased modestly but not enough to offset the fall in interest income. Reflecting these developments in income and changes in the social structure, household disposable income had been sluggish after reaching its peak in 1998, but finally started to improve from the first half of the 2010s. By contrast, in the United States, employee compensation, interest income, and dividend income have all risen, with disposable income for 2020 more than triple that of the first half of the 1990s. In Germany, while interest income is on a slight decline, employee compensation and dividend income are rising by a wider margin, and disposable income has roughly doubled from the amount of the early 1990s. Household financial assets in Japan continued to increase even during the so-called "lost two decades," almost doubling from 1,017 trillion yen at the end of fiscal 1990 to 1,946 trillion yen at the end of fiscal 2020. However, the breakdown shows that growth in equity and investment trusts has been sluggish compared with cash and deposits. This is also evident when comparing the household financial asset composition in Japan with the United States and Europe: in Japan, cash and deposits are markedly higher, at 54 percent, while equity and investment trusts combined are lower, at 14 percent (Chart 16). The upshot is that employee compensation accounts for an extremely high proportion of household income in Japan. As I touched on earlier, because Japanese firms that have moved forward with globalization efforts have been able to tap into growth in overseas economies, if households gradually expand their investments in the equity of these firms or in investment trusts that invest in these firms, they will reap the benefit of overseas economic growth over the longer term, as higher dividends and other investment income feed into their disposable income. It is a rough estimate assuming all other things are equal, but if Japanese households start to invest 20 percent of their financial assets, or about 400 trillion yen, shifting their cash and deposits into equity and investment trusts, at a 1.6 percent dividend yield, this will translate into an annual increase in disposable income of 5 trillion yen, or roughly 2 percent. If this is then channeled into private consumption, it is expected to engender a virtuous cycle in the domestic economy. In Japan, as in other advanced economies, I would say that people can be more willing to hold assets over the long term and shift their asset structure to one that derives stable income through dividends. In doing so, they would invest in risk assets such as investment trusts while appropriately diversifying risks, placing a part of their savings in cash and deposits. To be sure, history has seen repeated turmoil in the financial markets and plunges in stock prices, but I believe that many listed firms have overcome these events and are pursuing sustainable growth while consolidating their positions in global markets. This is reflected in their stock prices. Currently, some observers note that public interest in investment, such as in investment trusts, is on the rise in Japan, especially among younger people who have limited negative experience of market turmoil, such as the bursting of the economic bubble. Indeed, the total number of individual stock investors as of the end of fiscal 2020 was up by 3.08 million from the previous fiscal year, the seventh straight year of growth. This signals a change in the deeprooted propensity of Japanese people to hold their financial assets in the form of cash and deposits. Adding to this momentum, the working population is increasingly starting to select their own financial products: of pension funds sponsored by firms, the number of subscribers to defined contribution corporate pension plans, where employees select products of their choice, has risen to approximately 7.5 million.5 Given the increase in financial literacy, risktaking behavior has been spreading among individual investors seeking to increase their returns by taking on short-term investment risks on the assumption that investments will be made in the long term. Consequently, the yields of defined contribution pension plans have come to exceed those of defined benefit pension plans. Coupled with rising public interest in environmental, social, and governance (ESG) and other aspects of sustainability, my hope is that household financial assets that have long been tucked away in the form of cash and deposits will make a greater contribution to economic growth and social change in Japan. Meanwhile, I also hope that firms will strengthen their business strategies to achieve Ministry of Health, Labour and Welfare, "Implementation of Defined Contribution Pension Plans (as of March 31, 2021)" (available only in Japanese). sustainable growth and build corporate value, and that the financial sector will further encourage these developments. IV. Digitalization and Climate Change Response A. Digitalization In addition to these structural problems facing the domestic economy, Japan is currently dealing with sweeping changes associated with digitalization and response to climate change. The delay in Japan's digitalization has become evident once again due to the COVID-19 pandemic. The World Digital Competitiveness Ranking of the Institute for Management Development (IMD) shows that South Korea and China are steadily improving their digital competitiveness, while Japan remains at a low ranking among the Group of Seven (G7) countries and major Asian economies (Chart 17). Japanese firms have a similar perception about their digital competitiveness. Developments in software investment among Organisation for Economic Co-operation and Development (OECD) countries reveal that investment by the United States, the United Kingdom, Germany, and France has risen sharply since 2000, growing by 2.4 times in the United States and France and doubling in the United Kingdom and Germany in 2018. In Japan, such investment grew by about 1.2 times from 2000 to 2002 but has since been lackluster (Chart 18). Software investment for all industries and enterprises, including financial institutions, in the Bank's June 2021 Tankan registered a 7.4 percent year-on-year decrease for fiscal 2020. It was projected to register a 16.1 percent year-on-year increase for fiscal 2021, but this still represents only about a 7 percent increase over the fiscal 2019 level. At this rate it will take a decade for such investment in Japan to double from the current level. Digitalization can be classified into the following three types, according to its stage 6: digitization, such as converting analog or paper-based data into digital format, or automating business and manufacturing processes; (2) digitalization, such as digitalizing individual business operations and manufacturing processes, or incorporating digital features into existing products; and (3) digital transformation (DX), such as transforming business models using digital technology. Study Group for Acceleration of Digital Transformation, Ministry of Economy, Trade and Industry, DX Report 2 (Interim Report), December 2020 (available only in Japanese). One of the reasons Japanese firms have fallen behind in digitalization is the slow implementation of digitization for raising the efficiency of existing business operations, which was hindered by the practice of lifetime employment in the country, among other factors. As a result, I believe that digitalization and DX, which have already become mainstream in Europe and the United States, have been largely neglected in Japan. I also think the lack of economic metabolism comes into play: there are very few startups or small and medium-sized firms that make use of digital technology in an open-minded manner so as to grow into so-called unicorns with a valuation of over 1 billion U.S. dollars. Recently, the shortage of digital technology professionals and firms' weak commitment to business transformation seem to be key obstacles to raising digital competitiveness in Japan (Chart 19). However, management's awareness of the need for business transformation through digitalization is higher than ever due to the pandemic. In a survey on IT trends7 of Japanese firms, when asked what problems require immediate action on the part of management, 70 percent of firms responded, "working style reforms," such as remote work, while about half answered, "decision-making for accounting, personnel management, and other matters, and revision of work processes," while half also answered, "changes in the way products and services are provided." Digitization and digitalization still seem to be a task for many firms. However, I am hopeful that Japanese firms will promote digitization, digitalization, and also DX to make use of digital technology -- including cloud computing and other services -- as a tool to drive growth, and further step up the pace of actions in reforming their business structures and boosting productivity. B. Response to Climate Change Climate change is a global challenge that will have a broad and large impact on our society and economic activity into the future. Discussions are underway at international forums, such as the G7 and the Group of Twenty (G20), to consider international initiatives, and making Japan Users Association of Information Systems, Survey of Corporate IT Trends 2021: Newest Trends in User Companies' Investment in and Use of IT (Fiscal 2020), April 2021 (available only in Japanese). headway in addressing climate change will require various entities in society and the economy to actively play their roles. As the central bank of Japan, the Bank has been communicating with financial institutions and engaging in international discussions. As various stakeholders, including the government and firms, accelerate their efforts concerning climate change, the Bank, for its part, has decided on a comprehensive strategy to further its efforts on climate change consistent with its mandate of achieving price stability and ensuring the stability of the financial system (Chart 20). One measure under the strategy is the new fund-provisioning measure I explained earlier, under which the Bank will provide funds to financial institutions for investment or loans they make to address climate change. This is a crucial first step, but transforming the economy, industry, and society in order to achieve carbon neutrality by 2050 will require establishing an ecosystem that can support a monumental amount of private funds invested and recovered in a sustainable manner, and it will be necessary to keep a close eye on the progress of transformation overseas. In this regard, the European Union expects more than 1 trillion euros (130 trillion yen) worth of public and private investment in environmental fields by 2030 and is exploring the introduction of measures such as a Carbon Border Adjustment Mechanism to build an ecosystem in which the costs of investment can be steadily recovered. It is putting in place a framework to facilitate the flow of private sector funds inside and outside the region into environmental areas by, for example, formulating a taxonomy and proposing a regulation regarding green bond issuance. As many investments that address climate change are long-term, the steady supply of risk money on a large scale is necessary. To this end, financial institutions and institutional investors are being called on to have strategic discussions with the firms that actually invest in climate change initiatives, and to harness their expertise in enhancing the functioning of the market to carry out efficient fund allocation. Outside Japan, the financing of investments that address climate change is growing, mainly through the direct financing markets, such as via the issuance of stocks and green bonds. For instance, green bond issuance worldwide has more than tripled in the last four years, from 80.4 billion U.S. dollars in 2016 to 285.8 billion U.S. dollars in 2020 (Chart 21). Issuance in Japan has also ballooned in recent years. However, the amount is about 1 trillion yen in 2020; thus, it remains small compared to the scale of Japan's economy and further growth is expected. In response, the Japanese government announced plans to establish an international green finance center and is working with the Tokyo Stock Exchange to develop the green bond market. Various steps to ensure investor confidence in green bonds will be instrumental in stimulating this market. For example, firms need to enhance their climate change-related disclosure in terms of both quality and quantity, work to prevent "greenwashing," or the guise of environmental friendliness, and create a framework that allows investors to obtain useful information for their investment decisions. My hope is that these reforms will create an ecosystem that facilitates the steady recovery of investment costs and enables monumental investments to be carried out sustainably. I will continue to keep a close eye on the progress of transformation regarding climate-related issues, steadfastly review and make adjustments to the Bank's measures where needed, and consider how a central bank can encourage firms' efforts on climate change so as to realize a sustainable society. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Miyazaki (via webcast) August 25, 2021 NAKAMURA Toyoaki Bank of Japan Chart 1 IMF Projections in the World Economic Outlook y/y % chg. World output United States Euro area China IMF projections (July 2021 WEO) ASEAN5 -2 -4 -6 -8 CY 00 Note: ASEAN5 consists of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Source: IMF. Chart 2 Japan's Real GDP s.a., ann., q/q % chg. -5 -10 -15 -20 Private demand Public demand Net exports Real GDP -25 -30 -35 CY 09 Source: Cabinet Office. Chart 3 Japan's CPI (Less Fresh Food) y/y % chg. 2015-base -1 Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies 2020-base Energy -2 Excluding the above factors CPI (less fresh food) -3 CY 1 6 1 7 1 8 1 9 2 0 2 1 Notes: 1. Energy consists of petroleum products (gasoline, kerosene, and liquefied propane), electricity, and manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hikes and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 4 Outlook for Economic Activity and Prices as of July 2021: Forecasts of the Majority of Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) Fiscal 2021 +3.5 to +4.0 [+3.8] +0.3 to +0.6 [+0.6] Forecasts made in April 2021 +3.6 to +4.4 [+4.0] 0.0 to +0.2 [+0.1] Fiscal 2022 +2.6 to +2.9 [+2.7] +0.8 to +1.0 [+0.9] Forecasts made in April 2021 +2.1 to +2.5 [+2.4] +0.5 to +0.9 [+0.8] Fiscal 2023 +1.2 to +1.4 [+1.3] +0.9 to +1.1 [+1.0] Forecasts made in April 2021 +1.2 to +1.5 [+1.3] +0.7 to +1.0 [+1.0] Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which he/she attaches the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. The CPI forecasts in this table are based on the previous 2015-base index. Source: Bank of Japan. Chart 5 Cash and Deposits Held by Households Japan United States tril. USD 1,100 1,050 3.1 tril. 1,000 USD tril. yen 37 tril. yen Trend line for 2010-2019 Trend line for 2010-2019 CY10 11 12 13 14 15 16 17 18 19 20 21 CY 10 11 12 13 14 15 16 17 18 19 20 21 Note: The figures for the United States include MMF. Sources: Federal Reserve; Haver; Bank of Japan. Chart 6 Business Fixed Investment y/y % chg. Private Privatenonresidential nonresidentialinvestment investment(SNA, (SNA,nominal) nominal) Tankan Tankan(planned (plannedinvestment investmentinincurrent currentfiscal fiscalyear yearasasofofthe theJune Junesurvey surveyofofeach eachyear) year) -5 -10 -15 -20 FY 06 Note: The Tankan figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for enterprises of all sizes and in all industries including financial institutions. Sources: Cabinet Office; Bank of Japan. Chart 7 The Bank's Measures in Response to COVID-19 Chart 8 Fund-Provisioning Measure to Support Efforts on Climate Change From a central bank standpoint, the Bank provides funds to financial institutions for investment or loans they make to address climate change based on their own decisions. Amid the uncertain external environment, it can respond flexibility to changes in circumstances while avoiding direct involvement in micro-level resource allocation as much as possible. Eligible Counterparties Eligible Investment/Loans • • Financial institutions that disclose a certain level of information on their efforts to address climate change Of the investment/loans made by counterparties as part of their efforts, those that contribute to Japan's actions to address climate change Terms and Conditions • • • • Counterparties make investment/loans based on their own decisions. Discipline will be exercised through a certain level of disclosure. Long-term support for financial institutions' efforts Interest rate: 0% -- The measure will fall under Category III (applied interest rate: 0%) in the Interest Scheme to Promote Lending Twice as much as the amount outstanding of funds that counterparties receive will be added to the Macro Add-on Balances in their current accounts at the Bank Duration of fund-provisioning: 1 year, rollovers can be made until the end of the implementation period Effectively, counterparties can receive long-term financing from the Bank Implementation period: in principle, until the end of fiscal 2030 Chart 9 U.S. Dollar/Yen yen 2000-2002: U.S. dot-com bubble burst Sep. 2008: Lehman crisis Mar. 2011: Great East Japan Earthquake 2020 onward: COVID-19 pandemic Sep. 1985: Plaza Accord 1991-1993: Japan's bubble burst July 1997: Asian financial crisis 2009-2010: European debt crisis Apr. 2013: QQE in Japan CY Note: QQE denotes quantitative and qualitative monetary easing. Source: Bloomberg. Chart 10 Household Disposable Income United States Japan tril. yen Disposable income Employee compensation Interest income Dividend income 2,000 1,800 1,600 10 bil. USD Disposable income Employee compensation Interest income Dividend income Germany 1,400 1,200 1,000 10 bil. EUR Disposable income Employee compensation Interest income Dividend income CY80 84 88 92 96 00 04 08 12 16 20 CY80 84 88 92 96 00 04 08 12 16 20 CY 80 84 88 92 96 00 04 08 12 16 20 Notes: 1. Figures for Japan before 1993 are calculated using year-on-year changes in each item in the 2000 System of National Accounts. 2. Figures for interest income and dividend income in Germany are "other interests, rents" and "distributed income of corporations," respectively. Sources: Cabinet Office; Bureau of Economic Analysis; Statistisches Bundesamt. Chart 11 Vicious Cycle of Deflation and Virtuous Economic Cycle from Firms' Viewpoint Weak domestic demand Vicious cycle of deflation Weak domestic demand Shifting of production bases to developing economies Domestic prices Virtuous economic cycle to achieve sustainable growth Growth of overseas economies Inflow of low-priced goods from developing economies Prices of imported raw materials External demand Sales and profits Productivity Reduction of fixed expenses while maintaining employment due to the lifetime employment practice and seniority-based wages Consumption Anxiety for the future Slow growth in employment Constrained wages Hoarding of cash and deposits Further reduction of fixed expenses If postponed Sales and profits Productivity If conducted Investment Wages Employment Realignment of business portfolio Working style reform Development of attractive and competitive new products and services Fixed, software, and R&D investments Interest income Interest rate Disposable income Capability to develop new products and services Delay in development of attractive and competitive new products and services If stagnant If successful Entry of startups with innovative technology/ business models Consumption Financial investment Prices Chart 12 Share of Exports and Imports in Nominal GDP Exports Imports % Exports Imports Exports of goods Imports of goods Exports of services Source: Cabinet Office. Imports of services CY70 % 20 CY 70 Chart 13 Outward Direct Investment Position tril. yen Manufacturing Nonmanufacturing year-end 05 Nonmanufacturing, other regions Nonmanufacturing, Asia Nonmanufacturing, Europe Nonmanufacturing, North America Manufacturing, other regions Manufacturing, Asia Manufacturing, Europe Manufacturing, North America Note: Figures are based on the directional principle. These include investments from a parent company located in Japan to its overseas affiliates. Sources: Ministry of Finance; Bank of Japan. Chart 14 Current Account tril. yen -10 -20 -30 CY 85 Goods and services Goods Services Primary income Secondary income Current account Sources: Ministry of Finance; Bank of Japan. Chart 15 TOPIX CY 1997=100 CY 1997=100 TOPIX Japan's nominal GDP (left scale) World nominal GDP (right scale) TOPIX tends to follow the world's trend of nominal GDP TOPIX tends to follow Japan's trend of nominal GDP CY 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Notes: 1. Figures for the world's nominal GDP are based on values denominated in U.S. dollars. 2. Figures for Japan's nominal GDP are based on values denominated in Japanese yen. 3. Figures for TOPIX are calculated from yearly averages. Sources: IMF; Bloomberg. Chart 16 Household Financial Assets Japan 2,000 1,800 tril. yen Financial assets (total) Cash and deposits Equity and investment trusts % International Comparison (as of end-March 2021) 2.5 2.7 2.3 Other 27.4 1,600 1,400 29.0 33.8 Insurance, pension, and standardized guarantees 18.2 Equity 9.6 Investment trusts 10.0 1,200 1,000 4.3 1.4 37.8 1.8 Debt securities 54.3 13.2 4.2 34.3 Cash and deposits 13.3 FY-end 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Japan United States Euro area Note: In the right panel, "Other" is the residual after deducting "Cash and deposits," "Debt securities," "Investment trusts," "Equity," and "Insurance, pension, and standardized guarantees" from total financial assets. Sources: Bank of Japan; Federal Reserve; European Central Bank. Chart 17 IMD World Digital Competitiveness Ranking 2020 Overall Score for 2020 Ranking rank United States United States Singapore South Korea Hong Kong South Korea Taiwan Germany Canada United Kingdom China Japan Germany Japan G7 France Japan Asia China United States=100 CY 16 Notes: 1. The overall scores are calculated based on three factors: knowledge, technology, and future readiness, which represents the level of preparedness for digital transformation. Each factor contains three sub-factors, and the nine sub-factors comprise 52 criteria. 2. In the left panel, figures in parentheses indicate the ranking of the economy out of all 63 economies analyzed. Source: IMD. Chart 18 Software Investment CY 2000=100 Japan United States Germany France United Kingdom CY 00 Note: Figures are based on nominal values denominated in local currencies. Source: OECD. Chart 19 Comparison of Digital Competitiveness between Japan and the United States United States Japan Criteria in "Talent" ✓ International experience ✓ Digital/Technological skills Training & education Rank 0 IT integration Business agility Talent IT integration Scientific concentration Business agility Training & education Rank 0 Talent Scientific concentration Regulatory framework Adaptive attitudes Regulatory framework Adaptive attitudes Technological framework Criteria in "Business agility" ✓ Agility of companies ✓ Use of big data and analytics Capital Technological framework Capital Notes: 1. "Training & education," "Talent," and "Scientific concentration" are sub-factors of knowledge. "Regulatory framework," "Capital," and "Technological framework" are sub-factors of technology. "Adaptive attitudes," "Business agility," and "IT integration" are sub-factors of future readiness. 2. In the left panel, figures in parentheses indicate the ranking of Japan out of all 63 economies analyzed. Source: IMD, "World Digital Competitiveness Ranking 2020." Chart 20 The Bank's Strategy on Climate Change Chart 21 Green Bond Issuance World Japan bil. USD CY CY bil. USD Notes: 1. Figures include any type of self-labeled fixed income instruments where the proceeds will be directed exclusively to financing or refinancing, in part or in full, of new and/or existing green projects. 2. Green bonds encompass commercial papers, certificates of deposit, and sukuk. Source: IMF.
|
bank of japan
| 2,021 | 9 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at a meeting with business leaders, Osaka, 27 September 2021.
|
September 27, 2021 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Osaka (via webcast) KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Kansai region. I would like to take this chance to express my sincerest gratitude for your cooperation with the activities of the Bank of Japan's branches in Osaka, Kobe, and Kyoto. While it is most regrettable that I am unable to visit Osaka for the second year in a row due to the continuing impact of the novel coronavirus (COVID-19), I look forward to hearing your views online, which will be useful in the Bank's policy decisions and business operations. In my speech today, I will talk about the Bank's view on developments in economic activity and prices and then explain the thinking behind the recent conduct of monetary policy. I. Developments in Economic Activity and Prices Economic Developments Let me start by talking about economic developments. 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. Looking back, in the April-June quarter of 2020, when the first state of emergency was declared, real GDP fell by about 10 percent compared with the level before the pandemic as a wide range of economic activities were negatively affected. However, the level of real GDP increased through the second half of the year. Since the turn of this year, real GDP has remained more or less flat because private consumption has been pushed down by the impact of the repeated resurgence of COVID-19 and public health measures. The level of real GDP for the April-June quarter this year is still almost 3 percent below the pre-pandemic level (Chart 1). The rapid spread of the highly contagious Delta variant during the summer inevitably has led to subdued face-to-face services, such as accommodations as well as eating and drinking, and private consumption overall has remained stagnant. Although it is true that Japan's economy has been held back by the successive waves of COVID-19, the mechanism for the economy to pick up has continued to work. This is mainly because a virtuous cycle has been operating in the corporate sector, triggered by a recovery in overseas economies. That is, overseas economies, mainly advanced economies with aggressive macroeconomic policies, have continued to see relatively high growth, although differences in the pace of recovery across countries and regions have increased. In particular, production activity in manufacturing industry has been firm, supported by strong growth in global digital-related demand, and the world trade volume has kept showing a steady rise (Chart 2). In this situation, Japan's exports and production -- led by IT-related and capital goods -- have continued to increase. Corporate profits have also continued to show solid improvement led by manufacturing industry, and profits in the corporate sector overall have already surpassed the level before the pandemic (Chart 3). This favorable business performance has also led to a pick-up in business fixed investment, and firms have been keen to invest, especially in digital-related areas. Regarding the outlook, the main scenario is that private consumption will remain stagnant for the time being while public health measures are in place or vigilance against COVID-19 continues, but the recovery trend in Japan's economy will subsequently become more pronounced as the impact of COVID-19 gradually wanes. The key question is whether private consumption turns to a recovery while the economy is supported by firm developments in the corporate sector, thereby intensifying the virtuous cycle in the overall economy. In this context, I think the following two issues require attention. The first is how the recent spread of the Delta variant affects private consumption. As mentioned earlier, face-to-face services in particular have been under downward pressure recently. However, bankruptcies and unemployment have been fairly curbed, partly due to various government measures and the Bank's measures to support financing. Looking at the employment and income situation, which determines developments in private consumption, the rise in the unemployment rate consequently has been modest relative to the decline in economic activity (Chart 4). In addition, employee income, which declined in fiscal 2020, has bottomed out and is picking up, partly because of a rise in wages in industries with acute labor shortages. Meanwhile, vaccinations in Japan have been progressing at a fast pace, and the share of the fully vaccinated population has risen to a level that is comparable with the United States and Europe. Looking ahead, the challenge will be how to protect public health and improve consumption activities simultaneously, for example through the utilization of vaccination certificates and evidence of a negative COVID-19 test. Given the aforementioned employment and income situation, private consumption is very likely to turn to a recovery, partly supported by the materialization of pent-up demand. That said, it should be noted that the timing and pace of recovery substantially depend on the course of the pandemic. The second issue concerns how supply-side constraints seen in some areas and the recent resurgence of COVID-19 affect global supply chains. The global semiconductor shortage, driven by the recovery in automobile sales and digital-related demand, still acts as a constraint on the supply side. In Southeast Asia, which plays a major role in Japan's supply chains, strict public health measures, including factory shutdowns, have been implemented due to a surge in COVID-19 cases. This has had an impact on Japan's manufacturing industry, causing delays in the procurement of parts. The pace of increase in Japan's exports and production therefore is likely to decelerate in the short run. That said, this will only be transitory, and from a somewhat long-term perspective, exports and production are expected to continue on an increasing trend, partly supported by the restocking of inventories and a recovery in production from the decline brought about by the supply-side constraints. Under these circumstances, the virtuous cycle from profits to business fixed investment is likely to continue operating in the corporate sector. The Bank will closely monitor developments in domestic and overseas economies with a focus on these issues in preparing the Outlook for Economic Activity and Prices to be published next month. Price Developments Let me move on to price developments in Japan. The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) has been at around 0 percent (Chart 5). It should be noted, however, that recent price developments are largely attributable to temporary factors. For instance, mobile phone charges alone have pushed down the overall rate of change in the CPI by more than 1 percentage point due the significant decline brought about by the launch of low-cost mobile phone plans this spring. On the other hand, the CPI has been pushed up recently by the base effects of last year's decline in energy prices and discount on hotel charges through the "Go To Travel" campaign. When excluding these temporary factors, the year-on-year rate of change in the CPI has been slightly positive of late. The Bank also has been examining other various core indicators in order to capture the underlying trend in prices, and all these indicators suggest that prices have been steady despite the deterioration in the economy (Chart 6). That said, it is undeniable that consumer prices in Japan have been weaker than those in the United States and Europe, where upward pressure on prices has clearly increased. Specifically, the year-on-year rate of change in the personal consumption expenditure (PCE) deflator -- which has been gaining attention in the United States -- has been high, exceeding 4 percent for the first time in 30 years, while the year-on-year rate of change in consumer prices in the euro area has risen to around 3 percent (Chart 7). What lies behind the weaker price developments is the largely adaptive mechanism of inflation expectations formation in Japan, that is, the fact that a mindset and behavior based on the assumption that prices will not increase easily have taken hold among economic entities due to their experience of deflation in the past. Taking a closer look at firms' recent behavior shows that Japan differs from the United States and Europe in the following two respects. The first concerns firms' responses to the change in demand due to COVID-19. Having first reduced employment in response to the decline in demand, U.S. firms, now facing a steep rise in demand, have been restoring employment and resolving the mismatch between supply and demand by decisively raising wages and prices. In contrast, in Japan, where the increase in demand has not been as large as that in the United States, firms essentially have maintained their employment levels, so that even if demand were to rise, they have some room to swiftly increase production and shipments while leaving prices unchanged. This contrast in firms' behavior is responsible for the differences in the severity of current bottlenecks. In the United States and Europe, some producers have faced increasingly severe delivery delays because supply has not been able to keep up with the surge in demand reflecting the resumption of economic activities. However, delivery delays in Japan to date have not been as severe as those in the United States and Europe. The second respect concerns the ability to pass on increases in upstream (producer) prices to downstream or consumer prices (Chart 8). International commodity prices have risen clearly, reflecting the steady recovery in the global economy. In this situation, producer prices have increased significantly in Japan, the United States, and Europe, albeit to varying degrees. In Japan, although firms in the basic materials industry have swiftly raised prices because the practice of passing on cost increases to selling prices based on a particular formula has taken hold in this industry, firms in processing and consumption-related industries, which are closer to final demand, tend to absorb cost increases by reducing margins, and this tendency appears to be stronger in Japan than in the United States and Europe. Taking the aforementioned economic outlook and Japanese firms' price-setting behavior into account, it is expected that prices will increase, albeit at a moderate pace. That is, the year-on-year rate of change in the CPI is likely to increase in positive territory for the time being, mainly due to a rise in energy prices. That said, with the exception of energy, for which the practice of pricing based on a formula has taken hold, the pass-through of the rise in international commodity prices is projected to be limited. Thereafter, downward pressure on prices from mobile phone charges is likely to dissipate and firms are expected to gradually adopt a more active price-setting stance as the output gap continues to improve. Against this background, the rate of change in the CPI is likely to increase gradually. II. The Bank's Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. As mentioned earlier, Japan's economy entails high uncertainties due to the spread of the Delta variant. The Bank therefore thinks that it continues to be important to take measures in response to COVID-19 for the time being (Chart 9). In particular, although financing, mainly of firms, has improved compared with a while ago, weakness has been seen especially in face-to-face services, where sales have remained subdued due to the impact of COVID-19. Against this background, the Bank in June extended the duration of the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) until the end of March 2022. Under this program, the Bank will keep providing strong support for corporate financing. Of course, the Bank will continue to closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. From a somewhat long-term perspective, the Bank projects that even though the inflation rate will gradually rise toward fiscal 2023, the end of the current projection period, it will not reach the price stability target of 2 percent. Given this projection, it is necessary to persistently continue with powerful monetary easing with a view to achieving the price stability target based on Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, the sustainability and nimbleness of which were enhanced following the assessment conducted this March. Conclusion Lastly, let me talk about the Bank's monetary policy actions to address climate change. Since climate change may have an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective, it is relevant to central banks' mandate. It is widely recognized that, due to the existence of so-called externalities, climate change cannot be solved through the market mechanism alone and involvement by the public sector is essential. Furthermore, since a transition to a decarbonized economy will require large-scale investments in capital equipment and research and development over a long period of time, there are growing expectations for the financial sector to play its part. Against this background, the Bank decided to introduce a new fund-provisioning measure to provide funds to financial institutions against various investments or loans they make to address climate change (Chart 10). The details of the measure were decided at the Monetary Policy Meeting held last week, and the fund-provisioning likely will start within this year. Not only financial institutions but a wider range of entities including firms and households are required to make active efforts in pushing forward with actions toward addressing the pressing global issue of climate change. While environmental policy of course falls under the responsibility of the government and parliament, I hope that the Bank's new fund-provisioning measure will serve as a catalyst to further encourage climate-related efforts by the private sector. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Osaka (via webcast) September 27, 2021 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Developments in Economic Activity and Prices II. The Bank's Conduct of Monetary Policy Conclusion Chart 1 I. Developments in Economic Activity and Prices Real GDP Comparison to the Pre-Pandemic Level s.a., contribution to real GDP, % points Economic Activity by Sector s.a., CY 2019 = 100 Manufacturing -2 -4 Accommodations, eating and drinking services Services for amusement and hobbies Transport Private consumption -6 Business fixed investment -8 Goods exports Other -10 -12 CY Nonmanufacturing Real GDP Jan. Jul. July Jan. Jul. July Jan. Jul. July Notes: 1. The left-hand chart shows deviations from the 2019 average. 2. In the right-hand chart, figures for manufacturing are from the Indices of Industrial Production and those for the other sectors are from the Indices of Tertiary Industry Activity. Figures for nonmanufacturing exclude accommodations, eating and drinking services, services for amusement and hobbies, and transport. Sources: Cabinet Office; Ministry of Economy, Trade and Industry. Chart 2 I. Developments in Economic Activity and Prices Global Economy and Exports & Production Manufacturing PMI Exports and Production s.a., DI, % points Global s.a., CY 2019 = 100 United States Europe Emerging and commodity-exporting economies (excluding China) Real exports Jan. July Jan. July Jan. July Jan. July CY 15 Industrial production Notes: In the left-hand chart, figures for global are the J.P. Morgan Global Manufacturing PMI. Figures for Europe are the weighted averages of the PMIs for the euro area and the United Kingdom, and those for "emerging and commodity-exporting economies (excluding China)" are the weighted averages of the PMIs for 20 countries and regions. For both indicators, countries' global GDP shares from the IMF are used as weights. Sources: IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.); IMF; Haver; Ministry of Finance; Ministry of Economy, Trade and Industry; Bank of Japan. Chart 3 I. Developments in Economic Activity and Prices Corporate Profits and Business Fixed Investment Corporate Profits Business Fixed Investment s.a., tril. yen s.a., CY 2015 = 100 s.a., CY 2015 = 100 19/Q4 Current profits CY15 Machinery investment (left scale) Construction investment (right scale) CY 15 Notes: 1. In the left-hand chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly and exclude "finance and insurance" and pure holding companies. 2. In the right-hand chart, figures for machinery investment show domestic shipments and imports of capital goods. Figures for construction investment show private construction completed (nonresidential, real). Sources: Ministry of Finance; Ministry of Economy, Trade and Industry; Ministry of Land, Infrastructure, Transport and Tourism. Chart 4 I. Developments in Economic Activity and Prices Employment & Income Situation and Vaccinations Unemployment Rate 4.0 s.a., % Nominal Employee Income Vaccinated Population Share s.a., CY 2015 = 100 % 3.5 Japan United States European Union NIEs and ASEAN Latin America 3.0 2.5 2.0 CY 15 CY 15 Dec. Feb. Apr. Jun. June Aug. Note: The right-hand chart shows the share of the total population that is fully vaccinated against COVID-19. Sources: Ministry of Internal Affairs and Communication; Cabinet Office; Our World in Data. Chart 5 I. Developments in Economic Activity and Prices Consumer Prices Contribution to CPI 1.6 Inflation Rate and Output Gap y/y % chg. y/y % chg. 8 % 1.2 Output gap (left scale) 0.8 0.4 CPI (less fresh food and energy, right scale) Mobile phone charges -2 -1 Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy -4 -2 -6 -3 0.0 -0.4 -0.8 -1.2 -1.6 Excluding the above factors 2020-base CPI CPI (less fresh food) -2.0 CY -8 CY 85 -4 Notes: 1. In the left-hand chart, figures for energy consist of those for petroleum products, electricity, and gas, manufactured & piped. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are staff estimates and include the effects of measures such as free higher education introduced in April 2020. 2. In the right-hand chart, the CPI figures are staff estimates and exclude mobile phone charges and the effects of the consumption tax hikes, policies concerning the provision of free education, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. Figures for the output gap are staff estimates. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 6 I. Developments in Economic Activity and Prices Core Indicators of Prices Measures Based on Price Change Distribution 1.2 Diffusion Index of Price Changes y/y % chg. % points % Diffusion index (left scale) Share of increasing items (right scale) Share of decreasing items (right scale) 0.8 0.4 0.0 -20 -40 Trimmed mean -0.4 Weighted median Mode -0.8 -1.2 CY15 -60 CY15 Notes: 1. In the left-hand chart, figures are based on staff calculations using the CPI excluding the effects of the consumption tax hikes, policies concerning the provision of free education, and the "Go To Travel" campaign. CPI figures from April 2020 onward are staff estimates and exclude the effects of measures such as free higher education introduced in April 2020. 2. In the right-hand chart, the diffusion index is defined as the share of increasing items minus the share of decreasing items. The share of increasing/decreasing items is the share of items for which price indices increased/decreased from a year earlier. Figures are based on staff calculations using the CPI (less fresh food) excluding the effects of the consumption tax hikes, policies concerning the provision of free education, and the "Go To Travel" campaign. CPI figures from April 2020 onward are staff estimates and exclude the effects of measures such as free higher education introduced in April 2020. Sources: Bank of Japan; Ministry of Internal Affairs and Communications. Chart 7 I. Developments in Economic Activity and Prices Inflation and Supply Bottlenecks in Japan, United States, and Europe Headline Inflation y/y % chg. Delivery Delays (PMI) Japan (CPI) United States (PCE) Euro area (HICP) s.a., DI Longer delivery times Japan -1 United States -2 CY 19 Euro area CY 19 Notes: 1. In the left-hand chart, figures for Japan are the CPI (less fresh food). 2. In the right-hand chart, Delivery delay index = 100 - Suppliers' delivery times index. Figures for the United States and the euro area are for the respective manufacturing PMIs. Those for Japan are for the au Jibun Bank Japan Manufacturing PMI. Sources: Haver; Ministry of Internal Affairs and Communications; IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.). Chart 8 I. Developments in Economic Activity and Prices Firms' Price-Setting Stance Firms' Output Prices (Tankan) Developments in Producer Prices y/y % chg. Japan DI ("rise" - "fall"), % points United States Euro area -10 -20 -2 Manufacturing (basic materials) -4 -30 Manufacturing (processing) -6 -8 CY 19 Consumption-related sectors -40 CY 07 Notes: 1. In the left-hand chart, figures for Japan are the producer price index (PPI) for all commodities (adjusted to exclude the effects of the consumption tax hike). Those for the United States are the PPI for final demand goods. Figures for the euro area are the PPI for total industry except construction, sewerage, waste management, and remediation activities. 2. In the right-hand chart, figures are for all enterprises. Figures for consumption-related sectors are calculated as the weighted average of the DI for changes in output prices in "retailing," "services for individuals," and "accommodations, eating and drinking services." The number of reporting enterprises is used as weights. Sources: Bank of Japan; BLS; Eurostat. Chart 9 II. The Bank's Conduct of Monetary Policy The Bank's Measures in Response to COVID-19 Corporate Finance (Tankan) Measures in Response to COVID-19 DI ("easy" - "tight"), % points Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 ⇒The Bank extended the duration until the end of March 2022（decided in June 2021） Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Purchases of ETFs and J-REITs Note: In the upper right-hand chart, figures are for all enterprises. Source: Bank of Japan. -20 -40 All industries Retailing Services for individuals Accommodations, eating and drinking services -60 -80 CY 05 Special Operations to Facilitate Financing in Response to COVID-19 (Amount Outstanding) tril. yen Jan. Apr. July Oct. Jan. Apr. July Chart 10 Conclusion Funds-Supplying Operations to Support Financing for Climate Change Responses From a central bank standpoint, the Bank provides funds to financial institutions for investment or loans they make to address climate change based on their own decisions. Amid the fluid external environment, it can respond flexibly to changes in circumstances while avoiding direct involvement in micro-level resource allocation as much as possible. Eligible Counterparties Eligible Investment/Loans Counterparties make investment/loans based on their own decisions. Discipline will be exercised through a certain level of disclosure. Financial institutions that disclose a certain level of information on their efforts to address climate change Of the investment/loans made by counterparties as part of their efforts, those that contribute to Japan's actions to address climate change Terms and Conditions Long-term support for financial institutions' efforts Interest rate: 0% -- The measure will fall under Category III (applied interest rate: 0%) in the Interest Scheme to Promote Lending Twice as much as the amount outstanding of funds that counterparties receive will be added to the Macro Add-on Balances in their current accounts at the Bank Duration of fund-provisioning: 1 year; rollovers can be made until the end of the implementation period → Effectively, long-term financing from the Bank Implementation period: in principle, until the end of fiscal 2030
|
bank of japan
| 2,021 | 9 |
Speech (via webcast) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 58th Japan-U.S. Business Conference, 6 October 2021.
|
October 6, 2021 Bank of Japan Hopes for the Japanese and U.S. Business Communities: Economic Recovery from the COVID-19 Crisis and Efforts to Address Climate Change Speech at the 58th Japan-U.S. Business Conference (via webcast) KURODA Haruhiko Governor of the Bank of Japan Introduction It is an honor to have the opportunity today to address the representatives of the business communities at the Japan-U.S. Business Conference, which started 60 years ago. For the first time in about 20 years, Japan is renewing its banknotes. The person chosen for the portrait on the new 10,000-yen note is Shibusawa Eiichi, an entrepreneur known as the "father of modern Japanese capitalism." Shibusawa was passionate about private exchanges between Japan and the U.S. and in 1909 led a group of about 50 entrepreneurs on a visit to the U.S. They met with then President William Taft, Thomas Edison -- the "king of inventors" -- and other prominent figures in various fields, and realized that the U.S. economy enjoyed remarkably high growth.1 Shibusawa's business mission to the U.S. was the starting point for a series of exchanges between the business communities of the two countries; such exchanges continue to this day, including through this business conference, and have contributed considerably to the development of both economies. It is encouraging to see you all continuing to have a dialog even during the COVID-19 pandemic. Today, I would first like to share my views on the characteristics of the U.S. and Japanese economies, which come to light when comparing responses of the two to the same shock -the pandemic. I will then talk about my hopes for the Japanese and U.S. business communities in addressing climate change, which is one of the important common challenges for the coming decades, while outlining the Bank's recent policy actions to address this issue. I. The U.S. and Japanese Economies since the Outbreak of COVID-19 The U.S. and Japanese economies both have faced the shock of the pandemic, which is larger than anything experienced in the postwar era (Chart 1). Economic activities of both countries declined sharply across the board in the first half of 2020, and real GDP for the April-June quarter contracted significantly by almost 10 percent from the pre-pandemic level in 2019. However, as people have been adapting to COVID-19, the economies have picked up, supported by the large-scale fiscal and monetary policy measures. In the U.S., where vaccinations have progressed and economic activity restarted ahead of other countries, it took only about a year for the economy to recover to the pre-pandemic level. Economic expansion See the Shibusawa Eiichi Memorial Foundation website (https://www.shibusawa.or.jp/english/). has spread from the manufacturing sector to services, and the U.S. economy's high growth has been supporting the recovery in the global economy. On the back of this recovery, Japan's economy has picked up, led by exports and the manufacturing sector. The recovery in the face-to-face services sector has been slower than in the U.S., partly due to the spread of the Delta variant before the widespread vaccinations (Chart 2). That said, Japan's fullyvaccinated rate has risen to the same level as that of the U.S. If Japan can simultaneously protect public health and improve consumption activities through the use of vaccination certificates, for example, the economic recovery trend is very likely to become more pronounced, even in the services sector, also supported by the materialization of pent-up demand. The U.S. and Japanese economies have followed a similar recovery path during the pandemic, albeit at slightly different paces. However, labor market dynamics have differed greatly between the two (Chart 3). In the U.S., reflecting a sharp drop in economic activity due to lockdowns, job cuts and layoffs spiked. As a result, the unemployment rate, which had been at around 3.5 percent before the pandemic, surged to 14.8 percent in April last year. Although the employment situation subsequently turned positive as economic activity resumed, employment is slow to recover compared with GDP, and the unemployment rate is still above 5 percent. In contrast, in Japan, the rise in the unemployment rate has been modest relative to the decline in economic activity. Although the rate has increased from the pre-pandemic level of around 2.5 percent, it remains low at around 3 percent. These different developments in the labor markets come from differences in employment practices of the two countries. In the U.S., employment adjustments are fast and firms therefore tend to promptly conduct layoffs in the event of a large negative shock to the economy. In contrast, Japanese firms, which place priority on long-term employment, tend to first cut working hours and raise the number of employed persons not at work in response to a decrease in demand, and thereby try to maintain employment. This difference in the employment stance may also reflect the distinct safety nets in the respective labor markets. In the U.S., unemployment insurance benefits, which are paid directly to individual workers, play an important role. In Japan, employment adjustment subsidies, which cover firms' wage payments, help firms hoard labor even during a recession. The differences in labor market dynamics have affected developments in the inflation rates (Chart 4). In the U.S., the year-on-year rate of change in the CPI recently has been high, exceeding 5 percent for the first time in 30 years. On the other hand, in Japan, it has been only about 0 percent. That said, the recent low inflation rate in Japan is mainly due to unusual factors such as a significant reduction in mobile phone charges. This means that, when these factors are excluded, Japan's CPI is not as weak as the headline figures suggest. However, even on an adjusted basis, the inflation rate in Japan has been well below that in the U.S. Contrasting developments in the CPI of each country reflect differences not only in inflation expectations but also in supply-side constraints. U.S. firms have experienced an unexpectedly rapid surge in demand along with the reopening of the economy, while their employment has not yet fully recovered. This has brought about serious bottlenecks such as labor shortage and difficulty procuring materials and parts. As a result, they have raised wages to quickly secure labor and also raised their prices of goods and services to curb excess demand. In contrast, demand in Japan has not recovered as rapidly as that in the U.S. In addition, as many Japanese firms have essentially maintained their labor, supply-side constraints in Japan have not been as severe as in the U.S., and there has been no pressing need for firms to raise wages and selling prices. To sum up, in response to the common shock of the pandemic, the U.S. and Japan have been restarting their economic activities by making the most of their respective characteristics -that is, for the U.S., high mobility in the labor market and flexible adjustments in wages and prices, and for Japan, long-term and stable employment as well as a robust supply system. Although vaccines have been rolled out, it will likely take some time for the pandemic to end. I am sure that both economies will overcome this shock through the high adaptability of firms. II. Climate Change Issues In addition to the pandemic, the global economy has another important common challenge that needs to be addressed, which is climate change. Since the Industrial Revolution began in the mid-18th century, advanced economies have built mass-production, mass-consumption societies through the extensive use of fossil fuels such as coal and oil, and they have achieved wealth and prosperity. Considering that this carbon-dependent growth model was established over the past three centuries, transforming the model into a decarbonized one in less than three decades is a challenging task. The government and the private sector therefore need to make a concerted effort. Central banks also have a role to play in addressing this challenge. The reason is that climate change may have an extremely large impact on developments in economic activity, prices, and financial conditions from a long-term perspective, and therefore it is relevant to central banks' mandate. As is widely recognized, due to what economists refer to as "externalities," this challenge cannot be addressed through the market mechanism alone and the public sector's intervention is needed. In addition, there are growing expectations for the financial sector to play its part, since a transition to a decarbonized economy will require not only a large amount of capital and R&D investments over a long period but also the financing of those investments. Against this background, the Bank has recently decided to introduce a new operation to provide funds to financial institutions on favorable terms against various investments or loans they make to address climate change. I hope this new operation will serve as a catalyst to boost private sector efforts to address climate change. In order to achieve the ambitious goal of carbon neutrality in less than three decades, working hand in hand and sharing ideas are more important than ever for the business communities of the U.S. and Japan, which are the world's largest and third largest economies in terms of GDP. Shibusawa Eiichi, who I mentioned at the beginning, was engaged in establishing nearly 500 firms in the early days of Japanese capitalism. His level of entrepreneurship will be needed more in a changing economic society in the post-pandemic era. I hope that the lively exchange of views at this Japan-U.S. Business Conference will contribute to furthering efforts to address various common challenges. Thank you very much. Hopes for the Japanese and U.S. Business Communities: Economic Recovery from the COVID-19 Crisis and Efforts to Address Climate Change Speech at the 58th Japan-U.S. Business Conference (via webcast) October 6, 2021 KURODA Haruhiko Governor of the Bank of Japan Chart 1 Real GDP s.a., ann., CY 2019 = 100 U.S. Japan CY 19 Sources: Cabinet Office; Haver. Chart 2 COVID-19 Vaccination Rate % Dec. U.S. Japan Feb. Apr. June Jun. Aug. Oct. Note: The chart shows the share of the total population that is fully vaccinated against COVID-19. Source: Our World in Data. Chart 3 Unemployment Rate 16 % U.S. Japan Jan. July Jan. July Jan. July Sources: Ministry of Health, Labour and Welfare; Haver. Chart 4 CPI y/y % chg. U.S. Japan -1 -2 Jan. July Jan. Note: Figures for Japan are the CPI (less fresh food). Those for the U.S. are the CPI (all items). Sources: Ministry of Internal Affairs and Communications; Haver. July Jan. July
|
bank of japan
| 2,021 | 10 |
Speech by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at a meeting with business leaders, Nagoya, 15 November 2021.
|
November 15, 2021 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Tokai region. I would like to take this chance to express my sincerest gratitude for your cooperation with activities of the Bank of Japan's Nagoya Branch. We had to exchange views online since the outbreak of the novel coronavirus (COVID-19) last year, but today are able to hold an in-person meeting for the first time in a year and nine months, given the recent low level of confirmed cases. I am grateful to meet with you face-to-face at this gathering. Although economic activity in Japan had been considerably constrained by the successive waves of COVID-19 since last year, positive signs toward normalization of economic activity are at last starting to be seen due to the widespread vaccinations and a substantial decline in the number of confirmed cases of COVID-19. At the same time, however, the global resumption of economic activity has triggered a new issue of supply-side constraints, which have caused shortages in raw materials and parts. Today, while elaborating on these points, I would like to explain the Bank's view on Japan's economic activity and prices based on the Outlook for Economic Activity and Prices (Outlook Report) released last month, as well as its thinking behind the recent conduct of monetary policy. I. Economic Developments Let me start by talking about the current situation for Japan's economy and its outlook (Chart 1). The economy has continued to pick up from the bottom hit in spring last year, but the recovery has been somewhat slower than initially expected. Due to the spread of the Delta variant in summer, private consumption was stagnant for a protracted period, mainly for face-to-face services. Exports and production, which had been increasing firmly to date, have been somewhat weak recently due to delays in the procurement of parts that reflect the spread of COVID-19 in Southeast Asia. The outlook for Japan's economy is that, for the time being, downward pressure stemming from vigilance against COVID-19 is likely to remain on services consumption, and exports and production are expected to remain in a temporary deceleration phase due to supply-side constraints. The economic growth rate for this fiscal year therefore has been revised slightly downward from the July forecast of 3.8 percent to 3.4 percent in the October forecast. However, the Bank considers that the mechanism for economic recovery has been maintained. Although the corporate sector has been affected by supply-side constraints, profits and sentiment have continued on an improving trend and firms have been steadily undertaking business fixed investment, partly because demand has been solid. Amid such firmness maintained in the corporate sector, the improving trend in the overall economy, including the household sector, is expected to become quite evident in the first half of 2022, when the impact of COVID-19 and supply-side constraints is projected to wane. Under these circumstances, Japan's real GDP is expected to generally recover to the pre-pandemic level (or the 2019 level) in the first half of 2022, while lagging somewhat behind the recovery in the United States and Europe. Thereafter, as the resumption of economic activity progresses while public health is being protected, Japan's economy is expected to follow a growth path that outpaces its potential growth rate, supported by relatively high growth in overseas economies and accommodative financial conditions. In relation to the outlook for Japan's economy I just outlined, attention is needed for the time being on (1) whether services consumption will recover steadily during the COVID-19 era and (2) whether supply-side constraints will head toward a resolution on the back of continued firm recovery in overseas economies. Let me elaborate on these two points. Recovery in Services Consumption during the COVID-19 Era Services consumption had been strongly pushed down by COVID-19 (Chart 2). Due to the spread of the highly contagious Delta variant in summer, the number of confirmed cases surged and people's vigilance against COVID-19 heightened. As a result, eating and drinking as well as accommodation services inevitably became subdued to a level that was roughly 40 percent below the pre-pandemic level. The key for the economic outlook is whether face-to-face services consumption no longer remains stagnant and instead sees a full-fledged recovery. In this regard, Japan's fully-vaccinated rate has risen steadily and is now above 70 percent, exceeding the levels in Europe and the United States. On the back of a plunge in the number of confirmed cases, various restrictions have been eased in stages since last month. In addition, with the use of vaccination certificates, for example, efforts have been made to gradually resume consumption activities while protecting public health. Meanwhile, employee income has turned to an increase, reflecting a pick-up in economic activity. These developments suggest that the groundwork has been laid for a full-fledged recovery in services consumption in Japan. Therefore, as people's vigilance against COVID-19 wanes, it is highly likely that a recovery trend in services consumption will become pronounced. Attention is being paid in particular to consumption by senior households, which accounts for nearly 40 percent of overall private consumption (Chart 3). High-frequency data based on credit card transactions suggest that seniors had been very cautious in terms of services consumption even though they were ahead of other age groups with respect to progress with vaccinations. However, since the second half of September, when the spread of COVID-19 subsided, services consumption by seniors has picked up. The Economy Watchers Survey conducted at the end of October also shows that business sentiment of consumption-related firms has clearly improved, mainly for those in the services sector including food and beverage-related firms. That said, these positive developments have been seen only for the last month or two. There also remains a possibility of a repeated resurgence of COVID-19 even after the widespread vaccinations. It is therefore necessary to pay attention to whether households' vigilance against COVID-19 will wane. Overseas Economies and Supply-Side Constraints Next, let me move on to developments in overseas economies and the effects of supply-side constraints. Overseas economies, albeit with variation across countries and regions, have continued to recover firmly on the whole, supported by progress with vaccinations and aggressive macroeconomic policies in advanced economies (Chart 4). The International Monetary Fund (IMF) projects that the global economy will continue to register very high growth of 5.9 percent for 2021 and 4.9 percent for 2022, which contrasts with the negative growth seen last year. Although the projected growth rate for 2021 was revised slightly downward from the forecast made in July, there is no change to the projection that the global economy will grow well above the long-term average of 3.5 percent for two years in a row. However, the recovery in the global economy at an unprecedented rate is creating various frictions in various areas. That is, it has caused supply-side constraints, such as parts and labor shortages as well as bottlenecks in logistics. Due to supply-side constraints on parts, Japan's production and exports have been under downward pressure, mainly for the automobile-related sector. When looking at supply-side constraints Japan's economy face, it is necessary to divide them into two causes: (1) the supply-chain disruptions due to the spread of COVID-19 in Southeast Asia and (2) the problem that supply has not been able to keep up with the surge in demand, mainly for semiconductors (Chart 5). The first cause was triggered by temporary factory shutdowns in Southeast Asia due to the rapid spread of the Delta variant in summer. The resultant delays in the procurement of parts have had a significant impact through the global supply chain on overseas and Japanese production and trade activities in the automobile-related sector in particular. However, as the spread of COVID-19 has subsided since September in Southeast Asia, production activity in the region has gradually resumed and the bottlenecks brought about by the supply-chain disruptions are expected to be resolved within the next few months. On the other hand, the second cause of supply-side constraints, which is supply shortages stemming from the surge in demand, will eventually be resolved but may take a certain amount of time. In particular, demand for semiconductors has expanded considerably because of the existing trend of acceleration in digitalization since before the pandemic, as seen in the spread of 5G networks and electrification of vehicles, and because of an increase in online demand due to the adaptation to a new lifestyle. In order to meet the strong demand, enhancing supply capacity, mainly through business fixed investment, is essential, and it is natural to think that this will take a considerable amount of time. Given that demand has remained, it is expected that, in Japan, a recovery in production to catch up with demand and the restocking of inventories that have been reduced to a large degree will boost production activity. In addition, business fixed investment toward raising supply capacity is projected to get underway gradually. Against this background, Japan's production and trade activities are likely to continue recovering firmly on the whole, after temporarily decelerating due to supply-side constraints. However, it is necessary to pay attention to a risk that, if supply-side constraints are prolonged globally by more than expected, this will bring about deceleration in overseas economies and cost increases and thereby negatively affect Japan's exports and corporate profits. In addition, in terms of a risk to overseas economies, it should be noted that the Chinese economy, which recovered ahead of other economies from a decline caused by COVID-19, has shown a deceleration in its growth pace recently, partly because of power shortages and the debt problems in the real estate sector. The Bank will closely monitor how these risks of globally prolonged supply-side constraints and deceleration in the Chinese economy will affect global financial markets and Japan's economy. II. Price Developments Let me move on to current developments in prices and the outlook for them. Prices of a wide range of commodities, such as crude oil and natural gas, have increased clearly of late because global demand has surged, while on the supply side crude oil production has continued to be reduced (Chart 6). Due to labor shortage and the stagnation of logistics, in addition to the rise in commodity prices, upward pressure on general prices has increased notably in the United States and Europe. Similarly, on the back of the rise in commodity prices, the producer price index (PPI) in Japan -- which captures prices of goods traded within the domestic corporate sector -- has increased to 8 percent on a year-on-year basis for the first time since 1981. On the other hand, the consumer price index (CPI) for all items excluding fresh food has moved out of negative territory but has been only at around 0 percent in Japan (Chart 7). One factor behind this is that Japanese firms have sufficient supply capacity. Since long-term employment has taken hold in Japan, most of the firms have hoarded their employees even during the COVID-19 pandemic, partly on the back of employment adjustment subsidies and various measures to support corporate financing. This contrasts with U.S. firms, which conducted large-scale job cuts and layoffs immediately after the outbreak of COVID-19. Labor hoarding has enabled Japanese firms to maintain capacity to swiftly increase supply even when demand has risen due to the resumption of economic activity. Another factor behind the low CPI in Japan is firms' cautious price-setting stance. When Japanese firms face supply-side constraints, they rarely announce price rises or allocate limited goods by giving preference to customers who are tolerant of higher prices. Instead, they tend to put priority on long-term relationships with the customers and try to meet their demand as much as possible by keeping selling prices unchanged while asking for understanding regarding delivery delays. Nevertheless, a detailed look at Japan's CPI shows that the year-on-year rate of change has increased moderately in positive territory when temporary factors, such as the effects of a reduction in mobile phone charges and of energy prices, are excluded. Recently, firms in industries such as food products and food services have been passing cost increases of raw materials on to their selling prices. In addition, some firms in the services industry have started trying to set their prices in accordance with demand while employing the method of dynamic pricing, through which higher prices are charged at a time of increased demand (Chart 8). Meanwhile, firms' and households' inflation expectations have turned to a pick-up, more or less recovering to the pre-pandemic level. The rate of change in wages has increased gradually, mainly for industries with labor shortage. In the outlook, the year-on-year rate of change in the CPI is likely to increase moderately in positive territory for the time being, reflecting a rise in energy prices. Thereafter, it is projected to increase gradually to about 1 percent as the output gap turns positive around the middle of next year. III. The Bank's Conduct of Monetary Policy Now, I would like to talk about the Bank's conduct of monetary policy. Looking back at Japan's financial conditions immediately after the outbreak of COVID-19 in spring last year, precautionary demand for liquidity surged due to heightened uncertainties over the future and financial positions deteriorated, mainly of small and medium-sized firms (Chart 9). In order to address this situation, the Bank has supported financial positions, mainly of firms, since March 2020. Namely, as a temporary measure, it introduced the Special Program consisting of the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) and an increase in purchases of CP and corporate bonds. Owing to the Bank's responses, together with the government's measures and financial institutions' efforts, financial conditions have remained accommodative on the whole. Specifically, precautionary demand for liquidity, which surged immediately after the outbreak of COVID-19, has subsided to a significant degree, as seen in repayment of loans by large firms. The environment for external funding, such as bank borrowing and the issuance of CP and corporate bonds, has remained favorable, as evidenced by lending and issuance rates being at around the same extremely low levels as those prior to the pandemic (Chart 10). That said, the results of the Tankan (Short-Term Economic Survey of Enterprises in Japan) and other surveys show that weakness has remained in financial positions of some small and medium-sized firms in, for example, the face-to-face services industry that have been significantly affected by COVID-19. In sum, stress on corporate financing stemming from COVID-19 seems to have become limited to firms in industries facing subdued sales as well as small and medium-sized ones. Given that economic developments at home and abroad are expected to continue to be affected by the situation of COVID-19 for a while, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary. Recently, some central banks abroad have taken steps toward reducing monetary accommodation. The reasons behind this differ depending on economic and price developments in the respective countries and regions, but what they have in common is that their actions are based on the mandate of central banks to achieve the inflation target. In this regard, as presented in the October Outlook Report, it is likely that the inflation rate in Japan will increase gradually toward fiscal 2023, by which time the pandemic is expected to have ended, but will not reach the price stability target of 2 percent by then. Given this outlook, let me underscore that the Bank still needs to persistently continue with powerful monetary easing under the current Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, with a view to achieving the price stability target. Conclusion Lastly, I would like to touch on economic developments in the Tokai region from a medium- to long-term perspective. Digitalization and actions toward addressing climate change have been progressing on a global basis, and these will have a large impact on the regional economy. For instance, in light of a global rise in awareness of the need to address climate change, efforts toward achieving carbon neutrality have become active at home and abroad. In this situation, firms in this region have been pushing forward with various actions, such as active research and development investment. In order to achieve carbon neutrality, however, not only efforts made by individual firms but also cooperation among industry, financial institutions, and government agencies are essential. The Bank will provide support for these efforts and actions through the Funds-Supplying Operations to Support Financing for Climate Change Responses. The Tokai region has been supporting Japan's economy and leading the world in the field of manufacturing. I am confident that this will remain the case in the future. I would like to close by expressing my hope for further development of the region's economy. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya November 15, 2021 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. The Bank's Conduct of Monetary Policy Conclusion Chart 1 I. Economic Developments The Bank's Forecasts for Economic Activity (October 2021 Outlook Report) Real GDP s.a., ann., tril. yen FY 2023 +1.3% FY 2022 +2.9% CY 2019 average FY 2021 +3.4% FY 2021 FY 2022 FY 2023 July Forecasts +3.8% +2.7% +1.3% October Forecasts +3.4% +2.9% +1.3% FY 15 Note: Percentage figures indicate the medians of the Policy Board members' forecasts (point estimates). Sources: Cabinet Office; Bank of Japan. Chart 2 I. Economic Developments Impact of COVID-19 on Services Sector Level of Economic Activity in Services Sector COVID-19 Vaccination Rate s.a., CY 2019 = 100 Accommodations, eating and drinking services % Japan United States European Union Services for amusement and hobbies Nonmanufacturing Jan. Jul. July Jan. Jul. July Jan. Jul. July Dec. Feb. Apr. Jun. June Aug. Oct. Notes: 1. In the left-hand chart, figures are from the Indices of Tertiary Industry Activity. Figures for nonmanufacturing exclude accommodations, eating and drinking services, and services for amusement and hobbies. 2. The right-hand chart shows the share of the total population that is fully vaccinated against COVID-19. Sources: Ministry of Economy, Trade and Industry; Our World in Data. Chart 3 I. Economic Developments Recent Developments in Services Consumption Developments in Services Consumption by Age 50 change from baseline, % Confidence Indicator (Economy Watchers Survey) current conditons DI (level), s.a. Aged 20-39 Aged 40-64 Aged 65-89 -10 -20 Food and beverage Services -30 -40 -50 Jan. July Jan. July Oct. Household activity-related -10 Jan. Jan. Jan. Oct. Note: In the left-hand chart, figures are from the reference series in JCB Consumption NOW, which take changes in the number of consumers into account. Figures are the arithmetic averages of the corresponding age groups in five-year increments. The baseline is the average for the corresponding half of the month for 2016 through 2018. Sources: Nowcast Inc./ JCB, Co., Ltd., "JCB Consumption NOW"; Cabinet Office. Chart 4 I. Economic Developments Global Economy Global Growth Rate (IMF Forecasts in the World Economic Outlook) CY 2022: +4.9% y/y % chg. CY 2021: +5.9% CY 2019: +2.8% -3 -4 -5 Longer delivery times -1 -2 Average from 1980 through 2019: +3.5% s.a., DI Delivery Delays Index (PMI) CY 2020: -3.1% Japan IMF forecasts (October 2021 WEO) -6 CY 00 02 04 06 08 10 12 14 16 18 20 22 United States CY 19 Euro area Note: In the right-hand chart, Delivery delay index = 100 - Suppliers' delivery times index. Figures for the United States and the euro area are for the respective manufacturing PMIs. Those for Japan are for the au Jibun Bank Japan Manufacturing PMI. Sources: IMF; IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.). Chart 5 I. Economic Developments Supply-Side Constraints Confirmed New Cases of COVID-19 in Southeast Asia 80 7-day moving average, persons per 100,000 population World Semiconductor Demand (WSTS) 160 s.a., bil. dollars CY 2022 Malaysia Thailand Vietnam CY 2021 World semiconductor shipments Forecasts as of Aug. 2021 Trend from CY 2000 to CY 2017 CY 2020 Jan. Mar. May. May Sept. Sep. Jul. July Nov. CY00 Note: In the right-hand chart, figures are based on staff calculations using World Semiconductor Trade Statistics (WSTS) data. Source: Haver. Chart 6 II. Price Developments Commodity Prices and Prices of Transactions among Businesses International Commodity Prices monthly avg., CY 2015 = 100 Producer Prices in Japan Crude oil (Dubai) y/y % chg. Copper -2 -4 -6 -8 CY06 -10 CY 06 Note: In the right-hand chart, figures are the producer price index (PPI) for all commodities (adjusted to exclude the effects of the consumption tax hike). Sources: Bloomberg; Bank of Japan. Chart 7 II. Price Developments Price Developments Japan's CPI Excluding Temporary Factors Consumer Prices y/y % chg. 1.5 y/y % chg. Japan (CPI) United States (CPI) 1.0 Euro area (HICP) 0.5 0.0 -1 -2 CY19 -0.5 CY 16 Notes: 1. In the left-hand chart, figures for Japan are the CPI for all items excluding fresh food. 2. In the right-hand chart, figures are staff estimates and exclude (1) the effects of the consumption tax hike and policies concerning the provision of free education, (2) the effects of the "Go To Travel" campaign, which covers a portion of domestic travel expenses, and (3) mobile phone charges, from the CPI (all items less fresh food and energy). Sources: Haver; Ministry of Internal Affairs and Communications. Chart 8 II. Price Developments Outlook for Prices The Bank's Forecasts for CPI (All Items Less Fresh Food) Inflation Expectations 2.5 y/y, ann. avg., % y/y % chg. Households (over the next 5 years) 2.0 Firms (5 years ahead) Market participants (QUICK, 2 to 10 years ahead) FY 2022 +0.9% FY 2023 +1.0% 1.5 FY 2021 +0.0% 1.0 0.5 0.0 CY 10 11 12 13 14 15 16 17 18 19 20 21 -1 -2 FY 15 Notes: 1. In the left-hand chart, figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. 2. In the right-hand chart, figures exclude the direct effects of the consumption tax hike in April 2014. Percentage figures indicate the medians of the Policy Board members' forecasts (point estimates) presented in the October 2021 Outlook Report. Sources: Bank of Japan; QUICK, "QUICK Monthly Market Survey <Bonds>"; Ministry of Internal Affairs and Communications. Chart 9 III. The Bank's Conduct of Monetary Policy The Bank's Measures in Response to COVID-19 Firms' Financial Positions (Tankan) Measures in Response to COVID-19 DI ("easy" - "tight"), % points Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 ⇒The Bank extended the duration until the end of March 2022（decided in June 2021） -10 Stabilizing Financial Markets All enterprises and industries -20 Ample and Flexible Provision of Yen and Foreign Currency Funds Small enterprises in all industries -30 -40 CY 07 Small enterprises in face-to-face services industry Purchases of ETFs and J-REITs Note: In the left-hand chart, figures for small enterprises in face-to-face services industry are the weighted averages of the DI for retailing, transport & postal activities, services for individuals, and accommodations, eating & drinking services. Source: Bank of Japan. Chart 10 III. The Bank's Conduct of Monetary Policy Funding Environment Issuance Yields for CP and Corporate Bonds 2.0 % Issuance Conditions for CP (Tankan) 1.8 CP (3-month) 1.6 Corporate bonds (AA) 1.4 DI ("easy" - "severe"), % points Amount Outstanding of Bank Lending y/y % chg. 1.2 1.0 Easy 0.8 0.6 0.4 -20 Severe -2 -40 0.2 0.0 CY 05 07 09 11 13 15 17 19 21 -60 CY 08 -4 CY05 07 09 11 13 15 17 19 21 Notes: 1. In the left-hand chart, figures for issuance yields for CP up through September 2009 are the averages for CP (3-month, rated a-1 or higher). Those from October 2009 onward are the averages for CP (3-month, rated a-1). Figures for issuance yields for corporate bonds are the averages for domestically issued bonds launched on a particular date (6-month backward moving averages). Bonds issued by banks and securities companies, etc., are excluded. 2. In the middle chart, figures are for all industries. 3. In the left-hand chart, figures are monthly averages. Sources: Japan Securities Depository Center; Capital Eye; I-N Information Systems; Bloomberg; Bank of Japan.
|
bank of japan
| 2,021 | 11 |
Speech (via webcast) by Mr Goushi Kataoka, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Nagasaki, 1 September 2021.
|
Goushi Kataoka: Economic activity, prices, and monetary policy in Japan Speech (via webcast) by Mr Goushi Kataoka, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Nagasaki, 1 September 2021. * * * I. Economic Activity and Prices A. Overseas Economies I would like to start my speech by looking at developments in overseas economies. Let me first talk about the course that the novel coronavirus (COVID-19) is taking, which currently has a significant impact on economic developments. Chart 1 shows that the number of confirmed new cases has been on an increasing trend again since July 2021, although it turned down after rising through early spring. Under these circumstances, the global economy has recovered on the whole, albeit with variation across countries, regions, and industries. As for developments by country and region, the U.S. economy continues to see relatively high growth and its inflation rate remains above 2 percent, with economic activity resuming. The European economy has also recovered, lagging somewhat behind the U.S. economy. Likewise, the Chinese economy continues to recover, as exports and production have increased steadily. Regarding emerging and commodity-exporting economies other than China, a pick-up is maintained on the whole, although domestic demand in some economies has been pushed down due to the resurgence of confirmed cases of COVID-19. As for a breakdown by industry, production activity and the trade volume of the manufacturing industry have led the recovery in the global economy; on the other hand, downward pressure has been exerted on the services industry, which is heavily affected by COVID-19, mainly in the countries and regions where progress with vaccinations has been slow. With regard to the outlook, it warrants attention that the pace of recovery varies across countries and regions depending on the course COVID-19 takes and the impact of public health measures, as well as of macroeconomic policies taken by the respective governments and central banks. That said, the recovery itself has started to take hold. Chart 2 shows the July 2021 World Economic Outlook (W EO) Update released by the International Monetary Fund (IMF) as compared with the update released in June 2020. The IMF projection in June 2020 for the growth rate of the global economy for 2021 was 5.4 percent, and the latest projection is an upward revision to 6.0 percent. The projection for 2022 is 4.9 percent, which is higher than the past average. These developments are attributable to the acceleration in vaccinations.1 In the United States in particular, the economic recovery has gained momentum, with economic activity resuming and on the back of aggressive fiscal and monetary policies. This has in turn contributed to pushing up the global economy through trade activity. Having said that, there are various risk factors with respect to the outlook for the global economy, such as the course of COVID-19 and international commodity prices. Thus, accompanying downside risks continue to warrant attention for the time being. Next, I would like to turn to Japan’s economy, starting with recent economic developments. Chart 3 shows the trend in economic conditions in terms of three indicators released by the Cabinet Office: the coincident index, the leading index, and the Economy Watchers Survey's diffusion index (DI) for current economic conditions. The coincident index, which shows the magnitude and tempo of current economic developments, started to decline moderately in 2018. The decline accelerated in a phased manner due to the consumption tax hike in October 2019 as well as the global spread of COVID-19 and the resultant implementation of public health 1/6 BIS central bankers' speeches measures in 2020. The coincident index has been rising from the bottom hit in May 2020; however, the pace seems to have been somewhat slow since the middle of 2020. This trend holds true for the leading index, which shows the magnitude and tempo of future economic developments. In the Economy Watchers Survey, the DI for current economic conditions below 50 indicates that the proportion of respondents who answered that economic conditions are bad or slightly bad exceeds the proportion of those who answered that they are good or slightly good. Although the DI has been improving after declining to 10.6 in April 2020, the pace of improvement has been slow. It has only just reached the level seen from the end of 2019 to the beginning of 2020, when its decline accelerated due to the impact of the consumption tax hike. Therefore, it can be said that economic activity is picking up but at an insufficient pace. Next, I will touch on Japan’s economic developments by looking at real GDP growth rates. In the left panel of Chart 4, the line graph shows developments in the real GDP growth rate and the bar graph shows the contribution of demand components to the growth rate, such as private consumption and business fixed investment. The first preliminary estimate for the April-June quarter of 2021 marked a real GDP growth rate of 0.3 percent on a quarter-on-quarter basis and 1.3 percent on an annualized basis. The economy registered positive growth for the first time in two quarters, reflecting the pick-up in private consumption and business fixed investment, although public health measures have been retightened due to the spread of COVID-19. The right panel of Chart 4 shows developments in the real GDP level. This suggests that economic improvement from the plunge for the April-June quarter of 2020 has come to a pause. Chart 5 shows the outlook for Japan’s economy. As presented in the July 2021 Outlook for Economic Activity and Prices (Outlook Report), the medians of the Bank of Japan Policy Board members’ forecasts for real GDP growth rates are 3.8 percent for fiscal 2021, 2.7 percent for fiscal 2022, and 1.3 percent for fiscal 2023. Japan’s economy is likely to follow a recovery trend, with the impact of COVID-19 waning gradually, mainly due to progress with vaccinations. The recovery trend is also supported by an expansion in external demand, accommodative financial conditions, and the government’s economic measures. Thereafter, as the impact subsides, the economy is expected to show higher growth. Having said that, attention should be paid to downside risks for the time being, mainly due to the impact of COVID-19. In particular, the future course of COVID-19 as well as accompanying downside risks to economic activity and prices continue to warrant close attention. So far, I have described the outlook for Japan’s economy based on the Outlook Report. I would now like to examine developments in major GDP components such as private consumption, business fixed investment, and exports. Let me start with private consumption. Chart 6 shows developments in real private consumption by type, such as durable goods, non-durable goods, and services. With regard to developments from 2013, it declined in 2014 and 2019, years when consumption tax was raised. These declines were largely attributable to the fall in goods consumption; services consumption remained relatively firm. Since 2020, real private consumption has declined again due to the impact of COVID-19. A distinctive feature of this decline is that it has been caused by the drop in services consumption, such as tourism, accommodation, eating and drinking, and recreation. Durable goods consumption has been picking up from the bottom hit in May 2020. In June 2021, it recovered to about 10 percent above the level seen in December 2019, right before the impact of COVID-19 materialized. However, as of June 2021, services consumption was about 20 percent below the level seen in December 2019, due in part to the impact of the resurgence of COVID-19. Reflecting such situation in services consumption, real private consumption as a whole remains depressed. As long as the pandemic continues, it will likely remain weak. I 2/6 BIS central bankers' speeches consider that downside risks to private consumption have been increasing further in a situation where public health measures have been retightened recently due to the spread of variants. Let us take a closer look at developments in the employment and income situation that affect private consumption. The left panel of Chart 7 shows the unemployment rate and the labor force participation rate. The labor force participation rate increased again as seniors and women that were temporarily out of the labor market around spring 2020 returned to it. However, its increase has leveled off recently. Also, the unemployment rate has been at around 3 percent, remaining at a high level compared with that prior to the COVID-19 outbreak. As presented in the right panel of Chart 7, the real wage income of employees has been on a recovery trend reflecting the employment situation I just mentioned, but it has not reached the pre-pandemic level. I will now shift to business fixed investment. As shown in Chart 8, the business fixed investment ratio, which represents the share of the amount outstanding of fixed investment to nominal GDP, continues to pick up, although the level has not reached that observed until 2019. Production capacity perceived by firms, as indicated by the production capacity DI in the Bank’s Tankan (Short-Term Economic Survey of Enterprises in Japan), shifted toward being “excessive” and excess production capacity increased with the spread of COVID-19. Subsequently, excess capacity has been declining steadily to date. As for the outlook, business fixed investment is expected to increase mainly in machinery investment driven by the rise in overseas demand, software investment for digitalization, research and development (R&D) investment for growth areas, and investment to address environmental issues. Lastly, let me turn to exports. Chart 9 presents real exports by country and region as well as by type of goods. Unlike private consumption and business fixed investment, as of the end of 2020, exports generally recovered to the level posted before the impact of COVID-19 grew intense. Thereafter, they remain on an increasing trend. By region, exports to Asia, including China, have been firm; by goods, those of IT-related and capital goods have been favorable. On the other hand, the pace of increase in automobile-related exports, particularly for those to the United States, has decelerated due to the effects of a semiconductor shortage. Exports overall are likely to see a strengthening in their uptrend for the time being on the back of a rise in the global economic growth rate. C. Recent Developments and Outlook for Prices Next, I will move on to price developments. As seen in the left panel of Chart 10, the observed year-on-year rate of change in the consumer price index (CPI) for July 2021 was minus 0.2 percent for all items less fresh food and minus 0.6 percent for all items less fresh food and energy. This is mainly because the negative contribution of mobile phone charges increased with the base year of the CPI being changed from 2015 to 2020. However, the year-on-year rate of change in the CPI that excludes the effects of temporary factors such as mobile phone charges and energy prices has been slightly positive even with the new base year of 2020, although this is an estimate. The right panel of Chart 10 shows developments in the indicators for capturing the underlying trend in the CPI. The indicators declined moderately in 2020 but have recently improved slightly, remaining at around 0 percent. Let me now turn to the outlook for prices. In terms of the medians of the Policy Board members’ forecasts presented in the July 2021 Outlook Report, the year-on-year rate of change in the CPI (all items less fresh food) with the base year of 2015 is expected to increase gradually from 0.6 percent for fiscal 2021 to 0.9 percent for fiscal 2022, and to 1.0 percent for fiscal 2023, as shown in Chart 5. However, if we look at the output gap and medium- to long-term inflation expectations — both of which affect the underlying trend in prices — the output gap, shown in the left panel of Chart 11, continued to indicate an excess supply of over 1 percent as of the January-March quarter of 2021, although the gap itself had narrowed. Inflation expectations remain more or less 3/6 BIS central bankers' speeches flat, after declining from the end of 2019 through the first half of 2020, as confirmed in the right panel of the chart. Although the output gap and inflation expectations have exerted less downward pressure on prices, as I just explained, they have not been strong enough to push up the inflation rate so that it gets close to the 2 percent price stability target. Prices are likely to be pushed up temporarily by the recent rise in international commodity prices and pent-up demand that should materialize as COVID-19 subsides. However, for such temporary effects to actually lead to the achievement of the 2 percent price stability target, domestic demand, including private consumption, needs to gain further momentum and firms in the retail and services industries consequently must adopt a more positive price-setting stance. In other words, it is essential that the output gap shift from excess supply to excess demand and for such demand to increase further; in addition, inflation expectations need to become anchored at around 2 percent. In my view, during the projection period in the Outlook Report, such positive changes are unforeseeable, and thus the momentum toward the 2 percent price stability target will not be maintained. II. Conduct of Monetary Policy I will outline the Bank’s current monetary policy and the recent policy decisions, based on the outlook for economic activity and prices that I have described. I would then like to express my opinion about the Bank’s monetary policy conduct. A. Outline of the Current Monetary Policy and the Recent Policy Decisions The Bank conducts monetary policy under the framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the 2 percent price stability target. This current framework consists of three measures: yield curve control, the purchase of risk assets, and the Bank’s public commitment regarding the future conduct of monetary policy. In addition to these measures, the Bank has taken the following three actions since March 2020 to address the economic impact of the pandemic, as shown in Chart 12: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) an ample and flexible provision of yen and foreign currency funds; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). I hold the view that these actions, coupled with the government’s measures and financial institutions’ efforts, have contained the disturbance in the financial and capital markets and effectively supported financing, mainly of firms. However, with the moderate pace of economic improvement and significant downside risks, financing, mainly of firms, is likely to remain under stress for the time being. Given this situation, the Bank decided at the June 2021 Monetary Policy Meeting (MPM) to extend the duration of the Special Program until the end of March 2022, thereby continuing to support financing, mainly of firms. It will still closely monitor the impact of COVID-19 and not hesitate to take additional easing measures if necessary. Besides extending the duration of the Special Program, the Bank decided at the June MPM to introduce a new fund-provisioning measure to support private financial institutions’ various efforts in fields related to climate change. At the July MPM, it made public the preliminary outline of the measure. The Bank regards this monetary policy measure as part of its comprehensive strategy on climate change released in July.2 The new fund-provisioning measure is in line with growing international awareness of climate change and the Japanese government’s declaration on achieving carbon neutrality by 2050. Chart 13 presents the essence of the preliminary outline of the new measure. Through this measure, the Bank will provide funds to financial institutions for investment or loans they make to address climate change based on their own decisions. It will request of financial institutions desiring provision of funds that they disclose a certain level of information on their efforts to address climate change so as to ensure that discipline can be exercised. While the interest rate will be 0 percent and funds will be provided for one year, 4/6 BIS central bankers' speeches rollovers can be made until the end of March 2031, which is the end of the implementation period. The Bank will work out the details through an exchange of opinions with financial institutions and will likely start its fund-provisioning within 2021. B. My View on the Conduct of Monetary Policy Of the monetary policy measures just outlined, I voted for the Bank to take the actions in response to COVID-19 and to introduce the new fund-provisioning measure to support efforts in fields related to climate change. However, I continued to dissent from the majority decision on yield curve control and the Bank’s commitment regarding the future conduct of monetary policy. This was based on my view that it is necessary not only to support financing and provide liquidity but also to implement measures to achieve the 2 percent price stability target at the earliest possible time and thereby support Japan’s economy in returning to a powerful growth path. The spread of COVID-19 will lead to a tightening of public health measures and worsening of households’ and firms’ sentiment, and thereby dampen private consumption and firms’ fixed investment. This in turn will exert downward pressure on prices through deterioration in the output gap toward excess supply. The longer the inflation rate remains stagnant, the less likely inflation expectations are to rise in Japan, where the formation of such expectations is highly adaptive. Thus, price stagnation will be prolonged, with both the output gap and inflation expectations being pushed down. As mentioned earlier, I think that the momentum toward the 2 percent price stability target will not be maintained during the projection period in the Outlook Report, even under the baseline scenario of Japan’s economy following a recovery trend, with the impact of COVID-19 waning gradually, mainly due to progress with vaccinations. Moreover, given such factors as the spread of variants, it is reasonable to assume the risk that the impact of COVID-19 will last longer than expected. If that happens, the risk of prices remaining stagnant for a protracted period will increase further. Based on this recognition, I consider that the Bank needs to strengthen monetary easing in terms of yield curve control and its commitment regarding the future conduct of monetary policy. As for yield curve control, with a view to encouraging firms to make investment for growth, such as through active business fixed investment for the post-COVID-19 era, it is appropriate for the Bank to lower short- and long-term interest rates by actively purchasing Japanese government securities. I believe that supporting investment for growth through monetary easing does not necessarily involve a trade-off with the containment of COVID-19. In terms of the Bank’s commitment regarding the future conduct of monetary policy, further coordination of fiscal and monetary policies is necessary, and it is appropriate for the Bank to revise the forward guidance for the policy rates to make such guidance more powerful by relating it to the price stability target, so as to enable the Bank to take actions based on concrete conditions. The inflation rate in Japan remains low compared with those in the United States and Europe, but there is no significant difference between these three regions in terms of the extent to which international commodity prices affect domestic prices if the industrial structure is taken into account. Therefore, the difference in Japan’s observed inflation rate relative to the United States and Europe is presumably due to the varying degrees of increase in inflation expectations and of improvement in the output gap. I believe that influencing both inflation expectations and the output gap by conducting more powerful monetary easing is a requisite for achieving the 2 percent price stability target and maintaining the inflation rate at that level. Thank you. 1 Vaccinations have been progressing since March 2021, and more than 4.8 billion vaccine doses have been administered in total worldwide. Regarding developments by region, vaccinations have been slow in developing countries such as those in Africa. 2 For details, see Bank of Japan, “The Bank of Japan’s Strategy on Climate Change,” July 16, 2021, 5/6 BIS central bankers' speeches www.boj.or.jp/en/announcements/release_2021/rel210716b.pdf. In this strategy, the Bank indicates its measures to address climate change in areas such as monetary policy, the financial system, research, and international finance. 6/6 BIS central bankers' speeches
|
bank of japan
| 2,021 | 12 |
Speech by Mr Hitoshi Suzuki, Member of the Policy Board of the Bank of Japan, at a meeting with business leaders, Hyogo, 2 December 2021.
|
December 2, 2021 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Hyogo 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 (Chart 1). Specifically, the United States and Europe, where vaccinations against the novel coronavirus (COVID-19) moved ahead of other countries and regions, keep seeing economic improvement as the resumption of economic activity continues to progress. The Chinese economy is still recovering as a trend, although the pace of improvement has decelerated, partly due to the resurgence of COVID-19 and power supply issues, for example, exerting downward pressure on domestic demand and production. Regarding emerging and commodity-exporting economies other than China, domestic demand and production in some countries and regions were under downward pressure due to the spread of COVID-19 in summer 2021, but these economies have picked up on the whole as the effects of the spread have been waning recently. Against this background, Japan's economy has picked up as a trend, although it remains in a severe situation due to the impact of COVID-19 at home and abroad (Chart 2). Regarding the impact at home, with the repeated resurgence of confirmed cases, the economy has been pushed down significantly, mainly in the face-to-face services sector, including dining-out and travel; however, with the number of cases having been at a low level since autumn, such downward pressure seems to have started to wane somewhat. As for the impact abroad, the spread of COVID-19 in the ASEAN countries in summer and the semiconductor shortage have affected global supply chains. This has led to a temporary deceleration in exports and production in Japan, mainly in the automobile-related sector. That said, a virtuous cycle from corporate profits to business fixed investment continues to operate, supported by the recovery in overseas economies and the effects of various policy measures. Thus, I am of the view that the pick-up trend in Japan's economic activity as a whole is maintained. Let me elaborate on this by component. First, exports continue to increase as a trend on the back of the recovery in overseas economies, despite being weak recently due to the effects of supply-side constraints seen in some areas (Chart 3). By goods, exports of automobile-related goods have declined significantly due to a drop in production that reflects supply-chain disruptions caused by the spread of COVID-19 in the ASEAN countries. On the other hand, IT-related exports remain on an uptrend, as exports of goods such as semiconductors for smartphones and data centers have been solid, despite a decline in exports of some parts for automobiles. Exports of capital goods also continue to increase, supported by a global rise in machinery investment and by steady exports of semiconductor production equipment that reflect the expansion in demand for digital-related goods. As for the outlook, exports are likely to remain affected by supplyside constraints for the time being. Thereafter, however, they are expected to increase firmly again on the back of firm expansion in global demand, particularly for digital-related goods. Turning to private consumption, it has shown signs of a pick-up recently, although downward pressure remains strong, particularly on services consumption, mainly due to vigilance against COVID-19. The rate of change in consumption of households excluding imputed rent for the July-September quarter of 2021 was negative on a quarter-on-quarter basis (Chart 2). This was mainly attributable to (1) the continued downward pressure stemming from the impact of COVID-19, exerted mainly on consumption of services, such as eating and drinking as well as accommodations, (2) supply-side constraints, mainly on passenger cars and some white goods, due to shortages such as of semiconductors, and (3) irregular weather. That said, signs of a pick-up have been observed, mainly in face-to-face services consumption, reflecting the lifting of the state of emergency and priority measures to prevent the spread of disease, with the number of confirmed cases having been at a low level since October (Chart 4). With regard to the outlook, it is expected for the time being that private consumption will be restrained mainly by vigilance against COVID-19 and that durable goods consumption will be pushed down by supply-side constraints, such as on automobiles. However, private consumption is expected to pick up again, supported by the materialization of pent-up demand for services and durable goods, as public health protection and the resumption of consumption activities coexist more effectively, due mainly to the widespread vaccinations, and as supplyside constraints wane. Thereafter, as the impact of COVID-19 subsides gradually, an uptrend in private consumption is projected to become evident, supported by improvement in employee income. As for business fixed investment, weakness has been seen in some industries; for example, there has been a decrease in construction of stores and accommodation facilities by the eating and drinking as well as accommodations industries and a downtrend in 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. Machinery investment has been supported mainly by digital-related goods, such as semiconductor production equipment and items related to mobile phone base stations and 5G networks, and by construction machinery. Regarding construction investment, construction of logistics facilities has increased on the back of expansion in e-commerce and urban redevelopment projects have made progress. The pick-up in business fixed investment can also be observed in the plan for fiscal 2021 in the Bank of Japan's September 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan); business fixed investment is likely to increase by 9.3 percent on a year-on-year basis, suggesting that -- as with the previous survey in June -- the year-on-year rate of change in such investment for fiscal 2021 is likely to clearly turn upward.1 The employment and income situation remains weak due to the impact of COVID-19. With regard to the number of employed persons, the number of regular employees continues to increase moderately -- mainly in the medical, healthcare, and welfare services industry as well as the information and communications industry, both of which have faced a severe labor shortage. On the other hand, that of non-regular employees remains at a relatively low level, 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, although the year-on-year rate of change has been positive in contrast to 2020, when a significant decline was observed, the level of wages has been somewhat lower than that before the pandemic. B. Price Developments Let me now elaborate on price developments in Japan. Business fixed investment in the Tankan is on the basis close to GDP definition; that is, business fixed investment -- including software and research and development (R&D) investments but excluding land purchasing expenses -- in all industries and enterprises including financial institutions. 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 at around 0 percent (Chart 6). That said, recent price developments are largely attributable to temporary factors both in terms of positive and negative changes. Specifically, mobile phone charges -- for which low-cost plans have been launched since spring 2021 -- have pushed down the overall rate of change in the CPI by more than 1 percentage point. On the other hand, the CPI has been pushed up by (1) a rise in energy prices -- which were subdued in 2020 -- reflecting developments in crude oil prices affected by a recovery in the global economy and (2) the base effects of a discount on hotel charges through the "Go To Travel" campaign in 2020, the government's program to promote domestic tourism. When excluding these temporary factors, the year-on-year rate of change in the CPI has been steady at around 0.5 percent. Meanwhile, medium- to long-term inflation expectations, which represent the perception of firms and households regarding future prices, have picked up (Chart 7). C. Outlook for and Risks to Economic Activity and Prices The outlook for Japan's economy is that, for the time being, there will likely remain downward pressure stemming from vigilance against COVID-19 on services consumption and (2) the effects of supply-side constraints on exports and production. Thereafter, however, with the impact of COVID-19 waning gradually, mainly due to the widespread vaccinations, the economy is likely to recover, supported by an increase in external demand, accommodative financial conditions, and the government's economic measures. From the middle of the projection period that covers through fiscal 2023, Japan's economy is projected to continue growing, albeit slower, at a pace above its potential growth rate, as a virtuous cycle from income to spending intensifies in the overall economy, including the household sector. Given these factors, in the Bank's October 2021 Outlook for Economic Activity and Prices (Outlook Report), the medians of the Policy Board members' forecasts for the yearon-year growth rate of real GDP are 3.4 percent, 2.9 percent, and 1.3 percent for fiscal 2021, 2022, and 2023, respectively (Chart 8). Turning to prices, the year-on-year rate of change in the core CPI is likely to increase moderately in positive territory for the time being, reflecting a rise in energy prices. Thereafter, albeit with fluctuations due to temporary factors, it is projected to increase gradually as a trend, mainly on the back of improvement in the output gap and a rise in inflation expectations. In the October Outlook Report, the medians of the Policy Board members' forecasts for the year-on-year rate of change in the core CPI are 0.0 percent, 0.9 percent, and 1.0 percent for fiscal 2021, 2022, and 2023, respectively (Chart 8). Concerning risks to the outlook for economic activity and prices, the course of COVID-19 and its impact on domestic and overseas economies continue to warrant attention. In particular, there are high uncertainties over how public health protection and the resumption of economic activity will coexist. Specifically, if people's vigilance against COVID-19 entrenches due, for example, to the spread of variants, there is a risk that economic activity, mainly for consumption, will deviate downward from the baseline scenario. On the other hand, economic activity could improve by more than expected because if, for example, public health is protected and people's vigilance lessens significantly with the widespread vaccinations and the rollout of antiviral medicines, pent-up demand for services consumption will materialize relatively early. Attention also should be paid to a risk that the effects of supply-side constraints seen in some areas will be amplified or prolonged. Specifically, mainly due to a rapid economic recovery in advanced countries, such as the United States, and to the effects of the resurgence of COVID-19 in Asia, supply-side constraints have been seen globally, including the semiconductor shortage, the stagnation of logistics such as in marine transport, and parts procurement difficulties reflecting supply-chain disruptions. As the impact of COVID-19 wanes, demand imbalances and production and shipping bottlenecks are likely to head toward a resolution. However, if the effects of supply-side constraints are prolonged or amplified by more than expected, there is a risk that economic activity will deviate further downward from the baseline scenario, particularly in the first half of the projection period. II. Monetary Policy Responses to COVID-19 and Climate Change Next, I would like to talk about the Bank's monetary policy actions regarding the two important challenges that the world is facing: COVID-19 and climate change. A. Responses in Light of the Impact of COVID-19 Let me first touch on policy responses in light of the impact of COVID-19. In response to COVID-19, the Bank has been supporting financing, mainly of firms, and maintaining stability in financial markets by conducting powerful monetary easing through the following three measures since March 2020 (Chart 9): (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) an ample and flexible provision of funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). These three measures have had positive effects, coupled with the government's measures and private financial institutions having actively fulfilled the functioning of financial intermediation. As a result, financial conditions in Japan have been accommodative on the whole, although weakness in firms' financial positions remains in some segments. That said, developments in domestic and overseas economies continue to entail high uncertainties due to the spread of COVID-19 variants, for example. It therefore continues to be important to take measures in response to the pandemic for the time being. In this regard, the Bank extended the duration of the Special Program until the end of March 2022. Under this program, it will keep providing strong support for corporate financing. It will also continue to closely monitor the impact of COVID-19 on economic activity and will not hesitate to take additional easing measures if judged necessary. B. Responses to Climate Change Now, I will highlight responses to climate change. Climate change is a global challenge and could have a broad impact on our society and economic activity into the future. To address this challenge, all economic entities -- firms, households, financial institutions, and governments -- need to actively play their roles over the long term, and central banks are no exception. Specifically, since climate change could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective, central banks -- which have the mission of achieving price stability and ensuring the stability of the financial system -need to address this critical challenge. Against this background, central banks around the world have taken necessary responses. The Bank of Japan released its strategy on climate change in July 2021. This covers a wide range of areas including monetary policy, the financial system, research, and international finance (Chart 10). In June 2021, as a monetary policy response, the Bank announced its decision to introduce a new fund-provisioning measure to support private financial institutions' various efforts in fields related to climate change (Chart 11). It decided on and released the details of the measure in September and will start the actual fund-provisioning in December. As such, supporting the private sector's efforts on climate change will contribute to stabilizing the macroeconomy in the long run. This is consistent with the monetary policy mission to achieve price stability and thereby contribute to the sound development of the national economy. On this basis, I would like to express my opinion on the importance of addressing climate change for the future of Japan's economy while explaining how the new fund-provisioning measure should be regarded. While there is growing awareness of climate change on a global basis, some say that firms' corporate values will increasingly be influenced by not only the digital transformation but also the green transformation -- that is, initiatives to adapt to changes to industrial structures and the socioeconomy with a view to restraining climate change caused by greenhouse gas emissions and promoting economic growth. One example of a change to the environment surrounding corporate activity is that carbon pricing, such as carbon taxes and emissions trading, will likely be adopted widely across countries and regions, in addition to such regulations as limiting greenhouse gas emissions. If the impact on climate change is explicitly reflected in the cost of corporate activity through such initiatives, firms will become more aware of such cost in making their decisions. Consequently, more firms -- mainly in manufacturing -- will, for example, switch from using fossil fuels to electricity and shift their business sites to locations where cheaper and more environmentally friendly electricity is available. I should note that thermal power generation using fossil fuels accounts for a large proportion of the energy mix in Japan compared with in European countries and the United States, due in part to the suspended operation of nuclear power plants following the Great East Japan Earthquake in 2011. In addition, industrial power prices in Japan are at a high level relative to those in other major countries. In particular, industrial power generated from renewable resources is even more expensive. If this situation continues, Japanese firms -- many of which have been advancing their global initiatives for "local production for local consumption" so as to reduce foreign exchange risk and personnel expenses -- may accelerate the shifting of their factories and other business sites abroad with a view to avoiding the high cost and constraints on the availability of electricity. To avoid this, Japanese firms must expand their R&D investment for the various technologies needed to address climate change and fixed investment to utilize those technologies. Specifically, it is necessary to (1) switch from using fossil fuels to electricity and carbon-free alternative energy such as hydrogen, (2) raise the power-generating capacity of renewable energy, and (3) proceed with carbon capture and reuse. To this end, joint efforts among industry, academia, and the government are indispensable. In order to prevent Japan from falling behind the rest of the world in the green transformation so that the hollowing out of industries in the country does not accelerate, the government is expected to make further efforts in terms of fiscal and institutional arrangements. At the same time, the Bank will firmly support private financial institutions' various efforts in fields related to climate change through its new fund-provisioning measure. Meanwhile, on the financial front, giving consideration to market neutrality is important in proceeding with the aforementioned initiatives. This is particularly true in Japan, where a notable number of industries is supported by indirect financing. What is pivotal in such financing is financial institutions' expertise in responding flexibly and appropriately to the borrowers' funding needs through close communication. Given this, if the central bank directly intervenes in micro-level resource allocation by, for example, implementing a policy that supports environmentally sustainable "green" economic activities and restrains the "brown" ones that are environmentally unfriendly, various distortions may occur in the financial system. I believe that such a negative impact on the financial system can be avoided with the Bank's new fund-provisioning measure, since it takes the approach of providing funds to financial institutions for investment or loans they make to address climate change based on their own decisions. III. Achieving the Price Stability Target of 2 Percent Next, I would like to discuss the Bank's monetary policy conduct that also looks ahead to the post-COVID-19 era. The Bank will persistently continue with powerful monetary easing based on Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, of which the sustainability and nimbleness were enhanced following the assessment conducted in March 2021. In doing so, it will continue to aim at achieving the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner (Chart 12). However, it is likely that the inflation rate will increase gradually toward fiscal 2023, as I mentioned earlier, but not reach the 2 percent target by then. It will take more time for prices to rise because the mindset and behavior based on the assumption that prices will not increase easily have been deeply entrenched among firms and households due to their experience of deflation in the past. Weak Private Consumption Due to Concern regarding the Future In addition, people have been concerned over possibilities of future tax hikes and lower pension payments. Also, their expectations for wage increases have not risen. I believe that these factors have led to a situation where households' appetite for spending and their tolerance of price rises have not been increasing. In this regard, I would like to share my views on the relationship between fiscal policy and economic activity. As the impact of COVID-19 has been exerting strong downward pressure on economic activity, countries around the world, including Japan, have been conducting large-scale fiscal spending. There is no doubt that such spending is indispensable to preventing the economy from slowing down further and bringing it back onto a growth path. At the same time, we must be aware that fiscal resources for such spending need to be secured into the future. The United Kingdom, for example, has announced that it will raise the corporate tax in 2023 for the first time in about 50 years to secure fiscal resources for taking measures in response to COVID-19. In the case of Japan, the funding of reconstruction following the Great East Japan Earthquake has been secured through a tax increase, particularly on income tax. In the process of securing fiscal resources to respond to COVID19, economic activity could be significantly affected. Thus, forthcoming discussions on fiscal soundness warrant close attention. I would now like to talk about wages. Labor force participation of women and seniors has increased due to the improved output gap and tightened labor market conditions under the Bank's large-scale monetary easing and the government's nimble fiscal policy since 2013. As a result, the number of employed persons, and in turn employee income, both increased up until the COVID-19 outbreak. On the other hand, the average rate of increase in wages per employee from 2013 to 2019 remained at 0.5 percent on a nominal basis and minus 0.5 percent on a real basis. Base pay has risen for eight consecutive years since 2014, and it is encouraging that this remains the case even with the impact of COVID-19; however, the negotiation results of firms for which base pay data are available for aggregation, as compiled by the Japanese Trade Union Confederation (Rengo), have shown that the average increase in base pay for the eight years is around 0.5 percent, remaining at a low level compared to the 2 percent price stability target. Path toward Wage Growth In order to achieve wage increases under such circumstances, it is necessary for firms to nimbly allocate their resources to promising business areas, and also for workers to receive appropriate recurrent education and become able to flexibly move among divisions within the firm or among different firms in seeking jobs with higher value added. On this point, attention should be paid to the possibility of such reform of the economic structure being delayed due to the impact of COVID-19. With economic activity being considerably pushed down, the government and the Bank have taken aggressive policy responses to support sustaining firms' businesses and employment. This has contained rises in the number of bankruptcies and the unemployment rate. In this regard, Japan's economy has been heading toward recovery while maintaining a certain continuity. On the other hand, I believe that these responses have enabled the continuation of ineffective business areas that have existed since before the pandemic. Therefore, having experienced the pandemic, it has become more important to proceed with the reform of Japan's economic structure by encouraging firms to make a shift to promising business areas, as the global economy has been undergoing further acceleration toward digitalization and decarbonization. Against this background, I expect that the Bank's monetary policy measures to underpin economic activity will help to support firms' efforts to allocate their funds and workers to areas with higher productivity by reallocating their internal resources, such as through business restructuring, and by cooperating or integrating with other firms. This will lead to an increase in corporate profits, and thus to wage increases. If households start to expect steady increases in wages, their concern regarding the future will ease and they will become encouraged to spend their income comfortably. As a result, they will become more tolerant of price rises, and firms that are able to pass on cost increases to prices more easily will deliver higher profitability, which in turn is expected to bring about further wage increases. Price Stability and Financial System Stability Next, I will present my view regarding the future conduct of monetary policy. The Bank has been pursuing powerful monetary easing for more than eight and a half years since the introduction of QQE in 2013. Nonetheless, partly due to the impact of COVID-19, it is unavoidable that this monetary easing will be prolonged further. To achieve the price stability target of 2 percent, the Bank is expected -- even after COVID-19 subsides -- to persistently continue with further effective and sustainable monetary easing, which reflects the findings of the assessment in March 2021. For monetary easing measures to have a sustained impact, maintaining the stability of the financial system is indispensable. In this regard, Japan's financial system has been maintaining stability on the whole, while COVID-19 continues to have a significant impact on economic and financial activity at home and abroad. Nevertheless, it is necessary to continue to pay attention to the possibility that credit costs will increase due to a delay in economic recovery at home and abroad. Also, downward pressure on financial institutions' core profitability is likely to persist as a trend even after COVID-19 subsides, reflecting the prolonged low interest rate environment and structural factors such as the decrease in loan demand due to, for example, the declining population. In this situation, attention should continue to be paid to the risk of a gradual pullback in financial intermediation and to the possibility that the vulnerability of the financial system will increase, mainly as a result of financial institutions' search for yield behavior. In March 2021, the Bank analyzed and assessed the impact of its monetary easing on economic activity and prices, as well as on the functioning of financial intermediation and market functioning. Based on the findings, it took policy actions to conduct further effective and sustainable monetary easing. It will continue to deliberate on whether there is room for more improvement in its conduct of monetary policy by carefully weighing the positive effects and side effects of monetary easing, taking account of developments in economic activity and prices as well as financial conditions at the time. In doing so, my view is that the Bank should pay due attention to the fact that side effects of monetary easing will accumulate over time. The Bank will continue to conduct monetary policy in an appropriate manner so as to fulfill the two missions of achieving price stability and ensuring the stability of the financial system. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Hyogo December 2, 2021 SUZUKI Hitoshi Bank of Japan IMF World Economic Outlook Chart 1 (as of October 2021)real GDP growth rate, y/y % chg. projection projection World -3.1 5.9 4.9 Advanced economies -4.5 5.2 4.5 United States -3.4 6.0 5.2 Euro area -6.3 5.0 4.3 United Kingdom -9.8 6.8 5.0 Japan -4.6 2.4 3.2 Emerging market and developing economies -2.1 6.4 5.1 Emerging and developing Asia -0.8 7.2 6.3 China 2.3 8.0 5.6 ASEAN-5 -3.4 2.9 5.8 Russia -3.0 4.7 2.9 Latin America and the Caribbean -7.0 6.3 3.0 CY Source: IMF, "World Economic Outlook." Chart 2 Japan's Real GDP s.a., q/q % chg. Q3 Real GDP Q4 Q1 Q2 Q3 5.4 2.8 -1.1 0.4 -0.8 [23.5] [11.8] [-4.1] [1.5] [-3.0] 5.3 2.2 -1.3 0.9 -1.1 6.5 2.7 -1.6 1.1 -1.4 Private non-residential investment -2.2 4.3 -1.0 2.2 -3.8 Private residential investment -5.7 - 0.0 1.1 2.0 -2.6 Public demand 2.5 1.6 -1.6 0.4 0.6 Exports of goods & services 7.4 11.7 2.4 3.2 -2.1 [ann., q/q] Private consumption Consumption of households (excluding imputed rent) Source: Cabinet Office. Chart 3 Real Exports and Real Imports s.a., CY 2015=100 Real exports Real imports CY 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Sources: Ministry of Finance; Bank of Japan. Note: Figures for 2021/Q4 are those for October. Consumption Developments Based on Credit Card Spending Chart 4 change from baseline, % -10 -20 Total -30 Retail -40 Service -50 July Jan. July Jan. July Source: Nowcast Inc./ JCB, Co., Ltd., "JCB Consumption NOW." Notes: 1. Figures are from the reference series in JCB Consumption NOW, which takes changes in the number of consumers into account. 2. The baseline is the average for the corresponding half of the month for 2016 through 2018. Chart 5 Labor Market Conditions 1.8 s.a., ratio s.a., % 1.6 1.4 1.2 1.0 0.8 0.6 0.4 Active job openings-to-applicants ratio for full-time employees (left scale) Active job openings-to-applicants ratio (left scale) Unemployment rate (right scale) 0.2 0.0 CY 2005 Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 6 CPI (All Items Less Fresh Food) y/y % chg. Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy -1 -2 Excluding the above factors -3 CY 20 16 CPI (all items less fresh food) Source: Ministry of Internal Affairs and Communications. Notes: 1. Figures for energy consist of those for petroleum products, electricity, and manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Chart 7 Inflation Expectations y/y, ann. avg., % 2.5 Households (over the next 5 years) 2.0 Firms (5 years ahead) 1.5 1.0 0.5 0.0 CY 20 05 Source: Bank of Japan. Notes: 1. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method. 2. Figures for firms are those for general prices in the Average of Enterprises' Inflation Outlook for all industries and enterprises in the Tankan. Chart 8 Outlook for Economic Activity and Prices as of October 2021 Forecasts of the Majority of Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) +3.0 to +3.6 0.0 to +0.2 [+3.4] [0.0] +3.5 to +4.0 +0.3 to +0.6 +2.7 to +3.0 +0.8 to +1.0 [+2.9] [+0.9] +2.6 to +2.9 +0.8 to +1.0 +1.2 to +1.4 +0.9 to +1.2 [+1.3] [+1.0] +1.2 to +1.4 +0.9 to +1.1 Fiscal 2021 Forecasts made in July 2021 Fiscal 2022 Forecasts made in July 2021 Fiscal 2023 Forecasts made in July 2021 Source: Bank of Japan, "October 2021 Outlook for Economic Activity and Prices." Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -namely, the figure to which they attach the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. The reduction in mobile phone charges by major carriers conducted in spring 2021 is estimated to directly push down the CPI for fiscal 2021 by around 1.1 percentage points. 4. In August 2021, the base year of the CPI was changed from 2015 to 2020, and figures for the year-on-year rate of change from January 2021 onward were retroactively revised. Accordingly, the year-on-year rate of change in the CPI for all items excluding fresh food for the April-June quarter of 2021 was revised downward by around 0.7 percentage points; namely, from around 0.1 percent (2015-base) to minus 0.6 percent (2020-base). This is mainly because the negative contribution of mobile phone charges to the CPI expanded from around 0.6 percentage points to around 1.1 percentage points. The changes to the CPI forecasts in the October 2021 Outlook Report from the previous ones are largely attributable to the rebasing of the CPI. Chart 9 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Active purchases of JGBs and T-Bills U.S. Dollar Funds-Supplying Operations Lowering Risk Premia in Asset Markets Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen Chart 10 The Bank's Strategy on Climate Change Chart 11 Funds-Supplying Operations to Support Financing for Climate Change Responses From a central bank standpoint, the Bank provides funds to financial institutions for investment or loans they make to address climate change based on their own decisions. Amid the uncertain external environment, it can respond flexibly to changes in circumstances while avoiding direct involvement in micro-level resource allocation as much as possible. Eligible Counterparties Eligible Investment/Loans • • Counterparties make investment/loans based on their own decisions. Discipline will be exercised through a certain level of disclosure. Financial institutions that disclose a certain level of information on their efforts to address climate change Of the investment/loans made by counterparties as part of their efforts, those that contribute to Japan's actions to address climate change Terms and Conditions Long-term support for financial institutions' efforts • Interest rate: 0% -- The measure will fall under Category III (applied interest rate: 0%) in the Interest Scheme to Promote Lending • Twice as much as the amount outstanding of funds that counterparties receive will be added to the Macro Add-on Balances in their current accounts at the Bank • Duration of fund-provisioning: 1 year, rollovers can be made until the end of the implementation period Effectively, counterparties can receive long-term financing from the Bank • Implementation period: in principle, until the end of fiscal 2030 Chart 12 Policy Actions to Conduct Further Effective and Sustainable Monetary Easing Aim: Further effective and sustainable monetary easing by "enhancing sustainability of monetary easing" & "nimble responses to changes in the situation" 1. Establishment of the Interest Scheme to Promote Lending Enable the Bank to cut short- and long-term interest rates more nimbly while considering the impact on the functioning of financial intermediation 2. Clarification of the range of fluctuations in long-term interest rates (±0.25%) Strike a balance between securing effects of monetary easing and maintaining market functioning <Interest Scheme to Promote Lending> Apply incentives (linked to the short-term policy interest rate) to financial institutions' (FIs') current account balances, corresponding to the amount outstanding of funds provided through fund-provisioning measures to promote lending ― Mitigate the impact on FIs' profits at the time of rate cuts depending on the amount of lending ― The applied interest rates and the eligible fund-provisioning measures for each category will be changed as necessary at MPMs depending on the situation. <Decision at the March 2021 MPM> Introduction of "fixed-rate purchase operations for consecutive days" Applied interest rates Category 3. New guideline for ETF and J-REIT purchases Purchase ETFs and J-REITs as necessary with upper limits of about 12 tril. yen and about 180 bil. yen, respectively, on annual paces of increase in their amounts outstanding (abolish the guideline for purchasing these assets, in principle, at annual paces of increase in their amounts outstanding of about 6 tril. yen and about 90 bil. yen, respectively) Purchase only ETFs tracking the TOPIX I 0.2% II Category III • Special Operations in Response to COVID-19, when funds are provided against loans made by FIs on their own • Special Operations in Response to COVID-19, when funds are provided against loans other than those for Category I and against private debt pledged as collateral • • Loan Support Program Operation to Support FIs in Disaster Areas Higher than the rate for Category II 0.1% Category Eligible fund-provisioning measures Absolute value of the short-term policy interest rate 0% Lower than the rate for Category II
|
bank of japan
| 2,021 | 12 |
Speech (via webcast) by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Oita, 1 December 2021.
|
December 1, 2021 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Oita ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity 1. Developments regarding the novel coronavirus (COVID-19) I would like to begin my speech by talking about developments regarding COVID-19. The number of confirmed new cases of COVID-19 continues to move up and down within each country and region and varies considerably across them. It has decreased to a low level on the whole from summer 2021. Currently, new cases are resurging significantly in European countries as well as Russia, and are also rising in the United States. On the other hand, the status of infections for most of Asia and Latin America is relatively moderate (Chart 1). Meanwhile, although some emerging economies are falling behind in vaccinations, full vaccination rates are high in many advanced economies. The significant global drop in severe cases and confirmed deaths can be regarded as a positive sign. The number of new cases in Japan is seeing great improvement, as evidenced by the weekly average declining to a considerable extent recently after soaring well above 22,000 persons in mid-August. That said, the situation warrants careful attention, as concern over the spread of a new variant is increasing at the moment. 2. Recent developments in economic activity at home and abroad Although the COVID-19 situation continues to entail uncertainties, economic activity has started to show signs of change, including the positive sign that I just mentioned. In what follows, I would like to point to three key factors that I consider as common in recent global economic conditions, including those in Japan. The first is the bottoming-out of and pick-up in services consumption. In the past when the number of confirmed new cases increased, firms in numerous industries within face-to-face services -- such as eating and drinking, accommodations, and entertainment -- were forced to virtually suspend their business operations in many countries and regions given the implementation of public health measures to constrain people's movement. However, mainly owing to the progress with vaccinations, firms in these industries have in many cases resumed their business activities and business conditions have started to pick up accordingly (Chart 2). Although this is a positive development for the economy, there are high uncertainties over the course of COVID-19 and it would be overly optimistic to expect that services consumption would promptly return to the pre-pandemic level. In fact, Japan has not yet experienced "revenge spending" -- which describes a situation where consumption that was curbed during the pandemic shoots up, triggered by a resumption in economic activity -although this was anticipated. The second factor is firms' active stance toward fixed investment. The global spread of COVID-19 has brought great change to household and corporate behavior, including working style. This change has created firms' new demand for fixed investment, particularly for digital transformation (DX). Moreover, there is a possibility that firms' demand for fixed investment to achieve carbon neutrality will also widely expand, partly due to an increased global awareness of climate change issues, as suggested by the fact that scientific achievements related to climate change won the 2021 Nobel Prize in Physics. In the case of Japan, business fixed investment has picked up to date (Chart 3). If demand for it remains firm, this will likely provide business opportunities for the manufacturing industry, which has displayed strong international competitiveness in capital goods, and in turn contribute to expanding firms' exports and production. Meanwhile, the Bank of Japan will persistently continue with powerful monetary easing under the current framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, with a view to achieving the 2 percent price stability target. This could also be a factor that will support new demand for business fixed investment. The two factors I have described so far are encouraging developments for the global economy. I will next focus on a point that may be a matter of concern in considering future economic conditions, and therefore this should continue to warrant careful attention. The third factor is the effects of supply-side constraints in the economy. Since 2020, the global economy including Japan has faced various supply-side constraints (Chart 4). Since around the second half of fiscal 2020, the shortage of semiconductors for automobiles has become a major issue. With a plunge in automobile sales at the start of the COVID-19 pandemic, semiconductor manufacturers worldwide curbed their production of automotive semiconductors, which are considered to generate relatively narrow profit margins. However, demand for automobiles in fact surged unexpectedly thereafter, mainly due to people's behavioral changes during the pandemic to avoid close-contact settings as much as possible. This consequently gave rise to the supply shortage of automotive semiconductors. After the turn of 2021, this shortage grew further, partly affected by natural disasters and a fire accident at a semiconductor factory in Japan. Then, through the summer, although the supply shortage that stemmed from the adverse incidents I just mentioned was being alleviated, the surge in COVID-19 cases in Southeast Asian countries in particular caused factory shutdowns; thus, production not only of semiconductors but also of other automobile-related parts was suspended, resulting in the materialization of other types of supply-side constraints. The constraints not only have been seen in the automobile industry but also have begun to feed into the industries of other products, such as white goods, and this in turn has pushed down firms' exports and production (Charts 5 and 6). Indeed, it was the unexpected surge in demand that severely tightened the supply-side constraints; however, the contributing factors to the constraints are complex, including the stagnation of maritime logistics that stemmed from the malfunctioning of ports due to the spread of COVID-19 among longshore workers. Moreover, it appears to me that there are growing uncertainties regarding prospects for the removal of supply-side constraints, as they depend on the future course of COVID-19. For now, I maintain the view that these supply-side constraints are temporary; that said, I will carefully monitor future developments. B. Prices 1. Price developments abroad Let me now turn to prices. Inflation rates in the United States and European countries have been kept above 2 percent, the level at which their central banks aim (Chart 7). These upswings in inflation rates seem to be largely attributable to the increase in energy prices such as for crude oil and natural gas, in addition to the global supply-side constraints, which I just explained. Moreover, particularly in the United States, those who had been temporarily out of the labor market following the outbreak of COVID-19 have been returning at a slower pace than expected; therefore, labor supply has been lagging behind increased labor demand, and this in turn has been increasing the upward pressure on wages. Nevertheless, regarding these rises in inflation rates in the United States and European countries, the current dominant view among their respective authorities is that, in terms of both the demand and supply sides, the rises reflect temporary factors associated with the pandemic, and thus the high inflation rates are quite unlikely to feed into medium- to longterm inflationary pressure, such as an increase in medium- to long-term inflation expectations. 2. Price developments in Japan and their outlook The inflation rate in Japan remains at a low level of around 0 percent, as evidenced by the fact that the year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food for October 2021 -- the latest month for which data are available -- was 0.1 percent. This is largely a reflection of such factors as the reduction in mobile phone charges in April. When excluding these temporary effects, the rate of increase would rise to around 1.5 percent, and its pace has accelerated recently, mainly due to the rise in energy prices (Chart 8). Prior to the pandemic, I personally had a cautious view regarding the outlook for prices in Japan. To elaborate, although Japan's economy was no longer in deflation, I believed that the inflation rate would hover around 0 percent, as a considerable amount of deflationary pressure remained. However, I now think that there is a higher probability that the inflation rate will increase, based on the following factors. The first is the change in firms' price-setting behavior. Amid the pandemic, firms, especially those in the consumption-related services industry, have faced a rapid and large-scale decline in demand. However, it appears that they have not engaged in intense price competition, unlike in the past when they were met with a large decline in demand. Instead, firms have lowered prices only marginally or left them unchanged. One reason for this could be that corporate managers have judged that price discounts will not lead to increased sales, given that the decline in demand this time is due to the implementation of public health measures, which is an artificial factor, and to people's vigilance against COVID-19. On the policy front, it is also possible that (1) various government subsidies as well as effectively interest-free and unsecured loans and (2) the Bank's measures to support corporate financing, such as the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) -- hereafter, the COVID-19 Special Operations -- have helped firms uphold their businesses, giving incentive for them to avoid intense price competition. Furthermore, now that the COVID-19 situation has started to calm down, firms are gradually beginning to raise the prices of their goods and services. Some anecdotes suggest that the pandemic has motivated an increasing number of firms, especially those in the consumptionrelated industry, to change their "low-margin, high-turnover" business models -- which were quite common in the past -- taking into account structural changes in customer needs. These firms have become oriented toward engaging in business with high added value and wide margins, and have even increased their sales. The examples I have highlighted seem to indicate a change in firms' price-setting behavior. The second factor, although this overlaps with what I pointed to earlier as one factor affecting global economic activity, is the improvement in firms' growth prospects backed by their active stance toward fixed investment. When viewed in the context of the capital stock cycle, I am under the impression that firms have started to take an active stance toward fixed investment, along with upward revisions of their earnings projections, or, in more technical terms, the expected growth rates (Chart 9). The fact that firms have come to take a positive view of their business conditions suggests that a virtuous cycle from profits to fixed investment is starting to operate, where they aim to achieve higher profitability by raising the prices of their goods and services. The higher margins earned by firms through price rises could lead to wage increases and are expected to serve as a great catalyst for achieving the 2 percent price stability target. The third factor is the possibility of future energy prices remaining high. Increasing energy prices have contributed significantly to the recent rises in inflation rates abroad. Likewise, higher energy prices account for about half of the recent rise in Japan's inflation rate, excluding factors such as the effects of the reduction in mobile phone charges. Future developments in energy prices entail uncertainties; there may be a reversal in such prices at some point, causing the inflation rate to decline. However, I believe that the possibility of the increase in energy prices continuing for a relatively long period cannot be ruled out, unlike in the past. This is due to the urge to shift to using alternative energy, reflecting global efforts to address climate change risks. Major countries are working to commit to significant reductions in carbon dioxide emissions in order to address climate change risks. Against this background, countries share a common understanding of the need to globally switch energy sources from fossil fuels such as oil and coal to alternative energy, such as solar power, wind power, hydropower, and geothermal power. In the past when demand for crude oil grew, the rise in energy prices was controlled as crude oil supply increased. At present, however, with the trend of seeking alternative energy, crude oil supply is limited and fails to meet the demand; as a result, energy prices have been rising to date. Such developments are likely to persist for a long period. Meanwhile, medium- to long-term inflation expectations in Japan have picked up and are likely to follow an uptrend (Chart 10). 3. Keys to assessing price developments in the post-COVID-19 era As I just described, there is a possibility that the inflation rate in Japan will increase. For inflation to be favorable to the vast majority of people in Japan, I think that an increase in wage inflation will be necessary. At present, unfortunately, indications of such an increase have not been seen clearly. Nevertheless, I am paying close attention to the possibility of behavioral changes within firms and households drawn from the experience of the pandemic altering people's price perception, thereby changing firms' wage setting in a way that could lead to wage increases. Although COVID-19 will subside eventually, it is difficult for the time being to imagine the virus being eradicated. While vaccinations are expected to have a reasonable effect, the faceto-face services industry in particular -- such as eating and drinking, accommodations, and entertainment -- may need to continue to bear significant costs related to infection control, considering that living with COVID-19 is unavoidable. In addition, given the increasingly aging population in Japan, one possibility is that consumption of high value-added goods and services, even at high prices, will drive overall private consumption. To provide such high value-added goods and services, I believe that firms may start to pay higher wages to their employees. With these factors in mind, I consider the post-COVID-19 phase to be a great opportunity for firms, particularly those in the services industry, to raise sales prices and hence their employees' wages. C. Exchange Rate Impact on Prices I would now like to say a few words about the exchange rate impact, mainly on prices, which has become a hot topic in the media lately. Recently, regarding the notion that the yen's depreciation will lead to a rising inflation rate in Japan, some voices in the media have pointed out the risk of stagflation due to "unhealthy" yen depreciation, while others say that the Bank should urgently revise its monetary policy to stop developments from moving in that direction. The precise definition of stagflation varies among economists, but it is generally taken to refer to the phenomenon in which a sustained rise in inflation and a deterioration in an economy occur simultaneously. Based on the medians of the Policy Board members' forecasts for Japan's economy and inflation -- as shown in the Bank's Outlook for Economic Activity and Prices (Outlook Report) released on October 28, 2021 -- the real GDP growth rate is projected to be 3.4 percent for fiscal 2021, 2.9 percent for fiscal 2022, and 1.3 percent for fiscal 2023. The year-on-year rate of increase in the CPI (less fresh food) is projected to be 0.0 percent in fiscal 2021, shifting to 0.9 percent in fiscal 2022 and 1.0 percent in fiscal 2023. Given this outlook, I think that the economy is far from stagflation, both now and down the road. This is a completely different situation from the first oil crisis, when real GDP experienced negative growth and consumer prices recorded a year-on-year increase of over 20 percent. I will refrain from commenting specifically on exchange rate levels. In general, though, the effects of a weaker yen on Japan's economy are determined by the interaction of a range of factors, and thus they can change depending on developments in economic activity and prices at home and abroad at the time. Having said that, I do not believe that recent exchange rate movements indicate a situation of "unhealthy" yen depreciation that could lead to stagflation. In fact, I see the yen's recent depreciation as having some positive aspects for Japan; it is supporting business fixed investment by contributing to the increase in profits of Japanese firms' overseas subsidiaries and to Japanese exporters' bottom lines. It is also encouraging overseas firms to consider establishing a corporate presence in Japan, such as by building manufacturing facilities. In my view, the yen exchange rate has been moving within a relatively narrow range over the medium to long term (Chart 11). From the perspective of interest rate parity theory, it can also be said that the yen exchange rate has stayed within a relatively narrow range given that market participants do not expect yield differentials between the yen and currencies in the United States and European countries to expand significantly. Many central banks, including the Bank of Japan, have not set exchange rate levels as a monetary policy target, but rather conduct monetary policy to aim at a target level of 2 percent inflation so as to achieve price stability. The fact that major advanced economies are all aiming at the 2 percent target level may be one of the factors that are stabilizing exchange rates. II. Monetary Policy The Bank of Japan will persistently continue with accommodative monetary policy until the 2 percent price stability target is achieved (Chart 12). As responses to COVID-19, the Bank, in cooperation with the government, has taken measures to shore up the economy since 2020. The government has promoted credit guarantees as well as effectively interest-free and unsecured loans to support financial institutions in extending credit, while the Bank has conducted the COVID-19 Special Operations, among other measures. Thanks in part to all these measures, firms' financial conditions remain accommodative on the whole so far. Although some firms are facing tight financing, the number of corporate bankruptcies has been at an extremely low level. I believe that the Bank's policy responses, coupled with those by the government, have been effective in propping up the economy. The Bank will be deliberating on the treatment of the COVID-19 Special Operations from April 2022 onward while carefully assessing the COVID-19 situation and its impact on corporate financing. With that said, I would like to touch on some issues that I think warrant attention with regard to the Bank's policy responses to the pandemic. First, I would like to underscore that, for the time being, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary, with a view to supporting firms' ability to sustain their businesses. If the number of COVID19 cases resurges and it once again becomes inevitable to have public health measures in place, for example, it could become necessary to support corporate financing. The role of the COVID-19 Special Operations largely depends on developments relative to the pandemic, so it is necessary to assess such developments and their impact on corporate financing when deliberating on the next steps. Meanwhile, I am aware that there is a view among experts regarding the so-called zombie firm argument, which suggests that the life of firms that had low profitability and carried a high risk of future default even before the pandemic might be artificially extended. If such a situation materialized, there is concern that this would inhibit industrial restructuring and the startup of new businesses, which in turn would hinder economic revitalization, particularly in regional economies. Regarding the number of corporate bankruptcies since the outbreak of the pandemic in 2020, while it is favorable that it has stayed at a historically low level, I also consider it important for new businesses to rise in areas where growth can be expected. Furthermore, in terms of the financial system, I think that attention needs to be paid to whether or not corporate debt accumulated during the pandemic will turn into non-performing loans down the road, emerging as a risk to the financial system. This is a key management issue for regional financial institutions as well. I believe that these institutions, which have operating bases that are closely connected with the region, have a particularly critical role in terms of discerning the financial soundness of borrower firms. If the issue is to revitalize underperforming firms, the role of corporate restructuring funds and other private-sector funds will also be crucial. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Oita December 1, 2021 ADACHI Seiji Member of the Policy Board Bank of Japan Chart 1 Confirmed New Cases of COVID-19 Overseas Japan ten thous. persons United States Europe India Latin America Other emerging economies thous. persons thous. persons Confirmed new cases (per day, left scale) 5.0 Severe cases (right scale) 4.0 4.5 3.5 3.0 2.5 2.0 1.5 1.0 1-Feb-20 5.5 0.5 1-Aug-20 1-Feb-21 1-Aug-21 Feb-21 0.0 Apr-21 Jun-21 Aug-21 Oct-21 Notes: 1. In the left panel, figures for the United States, Taiwan, and Hong Kong are from the Centers for Disease Control and Prevention (CDC), the Taiwan Ministry of Health and Welfare, and the Hong Kong Centre for Health Protection, Department of Health, respectively. All other figures are from the World Health Organization (WHO). Figures for Europe are the sum of figures for the European Union and the United Kingdom. Figures for Latin America are the sum of figures for the major economies in the region. Figures for other emerging economies are the sum of figures for South Africa, Russia, Turkey, and the major economies in the NIEs, ASEAN, and the Middle East. Figures show 7-day backward moving averages. 2. In the right panel, figures for confirmed new cases are weekly averages. Figures for severe cases are those at the end of the week. Sources: CEIC; Ministry of Health, Labour and Welfare. Business Conditions of the Services Industry at Home and Abroad Business Conditions in Japan PMIs for the United States and the Euro Area DI ("favorable" - "unfavorable"), % points -20 United States -60 Services for individuals -100 CY 06 s.a., DI -40 -80 Chart 2 Euro area Accommodations, eating & drinking services 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Note: Figures are for enterprises of all sizes from the Tankan (Short-Term Economic Survey of Enterprises in Japan). Source: Bank of Japan. Note: Figures are based on the Services Business Activity Index. Source: IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.). Chart 3 Business Fixed Investment s.a., ann., tril. yen s.a., CY 2015=100 Private nonresidential investment (SNA, real, left scale) Domestic shipments and imports of capital goods (right scale) Private construction completed (nonresidential, real, right scale) CY 06 Notes: 1. Figures for 2021/Q3 are July-August averages. 2. Figures for real private construction completed are based on Bank staff calculations using the construction cost deflators. Sources: Cabinet Office; Ministry of Economy, Trade and Industry (METI); Ministry of Land, Infrastructure, Transport and Tourism. Chart 4 Supply-Side Constraints Suppliers' Delivery Times PMI s.a., DI Global United States Euro area Longer delivery times Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Note: The suppliers' delivery times PMI is the suppliers' delivery times index in the Manufacturing PMI. Figures for the global economy are the J.P.Morgan Global Manufacturing PMI. Source: IHS Markit (© and database right IHS Markit Ltd 2021. All rights reserved.). Chart 5 World Trade Volume s.a., CY 2010=100 CY 06 Note: Figures are for world real imports. The figure for 2021/Q3 is the July-August average. Source: CPB Netherlands Bureau for Economic Policy Analysis. Chart 6 Industrial Production s.a., CY 2015=100 CY 06 Source: METI. Chart 7 Price Developments at Home and Abroad Japan United States y/y % chg. Temporary factors Energy <7%> Services <50%> Goods <40%> CPI (less fresh food) <100%> -1 -1 -2 -2 -3 CY 16 Energy <10%> Services <45%> Goods <45%> HICP <100%> Notes: 1. Figures for services include administered prices. 2. Figures for temporary factors for Japan are Bank staff estimates and consist of the effects of the consumption tax hike, free education policies, the "Go To Travel" campaign, and mobile phone charges. 3. Figures in angular brackets show the share of each component. Sources: Ministry of Internal Affairs and Communications; Haver. -1 -2 -3 CY 16 -3 CY 16 Energy <7%> Services <66%> Goods <28%> CPI <100%> Euro Area y/y % chg. y/y % chg. Chart 8 CPI for All Items Less Fresh Food y/y % chg. Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy -1 -2 Excluding the above factors CPI (less fresh food) -3 CY 16 Notes: 1. Figures for energy consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 9 Capital Stock Cycles and Expected Growth Rates business fixed investment, y/y % chg. Investment-capital stock ratio at the end of FY 2020 FY 2021 -5 1.5% 1% 0.5% -10 0% Expected growth rate: -2% -1% -15 9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0 investment-capital stock ratio at the end of the previous fiscal year, % Note: Each broken line represents the combination of the rate of change in business fixed investment and the investment-capital stock ratio at a certain expected growth rate. The figure for fiscal 2021 is that for 2021/Q2. Source: Cabinet Office. Chart 10 Inflation Expectations 3.0 y/y % chg. Long-term (5 to 10 years ahead) 2.5 Medium-term (3 to 4 years ahead) 2.0 1.5 1.0 0.5 0.0 CY 90 20 21 Note: Figures are simple averages of the estimated inflation expectations for their respective horizons. Sources: Bank of Japan Working Paper Series, no.19-E-6; Bank of Japan Research Laboratory Series, no.21-E-1; Bloomberg; Consensus Economics, "Consensus Forecasts"; QUICK, "QUICK Monthly Market Survey <Bonds>," "QUICK Tankan"; Japan Center for Economic Research; Wolters Kluwer, "Blue Chip Economic Indicators"; Cabinet Office; Ministry of Finance; Ministry of Internal Affairs and Communications; Bank of Japan. Chart 11 Exchange Rates monthly avg., CY 2010＝100 monthly avg., inverted, yen Yen appreciation Yen depreciation U.S. dollar/yen (left scale) Nominal effective exchange rate of the yen (right scale) CY 08 Sources: BIS; Bank of Japan. Chart 12 Further Effective and Sustainable Monetary Easing: Policy Actions To achieve the price stability target of 2 percent, the Bank will (1) continue with monetary easing in a sustainable manner and (2) make nimble and effective responses without hesitation to counter changes in the situation. <Interest Scheme to Promote Lending> Conduct of Yield Curve Control Establishment of the Interest Scheme to Promote Lending (see the box on the right) Clarification of the range of fluctuations in long‐term interest rates Expect long‐term interest rates to move within the range of around ±0.25% from the target level Introduction of "fixed‐rate purchase operations for consecutive days" Apply incentives (linked to the short‐term policy interest rate) to financial institutions' current account balances, corresponding to the amount outstanding of funds provided through fund‐provisioning measures to promote lending ― Mi gate the impact on financial ins tu ons' profits at the me of rate cuts depending on the amount of lending ― The applied interest rates and the eligible fund‐provisioning measures for each category will be changed as necessary at MPMs depending on the situation. <Decision at the March 2021 MPM> Strengthen the fixed‐rate purchase operations, which stop a significant rise in interest rates Applied interest rate Conduct for the time being Prioritize stabilizing the entire yield curve at a low level under the continuing impact of COVID‐19 in particular ETF and J‐REIT Purchases Category I Category * ETFs： about 12 tril. yen J‐REITs： about 180 bil. yen Category II III Financial System and Bank Examination Dept. staff will make a briefing at the MPMs when the Outlook Report is decided (four times a year). Eligible fund‐provisioning measure • Special Operations in Response to COVID‐19, when funds are provided against loans made by financial institutions on their own • Special Operations in Response to COVID‐19, when funds are provided against loans other than those for Category I and against private debt pledged as collateral • • Loan Support Program Operation to Support Financial Institutions in Disaster Areas Higher than the rate for Category II 0.1% Purchase as necessary with upper limits* on the annual paces of increase, and maintain these limits even after COVID‐19 subsides Purchase only ETFs tracking the Tokyo Stock Price Index (TOPIX) 0.2% Absolute value of the short‐term policy interest rate 0% Lower than the rate for Category II ⇒ Enable the Bank to cut short‐ and long‐term interest rates more nimbly while considering the impact on the functioning of financial intermediation In addition, adjustments to the Complementary Deposit Facility will be made to narrow the gap between the actual Policy‐Rate Balances and the "hypothetical" Policy‐Rate Balances.
|
bank of japan
| 2,021 | 12 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Tokushima, 8 December 2021.
|
December 8, 2021 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Tokushima AMAMIYA Masayoshi 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 leaders in administrative, financial, and economic areas in Tokushima Prefecture. I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Tokushima Office and Takamatsu Branch. Since the outbreak of the novel coronavirus (COVID-19), roughly two years ago, we have had to exchange views online when holding meetings with local and business leaders across Japan. Today, I am very grateful to visit here to meet with you face-to-face at this gathering and gain insights from your positive efforts toward boosting the local economy under the severe COVID-19 pandemic. At the outset of this meeting, I would like to explain the Bank's view on economic and price developments, and also talk about its thinking on recent financial conditions surrounding firms and on the conduct of monetary policy. I. Economic Developments Baseline Scenario I will start by talking about economic developments. It is still unclear how COVID-19 will affect domestic and overseas economies, partly due to the emergence of a new variant named Omicron. As I will mention later, the outlook for the global economy also is unclear because of various factors such as inflation. Since we are in this highly uncertain situation, I would like to first explain the baseline scenario of the outlook for Japan's economy and then elaborate on risk factors that could cause a deviation from the scenario (Chart 1). Looking at developments in Japan's economy, real GDP rose from the bottom hit for the April-June quarter of 2020 but has remained sluggish since the turn of this year. Most recently, real GDP exhibited relatively large negative growth for the July-September quarter. One factor behind this is prolonged subdued private consumption, mainly of face-to-face services such as eating and drinking as well as accommodations, due to the spread of the Delta variant this summer. Another factor is that exports and production, which had been solid, became weak, mainly for automobile-related goods, due to delays in parts procurement that reflect the spread of COVID-19 in Southeast Asia. In addition, such supply-side constraints temporarily pushed down consumption of durable goods and business fixed investment, and this also contributed to negative GDP growth. That said, in the Bank's baseline scenario, the recovery trend in Japan's economy is likely to gradually become evident toward next year. This outlook is based on the following three points. First, it is projected that the effects of supply-side constraints will be transitory and thus the virtuous cycle in the corporate sector will be maintained in Japan (Chart 2). Specifically, the recent weak exports and production are caused by supply-side constraints such as parts shortages. On the back of continued strong recovery in overseas economies, particularly advanced economies, Japanese firms are facing solid demand, mainly for digital-related goods. Therefore, as supply of parts resumes, exports and production are likely to increase firmly again. In fact, the COVID-19 situation in Southeast Asia, which triggered the current supply-chain disruptions, has been on an improving trend, and factory production has been resuming in the region. It is expected that a recovery in production to catch up with demand and the restocking of inventories that had been reduced to a large degree will boost production activity. In this situation, corporate profits, which already have recovered to the pre-pandemic level, are likely to increase further. Business fixed investment also is projected to become active, partly due to firms' efforts toward digitalization and decarbonization. The second point is that private consumption finally has been picking up after a prolonged severe phase (Chart 3). In Japan, the vaccination rate has risen to a level above that in the United States and Europe and the number of confirmed cases has declined. Against this background, public health measures, including the state of emergency and priority measures to prevent the spread of disease, have been lifted since October. Timely data, such as the Economy Watchers Survey and location data from mobile phones, show that private consumption, including that of face-to-face services such as eating and drinking as well as accommodations, has been heading toward recovery since October. Meanwhile, employee income has turned to an increase, reflecting a rise in the number of regular employees and wage increases in industries with acute labor shortage. In addition, a considerable amount of savings has accumulated in the overall household sector as a result of constrained consumption activity during the pandemic. If people use their income and savings to consume, for example, face-to-face services they had cut back, a virtuous cycle will operate in which such an increase in spending will bring about a sales increase at consumption-related firms and wage increases for those working there, and thereby encourage a further increase in consumption. The third point is the effects of the government's economic stimulus package formulated last month. While the extent to which the package will push up the economy also depends on the supplementary budget and thus should be closely examined, there will likely be the synergy effects of monetary and fiscal policy mix. That is, the Bank has pursued powerful monetary easing measures so that short- and long-term interest rates will be stable at low levels. In this situation, an expansion in fiscal spending is likely to have greater stimulus effects without leading to a rise in interest rates. It is therefore expected that the latest stimulus package will underpin the economy through the synergy effects. Taking these points into account, it is projected as a baseline scenario that the recovery trend in the overall economy will gradually become evident through next year, as downward pressure stemming from supply-side constraints and COVID-19 wanes and the effects of the economic stimulus package materialize. Risk Factors However, as I mentioned at the outset, the outlook for Japan's economy entails extremely high uncertainties. The following risk factors warrant attention. First, there remain uncertainties over whether services consumption will pick up steadily during the COVID-19 era. As explained, consumption of face-to-face services, such as eating and drinking as well as accommodations, has been picking up. That said, anecdotal information from firms suggests that vigilance against COVID-19 is sticky and thus people are reluctant to hold large year-end parties or go on a group trip. In some European countries, the number of confirmed cases has resurged despite progress with vaccinations, and cases of the new Omicron variant, which is considered to be highly contagious, have been detected. Given persistent risk aversion of households in Japan, mainly of seniors, the extent to which consumption will recover continues to warrant attention. The second factor is a risk that the effects of supply-side constraints will be amplified or prolonged (Chart 4). As mentioned earlier, the issue of parts shortages caused by the spread of COVID-19 in Southeast Asia has started to dissipate. That said, there remains a fundamental problem that firms' supply capacity has not been able to keep up with the surge in demand, mainly for digital-related goods. In order to solve this problem, enhancing supply capacity through business fixed investment is essential, and this will likely take some time. In particular, supply and demand conditions of semiconductors have been tighter than ever because of the existing trend of acceleration in digitalization, as seen in the spread of 5G networks and electrification of vehicles, and because of an expansion in online demand due to the outbreak of the pandemic. Therefore, a possible recovery in production might be hampered by shortages of parts such as semiconductors. Besides parts shortages, various supply-side constraints have emerged on a global basis. These include stagnation of logistical services, such as shipping, and labor shortage in the United States, for example. As the impact of COVID-19 wanes, the demand imbalance and bottlenecks on the production and logistics sides are likely to essentially head toward a resolution. That said, it is necessary to carefully examine the extent to which supply-side constraints will remain. The third factor concerns developments in overseas economies. Supported by aggressive macroeconomic policies taken in advanced economies, overseas economies are likely to continue recovering steadily on the whole, albeit with variation across countries and regions. That said, relatively high inflation has continued in the United States and Europe for longer than initially expected, and market participants are speculating that central banks in those economies might reduce monetary accommodation earlier than expected. In the latest World Economic Outlook, the International Monetary Fund (IMF) warns that "great uncertainty surrounds inflation prospects." In addition to the debt problems in the real estate sector, the Chinese economy entails a risk of a decline in medium- to long-term growth potential. These developments should be monitored, as they could affect global financial markets, for example, and in turn weigh on overseas economies. In addition, let me touch on the impact of a rise in commodity prices as a risk related to overseas economies (Chart 5). Prices of a wide range of commodities, such as crude oil, natural gas, and copper, have increased clearly of late. In the meantime, the depreciation of the yen has also pushed up commodity prices in yen terms. Since Japan depends heavily on imported resources, the rise in commodity prices in itself means an outflow of income to resource-exporting countries. However, this is only one aspect of the impact of the rise in commodity prices. In order to examine the impact on Japan's economy as a whole, it is important to also take into account the economic environment behind this rise. For example, if the rise in commodity prices is due to an expansion in demand triggered by the recovery in the global economy, firms engaging in global business will benefit from an increase in exports and improvement in profits earned abroad. If these firms increase business fixed investment and raise their employees' wages, this will also have a positive impact on Japan's economy as a whole. On this point, various factors have been involved in the current rise in commodity prices. Quantitative analysis by the Bank's staff shows that, although the rise is partly due to supply factors, such as the reduction in oil production by oil-producing countries, it seems to be basically due to demand factors, such as the expansion in demand for resources stemming from the recovery in the global economy. 1 While this result needs to be interpreted with considerable latitude, it is consistent with the forecasts made by international organizations, including the IMF, that the global economy will grow well above the long-term average this year. It is therefore considered that the improving trend in corporate profits will not be hampered for Japan's economy as a whole, mainly thanks to firms in the manufacturing sector, which tend to receive greater benefit from the global expansion in demand. That said, the effects of the expansion on corporate profits vary across economic entities, depending on industry and firm size. For example, the negative impact of an increase in import costs stemming from the rise in commodity prices is more likely to be significant for nonmanufacturing or small and medium-sized firms because many of them are domestic demand-oriented. The Bank will closely monitor whether or not the current rise in commodity prices impedes the recovery trend in Japan's economy, mainly through deterioration in profits of sectors that are adversely affected. For details, see Box 2 in the July 2021 Outlook for Economic Activity and Prices (Outlook Report). II. Price Developments Next, let me talk about price developments (Chart 6). Commodity prices have risen, as I just mentioned, and global supply and demand conditions of goods have tightened. Against this background, the producer price index (PPI) in Japan -which captures prices of goods traded within the domestic corporate sector -- reached 8 percent for October on a year-on-year basis, the highest level since early 1981 in the aftermath of the second oil shock. On the other hand, the year-on-year rate of change in the consumer price index (CPI) -- which captures domestic consumer prices of goods and services -- for all items excluding fresh food has been at around 0 percent recently, despite the rise in energy prices. This is notably low considering that the year-on-year rate of increase in consumer prices has been at around 6 percent in the United States and around 5 percent in Europe. What lies behind the weak consumer prices in Japan are structural factors unique to the country, in addition to the slower recovery in demand compared with the United States and Europe, mainly for private consumption. Unlike firms in the United States and other countries, Japanese firms continued to hoard their regular workers in particular even during the pandemic, while making use of such programs as employment adjustment subsidies. This suggests that they have the capacity to swiftly expand supply of products and services in response to a recovery in demand. In addition, a mindset and behavior based on the assumption that prices will not increase easily have remained deeply entrenched among firms and households in Japan due to their experience of deflation in the past. Nevertheless, the underlying inflationary pressure has been increasing in Japan, albeit gradually (Chart 7). For instance, mobile phone charges alone have pushed down the rate of change in the overall CPI by about 1.5 percentage points, mainly because major carriers launched low-cost mobile phone plans this spring. When excluding such temporary factors, the rate of change in the CPI seems to be increasing moderately in positive territory. Meanwhile, Japanese firms' price-setting stance is starting to change. Looking at firms' stance regarding input and output prices in the Tankan, there have been times in the past when firms found it hard to raise output prices even when input prices rose. However, this seems to have become less prevalent recently; that is, there has been an increasing number of firms that are passing on the increase in input costs to output prices, including in overseas markets where demand has been steady. While there has been an established practice among firms in the basic materials industry, such as steel firms, to pass on a certain ratio of increase in input costs to output prices, attention is needed on the extent to which this practice will spread to other industries. III. Financial Conditions surrounding Firms and the Bank's Conduct of Monetary Policy Financial Conditions I would now like to explain the Bank's conduct of monetary policy (Chart 8). Let me first describe Japan's financial conditions surrounding firms, the starting point of the transmission channel of the effects of monetary policy. Immediately after the outbreak of COVID-19 last year, precautionary demand for funds surged due to heightened uncertainties over the future, and financial positions, mainly of firms, deteriorated significantly due to a decline in sales. Financial markets at home and abroad also became significantly unstable. In order to address this situation, the Bank has been supporting financing, mainly of firms, and maintaining stability in financial markets by conducting powerful monetary easing since March 2020 through the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) an ample and flexible provision of yen and foreign currency funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The Special Program consists of two temporary measures to support financing, mainly of firms: an operation through which the Bank provides funds on favorable terms to financial institutions that make loans in response to COVID-19 and a substantial increase in purchases of CP and corporate bonds. Owing to the Bank's responses, together with the government's measures to support financing and financial institutions' efforts, firms' funding conditions have remained accommodative on the whole (Chart 9). In the CP and corporate bond markets, which are important sources of financing for large firms, issuance conditions have been extremely favorable; for example, favorable issuance conditions for CP can be confirmed by the relevant diffusion index (DI) in the Tankan. Since large firms in particular have been repaying loans they borrowed after the outbreak of COVID-19 as a precaution against a shortage of funds, the pace of increase in the amount outstanding of bank lending has decelerated, indicating that corporate financing has become stable. In contrast, while financial conditions surrounding small and medium-sized firms seem to be on an improving trend, some still face weakness in their financial positions (Chart 10). In particular, small and medium-sized firms in the face-to-face services industry, which has been strongly affected by COVID-19, have been slower to improve their financing. Looking at the DI for financial positions of small and medium-sized firms in the Tankan, while the DI for all industries is positive, that for the face-to-face services industry remains negative, which means that the proportion of firms answering that financial positions are "tight" is larger than those answering "easy." Under these circumstances, financial institutions' lending attitudes have been accommodative as perceived by firms of all sizes. My understanding is that private financial institutions have been supporting financing of their corporate clients, mainly through lending operations, even after the new applications for so-called effectively interest-free and unsecured loans ended in March 2021. In sum, financial conditions surrounding firms have improved on the whole, although weakness in financial positions has remained for some small and medium-sized firms in, for example, the face-to-face services industry. The Bank's Special Program is scheduled to be conducted until the end of March 2022, and the responses thereafter will be appropriately decided by examining developments in corporate financing and other factors based on, for example, the upcoming December Tankan. Conduct of Monetary Policy On that basis, I will explain the Bank's view on the future conduct of monetary policy (Chart 11). Even though the underlying trend in inflation has gradually increased, as I mentioned earlier, Japan's inflation rate is still far below the price stability target of 2 percent. The Bank projects that the rate of increase in Japan's CPI will be only at around 1 percent even in fiscal 2023, which is the end of the current projection period. It will therefore persistently continue with powerful monetary easing under the current Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control to achieve the price stability target of 2 percent. I would also like to emphasize that there is no change to the Bank's stance that, for the time being, it will closely monitor the impact of COVID-19 and not hesitate to take additional easing measures if necessary. When I say this, I am sometimes asked whether there is no need for Japan to adjust monetary easing while central banks in the United States and Europe have recently started to move toward adjusting theirs. Some central banks are facing a common problem that is both old and new; namely, how to respond to price increases stemming from rising commodity prices and supply-side constraints. Essentially, if price rises are temporary, central banks should allow them and continue with monetary easing to concentrate on supporting the economy. On the other hand, if prices increase for a wide range of goods other than energy as well as of services, or if there is concern about so-called second-round effects of price rises on wages and inflation expectations, central banks could reduce monetary accommodation to contain such developments. In this regard, with inflation remaining above the target, central banks in the United States and Europe face the difficult choice of whether to maintain their current monetary easing and continue to support the economic recovery, or whether to reduce monetary accommodation to limit second-round effects. Given the price developments in Japan I have described, I think it makes sense that the Bank does not actually need to adjust its large-scale monetary easing at present. Central banks conduct monetary policies in line with developments in economic activities and prices of their respective economies. It is therefore natural that the specifics of and directions for their monetary policies are not the same, and this difference will instead contribute to stability in their economies as well as the global economy. IV. Current Situation of and Outlook for Tokushima Prefecture's Economy Lastly, I would like to talk about the economy of Tokushima Prefecture. The economy has picked up as the impact of COVID-19 wanes. That is, private consumption has picked up and production also has increased. Although there are high uncertainties, such as over the course of COVID-19, the economy is expected to continue to pick up. As with other prefectures, Tokushima Prefecture is facing the following challenges in the medium to long term: structural problems such as the declining and aging population, issues highlighted by the pandemic, such as with regard to digitalization, and the need to make efforts to achieve the Sustainable Development Goals (SDGs), which have received growing attention worldwide. While prefectures across the nation have been working toward addressing these challenges in order to achieve sustainable development of their economy, Tokushima Prefecture has taken various initiatives ahead of others and gained attention both in Japan and abroad as an advanced model. For example, I have heard that IT-related firms -- attracted by one of the best optical broadband environments in Japan -- are opening satellite offices throughout the prefecture. In addition, Kamikatsu Town, famous for its leaf-selling business, became the first municipality in Japan to declare a "zero waste" policy 18 years ago in 2003, and is still drawing attention as a town where people can learn about environmental issues. In addition, the prefecture is one of the world's most advanced LED regions, with more than 150 firms related to LEDs, which contribute greatly to energy and power savings. Firms and universities are working together to promote LED-based industries, create new industries, and develop human resources. In terms of gender equality, Tokushima Prefecture has one of the highest proportions of women working as business executives, in management positions, or on councils of local governments, suggesting that women are playing a prominent role in the region. Looking back at the history of the prefecture's economy, the indigo and salt manufacturing industries flourished by taking advantage of the climate and nature. These industries have developed over time, and agriculture still flourishes in the areas where indigo was cultivated. The raw material processing technology used in salt production is one of the roots of the chemical industry, which has become a major industry of the prefecture's economy. Thus, Tokushima Prefecture has a history of achieving sustainable development by reinventing itself to meet the changing needs of the times. It is my hope that its economy will continue to develop further by promoting initiatives that are ahead of their time. The Bank, through its Tokushima Office and Takamatsu Branch, will continue to gather information and exchange views in order to contribute in any way possible to various efforts to revitalize the region. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Tokushima December 8, 2021 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. Financial Conditions surrounding Firms and the Bank's Conduct of Monetary Policy IV. Current Situation of and Outlook for Tokushima Prefecture's Economy Chart 1 I. Economic Developments Real GDP ann., q/q % chg. 20/Q4 +11.8 21/Q1 -4.1 Q2 +1.5 Q3 -3.0 570 s.a., ann., tril. yen CY 15 Note: Figures are based on the first preliminary estimates for the July – September quarter of 2021. Source: Cabinet Office. Chart 2 I. Economic Developments Corporate Sector Exports and Production Corporate Profits s.a., CY 2015 = 100 s.a., tril. yen 19/Q4 Real exports Industrial production CY 06 Current profits CY 06 Note: In the right-hand chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly and exclude "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. Sources: Ministry of Finance; Ministry of Economy, Trade and Industry; Bank of Japan. Chart 3 I. Economic Developments Household Sector Confidence Indicator (Economy Watchers Survey) Mobility Trends Based on Location Data current conditons DI (level), s.a. change from baseline, 7-day central moving average, % -5 -10 -15 -20 Food and beverage -25 Services -30 Household activity-related -35 -10 Jan. Jan. Jan. -40 Oct. Jan. Apr. Jul. July Oct. Jan. Apr. Jul. July Oct. Note: In the right-hand chart, the baseline is the median on the corresponding day of the week during the 5-week period from January 3 to February 6, 2020. Figures are mobility trends for places such as restaurants, shopping centers, and theme parks. Sources: Cabinet Office; Google LLC "Google COVID-19 Community Mobility Reports." https://www.google.com/covid19/mobility/. Accessed: December 1, 2021. Chart 4 I. Economic Developments World Semiconductor Demand s.a., bil. dollars CY 2022 CY 2021 World semiconductor shipments Forecast as of Nov. 2021 Trend from CY 2000 to CY 2017 CY 2020 CY 00 Note: Figures are based on staff calculations using World Semiconductor Trade Statistics (WSTS) data. Forecasts are by WSTS. Chart 5 I. Economic Developments Commodity Prices Decomposition of Changes in Commodity Prices Commodity Prices monthly avg., CY 2015 = 100 y/y % chg. Supply factors Crude oil (Dubai) Demand factors Copper Real commodity prices -20 -40 -60 CY06 -80 CY00 02 04 06 08 10 12 14 16 18 20 Note: Regarding details for the right-hand chart, see Box 2 "Effects of Rising International Commodity Prices on Corporate Profits" in the July 2021 Outlook Report. Sources: Bloomberg; OECD; Haver. Chart 6 II. Price Developments Price Developments Consumer Prices in Japan, United States, and Europe Producer Prices in Japan y/y % chg. y/y % chg. Japan (CPI) United States (CPI) Euro area (HICP) -5 -1 -10 CY 80 -2 CY19 Notes: 1. In the left-hand chart, figures are the producer price index (PPI) for all commodities (adjusted to exclude the effects of the consumption tax hikes). 2. In the right-hand chart, figures for the United States and the euro area are the overall CPI and overall HICP, respectively. Figures for Japan are the CPI for all items excluding fresh food. Sources: Bank of Japan; Haver; Ministry of Internal Affairs and Communications. Chart 7 II. Price Developments Price Developments Japan's CPI Excluding Temporary Factors y/y % chg. Output and Input Prices (Tankan) 80 DI ("rise" - "fall"), % points Output - Input Input Prices Output Prices CPI (all items less fresh food, energy, and temporary factors) -1 -20 -40 CPI (all items less fresh food) -2 CY 12 -60 CY 00 02 04 06 08 10 12 14 16 18 20 Notes: 1. In the left-hand chart, figures for CPI (all items less fresh food) exclude the direct effects of the consumption tax hike in April 2014. Figures for CPI (all items less fresh food, energy, and temporary factors) are staff estimates and exclude (1) energy, (2) the effects of policies concerning the provision of free education, (3) the effects of the "Go To Travel" campaign, which covers a portion of domestic travel expenses, and (4) mobile phone charges, from the CPI (all items less fresh food). 2. In the right-hand chart, figures are for all industries and enterprises. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. III. Financial Conditions surrounding Firms and the Bank's Conduct of Monetary Policy Chart 8 The Bank's Measures in Response to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen Chart 9 III. Financial Conditions surrounding Firms and the Bank's Conduct of Monetary Policy Financial Conditions Issuance Conditions for CP as Perceived by Firms (Tankan) Amount Outstanding of Bank Lending 520 s.a., tril. yen DI ("easy" - "severe"), % points Trend from April 2013 to December 2019 -20 -40 -60 CY 08 CY 08 Note: In the left-hand chart, figures are for CP-issuing enterprises (all industries). Source: Bank of Japan. Chart 10 III. Financial Conditions surrounding Firms and the Bank's Conduct of Monetary Policy Financial Conditions Firms' Financial Positions (Tankan) Lending Attitudes of Financial Institutions as Perceived by Firms (Tankan) DI ("easy" - "tight"), % points -10 -20 Large enterprises in all industries Small enterprises in all industries -30 -40 CY 08 Small enterprises in face-to-face services industry DI ("accommodative" - "severe"), % points -10 Large enterprises in all industries Small enterprises in all industries -20 -30 CY 08 Small enterprises in face-to-face services industry Note: Figures for small enterprises in the face-to-face services industry are the weighted averages of the DI for retailing, transport & postal activities, services for individuals, and accommodations, eating & drinking services. Source: Bank of Japan. Chart 11 III. Financial Conditions surrounding Firms and the Bank's Conduct of Monetary Policy The Bank's CPI Forecasts y/y % chg. FY 2022 +0.9% FY 2023 +1.0% FY 2021 +0.0% -1 -2 CY15 Note: Figures are the CPI (all items less fresh food) excluding the direct effects of the consumption tax hike in April 2014. Percentage figures indicate the medians of the Policy Board members' forecasts (point estimates) presented in the October 2021 Outlook Report. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. 11■
|
bank of japan
| 2,021 | 12 |
Speech (via webcast) by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Wakayama, 3 February 2022.
| null |
bank of japan
| 2,022 | 2 |
Speech (via webcast) by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Yamanashi, 9 February 2022.
|
February 9, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Yamanashi (via webcast) NAKAMURA Toyoaki Member of the Policy Board (English translation based on the Japanese original) I. Economic and Price Developments at Home and Abroad A. Recent Developments and Outlook for Economic Activity and Prices I will begin my speech by talking about recent developments in economic activity and prices. Overseas economies have recovered on the whole, albeit with variation across countries and regions, with the impact of the novel coronavirus (COVID-19) waning gradually (Chart 1). In advanced economies, resumption of economic activity continues as vaccination has progressed, while priority public health measures have been taken to respond specifically to the spread of the Omicron variant. Emerging and commodity-exporting economies have generally picked up on the back of progress with vaccinations. Against this background, a pick-up in Japan's economy has become evident (Chart 2). Exports and production continue on an uptrend, albeit with the effects of supply-side constraints. A pick-up in private consumption has also become evident since early autumn 2021, although downward pressure due to the spread of the Omicron variant has recently been a cause for concern. On the price front, the year-on-year rate of change in the consumer price index (CPI) for all items less fresh food, or core CPI, despite being affected by the reduction in mobile phone charges, has been slightly positive, reflecting price rises in energy and other items (Chart 3). Japan's economy is likely to recover as the impact of COVID-19 and the effects of supplyside constraints gradually wane. The year-on-year rate of change in the core CPI is also likely to increase in positive territory due to a dissipation of the effects of a reduction in mobile phone charges on the back of a moderate pass-through of raw material cost increases. B. Risk Factors for Economic Activity and Prices This outlook is subject to a number of uncertainties; specifically, I am particularly attentive to the following factors. The first is the Chinese economy, sometimes referred to as "the world's market" or "the workshop of the world." There is a risk that the spread of the Omicron variant under China's zero-Covid policy will lead to globally prolonged supply-side constraints and protracted inflationary pressures, in addition to pushing down the global economy. Attention should also be paid to such factors as the aging population, intensified conflict between China and both the United States and Europe, and the decline in medium- to long-term growth potential mainly due to the imposition of stronger restrictions. The second factor is firms' price-setting behavior. Uncertainties surround future developments in the pass-through of raw material cost increases, leaving potential for movement in either direction. If cost increases are not passed on sufficiently, this could cause firms to fall into a vicious cycle where their business performance will deteriorate, making it inevitable that they will cut wages and investment for the future. On the other hand, the passthrough of cost increases may also proceed further than expected; firms have recently become increasingly sensitive to inflation, with upstream price rises gradually spreading to downstream (Chart 4). I consider it crucial for firms' price-setting stance to become active in order for Japan's economy to shift toward a new growth path and to achieve the Bank's price stability target. The third factor is a change in households' preference for holding on to their cash and deposits. The amount outstanding of households' cash and deposits continued to grow, increasing by 44 trillion yen relative to the pre-pandemic trend, and reaching 1,072 trillion yen as of endSeptember 2021 (Chart 5). If the impact of COVID-19 gradually wanes, this is expected to result in a materialization of pent-up demand, thereby stimulating economic activity. In fact, with the younger generation in particular having been showing greater interest in financial asset investment, it is hoped -- as I will elaborate on later -- that if households can reap the fruits of global economic growth by gaining stable income through the dividends from their investment in financial assets, this will help bring about a virtuous cycle of growth and distribution in the long run. At the same time, these trends naturally weaken when households lower their growth expectations for Japanese firms. I am therefore paying close attention to how these trends develop alongside firms' efforts toward achieving growth. The fourth factor is investment behavior, particularly among small and medium-sized enterprises (SMEs). The amount outstanding of cash and deposits has been on an increasing trend for both large enterprises and SMEs. In contrast, net interest-bearing debt -- the difference between interest-bearing debt and cash and deposits -- has been decreasing as a trend among SMEs, unlike large enterprises, showing no clear increase since 2018 (Chart 6). Shifting our focus to business fixed investment for fiscal 2021, large enterprises across all industries have been in line with past averages, maintaining a 9 percent-plus increase over the previous fiscal year. In contrast, the Bank of Japan's December 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan) shows that business fixed investment for SMEs across all industries, which tends to be revised upward through the fiscal year-end, has been relatively weak (Chart 7). Attention should be paid to whether SMEs strengthen their stance of cutting investment and hoarding cash and deposits, as this will delay a long-standing challenge to Japan's economy, namely, raising productivity. II. Conduct of Monetary Policy Let me now turn to the Bank's policy conduct. The Bank has conducted powerful monetary easing in response to COVID-19 since March 2020 through the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19); (2) an ample and flexible provision of funds; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). The Bank's responses have had positive effects, coupled with the government's measures and active efforts by financial institutions, and financial conditions in Japan have been accommodative on the whole. That said, weakness remains in the financial positions of firms in some segments, such as the face-to-face services industry, and of small and medium-sized firms. There also continues to be significant uncertainty surrounding the impact of COVID-19, including the spread of the Omicron variant. Against this background, the Bank decided in December 2021 to extend the Special Program in part by six months with a view to doing its utmost to support financing, mainly of small and medium-sized firms (Chart 8). The Bank will continue to closely monitor any changes in the situation, including those related to the impact of COVID-19, and take appropriate measures. On this basis, it will persistently continue with the current powerful monetary easing to achieve the price stability target of 2 percent. In the meantime, since climate change could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective, the Bank has implemented as one of its policy responses a fund-provisioning measure to support private financial institutions' various efforts in fields related to climate change. It conducted its first operation under the measure in December 2021, through which funds amounting to more than 2 trillion yen were provided. The result of the operation seems to indicate that financial institutions have already made a certain amount of climate changerelated investment or loans. This raises the possibility that investment made by firms to address climate change, including by small and medium-sized firms, will be larger than anticipated. While this is expected to bring about a long-term expansion in domestic investment, the Bank will continue to closely monitor firms' initiatives and investment plans. III. Transformation of the Success Model from Japan's Rapid Economic Growth Period and Challenges to Realizing New Growth A. Structural Changes in Japan's Economy and Efforts to Transform the Economic System I would now like to share my view on structural changes in Japan's economy and efforts to transform the economic system from a longer-term perspective, based on my own experience at a private firm I worked at from 1975 to 2020. The business model that drove Japan's export-led growth from the rapid economic growth period through 1984 was set against the backdrop of Japan's stable political and economic environment during the Cold War and a depreciation of the yen. It was characterized by concentrated domestic investment in cheaply manufacturing high-quality products in existing product areas, such as automobiles and household electrical appliances, and selling them to the world. Meanwhile, so-called Japan Inc. was formed, built around (1) long-term employment practices marked by lifetime employment and the seniority system, (2) longterm business relationships, such as the main bank system and corporate relationships with subcontractors and affiliates, and (3) government-corporate cooperation channeled through administrative guidance and industry organizations. This integrated system also underpinned the country's export-led growth aimed at catching up with other advanced economies. However, drastic changes took place in Japan's economic environment from the latter half of the 1980s -- for instance, the yen's rapid appreciation following the Plaza Accord, the completion of the catching-up process, the end of the Cold War, advances in globalization, and the rise of emerging economies. Japan entered an era in which growth required risk taking, and its economic system stood in need of transformation to adapt to the new era. However, such transformation was postponed, with firms burdened by the "three excesses" in employment, production capacity, and debt, mainly due to the economic bubble and its bursting.1 Even from the late 1990s into the new millennium, at the time of the Asian financial crisis and the bursting of the U.S. dot-com bubble, long-term employment practices and other obstacles hampered many Japanese firms from pushing through the realignment of their business portfolios, which would have enhanced their value-added. Faced with deteriorating business performance, they responded by overhauling their cost structure, cutting costs in, for example, labor -- including investment in human resources -- research and development (R&D), and depreciation expenses, while maintaining their existing business portfolios. This gave rise to excessive competition among firms in Japan and a continued decline in prices. Furthermore, long-term deflation made the recovery of investment costs increasingly unlikely, which, along with other factors including those just mentioned, caused more firms to shy away from investment and the pursuit of innovation. Japan's economy then suffered two crises, namely, the 2008 Global Financial Crisis and the Great East Japan Earthquake in 2011, both of which coincided with firms being faced with so-called six headwinds, including a historically strong yen. 2 To adapt to the headwinds, large enterprises in the manufacturing sector made further inroads overseas and increased their capacity for generating earnings abroad despite the strong yen. Outward direct investment, including that by the nonmanufacturing sector, began to expand further around 2013, and continues even now to contribute to Japan's stable current account surplus trend through the surplus in primary income -- or the positive balance associated with foreign Economic Planning Agency, Economic Survey of Japan, July 1999 (available only in Japanese). The six headwinds are (1) a historically strong yen; (2) delayed creation of Economic Partnership Agreements (EPAs); (3) high effective corporate tax rates; (4) rigidity in the labor market; (5) strict environmental regulations; and (6) power shortages and high energy costs. investment (Chart 9). However, these developments have been seen primarily in large enterprises; there is still an ongoing financial surplus in the corporate sector. On this point, if firms do not actively make investments, innovation in creating new products, services, and businesses will fall short, as was the case during Japan's long-term deflationary period. Partly due to a decline in growth expectations, households that receive wages from firms will in turn hold back on spending and investment, hoarding more of their deposits. Even if firms make efforts to sustain demand with price cuts, funds from households will likely decrease. Firms will then further hold back on investments, leading to a greater lack of innovation and reduced flow of funds; as a result, the economy will slip into low growth (see Chart 10 for a simplified representation). That said, Japan's economy is in the midst of a sea change. Of the six headwinds, the issues of a historically strong yen, delayed creation of EPAs, and high corporate tax rates can be said to have been mostly resolved. In particular, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11), which came into effect in December 2018, and the Regional Comprehensive Economic Partnership (RCEP), which came into effect in January 2022, have lowered barriers to exports and overseas expansion, raising hopes of more aggressive corporate activities taking advantage of these frameworks. Meanwhile, digitalization and climate change response, which are considered to be key areas of Japan's growth strategy, require sustainable large-scale domestic investment involving numerous firms across the value chain. Moreover, as firms revisit the value chain, we are likely to see some SMEs and startups experiencing significant growth, mainly through business realignment. This could, in turn, spur the creation of new businesses and products and promote growth in new areas of demand. My hope is that the revival of such dynamism will change the excessive savings mindset among firms; boost the flow of funds as investments in, for example, equipment, software, R&D, human resources, and merger and acquisition (M&A) activities stimulate further investments; and realize new economic growth and a sustained increase in wages (see Chart 11 for a simplified representation of this virtuous cycle). B. Challenges and Initiatives in Realizing New Growth To bring about such a virtuous cycle, it will be necessary to overcome the dearth of dynamism -- a major challenge for Japan's economy -- in tandem with the transition to a post-pandemic society. In particular, the Japanese-style employment system rooted in long-term employment practices, including seniority-based wages and internal promotions, will need to be reformed, as will the country's rigid labor market. The Japanese-style employment system was effective in an era of steady growth in supply and demand through exports and domestic industrial clusters, with growth being driven through process innovation, exemplified by kaizen (continuous improvement). Now, however, in the so-called VUCA era,3 which is characterized by the creation of high value through intangible assets and growth that requires risk taking, it is not easy for individual firms to sustain growth by going it alone. If firms become fixated on maintaining all of their business lines, they will be slow to realign their business portfolios and will end up losing focus. As excessive costs build up and profits decline in such firms, growth in employee wages will end up being constrained, which will in turn increase concerns regarding the future. It should be noted that, from fiscal 2022, Japan's baby boomer generation will begin moving into the category of advanced elderly. Greater labor force participation by women and seniors contributed to economic growth over the past decade. However, as further increase in the labor force participation rate proves difficult, the more pressing need will be to improve productivity (Chart 12). On the one hand, boosting productivity will require business owners to emphasize the growth of both the business and its human capital; they will need to consolidate less productive businesses under their best owners (companies that are expected to maximize the value of the business over the medium to long term); and they will have to channel resources into growth businesses such as through M&A activities. On the other hand, I think it is critical for both firms and households to be forward-looking in their actions to achieve growth and affluence, with, for example, individuals continually pursuing selfbetterment to gain knowledge and skills that lead to greater added value. VUCA, an acronym which stands for volatility, uncertainty, complexity, and ambiguity, refers to a situation in which large-scale changes make it difficult to predict the future. From this perspective, it is also vital to develop both a social safety net and a sustainable social security system that encourage active risk taking. For example, corporate pensions are a key factor in enabling working people of child-rearing age to change jobs without adding to their anxiety about post-retirement years. To encourage the broader adoption of corporate pension plans among SMEs, the Japanese government introduced in 2018 a simplified defined-contribution pension plan, and iDeCo+ (iDeCo Plus), a defined-contribution plan for small and medium-sized businesses. Although the government has since continued to refine the plan to make it available to a wider range of people, the number of iDeCo+ subscribers still stands at around a mere 23,000.4 Looking at trends among people changing jobs by size of enterprise, the number of people moving between large enterprises and from SMEs to large enterprises has increased significantly, while the number of those moving between SMEs and from large enterprises to SMEs has declined or remained flat. It is possible that the issue of pension plans may be one of the reasons labor migration to SMEs has not increased (Chart 13). Realizing new growth in Japan's economy will require smooth labor migration into growth businesses, including startups. I look to corporate managers, financial institutions, and local administrations to accelerate their efforts to this end. IV. Realizing New Growth by Reviving the Dynamism of Japanese Firms and Reinforcing Investment in Human Capital There is a growing trend around the world to step up efforts to build a new form of capitalism that is focused on sustainability and human capital to generate new investment and growth. The government is positioning Japan to take the lead in this trend. The emergency proposal announced by the Council of New Form of Capitalism Realization in November 2021 is a comprehensive statement, encompassing strategies for both growth and distribution. 5 In particular, I would like to offer my opinion on what is involved in reviving the dynamism of Japanese firms and reinforcing investment in human capital. A. Reviving the Dynamism of Japanese Firms Sustained growth in income is generated by economic growth, and economic growth is National Pension Fund Association, "Review of Subscriptions (as of November 2021)" (available only in Japanese). 5 Council of New Form of Capitalism Realization, Emergency Proposal Toward the Launch of a "New Form of Capitalism" that Carves Out the Future, November 8, 2021 (available only in Japanese). generated by innovation arising from sustained corporate growth investment. I think the key to this innovation lies in the revival of corporate dynamism and the development of the human resources necessary to pursue new businesses. My impression is that the risk aversion in the so-called VUCA era has led to a dearth of innovation. According to statistics from the Organisation for Economic Co-operation and Development (OECD), the percentage of firms in Japan that have brought new products and services to the market is 9.9 percent for the manufacturing sector and 4.9 percent for the services sector. This is considerably lower than the 18.8 percent in manufacturing and 9.0 percent in services in Germany and the 12.7 percent and 7.6 percent in the United States.6 Japan has historically excelled at process innovation, but with advances in digitalization, the country now lags far behind in this area as well. Among U.S. firms, digitization (converting analog or paper-based data into digital format) and digitalization (digitalizing individual business operations and manufacturing processes) have streamlined and made more efficient the workforces of existing businesses while creating new employment opportunities in growth businesses. It seems to have been difficult for these mechanisms to gain traction among Japanese firms, and this has led to delays in digitalization. However, advanced economies are pursuing digital transformation (DX) not chiefly to reform the cost structure but rather to move toward a business model in which data creates value. Meanwhile, the expansion of cloud-based services has lowered hurdles to digitalization, for instance, by enabling lower-cost and faster implementation. This, I believe, provides firms with the opportunity to step up the pace of transformation of their business models and make significant headway into new stages of growth. Furthermore, for Japan to take the lead in areas such as digitalization and climate change response, the growth of startups that can carry forward such initiatives will be critical. The number of Japanese startups has been on the rise in recent years. However, Japan's entry and exit rates remain low compared to other advanced economies (Chart 14). A survey of Japanese OECD, OECD Science, Technology and Industry Scoreboard 2017, November 2017. entrepreneurs reported "fear of failure" as the biggest reason for the low number of business start-ups in Japan.7 It is important to foster an environment that is supportive of second chances, by for example expanding the safety net, and thereby promote a positive approach to taking on challenges. Few startups experience significant growth in Japan -- the country has only six unicorns, that is, unlisted startups valued at over 1 billion U.S. dollars. By comparison, there are 488 unicorns in the United States, 170 in China, 37 in the United Kingdom, and 25 in Germany.8 In addition to talent and a customer base, funding is essential to promote the growth of startups. Yet the volume of venture capital investment in startups in Japan remains tiny compared to the United States (Chart 15). To address this situation, the government has announced plans to lay the groundwork for the creation and growth of startups, such as streamlining the initial public offering (IPO) process and exploring a framework for special purpose acquisition companies (SPACs) from the perspective of investor protection. I expect such efforts, coupled with an inflow of venture capital, to support startup growth. At the same time, I look for more active M&A activities to help integrate ventures with their best owners, and for entrepreneurs to keep trying to start new businesses and drive growth. My strong hope is that these developments will revive the dynamism of Japanese firms and generate a wealth of innovation, thereby allowing Japan to soon realize new growth. B. Reinforcing Investment in Human Capital Another key to innovation, alongside corporate dynamism, is human capital. Under Japan's long-term employment practices, marked by seniority-based wages and internal promotions, both management and employees prioritized achieving greater production efficiency, and there was a strong tendency for them to emphasize gaining experience through business activities and on-the-job training. In an era where boosting the efficiency of existing business operations was the driving force behind growth, I think that Venture Enterprise Center, Venture White Paper 2021, December 2021 (available only in Japanese). Survey by CB Insights (as of December 31, 2021). Japanese-style human resource (HR) development functioned effectively. In the current VUCA era, however, it is no longer possible to achieve sustainable growth simply by boosting the efficiency of existing business operations. Also, on-the-job training alone, being an extension of existing business operations, is not adequate to the discontinuous nature of innovation. Investment in human capital is vital for acquiring new ideas and capabilities. Such investment has been muted in Japan, however, being typically treated as a "cost" in corporate accounting. We see the difference, for example, in the ratio of Japanese firms' vocational training costs to GDP, which is low relative to other advanced economies (Chart 16). Meanwhile, the average amount of money spent by firms per employee on offthe-job training and self-development support is also on the wane (Chart 17). To encourage firms to invest in human capital, Japan's Prime Minister announced in a policy speech in January that the government would formulate rules for corporate disclosure of nonfinancial information, including investment in human capital, within the year. Until now, it has been difficult to link HR strategies to management strategies because there have been no benchmarks for comparison with other firms, and management has not been equipped to set key performance indicators (KPIs). By making human capital investment more transparent, the new government measure is expected to make it easier for management to set concrete targets and formulate strategies to realize them. Furthermore, the measure has the potential to accelerate corporate growth, as both investors and employees can use the information to evaluate firms in terms of growth potential, among other factors. C. Toward a Virtuous Cycle of Growth and Distribution As such efforts gain momentum, I think that they will lead to sustainable economic growth and accelerate the shift to an era in which employees are better equipped to choose which firm they wish to work for. Regarding distribution, average income per household decreased from 6.17 million yen in 2000 to 5.52 million yen in 2018, but this includes the effect of population aging (Chart 18). Looking at households other than the elderly, while average income fell from 6.78 million yen in 2000 to 6.10 million yen in 2012, it subsequently rose to 6.59 million yen in 2018, prior to the outbreak of COVID-19. To bring prosperity to Japan's super-aging society as a whole, it will be crucial to further raise the income level of workers. One of the unintended consequences of structural labor shortages is that employees will have greater power to choose which firm they wish to work for. Consequently, managers are expected to implement growth strategies that enhance the appeal and growth potential of their firms and adopt more dynamic HR policies, including greater investment in human capital to foster employee development, higher compensation levels, the use of stock options, and putting in place more robust pension plans. Individuals, too, will be expected to enhance their skills to increase their added value. They will need to expand their sources of stable income and build a post-retirement nest egg by investing in financial assets focusing on the long term, on diversification, and on regular contributions. Household financial assets in Japan amounted to approximately 2,000 trillion yen as of the end of September 2021. However, cash and deposits accounted for by far the highest proportion of the total, at 54 percent, with stocks and investment trusts representing a mere 15 percent. The situation in the United States is quite the opposite, with cash and deposits accounting for 13 percent and stocks and investment trusts 51 percent of household financial assets as of end-March 2021. The deep-rooted tendency of Japanese households to hold their assets in cash and deposits is likely shaped by the trauma of the collapse of the bubble economy and the experience of the long-term economic stagnation that followed. Experience has made older people in particular tend to believe that the stock price of Japanese firms is linked to Japan's GDP. However, people in their 20s and 30s have had virtually no experience of such trauma, and they understand that, with the globalization of Japanese firms, stock prices rise in line with growth in the global economy. In fact, with the institutional support now available, such as the Nippon Individual Savings Account (NISA) and iDeCo pension plans, there is growing interest in investment trusts, especially among young people. If households can reap the fruits of global economic growth by gaining stable income through the dividends from their investment in financial assets focusing on the long term, on diversification, and on regular contributions, I think that this will help bring about a virtuous cycle of growth and distribution. Moreover, buoyed by the Bank's persistent monetary easing, I believe that active innovation by firms and by individuals will increase the potential growth rate of Japan's economy and bring the country closer to achieving the Bank's 2 percent price stability target. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Yamanashi (via webcast) February 9, 2022 NAKAMURA Toyoaki Member of the Policy Board Bank of Japan Chart 1 IMF Projections in the World Economic Outlook (January 2022) y/y % chg. World output United States Euro area China IMF projections Japan -2 -4 -6 -8 CY 00 Source: IMF. Chart 2 Japan's Real GDP s.a., ann., q/q % chg. -5 -10 -15 Private demand Public demand Net exports Real GDP -20 -25 -30 -35 CY 09 Source: Cabinet Office. Chart 3 Japan's CPI (Less Fresh Food) 2.5 y/y % chg. 2.0 1.5 1.0 0.5 0.0 -0.5 Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) -1.0 -1.5 -2.0 CY 16 Notes: 1. Energy consists of petroleum products (gasoline, kerosene, and liquefied propane), electricity, and manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are based on staff estimations and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 4 Price Sentiment Index index number of comments Price Sentiment Index (left scale) Comments implying inflation (right scale) Comments implying deflation (right scale) -1 -2 -3 CY 02 Note: The Price Sentiment Index is calculated as follows. Using the Naïve Bayes classifier, comments on current economic conditions in the Economy Watchers Survey are first classified into (A) comments implying inflation, (B) comments implying deflation, (C) comments implying zero inflation, and (D) comments not referring to price developments. The Price Sentiment Index is then calculated as (A-B) / (A+B+C)×100 and normalized (3-month backward moving averages). Source: Cabinet Office. Chart 5 Cash and Deposits Held by Japanese Households 1,100 tril. yen 44 tril. yen 1,050 1,000 Pre-pandemic trend line CY 10 Note: The pre-pandemic trend line is based on the average rate of increase for 2010 through 2019. Source: Bank of Japan. Chart 6 Firms' Net Interest-Bearing Debt and Cash and Deposits in Japan tril. yen Net interest-bearing debt (large enterprises) Net interest-bearing debt (SMEs) Cash and deposits (large enterprises) Cash and deposits (SMEs) CY 00 Notes: 1. Net interest-bearing debt = borrowings from financial institutions + bonds – cash and deposits, based on the "Financial Statements Statistics of Corporations by Industry, Quarterly." 2. Figures exclude finance and insurance, and are 4-quarter backward moving averages. 3. Enterprises with capital of 1 billion yen or more are large enterprises, and those with capital of 10 million yen or more but less than 100 million yen are SMEs. Source: Ministry of Finance. Chart 7 Developments in Fixed Investment in Tankan Large Enterprises (All Industries) y/y % chg. SMEs (All Industries) -5 -5 y/y % chg. Average of historical data (FY2000 to FY2020) FY2020 -10 -15 FY2021 -10 Average of historical data (FY2000 to FY2020) FY2020 -15 FY2021 -20 March June Sept. Dec. (March) Forecast (June) Actual result -20 March June Sept. Dec. (March) Forecast (June) Actual result Notes: 1. The graphs indicate the revision pattern of fixed investment. The horizontal axis represents the point in time when the survey is conducted for each fiscal year: the first survey for each year (March survey) is on the left, and the last survey (June survey of the following year; actual result) is on the right. 2. Excludes software and R&D investment. Source: Bank of Japan. Chart 8 Extension of Financing Support for SMEs Chart 9 Current Account s.a., ann., tril. yen -10 -20 -30 Goods Services Primary income Secondary income Current account -40 CY 09 Note: Figures for 2021/Q4 are October-November averages. Source: Ministry of Finance and Bank of Japan. Chart 10 Small Flow of Funds: Sluggish Corporate/Household Investment and Insufficient Innovation Oversaving Firms Payment Production Banks Consumption Wages Oversaving Households Note: The arrows show the direction of the main flow of funds. Chart 11 Large Flow of Funds: Virtuous Cycle Driven by Active Corporate/Household Investment Firms Investment (in equipment, software, R&D, human resources, M&A, etc.) Investment Payment Investment Loans Interest Production Corporate bonds Equities Banks Growth in demand Creation of new products, services, and businesses Consumption Interest Wages Deposit Production Investment Wages Households Interest Dividends Note: The arrows show the direction of the main flow of funds. Chart 12 GDP and Labor Input Number of Employed Persons and GDP cumulative change from CY 2012, 10 thous. persons tril. yen Real GDP (right scale) change from CY 2012, % points Overall Employed persons (left scale) Labor Force Participation Rate Men (aged 15-64) Women (aged 15-64) Seniors (aged 65 and over) CY12 CY 12 Note: In the left-hand chart, the figure for real GDP for CY 2021 is the seasonally adjusted annualized amount for 2021/Q1-Q3. Sources: Ministry of Internal Affairs and Communications; Cabinet Office. Chart 13 Number of Job Changers by Size of Enterprise 10 thous. persons SME to SME SME to large enterprise Large enterprise to SME Large enterprise to large enterprise CY 00 Notes: 1. SMEs are enterprises with 5-299 employees. Large enterprises are those with 300 employees or more. 2. Figures represent data for the first half of each year (January-June). Sources: Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency. Chart 14 International Comparison of Entry and Exit Rates Entry Rate % Exit Rate Japan United Kingdom France United States Germany CY 08 09 10 11 12 13 14 15 16 17 18 19 % Japan United Kingdom France United States Germany CY 08 09 10 11 12 13 14 15 16 17 18 19 Note: Japan's figures are on a fiscal-year basis. Sources: Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency; U.S. Census Bureau; Eurostat. Chart 15 Venture Capital Investment bil. USD bil. USD Japan Germany France United Kingdom United States (right scale) CY 09 Source: OECD. Chart 16 Ratio of Firms' Vocational Training Costs to GDP 2.5 % 2.0 1.5 1.0 0.5 0.0 United States France Germany Italy 1995-1999 2000-2004 2005-2009 United Kingdom Japan 2010-2014 Note: Figures are estimated by Professor MIYAGAWA Tsutomu (Gakushuin University) based on the Cabinet Office's "System of National Accounts," "JIP Database," and INTAN-Invest Database. Source: Ministry of Health, Labour and Welfare. Chart 17 Firms' Investment in Off-the-Job Training and Self-Development Support Off-the-Job Training Self-Development Support thous. yen thous. yen FY 08 Note: Figures are the average amount of spending per worker. Source: Ministry of Health, Labour and Welfare. FY 08 Chart 18 Average Income per Household 8,000 thous. yen % 6,781 7,000 6,593 6,102 6,000 6,169 5,000 Ratio of elderly households (right scale) All Elderly households All excluding elderly households 4,000 3,195 5,523 3,126 3,000 2,000 CY 00 Source: Ministry of Health, Labour and Welfare.
|
bank of japan
| 2,022 | 2 |
Speech (via webcast) by Ms Junko Nakagawa, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Kyoto, 3 March 2022.
|
March 3, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kyoto (via webcast) NAKAGAWA Junko Member of the Policy Board (English translation based on the Japanese original) I. Economic Developments A. Current Situation I would like to begin my speech by talking about the current situation of Japan's economy from two aspects, the corporate sector and the household sector. Overseas economies, upon which Japan's corporate sector is predicated, continue to endure uncertainty under waves of the novel coronavirus (COVID-19) (Chart 1). As the world enters its third year of the pandemic, however, countries are making efforts to strike a balance between protection of public health and resumption of economic activities while adopting policy responses based on their respective circumstances. Against this background, overseas economies have recovered on the whole, albeit with variation across countries and regions. This is confirmed by the Global Purchasing Managers' Index (PMI), in which figures for both the manufacturing and services industries remain at levels above the 50 mark (Chart 1). With overseas economies recovering on the whole, Japan's exports and industrial production continue to increase as a trend, despite the remaining effects of supply-side constraints (Chart 2). In particular, exports to advanced and emerging economies continue on an uptrend mainly due to the expansion in global demand for digital-related goods; those to China also remain at a high level (Chart 3). Looking at the Bank of Japan's December 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan), corporate profits and business sentiment continue to improve on the whole; business fixed investment has also picked up overall, although weakness has been seen in some industries due mainly to the effects of supply shortages, particularly of parts for such items as automobiles and mobile phone base stations (Chart 4). In light of these circumstances, the Bank's basic assessment is that a virtuous cycle continues to operate in the corporate sector, whereby a rise in overseas demand feeds into a pick-up in business fixed investment through improvements in firms' sentiment and profits. Yet, automakers are still cutting production, even though the effects of supply-side constraints have begun to bottom out. Thus, attention should be paid to the fact that exports and production have not recovered to the levels seen around July 2021, that is, before the effects of the supply-side constraints arising from ASEAN countries intensified. Turning to the household sector, there has been a drastic change in consumption activities between those up until the beginning of 2022 and those thereafter. Specifically, a pick-up in consumption of both goods and services became evident from late December 2021 through early January as people were more willing to be out and about, including the elderly, owing to the lifting of the state of emergency at the end of September, including in Kyoto Prefecture. However, at the turn of 2022, the outbreak of the Omicron variant led many prefectures to implement priority measures to prevent the spread of disease. Thus, consumption, mainly for services, has been pushed down temporarily (Chart 5). The employment and income situation remains relatively weak on the whole, although improvement has been seen in some parts. To be specific, the number of regular employees and the amount of scheduled cash earnings continue on a moderate uptrend, and there have also been improvement in job openings for non-regular employees reflecting the resumption of face-to-face service operations; however, employee income remains at a relatively low level (Chart 6). I will be keeping track of whether developments in job vacancies actually result in an increase in the number of non-regular employees, which has been on a downtrend. Given these economic developments, the real GDP growth rate (the first preliminary estimate) for the October-December quarter of 2021 moved markedly into positive territory, increasing by 1.3 percent on a quarter-on-quarter basis, and 5.4 percent on an annualized basis -- marking a clear pick-up from a somewhat large negative growth rate for the July-September quarter, which was minus 0.7 percent on a quarter-on-quarter basis, and minus 2.7 percent on an annualized basis. Since January 2022, however, the situation remains highly unpredictable due to the impact of COVID-19. B. Outlook Regarding the outlook, Japan's economy is likely to recover as downward pressure stemming from COVID-19 on services consumption and the effects of supply-side constraints wane, while being supported by the increase in external demand, accommodative financial conditions, and the government's economic measures. To elaborate a little, in the corporate sector, exports and industrial production are likely to return to a clear expansionary trend. This will be propelled by the receding impact of automobile-related production cuts expected to be seen around the end of FY2021 and into the beginning of the next fiscal year, coupled with an increase in the export and production of capital goods and IT-related goods due to an expansion in global demand for digital-related goods. With regard to business fixed investment, an uptrend is expected to become evident across a broad range of areas -- mainly for machinery and digital-related investments and for research and development (R&D) investment related to decarbonization -- supported by robust corporate profits and accommodative financial conditions, with supply-side constraints easing. In the household sector, private consumption is expected to recover as the impact of people's stay-at-home behavior in response to COVID-19 and the effects of supplyside constraints wane and pent-up demand materializes with the withdrawal of "forced saving." Additionally, the economy is expected to be boosted, especially in FY2022, if the government's economic measure decided in late 2021 -- with a project size of 78.9 trillion yen and fiscal spending of 55.7 trillion yen -- is implemented as planned. The measure will likely lead to an increase in (1) private consumption spurred by, for example, subsidies to child-rearing households, (2) government spending related in part to the administration of a third COVID-19 vaccine dose, and (3) business fixed investment to promote economic security. In light of these factors, the Bank's Policy Board members' baseline scenario presented in the January 2022 Outlook for Economic Activity and Prices (Outlook Report) forecasts a real GDP growth rate of 2.8 percent for FY2021, 3.8 percent for FY2022, and 1.1 percent for FY2023 (Chart 7). The forecasts of the majority of Policy Board members for FY2022 range by 0.8 percentage points (3.3 percent to 4.1 percent) -- the largest gap since the forecasts for FY2021 (3.6 percent to 4.4 percent) presented in the April 2021 Outlook Report -- suggesting that the forecasts for the GDP growth rate for FY2022 vary among the Board members. C. Risk Factors Next, I will touch on the risks involved in the baseline scenario of the outlook for economic activity. The Bank's assessment is that risks to economic activity are skewed to the downside for the time being, mainly due to the impact of COVID-19, but are generally balanced thereafter. To go into somewhat more detail, in the corporate sector, global supply-demand conditions of semiconductors and related products remain tight, as the trend of rapid expansion in demand for digital-related goods continues. In such a situation, if any kind of supply-side shock occurs, such as the constraints on parts supplies triggered by surging COVID-19 cases in ASEAN countries around summer 2021, there is a risk that exports and production will be pushed down again through supply-chain disruptions. In the household sector, there is a risk of a renewed slump in consumption, particularly among the elderly, depending on the course of COVID-19, including variants. On the other hand, if people's vigilance against COVID-19 lessens significantly with the widespread vaccinations and the rollout of antiviral medicines, the increase in pent-up demand for services consumption could become larger than expected. Meanwhile, there is a risk that overseas economies, particularly emerging economies, will deviate downward from the baseline scenario if global financial conditions tighten by more than expected amid concern in global financial markets over steps taken by advanced economies toward reducing monetary accommodation on the back of continuing elevated inflation rates. At the same time, overseas economies could deviate upward from the baseline scenario, mainly through consumption activities, with the rapid spending of household savings that have accumulated significantly in the respective economies due to restrictions during the COVID-19 pandemic. Moreover, with the prolonged impact of COVID-19, attention should be paid to (1) structural changes in the consumption behavior of individuals, as seen in the expansion in e-commerce, (2) supply-side constraints caused mainly by the downsizing of existing businesses, and workforce disparities across industries and firm size. II. Price Developments A. Current Situation and Outlook Next, I would like to talk about price developments in Japan. The year-on-year rate of change in the consumer price index (CPI) for all items less fresh food, despite being affected by the reduction in mobile phone charges, has been slightly positive, reflecting price rises of energy and other items. Also, the breakdown of developments in the year-on-year rate of change in the CPI for all items less fresh food and energy, and excluding temporary factors such as the effects of the reduction in mobile phone charges, shows that the positive contributions of goods and general services have expanded, and that the pass-through of increases in raw material costs and personnel expenses seems to be gradually prevailing (Chart 8). Looking at annual price changes in all CPI items less fresh food, the share of price-increasing items rose even more for January 2022 from the previous month, exceeding the pre-pandemic level seen around 2019. In this situation, it is projected in the baseline scenario of the outlook for prices that firms' price-setting stance will gradually become active and the pass-through of raw material cost increases will progress moderately, with continuing improvement in the output gap. The medians of the Policy Board members' forecasts presented in the January Outlook Report for the year-on-year rate of change in the CPI excluding fresh food are 0.0 percent, 1.1 percent, and 1.1 percent for FY2021, 2022, and 2023, respectively (Chart 7). However, considering the time it has taken thus far for cost increases such as of raw materials to be actually passed on to selling prices and the elevated crude oil prices due to recent geopolitical risks, it is possible that inflationary pressure will remain strong for the time being, mainly for prices of energy and food products. Such prices for January 2022 increased by 17.9 percent and 1.4 percent, respectively, from the same month in the previous year. Moreover, from April onward, the year-on-year rate of change in the CPI for all items less fresh food may momentarily rise to a level close to 2 percent if the effects of the reduction in mobile phone charges dissipate. Nevertheless, even if this is the case, it will be important to analyze what lies behind such inflation and whether Japan's economy has strong enough fundamentals to allow it to be sustainable. In this regard, the government has been committed to making arrangements to encourage wage increases, as shown, for example, by its indication in the outline for tax reform for FY2022 that it will strengthen tax incentives for firms that raise wages. The Japan Business Federation, or Keidanren, has also indicated in its guidelines for the annual spring labormanagement wage negotiations in 2022 that it is desirable for firms that maintain favorable results or those that have improved their performance to raise wages, including an increase in base pay, to a level that is appropriate for the triggering of a new form of capitalism. Thus, attention is warranted on how the wage negotiations progress. Either way, it is extremely important that a virtuous cycle be created where corporate activities are boosted as vigilance against COVID-19 decreases, which in turn encourages wages and prices to increase steadily without a large time lag between them, thereby stimulating consumption. I hope that this virtuous cycle is actually realized. On the other hand, given that producer prices have marked a historically high increase, with the year-on-year rate of change for January 2022 being 8.6 percent, and that the increase in the CPI excluding fresh food remains low, with the year-onyear rate of change for the same period being 0.2 percent, I would like to pay attention to whether or not the gap between producer prices and consumer prices leads to a decrease in corporate profits through squeezed profit margins, thereby exerting downward pressure on business fixed investment and wages. B. Risk Factors Let me point out two downside risks to the baseline scenario of the outlook for prices. One risk is that downward pressure on Japan's economy, stemming from the impact of COVID19 and developments in overseas economies, will weigh on prices. On top of that, there is a risk that the rate of increase in prices will slow if (1) households do not become more tolerant to price rises amid the deeply entrenched behavior and mindset, mainly among firms, based on the assumption that prices will not increase easily, and (2) the pass-through of cost increases to selling prices is limited, despite improvement in the output gap and an increase in raw material costs. On the other hand, given, for example, the recent rise in producer prices and an increase in firms' inflation expectations shown in the December 2021 Tankan, consideration should also be given to the upside risk that, as private consumption will likely continue to recover, cost increases will be passed on to selling prices, not only at the producer level but also at the downstream consumer level, at a faster-than-expected pace. Against this background, the Bank judged in the January Outlook Report that upside and downside risks to overall prices were generally balanced. III. The Bank's Monetary Policy A. Response to COVID-19 In what follows, I would like to touch on the Bank's monetary policy. In response to COVID-19, the Bank has been supporting financing, mainly of firms, and maintaining stability in financial markets by conducting powerful monetary policy through the following three measures since March 2020 (Chart 9): (1) the Special Program to Support Financing in Response to COVID-19 (the Special Program), consisting of (a) the Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 (the Special Operations to Facilitate Financing) and (b) additional purchases of CP and corporate bonds; (2) flexible provision of ample funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). These three measures, coupled with the government's measures and financial institutions' proactive efforts, have had positive effects. Financial conditions in Japan have recently improved on the whole, with precautionary demand for liquidity subsiding, particularly among large firms. Financial positions of small and medium-sized firms, or SMEs, have been on an improving trend on the whole, but weakness remains in some segments, such as the face-to-face services industry. Given these developments, at the Monetary Policy Meeting (MPM) held in December 2021, the Bank discussed the treatment of the Special Program, which was originally introduced as a temporary measure until the end of March 2022. Specifically, it decided to extend by six months the fund-provisioning to SMEs under the Special Operations to Facilitate Financing, with a view to continuing to do its utmost to support financing, mainly of these enterprises (Chart 10). On the other hand, the Bank decided to complete as scheduled at the end of March 2022 another component of the Special Operations to Facilitate Financing, namely, the fundprovisioning against private debt pledged as collateral, which mainly consists of debt issued by large firms and housing loans, and likewise its additional purchases of CP and corporate bonds. From April 2022 onward, the Bank will purchase about the same amount of CP and corporate bonds as prior to the COVID-19 pandemic. Still, uncertainty over the course of the pandemic remains high, given the possibility that other new variants may emerge. I assume many businesses in Kyoto Prefecture are facing tight financing conditions, as the eating and drinking as well as accommodations industries account for a greater proportion of the gross prefectural product than the national average. In light of this situation, I consider it necessary to continue to carefully monitor the financing conditions of SMEs under the extended Special Program from April onward. B. Response to Climate Change Next, I will explain the Bank's response to climate change. Amid growing international interest in climate change issues, the Japanese government has declared its aim of achieving carbon neutrality by 2050. Although the policy response to achieve this goal is essentially the role of the government and the Diet, climate change itself and the response measures implemented could exert an extremely large impact on developments in economic activity and prices and on financial conditions from a medium- to long-term perspective. For this reason, the Bank considers that contributing to macroeconomic stability in the long run by supporting the private sector's efforts on climate change is consistent with the monetary policy mission to achieve price stability, thereby contributing to the sound development of the national economy. Guided by this fundamental approach, at the MPM held in June 2021, the Bank decided to introduce a new fund-provisioning measure, namely the Funds-Supplying Operations to Support Financing for Climate Change Responses (Climate Response Financing Operations). Through these operations, the Bank provides funds to financial institutions for investment or loans that they make to address climate change issues based on their own decisions (Chart 11). After working out the details, the Bank made its first auction and loan disbursement under the operations in late December, amounting to over 2 trillion yen. Currently, a total of 43 financial institutions, including from Kyoto Prefecture, have been selected as eligible counterparties. Moreover, compared to summer 2021, when the Bank decided to launch the operations, there has been a marked increase in financial institutions disclosing a certain level of information such as the target amounts of investments or loans, indicating a high degree of interest among the institutions. Japan's response to climate change is still in its early stages. That said, the Bank considers the Climate Response Financing Operations to be a sustainable initiative that will contribute to macroeconomic stability in the long run while adhering to its mandate as a central bank. The Bank will continue to offer robust support from the financial side for the private sector's various efforts in fields related to climate change. At the same time, the Bank will work to provide information in an appropriate manner to promote an accurate understanding among both domestic and foreign market participants and individuals in Japan of the Bank's view and strategy on climate change. C. Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control Now I would like to discuss the Bank's monetary policy conduct that also looks ahead to the post-COVID-19 era. Since April 2013, the Bank has continued large-scale monetary easing with the aim of achieving the price stability target of 2 percent at the earliest possible time. The basic framework of the Bank's current QQE with Yield Curve Control has not changed since another member of the Policy Board gave a detailed explanation during a visit to Kyoto in August 2018. However, in March 2021 the Bank conducted an assessment of the measures taken until then to conduct further effective and sustainable monetary easing, as it was expected to take time to achieve the 2 percent target (Chart 12). The assessment found that: (1) to achieve the 2 percent target, it was appropriate for the Bank to continue with QQE with Yield Curve Control, which was effective in pushing up economic activity and prices; and to that end, it was important to continue with monetary easing in a sustainable manner and make nimble and effective responses without hesitation to counter changes in economic activity, prices, and financial conditions. Guided by this basic approach, for example, the Bank introduced a measure, namely the Interest Scheme to Promote Lending, to mitigate the impact on financial institutions' profits to a certain degree at the time of rate cuts, depending on the amount of their lending. Also, under QQE with Yield Curve Control, the Bank has been purchasing JGBs in a way that keeps long-term interest rates (10-year JGB yields) at around zero percent. The Bank previously indicated that, while doing so, the yields may move upward and downward to some extent. Following the assessment, however, the Bank made clear that the range of 10-year JGB yield fluctuations would be between around plus and minus 0.25 percent from the target level. Moreover, as the findings of the assessment suggested that large-scale ETF and J-REIT purchases were effective during times of heightened market instability, the Bank decided to purchase these instruments flexibly in a prioritized manner. I believe that the Bank's unwavering commitment to continuing with powerful monetary easing under QQE with Yield Curve Control, whose sustainability and nimbleness have been enhanced, is the necessary policy measure to achieve the 2 percent price stability target, although it may take time. Having said that, I do not think it is enough simply to reach 2 percent: the end goal is for accommodative financial conditions to facilitate higher corporate profits and improved labor market conditions, and thereby generate a virtuous cycle in which wages and prices see sustained increases. This is what makes it necessary for households in Japan to become more tolerant of price increases and for economic entities to come to terms with the view that prices are bound to rise to some extent. In other words, it is important to bring about a society in which the whole country can feel and enjoy the positive merits and benefits of economic growth that exceeds the rise in prices. Japanese firms that are expanding, diversifying, and upgrading their overseas activities, such as industrial production, sales, investment, and fund management, are experiencing firsthand the growth of emerging economies in Asia and elsewhere. I think this holds true for firms in Kyoto as well. There is no time to waste in moving forward with reforming the industrial structure, social system, and economic structure so that Japanese firms will realize growth amid mounting competition and Japan's economy as a whole will also achieve growth through digitalization and the realization of a carbon-neutral society. I believe it is imperative that the Bank, guided by its mandate of achieving price stability and ensuring the stability of the financial system, play its role to ascertain the extent to which monetary policy can be effective, and continue to provide appropriate support for Japan's sustainable growth. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kyoto (via webcast) March 3, 2022 NAKAGAWA Junko Member of the Policy Board Bank of Japan I. Economic Developments II. Price Developments III. The Bank's Monetary Policy Chart 1 I. Economic Developments Overseas Economies (1) Confirmed New Cases of COVID-19 (2) Global PMI ten thous. persons United States Europe India s.a., DI Latin America Other emerging economies Feb.1 /20 Manufacturing Services Aug.1 Feb.1 /21 Aug.1 CY 07 Feb.1 /22 Note: Figures for manufacturing are the J.P.Morgan Global Manufacturing PMI. Those for services are the J.P.Morgan Global Services Business Activity Index. Source: IHS Markit (© and database right IHS Markit Ltd 2022. All rights reserved.). Note: The latest figures are for February 25, 2022. Figures for the United States, Taiwan, and Hong Kong are from the Centers for Disease Control and Prevention (CDC), the Taiwan Ministry of Health and Welfare, and the Hong Kong Centre for Health Protection, Department of Health, respectively. All other figures are from the World Health Organization (WHO). Figures for Europe are the sum of figures for the European Union (EU) and the United Kingdom. Figures for Latin America are the sum of figures for the major economies in the region. Figures for other emerging economies are the sum of figures for South Africa, Russia, Turkey, and the major economies in the NIEs, ASEAN, and the Middle East. Figures show 7-day backward moving averages. Source: CEIC. Chart 2 I. Economic Developments Corporate Sector in Japan (3) Real Exports and Imports s.a., CY 2015=100 (4) Industrial Production s.a., % of real GDP -2 Real trade balance (right scale) Real exports (left scale) s.a., CY 2015=100 Production Inventories -4 Real imports (left scale) CY 06 -6 Note: Based on Bank staff calculations. Figures for 2022/Q1 are those for January. Sources: Cabinet Office; Ministry of Finance; Bank of Japan. CY 06 Notes: 1. Shaded areas denote recession periods. 2. The figure denoted by the circle to the right is calculated using projections by the Ministry of Economy, Trade and Industry for February and March 2022. The inventories figure for 2022/Q1 is that for January. Source: Ministry of Economy, Trade and Industry. Chart 3 I. Economic Developments Corporate Sector in Japan (5) Real Exports by Region (6) Real Exports by Type of Goods s.a., 2016/Q1=100 s.a., 2016/Q1=100 150 140 140 130 130 120 China <21.6> United States <17.9> NIEs, ASEAN, etc. <36.3> Other economies <15.0> EU <9.2> CY 16 17 18 19 20 21 22 16 17 18 19 20 21 22 Notes: 1. Based on Bank staff calculations. Figures in angle brackets show the share of each country or region in Japan's total exports in 2021. Figures for 2022/Q1 are those for January. 2. Figures for the EU exclude those for the United Kingdom for the entire period. Sources: Ministry of Finance; Bank of Japan. s.a., 2016/Q1=100 s.a., 2016/Q1=100 Intermediate goods <22.4> Motor vehicles and related goods <20.6> IT-related goods <21.2> Capital goods <17.8> Corporate Sector in Japan (8) Planned and Actual Business Fixed Investment (7) Business Conditions All industries Private nonresidential investment (SNA, nominal) Tankan (actual) Tankan (planned investment in current fiscal year as of the December survey of each year) -5 -20 "Favorable" -10 -40 "Unfavorable" -60 CY 90 y/y % chg. Manufacturing Nonmanufacturing Notes: 1. Figures are for enterprises of all sizes from the Tankan. There is a discontinuity in the data for December 2003 due to a change in the survey framework. 2. Shaded areas denote recession periods. Source: Bank of Japan. Note: Based on Bank staff calculations. Figures in angle brackets show the share of each type of goods in Japan's total exports in 2021. Figures for 2022/Q1 are those for January. Sources: Ministry of Finance; Bank of Japan. Chart 4 DI ("favorable" - "unfavorable"), % points CY 16 17 18 19 20 21 22 16 17 18 19 20 21 22 I. Economic Developments -15 -20 FY 06 Notes: 1. The Tankan figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for enterprises of all industries including financial institutions. 2. The figure for private nonresidential investment for FY2021 is the 2021/Q2-Q4 average. Sources: Cabinet Office; Bank of Japan. Chart 5 I. Economic Developments Household Sector in Japan (10) Consumption Developments Based on Credit Card Spending (9) Private Consumption s.a., CY 2015=100 -10 -20 Consumption Activity Index (travel balance adjusted, real) Consumption of households excluding imputed rent (SNA, real) change from baseline, % -30 Total -40 Retail Disposable income, etc. (SNA, real) Service CY 09 10 11 12 13 14 15 16 17 18 19 20 21 Notes: 1. Figures for the Consumption Activity Index (CAI) are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. 2. "Disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements. Real values are obtained using the household consumption deflator. Sources: Cabinet Office; Bank of Japan, etc. -50 July 19 Jan. 20 July Jan. 21 July Jan. 22 Notes: 1. Figures are from the reference series in JCB Consumption NOW, taking into account changes in the number of consumers. 2. The baseline is the average for the corresponding half of the month for FY2016 through FY2018. Source: Nowcast Inc./ JCB, Co., Ltd., "JCB Consumption NOW." Chart 6 I. Economic Developments Employment and Income Situation in Japan (11) Employee Income (12) Job Openings-to-Applicants Ratio y/y % chg. 2.6 2.2 1.8 -2 1.4 Total cash earnings -4 s.a., ratio Active job openings-to-applicants ratio New job openings-to-applicants ratio 1.0 Number of employees Employee income -6 0.6 Real employee income -8 09/Q1 11/Q1 13/Q1 15/Q1 17/Q1 19/Q1 21/Q1 Notes: 1. Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures for 2021/Q4 are those for December. 2. Employee income = total cash earnings (Monthly Labour Survey) ×number of employees (Labour Force Survey) 3. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the Monthly Labour Survey. 4. Figures for real employee income are based on Bank staff calculations using the CPI (less imputed rent). Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. 0.2 CY06 Source: Ministry of Health, Labour and Welfare. I. Economic Developments Chart 7 Outlook for Economic Activity and Prices (as of January 2022) y/y % chg. CPI Real GDP FY2021 +2.7 to +2.9 [+2.8] 0.0 to +0.1 [0.0] +3.0 to +3.6 [+3.4] 0.0 to +0.2 [0.0] +3.3 to +4.1 [+3.8] +1.0 to +1.2 [+1.1] +2.7 to +3.0 [+2.9] +0.8 to +1.0 [+0.9] +1.0 to +1.4 [+1.1] +1.0 to +1.3 [+1.1] +1.2 to +1.4 [+1.3] +0.9 to +1.2 [+1.0] Forecasts made in Oct. 2021 FY2022 Forecasts made in Oct. 2021 FY2023 (all items less fresh food) Forecasts made in Oct. 2021 Note: Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). Source: Bank of Japan. Chart 8 II. Price Developments CPI (1) Less Fresh Food 2.5 (2) Excluding Temporary Factors y/y % chg. 1.5 y/y % chg. Goods General services (less house rent) House rent (private and imputed rent) Administered prices CPI (less fresh food and energy) 2.0 1.5 1.0 1.0 0.5 0.0 0.5 -0.5 Mobile phone charges -1.0 Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy -1.5 -2.0 -2.5 Excluding the above factors -3.0 -3.5 CY 16 0.0 CPI (less fresh food) Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. -0.5 CY 16 Notes: 1. "Administered prices" excludes energy prices and consists of public services fees and water charges. 2. The CPI figures are Bank staff estimates and exclude the effects of the consumption tax hike, free education policies, the "Go To Travel" campaign, and mobile phone charges. Source: Ministry of Internal Affairs and Communications. III. The Bank's Monetary Policy Chart 9 The Bank's Measures in Response to COVID-19 (from March 2020) Supporting Corporate Financing Special Program Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Operations to Facilitate Financing Stabilizing Financial Markets Flexible Provision of Ample Yen and Foreign Currency Funds Active purchases of JGBs and T-Bills U.S. Dollar Funds-Supplying Operations Lowering Risk Premia in Asset Markets Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen III. The Bank's Monetary Policy Chart 10 The Bank's Measures to Support Corporate Financing Special Program Special Operations to Facilitate Financing Purchases of Against CP and corporate private debt bonds pledged as collateral Until endMarch 2022 From April Decided in December Up to an amount outstanding of about 20 tril. yen previous amount outstanding of about 5 tril. yen Additional purchases to be completed Continue purchasing the same amount as prior to the COVID-19 pandemic Loans in response to COVID-19 Against governmentsupported loans Against nongovernmentsupported loans Fund-provisioning on favorable terms to financial institutions against private debt pledged as collateral and eligible loans in response to COVID-19 Fund-provisioning to financial institutions against To be completed their loans extended until end-September Mainly for large firms and housing loans Extended until end-September Mainly for SMEs III. The Bank's Monetary Policy Chart 11 Climate Response Financing Operations (Loan Disbursement from Dec. 2021) From a central bank standpoint, the Bank provides funds to financial institutions for investment or loans they make to address climate change based on their own decisions. Amid the uncertain external environment, it can respond flexibly to changes in circumstances while avoiding direct involvement in micro-level resource allocation as much as possible. Eligible Counterparties Eligible Investment/Loans Counterparties make investments/loans based on their own decisions. Discipline will be exercised through a certain level of disclosure. Financial institutions that disclose a certain level of information on their efforts to address climate change. Of the investment/loans made by counterparties as part of their efforts, those that contribute to Japan's actions to address climate change Terms and Conditions Long-term support for financial institutions' efforts Interest rate: 0% -- The measure will fall under Category Ⅲ (applied interest rate: 0%) in the Interest Scheme to Promote Lending Twice as much as the amount outstanding of funds that counterparties receive will be added to the Macro Add-on Balances in their current accounts at the Bank Duration of fund-provisioning: 1 year, rollovers can be made until the end of the implementation period → Effectively, counterparties can receive long-term financing from the Bank Implementation period: in principle, until the end of FY2030 III. The Bank's Monetary Policy Chart 12 Policy Actions to Conduct Further Effective and Sustainable Monetary Easing (from March 2021) To achieve the price stability target of 2 percent, it is important to (1) continue with monetary easing in a sustainable manner and (2) make nimble and effective responses without hesitation to counter changes in the situation. Conduct of Yield Curve Control Establishment of the Interest Scheme to Promote Lending Apply incentives (linked to the short-term policy interest rate) to financial institutions' current account balances, corresponding to the amount outstanding of funds provided through fund-provisioning measures to promote lending ⇒ Enable the Bank to cut short- and long-term interest rates more nimbly while considering the impact on the functioning of financial intermediation Clarification of the range of fluctuations in long-term interest rates (±0.25% from the target level) Strike a balance between securing effects of monetary easing and maintaining market functioning Introduction of "fixed-rate purchase operations for consecutive days" Strengthen the fixed-rate purchase operations to stop a significant rise in interest rates Conduct of yield curve control for the time being Prioritize stabilizing the entire yield curve at a low level under the continuing impact of COVID-19 in particular Purchases of ETFs and J-REITs Purchase ETFs and J-REITs as necessary with upper limits of about 12 tril. yen and about 180 bil. yen, respectively, on the annual paces of increase in their amounts outstanding, and maintain these limits even after COVID-19 subsides Purchase only ETFs tracking the TOPIX
|
bank of japan
| 2,022 | 3 |
Speech (virtual) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the FIN/SUM 2022, Tokyo, 29 March 2022.
|
Haruhiko Kuroda: Digitalization - financial services for society Speech (virtual) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the FIN/SUM 2022, Tokyo, 29 March 2022. * * * Introduction I am delighted to be given this opportunity to speak to you at the FIN/SUM 2022 through a video message. The main theme of this year’s FIN/SUM is “Aiming for two-way players in both business and society.” Climate change, pandemics, social inequality, and many other issues of today all have a great deal to do with our society, that is to say, our livelihoods. Under these circumstances, financial services should constantly evolve to meet the diverse needs of people’s everyday life. If businesses are committed to meeting such needs, new businesses will be created one after another, becoming a source of growth. Also, every economic activity should ultimately contribute to an improvement in people’s livelihoods. Today, I would like to talk about the role that digitalization will play in enabling more people to receive financial services that fit their livelihoods. New Combinations of Consumers and Businesses Last year at this forum, I mentioned that Schumpeter, who is considered to be the founder of innovation theory, introduced the concept of innovation with the term “new combinations” in his book The Theory of Economic Development. According to Schumpeter, innovation is not necessarily about invention but is more about creating new combinations. Today, digitalization is creating new combinations in many fields. In the past, financial services for consumers were provided face-to-face in physical locations. Now, with the widespread use of the internet and smartphones, it is not unusual to find digitalized financial services that require no face-to-face interaction, such as online banking and securities transactions as well as smartphone-based mobile payment services. The spread of COVID-19 has led to an increase in people’s demand for services through these digital channels regardless of age group. The digital world has no geographical limitations. These days, we often hear the term “Metaverse,” coined by combining “meta” and “universe.” Metaverse has its origin as the name of a fictitious virtual space service that appears in a novel Snow Crash, released by Neal Stephenson, a science fiction novelist, in 1992. Today, this term is broadly used to refer to the wide-ranging activities of avatars that represent various entities beyond geographical limitations. The digital world, although not something that is peculiar to Metaverse, has the potential to create new combinations of businesses and consumers. As consumers will be able to access a variety of businesses without being limited by where they live, they will find it easier to receive the services that best meet their needs. Such an environment will incentivize businesses to design and launch brand-new, superior services. As businesses whose activities were once limited by geographical conditions are now able to access a broader market, they are also more likely to be able to commercialize services which meet the niche demands of consumers, thereby providing consumers with more choices. Such a possibility is also the case for financial services — a greater variety of financial services will be provided to more people through digital channels. For example, some firms have already 1/3 BIS central bankers' speeches launched internet-based multilingual remittance services for foreigners working or studying in Japan. As a decline in Japan’s population is anticipated going forward, especially in nonmetropolitan areas, there will be a growing need for digital technology as a means of providing financial services in underpopulated areas. One thing to keep in mind is that it is difficult, nor is it right, for all financial businesses to provide homogeneous digital services to consumers. There is no homogeneity in the ability of businesses to offer digital services, nor in the degree to which consumers accept digital services. In addition, consumers are not homogeneous in what they look for in services. We can expect to see more and more new combinations of consumers that actively use digital services and businesses that cater to their diverse needs. That being said, it is also important there are businesses that offer services tailored to the needs of consumers that prefer non-digital services. By strengthening the combination of consumers and businesses through digital channels, our society as a whole should not overlook various potential needs. This in turn is likely to lead to an increase in the Japanese economy’s growth potential. It is essential to have global perspectives in advancing digital services. It is a good thing that businesses provide finely-tuned services for the specific needs of domestic customers. However, potential business areas may not be expandable if services are optimized to be competitive only in the Japanese market without taking into account global technical and societal trends — this is the so-called Galapagos Syndrome. This would make it difficult for businesses to improve services by incorporating global trends or to evolve services into those that are acceptable to a wider market outside of Japan. New Combinations of Data The digitalization of financial services also has an effect that facilitates data coupling. For example, banks and funds transfer service providers incur substantial costs to monitor fraudulent transactions as a measure against money laundering and other financial crimes. In recent years, automatic detection systems for fraudulent transactions utilizing machine learning technology have been considered and introduced. However, one of the challenges is that individual firms by themselves cannot necessarily collect sufficient amounts of data for machine learning. In this regard, efforts have been made to enhance detection effectiveness and efficiency by sharing the learned parameters for machine learning, which exclude personal identifiable information, with third-party businesses under certain conditions. In line with the roadmap endorsed by the Group of Twenty (G20) in 2020 to enhance cross-border payments, many international initiatives are underway. Appropriate data coupling is expected to not only improve the functionality and efficiency of existing business operations but also, through the creation of new value, enable more consumers to access financial services that better match their needs. In addition, new combinations of financial and non-financial data may be expected to create new value. For example, data on deposit account activities contain various kinds of information related to the account holder’s daily life. Such information could help identify where potential consumer demand for financial and non-financial services is still unknown. In this personalized marketing field, online businesses and consumer businesses have taken the lead. Recently, more financial institutions have started to adopt personalized marketing in order to increase customer satisfaction by using various sorts of information, which can be regarded as new combinations with other business categories. Also, some financial and non-financial businesses are collaborating with each other to calculate a consumer’s credit score based on shared data, utilizing the score for screening loan applications. If such “data collateralization” can provide financing opportunities to a customer segment that has had difficulty obtaining loans from financial businesses, this should be of service to greater numbers of people’s lives. In promoting new combinations of data in a way that consumers feel comfortable, it is extremely important to pay due attention to privacy. As you may know, there are various debates over 2/3 BIS central bankers' speeches issues such as obtaining consent as well as conducting data analysis and using the results for socially acceptable purposes, in addition to complying with laws and regulations, including the Act on the Protection of Personal Information. It has been pointed out that the greater the amount and scope of data coupling, the greater the network effects, thereby increasing benefits at an accelerated rate. While this in itself could yield large benefits to consumers, it could also cause new problems associated with monopolies or oligopolies, where one or a few entities have too strong a domination over data. We need to be aware that data monopoly can inhibit competition and innovation, and ultimately have a negative impact on consumer benefits. Closing Remarks Finally, in the remaining time, I would like to touch upon central bank digital currency (CBDC). After the release of “The Bank of Japan’s Approach to Central Bank Digital Currency” in October 2020, the Bank of Japan carried out Proof of Concept (PoC) Phase 1 from April 2021 to conduct experiments on the basic functions that are core to CBDC as a payment instrument. Completing Phase 1 as planned, next month we will move on to PoC Phase 2 in order to test the additional functions of CBDC. While there is no change in the Bank’s stance that it currently has no plan to issue CBDC, we consider it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner, from the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems. Amid various new combinations that are being created in an increasingly digitalized society, the Bank will continue to carefully consider the expected roles of central bank money for people’s lives today and in the future, drawing on the wisdom of various stakeholders both at home and abroad. I would like to close my remarks by expressing my hope that interactions between the participants at this year’s FIN/SUM will lead to many new combinations. Thank you for your attention. 3/3 BIS central bankers' speeches
|
bank of japan
| 2,022 | 4 |
Speech (via webcast) by Mr Goushi Kataoka, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Aomori, 24 March 2022.
|
Goushi Kataoka: Economic activity, prices, and monetary policy in Japan Speech (via webcast) by Mr Goushi Kataoka, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Aomori, 24 March 2022. * * * Economic Activity and Prices Current Situation of Economic Activity and Prices I would like to start my speech by looking at the current situation of economic activity and prices. Chart 1 shows that overseas economies declined significantly for the April-June quarter of 2020, which saw the global spread of the novel coronavirus (COVID-19), but the economies continue to recover thereafter, albeit with variation across countries and regions. As for developments by country and region, the U.S. economy continues to see a recovery brought about by private consumption in particular, despite headwinds such as supply-side constraints and the resurgence of COVID-19 driven by the spread of the Omicron variant. The European economy has recovered on the whole, although public health measures were temporarily tightened again in some countries, reflecting an increase in the number of confirmed new cases of COVID-19. The Chinese economy has recovered as a trend, but the pace of growth has slowed, mainly due to (1) some weakening of investments in real estate and infrastructure owing to the tightening of regulations and (2) public health measures taken in some regions where COVID-19 has been spreading. Emerging and commodity-exporting economies other than China have picked up, despite the recent increase in the number of confirmed new cases of COVID-19. However, the global economy is likely to be pushed down by Russia’s invasion of Ukraine starting on February 24, 2022, and subsequent developments in respective economies, such as the imposition of economic sanctions on Russia. There are three major channels in which deterioration in the situation surrounding Ukraine will affect global economic and price developments; namely, (1) price rises of commodities and grains, including crude oil, natural gas, and wheat, due to supply concerns stemming from the economic sanctions imposed on Russia, (2) stagnation in trade activity with Russia, and (3) volatility in global financial markets. Price rises of commodities and grains will further increase and sustain inflationary pressure and thereby deteriorate the purchasing power of firms and households. In addition, there is concern that stagnation in trade activity with Russia may push down not only the Russian economy but also the world economy by protracting global supply-side constraints. Furthermore, global financial markets remain nervous, as seen, for example, in the large volatility in asset prices. The future course of the situation surrounding Ukraine entails extremely significant uncertainties, and it is therefore necessary to closely monitor ongoing developments, including (1) the spillover effects on the global economy through the aforementioned three channels and (2) the effects on economies around the world of policy conduct in major countries, including economic sanctions. Under these circumstances, I consider that Japan’s economy is in the process of picking up as a trend, but has been coming under intensified downward pressure since the turn of 2022. In the left panel of Chart 2, the line graph shows developments in the real GDP growth rate, and the bar graph shows the contribution of each demand component to the growth rate, such as private consumption and business fixed investment. The second preliminary estimate for the OctoberDecember quarter of 2021 marked a real GDP growth rate of 1.1 percent on a quarter-on-quarter basis and 4.6 percent on an annualized basis, reflecting the pick-up in private consumption and business fixed investment. This was because the spread of the Delta variant subsided through September 2021 and public health measures were subsequently lifted. Moreover, business performance improved, mainly for the manufacturing industry, along with the recovery in 1/6 BIS central bankers' speeches overseas economies; and this led to an expansion in production and exports. However, as shown in the right panel of Chart 2, it will still take time for real GDP to exceed its pre-pandemic level. I view that the pick-up in Japan’s economy has paused since the turn of 2022, mainly for private consumption, due to the effects of the public health measures taken in response to the spread of the Omicron variant. Let me now turn to price developments in Japan. As seen in Chart 3, the observed year-on-year rate of increase in the consumer price index (CPI) for February 2022 was 0.6 percent for all items less fresh food.1 Moreover, the year-on-year rate of increase in the CPI that excludes the effects of temporary factors such as mobile phone charges and energy prices has been in the range of 0.5-1.0 percent, although this is an estimate. Chart 4 shows developments in the indicators for capturing the underlying trend in the CPI. The indicators declined moderately in 2020 — when the impact of COVID-19 intensified — but turned upward in 2021 and have returned of late to pre-pandemic levels. Outlook for Economic Activity and Prices Next, I would like to explain the Bank of Japan Policy Board members’ baseline scenario regarding the outlook for economic activity and prices in Japan. Chart 5 shows the medians of the members’ forecasts for economic activity and prices presented in the January 2022 Outlook for Economic Activity and Prices (Outlook Report). The real GDP growth rate is projected to be 2.8 percent for fiscal 2021, 3.8 percent for fiscal 2022, and 1.1 percent for fiscal 2023. Comparing the projections with those presented in the October 2021 Outlook Report, the projected growth rate for fiscal 2021 is lower but that for fiscal 2022 is higher. This is because the following points were factored in: (1) a decline in the growth rate from the middle of fiscal 2021 until the end of the fiscal year due to a drop in production, such as for the automobile sector, as a consequence of supply-side constraints; and (2) an increase in the growth rate from the beginning of fiscal 2022 due to such factors as the government’s economic measures and a recovery in production to catch up with demand. In short, the baseline scenario is unchanged from that presented in the October 2021 Outlook Report. Specifically, Japan’s economy is likely to follow a recovery trend as downward pressure stemming from COVID-19 on services consumption and the effects of supply-side constraints wane. The recovery trend is also supported by an expansion in external demand, accommodative financial conditions, and the government’s economic measures. Thereafter, as the impact of COVID-19 subsides, the economy is expected to show higher growth. Turning to the outlook for prices, Chart 5 shows the medians of the Policy Board members’ forecasts presented in the January 2022 Outlook Report. The year-on-year rate of change in the CPI for all items less fresh food is expected to be 0 percent for fiscal 2021, 1.1 percent for fiscal 2022, and 1.1 percent for fiscal 2023. Through fiscal 2022, the rate of change in the CPI is likely to increase in positive territory because of (1) rises in energy prices and raw material costs and (2) the dissipation of temporary effects such as a reduction in mobile phone charges. Thereafter, the year-on-year rate of increase in the CPI is expected to stay at around 1 percent toward the end of the projection period, due to the underlying inflationary pressure stemming mainly from improvement in the output gap and a rise in medium- to long-term inflation expectations. Risks to the Outlook So far, I have explained the Policy Board members’ baseline scenario regarding the outlook for economic activity and prices. However, it should be noted that this scenario does not take into account the effects of Russia’s invasion of Ukraine. Particular attention is warranted for the time being to the downside risks to economic activity, mainly the impact of the spread of COVID-19 and geopolitical risks, and to the upside risks to prices due to a rise in commodity prices. I would now like to discuss three points to which I am attentive with regard to risks to the outlook. 2/6 BIS central bankers' speeches The first point is the impact of the repeated resurgence of COVID-19 on economic growth. The Omicron variant, the first case of which was reported in southern Africa in the second half of November 2021, has swept across the world. Chart 6 shows the trend in the number of confirmed new cases of COVID-19 by country and region. Compared with the second half of 2021, when confirmed cases increased due to the spread of the Delta variant, the recent peak numbers are several times higher, indicating that the Omicron variant is highly contagious.2 The spread of COVID-19 affects economic activity through a decline in aggregate demand and supply. In other words, if the authorities take public health measures to ease the burden on the medical care system in response to an increase in the number of confirmed cases, such as imposing restrictions on going out and traveling and placing restrictions on business operations in some industries, or if people voluntarily stay home due to vigilance against COVID-19, this will not only reduce aggregate demand, including household consumption, but also induce a decline in aggregate supply through a decrease in labor supply. In spring 2020, when the COVID-19 pandemic began, day-to-day activities were severely restricted around the globe, resulting in significant negative economic growth, accompanied by a plunge in both demand and supply. Thereafter, in the United States and Europe, the impact of the spread of COVID-19 on aggregate demand has been weakening as the resumption of economic activity has advanced while public health has been protected, mainly due to the widespread vaccinations including the rollout of booster shots. Nevertheless, it is necessary to keep in mind the risk that the spread of COVID-19 due to a new variant may delay recovery in aggregate demand, which in turn may cause a fall in supply and stagnate the global economy’s growth potential itself. Second, I am keeping a close eye on the possibility that supply-side constraints will become prolonged and on the possible effects that this will have on economies across the globe. The reason behind the heightened awareness of supply-side constraints since 2020 is that the aggregate supply of goods in particular has been unable to fully keep up with the expansion in aggregate demand amid the prolonged COVID-19 pandemic. As governments and central banks implemented large-scale fiscal and monetary policy measures to minimize the fall in economic activity triggered by COVID-19, aggregate demand, which had been suppressed due to the pandemic, rebounded with the progressive resumption of economic activity. The rebound, in the form of pent-up demand, materialized in the United States and Europe, where initiatives were launched early to both reopen the economy and protect public health. On the other hand, with regard to aggregate supply, (1) labor supply has been slow to recover because those who left the labor market to, for example, avoid infection returned in smaller numbers than expected and supply-chain disruptions and shipping bottlenecks have been protracted. This has led to delays in the recovery of production capacity, not only domestically in the respective economies but also internationally. Chart 7 presents inflation rates including prices of energy and food in the left panel and delays in the arrival of goods in the right. The chart shows that (1) delivery delays have been playing a part in the elevated inflation rates and (2) delivery continues to be delayed seriously albeit with variation across countries and regions, indicating that such delays are highly unlikely to be resolved easily for the time being.3 Supply-side constraints also affect Japan’s economic activity, mainly through the following channels: (1) opportunity losses for firms owing to a decrease in production, (2) a decline in households’ purchasing power due to increased inflationary pressure, and (3) a downturn in corporate profits caused by deterioration in the terms of trade. With regard to the second channel, there is concern that a rise in prices, mainly for essential goods such as energy and food, may affect lower-income households in particular, as they are more susceptible to a decline in purchasing power. Chart 8 shows developments in the terms of trade. There has been a deterioration in the terms of trade three times since 2013: from 2013 to October 2014, from 2017 to May 2019, and from March 2021 onward. The current deterioration is distinctive in its severity and in the significant impact of the rise in import prices. Moreover, unlike the situation in 2017–2019 — when a rise in 3/6 BIS central bankers' speeches import prices of crude oil was the main cause of the deterioration in the terms of trade — import prices are currently rising for a broad range of goods, not only crude oil but also metal products and lumber, reflecting supply-side constraints. If raw material costs — which have been hovering at a high level — are not smoothly passed on to selling prices, this will increase the risk that firms will not fully distribute their profits in the form of fixed investment and wages.4 The third point is the possible effects of macroeconomic policies across countries and regions, particularly how the course of U.S. monetary policy will influence asset markets and global financial markets.5 Policy rate hikes in the United States will affect not only the economy there but also emerging economies, which are still on their way to recovery from the pandemic, through changes in capital flows in global financial markets. There is also concern about the risk that adjustments in the Chinese economy, such as in the real estate sector, will exert downward pressure on its growth rate and thereby adversely affect the world economy. Alongside this, as I mentioned earlier, close and careful attention is warranted over possible effects that geopolitical risks, including those related to the recent situation surrounding Ukraine, will have on commodity and grain prices, the world economy, and global financial markets. Conduct of Monetary Policy Based on the outlook for economic activity and prices that I have described, I will outline the Bank’s current monetary policy and recent policy decisions. I would then like to express my opinion about the Bank’s monetary policy conduct. Overview of Current Monetary Policy and Recent Policy Decisions The Bank conducts monetary policy under the framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the 2 percent price stability target. This current framework consists of three components: yield curve control, the purchase of risk assets, and the Bank’s public commitment regarding the future conduct of monetary policy. In addition, the Bank has taken action since March 2020 to address the economic and financial impact of the pandemic mainly through the following three measures: (1) the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) (the Special Program); an ample and flexible provision of yen and foreign currency funds; and (3) purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs). Among these measures, the Bank discussed at the Monetary Policy Meeting held in December 2021 the treatment of the Special Program, which was set to expire at the end of March 2022. It decided to extend by six months fund-provisioning to small and medium-sized firms, or SMEs, until the end of September 2022, while completing the financing support for large firms as scheduled. Chart 9 summarizes this policy decision; as indicated, the reason for the decision is that, although firms’ financial positions have improved on the whole, weakness remains in the financial positions of some firms, particularly those in the face-to-face services industry and SMEs. The decision to adjust the Special Program does not represent the end of the Bank’s actions against the pandemic. I would like to emphasize that the Bank’s policy stance is unchanged: it will continue to closely monitor the impact of COVID-19 and take appropriate measures if necessary. The Bank believes that climate change could exert an extremely large impact on developments in economic activity and prices as well as financial conditions from a medium- to long-term perspective. It has thus conducted the fund-provisioning measure to support financial institutions’ various efforts in the field of climate change. Under this measure, 43 financial institutions were selected as eligible counterparties in November 2021, and funds amounting to about 2 trillion yen were provided through the first operation in December. The Bank will continue to support the private sector’s initiatives that contribute to addressing climate change. 4/6 BIS central bankers' speeches My View on the Conduct of Monetary Policy Of the monetary policy measures just outlined, I have voted for the Bank’s measures to address the pandemic and climate change. However, I have cast a dissenting vote on yield curve control and the Bank’s commitment regarding the future conduct of monetary policy. This is because I continue to hold the view that it is necessary for the Bank not only to support financing, provide liquidity, and address climate change but also to further strengthen its monetary easing stance with a view to achieving the 2 percent price stability target at the earliest possible time and thereby supporting Japan’s economy in returning to a powerful growth path. Let me elaborate on my view. The assessment of price developments forms the basis of monetary policy decisions. The following two points should be noted when assessing current developments. First, it is necessary to examine a broad range of indicators, including not just the CPI but also the corporate goods price index (CGPI) and the GDP deflator. Chart 10 shows the GDP deflator, a price indicator related to GDP. It has continued to record year-on-year declines since the AprilJune quarter of 2021, reflecting deterioration in the terms of trade shown in Chart 8. This suggests that the recent price rises in Japan are largely attributable to a rise in imported goods prices, rather than an expansion in domestic demand or wage increases. Second, when assessing developments in the CPI, it is important to examine the underlying trend that excludes temporary effects. The indicators for capturing the underlying trend in the CPI shown in Chart 4 have risen moderately of late, mainly for prices of goods such as petroleum products, food products, and clothes. That said, similar indicators shown in Chart 11 used to be higher than their current levels. Specifically, during the period from the middle of 1990 through the middle of 1992, when the CPI inflation rate was above 2 percent, the weighted median and trimmed mean were above 2 percent, and the mode was also above that level from the middle of 1991. This implies that the current environment surrounding the CPI — in terms of how broad the observed price rises have been — is far from one in which the 2 percent price stability target can be achieved in a stable manner, although the aforementioned indicators have reached about the same levels as those in 2008 and around 2014, when the CPI inflation rate temporarily rose. Chart 12 shows developments in the output gap and inflation expectations, both of which affect the underlying trend in prices. The output gap continues to indicate excess supply, and inflation expectations, although on an uptrend, have not yet reached the recent peak seen around 2014. Developments in the CPI can be assessed by examining not only the underlying trend in prices and changes in variables that affect the trend, but also the degree to which the strength of the inflation momentum will lead to achievement of the price stability target of 2 percent. Chart 13 shows a statistical estimate of the probability of Japan’s inflation rate reaching 2 percent within two years.6 Based on the assumption that the average of the changes in the monthly inflation rate over the past year will continue, the 2 percent-passage probability has risen since July 2021; however, the rise is largely attributable to higher energy prices. Considering that the probability calculated using the CPI excluding temporary effects has also been rising, the momentum in inflation could strengthen not only for energy prices but also for a variety of goods. Nevertheless, the inflation momentum has not been strong enough in terms of the 2 percent-passage probability. Given that the temporary effects that have been pushing down prices thus far are projected to dissipate from the turn of fiscal 2022, the year-on-year rate of increase in the CPI is highly likely to exceed 1.5 percent, whether temporarily or not. Moreover, depending on developments in crude oil prices, the uptrend in the CPI may strengthen further. Having said that, judging from the underlying trend in the CPI, my assessment at the moment is that such price rises are unlikely to last long and that the momentum toward the 2 percent price stability target is not sufficient. 5/6 BIS central bankers' speeches Based on this assessment, I believe that the Bank needs to encourage firms to make active fixed investment for the post-COVID-19 era, so that they can distribute their high levels of savings, which will in turn lead to sustained inflation accompanied by increases in income and demand. To this end, the Bank should further strengthen its monetary easing stance with a view to improving the output gap and inflation expectations, and thereby achieve an economic recovery and the price stability target early. Specifically, to facilitate improvement in the output gap, it is appropriate for the Bank to actively purchase Japanese government securities upon clarifying that short- and long-term interest rates would be lowered under yield curve control. With regard to the strengthening of the Bank’s commitment regarding the future conduct of monetary policy to raise inflation expectations, I believe that it is appropriate for the Bank to revise the forward guidance for the policy rates to make such guidance more powerful by relating it to the price stability target, so as to enable the Bank to take action based on concrete conditions. I assume that this would make it clearer that the Bank has no intention of shifting toward tightening its monetary policy unless the situation is realized where the 2 percent price stability target can be achieved and maintained in a stable manner. In addition, it would contribute to the control of expectations, which plays a crucial role in monetary policy. Furthermore, it is important to strengthen coordination of fiscal and monetary policies and thereby steadily implement a policy mix. As a member of the Policy Board of the Bank, I will continue to do my utmost to achieve and maintain the price stability target. Thank you. 1 The year-on-year rate of change in the CPI for all items less fresh food and energy for February 2022 was minus 1.0 percent. 2 The number of confirmed cases also surged in Japan from January 2022, when the Omicron variant became prevalent. The risk of hospitalization seems to be lower for the Omicron variant than for the Delta variant. However, the number of severe cases peaked close to the 70 percent level seen in autumn 2021, and this brought the medical care system under strain in some regions. 3 There have been many reports that logistics disruptions will continue for at least the rest of the year. See, for example, Japan External Trade Organization (JETRO), “Kyokyu seiyaku, yuso no konran to kigyo no taio jokyo” , 2022, www.jetro.go.jp/ext_images/world/covid-19/info/logistics0217r.pdf. 4 It should be noted that foreign exchange rates do not have a substantial impact on the overall terms of trade because they affect both export and import prices on a yen basis. 5 In response to the globally heightened inflationary pressure, the number of central banks that decided on a policy rate hike for the October-December quarter of 2021 was 31, increasing from 23 for the July-September quarter. 6 Presuming that the first passage time probability of a stochastic process obeys the Wald distribution, the probability of inflation rates hitting a threshold before a time horizon is estimated, assuming a 2 percent threshold and measurement horizon of two years. For the estimation results for 1991 through 2012, see Chart 9 in Kataoka, G., “Economic Activity, Prices, and Monetary Policy in Japan: Speech at a Meeting with Business Leaders in Kanagawa,” Bank of Japan, September 2018, www.boj.or.jp/en/announcements/press/koen_2018/ko180921a.htm/. 6/6 BIS central bankers' speeches
|
bank of japan
| 2,022 | 4 |
Opening remarks by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at the Workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic", Tokyo, 29 March 2022.
|
Masayoshi Amamiya: The COVID-19 crisis and inflation dynamics Opening remarks by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at the Workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic", Tokyo, 29 March 2021. * * * Introduction I would like to thank you for participating in the Bank of Japan’s workshop on “Issues Surrounding Price Developments during the COVID-19 Pandemic.” On behalf of the organizers of the workshop, I would like to share with you our awareness of these issues. As economies recover from the unprecedented shock of the novel coronavirus (COVID-19) pandemic, inflation rates in advanced economies have risen at their fastest pace in many years (Chart 1). In fact, both producer and consumer prices in the United States and Europe recently recorded their highest rates in decades. In Japan, producer prices have also risen at the highest rate in about 40 years, i.e., since the second oil shock, but the pace of increase in consumer prices remains sluggish compared with the United States and Europe. Due to a combination of dissipation of the effects of last year’s reduction in mobile phone charges and a significant rise in energy prices caused in part by the situation surrounding Ukraine, the rate of increase in Japan’s consumer price index (CPI) from April may be at around 2 percent. Even taking this into account, there is a clear gap between inflation in Japan and that in the United States and Europe. The aim of this workshop is to deepen our understanding of prices in Japan by having discussion with you, representatives from academia, using the analyses by the Bank’s staff as a springboard, focusing first on the differences in price developments at home and abroad during the pandemic. A Surge in Inflation in the United States and Europe during the COVID-19 Pandemic To start with, I will outline factors behind the surge in inflation in the United States and Europe that have been discussed recently within academia and among central banks. This recent surge seems to be attributable to the following four factors that have materialized in the wake of the COVID-19 pandemic, although the factor on which the most importance is placed differs among economists and by country and region. The first is an expansion in aggregate demand (Chart 2). Immediately after the outbreak of COVID-19 in spring 2020, economic activity plunged around the world. As it resumed thereafter, and with support from fiscal and monetary policies to stimulate economies, aggregate demand increased sharply and significantly. GDP for the United States clearly surpassed the prepandemic level last spring and that for Europe recovered to its pre-pandemic level in the second half of last year. In particular, partly because consumption opportunities were constrained by the imposition of various restrictions, pent-up demand for private consumption materialized all at once as the spread of COVID-19 subsided. This has increased labor demand, which in turn has led to labor shortages and upward pressure on wages. I will talk about the slower recovery in Japan’s GDP relative to the United States and Europe later. The second factor is a decline in supply capacity, mainly in terms of labor (Chart 3). Immediately after the outbreak of COVID-19, the United States saw a plunge in labor input resulting from a surge in the unemployment rate and a decline in the labor force participation rate. As economic activity resumed thereafter, the unemployment rate has followed a relatively steady declining trend; however, the labor force participation rate has been slow to recover and, in contrast to GDP, labor input has not returned to the pre-pandemic level. This is because some people, particularly seniors, who are more vigilant against COVID-19, have been reluctant to return to the 1/4 BIS central bankers' speeches labor market. In the United States, this phenomenon has been called the “Great Retirement” or “Great Resignation.” Such a decline in the labor force participation rate has not been that evident in Europe or Japan. The third factor is a sectoral shift in demand, which is typical in the United States (Chart 4). The spread of COVID-19 has brought about a major shift in demand from services to goods, and an excess supply of face-to-face services and excess demand for automobiles and digital-related goods have been particularly notable. As a result, a mismatch between supply and demand for individual items has been increasingly severe and there have been semiconductor shortages and logistical constraints. Theoretically, a mismatch between supply and demand for individual items only causes changes in relative prices. In practice, however, such a mismatch puts upward pressure on general prices because there is downward nominal price rigidity. In contrast to the United States, the shift in demand has been limited in Japan. The fourth factor is a surge in energy prices (Chart 5). The rise in energy prices since last year is mostly due to the endogenous factor of an expansion in demand for resources brought about by a global resumption of economic activity. Thus, it is true that, to a large extent, the rise in energy prices should be regarded as a “consequence” of the expanded demand rather than a “cause” of the recent inflation. However, in the current phase, the rise in energy prices has been amplified by exogenous factors from the supply side, such as firms holding back their capital investment related to fossil fuels with a view toward decarbonization and heightened geopolitical risks given, for example, the situation surrounding Ukraine. While the rise in inflation in the United States and Europe is the result of a combination of the various factors mentioned, there has been a heated debate since last year among prominent academic economists and central bank economists over whether the recent inflation is transitory or persistent.1 Actual price developments to date seem to suggest that inflation has become more persistent (Chart 6). In fact, inflation forecasts of the Federal Reserve and the European Central Bank show that, while the forecasts for 2020 were revised downward immediately after the outbreak of COVID-19, those for 2021 were revised upward over time, and the actual inflation rates for 2021 clearly surpassed the 2 percent inflation target. The upward revisions to the forecasts for 2022 have continued even after the turn of the year, and there is no sign so far that the situation will reverse. However, as Emeritus Professor Blanchard, one of the economists involved in the debate, has stated it is “only half time,” the future course of inflation is still uncertain and the debate has not been settled yet. In particular, there is a certain persuasiveness to the view that there has been no fundamental change in the reasons for low inflation — namely, the decline in firms’ pricing power as a result of globalization and digitalization — that have been pointed out since before the pandemic. Therefore, there is a reasonable likelihood that, once the impact of COVID-19 wanes and supply-side constraints and demand shifts subside, economies will return to a low inflation regime. At any rate, the recent experience of high inflation in the United States and Europe illustrates the difficulty of assessing the nature of shocks and their persistence in real time. Why Is Inflation in Japan Weaker than in the United States and Europe? Next, I would like to present three hypotheses regarding the reasons for the weak inflation in Japan relative to the United States and Europe. First, the factors that I pointed out earlier as causes of the surge in inflation in the United States and Europe have not been that pronounced in Japan. That is, due in part to Japanese households’ strong risk aversion, pent-up demand for private consumption has been limited so far (Chart 2). Consequently, Japan’s real GDP still has not recovered to the pre-pandemic level seen in 2019. In addition, it has remained relatively easy for Japanese firms to hoard labor, because the labor market is not as fluid as in the United States and employment adjustment 2/4 BIS central bankers' speeches subsidies have been substantial (Chart 3). As a result, in Japan, the number of people leaving their jobs has shown no marked increase, which is particularly the case for regular employees, and supply-side constraints caused by a decline in the labor force participation rate have been limited. Furthermore, overall demand has been relatively weak in Japan, and demand shifts from services to goods have been somewhat slow (Chart 4). Japan therefore has not seen a surge in goods prices like the one observed in the United States. Second, the current phase has once again brought to the fore the “norm” in Japan — that is, the Japanese-specific behavior of firms based on the assumption that prices will not increase easily (Chart 7). For example, the supply shortages of automobiles due to difficulties in procuring semiconductors are a global phenomenon, but increases in automobile prices have varied across economies and have been pronounced in the United States. While the varying degrees of increase are partly because supply-side constraints in Japan have not been as severe as in the United States and Europe — as shown by developments in the respective delivery delay indexes of the Purchasing Managers’ Index (PMI) — they are also attributable to Japanese firms’ cautious price-setting stance. When there are supply-side constraints for certain goods, U.S. firms tend to raise prices relatively quickly and allocate goods by giving preference to customers who are willing to pay higher prices. In contrast, Japanese firms seem to place more emphasis on longterm business relationships with customers and respond to their demand as much as possible while keeping selling prices unchanged. In fact, lead-lag correlation coefficients between the delivery delay index and the output prices index for the respective economies show that the correlation is statistically significantly lower in Japan than in the United States and Europe, suggesting that Japanese firms have been hesitant to raise prices even when faced with supplyside constraints. Such a cautious stance among Japanese firms has likewise been seen in the labor market; even when faced with labor shortages, for example, Japanese firms prioritize maintaining employment in the long term and have been reluctant to raise wages. Third, issues concerning the measurement of price indexes may also have a non-negligible impact on Japan’s inflation rate (Chart 8). Services prices in Japan’s CPI show that price developments in housing rent and mobile phone charges, both of which have relatively large weights, have been weaker in recent years than those in the United States and Europe. The two items are typical examples of services for which prices are difficult to measure with a high degree of accuracy. I think it would be worthwhile to deepen our understanding of the differences across countries and regions in terms of statistical practices. Conclusion I have described the differences in inflation in the United States, Europe, and Japan that have been brought to light once again by the pandemic. To conclude, I would like to talk about something that I have long been wondering about with regard to the difference in inflation rates between Japan and the United States from a longer-term perspective (Chart 9). The fact that Japan’s inflation rate is below that of the United States is not a phenomenon that began in the second half of the 1990s, which was during the deflationary period, but one that has continued since the second oil shock. Before around 1980, Japan consistently had higher inflation than the United States, and it was Japan that suffered a surge in inflation at the time of the first oil shock, having the highest rate among advanced economies, at over 20 percent. It is well known that the bitter experiences of the two oil shocks and stagflation have led to the rapid development of theories on inflation expectations within academia, and that these theories have had a significant impact on the monetary policy conduct of central banks, including the Bank of Japan.2 Monetary policy conduct that takes the importance of inflation expectations into account has led to the low and stable inflation rates in Japan and the United States since the 1980s, and it could be said that this is the result of close interactions between academia and policymakers. However, there has not really been a very convincing explanation for why Japan and the United States switched places in terms of their respective inflation rates around 1980, 3/4 BIS central bankers' speeches and why inflation in Japan has remained consistently below that in the United States since then, including during the period of Japan’s economic overheating in the second half of the 1980s. The differences in inflation dynamics across economies following the COVID-19 crisis and the inflation differentials between Japan and the United States over the long term have renewed my awareness that our understanding of inflation remains limited. I have the impression that this kind of awareness is generally shared by officials in other countries and regions as well, given that central bankers have viewed being “humble” as the key since the outbreak of COVID-19. Instead of being boxed in by our conventional views, I think it is important for us to be humble in examining the actual price data to understand why inflation in Japan is weaker than in the United States and Europe, whether the reasons are structural, and whether any of this is likely to change in the future. I hope that this workshop, through an active exchange of views with experts and scholars, will advance our understanding of inflation, including the points I just mentioned. Thank you very much for your attention. 1 Macroeconomists such as Emeritus Professor Olivier Blanchard and Professor Lawrence H. Summers have warned since relatively early on about the risk of persistent high inflation, arguing that aggregate demand expanded by massive U.S. fiscal spending and its multiplier effect is highly likely to go well beyond the potential supply capacity. In contrast, scholars such as Professor Paul Krugman and authorities such as the Federal Reserve and the International Monetary Fund have argued that supply-side constraints and shifts in demand are to a large extent transitory factors brought about by the pandemic, and that the increase in inflation is likely to moderate relatively quickly. For an example of a debate among academic economists and central bank economists, see Furman, J., “Why Did Almost Nobody See Inflation Coming?” Project Syndicate, January 17, 2022,www.project-syndicate.org/commentary/2021-us-inflation-forecasting-errors-economic-models-by-jasonfurman-2022–01. 2 It already had been pointed out in a monthly bulletin that the Bank published in 1975 that, as a result of an upward shift in the short-term Phillips curve due to a rise in inflation expectations, the long-term Phillips curve becomes vertical. For details, see “1970-nendai no sekai infureshon," Chosa Geppo (February 1975): pp. 1-15. For a history of the Bank’s use of the Phillips curve in its assessment of price developments, see Hara, N., Koike, R., and Sekine, T., “Firippusu kyokusen to Nippon Ginko," Bank of Japan Review Series, no. 20-J-3, April 2020. 4/4 BIS central bankers' speeches
|
bank of japan
| 2,022 | 4 |
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Committee meeting on Financial Affairs, House of Representatives, 5 April 2022.
|
Haruhiko Kuroda: The Bank's semiannual report on currency and monetary control Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Committee meeting on Financial Affairs, House of Representatives, 5 April 2022. * * * Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank’s conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan’s economy has picked up as a trend, although some weakness has been seen in part, mainly due to the impact of the novel coronavirus (COVID-19). Overseas economies have recovered on the whole, albeit with variation across countries and regions. However, in the wake of Russia’s invasion of Ukraine, global financial and capital markets have been volatile and prices of commodities such as crude oil have risen significantly. In this situation, Japan’s exports and production have continued to increase as a trend, despite the remaining effects of supply-side constraints. Although the March 2022 Tankan (Short-Term Economic Survey of Enterprises in Japan) shows that business sentiment has deteriorated slightly, corporate profits have continued to improve on the whole and business fixed investment has picked up. On the other hand, a pickup in private consumption has paused due to increased downward pressure stemming from the spread of the Omicron variant since the beginning of the year. With regard to the outlook, Japan’s economy, although expected to be affected by a rise in commodity prices, is likely to recover, with downward pressure stemming from COVID-19 and the effects of supply-side constraints waning and with support from fiscal and monetary policies. The year-on-year rate of change in the consumer price index (CPI) has been at around 0.5 percent recently. It is likely to increase clearly in positive territory for the time being due to a significant rise in energy prices, a pass-through of raw material cost increases, and dissipation of the effects of a reduction in mobile phone charges. Meanwhile, the underlying inflationary pressure is projected to increase, mainly on the back of improvement in the output gap and a rise in medium- to long-term inflation expectations. Concerning risks to the outlook, the course of COVID-19, including variants, and its impact on domestic and overseas economies continue to warrant attention. In addition, there are extremely high uncertainties over how the situation surrounding Ukraine will affect Japan’s economic activity and prices, mainly through developments in global financial and capital markets, commodity prices, and overseas economies. Japan’s financial system has maintained stability on the whole, despite the pandemic. Regarding financial risks from a longer-term perspective, there is a possibility that prolonged downward pressure on financial institutions’ profits may lead to a gradual pullback in financial intermediation. Meanwhile, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank’s conduct of monetary policy. 1/2 BIS central bankers' speeches Japan’s GDP has remained below the pre-pandemic level. Although the year-on-year rate of change in the CPI is likely to increase clearly in positive territory in the short run, this is expected to occur mainly due to an increase in energy prices. Inflation resulting from higher import costs could push down Japan’s economy through a decline in households’ real income and deterioration in corporate profits. Given such developments in economic activity and prices, the Bank will persistently continue with the current powerful monetary easing centered on yield curve control, aiming to firmly support Japan’s economic activity, which is on its way to recovery from the pandemic, and thereby achieve the price stability target of 2 percent in a sustainable and stable manner. On this basis, while closely monitoring developments at home and abroad, the Bank will continue to ensure stability in financial markets through, for example, providing ample liquidity; it will also continue to do its utmost to support financing, mainly of small and medium-sized firms, by providing funds through the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) at a low interest rate to financial institutions that make loans in response to COVID-19. Thank you. 2/2 BIS central bankers' speeches
|
bank of japan
| 2,022 | 4 |
Opening remarks (virtual) by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the 2022 BOJ-IMES Conference hosted by the Institute for Monetary and Economic Studies, 25 May 2022.
|
May 25, 2022 Bank of Japan Opening Remarks at the 2022 BOJ-IMES Conference Hosted by the Institute for Monetary and Economic Studies, Bank of Japan KURODA Haruhiko Governor of the Bank of Japan I. Introduction It is my great pleasure to welcome you all to the 2022 BOJ-IMES Conference. On behalf of the conference organizers, I would like to thank you all for your participation. This is the 27th conference since its start in 1983. Due to the continuing effects of COVID19, the conference is being held online, as last year. The previous conference was very fruitful with lively and wide-ranging discussions on the theme of "Adapting to the New Normal: Perspectives and Policy Challenges after the COVID-19 Pandemic." Since then, however, the environment surrounding central banks has changed dramatically. Given these developments, the themes for discussion appear to have expanded rapidly. That is why I think this is the ideal opportunity for central banks, international institutions, and academia to gather and exchange opinions. Against this background, the theme of this year's conference is "New Dimensions and Frontiers in Central Banking." Now I would like to provide an overview of the theme, focusing on the new dimensions faced by central banks and the frontiers they are developing. II. New Dimensions in Central Banking First of all, I would like to point out two challenges currently facing central banks. A Surge in Inflation The first challenge is a global surge in inflation. For most central bankers and researchers, this is not something they could have imagined at the emergence of COVID-19. The unique feature of inflation this time is that both supply and demand inflationary factors have occurred at the same time. On the supply side, constraints on production capacity have given rise to inflationary pressure. These constraints include disruptions to the supply of raw materials, a shortage of semiconductors, and labor shortages. On the demand side, as economic activity has recovered globally since last year, solid demand from households has materialized. A shift in demand from services to goods has occurred amid the continued pandemic. These two factors have brought about upward inflationary pressure, especially on the price of goods including the price of commodities. That said, when it comes to these supply and demand effects, there are both similarities and differences between countries. For example, in Japan, household pent-up demand has been limited and the recovery of aggregate demand has been slower than in Europe and the United States. On the supply side, the constraints may not be as severe as in the United States. While shortages of intermediate inputs have had some impact, labor supply has room to expand thanks to so-called labor hoarding during the pandemic. Differences in labor supply stance have also resulted in differences in wage growth between countries. In Japan, wages have risen, but the rate of increase has remained moderate. Also, the recent surge in commodity prices due to supply factors puts greater downward pressure on the economies of commodityimporting countries through a decline in household real income and corporate profits. In this situation, attention will be focused on how firms pass increasing costs on to prices and how they determine the level of price increases that households are willing to accept. Given these differences in the supply and demand effects, the appropriate monetary policy response will also differ between countries. A common challenge for each country is to determine the magnitude and persistence of the inflationary pressure. In doing so, it will be important to capture the relationship between three prices, namely, the price of goods and services, wages, and commodity prices. A Surge in Geopolitical Risk Another challenge facing central banks is the surge in geopolitical risk triggered by the Russian invasion of Ukraine. This has induced a further increase in commodity prices. And it has increased inflation worldwide. In addition, uncertainties over geopolitical risk are extremely high. These uncertainties could put downward pressure on the global economy by shrinking trade and damaging confidence. In addition to the real economy, close attention has to be paid to financial market sentiment, the global financial system, and cybersecurity. Furthermore, if views on geopolitical risk were to change permanently, this could have a longer-term impact on the global economy through structural changes in trade and capital flows. Recognizing how extremely uncertain and fast moving the current situation is, central banks are required to implement the appropriate policy measures. III. Frontiers in Central Banking In addition to these challenges, new challenges have emerged in the frontiers that central banks should develop. I would like to point out three areas. Structural Change in the Economy The first frontier is the acceleration of structural changes in the economy amid the prolonged pandemic. The digitalization and automation of society and the economy were in progress even before the pandemic, and having been accelerated by the pandemic, they have expanded and deepened rapidly. Along with this, a restructuring of supply chains has been observed. Also, since the effects of the pandemic were regressive, income inequality appears to have increased further, above its already increasing trend in some advanced economies. The fiscal burden for dealing with this issue has also increased. From an economic perspective, these structural changes may affect the potential growth rate, the natural interest rate, and the Phillips curve. The structural changes may have implications for the effectiveness of monetary policy and the appropriate responses. Central banks should therefore pay close attention to the changing economic structure and its potential impact on prices and the real economy. Climate Change Responses The second frontier is climate change response, which has become a new domain for central banks. This is an area in which considerable effort has been made since the last conference. Stimulating and wide-ranging discussions have taken place at international forums such as the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The Bank of Japan published its comprehensive strategy on climate change in July 2021. The Bank also introduced its Climate Response Financing Operations and has been actively engaged in a wide range of initiatives, including research. In principle, it is the governments' industrial and fiscal policies that play the primary role in addressing climate change issues. However, it is also important to consider how to make use of market mechanisms to ensure the effectiveness of these policies. One example is the emissions trading systems introduced in the EU and elsewhere. In Japan, national-level plans have been launched. The role of markets in evaluating firms' efforts to tackle climate change is also important. In this way, the market function can promote changes in firms' behavior. For example, the Bank of Japan's Climate Response Financing Operations make use of financial institutions' expertise in assessing firms in the area of climate change. The financing operations also require financial institutions to disclose relevant information as a condition for supplying funds. These measures have been designed to help use market discipline in an effective way. The role of central banks may be considered from the perspective of market initiatives, such as promoting the development of financial markets related to climate change. The Transformation of the Monetary System The third frontier is the transformation of the monetary system, induced by digitalization. Many central banks are working on the issues surrounding central bank digital currency (CBDC). The Bank of Japan has been testing the technical feasibility of the functions and features required for CBDC. Specifically, in April this year, the Bank of Japan moved from Proof of Concept Phase 1, aimed at testing the basic functions of CBDC, to Proof of Concept Phase 2, in which additional functions are added and tested. However, the broader issue is how to build a monetary system in the digital age. We have seen the emergence of private digital currencies and stablecoins in addition to the increasing interest in CBDC. There is no doubt that we have entered a period of transformation for the monetary system. Considering the future of the monetary system can lead to exploring the potential for growth. One area with the potential to create new demand is combining the monetary system with the information system that supports business. In addition, given the cross-border role of money, the future of the monetary system should be considered globally as well as domestically. Central banks are required to engage in designing and building the new monetary system globally while examining the possible effects of future changes to money on monetary policy and financial stability. IV. Conclusion Let me wrap up. Since last May, the situation facing central banks has changed rapidly and the efforts in the frontiers of central banking have advanced significantly. This year's conference is being held for three days to provide enough time for discussion. The conference has been organized with a view to deepening our understanding of the wide range of challenges I have outlined. In the Mayekawa Lecture, I am looking forward to fresh insights, courtesy of Professor Kenneth Rogoff, regarding the new dimensions and frontiers in central banking. In the keynote speech, Professor Carl Walsh will be discussing the mechanism of the current surge in inflation and its implications for monetary policy. Also, the presentation sessions feature cutting-edge papers covering a wide range of topics in the frontiers of monetary policy, such as economic inequality, climate change, digital currencies, and automation of the economy, all of which are crucial topics for current central banking. Building on these discussions, we can look forward to lively exchanges with experts from central banks and international institutions in the policy panel on the final day of the conference. In a rapidly changing world filled with uncertainty, a common challenge for central banks is how to adapt to this changing environment. To overcome these challenges, central banks need to be nimble, agile, and smart. I am sure that the insights gained from the contributions to this conference will ensure that central banks are all fit and ready to face those challenges. Thank you.
|
bank of japan
| 2,022 | 5 |
Opening remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Kisaragi-kai Meeting, Tokyo, 6 June 2022.
|
June 6, 2022 Bank of Japan The Bank's Thinking on Monetary Policy: Toward Achieving the Price Stability Target in a Sustainable and Stable Manner Speech at the Kisaragi-kai Meeting in Tokyo KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to speak at the Kisaragi-kai meeting. The last time I was invited to this meeting was in March 2021. This was just after the Bank of Japan conducted the Assessment for Further Effective and Sustainable Monetary Easing to enhance the sustainability and nimbleness of monetary easing amid concern over the lingering impact of the novel coronavirus (COVID-19). With the global resumption of economic activity since then and Russia's invasion of Ukraine, price developments at home and abroad have changed significantly. In particular, inflation in Europe and the United States has accelerated at a much faster pace than many experts had expected, and the Federal Reserve and other central banks have been moving ahead with reducing monetary accommodation in earnest recently. Despite being lower than the respective indexes for Europe and the United States, Japan's consumer price index (CPI) for this April exceeded 2 percent on a year-on-year basis for the first time since summer 2008. Even in this situation, unlike central banks in Europe and the United States, the Bank has made clear its stance to persistently continue with aggressive monetary easing. Today, I will talk about why the Bank considers it necessary to maintain monetary easing in Japan while making comparisons with the situation in Europe and the United States. In addition, as the Bank aims at achieving the price stability target of 2 percent in a sustainable and stable manner, I would like to explain my view on the path toward the achievement. I. The Bank's Monetary Policy Conduct for the Time Being A. Basic Thinking on the Conduct of Monetary Policy given Developments in Economic Activity and Prices Let me start by talking about the basic thinking on the conduct of monetary policy for the time being. There are mainly three reasons why the Bank considers it necessary to persistently continue with aggressive monetary easing. The first is that Japan's economy is still on its way to recovery from the downturn caused by COVID-19. Unlike in the United States and the euro area, Japan's real GDP has not yet recovered to the pre-pandemic level (Chart 1). The real GDP growth rate for the January-March quarter of 2022 was negative, at minus 1.0 percent on an annualized quarter-on-quarter basis. This is because, amid prolonged supply-side constraints, such as on semiconductors and parts and components, services consumption had been under increased downward pressure due to the spread of the Omicron variant. Real GDP for the January-March quarter exceeded the pre-pandemic level (or the 2019 level) by 3.7 percent for the United States and by 0.6 percent for the euro area, whereas real GDP for Japan remained 2.7 percent below the pre-pandemic level. By demand component, in Japan, the recovery in domestic private demand, such as private consumption and business fixed investment, has been somewhat weaker than in the United States and the euro area. Given this situation in Japan, the most important role of monetary policy is to maintain accommodative financial conditions and thereby firmly support a full-fledged recovery in domestic private demand. The second reason is that, since Japan is a commodity importer, the economy has been under downward pressure from an outflow of income brought about by recent rises in international commodity prices (Chart 2). In contrast, the United States produces most of its resources, partly as a result of the shale revolution, and thus a rise in commodity prices does not necessarily lead directly to an outflow of income from the country. An indicator of national income that also takes into account changes in the terms of trade is called real gross national income (GNI). This is calculated by adding up real GDP, net income from the rest of the world -- such as foreign investment income -- and trading gains and losses, which represent the change in income due to changes in the terms of trade that are mainly brought about by movements in commodity prices. While Japan's real GDP growth rate for fiscal 2021 was 2.1 percent, reflecting an increase in spending due to the resumption of economic activity, the growth rate in terms of real GNI was only 0.6 percent due to deterioration in the terms of trade stemming from rising commodity prices. It should be noted that the main cause of the recent deterioration in Japan's terms of trade is a rise in commodity prices in U.S. dollar terms, which boosts only import prices, and not the depreciation of the yen, which increases both export and import prices in yen terms and therefore is generally neutral to the terms of trade. In any event, since Japan's economy has been under downward pressure from the income side due to rising commodity prices, it is necessary to mitigate this negative impact by continuing to conduct monetary easing. The third reason is that the price stability target of 2 percent needs to be achieved in a sustainable and stable manner. As was generally expected, the year-on-year rate of change in Japan's CPI for all items excluding fresh food was 2.1 percent for April, reaching 2 percent on the surface (Chart 3). The main cause of the increase was a significant rise in energy prices, with much of the impact of last year's reduction in mobile phone charges dissipating. That said, the rate of change in the CPI for all items excluding fresh food and energy was only 0.8 percent, suggesting that price rises are not necessarily evident for a wide range of items, with the exception of energy. The Bank projects that the rate of increase in the CPI for all items excluding fresh food will be 1.9 percent for fiscal 2022 but will decelerate to 1.1 percent for fiscal 2023, when the positive contribution of the rise in energy prices to the CPI is likely to dissipate. Achieving the price stability target of 2 percent does not mean CPI inflation reaching 2 percent temporarily due to such factors as a rise in energy prices, but rather a situation where the inflation rate is 2 percent on average over the business cycle. To realize this situation, it is necessary that the Bank continue with the current aggressive monetary easing and thereby encourage the formation of a virtuous cycle in which underlying inflation rises moderately amid increases in corporate profits, employment, and wages. I will explain in detail later about the importance of wage increases toward achieving the price stability target of 2 percent. B. Monetary Easing under Yield Curve Control Due to the three reasons I just outlined, the Bank has pursued aggressive monetary easing. As a specific measure, the Bank sets a clear target level for 10-year Japanese government bond (JGB) yields, in addition to the short-term policy interest rate, under the framework of yield curve control. At the latest Monetary Policy Meeting (MPM) in April, the Bank decided to maintain the guideline for market operations, in which the short-term policy interest rate is set at minus 0.1 percent and the target level of 10-year JGB yields is around zero percent. In addition, given the findings of the assessment conducted in March 2021, the Bank, with a view to maintaining market functioning at a certain level and controlling the level of yields without impairing the effects of monetary easing, made clear that an appropriate range of 10-year JGB yield fluctuations would be between around plus and minus 0.25 percent. Based on this guideline, the Bank currently purchases a necessary amount of JGBs so that 10-year JGB yields will stay within the range of plus and minus 0.25 percent from zero percent. At the April MPM, the Bank also decided to offer to purchase 10-year JGBs at 0.25 percent every business day in principle through fixed-rate purchase operations, with a view to firmly setting an upper limit on the range of 10-year JGB yield fluctuations and to making clear the Bank's monetary easing stance. This decision was based on the thinking that, while some market participants attempted to predict the future course of the Bank's policy stance drawing on whether or not fixed-rate purchase operations were conducted, the Bank's announcement in advance that it would conduct these operations essentially every business day would ensure market stability. In fact, since the turn of the year, even though long-term interest rates in Europe and the United States have continued on an uptrend, 10-year JGB yields have been at levels consistent with the guideline for market operations, without exceeding the upper limit of 0.25 percent (Chart 4). Under yield curve control, the Bank sets a target level for 10-year JGB yields, and thus the amount of JGB purchases is determined endogenously. Recently, the Bank has been conducting fixed-rate purchase operations and has increased the amount of JGBs it purchases. However, the total amount purchased is not significantly higher than in the past, and there continue to be no bids submitted for fixed-rate purchase operations since May, which is after the Bank decided to conduct the operations every business day. While I think this is due in part to the "stock effect" attributable to the past JGB purchases, another reason seems to be that the "announcement effect," or the effect of the Bank having announced that it will purchase an unlimited amount of JGBs through fixed-rate purchase operations if 10-year JGB yields exceed 0.25 percent, has had a significant influence on the formation of market participants' expectations. At any rate, 10-year JGB yields have been stable at low levels under yield curve control, and I consider that this has sustained accommodative funding conditions, such as for CP, corporate bonds, and bank lending, and in turn firmly supported Japan's economic activity. II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner I will now talk about the specific path toward achieving the price stability target of 2 percent in a sustainable and stable manner. Discussions from a workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic" that the Bank held at the end of March will be informative in this regard.1 The workshop involved leading Japanese academic economists and generated lively discussions on why Japan alone continues to have low inflation, based on the analyses by the Bank's staff regarding the differences in price developments between Japan, the United States, and Europe that came to light during the pandemic. Taking these discussions into account, I believe that the issue of whether wages will clearly increase and service prices will overcome long-standing zero inflation holds the key to achieving the price stability target of 2 percent in Japan in a sustainable and stable manner. Let me explain this in more detail. A. Inflation Dynamics during the Pandemic: Japan, the United States, and Europe I will first outline inflation dynamics in Japan, the United States, and Europe during the pandemic (Chart 3). The rise in inflation has been particularly notable in the United States, where the rate of change in the CPI has recently been over 8 percent and that in the CPI excluding energy has been over 6 percent. In terms of monetary policy responses, the Federal Reserve had taken the stance until last summer that, since inflation was expected to be transitory, it would allow inflation to overshoot and focus on supporting the economy by maintaining an accommodative stance of monetary policy, unless the second-round effects For details, see Amamiya, M., "The COVID-19 Crisis and Inflation Dynamics," opening remarks at the workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic," March 29, 2022, https://www.boj.or.jp/en/announcements/press/koen_2022/ko220329b.htm/; and Monetary Affairs Department, Bank of Japan, "Characteristics of Price Developments in Japan: Summary of the First Workshop on 'Issues Surrounding Price Developments during the COVID-19 Pandemic,'" BOJ Reports and Research Papers, May 2022, https://www.boj.or.jp/en/research/brp/ron_2022/ron220523a.htm/. of inflation were observed on wages or inflation expectations. 2 In fact, inflation at that time was mainly driven by cost-push factors, such as rises in energy prices and prices of automobiles, which were strongly affected by supply-side constraints. However, contrary to initial expectations, the inflation rate in the United States since then has accelerated significantly. There are two reasons for this. First, the labor force participation rate has not recovered sufficiently, mainly due to vigilance against COVID-19. Second, while economic growth continues to be robust, prices overall have been pushed up by strong aggregate demand in addition to supply factors. In this situation, labor market conditions have been tightening, as seen in the ratio of job openings to total separations recording a historical high of around 2 recently. Given the rise in inflation, workers have been requesting higher wages, and this has led to a further rise in services prices, including housing rent. Therefore, in order to contain wages and prices from spiraling upward, the Federal Reserve raised its policy interest rate by 0.25 percentage points in March and 0.5 percentage points in May, and it has been communicating that ongoing increases in the rate will be necessary. Basically, these monetary responses by the Federal Reserve are expected to also contribute to stability in the global economy through steady developments in U.S. economic activity and prices. However, amid concern in global financial and capital markets over elevated inflation and acceleration in the pace of policy interest rate hikes in the United States, some have pointed out risks posed, for example, by significant adjustments in risk asset prices, such as stocks, and capital outflows from emerging economies. It is necessary to pay close attention to how these risks will evolve. In the euro area, the rate of change in consumer prices has also seen a significant increase lately. The headline inflation rate has exceeded 8 percent and the rate excluding energy has been above 4 percent. Since the area has strong economic and geographic relations with Ukraine, energy prices have risen further while uncertainties over the economic outlook For example, at the Jackson Hole Economic Policy Symposium last summer, Federal Reserve Chair Powell explained in detail what the Fed considered to be reasons for the rising inflation at that stage and the appropriate monetary policy responses given those reasons. Powell, J. H., "Monetary Policy in the Time of COVID," speech at "Macroeconomic Policy in an Uneven Economy," a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 27, 2021, https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm. have intensified. The European Central Bank (ECB) faces a difficult dilemma of curbing inflation or supporting the economy. Although the ECB has focused so far on supporting the economy and put off raising interest rates, ECB President Lagarde has signaled that interest rates will be raised by the end of the July-September quarter as the second-round effects of inflation have started to be seen on wages and inflation expectations recently. In contrast, Japan's CPI, despite having increased, has been only around 2 percent of late and has been lower than the respective indexes for Europe and the United States. This seems to once again highlight Japan's long-standing issue of prices being unlikely to rise. That is, goods prices in Japan have shown cyclical fluctuations along with the output gap, as is the case in Europe and the United States, although to a varying degree. However, services prices have remained extremely rigid, unlike in Europe and the United States, and have barely risen during the pandemic. In order for Japan to achieve inflation of around 2 percent every year, services prices will need to constantly make a roughly 2 percent contribution to the CPI and goods prices will need to see cyclical fluctuations at around 2 percent. On this point, comparing the distribution of price changes of items that make up the CPI in Japan and the United States, the distribution in the United States before the pandemic shows some variation at around 2 percent, primarily for services (Chart 5). In Japan, meanwhile, price changes for an overwhelmingly large number of items hover at around 0 percent, and there has been no major change to this during the pandemic. The primary reason for being unable to achieve the price stability target of 2 percent, despite the fact that the Bank has carried out large-scale monetary easing for over nine years, is that this "zero percent anchoring" of inflation expectations -- in other words, "zero-inflation norm" -- has been extremely persistent. Not all economic entities in the United States share the 2 percent norm; for some the norm is 1 percent, while for others it is 3 percent. The 2 percent figure is simply the average. However, the zero inflation norm in Japan means that everyone is acting essentially in concert to keep prices unchanged. Economists have pointed to a "kinked demand curve" as a reason for unchanging prices in Japan (Chart 6).3 In other words, in the demand curve faced by individual firms, although demand declines significantly with even slight price hikes, small price cuts do not result in that much increase in demand. This is why keeping prices unchanged has been the optimal price-setting behavior for Japanese firms. B. Importance of Wage Increases The key to changing this situation is higher wages. That is, it is important to increase labor costs, which are faced by all firms, thereby creating a situation where firms raise selling prices, including services prices, every year, and to heighten consumers' tolerance of price rises through higher wage income. To this end, the following factors are essential. The first is that aggressive monetary easing is maintained and tight labor market conditions are in turn sustained for a long period. The second is that actual inflation is reflected in wage increases resulting from the annual spring labor-management wage negotiations. Let me start by looking at the first factor: sustaining tight labor market conditions. As the Bank has pursued aggressive monetary easing since 2013, economic activity in Japan has been pushed up and labor market conditions have continued to tighten. Around 2018, before the outbreak of COVID-19, the active job openings-to-applicants ratio rose to 1.6, surpassing the peak during the bubble period, while the unemployment rate declined to the range of 2.0-2.5 percent (Chart 7). Under these circumstances, upward pressure on wages has increased in external labor markets -- where firms adjust excess marginal labor force, or a shortage of it -- as seen in the fact that hourly wages for part-time employees, which are sensitive to labor market conditions, rose by around 3 percent. It was expected that the tightening of external labor market conditions would feed through to internal labor markets, which mainly consist of full-time employees working within firms. This is because, as For the relationship between the kinked demand curve and low inflation in Japan, see Aoki, K., Ichiue, H., and Okuda, T., "Consumers' Price Beliefs, Central Bank Communication, and Inflation Dynamics," Bank of Japan Working Paper Series, no. 19-E-14, September 2019, https://www.boj.or.jp/en/research/wps_rev/wps_2019/data/wp19e14.pdf; and Watanabe, T., Bukka to wa nani ka (Tokyo: Kodansha, 2022). Negishi Takashi, professor emeritus at the University of Tokyo, carried out pioneering work on the kinked demand curve from the perspective of the microeconomic foundations of macroeconomics. For details, see Negishi, T., Microeconomic Foundations of Keynesian Macroeconomics (Amsterdam: North-Holland, 1979). long-term employment practices of full-time employees basically have been maintained in Japan's internal labor markets, the labor market slack is likely to remain and wage increases tend to be constrained even during economic booms as a result of securing employment during recessions. However, as the slowdown in overseas economies has become clear since the end of 2018 and Japan's economy was directly hit by the COVID-19 outbreak after the turn of 2020, labor market conditions started to ease as a trend and wages of full-time employees did not see a full-fledged increase. As presented in the April 2022 Outlook for Economic Activity and Prices (Outlook Report), economic growth is expected to outpace the potential growth rate for three consecutive years from fiscal 2022. In this situation, the key is whether labor market conditions will tighten not only in external labor markets but also in internal labor markets, and whether this will lead to a full-fledged rise in wages. I will now turn to the second factor: achieving wage increases that reflect actual inflation. During Japan's deflationary period, as well as the period of economic recovery in the mid-2000s, many firms put off making base pay increases. Such increases have resumed since 2013, amid a moderate rise in inflation on the back of large-scale monetary easing, and base pay has increased for nine consecutive years, including this fiscal year. Nevertheless, the average increase over this period has been around 0.5 percent, which is still lower compared with Europe and the United States, or Japan before the deflationary period. Several factors are thought to lie behind the low growth in base pay. One hypothesis raised during the workshop held at the end of March was that, since inflation in recent years has been well below the average increase in regular salaries of around 2 percent, individual households did not recognize inflation as an increase in living expenses and were thus less likely to pay attention to prices. In economics, this recently has been referred to as "rational inattention," meaning that people are likely to be inattentive to information judged to be of little importance when making economic decisions. Of course, the validity of this hypothesis needs to be further verified theoretically and empirically. What warrants attention is the extent to which firms will take into account the recent inflation of nearly 2 percent in their wage increases from fiscal 2023 onward. C. Signs of Changes in Inflation Expectations In this regard, changes have recently started to be seen in both firms' and households' perceptions of inflation and inflation expectations in Japan. In terms of firms' perceptions of inflation, the March Tankan (Short-Term Economic Survey of Enterprises in Japan) shows that the diffusion index for output prices -- which is considered to indicate firms' price-setting stance for around three to six months ahead -- has risen to its highest level since early in 1980 (i.e., just after the second oil shock) for the manufacturing industry and since early in 1990 (i.e., at the end of the bubble period) for the nonmanufacturing industry (Chart 8). The Tankan also shows that firms' inflation outlook for general prices has risen clearly for one year ahead, reaching its highest level since the start of the survey, while the outlooks for three years ahead and five years ahead also have increased to near peak levels. As firms adopt an increasingly active price-setting stance, Japanese households' tolerance of price rises has been increasing. This can be regarded as an important change from the perspective of aiming to achieve sustained inflation. On this point, Watanabe Tsutomu, professor at the University of Tokyo, is conducting an interesting survey (Chart 9). He regularly surveys households in five countries including Japan and collects their answers to the question of what they will do when the price of a product that they always buy goes up by 10 percent at the supermarkets that they frequent. In the previous survey conducted last August, more than half of Japanese households answered that they would deal with the price increase by switching to a different supermarket. This is precisely what the kinked demand curve would predict. The results for Japan were markedly different from those for Europe and the United States, where more than half of the respondents answered that they would accept the 10 percent price increase in the product that they always buy and continue to buy the same amount of it at the same supermarket. The latest survey conducted this April, however, reveals changes in the results for Japan: the number of Japanese respondents who said they would deal with the price increase by switching to a different supermarket was down significantly, and more than half, as in Europe and the United States, answered that they would accept the price increase and continue to buy the same amount at the same supermarket. While the results should be interpreted with considerable latitude, one hypothesis drawn from them is that "forced savings" accumulated as a result of restrictions during the pandemic may have led to improvement in households' tolerance of price rises. At any rate, the point to consider for the time being is how Japan, while households are acceptant of price rises due to factors such as forced savings, can maintain a favorable macroeconomic environment to the extent possible and make this lead to a full-fledged rise in wages, including base pay, from fiscal 2023 onward. Conclusion Today, I have talked about why the Bank considers monetary easing to be necessary in Japan at present and about the importance of wage increases in order to achieve the price stability target of 2 percent in a sustainable and stable manner. Japan's economy is still on its way to recovery from the pandemic and has been under downward pressure from the income side due to rising commodity prices. In this situation, monetary tightening is not at all a suitable measure. The top priority for the Bank is to persistently continue with the current aggressive monetary easing centered on yield curve control and thereby firmly support economic activity. Unlike other central banks, the Bank has not faced the trade-off between economic stability and price stability. For this reason, it is certainly possible for the Bank to continue stimulating aggregate demand from the financial side. In order to provide a quantitative and easy-to-understand explanation of its projections for underlying inflation, the Bank included its forecasts for the CPI excluding fresh food and energy in the April 2022 Outlook Report. The forecasts show that the year-on-year rate of change in the CPI excluding both categories should increase in positive territory to around 1.5 percent for fiscal 2024, on the back of improvement in the output gap and a rise in inflation expectations. For prices to rise as projected and further toward 2 percent in a stable manner, it is necessary to create a virtuous cycle that generates synergy between wage increases and price rises, as I have explained today. I would like to close by noting that the Bank will take a strong stance on continuing with monetary easing, in that it will provide a macroeconomic environment where wages are likely to increase so that the rise in inflation expectations and changes in the tolerance of price rises -- which have started to be seen recently -- will lead to sustained inflation. Thank you very much for your attention. The Bank's Thinking on Monetary Policy: Toward Achieving the Price Stability Target in a Sustainable and Stable Manner Speech at the Kisaragi-kai Meeting in Tokyo June 6, 2022 KURODA Haruhiko Governor of the Bank of Japan Introduction I. The Bank's Monetary Policy Conduct for the Time Being II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner Conclusion Chart 1 I. The Bank's Monetary Policy Conduct for the Time Being Real GDP in Japan, the United States, and the Euro Area Japan United States Euro Area 5 s.a., % points 5 s.a., % points 5 s.a., % points -5 -5 22/Q1 -2.7 Change from CY 2019 average -10 -15 Other Goods exports Business fixed investment Private consumption Real GDP -20 -25 CY 18 22/Q1 +3.7 22/Q1 +0.6 -5 Change from CY 2019 average Change from CY 2019 average -10 -10 -15 -15 -20 -20 -25 CY 18 -25 CY 18 Note: The charts show the deviation from the 2019 average. Figures for business fixed investment for the euro area are those for gross fixed capital formation excluding housing investment. Sources: Cabinet Office; Haver. Chart 2 I. The Bank's Monetary Policy Conduct for the Time Being Import Prices, Export Prices, and Real GNI Real GNI Import Price Index y/y % chg. Exchange rate effects Contract currency basis Yen basis -20 -40 CY 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Export Price Index y/y % chg. Trading gains/losses Income from/to the rest of the world Real GDP Real GNI y/y % chg. Exchange rate effects Contract currency basis Yen basis -2 -4 -20 -40 CY 09 10 11 12 13 14 15 16 17 18 19 20 21 22 -6 FY 95 97 99 01 03 05 07 09 11 13 15 17 19 21 Sources: Bank of Japan; Cabinet Office. Chart 3 I. The Bank's Monetary Policy Conduct for the Time Being Consumer Prices in Japan, the United States, and the Euro Area Japan United States y/y % chg. Euro Area y/y % chg. April: +8.3% Energy <7%> Energy <7%> Services <50%> Services <63%> Goods <40%> Temporary factors Goods excluding automobiles <21%> Automobiles <9%> CPI (less fresh food) <100%> CPI <100%> April: +2.1% 3 -1 -1 -1 -2 -2 -2 -3 CY 16 Energy <11%> Goods <47%> HICP <100%> -3 CY 16 May: +8.1% Services <42%> -3 CY 16 y/y % chg. Notes: 1. Figures for services include administered prices. 2. Figures for temporary factors for Japan are staff estimates and consist of mobile phone charges and the effects of the consumption tax hike, policies concerning the provision of free education, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. 3. Figures in angular brackets show the share of each component. Figures for temporary factors for Japan include mobile phone charges (weight: 3%). 4. Figures for 2022/Q2 for Japan and the United States are for April, while those for the euro area are April-May averages. Sources: Ministry of Internal Affairs and Communications; Haver. Chart 4 I. The Bank's Monetary Policy Conduct for the Time Being Long-Term Government Bond Yields and the Bank's JGB Holdings Long-Term Government Bond Yields % The Bank's JGB Holdings 600 tril. yen Japan United States Germany tril. yen Introduction of QQE Introduction of Outbreak of YCC COVID-19 -1 CY 12 CY 12 Amount outstanding (left scale) Change from previous year (right scale) Sources: Bloomberg; Bank of Japan. Chart 5 II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner Price Change Distributions in Japan and the United States Japan (Pre-Pandemic) United States (Pre-Pandemic) share of the weight of items, % Goods Services 60 share of the weight of items, % September 2019 Energy September 2019 -10 -8 -6 -4 -2 0 or less -10 -8 -6 -4 -2 0 8 10 12 14 16 18 or 20more or less y/y % chg. Japan (Latest) 8 10 12 14 16 18 20 or more y/y % chg. 60 share of the weight of items, % April 2022 United States (Latest) 60 share of the weight of items, % April 2022 Mobile phone charges, etc. Electricity charges, gas charges, gasoline, etc. -10 -8 -6 -4 -2 0 or less 8 10 12 14 16 18 20 or more y/y % chg. -10 -8 -6 -4 -2 0 or less 8 10 12 14 16 18 20 or more y/y % chg. Note: Figures for the United States are for the CPI for all items. Those for Japan are for the CPI for all items excluding fresh food. Sources: Ministry of Internal Affairs and Communications; BLS. II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner Chart 6 Illustration of a Kinked Demand Curve Relative price Traditional demand curve Kinked demand curve Demand and price at the moment Demand Chart 7 II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner Labor Market Conditions Active Job Openings-to-Applicants Ratio Introduction of QQE 1.8 s.a., ratio Outbreak of COVID-19 Unemployment Rate Introduction Outbreak of of QQE COVID-19 6 s.a., % 1.6 1.4 1.2 1.0 0.8 0.6 0.4 Active job openings-to-applicants ratio (total) 0.2 Active job openings-to-applicants ratio (full-time employees) 0.0 CY 80 CY 80 Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 8 II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner Firms' Output Prices and Inflation Expectations Output Prices (Tankan) Inflation Expectations (Tankan) 40 DI ("rise" - "fall"), % points 3.0 Manufacturing Nonmanufacturing y/y % chg. 1 year ahead 2.5 3 years ahead 5 years ahead 2.0 1.5 -10 1.0 -20 0.5 -30 0.0 -40 -50 CY 80 -0.5 CY 14 Notes: 1. In the left-hand chart, figures are for all enterprises. 2. In the right-hand chart, figures show the inflation outlook of enterprises for general prices (all industries and enterprises, average). Source: Bank of Japan. Chart 9 II. Toward Achieving the Price Stability Target of 2 Percent in a Sustainable and Stable Manner Survey on Households' Response to Price Increases Suppose that the price of a product that you always buy in your supermarket goes up by 10 percent. What would you do? August 2021 Japan April 2022 Japan Germany Germany Canada Canada United States United States United Kingdom United Kingdom % I would continue to buy the same amount of the same product at the same supermarket. I would switch to a different supermarket. Source: Watanabe, T., "'5-kakoku no kakei o taishō to shita infure yosō chōsa' (2022-nen 5-gatsu jisshi bun) no kekka," May 30, 2022, https://www.centralbank.e.u-tokyo.ac.jp/wpcontent/uploads/2022/05/household_survey_May_2022.pdf. %
|
bank of japan
| 2,022 | 6 |
Speech by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Sapporo, 2 June 2022.
|
June 2, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Sapporo ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity 1. Developments regarding the novel coronavirus (COVID-19) First, I would like to touch on developments regarding COVID-19. The global number of confirmed new cases seems to have stabilized somewhat (Chart 1). Meanwhile, many advanced countries have started to resume economic activity while living with COVID-19. Therefore, compared to the early stages of the outbreak, the economic impact of COVID-19 is likely to be on the wane. These developments also hold true in Japan (Chart 1). The spread of the Omicron variant significantly restrained private consumption for the January-March quarter of 2022, but the COVID-19 situation has started to calm down since the start of April. The Economy Watchers Survey released by the Cabinet Office noted that the diffusion index (DI) for current economic conditions, especially for households, has been improving since March, when the number of Omicron cases passed its peak. In addition, the Japanese government is pursuing measures to find ways to live with COVID-19. On the other hand, China's response has been a notable exception (Chart 1). The Chinese government is adhering to its zero-COVID policy; faced with a recent spike in the number of confirmed cases, it has been working to contain the spread of infection by carrying out city lockdowns. 2. Current state of Japan's economy Taking into account the COVID-19 situation that I have just described, I would like to focus on three aspects of the current state of Japan's economy -- namely, private consumption, business fixed investment, and exports. Starting with private consumption, widespread optimism regarding COVID-19, specifically expectations that the pandemic might be coming to an end, triggered a strong rebound in services consumption for the October-December quarter of 2021. However, as I mentioned earlier, the rapid spread of the Omicron variant caused another slowdown in such consumption at the beginning of 2022 (Chart 2). Improvement in the COVID-19 situation appears to be fueling recovery in services consumption since spring, despite seniors in particular being somewhat cautious. Statistics have not yet been released, but media reports and anecdotal information gathered by the Bank of Japan through its branches suggest that services consumption, particularly travel and dining-out, improved during this past Golden Week -- the period from late April to early May that includes several national holidays. Moving on to business fixed investment, the plan in the Bank's Tankan (Short-Term Economic Survey of Enterprises in Japan) and other survey results show potential demand for fixed investment to facilitate digital transformation (DX) and address climate change. This continues to give rise to strong expectations for fixed investment to drive a virtuous cycle in Japan's economy. In fact, such investment has been firm even during the pandemic. However, due to global supply-side constraints, such as semiconductor shortages and logistical constraints, a certain number of firms have postponed or pushed back their planned investment projects. With this in mind, the reality in my view is that business fixed investment has not grown enough when compared to firms' potential demand (Chart 3). Lastly, exports have increased as a trend even during the pandemic. Global business sentiment has been firm in both the manufacturing and services industries, as evidenced by the Purchasing Managers' Index (PMI) (Chart 4). In this environment, exports from Japan basically have been on an uptrend. However, net exports, calculated as exports minus imports, indicate that imports have increased significantly due to a surge in prices of crude oil and other raw materials, and the balance on goods continues to register a deficit (Chart 4). Taking these points into account, the Bank's assessment is that Japan's economy has picked up as a trend. 3. Risks to the outlook for Japan's economy I would now like to discuss two risk factors to consider when assessing the outlook for Japan's economy. The first factor is the potential deterioration in the global economy. Major countries and regions, particularly the United States, Europe, and China, have risks to their economies. I believe that attention should be paid to the possibility that the materialization of such risks may push down the global economy as a whole. To begin with, the European economy may be pushed down significantly by surges in commodity and grain prices as well as by supply-side constraints, both stemming from the situation surrounding Ukraine. Since many European countries depend on imports from Russia for a large part of their energy sources -- such as petroleum and natural gas -- if supply of such items is constrained, this could exert downward pressure on economic activity. In addition, it should be kept in mind that grain supply could be disturbed if the situation surrounding Ukraine persists, as Russia and Ukraine are some of the world's largest bread baskets. Attention is thus warranted on the risk of a surge in inflation in Europe. Turning to China, it continues to take the aforementioned strict zero-COVID policy. With the economic effects of the lockdown in major cities already being reflected in statistics, there is concern over the risk that the manufacturing of industrial products may be pushed down to a large extent (Chart 5). China remains "the workshop of the world"; although the manufacturing of such products has started to take place in peripheral countries in East Asia, it is still concentrated in China. A decrease in the country's production could thus exert significant downward pressure on the global economy. There seems to be an increasing risk that such a decline in China, where the zero-COVID policy remains in place, will impose severe supply-side constraints globally through supply chains. That said, although the course of COVID-19 could show a cyclical pattern, once the situation calms down, China should eventually see a recovery in production and will likely further increase it to catch up with demand. Given this, the risks just mentioned may be considered temporary. In the United States, there are uncertainties regarding price developments and the effects of policy responses, and I believe that this warrants the most attention among the risk factors for the global economy. Currently, the country is experiencing the highest level of inflation since the 1980s. Looking at the elevated inflation rates in detail, while the surge in energy prices has made a large contribution to high inflation in regions such as Europe, the same contribution in the United States has been relatively small. The main contributors to the current high inflation in the United States are (1) a surge in prices of goods such as automobiles, mainly induced by logistical constraints, and (2) a rise in services prices, including housing costs (Chart 6). In addition, wage increases due to labor supply constraints are possibly exerting inflationary pressure through the rise in services prices. These developments are likely to be largely due to aggressive fiscal policy and accommodative monetary policy measures conducted by the U.S. authorities during the COVID-19 pandemic. Such measures have significantly increased household wealth in the country. Specifically, the financial situation of U.S. households shows that, due to improvement in unrealized gains/losses on their assets, the annual ratio of increase in net worth to disposable personal income rose to around 70 percentage points for the October-December quarter of 2021 (Chart 7). Given that the average ratio since the 1950s is only about 4 percentage points, it is clear how high the prices of stocks and housing have soared during the pandemic. On the other hand, household debt has stayed low since the Global Financial Crisis (GFC). The labor supply constraints in the United States are considered to be largely attributable to an increase in employees' early retirement; the asset and liability situation of U.S. households that I just described probably explains the reason behind this increase. Considering that the surge in housing prices is a significant contributor to the rise in housing costs, wealth effects could have induced the elevated inflation currently observed in the United States. If so, when monetary tightening in the country progresses further, I believe that attention needs to be paid to the risk of the U.S. economy decelerating considerably through adjustments in asset prices. Moreover, given the global interconnectedness of asset prices, attention is also warranted on the possibility of worldwide adjustments in such prices. That said, there is a view that recent asset markets have already factored in the effects of monetary tightening to a certain extent. In any case, I expect to see a soft landing of asset prices through appropriate policy responses by the U.S. authorities and through appropriate asset price formation by investors. Based on what I have described so far in relation to the first risk factor, risk scenarios pertaining to the outlook for the global economy do not seem to eliminate deflation or stagflation. On the other hand, if the global economy successfully recovers from the COVID19 crisis, responds appropriately to the surge in inflation, and realizes a soft landing, it could exit from the secular stagnation that followed the GFC. In any event, uncertainties regarding the global economy appear to remain high. The second risk factor to consider when assessing the outlook for Japan's economy is the spread of COVID-19 variants. As I noted earlier, the COVID-19 situation in Japan has generally calmed down of late, with the exception of some regions. Having entered the third year of the pandemic, it seems that people's behavior has started to shift toward living with the virus. This in turn suggests that the impact of COVID-19 on Japan's economy will likely wane. However, taking past tendencies into account, in the case of a resurgence of the virus, there is no denying that seniors in particular could become increasingly reluctant to spend on services even in the absence of strict public health measures. Presumably, one lesson learned from the spread of the Omicron variant in the January-March quarter of 2022 is that it will take some more time before the pandemic completely ends; rather, it will continue to exist in successive waves. If this proves to be true, there may be a risk that the scenario -- in which pent-up demand that has accumulated during the pandemic materializes and consumption subsequently recovers at an accelerated pace -- will not be realized for the time being. B. Prices 1. Current situation in Japan Let me now turn to prices. The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) for April 2022, which was released on May 20, rose to 2.1 percent. This may appear as if it has reached the Bank's 2 percent price stability target, but about 1.5 percentage points of this increase was attributable to the rise in energy prices, such as for crude oil. The rate of increase when excluding such factors that are subject to large fluctuations and disregarding the effects of the reduction in mobile phone charges, which measures the underlying trend in inflation, remained at only around 1.0 percent (Chart 8). In other words, Japan's economy is currently still only halfway to achieving the 2 percent price stability target. Based on the assumption that most of the aforementioned risks will not materialize, the baseline scenario of the outlook is that the rate of increase in the CPI excluding fresh food and energy will likely rise gradually in tandem with the pace of economic recovery. However, the medians of the Policy Board members' forecasts -- as presented in the Bank's Outlook for Economic Activity and Prices (Outlook Report) released on April 28 -- showed the rate for all items less fresh food at 1.1 percent for fiscal 2024, implying that achieving the 2 percent target will remain difficult. In this situation, it was reconfirmed at the April Monetary Policy Meeting that the Bank will persistently continue with its accommodative monetary policy with the aim of achieving the 2 percent target. 2. Issues regarding the outlook Next, I would like to talk about issues surrounding future price developments. In terms of the outlook for prices in Japan during the pandemic, up until now, many people seem to have had a cautious view. To elaborate, they appeared to note the high risk that the negative output gap may widen due to the pandemic and thereby increase deflationary pressure. I used to think the same two years ago when I was appointed as a member of the Policy Board. However, since last year, I have come to believe that there is a high possibility of increased upward pressure on prices for the following reasons. These overlap with what I noted in my previous speech, but I would like to highlight the two factors that led me to think that upward pressure on prices is highly likely to increase. The first is firms' price-setting behavior. Amid the situation of the pandemic -- which has continued for more than two years -- firms, especially those in the consumption-related services industry, have repeatedly faced a rapid and large-scale decline in demand. However, it appears that such firms have not engaged in intense price competition, unlike in the past when they were met with a large decline in demand. Instead, they have lowered prices only marginally or left them unchanged. One reason for this could be that corporate managers judged that price discounts would not lead to increased sales, given that the declines in demand were due to the implementation of public health measures, which is an artificial factor, and to people's vigilance against COVID-19. On the policy front, it is also possible that various government subsidies as well as effectively interest-free and unsecured loans and the Bank's measures to support corporate financing, such as the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19), have helped firms uphold their businesses, providing incentive for them to avoid intense price competition. Moreover, I believe that an increasing number of firms may raise the prices of their goods and services by passing on cost increases to selling prices, owing to the prospect that the pandemic will continue for some time. The second factor is firms' growth expectations. Looking at firms' recent fixed investment plans in the context of the capital stock cycle, I am under the impression that firms have started to take an active stance toward fixed investment, along with upward revisions to their earnings projections, or, in more technical terms, the expected growth rates (Chart 9). With firms having come to take a positive view of their business conditions, a virtuous cycle from profits to fixed investment is starting to operate, where they aim to achieve higher profitability by raising the prices of their goods and services. I believe that the higher margins earned by firms through price rises could lead to wage increases and are expected to serve as a great catalyst for achieving the 2 percent price stability target. Now I would like to reassess the two factors just mentioned based on recent developments. Let me focus on the first factor -- firms' price-setting behavior. As the surge in raw material prices was much larger than expected, many firms in the dining-out and food manufacturing industries are passing on such cost increases to retail prices. Similar moves are increasingly seen in other industries, such as apparel. Looking at developments in the DI for firms' output prices in the Bank's latest March 2022 Tankan to examine their price-setting stance, the DI has reached the highest level since 1980 (i.e., just after the second oil shock) for the manufacturing industry and the highest level since 1991 (i.e., the end of the bubble period) for the nonmanufacturing industry (Chart 10). These moves to raise selling prices are mainly due to cost-push factors stemming from the surge in raw material prices. However, such a pass-through of cost increases was barely seen when a similar price hike in raw materials occurred in past deflationary periods, like the one from 2007 to 2008. This may suggest that many firms are trying to change their "low-margin, high-turnover" business models that were quite common in those days. On the other hand, regarding the second factor for inflation -- that is, firms' growth expectations -- many firms unfortunately do not seem to have raised their expectations yet, partly due to the global supply-side constraints that I pointed out earlier. This is suggested by the fiscal 2021 Annual Survey of Corporate Behavior released by the Cabinet Office, which shows that firms' forecast for the real economic growth rate over the next five years was 1.0 percent, thus remaining only close to the 1.1 percent presented in the fiscal 2020 survey. Firms' growth expectations are key to the sustainability of wage increases in Japan. Although the proportion of firms that have adopted so-called simultaneous recruiting of new graduates and seniority-based wages has started to decrease recently, these employment practices remain typical in Japan. Under such practices, young workers are prone to be underpaid compared to their labor productivity, while middle-aged workers could benefit from being overpaid for their productivity. This is known as "employees' invisible investment," which refers to the situation where young workers invest their human capital in the firm they work for and later earn relatively high wages that include dividends on the investment.1 This model could explain the structure of Japanese-style business management to some extent. In order for the model to work, human capital invested by young workers in their firm needs to yield future dividends by contributing to corporate growth; to this end, sustainable growth in corporate sales is necessary. In reality, however, due to prolonged deflation, many firms were forced to lower their growth expectations and were less likely to see sustainable growth in their sales. As a result, it has become difficult to maintain the mentioned model, and firms seemed to have actively reduced their labor costs by, for example, increasing the number of non-regular employees and rehiring retirees at low wages relative to their labor productivity. I believe that in this way Japanese-style employment practices hit turbulence. Given these circumstances, I consider firms' growth expectations to be important in enhancing the sustainability of wage increases, which is vital to achieving the price stability target, and am paying attention to developments in such expectations. For example, see Kagono, T. and Kobayashi, T., "Miezaru shusshi: jūgyōin mochibun to kigyō seichō," chapter 9 in Itami, H. et al., Kyōsō to kakushin: jidōsha sangyō no kigyō seichō (Tokyo: Toyo Keizai Inc., 1988). II. Monetary Policy The Bank will persistently continue with accommodative monetary policy until the 2 percent price stability target is achieved (Chart 11). I would like to say a few words about the points I see as essential in the conduct of monetary policy in Japan going forward. Let me touch on the impact of foreign exchange rates and crude oil prices, mainly on economic activity and prices, as this has become a hot topic lately. Faced with the recent yen depreciation and rising crude oil prices, some have pointed out the risk of stagflation, while others say that the Bank should urgently revise its monetary policy to avoid materialization of such risk. The Bank has been carefully analyzing and discussing developments in economic activity and prices, including these arguments. I personally see the impact of the yen's depreciation and rising crude oil prices on economic activity and prices as significant and am closely monitoring their developments. In light of these, let me share what approach I think monetary policy should take. First, monetary policy should focus on the underlying trend in inflation and aim to keep it stable at around 2 percent. As I mentioned earlier, the year-on-year rate of increase in the CPI when adjusted to measure the underlying trend has been at around 1.0 percent recently. From the perspective of achieving the 2 percent price stability target, I think it is premature to revise the direction of monetary policy toward tightening. To begin with, exchange rates are not directly controlled by monetary policy. They constitute a category of asset prices and could fluctuate significantly in the short term due to market speculation or the positioning of investors. If monetary policy addresses such short-term fluctuations and puts off achievement of the target for the underlying trend in inflation, this could have an adverse impact on Japan's economy. Crude oil prices, like exchange rates, are also not subject to direct control by monetary policy. Their developments are predominately determined by global supply and demand conditions. If the direction of monetary policy is changed toward tightening to combat higher energy prices in Japan that reflect rising crude oil prices, this may lead to a contraction in domestic demand. However, as global supply and demand conditions are expected to remain tight, crude oil prices will likely stay high. Therefore, such a change in direction would make living conditions in Japan even more difficult. Second, I believe that, as the effects of COVID-19 remain, changing the direction of monetary policy toward tightening could pose a substantial adverse impact on economic activities of firms and households. Firms have significantly increased their borrowing during the pandemic. This borrowing largely consists of so-called zero-zero loans -- that is, effectively interest-free and unsecured loans for which the government takes the credit risk. If a firm has made its borrowing for the purpose of securing a precautionary liquidity buffer, most of the funds will likely be on hand and the firm will have no problem with repayment. On the other hand, if the firm's intention for borrowing was to sustain its business, it will need to use the funds to generate sales and profits as planned in order to secure the fund source for repayment. The firm will have to refinance should securing it take longer than expected; however, there is no guarantee that refinancing terms down the road will remain the same as those applied so far during the pandemic. The same holds true for households. Many households hold housing loan and other debt. They must repay such debt from their income over a long period. In this situation, what will happen if the Bank shifts the direction of monetary policy toward tightening? Some firms and households could face a higher burden of debt and become cautious in their spending. For these reasons, I consider it essential that the Bank maintain the accommodative monetary policy with a focus on achieving the 2 percent price stability target. Since I touched on foreign exchange rates earlier, let me conclude by stepping away from the subject of future conduct of monetary policy and introducing another perspective on the relationship between exchange rates and Japan's economy. Looking back, we must not forget that the yen's appreciation served as a factor that triggered Japan's slip into prolonged deflation from the latter half of the 1990s, which in turn exacerbated the "lost two decades." I admit that the deflation was also driven by the impact of global structural changes -specifically, the rise of emerging economies. At the same time, it is undeniable that the protracted deflation was caused by a prolonged and significant appreciation of the yen. The appreciation induced many Japanese manufacturers to shift their production sites overseas, which in turn sapped the strength of regional economies in Japan and triggered job losses and wage declines. By contrast, the reversal of the yen's appreciation since 2013 presumably has had the effect of encouraging Japanese manufacturers to transfer their production sites back home. I believe that such developments in the establishment of a corporate presence, including in terms of where Japanese firms locate their production sites and other business facilities, are of importance in considering Japan's future economic growth. In any case, when examining the impact of exchange rates on economic activity and prices, it is important, in my view, to not only take into account the short-term impact in the narrow sense, but also have a long-term perspective. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Sapporo June 2, 2022 ADACHI Seiji Member of the Policy Board Bank of Japan Chart 1 Confirmed New Cases of COVID-19 ten thous. persons United States China Japan Global thous. persons Confirmed new cases (per day, left scale) Europe thous. persons thous. persons India Severe cases (right scale) Latin America Other emerging economies Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Feb-21 May-21 Aug-21 Nov-21 Feb-22 May-22 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Notes: 1. In the left panel, figures for the United States, Taiwan, and Hong Kong are from the Centers for Disease Control and Prevention (CDC), the Taiwan Ministry of Health and Welfare, and the Hong Kong Centre for Health Protection, Department of Health, respectively. All other figures are from the World Health Organization (WHO). Figures for Europe are the sum of figures for the European Union and the United Kingdom. Figures for Latin America are the sum of figures for the major economies in the region. Figures for other emerging economies are the sum of figures for South Africa, Russia, Turkey, and the major economies in the NIEs, ASEAN, and the Middle East. Figures show 7-day backward moving averages. 2. In the middle panel, figures for confirmed new cases are weekly averages. Figures for severe cases are those at the end of the week. 3. In the right panel, figures are from the National Health Commission of the People's Republic of China. They represent symptomatic cases and exclude asymptomatic cases. Sources: CEIC; Ministry of Health, Labour and Welfare. Chart 2 Business Conditions of the Services Industry DI ("favorable" - "unfavorable"), % points -20 -40 -60 Services for individuals -80 Accommodations, eating & drinking services -100 CY 07 21 22 Note: Figures are for enterprises of all sizes from the Tankan. Source: Bank of Japan. Chart 3 Business Fixed Investment (Tankan) y/y % chg. Actual Planned investment in current fiscal year as of the March survey of each year -5 -10 Planned investment as of the March 2022 survey -15 -20 FY 06 Note: Figures are based on the Tankan, including software and R&D investments, but excluding land purchasing expenses. R&D investment is not covered as a survey item before the March 2017 survey. The figures are for all industries and enterprises including financial institutions. Source: Bank of Japan. Chart 4 Business Sentiment and Trade Global PMI World Trade Volume Japan's Current Account s.a., DI s.a., ann., tril. yen s.a., CY 2010=100 -10 -20 -30 CY 12 13 14 15 16 17 18 19 20 21 22 CY 07 Manufacturing Services CY 07 21 22 Notes: 1. In the left panel, figures for manufacturing are the J.P.Morgan Global Manufacturing PMI. Those for services are the J.P.Morgan Global Services Business Activity Index. 2. In the right panel, figures are for world real imports. Sources: Copyright © 2022 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved.; Ministry of Finance and Bank of Japan; CPB Netherlands Bureau for Economic Policy Analysis. Chart 5 Chinese Economy Real GDP and Industrial Production y/y % chg. PMI Real GDP Industrial production % Manufacturing PMI Nonmanufacturing PMI -10 -20 CY 15 CY 15 Notes: 1. In the left panel, figures for industrial production are calculated assuming that the paces of growth were the same for January and February 2022. 2. In the right panel, figures are from the National Bureau of Statistics of China. Source: CEIC. Chart 6 U.S. and European Price Developments Euro Area United States y/y % chg. Energy <7%> Services <63%> Goods <30%> CPI <100%> -1 -2 -3 CY 16 y/y % chg. Energy <11%> Services <42%> Goods <47%> HICP <100%> -1 -2 -3 CY 16 Note: Figures for services include administered prices. Those in angular brackets show the share of each component. Figures for 2022/Q2 are for April. Source: Haver. Chart 7 Financial Conditions of U.S. Households Total Debt to Nominal GDP Net Worth to Disposable Personal Income y/y % points % -50 -100 CY 52 55 59 62 66 69 73 76 80 83 87 90 94 97 01 04 08 11 15 18 21 Note: Figures include those for nonprofit organizations. Source: Federal Reserve Board. CY 52 55 59 62 66 69 73 76 80 83 87 90 94 97 01 04 08 11 15 18 21 Chart 8 CPI for All Items Less Fresh Food 4.5 4.0 3.5 3.0 2.5 2.0 1.5 y/y % chg. Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY 17 Notes: 1. Figures for energy consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 9 Capital Stock Cycles and Expected Growth Rates business fixed investment, y/y % chg. Investment-capital stock ratio at the end of FY 2020 FY 2021 -5 1.5% 1% 0.5% 0% -10 Expected growth rate: -2% -1% -15 9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0 investment-capital stock ratio at the end of the previous fiscal year, % Note: Each broken line represents the combination of the rate of change in business fixed investment and the investment-capital stock ratio at a certain expected growth rate. The figure for fiscal 2021 is the 2021/Q2-Q4 average. Source: Cabinet Office. Chart 10 Output and Input Prices (Tankan) Manufacturing Nonmanufacturing DI ("rise" - "fall"), % points -20 -20 -40 -40 -60 CY 74 -60 CY 74 DI ("rise" - "fall"), % points Note: Figures are for all enterprises. Source: Bank of Japan. Chart 11 Monetary Policy Guideline for Market Operations under Yield Curve Control The Bank's Measures in Response to COVID-19 Short-term policy interest rate: applying a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank Supporting Corporate Financing Long-term interest rate: purchasing a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) (mainly targeting small and medium-sized firms) In order to implement the above guideline for market operations, the Bank will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted (decided in April 2022). Duration: until end-September 2022 (extended in December 2021) Future Conduct of Monetary Policy The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. For the time being, while closely monitoring the impact of COVID-19, the Bank will support financing, mainly of firms, and maintain stability in financial markets, and will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels. Stabilizing Financial Markets Flexible Provision of Ample Yen and Foreign Currency Funds - Active purchases of JGBs and T-Bills - U.S. Dollar Funds-Supplying Operations Lowering Risk Premia in Asset Markets Purchases of ETFs and J-REITs - ETFs: annual pace with an upper limit of about 12 trillion yen - J-REITs: annual pace with an upper limit of about 180 billion yen
|
bank of japan
| 2,022 | 6 |
Statement by Mr Kuroda Haruhiko, Governor of the Bank of Japan, at the Committee meeting on Financial Affairs, House of Councillors, Sangiin, 7 June 2022.
|
Statement by KURODA Haruhiko, Governor of the Bank of Japan, concerning the Bank's Semiannual Report on Currency and Monetary Control before the Committee on Financial Affairs, House of Councillors, on June 7, 2022 Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan's economy has picked up as a trend, although some weakness has been seen in part, mainly due to the impact of the novel coronavirus (COVID-19) and a rise in commodity prices. Overseas economies have recovered on the whole, albeit with variation across countries and regions. In this situation, exports and industrial production have continued to increase as a trend, despite the remaining effects of supply-side constraints. Corporate profits have improved on the whole, but business sentiment has seen a pause in its improvement recently, mainly due to the impact of COVID-19 and the rise in commodity prices. Business fixed investment has picked up, although weakness has been seen in some industries. The employment and income situation has remained relatively weak on the whole, although improvement has been seen in some parts. Private consumption has started picking up again, with downward pressure stemming from COVID-19, particularly on services consumption, waning. With regard to the outlook, although Japan's economy is expected to be under downward pressure stemming from the rise in commodity prices due to factors such as the situation surrounding Ukraine for the time being, it is likely to recover, with the impact of COVID-19 and supply-side constraints waning and with support from an increase in external demand, accommodative financial conditions, and the government's economic measures. The year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food has accelerated to around 2 percent due to a significant rise in energy prices, with much of the impact of last year's reduction in mobile phone charges dissipating. The rate of increase is expected to stay at around 2 percent for the time being, mainly due to the positive contribution of the rise in energy prices to the CPI, but is projected to decelerate thereafter because the contribution is likely to wane. Meanwhile, the year-on-year rate of change in the CPI for all items excluding energy, for which prices fluctuate significantly, as well as fresh food has been in the range of 0.5-1.0 percent. Regarding the outlook, it is expected to moderately increase in positive territory on the back of improvement in the output gap and rises in medium- to longterm inflation expectations and wage inflation. Concerning risks to the outlook, the course of COVID-19, including variants, and its impact on domestic and overseas economies continue to warrant attention. In addition, there are extremely high uncertainties over the situation surrounding Ukraine and the associated developments in commodity prices, global financial and capital markets, and overseas economies. Meanwhile, Japan's financial system has maintained stability on the whole. Regarding financial risks from a longer-term perspective, while there is a possibility that prolonged downward pressure on financial institutions' profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. Japan's economy is on its way to recovery from a downturn caused by COVID-19, as seen in its GDP remaining below the pre-pandemic level. In addition, the economy has recently been under downward pressure from an outflow of income due to rising commodity prices. On the price front, although the year-on-year rate of change in the CPI has risen to around 2 percent, this is mainly due to an increase in energy prices. Given such developments in economic activity and prices, the Bank will persistently continue with the current powerful monetary easing centered on yield curve control, aiming to firmly support Japan's economy and thereby achieve the price stability target of 2 percent in a sustainable and stable manner. Thank you.
|
bank of japan
| 2,022 | 6 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Iwate, 28 July 2022.
|
July 28, 2022 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Iwate AMAMIYA Masayoshi 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 leaders in administrative, financial, and economic areas in Iwate Prefecture. I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Morioka Office and Sendai Branch. At the Monetary Policy Meeting (MPM) held last week, the Bank of Japan updated its projections for Japan's economic activity and prices through fiscal 2024 and released them in the latest Outlook for Economic Activity and Prices (Outlook Report). Today, I would like to talk about the Bank's view on Japan's economic activity and prices based on the Outlook Report and explain its thinking on the conduct of monetary policy. I. Economic Developments Current Situation I will start by talking about the current state of Japan's economy. While the economy had continued to swing up and down for a prolonged period, depending on the situation with the novel coronavirus (COVID-19), it has been picking up since spring this year with the impact of COVID-19 waning. Looking at developments in the household sector, the COVID-19 pandemic has exerted downward pressure on consumption activity that involves close contact with others and physical visits to places, particularly face-to-face services consumption, such as dining-out and travel (Chart 1). Due to the spread of the Omicron variant, private consumption for the January-March quarter of 2022 was somewhat weak, mainly for services. However, since the lifting in late March of the priority measures to prevent the spread of disease, a recovery in private consumption has become evident along with an increase in the number of people going out. In fact, sales in the food services industry have been approaching pre-pandemic levels on the whole, although weakness has remained in demand for large group meetings and afterparties, for example. In addition, based on various sources, such as anecdotal information that the Bank obtained from firms, domestic travel at the start of the summer holiday season appears to have been steady, partly due to the effects of travel and accommodation discounts provided by the local governments that have been aimed at local residents. However, the recent increase in the number of COVID-19 cases is concerning, especially because its pace is extremely rapid. In addition, rises in prices of such items as energy and food have led to deterioration in consumer sentiment, and developments associated with these rises warrant due attention. Turning to developments in the corporate sector, firms' production activity has been under strong downward pressure due to global supply-side constraints, and the impact of this has spread not only to exports but also to domestic business fixed investment and consumption of durable goods (Chart 2). The COVID-19 pandemic has triggered a major shift in demand from services to goods on a global basis and has brought about a rapid expansion in digital-related demand and a resultant semiconductor shortage, partly through widespread adoption of online conferences and working from home. In this situation, there have been successive suspensions of operations at factories as a result of pandemic-related restrictions around the world, and the effects of supply-side constraints therefore have become more prolonged than initially expected. With the addition of the impact of disruptions in distribution networks due to lockdowns in Shanghai, there have been difficulties in procuring parts recently, and the level of Japan's production has declined clearly, mainly for automobile-related goods. In this situation, exports have remained on an uptrend, supported by a recovery in overseas economies, but they have seen a halt in their improvement recently due to the effects of supply-side constraints. Regarding consumption of durable goods, automobile sales have been at low levels due to strong supply-side constraints, and the lead time from purchase of automobiles to delivery appears to have become longer. Based on various sources such as anecdotal information from firms, the impact of lockdowns in China seems to have waned gradually, but developments warrant attention as the number of COVID-19 cases in the country has been increasing again amid the Chinese government maintaining the so-called zero-COVID policy. In sum, with the impact of COVID-19 waning, Japan's economy has finally started to show positive signs, especially in the services sector. However, due to the supply-side constraints I just mentioned, production activity in the manufacturing industry has been pushed down. These developments were reflected in the June 2022 Tankan (Short-Term Economic Survey of Enterprises in Japan), which shows that business sentiment for the nonmanufacturing industry has improved, whereas that for the manufacturing industry has deteriorated. Outlook The outlook for Japan's economy is that, although it is expected to be under downward pressure stemming from high commodity prices due to factors such as the situation surrounding Ukraine, it is likely to recover with the impact of COVID-19 waning and supply-side constraints dissipating. To explain this outlook in some detail, let me first focus on the household sector (Chart 3). Due mainly to restrictions and self-restraint during the pandemic, private consumption became notably subdued relative to income. However, it has increased moderately, mainly for services consumption such as dining-out and travel, with the impact of COVID-19 waning. Regarding the outlook, although private consumption is expected to be under downward pressure due to price rises, it is projected to keep increasing because savings that have accumulated to date are expected to provide support and because pent-up demand, i.e., demand that had been held back under pandemic-related restrictions, is likely to materialize. Meanwhile, employee income has improved moderately, reflecting rises in the number of employees and wages associated with a recovery in economic activity. Such improvement in employee income is projected to continue; supported by this, private consumption is expected to keep increasing steadily from fiscal 2023 onward, although the pace of materialization of pent-up demand is likely to slow. I will now turn to the corporate sector (Chart 4). Exports are likely to increase, mainly for automobile- and digital-related goods, as overseas economies continue recovering and as supply-side constraints dissipate. With regard to corporate profits, the Financial Statements Statistics of Corporations by Industry, Quarterly show that current profits have marked a new record high for fiscal 2021. Although raw material cost increases are projected to exert downward pressure, corporate profits are likely to be at high levels on the whole, albeit with variation across industries and firm sizes, on the back of an increase in domestic and external demand and partly also of the effects of the yen's depreciation. In this situation, an uptrend in business fixed investment is expected to become clear as accommodative financial conditions provide support and supply-side constraints wane. In fact, the business fixed investment plan for fiscal 2022 in the June 2022 Tankan indicates that investment is projected to increase more firmly than usual. It is expected that firms will take an increasingly active stance not only toward labor-saving investment to address labor shortage but also toward other business fixed investment, including for research and development in areas such as digitalization and decarbonization. In terms of the medians of the Policy Board members' forecasts, Japan's real GDP growth rate is expected to be at 2.4 percent for fiscal 2022, 2.0 percent for fiscal 2023, and 1.3 percent for fiscal 2024 (Chart 5). As Japan's recent potential growth rate is estimated to be in the range of 0.0-0.5 percent, the forecasts show that the economy is projected to continue growing at a pace above its potential growth rate for four consecutive years when including fiscal 2021. The level of GDP is expected to recover to the pre-pandemic level (the 2019 average) around the second half of this fiscal year. However, the pace of recovery has been slower than in Europe and the United States, a topic to which I will return later. Risks to the Outlook There are extremely high uncertainties over the outlook, and risks to economic activity are skewed to the downside for the time being. I am paying particular attention to the following two risk factors. The first is the sustainability of a rise in private consumption. As mentioned earlier, private consumption for the time being is expected to be under downward pressure from the real income side but is projected to increase, supported by pent-up demand. That said, since pent-up demand is expected to materialize in services consumption in particular, including dining-out and travel, developments in such demand depend largely on the future course of COVID-19. Moreover, pent-up demand by its nature wanes gradually. Thus, for a sustained increase in private consumption, it is essential that wages rise. In this regard, if, for example, prices of commodities, including grains, remain high for a prolonged period amid high uncertainties over the situation surrounding Ukraine, wage increases will not sufficiently catch up with overall price rises and Japan's economy could be pushed down, particularly for private consumption. The second factor is overseas economic activity and prices (Chart 6). Looking at the latest World Economic Outlook (WEO) Update released by the International Monetary Fund (IMF), the projected growth rates of the global economy have been revised downward from the projections made in April. This is due to the impact of the situation surrounding Ukraine, lockdowns in China, and central banks' shift toward monetary tightening in response to rising inflation around the world. It should be noted, however, that the latest WEO forecasts show that global economic growth will remain positive at around 3 percent for both 2022 and 2023, indicating that the global economy is not expected to fall into recession. That said, there is concern in global financial and capital markets over whether it is possible to contain inflation and maintain economic growth simultaneously. Under these circumstances, there is a risk that global financial conditions will tighten further through adjustments in asset prices, fluctuations in foreign exchange markets, and capital outflows from emerging economies, and that this will eventually push down overseas economies. The Bank considers it necessary to continue to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. II. Price Developments Next, let me talk about price developments. The year-on-year rate of change in the consumer price index (CPI) for all items excluding fresh food has been at around 2 percent since April, when much of the impact of last year's reduction in mobile phone charges dissipated (Chart 7). The main cause of recent price increases is rises in energy prices, such as gasoline and kerosene prices and electricity charges, and in food prices. In this regard, for June, the year-on-year rate of change in the CPI excluding fresh food and energy was 1.0 percent and that excluding energy and food was 0.2 percent. Comparing price developments in Japan with those abroad, the year-on-year rates of change in consumer prices for all items have been at 9.1 percent in the United States, the highest rate in about 40 years, and at 8.6 percent in the euro area, the highest since recordkeeping began in 1997. This shows that both regions are experiencing elevated inflation and that Japan's inflation rate has remained comparatively low. It should be noted, however, that the rate in Japan has risen gradually. In fact, this April was the first time that Japan's CPI inflation rate exceeded 2 percent since 2008. Looking at developments behind price rises in Japan, import prices have increased due to a global rise in prices of commodities, including grains, and to the yen's depreciation. In addition, under these circumstances, firms have been increasingly passing on cost increases to selling prices, partly due to the impact of product shortages caused by prolonged supply-side constraints. Thus, the year-on-year rate of change in the CPI for all items excluding fresh food is likely to increase toward the end of this year due to rises in prices of such items as energy, food, and durable goods, and the average for fiscal 2022 is expected to exceed 2 percent, at 2.3 percent. However, unless we assume that prices of commodities such as crude oil will continue rising in the future, it is projected from the beginning of 2023 that the positive contribution of the rise in energy prices to the CPI will wane and the pass-through of cost increases will weaken gradually. As a result, the year-on-year rate of increase in the CPI for all items excluding fresh food is expected to decelerate from fiscal 2022 to 1.4 percent for fiscal 2023 and 1.3 percent for fiscal 2024. In terms of inflation that also excludes energy, for which prices see significant short-term fluctuations, the year-on-year rate of change in the CPI is likely to increase moderately in positive territory on the back of improvement in the output gap, rises in medium- to long-term inflation expectations, and in wage growth. That said, even in fiscal 2024, which is the end of the projection period, the rate of increase is expected to only be at around 1.5 percent. In sum, achievement of the price stability target of 2 percent in a sustainable and stable manner is not yet envisaged at this point. III. The Bank's Conduct of Monetary Policy Basic Thinking on Monetary Policy Let me now talk about the Bank's conduct of monetary policy. The Bank conducts monetary policy with the aim of achieving the price stability target in a sustainable and stable manner. Achieving the price stability target does not mean that the year-on-year rate of change in the CPI temporarily reaches 2 percent due to an exogenous increase in import prices such as energy, but rather that the rate registers 2 percent on average over the business cycle. From this perspective, it is necessary to examine the sustainability of price increases by comprehensively assessing the outlook for prices, as well as the underlying output gap, medium- to long-term inflation expectations, and wage developments, in addition to various measures of core inflation, which exclude temporary fluctuations. What is important is to achieve a virtuous cycle where wages and prices rise simultaneously and people's living standards improve amid continued growth in the economy. In this regard, Japan's economy is still on its way to recovery from the downturn caused by COVID-19. In fact, unlike the United States and the euro area, Japan's GDP has not yet recovered to the pre-pandemic level (Chart 8). Furthermore, as Japan relies on imports for most commodities, the recent high commodity prices associated with the situation surrounding Ukraine and other factors have exerted downward pressure on the economy in the form of an outflow of income from Japan. The value of commodity imports for the April-June quarter increased by slightly less than 4 trillion yen from the quarterly average of the previous fiscal year. This means an additional income outflow of about 2 to 3 percent of GDP. Thus, the foundation for Japan's economy to recover is not yet firm, and with high uncertainties surrounding wage developments, it is necessary to support economic activity through monetary easing. Based on this recognition, at the MPM held last week, the Bank decided to maintain its aggressive monetary easing stance under the monetary policy framework of yield curve control. With this framework, Japan's long-term interest rates have remained at extremely low levels, even amid strong upward pressure from abroad on the interest rates. Since Japan's nominal long-term interest rates have remained low while people's inflation expectations have risen, real interest rates, calculated by subtracting inflation expectations from nominal interest rates, appear to have declined recently (Chart 9). Although it should be noted that real interest rates can take various values depending on the combination of the maturity of nominal interest rates and the type of inflation expectations used for their calculation, short- to medium-term real interest rates have generally been on a downtrend, and the effects of monetary easing are considered to have been greater than before. Nevertheless, given that achievement of the price stability target of 2 percent in a sustainable and stable manner is not yet envisaged, as shown in the latest Outlook Report, and that there are high uncertainties surrounding wage developments, it is necessary for the Bank to continue with monetary easing steadfastly. Importance of Wage Increases toward Achieving the Price Stability Target Next, I would like to share the Bank's views on future wage developments, which are the key to achieving the price stability target. As I mentioned earlier, for the time being, savings that have accumulated as a result of pandemic-related restrictions and pent-up demand will serve as a buffer to prevent private consumption from stalling. However, for such consumption to see a sustained expansion even after pent-up demand runs out, nominal wages need to rise at a higher rate than the inflation rate. In this regard, for the current fiscal year, this spring's base pay increase is expected to be reflected in scheduled cash earnings of full-time employees, and summer bonuses are also likely to increase, mainly for the manufacturing industry, on the back of high corporate profits (Chart 10). In addition, wages of non-regular employees, many of whom work in the face-to-face services sector, are also projected to gradually show a clear upward trend, supported mainly by the materialization of pent-up demand in dining-out and travel. Thus, wages are expected to rise for this fiscal year. That said, their growth is not projected to exceed CPI inflation. It is worth mentioning that further increases in wages, including base pay, can be expected from the next fiscal year onward, as labor market conditions are likely to tighten on the back of improvement in the economy and the increased rate of inflation is expected to be taken into account in labor-management wage negotiations. Under these circumstances, together with a decline in the inflation rate, wage growth is projected to exceed CPI inflation. In general, wage formation is affected by a variety of factors, including labor productivity, growth expectations, labor union bargaining power, and minimum wages. Monetary policy, as a macroeconomic policy, also has an impact on such formation through its influence on such factors as labor market conditions. Specifically, the Bank's monetary easing will first support positive spending activity of firms and households and boost aggregate demand through accommodative financial conditions such as lower funding costs. This will lead to an increase in corporate profits and, through higher corporate demand for labor, bring about a tightening of labor market conditions, which in turn will contribute to wage increases. The Bank will continue to firmly support economic activity through monetary easing, aiming to achieve the price stability target, accompanied by wage increases, in a sustainable and stable manner. IV. Current Situation of and Outlook for Iwate Prefecture's Economy Lastly, I would like to talk about the economy of Iwate Prefecture. The Bank assesses that the prefecture's economy has picked up moderately. As with nationwide developments, although Iwate Prefecture's production has seen a halt in its pick-up -- mainly due to the effects of supply-side constraints -- private consumption, especially services consumption, has improved with the impact of such factors as COVID-19 waning. Looking at developments in tourism in particular, Iwate Prefecture is blessed with a wealth of appealing tourism resources, such as the Goshono Site, which -- as one of the Jomon Prehistoric Sites in Northern Japan -- was registered as a World Heritage Site in July last year. Moreover, four days from now, the Morioka Sansa Odori Festival, which unfortunately had been canceled previously due to the pandemic, will be held for the first time in three years. Expectations are growing for further improvement in services consumption. Eleven years have passed since the unprecedented disaster of the Great East Japan Earthquake. During that time, Iwate Prefecture's residents, businesses, and local administrations have worked hand-in-hand on reconstruction. I visited disaster-stricken areas during my stay in Iwate Prefecture and witnessed efforts to pass along the experiences and lessons learned from the disaster to future generations. It is encouraging to see the steady progress in building up the social infrastructure, including the network of "reconstruction roads," such as the Sanriku coastal road, and "reconstruction support roads." At the same time, I also felt keenly once again how tough it is to rebuild after a disaster. Iwate Prefecture faces the task of maintaining the vitality of the regional economy while addressing the crucial challenges of a rapidly declining population, a falling birth rate and aging population, and climate change. To meet this task, I think it is inevitable that the prefecture will devise ways of capturing demand not only from within the region but from throughout the country and the world. From this point of view, I am paying attention to two promising developments in the prefecture. The first is the accumulation of automobile- and semiconductor-related manufacturing industries in the southern part of the prefecture, which has come about through efforts to attract production facilities there. This reflects in part a positive assessment of better transportation access in the region, the benefits of risk diversification, and the success of public-private actions to attract businesses. I think this accumulation of manufacturing industries will also further encourage firms' recent moves to bring supply chains back to Japan. The other development is the progress being made with digitalization to revitalize the prefecture's economy, with a view to the post-pandemic era. I am given to understand that a joint committee has been set up to promote digital transformation in Iwate Prefecture, and under its direction, industry, academia, government agencies, and financial institutions all across the prefecture are collaborating in multifaceted efforts, such as addressing regional challenges, boosting firms' productivity, and dealing with labor shortages. I believe these actions will be crucial to resolving the issues facing the region. Let me conclude by expressing my sincere hope that Iwate Prefecture, which is pursuing reconstruction and transformation, will achieve further revitalization of the regional economy through these efforts. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Iwate July 28, 2022 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. The Bank's Conduct of Monetary Policy IV. Current Situation of and Outlook for Iwate Prefecture's Economy Chart 1 I. Economic Developments Private Consumption Consumption of Services Consumption Activity Index s.a., CY 2019 = 100 140 s.a., CY 2019 = 100 Total number of overnight guests (excluding inbound visitors) Sales in the food services industry Total real private consumption Services Jan. July Jan. July Jan. July Jan. Jan. July Jan. July Jan. July Jan. Note: In the left-hand chart, figures for total real private consumption are the real Consumption Activity Index (travel balance adjusted) based on staff calculations, which exclude inbound tourism consumption and include outbound tourism consumption. Sources: Bank of Japan; Japan Tourism Agency; Japan Foodservice Association, "Market Trend Survey of the Food Services Industry." Chart 2 I. Economic Developments Corporate Activity New Passenger Car Registrations Exports and Production s.a., CY 2015 = 100 5.5 s.a., ann., mil. units Business Sentiment DI ("favorable"- "unfavorable"), % points 5.0 4.5 4.0 -10 "Favorable" "Unfavorable" 3.5 -20 3.0 -30 Industrial production Real exports CY 12 Manufacturing 2.5 CY 12 Nonmanufacturing -40 CY 12 Notes: 1. In the left-hand chart, the figure for industrial production for 2022/Q2 is the April-May average. 2. In the middle chart, figures include small cars with engine sizes up to 660cc. 3. In the right-hand chart, figures are based on the business conditions DI in the Tankan. All enterprises. Sources: Ministry of Economy, Trade and Industry; Bank of Japan; Japan Automobile Dealers Association; Japan Light Motor Vehicle and Motorcycle Association. Chart 3 I. Economic Developments Pent-Up Demand and Labor Market Conditions Private Consumption and Disposable Income Employee Income s.a., CY 2015 = 100 y/y % chg. -1 -2 Consumption Activity Index (travel balance adjusted, real) Total cash earnings Number of employees Employee income Real employee income -3 Disposable income, etc. (SNA, real) CY 12 -4 12/Q1 14/Q1 16/Q1 18/Q1 20/Q1 22/Q1 Notes: 1. In the left-hand chart, figures for the Consumption Activity Index (CAI) are based on staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. The figure for 2022/Q2 is the April-May average. "Disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements. Real values are obtained using the deflator of consumption of households. 2. In the right-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey). Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the Monthly Labour Survey. Figures for real employee income are based on staff calculations using the CPI (less imputed rent). Sources: Bank of Japan; Cabinet Office; Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 4 I. Economic Developments Corporate Profits and Business Fixed Investment Planned and Actual Business Fixed Investment (Tankan) Current Profits tril. yen y/y % chg. Plan for FY 2022： +13.5% from FY 2021 Actual Planned investment in current fiscal year as of the June survey of each year -5 -10 FY 07 -15 -20 FY 07 Notes: 1. In the left-hand chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance." Figures from fiscal 2009 onward exclude pure holding companies. 2. In the right-hand chart, figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for all industries including financial institutions. Sources: Ministry of Finance; Bank of Japan. Chart 5 I. Economic Developments The Bank's Forecasts for Real GDP (July 2022 Outlook Report) s.a., ann., tril. yen y/y % chg. July forecasts Apr. forecasts FY 05 FY 2021 FY 2022 FY 2023 FY 2024 Actual +2.2 +2.4 +2.0 +1.3 +2.9 +1.9 +1.1 Note: The real GDP growth rates for fiscal 2022-2024 are the medians of the Policy Board members' forecasts. The values of real GDP for fiscal 2022 onward are calculated by multiplying the actual figure for fiscal 2021 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. Chart 6 I. Economic Developments Developments in the Overseas Economy (IMF's July 2022 WEO Update) Major Economies′ Growth Rates Global Growth Rate y/y % chg., % points y/y % chg. Advanced economies United States -3.1 World CY 2020 IMF forecasts CY 1990-2019 average: +3.6% Euro area United Kingdom -1 -2 -3 -4 Japan Emerging market and developing economies China India -5 -6 CY 00 02 04 06 08 10 12 14 16 18 20 22 ASEAN-5 -4.5 -3.4 -6.3 -9.3 -4.5 -2.0 2.2 -6.6 -3.4 CY 2022 CY 2023 CY 2021 [Forecast] [Forecast] 6.1 3.2 2.9 (-0.4) (-0.7) 1.4 5.2 2.5 (-0.8) (-1.0) 1.0 5.7 2.3 (-1.4) (-1.3) 1.2 5.4 2.6 (-0.2) (-1.1) 0.5 7.4 3.2 (-0.5) (-0.7) 1.7 1.7 1.7 (-0.7) (-0.6) 3.9 6.8 3.6 (-0.2) (-0.5) 4.6 8.1 3.3 (-1.1) (-0.5) 6.1 8.7 7.4 (-0.8) (-0.8) 5.1 3.4 5.3 (0.0) (-0.8) Note: In the table, figures in brackets are the differences from the forecasts in the April 2022 World Economic Outlook (WEO). ASEAN-5 consists of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Source: IMF. Chart 7 II. Price Developments The Bank's Forecasts for the CPI (July 2022 Outlook Report) y/y % chg. All items less fresh food June 2022 All items less fresh food and energy +2.2% All items less food and energy +1.0% +0.2% -1 FY 2022 FY 2023 FY 2024 All items less fresh food All items less fresh food and energy -2 -3 FY 05 +2.3 +1.4 +1.3 +1.3 +1.4 +1.5 Note: The projected rates of increase in the CPI for fiscal 2022-2024 are the medians of the Policy Board members' forecasts. Figures exclude the effects of the consumption tax hikes. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 8 III. The Bank's Conduct of Monetary Policy Level of Economic Activity in Japan and Outflow of Income Real GDP of Japan, the U.S., and the Euro Area 2022/Q2 s.a., CY 2019 = 100 Import Values of Crude Oil, Etc. ratio to nominal GDP, % s.a., tril. yen 103.2 100.9 Coal (left scale) LNG (left scale) Petroleum (left scale) Ratio to nominal GDP (right scale) 98.2 Other (left scale) Japan United States Euro area CY 19 CY 10 Notes: 1. In the left-hand chart, the figures for 2022/Q2 for Japan, the United States, and the euro area are calculated using the ESP Forecast of the Japan Center for Economic Research (survey period: June 30-July 7), GDPNow by the Atlanta Fed (as of July 19), and the Summer 2022 Economic Forecast by the European Commission (published on July 14), respectively. 2. In the right-hand chart, figures are the import values of mineral fuels. The ratio to nominal GDP for 2022/Q2 is obtained by using the nominal GDP for 2022/Q1. Sources: Cabinet Office; Haver; Japan Center for Economic Research; Atlanta Fed; European Commission; Ministry of Finance. Chart 9 III. The Bank's Conduct of Monetary Policy Real Interest Rates Synthesized Inflation Expectations Indicator Nominal Interest Rates % 4.0 1.6 3.5 Japan 3.0 United States 2.5 Germany y/y % chg. 1.4 1.2 2.0 1.0 1.5 0.8 1.0 0.6 0.5 0.4 0.0 0.2 -0.5 -1.0 Jan. Apr. Jan. Oct. July Apr. July 0.0 CY 07 Note: In the right-hand chart, figures are obtained by synthesizing the inflation expectations of firms, households, and experts. Those inflation expectations are taken from the Tankan for firms, the Opinion Survey on the General Public's Views and Behavior for households, and the QUICK Survey for experts. Sources: Bloomberg; Bank of Japan; QUICK, "QUICK Monthly Market Survey <Bonds>." Chart 10 III. The Bank's Conduct of Monetary Policy Wages and Prices Wages and Prices Revision of Wages (Compiled by RENGO) Quarterly Annual Base Pay Increases and Summer Bonuses y/y % chg. y/y % chg. CPI (less fresh food) Nominal wages (full-time employees) -1 -1 -2 -2 -3 FY 85 -3 19/Q1 Rate of wage increase (including regular wages) % FY 2019 FY 2020 FY 2021 FY 2022 Base pay increase (groups that can be aggregated) 2.1 1.9 1.8 2.1 0.6 0.5 0.6 0.6 Small firms: +0.7% Bonuses (Survey for Large Firms) y/y % chg. 21/Q1 Summer Winter Summer Winter Summer Japan Business Federation (Keidanren ) -2.2 -9.0 -8.3 -5.2 13.8 Nikkei Inc. -5.4 -8.6 -2.9 0.8 10.5 Manufacturing : +11.8% Nonmanufacturing: +6.7% Note: In the left-hand chart, figures for nominal wages prior to fiscal 1994 include part-time employees. Those for fiscal 2016 onward are based on continuing observations following the sample revisions. Figures for the CPI exclude the effects of the consumption tax hikes from 1997. Figures for fiscal 2022 are those for 2022/Q2. The figure for nominal wages for 2022/Q2 is the April-May average. Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Japanese Trade Union Confederation (RENGO); Japan Business Federation (Keidanren); Nikkei Inc. 10■
|
bank of japan
| 2,022 | 7 |
Speech by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Fukuoka, 25 August 2022.
|
August 25, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Fukuoka NAKAMURA Toyoaki Member of the Policy Board (English translation based on the Japanese original) I. Economic and Price Developments at Home and Abroad A. Recent Developments and Outlook for Economic Activity and Prices I will begin my speech by talking about recent developments in economic activity and prices. Overseas economies have recovered on the whole, albeit with some weakness seen in part (Chart 1). The U.S. and European economies continue to recover, particularly for services consumption, although some weakness has been seen in several sectors. The Chinese economy has started to pick up, led mainly by exports and production, with the impact of lockdowns and other public health measures waning. Emerging and commodity-exporting economies other than China have generally picked up with the resumption of economic activity becoming full-fledged. Against this background, Japan's economy has also picked up with the impact of the novel coronavirus (COVID-19) waning, despite being affected by factors such as rises in the price of commodities, including grain. In the corporate sector, exports have increased as a trend, although they have been under strong downward pressure due to supply-side constraints. Business fixed investment has picked up, albeit with effects of supply-side constraints. In the household sector, private consumption has increased moderately, particularly for services consumption, with the impact of COVID-19 waning and also with support from the materialization of pent-up demand. Meanwhile, the consumer price index (CPI) for all items less fresh food, or core CPI, has increased to 2.4 percent on a year-on-year basis, mainly due to rises in energy and food prices (Chart 2). Japan's economy is likely to recover as the impact of COVID-19 and the effects of supplyside constraints gradually wane. The year-on-year rate of change in core CPI is likely to increase toward the end of 2022 due to rises in the price of such items as energy, food, and durable goods. Thereafter, the rate of increase is expected to decelerate as the positive contribution of the rise in energy prices to the CPI wanes. B. Risk Factors for Economic Activity and Prices This outlook is subject to a number of uncertainties; specifically, I am particularly attentive to the following factors. The first is how COVID-19 at home and abroad will affect Japan's economy. If vigilance against COVID-19 becomes elevated again in Japan due to a rapid resurgence of the disease, the positive contribution of pent-up demand could weaken by more than expected, particularly in services consumption; this could pose the risk of a downward deviation in private consumption from the baseline scenario and of a delayed pick-up in inbound tourism consumption due mainly to entry restriction measures. In the meantime, if pandemic-related restrictions become stricter again in China while the global semiconductor shortage continues, supply-side constraints could become prolonged and amplified through, for example, supplychain disruptions. This could then exert downward pressure on Japan's exports and production, goods consumption, and business fixed investment. The second factor is developments in the situation surrounding Ukraine and in the price of commodities, including grain. As investment in natural resource development has been constrained in response to global efforts toward addressing climate change, there have been growing uncertainties over geopolitical factors, particularly the situation surrounding Ukraine. Under these circumstances, there is a risk that the price of commodities, including grain, will rise or remain high for a prolonged period, which could cause further downward pressure on the global economy, especially the euro area. In particular, Germany, which has been leading the euro area economy for many years, is expected to pay a large price for having to break away from a value chain that is mainly dependent on Russia. Thus, I am carefully monitoring developments regarding this matter, including its effects on Europe as a whole. The third factor I am particularly attentive to is developments in overseas economic activity and prices and in global financial and capital markets. Amid a continued rise in inflation, mainly in advanced economies, central banks have been raising policy rates significantly. Central banks in the United States and Europe seem to be prioritizing the containment of inflation even at the risk of some degree of economic slowdown. However, there is concern in global financial and capital markets over whether it is possible to contain inflation and avoid a recession simultaneously. If such concern grows substantially, there is a risk that financial conditions will tighten further globally through adjustments in asset prices and foreign exchange rates, and through capital outflows from emerging economies. There is also a risk that this will lead to a significant slowdown in overseas economies. I am therefore paying due attention to developments in financial and foreign exchange markets and their impact on economic activity, prices, and wages in Japan. II. Conduct of Monetary Policy Let me now turn to my basic view on the conduct of monetary policy for the immediate future, based on the economic and price developments I have just described. In view of Japan's present economic conditions, I consider it necessary for the Bank of Japan to persistently continue with the current powerful monetary easing. Here are three major reasons. The first reason is that Japan's economy is still on its way to recovery from the downturn caused by COVID-19. Although exports and private consumption in particular have been picking up, Japan's real GDP has not yet recovered to the pre-pandemic 2019 average level, unlike in the United States and the euro area (Chart 3). The output gap, which captures the utilization of labor and capital, has been consistently negative since the April-June quarter of 2020 (Chart 4). As demand remains insufficient compared with supply capacity, a shift in the direction of monetary policy toward tightening would likely drag down the economy and put significant downward pressure on the economic activity of firms and households. The second reason is that the current price rises in Japan and those in the United States and Europe differ considerably in terms of degree and the number of items. Comparing price developments in Japan with those abroad shows a significant difference: the year-on-year rate of change in consumer prices for all items exceeds 8 percent in the United States and Europe, while the rate of change in core CPI in Japan is 2.4 percent (Chart 5). The breakdown of price change distributions by item indicates that in the United States and Europe, where the economies recovered from the downturn caused by COVID-19 earlier than Japan, prices have risen significantly for a wide range of items, including services. In Japan on the other hand, a limited number of items such as energy and food are the main contributors to price rises, and the rate of increase in the price of many items, including services, remains low, suggesting that the country is experiencing only imported inflation (Chart 6). This difference is likely due to the disparity in wage inflation. In the United States and Europe, economic recovery from the downturn caused by the pandemic was accompanied by significant upward pressure on wages. In Japan, however, wage inflation remains low because the level of economic activity is still on its way to recovery and wage increases have been suppressed by structural challenges that I will discuss later. In the current situation, where cost-push factors from imported goods have resulted in significant price rises for only certain items, I believe that targeted policy action is more effective than monetary policy aimed at reducing aggregate demand. The third reason I consider it necessary for the Bank to persistently continue with the current powerful monetary easing is that the 2 percent price stability target needs to be achieved in a sustainable and stable manner. The year-on-year rate of change in core CPI is likely to increase toward the end of 2022 due to rises in the price of such items as energy, food, and durable goods. However, the positive contribution of the rise in energy prices to the CPI is likely to dissipate thereafter. Thus, my current assessment is that it is difficult for the price stability target to be achieved in a sustainable and stable manner. Specifically, the year-onyear rate of increase in core CPI is projected to decline to the 1.0-1.5 percent range from fiscal 2023 onward, according to the median of the Policy Board members' forecasts presented in the July 2022 Outlook for Economic Activity and Prices (Outlook Report) (Chart 7). As the 2 percent price stability target is a key performance indicator whose progress should be monitored continuously to realize the sound development of the national economy, I would like to emphasize the importance of core CPI becoming 2 percent in a stable manner, accompanied by a sustainable rise in wages; it is not enough for core CPI to reach 2 percent temporarily due to such factors as a rise in energy prices. Even if the higher price of some items pushes up the overall price level to 2 percent, unless household disposable income increases, spending on products and services will decline due to budget constraints. This will lead to a vicious cycle in which rises in overall prices will be restrained and economic activity will be sluggish, thereby putting downward pressure on wages. Thus, Japan's economy is only halfway to achieving the price stability target. Taking these three points into particular account, I consider that the Bank should continue with the current monetary easing at this point. At the same time, as inflation progresses globally, I have a feeling that there has been a change in the entrenched views and practices in Japan that are based on the assumption that prices will not increase. Inflation is a common economic phenomenon in the world, and nominal wages should grow faster than inflation when labor productivity improves. However, prices in Japan have barely increased over the past 30 years. Thus, even if firms could not raise wages, employees did not typically leave to take another job, as I will elaborate later (Chart 8). Meanwhile, there is now less room to increase the labor force participation of the elderly and women, and labor shortages have become more severe (Chart 9). In this situation, wage growth becomes increasingly important for firms to secure their workforce, forcing them to face the strategic challenges of increasing productivity and thereby raising labor compensation. To address these challenges, both small and medium-sized firms and large firms are expected to operate a virtuous cycle in which they increase the value added and competitiveness of their products and services and raise their prices, thereby securing resources for wage growth. A survey by the Japanese Trade Union Confederation, or Rengo, shows that the average rate of increase in wages, i.e., increases in base pay and regular salaries combined, for fiscal 2022 is 2.07 percent, suggesting that wage growth both at large firms and at small and mediumsized firms exceeds that of the previous fiscal year. Earlier this month, a labor ministry advisory panel put forward a proposal to raise the nation's average hourly minimum wage for the current fiscal year by 31 yen, or 3.3 percent, which would be a record increase. Meanwhile, a survey targeting large firms conducted by the Japan Business Federation, or Keidanren, indicates that summer bonuses have increased by more than 8 percent. All these demonstrate that wage increases have started to be widely observed, reflecting the pick-up in overall economic activity while labor shortages continue. It is essential that such wage inflation be realized not only this year but also from next year onward in a sustainable manner. Thus, the key is how bonuses for this winter and wage revisions for the next fiscal year will turn out. To realize wage growth, it is necessary to strike a balance between the protection of public health and the reopening of economic activity at the earliest possible time, thereby enabling the economy to recover from the downturn caused by COVID-19. Meanwhile, Japanese firms need to reform their business lines to fit the business environment that has changed dramatically due to the pandemic. The Bank is committed to continuing to support firms' initiatives through the current monetary easing. III. Toward Achieving Sustainable Growth of Japan's Economy Achieving the 2 percent price stability target calls for a sustainable and stable increase in household disposable income, mainly by means of higher wages. This gives rise to a virtuous cycle: Higher disposable income underpins greater household spending, which represents final demand, which then feeds into an expansion in corporate sales and profits. Firms draw on the funds generated by greater sales and profits and on leverage arising from such means as cash borrowing for investments aimed at enhancing their added value. Firms that increase the value of their products, services, and labor reflect this in selling prices, and then grow by acquiring the resources needed for further wage increases and investments (Chart 10 gives a simplified representation). However, international comparisons show that, since the first half of the 1990s, household disposable income has more than tripled in the United States and about doubled in Germany, but it has hardly increased in Japan (Chart 11). I would like to share my views on the three dynamisms necessary to break out of this stagnation in disposable income, based on my own experience at a private firm. A. Dynamism of Japanese Firms My first point is about the dynamism of firms. Many Japanese firms long wrestled with declining profitability and a deterioration in business performance. This stems from several factors, including the yen's sharp appreciation following the 1985 Plaza Accord and the bursting of the bubble economy in the early 1990s, coupled with the higher price of imported raw materials brought about by overseas economic growth and with the inflow of low-priced goods from developing economies. At the same time, firms faced strong social pressure in Japan to maintain employment. They responded by overhauling their cost structure, cutting fixed expenses, such as personnel expenses -- including wages and "investment in people" -and research and development (R&D) expenses, all the while maintaining their existing business portfolios. This gave rise to excessive competition among firms in Japan and waning profitability and growth potential. Meanwhile, from 2008, firms' entry rates were in the range of 4-6 percent and exit rates were almost constantly below 4 percent. Thus, both entry and exit rates remained low vis-à-vis international levels (Chart 12). This situation points to limited corporate metabolism, in terms of the redistribution of resources through the entry into and exit from businesses. This dearth of corporate dynamism, coupled with the onset of deflation in the latter half of the 1990s, seems to have precipitated sluggish growth in productivity and wages stemming from a lack of innovation and investment. In other words, in a deflationary environment where prices continue to fall, firms find it more difficult to make aggressive investment that carries risks because the expected rate of return on investment declines. Firms therefore put priority on securing profits and cash flow by cutting costs. Meanwhile, under slow corporate metabolism and the traditional practice of lifetime employment, if a firm were to go bankrupt and employees lost their jobs, their biggest worry is finding a new job. As a result, employees seek stability of employment over higher wages. This situation makes it possible to prioritize the survival of a business in the short term, but as the global competition becomes more intense, overseas economies are growing in tandem with firms' efforts to increase the added value of their products and services, with wages and prices following suit. Unless firms in Japan increase the added value of their products and services as well, both firms' and their employees' capacity to generate earnings will gradually weaken. The bold monetary easing and flexible fiscal policy pursued since 2013 have served to arrest the deflationary trend. Firms have also begun realigning their business portfolios in an effort to identify and concentrate on their core competencies. For example, firms have consolidated less productive businesses under their best owners (companies that are expected to maximize the value of the business over the medium to long term) through merger and acquisition (M&A) activities. However, just as recovery was getting under way, COVID-19 broke out and Japan's economy once again registered negative growth. Now that the economy is recovering from the worst of the pandemic, global inflationary pressures have increased. While firms in the United States and Europe have made headway in passing on costs to prices and increasing wages, those in Japan have made relatively limited progress in passing on costs (Chart 13). Sluggish growth potential and wage inflation have thus materialized (Charts 1 and 11). This has given rise to a growing awareness among management or business owners that an increase in the added value of products and services and investment in people for that purpose, including raising wages, are critical strategic challenges for business growth. My hope is that, alongside the growth of startups that create and foster innovation, these recent developments will revive the dynamism of Japanese firms and lead to the sustainable growth of Japan's economy. B. Dynamism of Employment My second point concerns the dynamism of employment. Many analyses have shown that in the United States and Europe, the redistribution of resources, including labor mobility between industries and firms, has moved ahead since the outbreak of COVID-19, and that this has contributed to greater labor productivity.1 By contrast, it seems that Japan to date has not shown similar signs of a full-fledged resource redistribution. According to an analysis by the Bank's staff, 2 resource redistribution between industries has made only a very slight contribution to boosting real labor productivity, even after the onset of the pandemic (Chart 14). Moreover, the proportion of people changing jobs versus all employed persons is around 4 percent, and that of people changing jobs between regular employment versus all employed persons is only around 1 percent (Chart 15). In contrast, the proportion of people changing jobs in the United States and Europe ranges between around 10 to 20 percent (Chart 16). Differences in the extent of resource redistribution through such job changes and other avenues, and in the ensuing pace of improvement in labor productivity, could also be engendering differences in wage inflation. In the United States, the wages of people who have not changed jobs have been rising together with the wages of those who have (Chart 17). Even in the United States and Europe, although people who change jobs in pursuit of higher wages represent only a part of total employees, in my view, the fear that employees might migrate to other firms has spurred management or business owners to work to boost productivity and improve employee pay and benefits. Also, under job-based employment contracts that tie wages to the evaluation of individual ability, the stronger capabilities of workers themselves may be pushing labor productivity upward. I suspect this is having a spillover effect even on the wages of people who have not changed jobs. For details, see Yagi, T., Furukawa, K., and Nakajima, J., "Productivity Trends in Japan: Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era," Bank of Japan Working Paper Series, No. 22-E-10, July 2022. 2 See footnote 1 above. To bring about a more active redistribution of resources by means of job changes and other avenues, economic recovery from the downturn caused by the pandemic will be vital, as well as business growth driven by the revival of corporate dynamism. At the same time, I believe institutional improvements are needed, including developing a social safety net that encourages a positive approach to taking on challenges and a social security system that is sustainable and does not disadvantage those who change jobs. I believe that, in Japan, "investment in people" used to be considered a labor cost rather than an investment in the intangible asset of human capital. To build momentum in which wages continue to rise year after year, revitalizing such investment will be crucial, though it is an area where Japan falls far behind the United States and Europe (Chart 18). As dynamism in employment emerges and firms turn to more active investment in human capital, I expect this to strengthen the added-value output of individuals, and in turn that of firms, thus accelerating the virtuous cycle of income and prices. C. Dynamism of Household Financial Assets The third point necessary to increase household disposable income is the dynamism of household financial assets. Although household financial assets in Japan have grown to more than 2,000 trillion yen, a breakdown of those assets shows that growth in equity and investment trusts has been lackluster. As of the end of March 1992, after the bursting of the bubble economy, Japan's share of holdings of equity and investment trusts within overall household financial assets was 15 percent, and in the United States it was 37 percent. However, as of the end of March 2021, a wider gap has formed, with the share at 15 percent in Japan and 51 percent in the United States3 (Chart 19). Reflecting this trend, growth in household dividend income in Japan has been more or less flat since the early 1990s. In the United States and Germany, meanwhile, both employee income and dividend income are contributing to an increase in disposable income (Chart 11). Data were obtained relating to the percentage ratio of equity and investment trusts of household financial assets. Data for Japan are from Japan's Flow of Funds Accounts released by the Bank of Japan, and those for the United States are from the Financial Accounts of the United States released by the Federal Reserve. When comparing Japanese and U.S. data, it is necessary to take into account such factors as the difference in definitions of household assets and financial assets between the two countries. Firms are not only places that provide employment and wages but also vehicles for creating added value. Although employee income accounts for the bulk of household disposable income in Japan, most people can only work for a single employer. Therefore, to reap the benefits of the growth of many firms outside their own places of work, including that of listed firms, people have to invest. If the trend of stable asset formation -- through the investment of surplus funds in financial assets focusing on the long term, on risk diversification, and on regular contributions -- gains traction, it will bring dynamism to household financial assets. This development will give more depth to disposable income in Japan and as a result, Japan's economy can expect more robust private consumption to help close the macroeconomic output gap and further boost corporate activities. With institutional support already available, such as the Nippon Individual Savings Account (NISA) and iDeCo pension plans, there is growing interest in investment trusts, especially among young people. Moreover, the Japanese government's Council of New Form of Capitalism Realization has announced its intention to formulate a plan to double asset income in Japan. I look forward to these developments gaining momentum. As has been illustrated, I expect the virtuous cycle of income and prices to be reinforced as the dynamism of firms and employment spurs corporate growth, while the dynamism of employment and household financial assets stimulates a rise in household income. By providing accommodative financial conditions to persistently support these developments, I believe Japan's economy will approach the realization of the 2 percent price stability target, which will in turn lead to its sound development. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Fukuoka August 25, 2022 NAKAMURA Toyoaki Member of the Policy Board Bank of Japan Chart 1 IMF Projections in the World Economic Outlook (July 2022) y/y % chg. IMF projections -2 -4 Japan United States -6 China World output Euro area -8 CY 80 Source: International Monetary Fund (IMF). Chart 2 CPI (Less Fresh Food) 3.0 y/y % chg. 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 Mobile phone charges -2.0 Effects of the consumption tax hike and free education policies Excluding the above factors -2.5 -3.0 Effects of the "Go To Travel" campaign Energy CPI (less fresh food) -3.5 CY 17 Notes: 1.Figures for energy are those for petroleum products, electricity, and manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 3 Real GDP Japan United States s.a., CY 2019 = 100 Euro Area s.a., CY 2019 = 100 CY19 Sources: Cabinet Office; Haver. CY 19 s.a., CY 2019 = 100 CY19 Chart 4 Output Gap Developments since the Outbreak of COVID-19 Long Time Series ％ -2 -2 -4 -4 -6 -6 -8 CY 85 20 22 ％ -8 19/Q4 21/Q1 21/Q1 Note: The output gap is estimated by the Bank's Research and Statistics Department. Source: Bank of Japan. Chart 5 Consumer Prices Japan United States y/y % chg. Temporary factors Energy <7%> Services <50%> Goods <40%> CPI (less fresh food) <100%> Euro Area y/y % chg. Energy <7%> Goods <30%> CPI <100%> -1 -1 -1 -2 CY 16 Services <42%> Goods <47%> HICP <100%> -2 -2 CY 16 Energy <11%> Services <63%> y/y % chg. CY 16 Notes: 1. Figures for services include administered prices. 2. Figures for temporary factors for Japan are Bank staff estimates and consist of the effects of the reduction in mobile phone charges, the consumption tax hike, free education policies, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. 3. Figures in angular brackets show the share of each component. Figures for temporary factors for Japan include mobile phone charges (weight: 3%). 4. Figures for 2022/Q3 are those for July. Sources: Haver; Ministry of Internal Affairs and Communications. Chart 6 Price Change Distributions Japan United States Euro Area share of the number of items, % share of the number of items, % share of the number of items, % Pre-Pandemic Goods Energy -10 or less December 2019 December 2019 September 2019 -5 -10 or more y/y% chg. share of the number of items, % or less Latest Services -5 share of the number of items, % -10 -5 or less or more y/y% chg. or more y/y% chg. share of the number of items, % July 2022 July 2022 -5 July 2022 or less -10 or more y/y% chg. -10 -5 or less or more y/y% chg. -10 or less -5 or more y/y% chg. Note: Figures for Japan are for the CPI for all items excluding fresh food. The pre-pandemic distribution for Japan is based on data for September 2019, which was before the CPI developments in Japan were affected by such factors as the consumption tax hike. Figures for the United States and the euro area are for the price index for all items. Sources: Eurostat; Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics (BLS). Chart 7 Forecasts of the Majority of the Policy Board Members y/y% chg. (Reference) CPI (all items less fresh food and energy) Real GDP CPI (all items less fresh food) Fiscal 2022 ＋2.2 to +2.5 [＋2.4] ＋2.2 to ＋2.4 [＋2.3] ＋1.2 to ＋1.4 [＋1.3] Forecasts made in April 2022 ＋2.6 to ＋3.0 [＋2.9] ＋1.8 to ＋2.0 [＋1.9] ＋0.8 to ＋1.0 [＋0.9] Fiscal 2023 ＋1.7 to ＋2.1 [＋2.0] ＋1.2 to ＋1.5 [＋1.4] ＋1.2 to ＋1.4 [＋1.4] Forecasts made in April 2022 ＋1.5 to ＋2.1 [＋1.9] ＋0.9 to ＋1.3 [＋1.1] ＋1.1 to ＋1.3 [＋1.2] Fiscal 2024 ＋1.1 to ＋1.5 [＋1.3] ＋1.1 to ＋1.5 [＋1.3] ＋1.4 to ＋1.7 [＋1.5] Forecasts made in April 2022 ＋1.1 to ＋1.3 [＋1.1] ＋1.0 to ＋1.3 [＋1.1] ＋1.2 to ＋1.5 [＋1.5] Notes: 1. Figures in brackets indicate the median of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which they attach the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. Each Policy Board member makes their forecasts taking into account the effects of past policy decisions and with reference to views incorporated in financial markets regarding the future conduct of policy. Source: Bank of Japan. Chart 8 Prices and Wages y/y % chg. CPI (less fresh food) Hourly scheduled cash earnings -1 -2 -3 -4 FY 85 Notes: 1. For hourly scheduled cash earnings, Q1=March-May, Q2=June-August, Q3=September-November, and Q4=DecemberFebruary. Figures are for full-time and part time employees before fiscal 1994 and for full-time employees thereafter. 2. The CPI figures are Bank staff estimates and exclude the effects of the decline in mobile phone charges, consumption tax hikes, free education policies, and the "Go to Travel" campaign. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 9 Real GDP and Number of Persons Employed Decomposition of Change in Real GDP Growth avg., y/y% chg. Rate of change of labor productivity (real GDP per worker) Rate of change in the number of workers aged 65 and over Rate of change in the number of workers aged 15-64 Number of Persons Employed mil. mil. Aged 65 and over (left scale) Women aged 15-64 (left scale) Men aged 15-64 (left scale) All (right scale) Real GDP growth rate -1 1980s 1990s 2000s 2010s CY 80 Sources: Cabinet Office; Ministry of Internal Affairs and Communications. Chart 10 Growth of Japan's Economy through a Virtuous Cycle of Corporate Activity and Household Disposable Income Growth of overseas economies Increase in selling prices Increase in added value and labor productivity Wage inflation Asset formation using households' surplus funds Increase in household disposable income Expansion of firms' investment; business selection and concentration Expansion of exports Rise in prices Expansion of corporate sales and profits Expansion of households' dividend income Expansion of household spending Chart 11 Household Disposable Income Japan United States tril. yen Germany tril. USD 2.2 2.0 1.8 1.6 1.4 tril. EUR 1.2 1.0 Disposable income Employee compensation 0.8 0.6 Interest income 0.4 Dividend income CY 90 0.2 CY 90 0.0 CY 90 Notes: 1. Figures for Japan before 1994 are calculated using year-on-year changes in each item in the 2000 System of National Accounts. 2. Figures for interest income and dividend income in Germany are "other interests, rents" and "distributed income of corporations," respectively. Sources: Bureau of Economic Analysis (BEA); Cabinet Office; Statistisches Bundesamt. Chart 12 International Comparison of Entry and Exit Rates Entry Rate Exit Rate % % Japan United Kingdom France United States Germany CY 08 CY 08 Note: Figures for Japan are on a fiscal-year basis. Sources: Eurostat; Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency; U.K. Office for National Statistics; U.S. Census Bureau. Chart 13 Final Demand-Intermediate Demand (FD-ID) Price Indexes (All Commodities) CY 2015=100 ID index (stage 1) ID index (stage 2) ID index (stage 3) ID index (stage 4) FD index (excluding exports) CY 15 Note: The indexes divide demand into the final demand stage and four stages of intermediate demand based on the Input-Output Tables for Japan. The prices of goods and services are then aggregated according to the stage to which they belong to compile the FD index and the ID indexes for stages 1 to 4, ranging from the most upstream to the downstream stages of the production process. Source: Bank of Japan. Chart 14 Decomposition of Real Labor Productivity 1981-2019 2020/Q1-2021/Q2 y/y % chg. Within effect Between effect Real labor productivity s.a., q/q % chg. -2 Between effect -4 -2 -4 CY 81 -6 Within effect -8 Real labor productivity -10 20/Q1 21/Q1 Note: Real labor productivity is calculated as productivity per hour worked. The left panel is based on the Cabinet Office's System of National Accounts. The right panel is based on the Ministry of Finance's Financial Statements Statistics of Corporations by Industry, Quarterly. Source: Yagi, T., Furukawa, K., and Nakajima, J., "Productivity Trends in Japan: Reviewing Recent Facts and the Prospects for the Post-COVID-19 Era," Bank of Japan Working Paper Series, No. 22-E-10, July 2022. Chart 15 Labor Mobility in Japan shares of total employees, % Unemployed→Employed Employed→Unemployed Job changers (excluding between regular employment) Job changers (between regular employment) CY 13 Note: Job changers are employees who have left their previous job in the past year and are currently employed. "Employed→Unemployed" refers to those who have left employment in the past year and are not currently employed. Source: Ministry of Internal Affairs and Communications. Chart 16 Labor Mobility in Europe and the United States (as of 2019) EU-OECD countries axis, % USA axis,% Job-to-job Separations to non-employment Hirings from non-employment Notes: 1. Figures for Europe are percentages of those whose employment status has changed from the previous year relative to the number of all employed persons. Non-employment refers to the status of being unemployed or not being in the labor force. Figures for Norway are based on data for 2018. 2. Figures for the United States are percentages of those whose employment status has changed from the previous quarter relative to the number of all employed persons. Non-employment refers to non-employment that has lasted for more than one quarter. Quarterly average is the average of four quarters. Annual estimate is the cumulative total of four quarters. Source: Causa, O., Luu, N., and Abendschein, M., "Labour market transitions across OECD countries: Stylised facts," OECD Economics Department Working Papers, No.1692, 2021. Chart 17 Wages of Job Changers/Stayers in the United States % Job changers Job stayers Overall CY 98 Note: Figures are hourly data of 12-month moving averages of median wage growth. Source: Federal Reserve Bank of Atlanta. Chart 18 Ratio of Firms' Vocational Training Costs to GDP % 2.5 2.0 1.5 1.0 0.5 0.0 United States France Germany Italy 1995-1999 2000-2004 2005-2009 United Kingdom Japan 2010-2014 Note: Figures are estimated by Professor MIYAGAWA Tsutomu (Gakushuin University) based on the System of National Accounts of the Cabinet Office, JIP Database, and INTAN-Invest Database. Source: Ministry of Health, Labour and Welfare. Chart 19 Household Financial Assets International Comparisons (as of end-March 2021) Japan 2,200 tril. yen Financial assets (total) Cash and deposits Equity Investment trusts 2,000 1,800 2.3 2.5 2.6 1,600 27.3 29.0 Otherあ 33.8 Insurance, pension, and standardized guaranteesああ 18.2 Equity 9.6 Investment trustsああ 10.5 1,400 1,200 4.2 1.4 1,000 あああ 37.8 1.8 Debt securities FY 90 % 54.0 13.2 4.2 34.3 Cash and deposits 13.3 Japan United States Euro area Notes: 1. In the right panel, "Other" is the residual after deducting "Cash and deposits," "Debt securities," "Investment trusts," "Equity," and "Insurance, pension, and standardized guarantees" from total financial assets. 2. Also in the right panel, figures for the United States and the euro area are from "Flow of Funds: Overview of Japan, the United States and the Euro area," released by the Bank's Research and Statistics Department on August 20, 2021. Source: Bank of Japan.
|
bank of japan
| 2,022 | 8 |
Speech by Ms Junko Nakagawa, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Hakodate, 31 August 2022.
|
August 31, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Hakodate NAKAGAWA Junko Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices in Japan: Current Situation and Outlook A. Outlook Presented in the July 2022 Outlook for Economic Activity and Prices I would like to begin my speech by talking about the outlook for Japan's economic activity and prices. The Bank of Japan decided the Outlook for Economic Activity and Prices (Outlook Report) at the July Monetary Policy Meeting (MPM) and released its outlook through FY2024 (Chart 1). In terms of economic activity, the Bank's baseline scenario is that the economy is likely to recover toward the middle of the projection period -- with the impact of the novel coronavirus (COVID-19) and supply-side constraints waning and with support from an increase in external demand, accommodative financial conditions, and the government's economic measures -- although it is expected to be under downward pressure stemming from a rise in commodity prices. Also, the Bank projects that a virtuous cycle from income to spending is likely to intensify gradually in the overall economy from the middle of the projection period. This outlook is based on the following basic mechanism: (1) overseas economies are expected to achieve steady growth as commodity prices and the global inflationary trend gradually start to show stability; (2) factors that had exerted downward pressure on Japan's economy, such as the COVID-19 pandemic and supply-side constraints, are projected to dissipate gradually; and (3) the employment and income situation will likely improve as the economy picks up. Nevertheless, this outlook entails various uncertainties. As risk factors, the Outlook Report points to the course of COVID-19 at home and abroad and its impact, developments in the situation surrounding Ukraine, as well as developments in commodity prices, overseas economic activity and prices, and global financial markets. B. Economic Developments Abroad Before looking at Japan's economy in detail, let me first discuss developments in overseas economies. With the prolongation of the effects of the situation surrounding Ukraine, inflationary pressure has been intensifying globally against the background of elevated commodity prices and supply-side constraints. In this situation, although overseas economies have been under downward pressure, due in part to monetary tightening, they seem to be maintaining their recovery trend. Looking at overseas economic conditions in terms of the Global Purchasing Managers' Index (PMI) -- an indicator measuring business sentiment -- figures for both the manufacturing and services industries have declined somewhat but have been above 50, the break-even point between improvement and deterioration (Chart 2). With respect to the outlook for the global economy, the International Monetary Fund (IMF) projected in its July 2022 World Economic Outlook (WEO) Update that global growth rates for 2022 and 2023 would be 3.2 percent and 2.9 percent, respectively. While a slowdown had been anticipated as a risk, given that global growth was projected at 3.6 percent for both years in the April WEO, a significant downward revision has been made in a short period of time. With the continuing impact of COVID-19, global supply shortages of major parts such as semiconductors, as well as lockdowns implemented in major cities in China -- the country referred to as "the workshop of the world" -- have had a substantial adverse impact on the global economy through supply chains. In particular, China accounts for a large share of global exports of IT-related goods and automobile parts, and since Japan is heavily dependent on imports from China for these goods, the lockdowns in China have substantially affected Japan's production activity (Chart 3). Moreover, strict public health measures in China have significantly pushed down its economic activity, marking a rapid decline in the country's yearon-year GDP growth rate from 4.8 percent for the January-March quarter of 2022 to 0.4 percent for the April-June quarter. C. Economic Developments in Japan As with overseas economies, although Japan's economy has been affected by a rise in commodity prices and supply-side constraints, the overall picture shows that economic activity, particularly private consumption, continues to pick up with the impact of COVID19 waning. I would like to explain developments in Japan's economy from two aspects: the corporate sector and the household sector. 1. Corporate sector Let me start with the corporate sector. The manufacturing industry has been hit particularly hard by global supply-side constraints. As noted earlier, parts shortages that had intensified due to the lockdowns in China's major cities have affected production and exports in Japan's major industries, such as transport equipment. Data for production and exports have in fact been relatively weak (Chart 4). Exports to advanced economies continue to increase as a trend due to expansion in demand for digital-related goods, but the effects of supply-side constraints have been seen on automobile-related goods in particular. Regarding exports to emerging economies, although those to the NIEs and the ASEAN economies, for example, continue to increase, those to Russia have decreased significantly and those to China have been pushed down due to the impact of lockdowns, such as in Shanghai. Meanwhile, with the impact of the pandemic waning, the nonmanufacturing industry continues to pick up, particularly in the face-to-face services sector. Amid buoyant corporate demand for digital transformation, orders for information services remain at high levels. This contrast between the manufacturing and nonmanufacturing industries can be seen in the Bank's June Tankan (Short-Term Economic Survey of Enterprises in Japan): a clear slowdown in business sentiment is evident in the manufacturing industry, while the nonmanufacturing industry continues to show a modest but steady recovery, although the level remains low (Chart 5). Corporate profits have been at high levels on the whole (Chart 6). Despite being pushed down by raw material cost increases and supply-side constraints, they have been supported by the following factors: (1) profits of manufacturers have been pushed up due to steady external demand, the yen's depreciation, and other factors, and (2) profits of some large nonmanufacturing firms have been pushed up by rises in commodity prices and container freight rates. Under these circumstances, although business fixed investment has been sluggish in some segments, it continues to show signs of a pick-up, driven by digitalization- and labor savingrelated investments. In terms of machinery investment as well as construction investment, the construction of logistics facilities driven by an expansion in e-commerce and projects related to urban redevelopment are contributing to pushing up private nonresidential construction. Given the state of corporate profits and business fixed investment, it seems that a virtuous cycle continues to operate in the corporate sector as a whole. Regarding the outlook, under the accommodative financial conditions, firms are expected to make investments in areas including efforts to address labor shortages, IT-related goods associated with digitalization, logistics facilities to meet the expansion in e-commerce, office buildings and commercial facilities as part of redevelopment projects, and efforts toward decarbonization. 2. Household sector Turning to the household sector, private consumption continues to show signs of a pick-up with the impact of COVID-19 waning. However, the pace of recovery varies depending on the business type. Sales at department stores and convenience stores have almost recovered to pre-pandemic levels, and retail appears to be gradually returning to normal. In the diningout industry, fast food consumption has returned to pre-pandemic levels, while consumption at pubs and izakaya (Japanese-style bars) remains low, despite showing signs of a turnaround. In terms of travel, which is a key industry in this region as well, recovery is still further down the road. Domestic travel, despite being relatively firm, remains well below pre-pandemic levels. Inbound travel is also far from recovery, with the volume at less than a tenth of prepandemic levels. Going forward, it is hoped that travel and other event-related consumption will turn around as the impact of COVID-19 wanes (Chart 7). The employment and income situation has improved moderately on the whole, although some weakness has been seen in part. As for the number of employed persons, while the number of non-regular employees, mainly in face-to-face services, remains far below pre-pandemic levels, the number of regular employees has increased moderately, especially in the medical, healthcare, and welfare services industry as well as the information and communications industry, both of which face a severe labor shortage (Chart 8). Total employee income is gradually improving, as both total cash earnings per employee and the number of employees have been increasing moderately, reflecting a pick-up in overall economic activity. Special cash earnings (bonuses), which are included in total cash earnings, also seem to be increasing, reflecting recent improvement in corporate profits. In light of these developments in the corporate and household sectors, the Bank's Policy Board members' baseline scenario presented in the July Outlook Report forecasts a real GDP growth rate of 2.4 percent for FY2022, 2.0 percent for FY2023, and 1.3 percent for FY2024; Japan's economy is projected to continue growing at a pace above its potential growth rate, which is estimated to be at 0.0-0.5 percent (Chart 1). Changes from the April Outlook Report include a somewhat large downward revision for FY2022, mainly reflecting a slowdown in overseas economies and intensification of supply-side constraints, while upward revisions were made for FY2023 and FY2024. D. Price Developments in Japan Next, I would like to talk about price developments in Japan. The year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food has accelerated to 2.4 percent (Chart 9). This acceleration reflects the fact that (1) the effects of the reduction in mobile phone charges, which had held down inflation, have essentially run their course, (2) energy prices have continued to register a relatively high increase, and (3) firms have been increasingly passing on higher raw material costs to selling prices, especially for food products. Other indicators that capture the underlying trend in consumer prices have exhibited the following developments. The trimmed mean of the year-on-year rate of change in the CPI -calculated by excluding items belonging to the upper and lower 10 percent of the price change distribution -- has increased to the range of 1.5-2.0 percent due to price rises in a wide range of food products. However, in terms of the mode, which is the inflation rate with the highest density in the price change distribution, the rate of increase has been relatively marginal, in the range of 0.5-1.0 percent. While these indicators show price rises driven by goods and services that reflect the higher costs of some raw materials, my view is that, on the whole, selling prices have not risen as much as raw material prices. In terms of the baseline scenario of the outlook for prices, the medians of the Policy Board members' forecasts presented in the July Outlook Report for the year-on-year rate of change in the CPI less fresh food are 2.3 percent for FY2022, 1.4 percent for FY2023, and 1.3 percent for FY2024 (Chart 1). Considering the elevated crude oil prices and the time it has taken thus far for cost increases such as of raw materials to be actually passed on to selling prices, it is highly likely that price rises driven by cost-push factors will continue for the time being, mainly for energy and food products. Upward pressure on costs stemming from inefficiency in logistics due to the prolonged situation surrounding Ukraine is also likely to induce such rises. Inflation rates are projected to subsequently fall to a level below 2 percent as the contribution of the rise in energy prices gradually wanes. However, the underlying trend in inflation when excluding the effects of those prices is expected to rise mildly in positive territory amid a moderate recovery in Japan's economy and improvement in the output gap. Several factors may cause prices to deviate upward or downward from the baseline scenario presented in the July Outlook Report, one of which is developments in commodity prices. Looking at crude oil, for instance, the price of West Texas Intermediate (WTI) -- a leading benchmark -- peaked temporarily at 130 U.S. dollars per barrel in March 2022 and remained generally above 100 dollars for some time. It declined thereafter and has been hovering at the 90-100 dollar level more recently, reflecting a projected decline in demand due to the global economic slowdown; nevertheless, the price level remains high. The fall in demand caused by the economic slowdown carries the risk of driving down oil prices, whereas supply-side issues incur the risk of further tightening of the global crude oil market. E. Impact of Price Rises on Private Consumption I would now like to turn to the impact of price rises on private consumption. In order for the impact of COVID-19 and supply-side constraints, which has put downward pressure on the economy, to dissipate and for the economy to recover, the negative impact of price rises on private consumption needs to remain minimal. The main scenario is that private consumption, despite being affected by price rises, will likely increase moderately on the back of improvement in the employment and income situation, as the resumption of consumption activities progresses gradually while public health is being protected. However, this admittedly entails some degree of uncertainty. I think it will be necessary, therefore, to pay attention to the impact of price rises on household consumption going forward. Although we generalize about households, they differ in terms of income, household composition, geographical area, and other attributes. In the current environment, different households face different inflation rates. By region, for example, the proportion of spending on utility costs in Hokkaido, Tohoku, and Okinawa is known to be higher than the national average on a yearly basis. Therefore, the inflation rates that households in these regions face have been relatively higher under the current circumstances as well. Moreover, when grouped by household income, lower-income households spend a relatively higher proportion of their income on energy and food items than higher-income groups and thus are harder hit by price increases (Chart 10). Looking also at the Cabinet Office's July 2022 Consumer Confidence Survey, which examines the impact of price rises on consumer sentiment, this confirms that the lower the income of households, the more cautious they become in their perception of "overall livelihood." Meanwhile, the government formulated in April the Comprehensive Emergency Measures to Counter Soaring Crude Oil and Other Prices. The measures include an expansion of gasoline subsidies and an extension of the period during which they are provided, as well as benefit payments to child-rearing households with low income. Such targeted measures are thought to be effective for households that are hard hit by price rises. II. The Bank's Monetary Policy In what follows, I would like to touch on the Bank's monetary policy. First, I will briefly review its response to the spread of COVID-19 since March 2020. The Bank has supported financing, mainly of firms, and maintained stability in financial markets through measures such as (1) the Special Program to Support Financing in Response to COVID-19 and (2) flexible provision of ample funds, mainly by purchasing Japanese government bonds (JGBs) and conducting the U.S. dollar funds-supplying operations. These measures, coupled with the government's measures and financial institutions' proactive efforts, have had positive effects. As a result, financial conditions in Japan have been improving on the whole, with precautionary demand for liquidity subsiding, particularly among large firms. On the other hand, financial positions of small and medium-sized firms have been on an improving trend on the whole, but it was deemed that weakness remained in some segments. Given this, at the December 2021 MPM, the Bank once more extended -- to end-September -- the duration of the fund-provisioning to small and medium-sized firms under the Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 -- a temporary measure until the end of March 2022. The treatment of this temporary measure will be discussed at the next MPM to be held in September, based on examination of the impact of COVID-19. Next, I would like to take a look back at the Bank's monetary policy conduct from a longer time frame. In April 2013, the Bank introduced Quantitative and Qualitative Monetary Easing (QQE) with the aim of achieving the price stability target of 2 percent at the earliest possible time. In September 2016, based on an assessment of its policy effects, the Bank enhanced monetary easing by introducing QQE with Yield Curve Control -- in which it controls shortand long-term interest rates. However, as it was expected to take time to achieve the 2 percent target, the Bank conducted an assessment in March 2021 with a view to implementing further effective and sustainable monetary easing. The assessment found that: (1) it was appropriate for the Bank to continue with monetary easing in a sustainable manner, as it was effective in pushing up economic activity and prices; and (2) it was important to make nimble and effective responses without hesitation to counter changes in economic activity, prices, and financial conditions. The current policy framework is based on these findings. The year-on-year rate of increase in the CPI has been exceeding the 2 percent target level, with that for July 2022 registering 2.6 percent. This is attributable to the dissipating effects from April of the reduction in mobile phone charges and to the pass-through of cost increases in view of, for example, the rise in commodity prices and the yen's depreciation. Having said that, I do not think that it is enough simply to reach 2 percent; the end goal is for accommodative financial conditions to facilitate higher corporate profits and improved labor market conditions, and thereby generate a virtuous cycle in which wages and prices see sustained increases. I therefore consider it necessary to continue with monetary easing in order to realize this cycle and achieve the price stability target, accompanied by wage increases, in a sustainable and stable manner. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Hakodate August 31, 2022 NAKAGAWA Junko Member of the Policy Board Bank of Japan Chart 1 Outlook for Economic Activity and Prices (as of July 2022) y/y % chg. Real GDP FY2022 Forecasts made in Apr. 2022 FY2023 Forecasts made in Apr. 2022 FY2024 Forecasts made in Apr. 2022 CPI (all items less fresh food) +2.2 to +2.5 [+2.4] +2.2 to +2.4 [+2.3] +2.6 to +3.0 [+2.9] +1.8 to +2.0 [+1.9] +1.7 to +2.1 [+2.0] +1.2 to +1.5 [+1.4] +1.5 to +2.1 [+1.9] +0.9 to +1.3 [+1.1] +1.1 to +1.5 [+1.3] +1.1 to +1.5 [+1.3] +1.1 to +1.3 [+1.1] +1.0 to +1.3 [+1.1] Note: Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). Source: Bank of Japan. Chart 2 Overseas Economies IMF World Economic Outlook Global PMI y/y % chg. July 2022 projections s.a., DI CY 1990-2019 average: +3.6% Manufacturing -1 -2 Services -3 -4 CY 00 CY 07 Note: Figures for manufacturing are the J.P.Morgan Global Manufacturing PMI. Figures for services are the J.P.Morgan Global Services Business Activity Index. Source: Copyright © 2022 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved. Source: IMF. Chart 3 Overseas Economies China's Manufacturing PMI and Exports Manufacturing PMI China's Export Shares Share in World Exports Nominal Exports s.a., DI s.a., CY 2019=100 Total exports IT-related goods Automobiles and parts Share in Japan's Imports Personal computers, etc. Mobile phones, etc. Parts for personal computers, etc. Tires for automobiles Automobile parts CY19 22 CY19 Notes: 1. Figures for the Manufacturing PMI are from the National Bureau of Statistics of China. 2. Figures for nominal exports are in U.S. dollar terms. Source: CEIC. 0 20 40 60 80 100 0 20 40 60 80 100 % Note: Figures are based on trade values as of 2021. Source: Trade Map, International Trade Centre, https://marketanalysis.intracen.org. % Chart 4 Corporate Sector in Japan Industrial Production Real Exports by Region s.a., Jan. 2020=100 s.a., 2020/Q1=100 s.a., 2020/Q1=100 Mining and manufacturing Motor vehicles United States <17.8> Construction and mining machinery CY 20 EU <9.2> CY 20 China <21.6> NIEs, ASEAN, etc. <36.3> Other economies <15.0> Notes: 1. Based on staff calculations. Figures in angular brackets show the share of each country or region in Japan's total exports in 2021. Figures for 2022/Q3 are those for July. 2. Figures for the EU exclude those for the United Kingdom for the entire period. Sources: Ministry of Finance; Bank of Japan. Source: Ministry of Economy, Trade and Industry. Chart 5 Corporate Sector in Japan Business Conditions Manufacturing "Favorable" DI ("favorable" - "unfavorable"), % point Nonmanufacturing DI ("favorable" - "unfavorable"), % point "Unfavorable" -10 -10 -20 -20 -30 -30 -40 -40 -50 -50 -60 -60 -70 CY 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 -70 CY 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Notes: 1. Based on the Tankan. All enterprises. 2. Shaded areas denote recession periods. Source: Bank of Japan. Chart 6 Corporate Sector in Japan Corporate Profits Business Fixed Investment s.a., tril. yen s.a., tril. yen y/y % chg. 25 20 Private nonresidential investment (SNA, nominal) Tankan (actual) Tankan (planned investment in current fiscal year as of the June survey of each year) Sales (left scale) Current profits (right scale) CY 07 -10 -15 -5 Notes: 1. Based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance." 2. Figures from 2009/Q2 onward exclude pure holding companies. 3. Shaded areas denote recession periods. Source: Ministry of Finance. -20 FY 07 Note: The Tankan figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for all industries including financial institutions. Sources: Cabinet Office; Bank of Japan. Chart 7 Household Sector in Japan Sales Trends by Business Type Department stores Supermarkets Convenience stores Dining-out Travel ratio to the same month in CY 2018, % Fast food restaurants Outbound Family restaurants Inbound Pubs and izakaya (Japanese-style bars) Dinner restaurants Domestic Cafés -20 -40 -60 -80 -100 CY 20 Sources: Japan Foodservice Association; Japan Tourism Agency; Ministry of Economy, Trade and Industry. Chart 8 Employment and Income Situation in Japan Number of Employed Persons s.a., mil. persons Employee Income s.a., CY 2019=100 105 4 y/y % chg. -2 Employed persons (left scale) Total cash earnings Number of employees Employee income Regular employees (right scale) CY 07 Non-regular employees (right scale) Real employee income -4 12/Q1 Note: Figures for regular employees and non-regular employees prior to 2013 are based on the "detailed tabulation" in the Labour Force Survey. Source: Ministry of Internal Affairs and Communications. 14/Q1 16/Q1 18/Q1 20/Q1 22/Q1 Notes: 1. Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures for 2022/Q2 are those for June. 2. Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey) 3. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the Monthly Labour Survey. 4. Figures for real employee income are based on Bank staff calculations using the CPI (less imputed rent). Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 9 Consumer Prices CPI (Less Fresh Food) Various Measures of Core Inflation y/y % chg. 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 CY 17 2.0 y/y % chg. 1.5 1.0 0.5 0.0 Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) Notes: 1. Figures for "energy" consist of those for "petroleum products," "electricity," and "gas, manufactured & piped." 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Trimmed mean -0.5 Weighted median -1.0 Mode -1.5 CY 07 Note: All figures are based on Bank staff calculations using the CPI excluding the effects of the consumption tax hikes, free education policies, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. The CPI figures from April 2020 onward are Bank staff estimates and exclude the effects of measures such as free higher education introduced in April 2020. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 10 Price Rises and Private Consumption Perception of Overall Livelihood by Income Group CPI by Income Group 3.0 2.5 y/y % chg. 2.5 2.3 s.a. chg. from CY 2019 to first half of CY 2022, points Less than 3 mil. yen -5.4 3-9.5 mil. yen -3.9 9.5 mil. yen and over -3.4 2.2 2.1 2.0 1.5 1.0 0.5 Less than 3 mil. yen 3-9.5 mil. yen 9.5 mil. yen and over 0.0 First quintile Second-fourth quintiles Fifth quintile Low Annual income High Working households (average) Note: Figures are for working households by annual income quintile and are for May 2022. Source: Ministry of Internal Affairs and Communications. CY 14 Note: The chart shows developments in the index for consumer perception of overall livelihood. Figures are for all households in a particular income group and are the weighted averages of perception of overall livelihood in each income group using the number of households as weights. Source: Cabinet Office.
|
bank of japan
| 2,022 | 9 |
Speech by Mr Kuroda Haruhiko, Governor of the Bank of Japan, at a meeting with business leaders, Osaka, 26 September 2022.
|
September 26, 2022 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Osaka KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Kansai region. I would like to take this chance to express my sincerest gratitude for your cooperation with the activities of the Bank of Japan's branches in Osaka, Kobe, and Kyoto. The last two meetings with business leaders in the Kansai region were held online due to the novel coronavirus (COVID-19) pandemic. I am delighted to meet and exchange views with you in person for the first time in three years. At the outset, I will talk about developments in Japan's economic activity and prices and explain the Bank's thinking on the conduct of monetary policy. I. Economic Developments Let me start by talking about Japan's economic developments. The repeated waves of COVID-19 at home and abroad have affected Japan's economy through various channels. In the first half of the year, COVID-19 cases surged in China -which strictly adheres to the so-called zero-COVID policy -- and major cities such as Shanghai went into lockdowns. In the manufacturing industry -- such as automobiles and machine tools, where Japan has a competitive advantage -- firms faced parts procurement difficulties and had to reduce production. Thereafter, the supply-side constraints caused by the lockdown in Shanghai have been dissipating due to the lifting of such restrictions. While parts shortages have remained for some goods, Japan's exports and production overall have continued to increase as a trend, with the effects of supply-side constraints waning (Chart 1). Looking at domestic private consumption, downward pressure from COVID-19 has waned since the lifting of pandemic-related restrictions across Japan in March this year (Chart 2). During the summer, Japan experienced a seventh wave of COVID-19 and the number of confirmed cases significantly surpassed its previous peak. However, the number of people visiting downtown areas, such as around Osaka and Namba stations, has almost returned to the pre-pandemic level, albeit with fluctuations. The fact that a procession of the yamahoko floats was held for the first time in three years during Kyoto's Gion Festival also seems to represent a change in the situation. Although the impact of COVID-19 has not disappeared, of course, sales for retail and dining-out, for example, suggest that private consumption has increased moderately. Meanwhile, crude oil and other international commodity prices have risen significantly, reflecting heightened geopolitical risks, such as the situation surrounding Ukraine, and a recovery in global demand. Since Japan relies on imports for most of its raw materials, including natural resources and grains, those rises put downward pressure on the economy by bringing about an outflow of income from Japan. Despite being affected by such commodity price rises and other factors, Japan's economy has picked up as the resumption of economic activity has progressed while public health has been protected. Regarding the outlook, it seems highly likely that the economy will continue recovering, considering the following three factors. The first is improvement in exports, production, and business fixed investment. Exports and production are likely to continue on an uptrend, as order backlogs have accumulated and as supply-side constraints, which have put downward pressure on them, are expected to wane. Business fixed investment is projected to be supported by high levels of corporate profits and by implementation of projects that have been postponed due to the impact of COVID-19 and supply-side constraints (Chart 3). Investment to address medium- to long-term issues, such as digitalization, decarbonization, and restructuring of supply chains, is also expected to take place. In fact, business fixed investment plans for fiscal 2022 indicate that investment is expected to increase at a higher rate than usual. The second factor is solid private consumption. The recent rise in prices is an element that could push down consumption by reducing households' real purchasing power. That said, consumption is expected to keep increasing for the time being, supported by the materialization of demand that has been suppressed during the pandemic, such as for travel and dining-out, and by savings that have accumulated to date (Chart 4). It should be noted, however, that such demand -- or pent-up demand -- has only temporary effects by its nature. Whether private consumption will see a sustained increase even after pent-up demand runs out depends on a rise in household income, especially wage increases. I will return to this crucial point later. The third factor is that, with the government relaxing entry restrictions, inbound tourism demand is expected to recover. In particular, potential demand for such tourism seems to be rising in areas with abundant tourism resources, such as the Kansai region. Having mentioned positive factors regarding Japan's economy, I would also like to note that there are ever-increasing uncertainties about the future, especially downside risks to the outlook. The first risk factor is developments in COVID-19 at home and abroad (Chart 5). In Japan, as mentioned earlier, COVID-19 cases surged at an unprecedented pace during the seventh wave of the pandemic. It can be argued that the negative impact on the economy has been limited despite the large number of cases, as the resumption of economic activity has progressed while public health has been protected. That said, there seems to be a cautious stance toward consumption activity -- especially among seniors, who are considered to be at higher risk of severe illness from COVID-19. It cannot be ruled out that waves of COVID-19 will recur, and, depending on the consequences of the resurgence, the extent and timing of the materialization of pent-up demand will be impacted. In addition, if COVID-19 resurges in regions that are linked to Japanese firms' supply chains, such as China, attention is warranted on the possibility that supply-side constraints will intensify again. The second risk factor is developments in overseas economic activity and prices (Chart 6). Inflation rates have risen around the world recently. Those in the United States and the euro area have been close to double digits, marking the highest levels in about 40 years. In response, overseas central banks have raised interest rates. In the United States, a mismatch in the labor market has widened: labor demand has increased rapidly, as seen in the significant rise in the number of job openings as the economy reopened, while labor supply has been slow to recover, mainly for seniors and women, due, for example, to their concern over COVID-19 (Chart 7). Wage growth has been high, registering over 5 percent, and higher labor costs have intensified inflationary pressure. In this situation, services prices, which are susceptible to labor costs, have risen further. The Federal Reserve is increasingly concerned about the so-called wage-price spiral, where such upward pressure on wages accelerates inflationary pressure and vice versa. To contain inflation, it has already raised the target range for the federal funds rate five times for a total of 3 percentage points since the turn of the year, with a view to suppressing demand (Chart 6). In the euro area, the inflation rate has risen to roughly the same level as in the United States, but for different reasons. The main cause of inflation has been cost-push factors, such as surging energy prices, and demand has not been that strong. However, the European Central Bank is concerned about a risk that significantly high inflation will push up people's inflation expectations and consequently lead to runaway inflation through firms' higher wage setting. Therefore, it regards containing inflation as the priority task and has been rapidly lifting interest rates even at the risk of adversely affecting the economy to some extent. Central banks in other advanced economies, such as the United Kingdom, and in emerging economies have also raised interest rates. While these measures are necessary to contain inflation, they may eventually trigger a further slowdown in the global economy. There are numerous other risks surrounding overseas economies. Europe, which has been affected by high inflation and interest rate hikes, faces a risk that constraints on energy supplies will intensify. Adjustments in the Chinese real estate market also are a source of concern. The International Monetary Fund's (IMF's) quarterly updates on global economic forecasts show that the projected growth rate for 2022 has been revised sharply downward since autumn last year (Chart 8). Nevertheless, in the July update, the IMF maintained the baseline scenario that the global economy will achieve a soft landing, as suggested by the projected overall growth rate of around 3 percent. However, attention should be paid to the fact that risks are skewed to the downside, as I have just explained, including the extent of economic deceleration due to interest rate hikes around the world. II. Price Developments I will now turn to price developments in Japan. The impact of global inflation has spilled over to Japan. Looking at the figures for the domestic consumer price index (CPI) for August released last week, the year-on-year rate of change for all items excluding fresh food was 2.8 percent (Chart 9). The rate is likely to increase further toward the end of the year, but as the contribution of elevated costs peaks out from the beginning of 2023, it is projected to decline to below 2 percent. The reasons behind this projection are as follows. The major contributors to the recent price rises are items for which price developments are susceptible to an increase in international raw material prices, such as energy-related items -- including gasoline prices and electricity charges -- and food products. In addition, while prices have also risen recently for durable goods, including household electrical appliances, and services such as dining-out and those related to housing repairs and maintenance, these hikes also are mainly attributed to the nondomestic factor of price rises in raw materials. Current price rises in Japan therefore are more likely to be the result of high costs that mainly stem from high commodity prices and the yen's depreciation, rather than an increase in domestic demand. Unless international commodity prices continue to rise in the future, such upward pressure from high costs on prices is projected to gradually decrease from the beginning of 2023. Underlying inflation, which is developments in inflation in the absence of such cost-push factors from abroad, is determined by two factors: the output gap, which shows the level of economic activity, and people's inflation expectations. Japan's output gap has been in negative territory. However, with the economy following a growth path that outpaces its potential growth rate, the gap is projected to turn positive in the second half of fiscal 2022 and then continue to expand moderately. Regarding inflation expectations, not only short-term but also long-term ones have risen, with the rate of inflation accelerating recently (Chart 10). Considering these developments in the output gap and inflation expectations -although whether they will continue requires careful monitoring -- underlying inflation is likely to rise moderately. That said, as mentioned earlier, because the contribution of elevated costs is likely to peak out from the beginning of 2023, the CPI inflation rate is projected to decline to below 2 percent from fiscal 2023. This view is shared by the IMF and private forecasters (Chart 11). III. The Bank's Conduct of Monetary Policy Basic Thinking on the Conduct of Monetary Policy Next, I will explain the Bank's thinking on its conduct of monetary policy. Since the introduction of quantitative and qualitative monetary easing (QQE) in 2013, the Bank's aim of conducting monetary policy has been consistent -- that is, to achieve the price stability target of 2 percent in a sustainable and stable manner. What the Bank aims for is the formation of a virtuous cycle in which prices rise moderately amid a situation where economic activity improves, wages rise, and corporate profits increase. On this point, a look at wage developments shows that summer bonuses this year increased at high rates on the back of high corporate profits (Chart 12). Minimum wages have been raised by record amounts. Looking ahead, in the services industry, which has been affected by the pandemic, pent-up demand is likely to materialize for travel and dining-out as the impact of COVID-19 subsides and inbound tourism demand is projected to recover. As this industry faced labor shortages before the pandemic, if labor market conditions tighten due to such a rise in demand, wages are expected to increase, mainly for non-regular employees. In addition, exports, production, and business fixed investment -- all of which have been pushed down by supply-side constraints -- are projected to recover as those constraints wane. This is likely to lead to improvement in labor market conditions and wages, such as in the manufacturing industry. As the environment gradually becomes favorable for wage hikes, the recent price rises are expected to be reflected in wage negotiations. The Bank will continue with monetary easing so as to firmly support Japan's economy from the demand side and thereby encourage the formation of the virtuous cycle accompanied by wage increases. Policy Responses to Support Financing, Mainly of Firms At the Monetary Policy Meeting held last week, the Bank decided to phase out the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) -- the so-called Special Operations to Facilitate Financing. It also decided to shift to fund-provisioning that would meet a wide range of financing needs. The Bank introduced the Special Operations to Facilitate Financing as a temporary measure following the outbreak of COVID-19 in spring 2020, and thereafter has extended the implementation period while making partial revisions to them depending on financial conditions. The operations at first were to support financing of not only small and medium-sized firms but also large firms, but they have been targeted at supporting mainly small and medium-sized firms since April 2022. Regarding the details on the decisions, the Bank extended the implementation period of the Special Operations to Facilitate Financing by six months for the fund-provisioning against loans for which financial institutions bear credit risk ("non-government-supported loans") and decided to complete the fund-provisioning at the end of March 2023. The period was extended by three months for the fund-provisioning against loans that financial institutions make on the back of government support ("government-supported loans"). Firms' financing needs arise not only from the impact of COVID-19 but also for various reasons, such as an increase in working capital due, for example, to higher raw material prices. From the viewpoint of meeting such a wide range of financing needs, the Bank decided that fund-provisioning under the Funds-Supplying Operations against Pooled Collateral, which previously had been limited to a bi-weekly basis and up to a maximum of 2 trillion yen, will be conducted without an upper limit. These operations are the most versatile among the Bank's various market operations, as it accepts various types of collateral for them. Japan's financial conditions have been accommodative on the whole (Chart 13). Although the impact of COVID-19 has remained in some segments of small and medium-sized firms in particular, financial positions, including of these firms, have been on an improving trend. Demand for the Special Operations to Facilitate Financing has declined. The Bank will firmly maintain accommodative financial conditions for businesses by shifting its focus to meet a wide range of financing needs while gradually scaling back the role of acute crisis measures, such as the Special Operations to Facilitate Financing, depending on the circumstances. Conclusion Today, I have talked about developments in Japan's economic activity and prices and about the Bank's conduct of monetary policy. As we successively face various risks, such as the pandemic and heightened geopolitical risks, Japan's economic society as a whole needs to flexibly respond to them and take this opportunity to grow. Specifically, in a society where the population is declining, the urgent issue is "investment in people" -- which includes increasing wages, supporting upskilling, and promoting diverse working styles -- as well as improvement in productivity through, for example, digital transformation. Although I do not have time to go into detail today, it is also necessary to address climate change, which is a social issue that should be considered from a longer-term perspective. Needless to say, the driver of medium- to long-term economic growth is the private sector's various efforts toward improving growth potential. The Bank will continue to firmly support your efforts from the financial side by maintaining a favorable macroeconomic environment. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Osaka September 26, 2022 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. The Bank's Conduct of Monetary Policy Conclusion Chart 1 I. Economic Developments Exports and Production Real Exports Production s.a., CY 2018 = 100 s.a., CY 2018 = 100 CY 18 CY 18 Sources: Bank of Japan; Ministry of Economy, Trade and Industry. Chart 2 I. Economic Developments Private Consumption Mobility Trends Based on Location Data chg. from baseline, 7-day central moving avg., % Consumption Activity Index s.a., CY 2018 = 100 -5 -10 -15 -20 -25 CY 2022 -30 CY 2021 -35 CY 2020 -40 Jan. Mar. May July Sept. Nov. Total real private consumption Services CY 18 Notes: 1. In the left-hand chart, the "baseline" is the median on the corresponding day of the week during the 5-week period from January 3 to February 6, 2020. Figures are mobility trends for places such as restaurants, shopping centers, and theme parks. 2. In the right-hand chart, figures for total real private consumption are for the real Consumption Activity Index and are based on staff calculations. The figures exclude inbound tourism consumption and include outbound tourism consumption. Sources: Google LLC "Google COVID-19 Community Mobility Reports." https://www.google.com/covid19/mobility/. Accessed: September 21, 2022; Bank of Japan. Chart 3 I. Economic Developments Corporate Profits and Business Fixed Investment Planned and Actual Business Fixed Investment Current Profits 25 s.a., tril. yen y/y % chg. Private nonresidential investment (SNA, nominal) Tankan (actual) Tankan (planned investment in current fiscal year as of the June survey of each year) -5 -10 -15 CY 07 -20 FY 07 Notes: 1. In the left-hand chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. 2. In the right-hand chart, the Tankan figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. Including financial institutions. Sources: Ministry of Finance; Bank of Japan; Cabinet Office. Chart 4 I. Economic Developments Pent-Up Demand and Inbound Tourism Demand Private Consumption and Disposable Income Number of Inbound Visitors 35 s.a., ann., mil. persons s.a., CY 2018 = 100 Consumption Activity Index (travel balance adjusted, real) Disposable income, etc. (SNA, real) CY 18 CY 18 Notes: 1. In the left-hand chart, figures for the Consumption Activity Index (CAI) are based on staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. The figure for 2022/Q3 is that for July. "Disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements. Real values are obtained using the deflator of consumption of households. 2. In the right-hand chart, the figure for 2022/Q3 is the July-August average. Sources: Bank of Japan; Cabinet Office; Japan National Tourism Organization (JNTO). Chart 5 I. Economic Developments Developments in COVID-19 in Japan Developments in Services Consumption by Age Daily Confirmed New Cases thous. persons chg. from baseline, % Aged 20-39 Aged 40-64 Aged 65-84 -10 -20 -30 -40 -50 July Jan. July Jan. July Jan. July Jan. July Jan. July Jan. July Notes: 1. In the left-hand chart, figures are 7-day backward moving averages. 2. In the right-hand chart, figures are from the reference series in JCB Consumption NOW, which take changes in the number of consumers into account. Figures are the arithmetic averages of the corresponding age groups in 5-year increments. The "baseline" is the average for the corresponding half of the month for fiscal 2016 through fiscal 2018. Sources: Ministry of Health, Labour and Welfare; Nowcast Inc./ JCB, Co., Ltd., "JCB Consumption NOW." Chart 6 I. Economic Developments Inflation and Policy Rates in Major Economies Inflation Policy Rates y/y % chg. 3.5 % United States United States 3.0 Euro area Euro area 2.5 United Kingdom United Kingdom 2.0 1.5 1.0 0.5 0.0 -0.5 -5 CY 80 -1.0 CY 15 Notes: 1. In the left-hand chart, figures for the United States and the United Kingdom are for the CPI for all items. Those for the euro area are for the HICP for all items. Figures for the United Kingdom prior to 1989 are based on the ONS estimates. 2. In the right-hand chart, figures for the United States are the medians of the target ranges for the federal funds rate. Those for the euro area are the rates on the deposit facility. Sources: Haver; ONS; Bloomberg. Chart 7 I. Economic Developments Labor Market Conditions and Prices in the United States Labor Force Participation Rate Job Openings s.a., CY 2007 = 100 Consumer Prices in the United States s.a., % Energy <7%> Japan Services <63%> United States Goods <30%> CPI <100%> Japan United States y/y % chg. -1 CY 07 09 11 13 15 17 19 21 CY 07 09 11 13 15 17 19 21 -2 CY 18 Notes: 1. In the left-hand chart, figures for 2022/Q3 are those for July. 2. In the middle chart, the figure for 2022/Q3 for Japan is that for July. That for the United States is the July-August average. 3. In the right-hand chart, figures are for the CPI for all items. Figures in angular brackets show the share of each component. Figures for 2022/Q3 are July-August averages. Sources: Ministry of Health, Labour and Welfare; Haver. Chart 8 I. Economic Developments Global Growth Rate for 2022 (IMF Forecast) y/y % chg. Forecast as of Oct. 2021 +4.9% Downward revision Forecast as of July 2022 +3.2% Oct. 20 Apr. 21 Oct. 21 Apr. 22 Forecast date Source: IMF. Chart 9 II. Price Developments Consumer Prices in Japan (Less Fresh Food) y/y % chg. Temporary factors Aug. 2022: +2.8% Energy <7%> Services <50%> Goods <40%> CPI (less fresh food) <100%> -1 -2 CY Note: Figures for temporary factors are staff estimates and consist of mobile phone charges and the effects of the consumption tax hike, policies concerning the provision of free education, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. Figures in angular brackets show the share of each component. Figures for 2022/Q3 are July-August averages. Source: Ministry of Internal Affairs and Communications. Chart 10 II. Price Developments Inflation Expectations Households y/y % chg. 3.0 Over the next 1 year Over the next 5 years Market Participants (QUICK) Firms (Tankan) (Opinion Survey on the General Public's Views and Behavior) y/y % chg. 2.5 3.0 1 year ahead 2.5 5 years ahead 2.0 2.0 1.5 1.0 1.5 0.5 1.0 0.0 -0.5 0.5 -1 -2 CY 07 09 11 13 15 17 19 21 y/y % chg. -1.0 0.0 -0.5 CY 14 -1.5 Over the next 1 year 2 to 10 years ahead -2.0 CY 07 09 11 13 15 17 19 21 Notes: 1. In the left-hand chart, figures are the medians of the answers to quantitative questions. 2. In the middle chart, figures show the inflation outlook of enterprises for general prices (all industries and enterprises, average). Sources: Bank of Japan; QUICK, "QUICK Monthly Market Survey <Bonds>." Chart 11 II. Price Developments Forecasts of Japan's CPI by the IMF and Economists in the Private Sector y/y % chg. IMF +1.9 +1.3 ― +2.4 +1.2 +0.9 (All items, calendar year) ESP Forecast (All items less fresh food, fiscal year) Note: Figures for the IMF and the ESP Forecast are forecasts as of July and September, respectively. Sources: IMF; Japan Center for Economic Research, "ESP Forecast." Chart 12 III. The Bank's Conduct of Monetary Policy Employment and Income Situation Diffusion Indexes for Employment Conditions Nominal Wages y/y % chg. -50 inverted, DI ("excessive employment" -"insufficient employment"), % points Special cash earnings (bonuses, etc.) Manufacturing Non-scheduled cash earnings -40 Scheduled cash earnings Forecast Nonmanufacturing Total cash earnings -30 -20 "Insufficient" -10 "Excessive" -1 -2 -3 18/Q1 19/Q1 20/Q1 21/Q1 22/Q1 CY 18 Note: In the left-hand chart, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures are based on continuing observations following the sample revisions. Figures for 2022/Q2 are June-July averages. Sources: Ministry of Health, Labour and Welfare; Bank of Japan. Chart 13 III. The Bank's Conduct of Monetary Policy Corporate Finance Diffusion Indexes for Firms' Financial Positions Amounts Outstanding of Loans Provided through the Special Operations in Response to COVID-19 DI ("easy" - "tight"), % points tril. yen -10 Large enterprises in all industries Small enterprises in all industries Small enterprises in face-to-face services industry -20 -30 CY 07 Jan. July Jan. July Jan. July Notes: 1. In the left-hand chart, figures for small enterprises in the face-to-face services industry are the weighted averages of the DIs for retailing, transport & postal activities, services for individuals, and accommodations, eating & drinking services. 2. In the right-hand chart, figures are those at the end of each month. Source: Bank of Japan.
|
bank of japan
| 2,022 | 9 |
Speech by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Toyama, 19 October 2022.
|
October 19, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Toyama ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity 1. Developments regarding the novel coronavirus (COVID-19) First, I would like to touch on developments regarding COVID-19. During summer 2022, a seventh wave of COVID-19 swept across Japan, and the number of confirmed new cases surpassed the previous peak (Chart 1). However, as the resumption of economic activity progressed while public health was being protected, people refrained from going out less than in past waves, due in part to the absence of pandemic-related restrictions during the seventh wave. Likewise, in overseas economies, the spread of COVID-19 cannot be said to have subsided, although it has been contained. Unless a highly virulent variant emerges, the economic impact of COVID-19 will likely become less significant even if another wave occurs. That said, China maintains its stance of strictly adhering to the zero-COVID policy. Lockdowns in its cities will continue to pose the risk of an adverse impact on the global economy through international supply chains. This is a risk factor to the global economy, and thus warrants attention. 2. Recent developments in economic activity at home and abroad I will now describe recent developments in economic activity both at home and abroad. Let me begin with the global economy. Despite being under downward pressure stemming from the spread of COVID-19, it has managed to recover and stay resilient without falling into a marked slowdown that had been of concern during the early stages of the pandemic (Chart 2). In my view, the following two global commonalities can be highlighted as the background to the global economy's resilience. The first factor is that, with the impact of COVID-19 waning, private consumption has been solid, due in part to pent-up demand -- that is, demand that was suppressed during the pandemic. While global inflation could be a factor pushing down consumption, so far there have been no signs of higher prices considerably reducing consumption through a decline in real disposable income. Behind this continued resilience in private consumption lie sufficient income compensation measures taken by respective governments during the pandemic and (2) household savings that have accumulated as a consequence of the significant reduction in consumption opportunities for face-to-face services, due mainly to governments' implementation of pandemic-related restrictions. In addition, in the United States, for instance, higher prices of such assets as equities and homes have brought about increases in unrealized gains on household assets. This can be noted as a factor that has contributed to underpinning private consumption. The second factor is buoyant demand for business fixed investment. This is in reflection of an increase in investment intended to, for example, facilitate digital transformation (DX) and address climate change. Let me now take a look at Japan's economy from the viewpoint of the two commonalities I have just described. With respect to the first factor, or pent-up demand, this materialized after the sixth wave of COVID-19 seen at the beginning of 2022 abated, and in turn helped raise the economic growth rate. Subsequently, although such demand weakened somewhat during the seventh wave, it likely contributed to underpinning economic activity (Chart 3). As for the second factor, or demand for business fixed investment, the plans presented in various survey results suggest that there continue to be strong expectations that fixed investment will serve as a driving force for a virtuous cycle in Japan's economy. Mainly due to the effects of supply-side constraints associated with the pandemic, fixed investment continues to be lower than firms' initial plans; however, plans that have been postponed will likely be put into place in tandem with the waning impact of COVID-19 (Chart 4). I would now like to briefly touch on Japan's exports. With global business sentiment having been firm during the course of recovery from the pandemic, exports from Japan basically remain steady (Charts 5 and 6). However, imports have increased significantly due to a surge in prices of crude oil and other raw materials, and the balance on goods continues to register a deficit; currently, a worsening in terms of cross-country transactions when seen from the viewpoint of Japan's overall economy -- that is, deterioration in the terms of trade -- is causing an outflow of income from Japan. Japan's overall economy, despite being affected by factors such as a rise in commodity prices, seems to have picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19. B. Prices in Japan 1. Current situation Let me now turn to Japan's price developments. The year-on-year rate of increase in the consumer price index (CPI) for August 2022 was 2.8 percent for all items less fresh food and 1.6 percent for all items less fresh food and energy (Chart 7). Given the announcement that prices of food and many other items will be raised this month, it has become more likely that the incoming year-on-year rate of increase in the CPI for October will reach 2 percent, which is set as the Bank of Japan's price stability target, even in terms of the rate for all items less fresh food and energy. Although Japan's inflation rate remains low compared with other countries, prices are currently rising at a faster pace than I have expected so far. One contributing factor to this higher inflation rate might be that firms' price-setting behavior could be starting to change (Chart 8). An increasing number of firms that had not been able to make price hikes in the past may have decided to raise prices, having confirmed that firms that had taken the lead in raising prices did not see a plunge in profits. Possible factors that have led firms to shift their price-setting behavior are pent-up demand and household savings that have accumulated as a result of pandemic-related restrictions, both of which I mentioned earlier, as well as wage increases for fiscal 2022. 2. Outlook Next, I would like to talk about whether or not the aforementioned acceleration in inflation will be sustained. My view on prices is that they will continue to rise to a certain extent, but when questioned about whether I envision a path toward achieving the Bank's price stability target in a stable manner, I have to say that I still lack confidence in such achievement. In what follows, I will explain the reasons for my view while touching on the mechanism that lies behind inflation dynamics. The CPI consists of prices of a variety of items with varying price fluctuations. While there are various methods for analyzing the CPI, the one that focuses on the frequency of price changes in each item is useful. With this method, developments in prices can be decomposed into those of "flexible CPI" and "sticky CPI" -- with the former comprising items with relatively high frequency of price changes and vice versa for the latter. Broadly speaking, the flexible CPI is mainly composed of goods prices and the sticky CPI is mainly composed of services prices. Let me examine variation factors influencing the two aforementioned CPI categories based on the concept of the Phillips curve, which is frequently used in macroeconomic analysis. The flexible CPI is considered to be susceptible to the business cycle or the output gap, whereas the sticky CPI is deemed to be susceptible to medium- to long-term inflation expectations. That said, the flexible CPI also tends to be responsive to raw material prices that mainly reflect international commodity prices. The major contributors to the current rise in Japan's CPI are goods prices, which are susceptible to an increase in international raw material prices, such as energy-related items, food products, and durable goods. On the other hand, services prices, which mainly make up the sticky CPI, are seeing only marginal increases (Chart 9). With respect to inflation expectations -- a major factor influencing the sticky CPI -- the Bank's Tankan (Short-Term Economic Survey of Enterprises in Japan) shows that, while firms' inflation outlook for one year ahead -- or that for the short term -- in particular has recently risen, increases in the outlooks for three years ahead and five years ahead -- or those for the medium to long term -- have been relatively moderate (Chart 10). Now, let me address the question: What factors are crucial for the Bank to achieve the price stability target in a stable manner? I personally place importance on developments in the sticky CPI. Just to avoid any misunderstanding, developments in the flexible CPI are also of importance. However, the flexible CPI is inevitably subject to upward and downward fluctuations caused by the business cycle. It is also strongly affected by energy price developments and other cost-push factors from abroad. Therefore, in terms of stable achievement of the price stability target, it is necessary that the sticky CPI provide an underpinning. In order for the sticky CPI to stay stable at a higher level, it is essential that medium- to longterm inflation expectations remain stable at an elevated level. To this end, it is imperative that wages increase in a sustained manner. Wage growth would likely contribute to pushing up services prices, which have so far seen only marginal increases. Ultimately, higher services prices would likely lead to a rise in the sticky CPI. Furthermore, it is vital that firms' growth expectations rise to facilitate wage increases. Unfortunately, however, it seems that many firms have not necessarily raised such expectations so far. This is suggested by the latest fiscal 2021 Annual Survey of Corporate Behavior released by the Cabinet Office, which shows that the projected real economic growth rate for the next five years based on firms' responses is somewhat low, at 1.0 percent (Chart 11). For reference, before Japan slipped into prolonged deflation, the rate for the same period was at 2 to 3 percent or more. Taking into account the current situation of Japan's economy, which I have explained thus far, I consider at this point that it is still only halfway to achieving the Bank's 2 percent price stability target. II. Conduct of Monetary Policy Views on Risks That Lie Behind the Conduct of Monetary Policy Next, I would like to say a word about the Bank's conduct of monetary policy, including the views on risks that lie behind it and how it relates to foreign exchange rates. Faced with the recent price rises and yen depreciation, some have commented that the Bank ought to revise its monetary policy. The point I want to make is that such a move is premature. As I mentioned earlier, Japanese firms' growth expectations have yet to rise, and wages have not shown a conclusive sustained increase. Under these circumstances, prices are vulnerable to economic fluctuations accompanying adverse external demand shocks. Depending on the magnitude of the shocks, the risk of Japan slipping back into deflation cannot be ruled out. It is vital, therefore, to understand the views on risks that lie behind the Bank's conduct of monetary policy. My concern is that risks to economic activity are possibly becoming more skewed to the downside. As I will explain in a moment, there are downside risks with regard to the economies of major countries and regions such as the United States, Europe, and China, each of which could potentially have a significant impact on Japan's economy. Starting with China, as I mentioned at the outset, the strict zero-COVID policy remains in place. At present, business sentiment in the country is seeing an improving trend as the COVID-19 situation has calmed down and production has been resuming after a hiatus. However, should there be a resurgence of COVID-19, there is concern over the risk that reinstated lockdowns in China's major cities and other measures may push down the manufacturing of industrial products. Furthermore, the risk of adjustments in the Chinese real estate market causing adverse shocks to the economy is also a matter of concern. Until recently, I considered that the impact of such adjustments could be contained, particularly through government measures. However, I am now concerned that the risk posed by the real estate market might not end up being negligible, in light of the fact that the adjustments have caused economic losses to households that bought real estate and have triggered a slowdown in regional economies, where real estate investment has been driving ongoing rapid growth. In the event of intensified adjustments in the real estate market, the Chinese authorities will likely implement demand stimulus measures. However, the zero-COVID policy has had a considerably strong effect on curbing demand, and the effectiveness of any stimulus measures therefore could be seriously undermined. In this situation, the authorities might face extreme difficulties in terms of shaping their policy actions. Turning next to the United States, the country is currently experiencing its highest levels of inflation since the early 1980s. Looking at this in detail, the surge in energy prices has been a relatively minor contributor to the elevated inflation; rather, it is characterized by the sizable contribution of the rise in prices of goods and services, including housing costs, amid strong upward pressure on wages. The rate of increase in the sticky CPI that I mentioned earlier is accelerating further in the United States, and there is a risk that the inflation rate will remain elevated (Chart 12). There is also concern that the sticky CPI may become difficult to bring under control, if prices and wages start to spiral upward over a short period of time, thereby elevating medium- to long-term inflation expectations. The Federal Reserve is currently engaged in aggressive monetary tightening to dampen demand so as to minimize the risk that higher inflation expectations will become entrenched due to continued elevated inflation. Furthermore, in the United States, prices of such assets as equities and homes have risen, mainly against the background of expansionary fiscal policy and accommodative monetary policy measures conducted by authorities during the COVID-19 pandemic. Since the turn of this year, equity prices have been on a declining trend. If asset prices are adjusted in response to further monetary tightening, attention needs to be paid to the risk of the U.S. economy decelerating. Moreover, given the global interconnectedness of asset prices, the possibility of worldwide adjustments in such prices also warrants attention. Lastly, Europe, like the United States, is facing elevated inflation. Unlike the United States, however, such inflation is largely attributable to the impact of the surge in natural gas and other energy prices reflecting the situation surrounding Ukraine. That said, if a wage-price spiral takes place, this will likely cause a sizable increase in medium- to long-term inflation expectations and high inflation could become chronic. For this reason, the European Central Bank (ECB) has also been aggressively raising policy rates. In the meantime, the United Kingdom appears to be moving into a tough situation. On top of the surge in energy prices, it has encountered a grave labor shortage amid the pandemic, due in part to a decline in immigrants following Brexit. This has been accompanied by a surge in wages and is beginning to induce a wage-price spiral. Until lately, the Bank of England (BOE) was out ahead of the Federal Reserve in implementing aggressive monetary tightening. Yet, in late September 2022, the U.K. government announced a large-scale fiscal stimulus package featuring massive tax cuts, and this in turn engendered a sharp interest rate hike. Furthermore, even though monetary tightening has pushed up interest rates in the country, the British pound hit its lowest level against the U.S. dollar since the adoption of the floating exchange rate system. To address the market turmoil, the BOE is taking action to ensure financial stability by, for example, carrying out temporary purchases of long-dated U.K. government bonds and postponing the beginning of the planned gilt sale operations. Such market turmoil was largely unthinkable until quite recently; I now consider it necessary to keep a close eye on its impact, particularly on the U.K. economy and global financial and capital markets. As I have described, risks to the global financial and economic environment surrounding Japan have rapidly become skewed to the downside. Crude oil prices, which had seen a surge until lately, have recently shown signs of a decline (Chart 13). I believe that this most likely reflects concern over the risk of a slowdown in the global economy. History suggests that there is considerable risk in making a shift toward monetary tightening in such cases where the possibility of "a storm landfall" cannot be ignored. In the current situation where downside risks are significant, I believe that any move to revise the direction of monetary policy toward tightening should be considered with caution. Foreign Exchange Rates Next, I will touch on foreign exchange rates. I am closely monitoring the effects of exchange rate movements on economic activity and prices. In light of these movements, let me share what approach I think monetary policy should take. First, monetary policy should focus on the underlying trend in inflation, aiming to keep it stable at around 2 percent. As I mentioned earlier, although prices are currently rising, the reality is that it remains uncertain whether the price stability target can be achieved in a stable and sustainable manner, as neither rises in firms' growth expectations nor sustained increases in wages can be seen conclusively. Second, exchange rates are not subject to direct control by monetary policy to begin with. They constitute a category of asset prices and could fluctuate significantly in the short term. If monetary policy responds to every single short-term fluctuation and puts off achieving the target for the underlying trend in inflation, this could increase uncertainty over the future conduct of monetary policy. Presumably, this is not desirable for Japan's economy in the long term. Third, as I noted a moment ago, risks to the global financial and economic environment have rapidly become skewed to the downside. I believe that there is considerable uncertainty about the effects that future global financial and economic developments will have on foreign exchange rates. Effects of Monetary Easing So far, the core of my argument has been that now is not the time for monetary tightening in Japan. Let me go on to address the positive effects of the Bank's current monetary easing on the economy. Among these, there are three points in particular that I think are significant: business performance of exporters, especially large firms, is trending upward, which could become a source of wage increases; (2) production sites that had been transferred offshore are beginning to return to Japan, which will help push up the potential growth rate; and (3) a decline in real interest rates will encourage the expansion of business fixed investment, thereby contributing to improvement in the output gap. By contrast, I think revising the direction of monetary policy toward tightening would have significant negative effects. Such a move could lead to a decline in demand for components susceptible to higher interest rates -- such as housing investment, business fixed investment, and consumption of durable goods -- and this might in turn have an adverse effect on households and the corporate sector, especially small and medium-sized firms. Cumulatively, such adverse effects would increase the likelihood of Japan falling back into deflation -- a risk that cannot be ignored. Given these considerations, I believe that the best course of action at this time is to maintain the accommodative monetary policy with a focus on achieving the 2 percent price stability target. Corporate Financing I will close by noting the Bank's measures to facilitate corporate financing. The Bank decided at the Monetary Policy Meeting held in September 2022 that it would phase out the Special Funds-Supplying Operations to Facilitate Financing in Response to the Novel Coronavirus (COVID-19) -- the so-called Special Operations to Facilitate Financing -- and shift to fund-provisioning that would meet a wide range of financing needs. The operations have been targeted at supporting mainly small and medium-sized firms since April 2022. I would like to express my opinion on the factors behind the phasing out of the Special Operations to Facilitate Financing. To begin with, the impact of COVID-19 on economic activity is waning, and although the impact of the pandemic remains in some segments, the financial positions of small and medium-sized firms have been on an improving trend on the whole. Meanwhile, the number of bankruptcies has still been stable at a low level. In addition, demand for the special operations has declined. Acute crisis measures, such as said operations, appear to have almost finished their role. If crisis measures continue for longer than necessary, this could result in unexpected misallocation of resources in the overall economy. However, the impact of COVID-19 has not disappeared. Thus, it is appropriate for the Bank to maintain the availability of the special operations for the time being while phasing them out. Specifically, the Bank decided to extend the implementation period of the special operations for the fund-provisioning against loans for which financial institutions bear credit risk ("nongovernment-supported loans") by six months and for the fund-provisioning against loans that financial institutions make on the back of government support ("government-supported loans") by three months. At the same time, firms' financing needs are arising for various reasons, such as an increase in demand for working capital due to a surge in raw material prices. In response to this growing demand for funds, it is appropriate to increase the usability of the Bank's fund- provisioning measures. In this context, the Bank decided to remove the upper limit on the Funds-Supplying Operations against Pooled Collateral, which previously had been limited to a maximum of 2 trillion yen on a bi-weekly basis. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Toyama October 19, 2022 ADACHI Seiji Member of the Policy Board Bank of Japan Confirmed New Cases of COVID-19 Japan Chart 1 Global thous. persons ten thous. persons Advanced economies Emerging economies Feb-21 Jun-21 Oct-21 Feb-22 Jun-22 Oct-22 Feb-21 Aug-21 Feb-22 Aug-22 Notes: 1. In the left panel, figures are weekly averages. 2. In the right panel, figures for the United States, Taiwan, and Hong Kong are from the Centers for Disease Control and Prevention (CDC), the Taiwan Ministry of Health and Welfare, and the Hong Kong Centre for Health Protection, Department of Health, respectively. All other figures are from the World Health Organization (WHO). Figures for advanced economies are the sum of figures for the United States, the European Union, and the United Kingdom. Figures for emerging economies are the sum of figures for the major economies in the NIEs, ASEAN, the Middle East, and Latin America, and for India, South Africa, Russia, and Turkey. Figures show 7-day backward moving averages. Sources: CEIC; Ministry of Health, Labour and Welfare. Chart 2 Global Growth Rates CY 2019 World real GDP growth rate, y/y % chg. CY 2022 CY 2023 CY 2021 [Forecast] [Forecast] 6.0 3.2 2.7 CY 2020 2.8 -3.0 Advanced economies 1.7 -4.4 5.2 2.4 1.1 Emerging market and developing economies 3.6 -1.9 6.6 3.7 3.7 Real GDP s.a., CY 2019=100 s.a., CY 2019=100 Japan Euro Area United States CY 19 CY 19 s.a., CY 2019=100 CY 19 Note: In the upper panel, real GDP growth rates are as of October 2022. Sources: Cabinet Office; Eurostat; IMF; U.S. Bureau of Economic Analysis. Chart 3 Japan's Private Consumption and Disposable Income s.a., CY 2019=100 Consumption Activity Index (travel balance adjusted, real) Disposable income, etc. (SNA, real) CY 19 Note: Figures for the Consumption Activity Index (CAI) are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. The figure for 2022/Q3 is that for July. "Disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements. Real values are obtained using the deflator of consumption of households. Sources: Cabinet Office; Bank of Japan. Chart 4 Japan's Business Fixed Investment y/y % chg. Private nonresidential investment (SNA, nominal) Tankan (actual) Tankan (planned investment in current fiscal year as of the September survey of each year) -5 -10 -15 -20 FY 07 Notes: 1. Figures based on the Tankan include software and R&D investments but exclude land purchasing expenses. R&D investment is not covered as a survey item before the March 2017 survey. The figures are for all industries including financial institutions. 2. The figure for private nonresidential investment for fiscal 2022 is that for 2022/Q2. Sources: Cabinet Office; Bank of Japan. Chart 5 Global Business Sentiment and World Trade Global PMI World Trade Volume s.a., DI s.a., CY 2010=100 Manufacturing CY 07 Services CY 07 Notes: 1. In the left panel, figures for manufacturing are the J.P.Morgan Global Manufacturing PMI. Those for services are the J.P.Morgan Global Services Business Activity Index. 2. In the right panel, figures are for world real imports. The figure for 2022/Q3 is that for July. Sources: Copyright © 2022 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved.; CPB Netherlands Bureau for Economic Policy Analysis. Chart 6 Japan's Exports and Current Account Real Exports Current Account Balance s.a., CY 2015=100 s.a., ann., tril. yen -10 Trade balance Services balance Primary income balance Secondary income balance Current account balance -20 -30 CY 07 -40 CY 12 Notes: 1. In the left panel, figures are based on Bank staff calculations. The figure for 2022/Q3 is the July-August average. 2. In the right panel, figures for 2022/Q3 are July-August averages. Sources: Cabinet Office; Ministry of Finance; Bank of Japan. Chart 7 CPI for All Items Less Fresh Food 4.5 y/y % chg. 4.0 Mobile phone charges Effects of the "Go To Travel" campaign Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY 17 Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 8 Output Prices (Tankan) Manufacturing Nonmanufacturing %, % points Rise Fall DI ("rise" - "fall") -10 -10 -20 -20 -30 -30 -40 -40 86 89 01 04 Rise Fall DI ("rise" - "fall") -50 CY83 %, % points 19 22 -50 CY83 92 95 10 13 Note: Figures for "rise" and "fall" are based on the percentage shares of the number of enterprises choosing respective responses. Figures are for all enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. Source: Bank of Japan. Chart 9 CPI for Goods and Services Goods y/y % chg. Services y/y % chg. General services Public services -2 -2 -4 -6 -8 Food products Textile products -4 -6 Other industrial products -10 CY 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 Source: Ministry of Internal Affairs and Communications. -8 CY 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 Chart 10 Firms' Inflation Expectations (Tankan) 3.0 y/y % chg. 1 year ahead 2.5 3 years ahead 5 years ahead 2.0 1.5 1.0 0.5 0.0 CY 14 Note: Figures show the inflation outlook of enterprises for general prices (all industries and enterprises, average). Source: Bank of Japan. Chart 11 Expected Growth Rates % Japan's expected real growth rate (over the next 5 years) CY 85 Note: Based on the Annual Survey of Corporate Behavior. Figures show the results for listed firms in a particular survey year for the next five years. Source: Cabinet Office. Chart 12 U.S. CPI y/y % chg. Core sticky CPI Core flexible CPI -5 CY 80 Source: Federal Reserve Bank of Atlanta. Chart 13 WTI Crude Oil Prices USD/bbl Oct-20 Source: Bloomberg. Apr-21 Oct-21 Apr-22 Oct-22
|
bank of japan
| 2,022 | 10 |
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 10 November 2022.
|
Haruhiko Kuroda: The Bank's Semiannual Report on Currency and Monetary Control Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 10 November 2022. *** Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan's economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from the novel coronavirus (COVID-19). Overseas economies have recovered moderately on the whole, but slowdowns have been observed, mainly in advanced economies. Exports and industrial production have increased as a trend, with the effects of supply-side constraints waning. Corporate profits have been at high levels on the whole, and business sentiment has been more or less unchanged. In this situation, business fixed investment has picked up, although weakness has been seen in some industries. The employment and income situation has improved moderately on the whole. Private consumption has increased moderately, despite being affected by COVID-19. With regard to the outlook, Japan's economy is likely to recover, with the impact of COVID-19 and supply-side constraints waning and with support from accommodative financial conditions and the government's economic measures, although it is expected to be under downward pressure stemming from high commodity prices and the slowdowns in overseas economies. The year-on-year rate of change in the consumer price index (CPI) for all items excluding fresh food has been at around 3 percent due to rises in prices of such items as energy, food, and durable goods. Regarding the outlook, it is likely to increase toward the end of this year due to such price rises. The rate of increase is then expected to decelerate toward the middle of fiscal 2023 because the contribution of such price rises to this CPI is likely to wane. Thereafter, it is projected to accelerate again moderately on the back of improvement in the output gap and rises in medium- to long-term inflation expectations and in wage growth. 1/2 BIS - Central bankers' speeches Concerning risks to the outlook, there have been extremely high uncertainties for Japan's economy, including the following: developments in overseas economic activity and prices; developments in the situation surrounding Ukraine and in commodity prices; and the course of COVID-19 at home and abroad and its impact. In this situation, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. Meanwhile, Japan's financial system has maintained stability on the whole. Although attention is warranted on, for example, the impact of the tightening of global financial conditions, the financial system is likely to remain highly robust on the whole, mainly because financial institutions have sufficient capital bases. Regarding financial risks from a longer-term perspective, while there is a possibility that prolonged downward pressure on financial institutions' profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. Japan's economy is on its way to recovery from a downturn caused by COVID-19 and uncertainties for the economy have been extremely high. On the price front, the year-onyear rate of increase in the CPI is projected to decelerate to a level below 2 percent from fiscal 2023. Given such developments in economic activity and prices, the Bank will continue with monetary easing, aiming to firmly support Japan's economy and thereby achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Thank you. 2/2 BIS - Central bankers' speeches
|
bank of japan
| 2,022 | 11 |
Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Paris EUROPLACE Tokyo International Financial Forum 2022, Tokyo, 15 November 2022.
|
Haruhiko Kuroda: Sustainable finance - entering a new phase of implementation Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Paris EUROPLACE Tokyo International Financial Forum 2022, Tokyo, 15 November 2022. *** Introduction It is a great pleasure to be invited to the Paris EUROPLACE Tokyo International Financial Forum. Paris EUROPLACE brings together a wide range of participants in the financial sector, and it has contributed greatly to the development of financial services and financial markets. The influence of Paris EUROPLACE is not limited to France and Europe; it is actively engaged in communication on a global basis. At today's forum, I believe you had very meaningful and lively discussions among financial professionals from Japan and France. I understand that this is the 25th edition of the Paris EUROPLACE Tokyo International Financial Forum, and it is my great pleasure and privilege to have the opportunity to speak at such a memorable occasion. In relation to "France-Japan: New Developments in Sustainable Finance," one of the themes of this forum, I would like to share my views on recent initiatives in sustainable finance to address climate change, while also touching on the progress made in Japan. I. Role of Finance in Addressing Climate Change Climate change is a global issue that will have long-term and far-reaching implications both for society and for economic activity. Given its "negative externalities," all entities -individuals, firms, and governments -- have to take responsible actions beyond their individual interests. To address climate change, we need a multi-pronged approach across a wide range of fields. In particular, sustainable finance has a crucial role to play in our efforts to address climate change and steadily achieve decarbonization in society as a whole. This is because finance functions as an intermediary, bringing all these various social agents and entities together through services and markets. At last year's forum I talked about three essential elements for finance to successfully fulfill this role, that is, (1) making the financial system more resilient against climaterelated risks, (2) mobilizing financial resources to facilitate a smooth transition to net zero, and (3) making the most use of market functions with enhanced disclosure. Looking back over the past year, I feel that financial institutions and financial markets around the world, as well as related policy bodies, have made great progress in various initiatives that promote these three elements, despite increased geopolitical risks and the rise in energy prices. The same can be said for Japan. At the same time, through these initiatives, a number of challenges have been identified. From now on, it is important to work on these challenges and steadily make further progress toward decarbonization. 1/4 BIS - Central bankers' speeches II. Recent Initiatives in Japan and Future Challenges Today, I would like to introduce three ongoing initiatives as prime examples of recent efforts in Japan: (1) assessment of climate-related financial risks in a systematic manner, (2) enhancement of market functioning, and (3) support for firms' decarbonization efforts. Let me also present my views on future challenges identified through these initiatives. A. Assessment of Climate-related Financial Risks in a Systematic Manner The first initiative is an assessment of climate-related financial risks in a systematic manner. Significant progress has been made in scenario analysis, which is useful in comprehensively understanding climate-related financial risks. The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) has been updating its climate scenarios every year since the first set of scenarios was released in 2020; it has also been working on bridging data gaps. Several jurisdictions have already released the results of scenario analyses using the NGFS scenarios. In this regard, let me highlight the fact that, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the three major Japanese banks have been disclosing the results of their own scenario analyses in their TCFD reports. This is a pioneering initiative even among global systemically important banks (G-SIBs). In addition, the Financial Services Agency and the Bank of Japan jointly conducted scenario analysis as a pilot exercise using common scenarios in cooperation with major financial institutions.1 The objective of this exercise was to identify issues for future improvement of the analytical method rather than to make a quantitative assessment of climate-related financial risks. Scenario analysis has its limitations in the level of sophistication and accuracy, as climate change and decarbonization will have a longterm and far-reaching impact on society, the economy, and on finance. The impact will also be complex and highly uncertain. Recognizing such inherent uncertainties, financial institutions should carry out a comprehensive assessment of climate-related financial risks through scenario analysis, and make use of the findings in encouraging their client firms to take necessary steps to address climate change. In fact, in the pilot scenario analysis exercise, the authorities and financial institutions cooperated closely and gained useful insights after having a series of intensive discussions. B. Enhancement of Market Functioning The second initiative is enhancement of market functioning in financial and capital markets. Disclosures are essential for smooth market functioning. In this regard, climate-related financial disclosures based on the TCFD recommendations have been widely adopted. In addition, international standards for climate-related disclosures are currently being discussed. Following the establishment of the International Sustainability Standards Board (ISSB) in November 2021, the Sustainability Standards Board of Japan (SSBJ) was launched in July 2022. The SSBJ is expected to serve as the focal point of discussing international standards and their domestic application. 2/4 BIS - Central bankers' speeches For markets to function smoothly, risks and opportunities arising from climate change should be reflected properly in the price of financial instruments such as stocks and corporate bonds. This will facilitate smooth funding and investment in financial markets and thus promote efforts to address climate change. Against this background, the Bank of Japan launched and conducted a new survey called the Market Functioning Survey concerning Climate Change.2 Compared with previous surveys, the Market Functioning Survey is unique in collecting responses from a broad set of market participants, not only financial institutions but also business firms and rating agencies. The results of the survey suggest that climate-related risks and opportunities are reflected in the price of financial instruments to a certain degree, but there is still room for improvement in pricing. Challenges include increasing the availability of information, such as enhancing information disclosure and bridging data gaps on climate-related data. Efforts could also be made to improve transparency in evaluating activities related to Environmental, Social, and Governance -- or ESG -- and to further develop the assessment methodologies of climate-related risks and opportunities. Many business firms emphasized the importance to their business strategy and investor relations, including earning a good reputation and diversifying their investor base, as motivation for issuing ESG bonds. As for investors, investing in the ESG bond market seems to be motivated by the importance of making social and environmental contributions. Raising awareness of these benefits of ESG bonds is one of the challenges in further expanding the ESG bond market. The findings of the survey should be used in promoting initiatives to develop climaterelated financial markets. The Bank of Japan will continue to conduct the surveys and deepen the dialogue with the relevant authorities and market participants. C. Support for Firms' Decarbonization Efforts The third initiative is financial institutions' support for their client firms' decarbonization efforts. Large firms in particular have recently been drawing up business strategies on climate change and setting decarbonization targets, with TCFD further encouraging disclosures. There also remains growing interest in the areas of renewable energy and electric vehicles. That said, there are a number of issues that need to be addressed if we are to accelerate decarbonization. From a financial perspective, I would like to highlight two issues: transition finance and support for SMEs. At international forums such as G20, there is growing recognition of the importance of phased and strategic approaches toward decarbonization, depending on economic and industrial structures. Frameworks and principles for transition finance are being discussed on a global basis. In Japan, the government has formulated basic guidelines and sector-specific roadmaps. There has also been progress in initiatives in the private sector. For example, the Net-Zero Banking Alliance (NZBA), which is a global alliance of banks convened by the United Nations, has compiled practical guidelines for the implementation and promotion of transition finance by financial institutions. The Asia Transition Finance Study Group (ATFSG), led by major banks in Asia, has also published similar guidelines. It is important to solve practical challenges in transition finance by building up successful cases and learning from them. 3/4 BIS - Central bankers' speeches SMEs are becoming increasingly aware of the impact of climate change on their own business. This is partly because global enterprises are trying to reduce their greenhouse gas emissions throughout the supply chain, requiring SMEs in the supply chain to take necessary steps. With limited management resources and information, however, SMEs are facing a variety of challenges. These include the lack of technology for decarbonization, additional cost burdens and the difficulties of passing on those costs to sales prices. To address these challenges, regional financial institutions are expected to provide not only financial assistance but also multi-dimensional support, such as comprehensive consulting and advice on the recruitment of skilled personnel and introduction of relevant technology. The Bank of Japan introduced the Climate Response Financing Operations last year, which provides funds to financial institutions against their investment or loans that contribute to addressing climate change. Since Japan's financial system is bank-centric, I believe that this is an effective measure to provide financial support for the decarbonization efforts of large firms as well as SMEs. We also devised ways to exercise market discipline by requiring financial institutions to disclose adequate information. The Bank already provided funds through the operations last December and this July. At present, there are 63 eligible financial institutions, including regional ones, and the total amount outstanding of loans stands at 3.6 trillion yen. The Bank expects that the operations will continue to function as a catalyst and encourage decarbonization efforts in Japan. Concluding Remarks Let me close my remarks. During the past few years, there has been growing awareness of climate change, and a broad consensus has been established on the goal of addressing decarbonization in society as a whole. Even as we face the hardship of surging energy prices, we are now entering a new phase of implementing a variety of initiatives to achieve this goal. The progress made in Japan that I have mentioned today is a part of these endeavors. In order to accelerate decarbonization, all entities should play their part steadily, while keeping their eyes on the long-term goal. The Bank of Japan will continue to work together with financial institutions and market participants, and thereby strongly support initiatives to address climate change. Thank you for your attention. 1 See "Pilot Scenario Analysis Exercise on Climate-Related Risks Based on Common Scenarios" (August 2022) at https://www.boj.or.jp/en/announcements/release_2022 /rel220826a.htm/. 2 See "Results of the First Market Functioning Survey concerning Climate Change" (August 2022) at https://www.boj.or.jp/en/research/brp/ron_2022/ron220805a.htm/. 4/4 BIS - Central bankers' speeches
|
bank of japan
| 2,022 | 11 |
Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Representatives, Tokyo, 18 November 2022.
|
Haruhiko Kuroda: The Bank of Japan's Semiannual Report on Currency and Monetary Control Statement by Mr Haruhiko Kuroda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Representatives, Tokyo, 18 November 2022. *** Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan's economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from the novel coronavirus (COVID-19). Overseas economies have recovered moderately on the whole, but slowdowns have been observed, mainly in advanced economies. Exports and industrial production have increased as a trend, with the effects of supply-side constraints waning. Corporate profits have been at high levels on the whole, and business sentiment has been more or less unchanged. In this situation, business fixed investment has picked up, although weakness has been seen in some industries. The employment and income situation has improved moderately on the whole. Private consumption has increased moderately, despite being affected by COVID-19. With regard to the outlook, Japan's economy is likely to recover, with the impact of COVID-19 and supply-side constraints waning and with support from accommodative financial conditions and the government's economic measures, although it is expected to be under downward pressure stemming from high commodity prices and the slowdowns in overseas economies. The year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food has accelerated due to rises in prices of such items as energy, food, and durable goods. Regarding the outlook, it is expected to decelerate from the beginning of calendar year 2023 toward the middle of fiscal 2023 because the contribution of such price rises to this CPI is likely to wane. Thereafter, it is projected to accelerate again moderately on the 2 back of improvement in the output gap and rises in medium- to long-term inflation expectations and in wage growth. Concerning risks to the outlook, there have been extremely high uncertainties for Japan's economy, including the following: developments in overseas economic activity and prices; developments in the situation surrounding Ukraine and in commodity prices; and the course of COVID-19 at home and abroad and its impact. In this situation, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. Meanwhile, Japan's 1/2 BIS - Central bankers' speeches financial system has maintained stability on the whole. Although attention is warranted on, for example, the impact of the tightening of global financial conditions, the financial system is likely to remain highly robust on the whole, mainly because financial institutions have sufficient capital bases. Regarding financial risks from a longer-term perspective, while there is a possibility that prolonged downward pressure on financial institutions' profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. Japan's economy is on its way to recovery from a downturn caused by COVID-19 and uncertainties for the economy have been extremely high. On the price front, the year-on-year rate of increase in the CPI is projected to decelerate to a level below 2 percent from fiscal 2023. Given such developments in economic activity and prices, the Bank will continue with monetary easing, aiming to firmly support Japan's economy and thereby achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Thank you. 2/2 BIS - Central bankers' speeches
|
bank of japan
| 2,022 | 11 |
Speech by Mr Kuroda Haruhiko, Governor of the Bank of Japan, at a meeting with business leaders, Nagoya, 14 November 2022.
|
November 14, 2022 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Tokai region. I would like to take this chance to express my sincerest gratitude for your cooperation with the various activities of the Bank of Japan's Nagoya Branch. The Bank makes a projection for Japan's economic activity and prices every quarter, which is released in the Outlook for Economic Activity and Prices (Outlook Report). Today, I would like to talk about the Bank's view on Japan's economic activity and prices and explain its thinking behind the recent conduct of monetary policy, with reference to the latest Outlook Report decided at the Monetary Policy Meeting held in October. I. Economic Developments Let me start by talking about economic developments. Japan's economy has picked up as the resumption of economic activity has progressed while public health has been protected from the novel coronavirus (COVID-19). Various factors have exerted downward pressure on the economy, including COVID-19, high commodity prices, and rising consumer prices. However, both the household and corporate sectors have remained resilient. First, let me speak about developments in the household sector. This past summer, Japan experienced a seventh wave of COVID-19, surpassing the previous peak in the number of confirmed new cases by a wide margin. However, the impact of this on services consumption such as dining-out and travel seems to have been limited compared with past phases of COVID-19 surges, partly because no pandemic-related restrictions were imposed (Chart 1). On the other hand, successive price hikes have been made for energy and daily necessities, particularly food, leading consumer sentiment to become more cautious. Still, private consumption has continued to increase moderately, mainly supported by relatively large increases in summer bonuses and by pent-up demand fueled by household savings that have accumulated during the pandemic. In the corporate sector, exports and production have followed an upward trend, albeit with fluctuations (Chart 2). Supply-side constraints on parts intensified in the first half of this year but have been waning on the whole, with the exception of some parts, such as semiconductors used in automobiles. In addition, exports and production of capital goods have increased, mainly on the back of strong demand for semiconductor production equipment based on projections that digital-related demand will expand in the medium to long term. Meanwhile, higher raw material costs have put downward pressure on business performance. That said, overall corporate profits have been above pre-pandemic levels and at record highs, although the situation varies across firms depending on their size and industry. Reflecting such high levels of profits, the business fixed investment plan in the September Tankan (Short-Term Economic Survey of Enterprises in Japan) shows that planned investment for fiscal 2022 increases by 15 percent from fiscal 2021, suggesting an aggressive investment stance among firms. This also reflects firms' moves to increase green and digital-related investments over the medium to long term. These developments in both sectors are projected to continue and it is highly likely that Japan's economy will continue to recover, with the impact of COVID-19 and supply-side constraints waning. In the latest Outlook Report, the Bank projects that the economy will continue to grow at a relatively high rate in the range of 1.5-2.0 percent from fiscal 2023 (Chart 3). Nevertheless, uncertainties over the outlook for Japan's economy have heightened. Particular attention is warranted on risks surrounding developments in overseas economic activity and prices. Looking at the Purchasing Managers' Index (PMI), which measures business sentiment, the respective indexes for selected major economies -- namely, the United States, the euro area, and China -- have been under 50, the break-even point between improvement and deterioration in business conditions (Chart 4). The International Monetary Fund (IMF) revised its global economic outlook downward in the October 2022 World Economic Outlook (WEO), presenting its view that more than a third of the global economy will likely contract and fall into recession this year or next. The slowdowns in overseas economies are attributable to rapid inflation and the monetary tightening measures taken to contain it. In the United States, although the year-on-year rate of change in the consumer price index (CPI) has decelerated somewhat recently, it is still at around 8 percent, and prices have risen not only for energy and food but also for a wide range of items (Chart 5). In the euro area, the inflation rate has continued to accelerate, exceeding 10 percent in the latest reading. In this situation, the Federal Reserve and the European Central Bank (ECB) have raised their policy interest rates by around 2-4 percentage points since this spring. These hikes have been made to bring the inflation rates down toward their 2 percent targets, but market participants have expressed concern over whether it is possible to contain inflation and maintain economic growth simultaneously. In fact, some have pointed out that monetary tightening runs the risk of slowing the U.S. and euro area economies by more than expected, while there is also awareness that insufficient tightening carries the risk of keeping inflation elevated. Even in the latter case, significant tightening will eventually be needed, which will end up putting greater downward pressure on these economies. It is necessary to carefully monitor the impact of such developments on global financial markets; for example, adjustments in asset prices and capital outflows from emerging economies. Other risks surrounding overseas economies include developments in prices of commodities, including grains. International commodity prices have declined recently, in reflection of concern over a slowdown in the global economy, but they may turn to an increase again depending on factors such as developments in the situation surrounding Ukraine. Moreover, vigilance against the course of COVID-19 at home and abroad is still warranted. Although the seventh wave of COVID-19 this summer ended up having a limited impact, constraints on economic activity may intensify again depending on the course of COVID-19 in Japan. According to the IMF's October WEO that I referred to earlier, Japan is projected to have the highest growth rate among the Group of Seven (G7) economies next year (Chart 6). There are two factors that underlie the projections, where Japan's economy will continue to recover while overseas economies will slow. The first is the difference in the timing of the resumption of economic activity. In Japan, as a result of prolonged vigilance against COVID-19 compared with overseas economies, pent-up demand, such as for dining-out and travel, will start to materialize clearly going forward (Chart 7). The government's domestic travel discount program was launched last month to support such materialization. The further relaxation of international border controls, also initiated last month, is expected to bring back inbound tourism demand. Moreover, the comprehensive economic measures recently formulated by the government will contribute to economic growth. The second factor is that highly accommodative financial conditions have been maintained in Japan through continued monetary easing, while monetary policy has been tightened at rapid paces overseas (Chart 8). Funding costs for Japanese firms have been at extremely low levels, even as overseas interest rates have increased significantly. Firms' funding demand for working capital has increased recently in reflection of the resumption of economic activity and raw material cost increases. In this situation, financial institutions have maintained an active lending stance and firms' financial positions have continued on an improving trend, including for small and medium-sized firms. II. Price Developments I will now turn to price developments in Japan. The latest figure for the year-on-year rate of change in the CPI for all items excluding fresh food, which is for September, was 3.0 percent due to rises in prices of such items as energy, food, and durable goods (Chart 9). The rate of change is projected to increase further toward the end of the year, partly because prices of a wide range of products were raised in October, which starts the second half of the fiscal year in Japan. The cause of the rising inflation rate is that cost increases due to a rise in import prices, which reflects higher international commodity prices and the yen's depreciation, have been passed on to prices of items. That said, the inflation rate is expected to decelerate gradually from the beginning of next year. International commodity prices are lower than a while ago, and the effects of the pass-through to consumer prices of cost increases led by the rise in import prices are likely to wane. The Bank forecasts that the rate of change in the CPI will be at around 3 percent for this fiscal year but then around 1.5 percent from fiscal 2023. Projections that inflation will fall below 2 percent are made not only by the Bank but also by others, including the IMF and private-sector economists (Chart 10). Of course, as with the outlook for economic activity, the outlook for prices is subject to high uncertainties, including developments in international commodity prices and foreign exchange rates, both of which have brought about upward pressure of costs to date. In addition, although Japanese firms had long been cautious about raising prices, those for a wide range of products have been raised recently. Close attention to firms' price-setting behavior going forward is warranted. How firms' wage-setting behavior will evolve is also important. In this regard, it is projected that labor market conditions will tighten as the output gap improves (Chart 11). In particular, labor demand in the services industry is expected to recover with the impact of COVID-19 waning. Therefore, wages of non-regular employees, which account for a large share of those working in the services industry, are expected to rise. This could gradually spill over to wages of regular employees, such as at small and medium-sized firms. Moreover, tightening labor market conditions may lead to wage increases through, for example, reallocation of labor to areas with higher productivity. From a somewhat long-term perspective, even though the working-age population in Japan has been declining, the total number of employees has grown by more than 4 million over the nearly ten years since 2013, mainly due to an increase in the labor force participation of women and seniors. The labor force participation rate of women in Japan has become higher than in the United States. The flip side is that room for additional labor supply is gradually shrinking in Japan. In this situation, it is likely that momentum for wage increases will also come from the labor supply side in the future. In addition to such labor market conditions, the rises in prices to date will likely be reflected to a considerable extent in the outcomes of the next annual spring labor-management wage negotiations. It is necessary to examine future wage developments carefully since they are also affected by economic developments at home and abroad. III. The Bank's Conduct of Monetary Policy Now, I would like to talk about the Bank's conduct of monetary policy, based on the economic and price developments I have described. At its Monetary Policy Meeting last month, the Bank decided to continue with monetary easing. Since April this year, the year-on-year rate of change in the CPI has been above 2 percent, and it registered around 3 percent in the latest reading. How monetary policy is conducted to address inflation should differ depending on the extent of inflation and on what underlies it. In this regard, in the United States, for instance, the economy reopened at a relatively early stage after the onset of the pandemic, and consumption activities have remained robust. At the same time, labor supply has been slow to recover, especially among seniors. As labor market conditions have tightened due to substantial excess demand, not only the inflation rate but also the wage growth rate has risen significantly. Under these circumstances, increases in services prices, which tend to reflect wage growth, have pushed up overall inflation (Chart 12). The inflation rate has remained at a level significantly above the 2 percent target of the Federal Reserve in a situation where wages and prices have increased simultaneously. Against this background, it has decided to rapidly tighten monetary policy to suppress demand and thereby lower the inflation rate. Turning to economies in the euro area, although demand there has not been as strong as in the United States, people's inflation expectations have risen amid ongoing elevated inflation of around 10 percent, mainly led by energy prices. This has raised concerns about the risk of a so-called wage-price spiral, where higher inflation expectations make employees demand higher wage increases, leading to higher labor costs for firms and upward pressure on prices. The ECB has prioritized containing inflation and has decided to tighten monetary policy while accepting the risk of its adverse impact on the economies to some extent. Japan's situation differs from both of these. Japan's economy is still on its way to recovery from the pandemic and the output gap has remained in negative territory. The Bank projects that the output gap will turn positive at some point in the second half of this fiscal year with a recovery in the economy. The inflation rate, however, has not risen from the demand side at present. Although it is currently above 2 percent due to the pass-through to consumer prices of cost increases led by the rise in import prices, the rate is projected to decline to below 2 percent from fiscal 2023 with the effects of this pass-through waning, as I mentioned earlier. Also, as I explained today, there have been extremely high uncertainties for economic and price developments at home and abroad and for financial market developments. The Bank will closely examine the outlook for economic activity and prices, as well as the upside and downside risks to the outlook. Based on the assessments, it will conduct appropriate monetary policy. At present, the Bank deems that it should continue with monetary easing and thereby firmly support economic activity. By doing so, it aims to provide a favorable environment for firms to raise wages and to achieve the price stability target in a sustainable and stable manner, accompanied by wage increases. Concluding Remarks In closing, I would like to make two points about the Tokai region's economy from a medium- to long-term perspective. The first point concerns efforts toward achieving carbon neutrality, which I touched on at last year's meeting. I have heard about progress in various initiatives over the past year in this region. In its industrial sector, firms have been working to visualize carbon emissions in the supply chain by using Internet of Things (IoT) technology. Other efforts they have been making include investment in equipment with high energy efficiency and revisions to their production processes to reduce carbon emissions. Financial institutions have been supporting such efforts through financing and have been enhancing their functions of consultation services and solution proposals so as to help client firms achieve decarbonization. Meanwhile, local governments have been developing frameworks to strengthen collaboration between industry and financial institutions. In such ways, all those in the region are working together to take on the challenging task of navigating this period of major change. My second point concerns efforts to enhance the industrial competitiveness through promoting innovation. Besides collaboration among industry, government agencies, and academic institutions in the region, there have been various efforts to this end, such as collaboration with foreign startup support organizations and universities and enhancement of the funding environment by means of funds that Aichi Prefecture partly contributes to. Furthermore, Japan's largest base for supporting startups is scheduled to open in Nagoya in 2024. As seen in these initiatives, the public and private sectors have been actively working together to encourage the advancement of monozukuri -- which means manufacturing in Japanese and is the field in which firms in the Tokai region have a competitive advantage -and foster the next generation of industry. Achieving carbon neutrality and giving a boost to startups are extremely important issues not only for the Tokai region but also for Japan's economy as a whole. I hope this region will continue to lead the sustainable growth of Japan's economy by continuing to take on various challenging efforts like those I just mentioned. Visiting here after a year has passed, I was pleased to see the vitality of cities on the back of ongoing redevelopment, and was impressed by the progress in urban development that will make the region increasingly appealing. I would like to close by expressing my hope that the various forward-thinking efforts you are taking on will bear fruit and that the region's economy will develop further. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya November 14, 2022 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. The Bank's Conduct of Monetary Policy Concluding Remarks Chart 1 I. Economic Developments Private Consumption Consumption Activity Index s.a., CY 2018 = 100 Consumption of Services s.a., CY 2018 = 100 Total real private consumption Services CY 18 Total number of overnight guests (excluding inbound visitors) Sales in the food services industry CY 18 Note: In the left-hand chart, figures for total real private consumption are for the real Consumption Activity Index and are based on staff calculations. The figures exclude inbound tourism consumption and include outbound tourism consumption. Sources: Bank of Japan; Japan Tourism Agency; Japan Foodservice Association, "Market Trend Survey of the Food Services Industry." Chart 2 I. Economic Developments Exports, Production, and Current Profits Exports and Production Current Profits s.a., CY 2018 = 100 s.a., tril. yen Large firms Small and medium-sized firms Industrial production Real exports CY 18 CY 07 Note: In the right-hand chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. Sources: Ministry of Economy, Trade and Industry; Bank of Japan; Ministry of Finance. Chart 3 I. Economic Developments The BOJ's Forecasts for Real GDP (October 2022 Outlook Report) FY 2024 +1.5% s.a., ann., tril. yen FY 2023 +1.9% FY 2022 +2.0% FY 05 Note: The forecasts presented are the medians of the Policy Board members' forecasts. The values of real GDP for fiscal 2022 onward are calculated by multiplying the actual figure for fiscal 2021 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. Chart 4 I. Economic Developments Developments in the Global Economy Composite PMIs for Major Economies s.a., DI Japan United States Euro area China CY 18 Note: The Composite PMI is a weighted average of the Manufacturing Output Index and the Services Business Activity Index. Figures for Japan are the au Jibun Bank Japan PMI. Those for China are the Caixin China PMI. Source: Copyright © 2022 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved. Chart 5 I. Economic Developments Inflation and Policy Interest Rates in Major Economies Inflation Policy Interest Rates y/y % chg. 4.0 % Japan Japan 3.5 United States 3.0 United States Euro area 2.5 Euro area 2.0 1.5 1.0 0.5 0.0 -0.5 -2 CY 15 -1.0 CY 15 Notes: 1. In the left-hand chart, figures for Japan are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. Those for the United States are the CPI for all items. Those for the euro area are the HICP for all items. 2. In the right-hand chart, figures for Japan are the rates applied to financial institutions' current accounts (the Policy-Rate Balances) at the Bank of Japan. Those for the United States are the medians of the target ranges for the federal funds rate. Those for the euro area are the rates on the deposit facility. Sources: Ministry of Internal Affairs and Communications; Haver; Bloomberg. Chart 6 I. Economic Developments IMF Forecasts (October 2022 World Economic Outlook) Growth Rate Forecasts for 2023 for the G7 Economies 2.0 % 1.5 1.0 0.5 0.0 -0.5 -1.0 Japan Source: IMF. Canada United States France United Kingdom Italy Germany Chart 7 I. Economic Developments Pent-Up Demand and Inbound Tourism Demand Private Consumption and Disposable Income Number of Inbound Visitors s.a., CY 2018 = 100 35 s.a., ann., mil. persons Consumption Activity Index (travel balance adjusted, real) Disposable income, etc. (SNA, real) CY 18 CY 18 Note: In the left-hand chart, figures for the Consumption Activity Index (travel balance adjusted) are based on staff calculations. The figures exclude inbound tourism consumption and include outbound tourism consumption. "Disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements, and the real values for it are obtained using the deflator of consumption of households. Sources: Bank of Japan; Cabinet Office; Japan National Tourism Organization (JNTO). Chart 8 I. Economic Developments Financial Conditions Lending Attitudes of Financial Institutions Firms' Financial Positions DI ("accommodative" - "severe"), % points "Accommodative" DI ("easy" - "tight"), % points "Easy" "Severe" "Tight" -5 -5 Manufacturing -10 -15 -20 CY 07 Manufacturing -10 Source: Bank of Japan. Nonmanufacturing -15 -20 CY 07 Nonmanufacturing Chart 9 II. Price Developments The BOJ's Forecasts for the CPI (October 2022 Outlook Report) 3.5 FY 2022 +2.9% y/y % chg. 3.0 FY 2023 +1.6% 2.5 2.0 FY 2024 +1.6% 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 FY 05 Note: Figures are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The forecasts presented are the medians of the Policy Board members' forecasts. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 10 II. Price Developments Forecasts for Japan's CPI by the IMF, Private-Sector Economists, and the BOJ y/y % chg. IMF (All items, calendar year) Private-sector economists +2.0 +1.4 +1.0 +2.7 +1.5 +1.0 +2.9 +1.6 +1.6 (Less fresh food, fiscal year) Bank of Japan (Less fresh food, fiscal year) Note: Figures for the IMF and the Bank of Japan are forecasts as of October 2022. Those for private-sector economists are forecasts as of November. Figures for the IMF, private-sector economists, and the Bank of Japan are from the World Economic Outlook, the ESP Forecast, and the Outlook Report, respectively. Sources: IMF; Japan Center for Economic Research, "ESP Forecast"; Bank of Japan. Chart 11 II. Price Developments Employment Situation Working-Age Population and Number of Employees DIs for Employment Conditions inverted, DI ("excessive employment" - "insufficient employment"), % points -50 Manufacturing -40 cumulative chg. from CY 2010, mil. persons Forecast Nonmanufacturing -30 -20 "Insufficient" -10 -2 "Excessive" -4 -6 Number of employees Working-age population CY 18 -8 CY 10 Sources: Bank of Japan; Ministry of Internal Affairs and Communications. Chart 12 III. The Bank's Conduct of Monetary Policy Inflation in Major Economies United States Euro Area y/y % chg. Japan y/y % chg. y/y % chg. Energy <7%> Energy <11%> Temporary factors Services <63%> Services <42%> Energy <7%> Goods <30%> Goods <47%> CPI <100%> HICP <100%> -1 -1 -1 -2 CY 18 -2 CY 18 -2 CY 18 Services <50%> Goods <40%> CPI (less fresh food) <100%> Note: Figures for temporary factors for Japan are staff estimates and consist of mobile phone charges and the effects of the consumption tax hike, policies concerning the provision of free education, and the "Go To Travel" campaign, which covers a portion of domestic travel expenses. Figures in angular brackets show the share of each component. Figures for the United States and the euro area for 2022/Q4 are those for October. Sources: Haver; Ministry of Internal Affairs and Communications.
|
bank of japan
| 2,022 | 11 |
Speech by Mr Masayoshi Amamiya, Deputy Governor of the Bank of Japan, at the Japan Society of Monetary Economics, Tokyo, 27 November 2022.
|
November 27, 2022 Bank of Japan Climate Change and Finance Speech at the Japan Society of Monetary Economics AMAMIYA Masayoshi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It gives me great pleasure to have this opportunity to speak to you today at the Japan Society of Monetary Economics. Today, I would like to talk about climate change and finance. Addressing climate change has become one of the most important policy issues both internationally and at home. In corporate activities as well, addressing environmental, social, and governance (ESG) issues, including climate change, is an important management issue. The world of finance is also taking steps to address climate change. When making investments and loans, financial institutions increasingly consider whether they contribute to addressing climate change. In addition to shareholders, a wide range of stakeholders, including non-profit organizations, are demanding that financial institutions take climate change issues into account. Climate change and finance have become increasingly linked in recent years in both policy and practice. In my speech today, I would like to first consider the basic issues related to climate change and finance, and then provide an outline of the efforts and initiatives of private financial institutions and central banks around the world, including the Bank of Japan. Finally, I would like to talk about some of the related challenges in financial and economic analysis, with a sincere request to all researchers for further research development. I. Basic Issues Related to Climate Change and Finance I would like to start by considering some basic issues related to climate change and finance. Please refer to Slide 1. One issue is why finance plays an important role in addressing climate change. Another issue is how climate change affects finance, in particular the financial system. Importance of Finance in Addressing Climate Change One way in which economics approaches climate change issues is through the concept of "externalities." In economics, when individual firms and households make economic decisions, they are assumed to do so based on the prices they face. However, the negative impact of associated greenhouse gas emissions on society is not necessarily reflected in those prices, resulting in excessive greenhouse gas emissions. To address these "externalities," an important role falls to fiscal policy, including the tax system such as carbon taxes and the provision of subsidies for investments that contribute to decarbonization, and regulations. However, to achieve net zero emissions, massive amounts of investment capital are required for business fixed investment to substantially increase the amount of electricity generated from renewable energy sources and for promoting innovation. The Glasgow Financial Alliance for Net Zero (GFANZ) has estimated that the world will need to invest $125 trillion to achieve net zero by 2050. In order to raise such huge amounts of investment capital, funding through financial institutions and financial markets has an important part to play in implementing investments to achieve net zero. As I mentioned earlier, not only are stakeholders such as shareholders demanding that financial institutions take climate change issues into account in their actions, but financial institutions themselves are also taking proactive steps, seeing the growing demand for funds to achieve net zero as a business opportunity. Moreover, for the vast amounts of funds to be used efficiently, it is essential that financial institutions and investors in financial markets choose investments carefully, appropriately assessing the risks and returns to ensure that funds are allocated efficiently. In addition, it is necessary to establish mechanisms that allow external stakeholders to closely monitor the appropriateness of the use of such funds. In this regard, an important issue is the enhancement of disclosures by firms and financial institutions. Enhanced disclosure helps to impose discipline on firms' and financial institutions' investment and financing activities through market pressure. Strengthening the voluntary efforts of firms and financial institutions through the discipline of disclosure represents a step toward "internalizing" the "externalities" of climate change into the market mechanism. Impact of Climate Change on the Financial System Next, I would like to consider how climate change will affect the financial system. In assessing the impact of climate change on the financial system, two types of risks need to be considered: physical risks and transition risks. "Physical risks" refer to risks that physical phenomena such as major disasters and rising sea levels caused by climate change will lead to losses for firms and households. "Transition risks" refer to risks that changes in policies, technologies, and consumer preferences associated with the transition to net zero will have an economic impact on firms and households. If the transition to decarbonization is delayed, "physical risks" will materialize, increasing the likelihood that natural disasters will trigger losses at financial institutions' borrowers. On the other hand, when the transition to net zero makes progress and financial institutions' existing borrowers are, for example, firms that emit a lot of carbon, the value of those borrower firms' assets will deteriorate. In both cases, the quantity and quality of financial institutions' investment and loans changes, which -depending on the response -- could have a negative impact on the financial system. Therefore, addressing climate change issues has also become an important factor in terms of the management of financial institutions and the stability of the financial system. II. Efforts by Private Financial Institutions Next, I would like to discuss efforts by private financial institutions. As I mentioned earlier, private financial institutions have accelerated their efforts to address climate change in recent years. In this context, I would like to introduce two examples of cross-border cooperation and initiatives by financial institutions. Please refer to Slide 2. One example is GFANZ, a global voluntary alliance of private sector financial institutions that was formed last year. The alliance currently has more than 550 members, comprising a wide range of financial institutions, including banks, insurance companies, asset managers, institutional investors, etc., that discuss concrete measures in sector-specific alliances. Member financial institutions are required to develop individual plans toward net zero and publish relevant information. At last year's COP26, GFANZ members announced that a total of $100 trillion in investment and loans was committed to transforming the economy for net zero over the next three decades. As I mentioned, GFANZ has estimated that the world will need to invest approximately $125 trillion to achieve net zero by 2050. Therefore, it is important that financial institutions, including GFANZ members, hammer out active and concrete investment and lending policies in order to ensure that private financial institutions are able to fully finance the investment and loans needed to transition to decarbonization. In this context, there is growing recognition of the importance of transition financing. In June this year, GFANZ released a document on net-zero transition planning.1 In its recommendations and guidance for financial institutions, GFANZ has positioned a "managed phaseout of high "Towards a Global Baseline for Net-zero Transition Planning," GFANZ, June 2022. emitting assets" as one of the pillars of the transition to net zero and emphasized the importance of transition financing. Another effort by private financial institutions that has grown in influence in recent years is the Principles for Responsible Investment (PRI). This is an international group of institutional investors, formed at the initiative of the United Nations, that currently has about 5,000 participating institutions. Signatory institutions are required to take ESG factors into account in their investment decisions and report on their activities and progress toward implementing the principles. It is expected that institutional investors actively encourage firms that they invest in to move toward decarbonization. III. Initiatives by Central Banks Recent Developments I would now like to discuss initiatives by central banks. Last year, the Bank of Japan established an internal organization, the "Climate Coordination Hub," to strengthen its climate change-related institutional setup, released the "The Bank of Japan's Strategy on Climate Change," and decided to implement a variety of measures.2 Initiatives are also underway at central banks overseas. The first to launch a comprehensive climate change initiative was the Bank of England. Similarly, the European Central Bank (ECB) decided an action plan last year. Meanwhile, the U.S. Federal Reserve established two committees last year to examine the implications of climate change for financial institutions and the financial system from a micro- and a macroprudential perspective, respectively. Information sharing and cooperation among central banks on climate change issues is also making progress. The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) was launched in 2017 as a forum for central banks and financial supervisors to discuss how to address climate change. The Bank of Japan joined in 2019, https://www.boj.or.jp/en/announcements/release_2021/rel210716b.htm/. The Bank's website also provides a page with a list of links to information on the Bank's various activities with regard to climate change. See: https://www.boj.or.jp/en/about/climate/index.htm/. participating in discussions on the impact of climate change on the economy and the financial system. Based on the view that scenario analysis reflecting possible future climate conditions is useful for examining the risks to the financial system, the NGFS published a set of basic scenarios in 2020, which have subsequently been updated from time to time. Several central banks and financial supervisory authorities are currently conducting analyses of their financial system based on the NGFS scenarios. Climate change is also one of the central topics of discussion at the G7 and G20. Concretely, discussions include the promotion of corporate disclosures based on the TCFD recommendations, the design of disclosure standards by the International Sustainability Standards Board (ISSB), and the importance of scenario-based financial system analyses. The Executives' Meeting of East Asia-Pacific Central Banks (EMEAP), a gathering of Asian and Pacific central banks, has also discussed the impact of climate change. Asia accounts for about half of the world's carbon dioxide emissions and is also the region most vulnerable to flooding and other adverse effects of climate change. Asian policy makers therefore have strong interest in addressing climate change. I would now like to turn to two topics -- central banks' mandate and market neutrality -- that are important issues for central banks in addressing climate change issues, and then discuss the Bank's specific initiatives, while also touching on the efforts of other central banks. Please refer to Slide 3. Basic Concept 1: Central Banks' Mandate I would like to start by considering central banks' mandate and the response to climate change. Central banks in many countries, including Japan, are responsible for price stability and the stability of the financial system. Since I already highlighted the importance of climate change issues to the financial system earlier, let me here talk about price stability. As I mentioned at the outset, increases in the frequency of disruptions to economic activities due to the loss of basic social infrastructure and in supply chain disruptions have been observed in recent years as a result of the growing scale and frequency of natural disasters worldwide due to the effects of climate change. These disruptions increase the volatility of real economic activity, which in turn leads to price fluctuations. In addition, there are concerns over swings in fossil fuel and other energy prices and their impact on other goods and services prices if the transition to net zero does not proceed smoothly. Therefore, if central banks' actions can help to smooth the transition to net zero, this will contribute to price stability in the medium to long term. Thus, climate change may have an extremely large impact on the economy, prices, and financial conditions over the medium to long term. Therefore, from the standpoint of central banks, which are responsible for price stability and the stability of the financial system, supporting the private sector's response to climate change will contribute to macroeconomic stability in the long run. Basic Concept 2: Market Neutrality Next, I would like to talk about the response to climate change and market neutrality. Let me start with the basic concept of market neutrality. Central banks' actions affect society and the economy in many ways. The key principle in this regard is that the central bank should work on the macroeconomy as a whole while intervening as little as possible in the microeconomic allocation of resources. For example, central banks need to avoid making judgements about individual economic activities and financings to determine which are "brown" and which are "green." This raises the question in what form the central bank should take an active role in the response to climate change issues. If investment and lending decisions in the private sector were made without taking the negative externalities of greenhouse gases into account, market-neutral actions with respect to investments and loans currently implemented would preserve a resource allocation that is biased toward "brown" industries compared to what is socially desirable. On the other hand, if private-sector investments and loans were made taking the negative externalities of greenhouse gas emissions into account, central bank asset purchases and funds-supplying measures in line with those private-sector investment and loan portfolios would be more neutral toward the private-sector transition to net zero. Moreover, as mentioned earlier, firms and financial institutions are currently trying to internalize the negative externalities by becoming more proactive in addressing climate change. From a forward-looking perspective, supporting such developments would preserve market neutrality. Based on these considerations, I would next like to outline the Bank's specific measures. Monetary Policy Last year, as one of its monetary policy measures, the Bank introduced a new fund-supplying measure, the so-called Climate Response Financing Operations, through which it provides funds to financial institutions for investments or loans that they make to address climate change based on their own decisions. Please see Slide 4. In principle, these Climate Response Financing Operations will be conducted twice a year, and funds were provided in December of last year and July of this year. Currently, 63 financial institutions, including regional financial institutions, are eligible for such funds, and the total outstanding balance of loans disbursed by the Bank is 3.6 trillion yen. Participating financial institutions are required to demonstrate their efforts to address climate change by disclosing information in the four thematic areas in the TCFD recommendations (governance, strategy, risk management, and metrics and targets) as well as targets and actual results for their investments or loans. On the other hand, to maintain market neutrality mentioned earlier and avoid involvement in the allocation of resources at the micro level, the Bank does not check individual investments and loans made by financial institutions. Thus, the setup of the Climate Response Financing Operations is that they support investments and loans to reduce carbon emissions through the provision of funds, while making use of the disclosure mechanisms as well as financial institutions' expertise in selecting investment and loans. Meanwhile, the ECB has decided to change the way it purchases corporate bonds and treats collateral so that, based on certain rules, it takes into account the impact of climate change. In Europe, a taxonomy and corporate reporting standards on sustainability have been established, and the ECB's corporate bond purchases and treatment of collateral take these standards into account. In Japan, on the other hand, the discussion on standards and taxonomies with regard to the response to climate change is still in flux. Therefore, under the Climate Response Financing Operations, it is financial institutions that make the decisions on which investments or loans contribute to addressing climate change, so that they can respond flexibly to firms' funding needs. In addition, the setup aims to impose market discipline by requiring financial institutions to disclose a certain level of information on their efforts to address climate change. Moreover, since financial intermediation in Japan is mainly based on indirect financing, the Climate Response Financing Operations, which provide funding for investments and loans that contribute to decarbonization via banks can be regarded as the most effective way to provide financial support not only to large corporations but also to small and medium-sized enterprises in their efforts to achieve net zero. In the process of conducting the Climate Response Financing Operations, financial institutions have commented that the operations have provided them with an opportunity to enhance their own disclosure and that they have been able to enter a dialogue with their customers on business fixed investment to reduce carbon emissions. The Bank hopes that these operations will continue to work as a kind of catalyst and provide a push to efforts to reduce carbon emissions in Japan. Financial System Next, I would like to talk about the response of the financial system. In pushing ahead with the transition to net zero, it is important that the proper functioning of financial intermediation is maintained. The Bank seeks to ensure the stability of Japan's financial system and the smooth functioning of financial intermediation by appropriately monitoring the situation and actively supporting financial institutions' efforts to identify and manage climate-related financial risks. As mentioned earlier, climate change issues can have a significant impact on the business conditions of financial institutions, and hence on the stability of the financial system, through physical risks and transition risks. Please see Slide 5 for more details on the transmission channels. When physical risks and transition risks associated with climate change materialize, they can have a substantial impact on the real economy through the disruption of business, a decline in asset values, and a rise in energy prices. These adverse effects on the real economy will impact the financial system through a decline in the value of assets and an increase in credit costs. Therefore, it is important for financial institutions to conduct appropriate risk management based on the impact of climate change. However, a key feature of climate change issues is that they are difficult to incorporate directly into existing risk management frameworks. The time horizon over which risks may materialize is extremely long and uncertain, and the data necessary for risk management do not exist. How to deal with these issues represents an urgent challenge not only for financial institutions but also for central banks and financial supervisory authorities. Against this background, scenario analysis is currently attracting attention worldwide as one approach to quantitatively understand the impact on financial institutions and financial systems in the event that climate-related risks materialize. This approach involves assuming hypothetical scenarios that include greenhouse gas emissions, carbon prices, global average temperatures, as well as the corresponding paths of macro and industry-level economic variables, and then measuring the corresponding credit and market risks for each scenario. The scenarios are created using, at their core, the integrated assessment models developed by Professor Nordhaus of Yale University, winner of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2018. Moreover, a number of risk models that have been used extensively in the field of finance are also employed to measure risk. While scenario analysis employs essentially the same methodology as conventional stress tests conducted to check the resilience of financial institutions and the financial system to a substantial downturn in the economy, it differs in several respects. First, there are large differences in the availability of data and the econometric models. Conventional stress tests are based on data such as data of past business cycles and, building on previous analyses, can be performed with a reasonable degree of reliability. On the other hand, there is still insufficient data on climate change and related economic and financial variables, and there are no established integrated assessment models or risk measurement methods. Moreover, it has been pointed out that if climate change is not addressed, humanity will face unprecedented circumstances, and the negative economic impact may increase in a nonlinear fashion; however quantitative analysis of this is fraught with difficulties. The second difference concerns the time horizon of the risk analysis. While the time horizon for conventional stress testing is two to three years, assessing climate-related risks requires a quantitative understanding of the situation over a much longer horizon of several decades. Partly for these reasons, scenario analysis is still in its infancy. Scenario analysis is now being undertaken in many countries. Please refer to Slide 6. According to a survey by the Financial Stability Board (FSB) and the NGFS, as of November 2022, about 40 countries or regions had already conducted or are planning to conduct scenario analysis. The objectives of scenario analysis include understanding the impact on individual financial institutions and the financial system as a whole, improving the analytical capacity of both authorities and financial institutions, and identifying data constraints. However, in most countries or regions, the use of scenario analysis is still at the trial stage. In Japan, the Bank of Japan and the Financial Services Agency (FSA) jointly conducted a pilot scenario analysis exercise with major financial institutions last year, with the results released in August this year.3 The pilot exercise was not intended to provide a quantitative assessment of the impact of climate change on these major financial institutions. Rather, it was intended to serve as a means to continuously improve and develop analytical methods of the scenario analysis and focused on understanding data constraints, assessing the validity of analytical assumptions and methods, and identifying issues for future improvement and development. Specifically, the Bank and the FSA prepared scenarios based on those provided by the NGFS and let the major financial institutions conduct risk analyses of these scenarios using their own models. The results of the analysis showed that the major financial institutions had their own frameworks in place to perform risk analysis for various scenarios. On the other hand, they also showed that there was considerable variation in the risk measurement results due to differences in the data and measurement models used by the major financial institutions. This variation reflects the lack of data necessary for the analysis as well as the substantial uncertainty surrounding issues such as technological developments and client firms' behavior. Going forward, the Bank intends to further improve the sophistication of the scenario analysis by deepening its dialogue with financial institutions, taking the issues identified in the pilot exercise into account. In addition, in its on-site examinations and offsite monitoring, the Bank makes efforts to continue its in-depth dialogue with financial institutions on their responses to The results can be found here: https://www.boj.or.jp/en/announcements/release_2022/rel220826a.htm/. climate-related financial risks and their support for client firms' efforts toward net zero. Moreover, the Bank also encourages financial institutions to enhance the quality and quantity of their disclosures based on the TCFD, etc., in light of the revised Corporate Governance Code. The "Market Functioning Survey Concerning Climate Change" To address climate change issues, it is also important that financial markets fulfill their financial intermediation function. If risks and opportunities arising from climate change are appropriately reflected in the prices of financial instruments such as stocks and bonds, this should facilitate funding and investment through financial markets and, in turn, add impetus to the climate change response. Based on these considerations, the Bank decided to conduct a periodic survey of financial institutions, business corporations, rating agencies, and others to ascertain the functioning of climate change-related markets and the issues that need to be addressed in order to improve them. The results of the first survey were released in August.4 Please see Slide 7. The main findings were as follows. First, respondents indicated that although climate-related risks and opportunities were incorporated into the prices of financial instruments to some extent, there was still room for them to be incorporated to a greater extent. Second, with regard to the market for climate change-related ESG bonds, such as green bonds, the survey suggested that there was strong demand for ESG bonds. This appears to be due to the importance investors attach to making a social and environmental contribution. Third, in terms of issues in expanding the ESG bond market, in addition to the need to broaden the base of investors and issuers, some respondents pointed out issues regarding the availability of information and methods for assessing risks and opportunities. In October, the Bank held a conference call on the survey with about 150 participants from financial institutions, business corporations, rating agencies, industry associations, etc., to exchange opinions on the survey results and issues to be addressed to expand the ESG bond market. Going forward, the Bank intends to continue conducting this survey on an annual basis, while making efforts to improve its contents, in order to understand the functioning of The results can be found here: https://www.boj.or.jp/en/research/brp/ron_2022/ron220805a.htm/. climate change-related markets and issues that need improvement, and to contribute to the development of these markets through dialogue with relevant stakeholders. Central Banks' Own Operations Next, I would like to talk about central banks' own operations, etc. There is a growing trend, particularly among European central banks, to conduct operations taking the need to respond to climate change into account. The Bank of Japan, as a business entity, is also taking steps to address climate change in its operations. Specifically, the Bank began disclosing information based on the TCFD's recommendations this year. In addition, under the existing principle that the Bank's foreign currency assets shall be managed with an emphasis on safety and liquidity, the Bank has been purchasing foreign currency-denominated green bonds issued by governments and other foreign institutions. International Cooperation Furthermore, it is also important to participate and engage in international discussions on climate change issues, while closely monitoring developments in these discussions. At international gatherings such as the G7, G20, and EMEAP, as well as meetings with other central banks, the Bank collects information on efforts in other countries, explains the Bank's own measures, and contributes to progress in international efforts to address climate change by participating in multilateral discussions. With regard to the financial system, the Bank, in close collaboration with the FSA, has been actively involved in the development of an international framework for addressing climate-related financial risks at forums such as the Basel Committee on Banking Supervision, the FSB, the NGFS, and others. The Bank has also been cooperating with financial institutions and relevant authorities in international efforts to compile the data necessary to assess climate-related financial risks. As part of its international financial cooperation, the Bank, in cooperation with other central banks, is strengthening its efforts to promote investment in climate-related financial products such as green bonds, with the aim of fostering the development of financial markets. The Bank has long been investing in the Asian Bond Fund launched by EMEAP for the purpose of supporting the development of local currency-denominated bond markets in Asia. In July last year, in consultation with other EMEAP member central banks, it was agreed to expand the scope of investment in the Asian Bond Fund in order to catalyze a further deepening of local-currency denominated green bond markets in the region, and this has been implemented starting March of this year. IV. Challenges in the Financial and Economic Analysis of Climate-Related Issues Next, I would like to discuss some of the challenges in the financial and economic analysis of climate change issues based on our experience to date. Please see Slide 8. First, it is necessary to further develop analytical models. In particular, in order to refine scenario analyses to examine the economic impact of climate change on financial institutions and the financial system, it is essential to improve our theoretical analytical tools and accumulate empirical research. In addition, since climate change will have a significant impact on macroeconomic activity and prices, it may be necessary to take a different perspective in terms of theories of economic growth and the analysis of monetary policy. Last year, the Institute for Monetary and Economic Studies of the Bank of Japan published a series of special edition newsletters entitled "The Economics of Climate Change" to provide an easy-to-understand explanation of the current state of the economic analysis of climate change. Bank of Japan staff members have also deepened discussions with relevant experts, for example by actively participating in various study groups. I hope that the Bank will continue to share its research and practical expertise widely and carry on with the mutual exchange of ideas between the Bank and academia, and that academia continues to deepen its analyses of these issues, allowing the Bank to incorporate the insights obtained into its own work. Second, the analysis of the financial and economic impact of climate change issues requires collaboration with experts in the natural sciences. This certainly applies to scenario analysis. For instance, the extent to which policy responses limit increases in global temperatures and hence the extent to which natural disasters are prevented is important information for measuring the economic impact of policy responses. The NGFS, which provides climate change scenarios to measure future economic risks, is working with climate scientists to improve the scenarios. Since climate change is both a global issue and at the same time something whose local impact varies considerably, there is a need for greater cooperation at the country or regional level between experts in the natural sciences and those examining the economic impact of climate change. The third challenge concerns enhancements in terms of financial analysis. Various investments are needed to achieve net zero. As mentioned earlier, financing through financial institutions and financial markets is important to achieve such investments. A crucial aspect in this context is whether financial institutions' loan interest rates and the pricing of financial instruments adequately incorporate the risks and opportunities associated with dealing with climate change. The Market Functioning Survey conducted by the Bank of Japan mentioned earlier also indicated that there was room for risks and opportunities to be incorporated in such prices of financial instruments to a greater extent. Given the high uncertainty surrounding the risks and opportunities stemming from climate change, it may not be easy for markets to properly factor them in. Nevertheless, as a variety of analytical methods are tested and as data continues to accumulate, the extent to which efforts to address climate change issues are reflected in the prices of financial instruments is likely to increase, and this will support the smooth supply of investment funds needed to achieve net zero. Fourth, there are challenges in terms of the data. For example, to capture the physical risks associated with flood damage, not only data on the flood damage itself but also granular data on the economic activities of households and firms, including geographical information, is needed. This would make it possible to quantify the flood damage risk to borrower firms and measure potential credit costs. So far, however, there is little granular data linking flood risk data and firms' activities. This gap between the data needed for analyses and the data actually available, i.e., the data gap, needs to be addressed. Conclusion The global pioneer in economic approaches to climate change is Professor Nordhaus of Yale University, whom I have mentioned earlier. Professor Nordhaus began examining the economic impact of global warming in the 1970s. As is well known, Professor Hirofumi Uzawa, who was my advisor when I was a student, also began his research on "social common capital" including the natural environment and the "social costs of automobiles" in the 1970s. This means that Japan also had a great pioneer in the economic analysis of climate change. I believe that it is our responsibility to follow Professor Uzawa's lead, to open up new frontiers in financial and economic analysis using currently available analytical tools and data, and to implement better policies based on the knowledge gained. I would like to conclude my speech by expressing my hope that members of the Japan Society of Monetary Economics will deepen their analysis of climate change issues and provide a variety of policy proposals. Thank you for your attention. Climate Change and Finance Speech at the Japan Society of Monetary Economics November 27, 2022 AMAMIYA Masayoshi Deputy Governor of the Bank of Japan Introduction I. Basic Issues Related to Climate Change and Finance II. Efforts by Private Financial Institutions III. Initiatives by Central Banks IV. Challenges in the Financial and Economic Analysis of Climate-Related Issues Conclusion (SLIDE 1) BASIC ISSUES RELATED TO CLIMATE CHANGE AND FINANCE １．Importance of finance in addressing climate change Massive investment capital is required to achieve net zero emissions Demands of stakeholders, such as shareholders Business opportunities for financial institutions Discipline through disclosure ２．Impact of climate change on the financial system Physical risks: risks of losses due to major disasters, etc. Transition risks: risks such as changes in asset values as a result of the transition to net zero Changes in the quantity and quality of investments and loans by financial institutions (SLIDE 2) EFFORTS BY PRIVATE FINANCIAL INSTITUTIONS １．GFANZ (Glasgow Financial Alliance for Net Zero) Global voluntary alliance of private-sector financial institutions More than 550 members Banks, insurance companies, asset managers, institutional investors, etc. ２．PRI (Principles for Responsible Investment) International group of institutional investors, formed at the initiative of the United Nations About 5,000 participating institutions Signatory institutions are required to take ESG factors into account in their investment decisions and report on their activities and progress toward implementing the principles (SLIDE 3) BASIC CONCEPT OF CENTRAL BANKS １．Central banks' mandate Central banks are responsible for price stability and financial system stability Growing scale and frequency of natural disasters → volatility of economic activity → price fluctuations Unsmoothed transition to net zero → swings in fossil fuel and other energy prices → impacts on other goods and services prices ２．Market neutrality Central banks should focus on the macroeconomy as a whole while intervening as little as possible in the microeconomic allocation of resources Firms and financial institutions are currently trying to internalize the negative externalities by becoming more proactive in addressing climate change Central banks support such developments → market neutrality is preserved (SLIDE 4) CLIMATE RESPONSE FINANCING OPERATIONS Eligibility (counterparties, investment/loans) Counterparties make investment/loans based on their own discretion. Discipline will be exercised through a certain level of disclosure. Financial institutions (FIs) that disclose information on the following: • Four thematic areas in the TCFD recommendations • Targets and actual results of their investment/loans Investment/loans that contribute to Japan's actions to address climate change • Counterparties are required to disclose which standards/guidelines they use as criteria Lending conditions Long-term support for FIs' efforts 0% interest rate, twice as much as the amount outstanding of loans is added to Macro Add-on Balances 1-year loan duration (counterparties may receive long-term financing through successive use of the operations) Loans offered semiannually in principle until the end of FY Source: Bank of Japan. First disbursement Dec. 2021 43 FIs, 2 trillion JPY Second disbursement July 2022 63 FIs, 1.6 trillion JPY (SLIDE 5) RISKS RELATED TO THE FINANCIAL SYSTEM Physical risks Climate Change Economy Business disruption Lower demand, productivity and output (economic deterioration) Financial market losses (equities, bonds & commodities) Commodity price increase Capital scrapping, asset value decline Lower commercial property values Lower corporate profitability Financial System Transition risks Lower household wealth Increased litigation Credit market losses (corporate & residential loans) Market losses, credit tightening (negative feedback to the economy) Underwriting losses of insurance Operational risk Source: Bank of Japan. (SLIDE 6) SCENARIO ANALYSIS １．Status of efforts in each country (according to FSB and NGFS survey) About 40 countries or regions had already conducted or are planning to conduct scenario analysis The objectives include understanding the impacts on individual FIs and the financial system as a whole, improving the analytical capacity of both authorities and FIs, and identifying data constraints ２．Status of efforts in Japan The Bank of Japan and the Financial Services Agency jointly conducted a pilot scenario analysis exercise with major financial institutions in 2021 The results were released in August 2022 The pilot exercise was not intended to provide a quantitative assessment of the impact of climate change. Rather, it was intended to serve as a means to continuously improve and develop analytical methods of the scenario analysis and it focused on understanding data constraints, assessing the validity of analytical assumptions and methods, and identifying issues relevant to future improvement and development (SLIDE 7) MARKET FUNCTIONING SURVEY CONCERNING CLIMATE CHANGE Climate-Related Risks and Opportunities in Stock Prices and Corporate Bond Prices in Japan % Stock prices All respondents Corporate bond prices Banks "Somewhat tight" to "tight" "More or less balanced" Financial institutions other than banks "Somewhat accommodative" to "accommodative" Nonfinancial corporates Reflected Somewhat reflected 0 10 20 30 40 50 60 70 80 90 100 % Not reflected Not reflected much Notes: The top left chart asked whether the risks and opportunities arising from climate change were reflected in stock prices and corporate bond prices in financial markets in Japan. 2. The bottom right chart asked the respondents to rank their answers in the order of importance from first to third. 3. Survey was conducted from April 13 to May 31, 2022. It was distributed to 663 recipients, of which 290 responded (i.e., the response rate was 44%). Source: Bank of Japan. 1. View/Impression on the Supply and Demand Conditions of Climate Change-Related ESG Bonds in Japan Challenges for Increasing the Size of the Climate Change-Related ESG Bond Market in Japan Increasing investors and/or issuers that place a high value on climate-related risks and opportunities Enhancing and/or standardizing information disclosure Increasing efforts and projects to respond to climate change Improving transparency in ESG evaluation Further developing analysis methodologies for climaterelated risks, opportunities, and 'impacts' Clarifying policy measures for climate change Bridging data gaps on climate-related data Promoting engagement and enhancing dialogues First Second Third Other 80 % (SLIDE 8) ISSUES IN FINANCIAL AND ECONOMIC ANALYSIS １．Further development of analytical models ２．Collaboration with experts in natural sciences ３．Enhancement of financial analysis ４．Data challenges
|
bank of japan
| 2,022 | 11 |
Keynote speech by Mr Kuroda Haruhiko, Governor of the Bank of Japan, at the ASEAN+3 Economic Cooperation and Financial Stability Forum, held by the ASEAN+3 Macroeconomic Research Office, Singapore, 2 December 2022.
|
Haruhiko Kuroda: Keynote speech - ASEAN+3 Economic Cooperation and Financial Stability Forum Keynote speech by Mr Kuroda Haruhiko, Governor of the Bank of Japan, at the ASEAN+3 Economic Cooperation and Financial Stability Forum, held by the ASEAN+3 Macroeconomic Research Office, Singapore, 2 December 2022. *** Introduction Good morning, everyone. It is an honor for me to send this video message for the inaugural ASEAN+3 Economic Cooperation and Financial Stability Forum. This is especially because I have been involved in orchestrating crisis responses and enhancing regional cooperation in Asia throughout my career. I would like to congratulate Director Li and the ASEAN+3 Macroeconomic Research Office (AMRO) for organizing this forum as it provides a platform for policy makers, experts, and international financial institutions to exchange insights on macroeconomic and financial stability issues. This year, 2022, marks 25 years since the Asian Financial Crisis. One of the important lessons of the crisis is that a crisis in one country can rapidly spread to other countries and lead to a vicious cycle of economic shrinkage in the region. The Asian Financial Crisis showed us just how important it is to enhance policy dialogue and establish networks of cooperation across the region. This forum will certainly help further strengthen the foundations of such regional cooperation. I. Global Economic Developments and Outlook I would like to start by talking about the global economy based on the Bank of Japan's recent assessment. The global economy has recovered moderately on the whole, but slowdowns have been observed, mainly in advanced economies. Asian economies have recovered on the whole, as domestic demand has continued to improve with progress in the resumption of economic activity. However, growth in exports has decelerated, particularly in ITrelated goods. As for the outlook, although the impact of COVID-19 and supply-side constraints is likely to wane, the global economy is expected to slow toward 2023, albeit with variation across countries and regions. This will likely occur due to the impact of global inflationary pressure, policy interest rate hikes by central banks, and the situation surrounding Ukraine. Apart from China, economies in the ASEAN+3 region are likely to decelerate gradually, with external demand slowing and prices rising, although the resumption of economic activity is expected to underpin domestic demand. In 2022, the rate of global inflation is expected to exceed that of 2021, and then decline in 2023. This price forecast applies also to Japan. The year-on-year rate of change in the 1/4 BIS - Central bankers' speeches consumer price index for all items excluding fresh food was 3.6 percent for October. However, the inflation rate is projected to decelerate gradually from the beginning of next year and fall below 2 percent in 2023. II. Risks to the Outlook That said, uncertainties surrounding the outlook for the global economy are extremely high. I would like to point out three factors. The first is developments in global economic activity and prices. While inflationary pressure remains high globally, central banks have raised policy interest rates rapidly and moved to tighten monetary policy. Central banks are projected to continue tightening their monetary policies for the time being, such as by reducing monetary accommodation. As a result, inflation rates around the world are expected to decline gradually, and the global economy will continue to grow moderately. However, vigilance against a wage-price spiral has heightened, mainly in advanced economies. In addition, there is concern in global financial and capital markets over whether it is possible to contain inflation and maintain economic growth at the same time. The second factor is developments in the situation surrounding Ukraine and associated movements in prices of commodities, including grains. Depending on the course of events, economic activity could be pushed down further, especially in the euro area. In addition, although commodity prices have declined compared with a while ago, they could rise again depending on, for example, developments in the situation surrounding Ukraine. On the other hand, if commodity prices see a clearer downtrend, the global economy could deviate upward. The third factor is how COVID-19 will affect private consumption and other economic activities. Depending on the course of COVID-19, upward pressure from pent-up demand could weaken. On the other hand, if the need for vigilance against COVID-19 lessens significantly, private consumption could be pushed up. This is also the case for international tourism. The easing of travel restrictions and resumption of normal economic activity have increased the number of tourists in the ASEAN+3 region and given support to services exports. If travel restrictions were reintroduced, that could weaken the recovery, especially for economies that are more dependent on inbound tourism. Similarly, if there is a resurgence in COVID-19, current supply-side constraints could intensify again through, for example, supply-chain disruptions. III. Challenges and Opportunities in the ASEAN+3 Region Next, let me discuss the challenges and opportunities in the ASEAN+3 region. While central banks continue to make rapid policy interest hikes, especially in advanced economies, some market participants have expressed concerns about global financial conditions. Their main concern is that adjustments in asset prices, fluctuations in foreign exchange markets, and acceleration of capital outflows could lead to another financial crisis in the region. However, over the past 25 years, the double mismatch of currencies and maturities over the longer term, which was one of the underlying causes for the Asian Financial Crisis, is said to have been resolved to a large extent. Economic fundamentals have strengthened, and foreign currency reserves have increased. Through their efforts to 2/4 BIS - Central bankers' speeches build regional cooperation, the ASEAN+3 members have succeeded in establishing several key mechanisms to prevent or mitigate any future financial crisis. First among these is the Chiang Mai Initiative Multilateralisation (CMIM), which aims to deal with balance of payments and short-term liquidity difficulties and maintain economic and financial stability. Secondly, ASEAN+3 members have advanced the Asian Bond Markets Initiative to develop local currency bond markets. Furthermore, the Executives' Meeting of East Asia Pacific (EMEAP) central banks, a group of 11 central banks and monetary authorities in the East Asia and Pacific region, has been working on the Asian Bond Fund (ABF) initiative since 2003, in order to develop local currency bond markets. The EMEAP central banks have also been promoting the analysis of financial market developments in the region. Such regional cooperation has enabled countries and firms to finance in local currency for longer maturity. Against this backdrop, the risk of a sudden loss of confidence and outflow of funds leading to a financial crisis does not seem to be significant at this juncture. Nevertheless, we should not be complacent. Price developments in advanced economies could, for example, trigger a further tightening of global financial conditions. In some of the region's countries, policy buffers may have decreased due to increased fiscal spending to counter the pandemic and to support households affected by sudden price increases. Foreign exchange reserves have recently begun to decline in many countries, partly due to valuation adjustments. As the recent market turmoil in the United Kingdom has shown, the reaction of market participants to policy decisions and announcements can significantly impact asset prices and market functionality. Authorities in the ASEAN+3 region must be vigilant in the face of potential risks and maintain clear, sufficient, and timely communication to avoid unintended outcomes. Finally, to strengthen the safety net for crisis response, ASEAN+3 authorities could start discussing the future of the CMIM, which has been in existence for more than 20 years now. The CMIM has unique value as a regional self-help mechanism with regional ownership, which could help avoid the potential stigma associated with borrowing from the International Monetary Fund (IMF). However, over the years, the region's economies and financial markets have grown significantly and become more integrated, both within the region and globally. In contrast to the simple balance of payment shortfalls of the past, any future crisis will likely be much more complex. While the ASEAN+3 members continue to build on the readiness and effectiveness of the CMIM, the IMF has adapted its lending framework and facilities and has provided financing to member countries in response to the COVID-19 pandemic shock. Other regional financial safety nets have launched new instruments to support their members. It may be time to review the role and design of the CMIM. Adding a financing instrument to mitigate the impact of shocks may be one option to consider. For more than two decades now, the ASEAN+3 Finance Process has been successful in developing strong regional cooperation and providing the foundations for regional stability. I strongly believe that it is important to maintain the momentum of this cooperation while adapting to the changing environment. 3/4 BIS - Central bankers' speeches Thank you. 4/4 BIS - Central bankers' speeches
|
bank of japan
| 2,022 | 12 |
Speech by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Nagano, 7 December 2022.
|
December 7, 2022 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Nagano NAKAMURA Toyoaki Member of the Policy Board (English translation based on the Japanese original) I. Economic and Price Developments at Home and Abroad A. Recent Developments and Outlook for Economic Activity and Prices I will begin my speech by talking about recent developments in economic activity and prices. Overseas economies have recovered moderately on the whole, but slowdowns have been observed, mainly in advanced economies (Chart 1). The U.S. and European economies have slowed somewhat, reflecting a surge in inflation and a continued rise in policy rates. In Europe, the situation in Ukraine has continued to have an impact. The Chinese economy has recovered from being pushed down as the impact of lockdowns implemented around spring 2022, such as in Shanghai, has generally dissipated. However, the economy has not been sufficiently firm, as COVID-19 cases have started increasing again amid the government's continued zero-COVID policy, the real estate market has long been sluggish, and there has been prolonged high unemployment among young people. Emerging and commodity-exporting economies other than China have picked up on the whole, albeit with weakness seen in part. Against this background, and despite being affected by factors such as high commodity prices, Japan's economy has picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19. In the corporate sector, exports and production have increased as a trend, with the effects of supply-side constraints waning, and corporate profits have been at high levels on the whole. In this situation, business fixed investment has picked up, although weakness has been seen in some industries. In the household sector, private consumption has increased moderately, particularly for services consumption, with the employment and income situation having improved moderately and with support from pent-up demand. Meanwhile, the year-on-year rate of change in the consumer price index (CPI) for all items less fresh food, or core CPI, has increased to 3.6 percent for October 2022, due to rises in the price of such items as energy, food, and durable goods (Chart 2). Japan's economy is likely to recover, with the impact of COVID-19 and supply-side constraints waning, although it is expected to be under downward pressure stemming from high commodity prices and slowdowns in overseas economies. Thereafter, Japan's economy is projected to continue growing at a pace above its potential growth rate as a virtuous cycle from income to spending advances on the back of the strengthened momentum for wage hikes and progress in the resumption of economic activity. Meanwhile, the year-on-year rate of change in core CPI has been increasing. From the turn of 2023, the rate of increase is expected to decelerate with a smaller contribution to core CPI of rises in the price of such items as energy, food, and durable goods (Chart 3). B. Risk Factors for Economic Activity and Prices The outlook just described is subject to a number of uncertainties; specifically, I am particularly attentive to the following two factors. The first is developments in both overseas economic activity and prices and in global financial and capital markets. Significantly high inflation continues due not only to a surge in global demand on the path to recovery from the pandemic, but also to the effects of supply-side constraints and Russia's invasion of Ukraine. In response, central banks have been raising policy rates sharply to contain high inflation, at the risk of economic slowdown. On the other hand, financial markets have been nervous due to some concern about consistency between monetary policy and fiscal policy, and also because of the difficulty in accurately measuring monetary tightening effects as there is a time lag between policy decisions and the materialization of their effects. In the United States and the euro area, policy rates have been raised substantially during 2022, by 3.75 percentage points and 2.0 percentage points, respectively. However, the latest rate of increase in consumer prices was 7.7 percent in the United States and 10.0 percent in the euro area,1 both remaining well above target. This has led markets to expect further policy rate hikes. There is thus concern that it may become difficult to strike a balance between the containment of inflation and the sustainability of economic growth, depending on the degree of cumulative impact of substantial policy rate hikes. If this concern grows, there is a possibility that global financial and capital markets will tighten unexpectedly through adjustments in asset prices and foreign exchange rates and through capital outflows from emerging economies. This possibility must be borne in mind. The second factor is geopolitical risks and developments in the price of commodities, including grain. Uncertainty remains very high regarding geopolitical factors such as the The U.S. figure is for October 2022, and the euro area figure is for November. situation in Ukraine. There is concern that, if the price of commodities, including grain, rises or remains high for a prolonged period, this could put further downward pressure on domestic and overseas economies. Given that Japan is a commodity importer, and its energy selfsufficiency rate is the second lowest among 36 OECD countries,2 the increased trade losses due to higher commodity prices have put significant downward pressure on the economy (Chart 4). It takes some time for the impact of losses from trade to materialize as a decline in demand. Thus, depending on developments in the price of grain and other commodities, there is a risk that private consumption and business fixed investment may become lower than expected. Some point out that, in addition to widespread price rises in October 2022 caused mainly by higher prices for imports such as grain and other commodities, a spate of price rises is projected for February and March 2023. Higher inflation will put downward pressure on households' real income, but how much it declines depends on the growth rate of nominal wages. In this sense, as I will elaborate later, the crucial factors are how energy selfsufficiency is increased and to what degree firms raise wages; I am thus closely monitoring the future course of energy policy and wage revisions for spring 2023. II. Conduct of Monetary Policy Let me now turn to my basic view on the conduct of monetary policy for the immediate future, based on the economic and price developments I have just described. In view of Japan's present economic conditions, I consider it necessary for the Bank of Japan to persistently continue with monetary easing, primarily for two reasons. The first reason is that Japan's economy is still on its way to recovery from the downturn brought about by the pandemic. Japan's real GDP was positive for three quarters in a row from the October-December quarter of 2021, but it turned negative in the July-September quarter of 2022, remaining below the 2019 average level (Chart 5). Having experienced deflation over roughly a decade and a half, Japan's economy suffered from the "three excesses" in employment, production capacity, and debt. This engendered a strong "defensive mindset" and led to an economy characterized by low growth, low inflation, and low wage growth. Due to this defensive mindset, Japan was slow to respond to changes in the economic Data are for 2019, taken from the report regarding Japan's energy issues released by the Agency for Natural Resources and Energy of Ministry of Economy, Trade and Industry on its website in August 2022 (available only in Japanese). environment caused by the pandemic, compared with the United States and Europe. I consider this to be one of the reasons for the delayed recovery in Japan's economy. The output gap, which captures the utilization of labor and capital, has also been consistently negative since the April-June quarter of 2020 (Chart 6). Tightening monetary policy when demand remains insufficient compared with supply capacity would put significant downward pressure on the economic activity of firms and households, and could draw Japan's economy back into deflation. The second reason I believe the Bank should continue with monetary easing is that the current price rises have not been accompanied by wage growth. Let us compare price developments in Japan with those in the United States and Europe. Services prices have been increasing while the hourly wage growth rate is in the range of 4.0-6.0 percent in the United States and 3.0-4.0 percent in the euro area. The inflation rate excluding energy and food remains at a high level -- 6.3 percent for October 2022 in the United States and 5.0 percent for November in the euro area. This has prompted central banks to continue to make rapid policy rate hikes in an effort to prevent a wage-price spiral. In Japan, the inflation rate excluding fresh food and energy has indeed risen, to 2.5 percent for October. The breakdown shows that the inflation rate for services -- which account for more than half of the total price increase, and in which wages make up a large proportion of costs -- has increased but is still below 1 percent. In my view, concern about a wage-price spiral in Japan is far from warranted. I consider continued accommodative monetary policy to be essential to support firms' initiatives as Japan's economy recovers from the pandemic and to develop an environment conducive to wage rises necessary for the sound development of the national economy. III. Japan's Economic Growth To achieve the 2 percent price stability target in a sustainable and stable manner and realize sustainable economic growth, it is essential that wages rise in tandem with economic growth. However, this expected situation has not yet been realized as Japan's economy has long been mired in a state of low growth, low inflation, and low wage growth. In what follows, I will first touch on issues currently facing Japan's economic and wage structures, which are different from those of the United States and Europe. I will then turn to a discussion of three types of dynamism -- that of firms, employment, and household financial assets -- that I believe to be indispensable to a renewed strong growth of Japan's economy, based on my own experience at a private firm. A. Economic and Wage Structures in Japan There are three major characteristics of Japan's economic and wage structures that strike me as needing to change. The first is the excessively defensive mindset in Japanese society. Since the bursting of the bubble economy in the early 1990s, the successful experience of cutting costs to weather rapid deterioration in the business environment conjoined with the experience of low growth brought about by deflation has reinforced a defensive mindset in the overall economy. In my view, this has caused delays in firms' measures to boost their earning power, including the "investment in people" needed for sustainable growth and the channeling of management resources into highly productive businesses. Management emphasis on cost cutting is prone to maintain unproductive businesses to retain employment, and cost structure reforms do not necessarily translate into greater productivity or higher added value. This has engendered excessive competition among firms in Japan and seems to have led to a decline in the competitiveness of Japan's industry as a whole. In fact, Japan ranks last among the Group of Seven (G7) countries in terms of labor productivity (Chart 7). The second characteristic is low economic metabolism. Given the expectation of lifetime employment and seniority-based wages, it is likely that many Japanese firms have perceived raising wage levels as a management risk in terms of business continuity, and have thus put priority on suppressing wage levels. Moreover, given the practice of lifetime employment, I sense that workers, fearing job loss due to corporate bankruptcy, have also developed a stronger desire for employment stability than for wage increases. Amid these economic and wage structures, job-switching rates and business entry and exit rates in Japan have been in the range of 3.0-6.0 percent, remaining low compared with the United States and Europe (Charts 8, 9, and 10). Prices have not risen due to 30 years of stagnant wage levels and to households' sluggish purchasing power (Charts 11 and 12). Consequently, Japan's economy has fallen into a state of low growth, low inflation, and low wage growth. The third characteristic that I think needs transforming is the response to changes in the economic environment. Since the 1985 Plaza Accord, in response to a rapidly appreciating yen, firms' efforts have been directed at building global supply chains. The industrial structure has changed from that in the Showa Era when industrial clusters were formed in an exportoriented country. Meanwhile, small and medium-sized firms in industrial clusters that have benefited from overseas economic growth have been exposed to competition from overseas firms within Japan as global supply chains have taken shape. They have also faced a deterioration in the country's energy self-sufficiency since the Great East Japan Earthquake in 2011, and a rise in energy costs (Chart 4). These factors have caused small and mediumsized firms to see their profitability decline. This has led them to put off "investment in people" and investment for higher growth, which I think is one factor behind the slump in productivity. If Japan's economic and wage structures remain as they are, it will forestall progress in moving human capital to highly productive sectors so as to place the right people in the right jobs across the country and will keep wage levels stagnant. As there is no magic wand that will enable Japan to regain its growth potential, it is crucial that Japan's economic and wage structures are brought closer to those of other advanced economies, where wages rise in tandem with economic growth. To this end, it is vital to enhance energy self-sufficiency, to facilitate initiatives by small and medium-sized firms to boost their export capabilities through joint support from industry, academia, government agencies, and financial institutions, and to move ahead with reform efforts to improve productivity (Chart 13 gives a simplified representation). B. Improving Labor Productivity through Corporate Dynamism Achieving the continuous wage increases needed for the economy to grow in a sustainable manner will require improvements in labor productivity to generate added value, which is the source of wage growth. In this regard, it is vital that firms raise their capital equipment ratio and improve the quality of labor by means of business fixed investment and "investment in people," including wage increases. I expect labor market conditions to grow tighter, especially as the economy recovers from the pandemic. Therefore, boosting the capital equipment ratio through labor-saving and efficiency-improving investment is likely to be a pressing issue. The key to raising labor productivity is to generate new added value through innovation driven by various types of investment, including research and development (R&D) investment, or a combination of various investments. Japanese firms have typically excelled at process innovation, under a product-oriented business model that centers on products and services they could bring to the market under their existing frameworks and on relevant pricing strategies. However, a different approach is called for in the so-called VUCA era,3 in which high value is generated by human resources and other intangible assets and growth entails risk. In the United States and Europe, to create products and services that anticipate customer needs based on a market-oriented approach, firms have undertaken business reforms to transform their existing frameworks and shift business resources to growth areas. Japan has lagged behind in this regard, which I believe has led to an innovation deficit. An international comparison of the proportion of firms that launched new products and services shows that Japan ranked lowest among major advanced economies -- notwithstanding that the data are taken from slightly old research (Chart 14). Firms with price-to-book ratios of less than 1 account for 3 percent of all listed firms in the United States and 18 percent in Europe, but 43 percent in Japan, indicating a low assessment of their capacity to generate earnings. 4 My hope is that the rising sense of urgency among management or business owners will spur innovation among Japanese firms. Furthermore, to bring about innovation, it is vital to shift business resources to higherproductivity businesses and sectors because there is an upper limit to such resources in Japan as a whole. Since startups have fewer constraints than large firms, they are particularly called on to take a leading role in the country in launching and scaling up new businesses that go beyond existing businesses. Moreover, in addition to coping with the weak yen environment, there is recently a growing awareness among firms of the need to restructure supply chains - by, for example, creating multiple chains -- from the perspective of economic security and business continuity. I think that firms' shift back to domestic production will thus be an important business strategy. In this respect, the key to promoting domestic investment lies VUCA, an acronym which stands for volatility, uncertainty, complexity, and ambiguity, refers to a situation in which large-scale changes make it difficult to predict the future. 4 Committee on New Direction of Economic and Industrial Policies of Ministry of Economy, Trade and Industry, "Creating Companies with Global Competitiveness," March 2022. with the growth of startups and small and medium-sized firms that are targeted for such investment. Nevertheless, the reality in Japan is that startups with innovative technologies and business models often lack business resources -- namely, people, goods, money, and networks -- which prevents them from growing significantly. There are 644 unicorns (private startups valued at over 1 billion U.S. dollars) in the United States, 172 in China, 46 in the United Kingdom, and 29 in Germany, while there are only 6 in Japan, which is inordinately few relative to GDP.5 I expect to see a change to an economic environment that drives the growth of startups. This includes the implementation of government policies for cultivating startups and supporting the growth of venture capital. Other examples are the increase in business exits through initial public offerings (IPOs) and the merger and acquisition (M&A) activities of large firms, and the resultant growth in the number of business startups and higher labor mobility. My hope is that these initiatives will further increase corporate dynamism. The business succession of small and medium-sized firms also presents a prime opportunity to boost the potential for innovation. Some cases of business succession resemble the takeover of a family business as a venture startup, in which successors combine their own strengths with the advantages of the existing business to pursue new business or shift business formats. Business succession is expected to promote innovation through new business initiatives that capitalize on the trust, experience, and technology of the family business. Meanwhile, observing the increase in business cessation due to the lack of a successor, local governments and regional financial institutions have come to recognize that the rebirth of firms with roots in the region ties in directly with regional revitalization. I believe that key growth strategies for Japan's economy are stronger cultivation and support of small and medium-sized firms through collaboration among industry, academia, government agencies, and financial institutions, as well as efforts to reinforce follow-up support by the regional financial institutions acquainted with the circumstances of their corporate clients. C. Employment Dynamism to Place the Right People in the Right Jobs across Japan The COVID-19 pandemic made evident the labor shortages and delays in digitalization that Japan faces, prompting firms' recognition that if they are unable to secure needed human Calculated based on CB Insights, "Global Unicorn Club: Private Companies Valued at $1B+ (as of October 7th, 2022)," https://www.cbinsights.com/research-unicorn-companies. capital due to restraints placed on wages, this will be a management risk in terms of business continuity. Firms are also strongly aware of the importance of "investment in people," including raising wage levels and promoting initiatives to cultivate digital technology professionals. Momentum for wage hikes is growing, and firms are moving ahead with reskilling and other efforts to augment vocational training for employees. I have the sense that Japan has finally started to move toward transformation. Since employees will be better equipped to choose which firm they wish to work for, firms will need to have business strategies that boost their earning power if they are to acquire the funds needed for "investment in people," including wage increases. On the other hand, some argue that small and medium-sized firms and regional firms struggle to hire specialized human resources due to the problem of wage disparities. However, as the pandemic has brought about changes in people's values regarding the way they work, these firms could become more likely to acquire human capital than before, depending on the creative steps the management takes to diversify working styles -- including having side jobs or multiple jobs, and working remotely -- and to enhance job satisfaction. As this transformation unfolds and employment dynamism emerges, it is possible that talented human capital will shift not only to highly productive industries, occupations, and firms that can sustain wage increases, but also to small and medium-sized firms, regional firms, and startups that can provide their employees with new values. I hope that such a shift in human capital will fuel progress in placing the right people in the right jobs across Japan and bring about productivity improvements and the revitalization of regional economies, leading to sustainable wage increases and a virtuous cycle from income to spending. D. Enhancing Disposable Income through the Dynamism of Household Financial Assets In addition to the dynamism of firms and employment, I believe the dynamism of household financial assets, enhancing disposable income in tandem with economic growth, is also essential to achieving sustainable growth in Japan's economy. Although household financial assets in Japan have grown to more than 2,000 trillion yen, the proportion of equities and investment trusts held is lower than in the United States or Europe (Chart 15). In 2019, before the pandemic, labor income accounted for 70 percent of disposable income in the United States while dividend and interest income accounted for 19 percent. By contrast, in Japan, labor income accounted for 94 percent of disposable income, with only 4 percent coming from dividend and interest income (Chart 16). In Japan, the proportion of income other than labor income is remarkably small. This includes income from dividends, which distribute firms' income to households as this increases in tandem with economic growth. With the current household financial asset composition and low job-switching rates, the norm in Japan is that one person only has a job opportunity at one company; thus, household income is highly vulnerable to the performance of the firm where a person works for many years. Moreover, given the demographics of Japan's super-aged society, in which 30 percent of the population are pensioners aged 65 and over, the bridge connecting households and the economy is narrow, making it difficult for households to reap the benefits of economic growth. Also, although residential property is a typical financial asset for households, the lifespan of houses in Japan is less than 40 years, 6 and the second-hand housing market is small, accounting for only 15 percent of the housing market overall.7 This makes houses almost consumer durable goods, hardly an option as part of stable asset formation for retirement. Let me note that social insurance premiums for the working age population in Japan have increased by 1.9 times over the past 30 years.8 In this situation, for the economy to be more sustainable and for standards of living to improve alongside economic growth, people need to restructure their financial assets in a way that enables them to benefit from economic growth. If corporate profits and labor income of households increase together with economic growth, tax revenues and social insurance premiums -- which are sources of public assistance and mutual aid -- also increase. Then, if an increase in household income such as that from dividends is embedded as in other advanced economies, the balance of self-generated income, mutual aid, and public assistance will be more appropriate, and people will actually be able to reap the benefits of economic growth. I hope that, in addition to the existing Nippon Data on the housing sector for fiscal 2022, section <9> 3. (2), released by the Housing Bureau of the Ministry of Land, Infrastructure, Transport and Tourism (available only in Japanese). 7 Ibid., section <4> 1. (1). 8 National Institute of Population and Social Security Research, "The Financial Statistics of Social Security in Japan (fiscal 2020)," August 2022 (currently available only in Japanese). Individual Savings Account (NISA) and iDeCo pension plans, the government's Doubling Asset-Based Incomes Plan will promote lifelong household asset formation over the course of 30 to 50 years, focusing on the long term, on risk diversification, and on regular contributions. I expect that this would generate stable income and stimulate private consumption, thereby forming a virtuous cycle from income to spending. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Nagano December 7, 2022 NAKAMURA Toyoaki Member of the Policy Board Bank of Japan Chart 1 IMF Projections in the World Economic Outlook (October 2022) y/y % chg. IMF projections -2 -4 Japan United States -6 China World output Euro area -8 CY 80 Source: IMF. Chart 2 Consumer Prices Japan -1 -2 United States y/y % chg. CPI (less fresh food) <100%> CY 18 Temporary factors Energy <7%> Housing rent<19%> Services (less housing rent) <31%> Goods <40%> CY 18 y/y % chg. -1 -2 -1 -2 Energy <7%> Housing rent <32%> Services (less housing rent) <31%> Goods <30%> CPI <100%> Euro Area y/y % chg. CY 18 Energy <11%> Housing rent <7%> Services (less housing rent) <35%> Goods <47%> HICP <100%> Notes: 1. Figures for temporary factors for Japan are Bank staff estimates and consist of the effects of the reduction in mobile phone charges, the consumption tax hike, free education policies, and travel subsidy programs. 2. Figures in angular brackets show the share of each component. Figures for 2022/Q4 are those for October. Sources: Haver; Ministry of Internal Affairs and Communications. Chart 3 Forecasts of the Majority of the Policy Board Members y/y % chg. (Reference) CPI (all items less fresh food and energy) Real GDP CPI (all items less fresh food) Fiscal 2022 ＋1.8 to ＋2.1 [＋2.0] ＋2.8 to ＋2.9 [＋2.9] ＋1.8 to ＋1.9 [＋1.8] Forecasts made in July 2022 ＋2.2 to ＋2.5 [＋2.4] ＋2.2 to ＋2.4 [＋2.3] ＋1.2 to ＋1.4 [＋1.3] Fiscal 2023 ＋1.5 to ＋2.0 [＋1.9] ＋1.5 to ＋1.8 [＋1.6] ＋1.5 to ＋1.8 [＋1.6] Forecasts made in July 2022 ＋1.7 to ＋2.1 [＋2.0] ＋1.2 to ＋1.5 [＋1.4] ＋1.2 to ＋1.4 [＋1.4] Fiscal 2024 ＋1.3 to ＋1.6 [＋1.5] ＋1.5 to ＋1.9 [＋1.6] ＋1.5 to ＋1.8 [＋1.6] Forecasts made in July 2022 ＋1.1 to ＋1.5 [＋1.3] ＋1.1 to ＋1.5 [＋1.3] ＋1.4 to ＋1.7 [＋1.5] Notes: 1. Figures in brackets indicate the median of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which they attach the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. Each Policy Board member makes their forecasts taking into account the effects of past policy decisions and with reference to views incorporated in financial markets regarding the future conduct of policy. Source: Bank of Japan. Chart 4 Contribution to Changes in Trading Gains and Losses y/y chg., % points -1 -2 -3 Other Commodity prices, etc. Exchange rates Trading gains/losses-real GDP ratio -4 CY 07 Notes:1. The contribution of commodity prices, etc. is calculated using changes in export/import price indexes on a contract currency basis. The contribution of exchange rates is calculated using the difference between export/import price indexes on a yen basis and those on a contract currency basis. "Other" is the contribution of other factors such as changes in quantities. 2. Trading gains/losses = (Nominal net exports / Weighted average of export and import deflators) － Real net exports Sources: Cabinet Office; Bank of Japan. Chart 5 Real GDP Japan United States s.a., CY 2019 = 100 Euro Area s.a., CY 2019 = 100 CY 19 Sources: Cabinet Office; Haver. CY 19 s.a., CY 2019 = 100 CY 19 Chart 6 Output Gap Developments since the Outbreak of COVID-19 Long Time Series % -2 -2 -4 -4 -6 -6 -8 CY 85 20 22 % -8 19/Q4 21/Q1 22/Q1 Note: The output gap is estimated by the Bank's Research and Statistics Department. Source: Bank of Japan. Chart 7 Comparison of Labor Productivity in G7 Countries USD, constant prices, 2015 PPPs Japan United States Canada United Kingdom Germany France Italy CY 90 Note: GDP per hour worked. Source: OECD. Chart 8 Labor Mobility in Japan shares of total employees, % Unemployed→Employed Employed→Unemployed Job changers (excluding between regular employment) Job changers (between regular employment) CY 13 Note: Job changers are employees who have left their previous job in the past year and are currently employed. "Employed→Unemployed" refers to those who have left employment in the past year and are not currently employed. Source: Ministry of Internal Affairs and Communications. Chart 9 Labor Mobility in Europe and the United States (as of 2019) EU-OECD countries axis, % USA axis,% Job-to-job Separations to non-employment Hirings from non-employment Notes: 1. Figures for Europe are percentages of those whose employment status has changed from the previous year relative to the number of all employed persons. Non-employment refers to the status of being unemployed or inactive in the labor force. Figures for Norway are based on data for 2018. 2. Figures for the United States are percentages of those whose employment status has changed from the previous quarter relative to the number of all employed persons. Non-employment refers to non-employment that has lasted for more than one quarter. Quarterly average is the average over four quarters. Annual estimate is the cumulative total of four quarters. Source: Causa, O., Luu, N., and Abendschein, M., "Labour market transitions across OECD countries: Stylised facts," OECD Economics Department Working Papers, No.1692, 2021. Chart 10 International Comparison of Entry and Exit Rates Entry Rate Exit Rate % % Japan United Kingdom France CY 08 United States Germany CY 08 Note: Figures for Japan are on a fiscal-year basis. Sources: Eurostat; Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency; U.K. Office for National Statistics; U.S. Census Bureau. Chart 11 Comparison of Average Annual Wages in G7 Countries ten thou. USD, constant prices, 2021 USD PPPs Japan United States Canada United Kingdom Germany France Italy CY 90 Note: Average annual wages in full time equivalent. Source: OECD. Chart 12 Prices and Wages y/y % chg. CPI (less fresh food) Hourly scheduled cash earnings -1 -2 -3 -4 FY 85 Notes: 1. For hourly scheduled cash earnings, Q1=March-May, Q2=June-August, Q3=September-November, and Q4=DecemberFebruary. Figures are for full-time and part-time employees before fiscal 1994 and for full-time employees thereafter. 2. The CPI figures are Bank staff estimates and exclude the effects of the decline in mobile phone charges, consumption tax hikes, free education policies, and travel subsidy programs. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 13 Virtuous Cycle from Income to Spending Economic growth Expansion of firms' investment (tangible and intangible assets) Expansion of corporate profits Wage growth Increase in social insurance premiums Increase in tax revenue Selfgenerated Mutual aid Public assistance Higher dividends Increase in productivity & Facilitation of innovation Selfgenerated Increase in household disposable income Higher corporate value (rise in stock prices) Selfgenerated Stimulation of consumption activity Households' asset formation Sound development of the national economy Chart 14 New-to-Market Product Innovators: International Comparison Manufacturing Services % 18.8 17.8 12.7 12.7 9.9 12.2 10.1 9.0 7.6 4.9 % Germany Italy United States United Kingdom Japan Italy United Kingdom Germany United States Japan Note: Figures are from a survey targeting firms, indicating proportion of firms that answered that they launched new products and services (including the addition of new features or significant improvements in application) during 2012-2014. Source: OECD, "OECD Science, Technology and Industry Scoreboard 2017," November 2017. Chart 15 Household Financial Assets International Comparisons (as of end-March 2022) Japan 2,200 100 % tril. yen 2,000 1,800 1,600 1,400 1,200 1,000 Financial assets (total) Cash and deposits Equity Investment trusts 2.1 Other 2.8 2.8 26.9 28.6 31.9 Insurance, pension, and standardized guarantees 10.2 4.5 1.3 19.5 Equity 10.4 Investment trusts 1.6 Debt securities 54.3 12.6 2.6 13.7 34.5 Cash and deposits ああ Japan United States Euro area FY 90 Notes: 1. In the right panel, "Other" is the residual after deducting "Cash and deposits," "Debt securities," "Investment trusts," "Equity," and "Insurance, pension, and standardized guarantees" from total financial assets. 2. Also in the right panel, figures are from "Flow of Funds: Overview of Japan, the United States, and the Euro area," released by the Bank's Research and Statistics Department in August 2022. Source: Bank of Japan. あああ 39.8 Chart 16 Household Disposable Income Japan United States tril.yen Germany tril.USD 2.2 2.0 1.8 1.6 1.4 1.2 0.8 Interest income Dividend income CY 90 1.0 Disposable income Employee compensation 0.6 0.4 0.2 CY 90 tril.EUR 0.0 CY 90 Notes: 1. Figures for Japan before 1994 are calculated using year-on-year changes in each item in the GDP statistics based on the benchmark year of 2000. 2. Figures for interest income and dividend income in Germany are "other interests, rents" and "distributed income of corporations," respectively. Sources: Bureau of Economic Analysis (BEA); Cabinet Office; Statistisches Bundesamt.
|
bank of japan
| 2,022 | 12 |
Keynote speech by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at the 38th Annual Meeting of the Japan Association of Business Cycle Studies, Tokyo, 3 December 2022.
|
December 3, 2022 Bank of Japan The Future of Monetary Policy: Lessons from the History of Monetary Economics Keynote Speech at the 38th Annual Meeting of the Japan Association of Business Cycle Studies WAKATABE Masazumi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction Economies around the world have been facing elevated inflation, and attention has been drawn to the responses made by governments and central banks (Chart 1). It is difficult to predict how long the current inflation will last in the medium to long run. One recent narrative regarding inflation is that, since the mild-inflation regime accompanied by anxiety over deflation has ended, we are about to enter a regime of high inflation. 1 There are others, however, who are skeptical whether inflation will take hold (Wolf 2022a; Krugman 2022a, 2022b). Since the 2000s, the global economy has been concerned about secular stagnation or "Japanification" -- the combination of low inflation (or deflation), low growth, and low interest rates. But will this era of Japanification be finally over as the narrative insists? In addition, as inflation has started to be observed worldwide, the efficacy or validity of the idea of a high-pressure economy has become a controversial topic.2 On the question of how long the current inflation will last, I would like to discuss future monetary policy and the highpressure economy from a medium- to long-term perspective, rather than examining the current inflation. John Hicks argued that the dynamics of money and the history of monetary economics are closely related to each other. He said monetary theory "belongs to monetary history" in a sense, because "a large part of the best work on Money is topical" and "throughout the whole time -- back before Ricardo, forward after Keynes -- money itself has been evolving" (Hicks 1967a, pp. 156-57). In order to consider the future of monetary policy, I will first outline the recent inflation narrative and then look back at the history of monetary economics, including economic history and the history of economics. The history of monetary economics reveals the importance of nominal values in the economy and the role of monetary policy in determining them. The classical monetary economists, on whom I will mainly focus today, already recognized the non-neutrality of money -- that is, the fact that the nominal value of See The Economist (2022a, 2022b), Spence (2022), and Rogoff (2022a, 2022b). For this narrative by members of the Japan Association of Business Cycle studies (JABC), see Shimazu (2022) and Kataoka (2022). 2 The idea of a high-pressure economy has its origins in Okun (1973). For studies conducted by the Bank of Japan, see Kaihatsu et al. (2018) and the Bank of Japan Research and Statistics Department (2018). For an assessment of a high-pressure economy in the United States, see Fatás (2021). money affects the real value of the economy. In light of this historical context, I will go on to consider future monetary policy, drawing the conclusion that the mild-inflation regime is still in place and concern over Japanification has not yet been dispelled, particularly in Japan. I. Looking at the Present: Is the Mild-Inflation Regime Over? Has the mild-inflation regime ended because of the onset of the current global inflation?3 The narrative that we are about to enter a high-inflation regime is based on the following six factors (Chart 2). First is the growing role of government. Some argue that inflationary pressure on the economy will increase due to higher government spending, tighter regulations, and accumulating fiscal deficit and government debt. The second factor is the convergence of economic growth. With China's high growth coming to an end, the growth rates in emerging economies are declining. This suggests that the growth rates of advanced economies and those of emerging economies are beginning to converge. The third factor is the end of globalization, or deglobalization. Sluggish growth in goods trade since 2008, coupled with recent geopolitical tensions and rising concern over economic security, has led to a global restructuring of supply chains. It has been argued that the shift from the era of integration and efficiency to that of segregation and stability will bring high inflation. The fourth factor is the change in demographics. According to Goodhart and Pradhan (2020), the global low inflation environment is the result of a significant increase in the world's labor supply from 1990 to 2018 due to the rise of China and developments in demographics in advanced economies. However, they point out that this trend is now reversing: a declining and aging population in China and advanced economies will lead to a return of inflation. 3 The distinction between a mild-inflation regime and a high-inflation regime is not clear-cut. One may argue, however, that the former is a state of inflation staying at around the 2 percent inflation targets of major central banks, whereas the latter is a state of inflation being more than double 2 percent but less than 10 percent. The fifth factor is the transition to a decarbonized society to address climate change. Some have argued that this transition will lead to so-called greenflation. The sixth factor is the onset of a wartime economy. There is a view that growing geopolitical risks could lead to a wartime economy, including a return to the kind of inflationary environment that was seen during the Cold War (Pozsar 2022). I would like to look at these factors one by one. First, the role of government has been steadily growing in size and scope.4 Since the 1980s, there have been periods when attempts were made to curb such growth, but the uptrend continues. Analyzing the effects of government regulation is not straightforward since the nature of such regulations may matter, but it is safe to say at least that they have tended to proliferate. Inflation has trended downward during this same period. Also, we can find no clear relationship between inflation rates and the ratio to GDP of government spending or government debt (Charts 3 and 4). With regard to the second factor, it is unclear whether the slowdown in growth rates is inflationary or deflationary in nature. Indeed, low growth is precisely the phenomenon over which concern was raised amid secular stagnation, with some arguing that low growth is the cause of low inflation. As for the third factor, the argument over whether globalization has brought low inflation is empirically inconclusive (Kuroda 2018). Some hold that it is too early to tell whether globalization has even run its course. Although growth in goods trade has decelerated in recent years, trade in services continues to grow at a high rate (Chart 5). Naturally, the restructuring of supply chains from the perspective of economic security can serve as a costpush factor, as firms opt for the security of procurement over minimizing costs. On the other hand, given that services industries are labor intensive, if automation of the services sector moves ahead globally -- through the use of means such as artificial intelligence (AI) -- and wages converge on a global level, this may turn out to have a disinflationary effect (Baldwin The Economist (2021) shows that the ratio of government spending to GDP in advanced economies has trended upward since 1870. Adolf Wagner's law of increasing state activity and Peacock and Wiseman's displacement effect hypothesis argue that government spending will inevitably increase. See also, Robinson (2020). 2022; Wolf 2022b). Fourth, the impact of demographics is uncertain. It is true that the decline in labor supply due to a declining and aging population could become inflationary. On the other hand, longer life expectancies can motivate people to build up their precautionary savings and push up savings rates. Declining birthrates will cause reductions not only in the labor force population but also in the consumer population, which, among other factors, could have an adverse impact on the growth rate. This has more often been regarded as a deflationary factor, particularly in Japan. As for the fifth factor, greenflation, the impact of decarbonization on economic and financial conditions is complicated. If it is thought of as a response to negative externalities, this implies firms taking on costs that they have previously not faced, which becomes a cost-push factor. What is not clear is whether this will elevate inflation or have a disinflationary effect by suppressing aggregate demand. Conversely, if investment related to decarbonization rises, this could stimulate aggregate demand and feed into demand-pull inflation. In this respect, whether greenflation occurs will depend not so much on cost-push factors but on developments in aggregate demand (Schnabel 2022). The last factor, the onset of a wartime economy, is potentially the most inflationary one. One study finds that the last 12 largest wars resulted in a sharp rise in inflation and nominal interest rates during and in the aftermath of war. The study shows that, especially in wars fought globally, inflation peaked at 8 percent on average one year after the war ended and took about three years to subside (Chankova and Daly 2021). Next, I would like to address, more generally, things to keep in mind regarding the impact of these factors on price developments. First, many of the inflation factors listed here are costpush factors. However, it is well known that cost-push inflation does not last long. When an exogenous shock occurs, adjustment from old to new pricing mechanisms takes place. After adjustment, the rising inflation rate is likely to return to the steady-state inflation rate; so, the important point is how this rate is affected. Of course, it is possible that cost-push factors will remain, but whether they will push up the steady-state inflation rate is uncertain. Second, related to the fact that cost-push inflation is unsustainable, the factors being addressed here are real factors, and it is not obvious what their impact on prices would be. If we think of prices as the price of goods and services relative to money, it would seem necessary to take monetary factors into consideration. Third, when considering these issues within the framework of monetary policy, it is appropriate to consider the relationship between the natural rate of interest and market interest rates. To deem a real factor to be inflationary, we have to observe a tendency for the natural rate of interest to rise vis-à-vis market interest rates. In fact, however, the aforementioned real factors affect the natural rate of interest through various channels, and the rate can either rise or fall (Chart 6).5 To give an example from demographics, because post-retirement households tend to draw down their savings, capital supply may decrease. This would push up the natural rate of interest. On the other hand, households anticipating longer life expectancies will seek to augment their savings accordingly, which may increase capital supply. This would lower the natural rate of interest. Moreover, if the declining population reduces the labor force population, the per-capita capital equipment ratio will rise, leading to a fall in capital demand. This would also lower the natural rate of interest. We thus ought to say that the overall impact of demographics on the natural rate of interest is uncertain. Furthermore, if uncertainties increase on the whole, this could motivate people to build up their precautionary savings, which in turn would boost capital supply. This would consequently lower the natural rate of interest. II. Looking Back: History of Monetary Economics So far, I have not discussed the role of monetary policy. Even though the natural rate of interest fluctuates, market interest rates are not necessarily determined accordingly. Let me lay out the framework for my analysis. The current analytical framework has been developed Gopinath (2022) considers the following seven channels through which the novel coronavirus (COVID-19) pandemic will have enduring effects on the natural rate of interest: inequality, demographics, labor supply, productivity, savings and safe assets demand, debt in advanced economies, and climate transition. She states that only the last two channels can clearly push up the natural rate of interest. throughout the history of monetary economics, but many issues remain unresolved. I want to center my discussion around classical figures in the history of monetary economics, mainly David Hume and Henry Thornton (Chart 7). Following Fisher (1911), the quantity theory of money broadly recognizes the non-neutrality of money in the short run, but holds that money is neutral in the long run. Nonetheless, there have been some economists who have in fact argued for the long-run non-neutrality of money (Humphrey 1991). A. The Price Revolution and Hume Precious metals discovered in South America in the 15th century flowed into Europe in large quantities. From then until the middle of the 17th century, the inflation rate in Europe rose to around 1.0-1.5 percent. This is known as the price revolution. The quantity theory of money grew out of this experience. Let me turn to Hume here. In Of Money (1752), he acknowledges the impact of the price revolution on the real economy, stating that the greater quantity of money, like the Roman characters, is rather inconvenient, and requires greater trouble both to keep and transport it. But notwithstanding this conclusion, which must be allowed just, it is certain, that, since the discovery of the mines in America, industry has [i]ncreased in all the nations of Europe, except in the possessors of those mines; and this may justly be ascribed, amongst other reasons, to the [i]ncrease of gold and silver. Accordingly we find, that, in every kingdom, into which money begins to flow in greater abundance than formerly, every thing takes a new face: labour and industry gain life; the merchant becomes more enterprising, the manufacturer more diligent and skilful, and even the farmer follows his plough with greater alacrity and attention. (Hume 1987, pp. 285-86) "Industry" here should be interpreted as including not only the quantity of labor supply but also its quality. However, Hume (1987, p. 286) adds the following qualification: "It is only in [an] interval or intermediate situation, between the acquisition of money and rise of prices, that the [i]ncreasing quantity of gold and silver is favourable to industry." The reason for this is the rigidity of money wage contracts. Predicated on this, we would assume that a rise in prices only temporarily reduces real wages, and the quantity of labor supply would simply increase. Hume (1987, p. 288) concludes that "it is of no manner of consequence, with regard to the domestic happiness of a state, whether money be in a greater or less quantity." However, he immediately adds that the good policy of the magistrate consists only in keeping it, if possible, still [i]ncreasing; because, by that means, he keeps alive a spirit of industry in the nation, and [i]ncreases the stock of labour, in which consists all real power and riches. A nation, whose money decreases, is actually, at that time, weaker and more miserable than another nation, which possesses no more money, but is on the [i]ncreasing hand. This will be easily accounted for, if we consider, that the alterations in the quantity of money, either on one side or the other, are not immediately attended with proportionable alterations in the price of commodities. (Hume 1987, p. 288) What Hume is pointing out here is, first, that money has no effect on the real economy in the long run and ends up only determining prices. Even if money has an impact, it is only in an interval or intermediate situation; this is the argument for the long-run neutrality of money. Second, however, what he is setting out as a policy argument can also be taken to suggest the non-neutrality of money. Furthermore, he is drawing attention to the harmful effects of deflation in contrast to the benefits of inflation. Many interpretations have been put forward as to how these two propositions can coexist.6 The compatibility of the two propositions aside, in the latter we may be able to locate the roots of the idea of a high-pressure economy. The key point is that Hume, who advocated the quantity theory of money, also recognized the complex relationship between nominal and real values, while distinguishing between what is now called the short and long term. Hume is one of the economists who identified sustainable economic growth, looking to people's industrial activities, knowledge, and systems as the driving force behind economic growth. What is crucial is how the real and monetary factors of this economic growth are related. 7 Recent research has shown that the price revolution also had a real impact. When the production of precious metals increased, so did nominal GDP; and, while real GDP increased, For an overview and interpretations of related research, see Sakamoto (2011, pp. 199-251), Dimand (2013), and Schabas and Wennerlind (2020, pp. 159-60). 7 See Brewer (2010), and Schabas and Wennerlind (2020). prices did not rise to the same extent at the same time.8 Former chairman of the Federal Reserve Board Alan Greenspan also argued that deflation is a threat because it stifles corporate vitality.9 Hume's argument overlaps in part with this view. B. The Bank Restriction Period and Thornton Hume was skeptical of the role of banks and paper credit. 10 Hume's friend Adam Smith pointed out the benefits of banks (Laidler 1981). However, an analysis of paper credit had to wait until the next generation, and this was the accomplishment of Thornton. In 1797, against the backdrop of the Napoleonic Wars, the Bank of England (BOE) suspended the convertibility of its notes into gold. This was initially intended as a temporary measure but lasted until 1821. The years from 1797 to 1821 are known as the Bank Restriction Period. Inflation continued in the United Kingdom following the suspension of gold conversion. Controversy erupted over when conversion should be resumed.11 Thornton took an active part in this controversy, primarily through publication of An Enquiry Into the Nature and Effects of the Paper Credit of Great Britain (1802). His accomplishments can be summed up in three points. 12 First, in an era in which credit played a significant role in finance, he analyzed why rapid financial swings lead to economic swings. Second, he pioneered a theory based on the distinction between what we now call the natural rate of interest and market interest rates. Third, he paved the way for the monetary and prudential policies of central banks in terms of setting market interest rates and providing liquidity. With respect to the first point, Thornton deemed that the reason rapid financial swings lead to economic swings lies in the nature of money. During an economic downturn, manufacturers According to Palma (2022, pp. 1608-9), "a 10 percent increase in precious metals production relative to their stock at time t leads to an increase in real GDP of approximately 0.9 percent by year t + 9. After this peak, the (point estimate) effect of the monetary shock on real GDP diminishes, as the price level rise increases in intensity." 9 Watanabe (2022, pp. 285-87) touches upon Greenspan's view on deflation. 10 Hume (1987, p. 284) stated: "To endeavour artificially to [i]ncrease [paper] credit, can never be the interest of any trading nation." 11 For the so-called Bullionist controversy, see Laidler (2000). 12 For Thornton's prominent accomplishments, see Hicks (1967b), Laidler (1987), Murphy (2009, pp. 189-214), Arnon (2011, pp. 96-125), and Wakatabe (2013, pp. 102-11). and merchants attempt to sell off their goods in pursuit of money. At the same time, broadbased buying restraint emerges.13 As a result, "the manufacturer, on account of the unusual scarcity of money, may even, though the selling price of his article should be profitable, be absolutely compelled by necessity to slacken, if not suspend, his operations" (Thornton 1978, p. 118). The resulting fall in prices affects employment. That very diminution in the price of manufactures which is supposed to cause them to be exported, may also, if carried very far, produce a suspension of the labour of those who fabricate them. The masters naturally turn off their hands when they find their article selling exceedingly ill. It is true, that if we could suppose the diminution of bank paper to produce permanently a diminution in the value of all articles whatsoever, and a diminution . . . in the rate of wages also, the encouragement to future manufactures would be the same, though there would be a loss on the stock in hand. The tendency, however, of a very great and sudden reduction of the accustomed number of bank notes, is to create an unusual and temporary distress, and a fall of price arising from that distress. But a fall arising from temporary distress, will be attended probably with no correspondent fall in the rate of wages; for the fall of price, and the distress, will be understood to be temporary, and the rate of wages, we know, is not so variable as the price of goods. There is reason, therefore, to fear that the unnatural and extraordinary low price arising from the sort of distress of which we now speak, would occasion much discouragement of the fabrication of manufactures. (Thornton 1978, pp. 118-19) Thornton, like Hume, notes that the reason the diminution of money affects employment is the rigidity of money wage contracts. He believes that if wages fall to the extent that prices do at the same time, there will be no effect on employment. However, because there is downward rigidity in the rate of wages, a fall in prices will affect the real economy. His depiction of this influence, as well as his use of the term "industry" in the following quote, is reminiscent of Hume. Hicks (1967b) relates this tendency to Keynes's liquidity preference theory. A great diminution of notes prevents much of that industry of the country which had been exerted from being so productive as it would otherwise be. When a time either of multiplied failures, or even of much disappointment in the expected means of effecting payments arises, plans of commerce and manufacture, as well as of general improvement of every kind, which had been entered upon, are changed or suspended, and part of the labour which had been bestowed proves, therefore, to have been thrown away. . . . The goods which ought to form part of the assortment of the factor or the shopkeeper, and to be occupying their premises, are loading the warehouse of the manufacturer, and, perhaps, are suffering damage by too long detention. On the other hand, some sales are forced; and thus the goods prepared for one market, and best suited to it, are sold at another. There cease, at such a time, to be that regularity and exactness in proportioning and adapting the supply to the consumption, and that dispatch in bringing every article from the hands of the fabricator into actual use, which are some of the great means of rendering industry productive, and of adding to the general substance of a country. Every great and sudden check given to paper credit not only operates as a check to industry, but leads also to much of this misapplication of it. (Thornton 1978, pp. 119-21) Thornton does not mention the long-term effects of such a check to and misapplication of industry. Nor did Thornton himself consider inflation preferable to deflation. However, fluctuations in the quantity of money are clearly undesirable as they have a negative impact on the real economy, at least in the short run. In relation to Thornton's second accomplishment, the extent to which manufacturers and merchants receive bank loans is determined by the relationship between their expected profit rates and market interest rates. If the market interest rate is lower than the rate of expected profit, bank lending will increase, the quantity of money will increase, and prices will rise. On the other hand, if the market interest rate is higher than the rate of expected profit, bank lending will decrease, the quantity of money will decrease, and prices will fall. Thornton distinguishes between nominal and real interest rates, taking into account changes in inflation expectations.14 His account of changes in inflation expectations was later taken up by Irving Fisher, while his two-interest-rate analysis was later adopted by Knut Wicksell; both form the theoretical basis of modern macroeconomics. This brings us to Thornton's third accomplishment, which is an inquiry into the policy responses of central banks. At the time of the Bank Restriction Period, the BOE did not see itself as a central bank. Thornton argued that it should act as one. First, he stated that central banks should act to stabilize price fluctuations by setting market interest rates consistent with expected profit rates. Then, as Walter Bagehot would later emphasize, they should supply liquidity in times of financial crisis. When a financial crunch occurs, people's demand for money surges, giving rise to moves to withdraw money from the banking system. At such a time, it would be reasonable for an individual bank to simply reduce lending, but if all banks were to act in the same way, lending in the economy as a whole would dwindle further. Thornton argued that, in times of a financial crunch, the BOE should rather provide liquidity to the economy by lending generously. C. Subsequent Developments Since I have discussed subsequent developments elsewhere, here I will touch on topics related to our current context.15 Thornton was concerned about deflation but thought it would last only for the short run. However, the time came when Europe was exposed to prolonged deflationary pressure. The question as to whether the mild deflation seen at the end of the 19th century -- lasting from 1873 to 1896 -- had an impact on the real economy remains a matter of debate. Some argue that at that time it was "good deflation" under which productivity improved, while others focus on the adjustment capability of the economic structure of the 19th century, where labor and product markets were flexible. However, some recent studies have shown that, after correcting for errors in the measurement of price data, Thornton (1978, pp. 335-36) made this distinction in his speech to the UK Parliament in 1811. According to Humphrey (1983), William Douglass -- born in Scotland in the 18th century -- was the first to distinguish between real and nominal interest rates. 15 See Wakatabe (2009, 2015, 2017). the deflation had a negative impact on the real economy (Kaufmann 2020).16 It was during this period that the quantity theory of money evolved into the supply and demand theory of money advanced by Alfred Marshall, as well as by Fisher and Wicksell. In essence, the theory parallels the innovation in economics that occurred around the same time, known as the marginal revolution, and is closely related to the full-fledged application of the supply and demand theory to pricing goods and services. 17 Wicksell explored ways of defining the natural rate of interest, but took this to mean a long-term rather than a short-term interest rate.18 The Great Depression of the 1930s was accompanied by severe deflation. At this time, monetary economics made great strides forward and the field of macroeconomics was born. John Maynard Keynes's innovation lay in constructing a principle of effective demand. I should note that, whereas the most successful interpretation of Keynes, the IS-LM model, assumes the rigidity of wages and prices, Keynes himself did not premise his ideas on wage or price rigidity. He sought to argue that the more flexible wages and prices are, the more unstable the economy becomes.19 Elevated inflation came on the scene in the 1970s.20 This is the period when Milton Friedman and the monetarist school of economics took the world by storm. However, Friedman's work in economics is really an extension of Keynesian economics. The well-known equation for the quantity theory of money is MV = PQ, where M is quantity of money, V is velocity of money, P is price level, and Q is quantity of real output, and PQ on the right-hand side of the equation reflects nominal GDP. It is also possible to regard the left-hand side as corresponding Fischer (1996) considered that the deflationary period started much earlier and characterized the period from the 1820s to the 1890s as the "Victorian equilibrium." See Cameron's (1997) critical review of Fischer's argument. See also Wakatabe (2013, pp. 255-59). 17 See Laidler (1991). Edgeworth's (1888) paper served as another important discussion of the time regarding the basic theory of central banks. 18 As Rogoff, Rossi, and Schmelzing (2022, p. 8n9) argue, Wicksell's definition of the natural rate of interest is an economy-wide average concept encompassing both short- and long-term interest rates. 19 His hypothesis was later followed by the construction of disequilibrium economic theory, but remains unproved. 20 With regard to the Great Inflation of the 1970s, see Wakatabe (2022). to money supply and the right-hand side as corresponding to money demand. If we assume the causality from money supply, Friedman's argument is that money supply determines nominal GDP. For changes in nominal GDP, the extent to which either the price level or quantity of real output changes depends on the shape of the aggregate supply curve. If real output were constant, a change in M would cause only prices to change. However, real output is not necessarily constant. Although the neutrality of money holds in the long run, the shortrun non-neutrality of money is an understanding inherited from the classical school. Of key relevance to the contemporary debate is Friedman's argument that cost-push factors do not lead to sustained inflation. It is essential to distinguish changes in relative prices from changes in absolute prices. The special conditions that drove up the prices of oil and food required purchasers to spend more on them, leaving less to spend on other items. Did that not force other prices to go down or to rise less rapidly than otherwise? Why should the average level of all prices be affected significantly by changes in the prices of some things relative to others? Thanks to delays in adjustment, the rapid rises in oil and food prices may have temporarily raised the rate of inflation somewhat. . . . [H]owever, . . . the basic source of inflation is the faster growth in the quantity of money than in output. (Friedman 1974)21 Another area that came to draw attention during this period was the role of "expectations" in economics. Inflation expectations rather than exogenous cost-push factors contribute to sustained inflation. Reining in the Great Inflation called for subduing inflation expectations. Although this stress on expectations is particularly tied in with the "rational expectations revolution" associated with Robert E. Lucas Jr. and Thomas J. Sargent, among others, the concept of expectations has been taken up throughout the history of monetary economics, with different theorists approaching it differently. There was also a growing awareness that monetary policy plays an important role in stabilizing inflation expectations to bring about price stability. Inflation targeting, which is the monetary policy framework now adopted by See also Kakino (2019, p. 93). central banks in many countries, was born out of lessons learned from the Great Inflation of the 1970s. This awareness spread gradually through both academic and central banking circles and is still widely shared today, having been further shaped by the experience of stagnation accompanied by prolonged deflation in Japan starting in the late 1990s, the Global Financial Crisis (GFC) of the 2000s and responses to the subsequent recession, and by responses to the COVID-19 pandemic starting in 2020. III. Looking Ahead: Lessons from History Finally, I will consider future monetary policy in light of history. I would first like to consider future economic and financial conditions. A. Implications from History for Future Economic and Financial Conditions and Monetary Policy Jordà et al. (2019) demonstrated that, for 16 countries including Japan from 1870 to 2015, the following relationship between the real rate of return on safe assets (r safe), the real economic growth rate (g), and the real rate of return on aggregate wealth (r wealth) held approximately true: rsafe < g < rwealth. This relationship can be understood intuitively. Safe assets have the lowest rate of return. This is followed by the rate of return on the aggregate flow of goods and services in the economy. The rate of return on all assets, including risk assets, is the highest. Three further relationships follow from this. First, except for the interwar period and the period between the Great Inflation and around the 2000s, rsafe < g held true. Although g reached the 4 percent range during the high-growth period following World War II, it fell to the 2 percent range in the 1970s. It then declined further with the onset of the GFC in the 2000s, but has recently remained at around 2 percent. It can also be said that there is no empirical correlation between the economic growth rate and real interest rates.22 Rogoff, Rossi, and Schmelzing (2022) also did not find any clear correlation between global longmaturity real interest rates and the real economic growth rate. In a similar vein, what about developments in the natural rate of interest? While there are various estimates of the natural rate of interest, one way to look at it is to analyze developments in real interest rates. According to Schmelzing (2020), global real interest rates have historically been on a downtrend (Chart 8).23 Second, except for the period of the two world wars, g < rwealth held true. Although the decrease in g and the increase in rwealth both contributed to the gap between the two figures, the increase in rwealth is taken to have made a larger contribution. Third, except for limited periods, rsafe < rwealth held true. The gap between the two is equivalent to risk premia, but this gap has been shrinking in recent years. Under the Bretton Woods system, while rsafe was low, rwealth was high, driven upward by housing returns. However, rwealth has been declining in recent years. What are the implications for future monetary policy if the above relationships continue to hold? First, if the natural rate of interest continues on a declining trend, the challenge for central banks' monetary policy will continue to be how to lower real interest rates in an effective manner. Faced with the zero lower bound (ZLB) in an era of low inflation, central banks have taken steps to boost the effectiveness of their monetary policy. Various proposals have been made to improve policy objectives (Chart 9). As a result, central banks have reaffirmed the importance of committing to the 2 percent inflation target. With regard to policy measures, the Bank of Japan, for example, has introduced such measures as quantitative easing, negative interest rates, diversification of asset purchasing, yield curve control, and forward guidance. The necessity for policy innovation to boost the effectiveness of monetary policy, both in terms of policy objectives and measures, may increase; it certainly will not diminish.24 Due to data limitations, global real interest rates in this study were calculated from GDP-weighted nominal interest rates and inflation rates using available data for eight countries: Italy, the Netherlands, France, Spain, the United Kingdom, Germany, the United States, and Japan. Since the study does not take into account the recent rise of China and emerging economies, the possibility of underestimation warrants attention. 24 Bernanke (2022, pp. 330-65) elaborates on this point. Second, if g < rwealth, this implies that the uptrend in the ratio of total assets to GDP will continue. If there is a certain positive correlation between total assets and total liabilities, this means that the ratio of total liabilities to GDP will also trend upward. This in turn means that asset price fluctuations will have a growing impact on the economy through asset (liability) balances. Third, decreasing risk premia can lead to the underpricing of risks. Krishnamurthy and Muir (2017) argue that financial crises frequently occur when risk premia shrink and risk is underpriced. Central banks will increasingly need to prepare macroprudential policies to maintain stability in the financial system. The above considerations are based on history and past trends. Should these trends change significantly, my conclusions will also change. We cannot rule out the possibility that such major changes will occur in the future. However, as I said earlier in section I., it is uncertain whether the natural rate of interest will rise as a trend in the future. On the contrary, we cannot deny the possibility of an ongoing decline in the natural rate of interest. What history over the long term makes apparent is that the mild-inflation regime has not come to an end, and we should say that the potential dangers of secular stagnation and Japanification have not yet passed. B. Introduction and Achievements of Quantitative and Qualitative Monetary Easing (QQE) There is no need for pessimism, however, even during periods of Japanification. Having long been mired in deflation, the policy change made in Japan with the introduction of QQE in April 2013 has produced positive effects. Even before its introduction, economic growth had been achieved despite the declining labor force population, but the GDP growth rate has improved and prices have risen clearly since 2013, as the unemployment rate declined and the number of employed persons increased (Charts 10 and 11). The overall GDP growth rate has been low because the labor force population has been declining; however, if we look at the real GDP growth rate per capita, which takes into account changes in the employment rate over time, we see that, while the rate was at 0.4 percent in the 2000s, it recovered to the 1990s level of 1.3 percent in the 2010s (Chart 12). This suggests that there was a rise in productivity per worker and in the labor force participation rate. Improved employment conditions led to an increase in the employment rate for new graduates and ended the so-called employment ice age. Of course, providing support for those who struggled to find jobs during the employment ice age remains a crucial task. In order to create an environment that can provide employment opportunities for this generation, it is important to maintain a high-pressure economy. While the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) was on average minus 0.3 percent between fiscal 1998 and fiscal 2012, the average rate from fiscal 2013 onward rose to 0.4 percent (Chart 13). Although it is true that the price stability target of 2 percent has not yet been achieved, we are now in a situation where the economy is no longer in deflation, in the sense of a sustained decline in prices.25 These improvements in economic activity and prices were made following the adoption of the price stability target of 2 percent in 2013. Japan's economy was in deflation for a prolonged period, but sustainable monetary easing certainly had positive effects on the real economy. Consequently, it can be said that this provides evidence that QQE supports the idea of a high-pressure economy. Conclusion Today, I considered the narrative that, with the end of the mild-inflationary regime accompanied by anxiety over deflation, concern about secular stagnation and Japanification has passed into history, and that a regime of high inflation will emerge. Against this narrative, I have argued that the threat of secular stagnation and Japanification has not yet been dispelled completely. This is because cost-push factors, real factors, and changes in the natural rate of interest -- the factors that are usually pointed out -- do not necessarily suggest sustained inflation; rather, it is important to take monetary factors into consideration to determine whether inflation will be sustainable. As Hicks's words introduced at the beginning of the speech indicate, the field of monetary economics has changed over time in accordance with actual economic and financial developments. After having experienced price fluctuations, monetary economics has become increasingly aware of the importance of price stability. Moreover, not only have there been For details of the relationship between wages and prices, see section II. B. in Wakatabe (2022). persistent so-called inflation fears but also deflation fears. While the quantity theory of money is commonly characterized by its argument for the short-run non-neutrality of money and the long-run neutrality of money, the possibility of money being non-neutral in the long run has also been pointed out since the theory was first developed. This reflects the fact that prices are not completely adjusted in markets. Later, with the growth of the credit economy, twointerest-rate analysis was developed. As the divergence between the two interest rates will not automatically be adjusted under the fiat money system, the role of the central bank as the issuer of money is essential in order to ensure price stability. The current model of monetary economics may need to be changed, depending on future circumstances. That said, the lessons learned from history are that it is monetary factors that are important in determining whether an economy is being subject to inflationary or deflationary pressure, and that monetary policy conducted by central banks will play a vital role since it controls the quantity of money. Japan's experience of prolonged deflation suggests that it takes a great deal of effort to dispel anxiety over deflation. Nevertheless, there was no need to give up the challenge of overcoming deflation simply because the economy fell into deflation; against the background of the Bank's monetary policy measures adopted since 2013, the economy has improved and is currently no longer in deflation. That said, Japan's experience has raised questions about a number of dichotomies in economics: nominal and real values, the short term and long term, and the business cycle and economic growth. I believe that there is still a lot to be learned regarding these issues, both theoretically and empirically. In this sense, monetary economics is still in the process of development, and the questions raised by Hume are still under debate.26 Thank you. Jordà, Singh, and Taylor (2020) highlight the hysteresis effects of monetary policy on capital and technology. Kurozumi and Van Zandweghe (2022) point to the possibility that the optimal policy response will differ depending on changes in labor force participation rates. References Arnon, Arie. 2011. Monetary Theory and Policy from Hume and Smith to Wicksell: Money, Credit, and the Economy. Cambridge: Cambridge University Press. Baldwin, Richard. 2022. "Globotics and Macroeconomics: Globalisation and Automation of the Service Sector." CEPR Press Discussion Paper, no. 17530. Bank of Japan Research and Statistics Department. 2018. "Minutes of the 7th Joint Conference Organized by the University of Tokyo Center for Advanced Research in Finance and the Bank of Japan's Research and Statistics Department, 'New Developments in Macroeconomic Analysis: Interaction between Business Cycles and Economic Growth.'" BOJ Reports and Research Papers (available in Japanese only). Bernanke, Ben S. 2022. 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19. New York: W.W. Norton & Company. Brewer, Anthony. 2010. The Making of the Classical Theory of Economic Growth. New York: Routledge. Cameron, Rondo. 1997. Review of The Great Wave: Price Revolutions and the Rhythm of History, by David H. Fischer. Journal of Economic Literature 35 (4): pp. 2082-83. Chankova, Rositsa D., and Kevin Daly. 2021. "Inflation in the Aftermath of Wars and Pandemics." VoxEU, April 15, 2021. https://cepr.org/voxeu/columns/inflationaftermath-wars-and-pandemics. Dimand, Robert W. 2013. "David Hume and Irving Fisher on the Quantity Theory of Money in the Long Run and the Short Run." The European Journal of the History of Economic Thought 20 (2): pp. 284-304. The Economist. 2021. "Briefing: Governments Are Not Going to Stop Getting Bigger." November 20, 2021. ------. 2022a. "Free Exchange: Vertiginous Views." September 3, 2022. ------. 2022b. "Special Report: The World Economy." October 8, 2022. Edgeworth, Francis Y. 1888. "The Mathematical Theory of Banking." Journal of the Royal Statistical Society 51 (1): pp. 113-27. Fatás, Antonio. 2021. "The Short-Lived High-Pressure Economy." VoxEU, October 27, 2021. https://cepr.org/voxeu/columns/short-lived-high-pressure-economy. Fischer, David H. 1996. The Great Wave: Price Revolutions and the Rhythm of History. New York: Oxford University Press. Fisher, Irving. 1911. The Purchasing Power of Money. New York: Macmillan. Friedman, Milton. 1974. "Perspective on Inflation." Newsweek, June 24, 1974. Goodhart, Charles, and Manoj Pradhan. 2020. The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival. London: Palgrave Macmillan. Gopinath, Gita. 2022. "How Will the Pandemic and the War Shape Future Monetary Policy?" Speech at the Jackson Hole Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, August 26, 2022. https://www.kansascityfed.org/Jackson%20Hole/documents/9029/F6.Gopinath_Jack son_Hole_23Aug2022.pdf. Hicks, John. 1967a. "Monetary Theory and History: An Attempt at Perspective." In Critical Essays in Monetary Theory, pp. 155-73. Oxford: Clarendon Press. ------. 1967b. "Thornton's Paper Credit (1802)." In Critical Essays in Monetary Theory, pp. 174-88. Oxford: Clarendon Press. Hume, David. (1777) 1987. Essays Moral, Political, and Literary. Edited by Eugene F. Miller. Indianapolis: Liberty Fund. https://oll-resources.s3.us-east- 2.amazonaws.com/oll3/store/titles/704/0059_Bk.pdf. Humphrey, Thomas M. 1983. "The Early History of the Real/Nominal Interest Rate Relationship." Federal Reserve Bank of Richmond Economic Review 69 (May/June 1983): pp. 2-10. ------. 1991. "Nonneutrality of Money in Classical Monetary Thought." Federal Reserve Bank of Richmond Economic Review 77 (March/April 1991): pp. 3-15. Jordà, Òscar, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. "The Rate of Return on Everything, 1870-2015." The Quarterly Journal of Economics 134 (3): pp. 1225-98. Jordà, Òscar, Sanjay R. Singh, and Alan M. Taylor. 2020. "The Long-Run Effects of Monetary Policy." NBER Working Paper, no. 26666. Kaihatsu, Sohei, Maiko Koga, Tomoya Sakata, and Naoko Hara. 2018. "Interaction between Business Cycles and Economic Growth." Bank of Japan Working Paper Series, no. 18-E-12. https://www.boj.or.jp/en/research/wps_rev/wps_2018/wp18e12.htm. Kakino, Shingo. 2019. Miruton Furīdoman no nippon keizai ron [Milton Friedman's analysis of the Japanese economy]. Tokyo: PHP Institute. Kataoka, Goushi. 2022. "'Infure no jidai' ni dō taisho sure ba yoi no ka?: Nichibeiō no keizai dōkō kara kangaeru" [How should we deal with the 'age of inflation'? Comparison of economic developments in Japan, United States, and Europe]. Monthly Economist Report, PwC Consulting LLC, October 2022. Kaufmann, Daniel. 2020. "Is Deflation Costly After All? The Perils of Erroneous Historical Classifications." Journal of Applied Econometrics 35 (5): pp. 614-28. Krishnamurthy, Arvind, and Tyler Muir. 2017. "How Credit Cycles across a Financial Crisis." NBER Working Paper, no. 23850. Krugman, Paul. 2022a. "Is the Era of Cheap Money Over?" The New York Times, June 21, 2022. ------. 2022b. "Is the Era of Low Interest Rates Over?" The New York Times, October 4, 2022. Kuroda, Haruhiko. 2018. "Globalization and Monetary Policy." Panelist speech at BIS Symposium to Mark the 20th Anniversary of the BIS Representative Office for Asia and the Pacific, October 15, 2018. https://www.boj.or.jp/en/announcements/press/koen_2018/ko181016a.htm. Kurozumi, Takushi, and Willem Van Zandweghe. 2022. "How Should Monetary Policy Respond to a Contraction in Labor Supply?" Federal Reserve Bank of Cleveland Economic Commentary, no. 2022-13. Laidler, David. 1981. "Adam Smith as a Monetary Economist." The Canadian Journal of Economics 14 (2): pp. 185-200. ------. 1987. "Thornton, Henry (1760-1815)." In The New Palgrave: A Dictionary of Economics, edited by Eatwell, John, Murray Milgate, and Peter Newman, vol. 4, Q to Z, pp. 633-36. New York: Macmillan Press. ------. 1991. The Golden Age of the Quantity Theory. Princeton: Princeton University Press. ------. 2000. "Highlights of the Bullionist Controversy." Department of Economics Research Report, University of Western Ontario, no. 2000-2. https://economics.uwo.ca/people/laidler_docs/highlightsof.pdf. Murphy, Antoin E. 2009. The Genesis of Macroeconomics: New Ideas from Sir William Petty to Henry Thornton. New York: Oxford University Press. Okun, Arthur M. 1973. "Upward Mobility in a High-Pressure Economy." Brookings Papers on Economic Activity, no. 1, pp. 207-61. https://www.brookings.edu/wpcontent/uploads/1973/01/1973a_bpea_okun_fellner_greenspan.pdf. Palma, Nuno. 2022. "The Real Effects of Monetary Expansions: Evidence from a Large-Scale Historical Experiment." The Review of Economic Studies 89 (3): pp. 1593-627. Pozsar, Zoltan. 2022. "War and Interest Rates." Credit Suisse Economics, August 1, 2022. https://advisoranalyst.com/wp-content/uploads/2022/08/zoltan-pozsar-aug-2-warand-interest-rates-1.pdf. Robinson, Marc. 2020. Bigger Government: The Future of Government Expenditure in Advanced Economies. Arolla Press. Rogoff, Kenneth S. 2022a. "Institutional Innovation and Central Bank Independence 2.0." IMES Discussion Paper Series, no. 2022-E-9. https://www.imes.boj.or.jp/research/papers/english/22-E-09.pdf. ------. 2022b. "The Age of Inflation: Easy Money, Hard Choices." Foreign Affairs 101, no. 6 (November/December 2022). Rogoff, Kenneth S., Barbara Rossi, and Paul Schmelzing. 2022. "Long-Run Trends in LongMaturity Real Rates 1311-2021." NBER Working Paper, no. 30475. Sakamoto, Tatsuya. 2011. Hyūmu: Kibō no kaigi shugi -- Aru shakai kagaku no tanjō [Hume's Sceptical Optimism: The Birth of a Social Science]. Tokyo: Keio University Press. Schabas, Margaret, and Carl Wennerlind. 2020. A Philosopher's Economist: Hume and the Rise of Capitalism. Chicago and London: The University of Chicago Press. Schmelzing, Paul. 2020. "Eight Centuries of Global Real Interest Rates, R-G, and the 'Suprasecular' Decline, 1311-2018." Bank of England Staff Working Paper, no. 845. https://www.bankofengland.co.uk/working-paper/2020/eight-centuries-of-globalreal-interest-rates-r-g-and-the-suprasecular-decline-1311-2018. Schnabel, Isabel. 2022. "A New Age of Energy Inflation: Climateflation, Fossilflation and Greenflation." Speech at a panel on "Monetary Policy and Climate Change" at The ECB and its Watchers XXII Conference, March 17, 2022. https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220317_2~dbb3582f0a.e n.html. Shimazu, Hiroki. 2022. "Kondorachefu saikuru: Tuini tenkan ten ga tōrai ka" [Kondratieff wave: Has the turning point finally arrived?]. Speech at the Japan Association of Business Cycle studies (JABC), March 5, 2022. Spence, Michael. 2022. "Secular Inflation." Project Syndicate, October 12, 2022. Thornton, Henry. (1802) 1978. An Enquiry into the Nature and Effects of the Paper Credit of Great Britain. Edited with an introduction by F.A. v. Hayek. Reprint, Fairfield: Augustus M. Kelley Publishers. https://oll.libertyfund.org/title/hayek-an-enquiryinto-the-nature-and-effects-of-the-paper-credit-of-great-britain. Wakatabe, Masazumi. 2009. Kiki no keizai seisaku: Naze okita no ka, nani o manabu no ka [Economic Crisis and Policy Responses: Why It Happens, What We Can Learn]. Tokyo: Nippon Hyoron Sha. ------. 2013. Keizai gakusha tachi no tatakai: Datsu defure o meguru ronsō no rekishi [Clash of the economists: History of the debate on overcoming deflation]. expanded ed. Tokyo: Toyo Keizai. ------. 2015. Japan's Great Stagnation and Abenomics: Lessons for the World. New York: Palgrave Macmillan. ------. 2017. "The Great Depression and Macroeconomics Reconsidered: The Impact of Policy and Real-World Events on Economic Doctrines." Research in the History of Economic Thought and Methodology 35B: pp. 237-302. ------. 2022. "Japan's Economy and Monetary Policy." Speech at a meeting with local leaders in Okayama, June 1, 2022. https://www.boj.or.jp/en/announcements/press/koen_2022/ko220601a.htm. Watanabe, Tsutomu. 2022. Bukka to wa nani ka [What are prices?]. Tokyo: Kodansha. Wolf, Martin. 2022a. "Olivier Blanchard: 'There's a Tendency for Markets to Focus on the Present and Extrapolate It Forever.'" Financial Times, May 26, 2022. ------. 2022b. "Globalisation Is Not Dying, It's Changing." Financial Times, September 13, 2022. The Future of Monetary Policy: Lessons from the History of Monetary Economics Keynote Speech at the 38th Annual Meeting of the Japan Association of Business Cycle Studies December 3, 2022 WAKATABE Masazumi Deputy Governor of the Bank of Japan Introduction I. Looking at the Present: Is the Mild-Inflation Regime Over? II. Looking Back: History of Monetary Economics III. Looking Ahead: Lessons from History Conclusion Chart 1 Introduction Price Developments in Selected Economies y/y % chg. United States Euro area United Kingdom Japan -5 CY 71 Note: Figures for the United States and the United Kingdom are for the CPI for all items. Those for the euro area are for the HICP for all items. Those for Japan are for the CPI for all items excluding fresh food, and those from 1997 onward exclude the direct effects of the consumption tax hikes. Figures for the United Kingdom prior to 1989 are based on the ONS estimates. Sources: Haver; ONS; Ministry of Internal Affairs and Communications. Chart 2 I. Looking at the Present: Is the Mild-Inflation Regime Over? Is This the End of the Mild-Inflation Regime? Until Now: Concern over Japanification From Now On: Return of Inflation? Low Inflation (or Deflation) and Low Interest Rates High Inflation and High Interest Rates? • Smaller government, deregulation • Bigger government, re-regulation • Rise of China and emerging economies • Growth convergence • Globalization, market integration, global supply chain • Deglobalization, market fragmentation, economic security • Large labor supply • Declining and aging population • Carbonized • Decarbonization (greenflation) • Peace dividend • Wartime economy Chart 3 I. Looking at the Present: Is the Mild-Inflation Regime Over? Government Spending and Inflation Rates: No Clear Relationship United Kingdom United States % y/y % chg. 30 % y/y % chg. 30 Government spending to GDP ratio (left scale) CPI (all items, right scale) -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Germany % Japan % y/y % chg. y/y % chg. 30 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Notes: 1. Figures for the government spending to GDP ratio up through 2011 are from the Public Finances in Modern History database published by the IMF. The figures from 2012 onward are from the October 2022 World Economic Outlook (WEO). 2. Figures for Germany prior to 1991 are those for West Germany. Sources: IMF; OECD; Mauro, P., Romeu, R., Binder, A. J., and Zaman, A., "A Modern History of Fiscal Prudence and Profligacy," IMF Working Paper, no. 2013/005 (2013). Chart 4 I. Looking at the Present: Is the Mild-Inflation Regime Over? Government Debt Outstanding and Inflation Rates: No Clear Relationship United States % United Kingdom y/y % chg. 30 Government debt outstanding to GDP ratio (left scale) 25 CPI (all items, right scale) % y/y % chg. 30 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Germany % y/y % chg. 30 -5 CY50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Note: Figures for Germany prior to 1991 are those for West Germany. Sources: IMF; OECD. % Japan y/y % chg. -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Chart 5 I. Looking at the Present: Is the Mild-Inflation Regime Over? World Trade: Stagnant Goods, Growing Services 1,300 CY 1990 = 100 1,200 1,100 Goods 1,000 Other commercial services CY 90 Note: Figures are the sum of exports and imports on a U.S. dollar basis. Those for other commercial services exclude travel and transport. Sources: WTO; Baldwin, R., "Globotics and Macroeconomics: Globalisation and Automation of the Service Sector," CEPR Press Discussion Paper, no. 17530 (2022). Chart 6 I. Looking at the Present: Is the Mild-Inflation Regime Over? Determinants of the Natural Rate of Interest Real interest rate Demand curve Supply curve Decrease in capital supply Aging population: withdrawing savings by retired households Financial crisis Increase in capital supply Aging population: precautionary savings caused by increased longevity Improved functioning of financial intermediation Increase in precautionary savings due to heightened uncertainty Natural rate of interest Increase in capital demand Decrease in capital demand Slowdown in business dynamism Depopulation: less labor input and excess capital stock Creating new investment opportunities such as innovation and GX Increase in fiscal deficit Savings and investment Chart 7 II. Looking Back: History of Monetary Economics History of Monetary Economics Episode Period Price Developments Economist Issue Price 16-17th century Revolution Prolonged inflation D. Hume ・Benefits/harms of inflation and deflation ・Neutrality of money Bank 1797-1821 Restriction Deflation and inflation H. Thornton ・Harms of inflation and deflation ・Central bank for price and financial system stability A. Marshall Long-Term Late 19th century Prolonged deflation I. Fisher Deflation (1873-1896) K. Wicksell ・Evolution of the quantity theory of money 1929-1930s Great by country Depression * Differs and region Great Inflation Extreme deflation I. Fisher J. M. Keynes ・Harms of deflation ・Principle of effective demand High inflation M. Friedman R. E. Lucas Jr. T. J. Sargent ・Reconfirmed role of money and expectations 1970s * Differs by country and region Chart 8 III. Looking Ahead: Lessons from History Historical Downtrend in Global Real Interest Rate 7-year moving average, % -5 -10 CY1317 Note: Figures are calculated based on GDP-weighted nominal interest rates and inflation rates using available data for eight countries: Italy, the Netherlands, France, Spain, the United Kingdom, Germany, the United States, and Japan. Source: Schmelzing, P., "Eight Centuries of Global Real Interest Rates, R-G, and the 'Suprasecular' Decline, 1311-2018," Bank of England Staff Working Paper, no. 845 (2020). Chart 9 III. Looking Ahead: Lessons from History Discussions over the Monetary Policy Targets Overseas Proposals Description Higher Inflation Target … raise the target [from 2 percent] to, say, 3 or 4 percent (Bernanke, 2017) Average Inflation Targeting … targeting average inflation over a multiyear period (Clarida, 2019) Price-Level Targeting … [targeting] the level of prices on a steady growth path, rising by (say) 2 percent per year (Bernanke, 2017) Temporary Price-Level Targeting … apply a price-level target … only to periods around ZLB episodes, retaining … the current 2 percent [inflation] target at other times (Bernanke, 2017) Inflation Target Range … [setting a] goal within that range …, perhaps year by year, depending on specific economic circumstances (Rosengren, 2018) Nominal GDP Targeting … targeting the growth rate or the level of nominal GDP (Svensson, 2019) Sources: Bernanke, B. S., "Temporary Price-Level Targeting: An Alternative Framework for Monetary Policy," The Brookings Institution, October 12, 2017, https://www.brookings.edu/blog/ben-bernanke/2017/10/12/temporary-price-level-targeting-an-alternative-framework-for-monetary-policy; Clarida, R. H., "The Federal Reserve's Review of Its Monetary Policy Strategy, Tools, and Communication Practices," remarks at the 2019 U.S. Monetary Policy Forum, February 22, 2019; Rosengren, E. S., "Considering Alternative Monetary Policy Frameworks: An Inflation Range with an Adjustable Inflation Target," speech at the Money, Models, & Digital Innovation Conference, January 12, 2018; and Svensson, L. E. O., "Monetary Policy Strategies for the Federal Reserve," prepared for a presentation at the Conference on Monetary Policy Strategy, Tools, and Communication Practices at the Federal Reserve Bank of Chicago, June 5, 2019. Chart 10 III. Looking Ahead: Lessons from History Economic Growth despite Depopulation Working-Age Population and GDP per Working-Age Person Introduction of QQE (Apr. 2013) mil. persons CY 1991 = 100 Working-age population (left scale) Real GDP per working-age person (right scale) Nominal GDP per working-age person (right scale) CY 91 Source: World Bank. Chart 11 III. Looking Ahead: Lessons from History Increase in Employed Persons and Prices Introduction of QQE (Apr. 2013) CY 2020 = 100 mil. persons Employed persons (left scale) CPI (less fresh food, right scale) CY 80 Note: Figures for the CPI from 1997 onward exclude the direct effects of the consumption tax hikes. Source: Ministry of Internal Affairs and Communications. Chart 12 III. Looking Ahead: Lessons from History Decomposition of Economic Growth in Japan and the United States (a) (b) GDP = Total population × (c) Employed persons Total population × (d) Total hours worked Employed persons GDP × Total hours worked GDP per capita United States Japan average, % average, % GDP GDP per Total population capita (a) Employed Hours GDP per persons/ hour worked Total per person worked population (b) (c) (d) GDP GDP per Total population capita (a) Employed Hours GDP per persons/ hour worked Total per person worked population (b) (c) (d) 1990s 1.6 0.3 1.3 0.1 -1.2 2.4 1990s 3.2 1.2 2.0 0.1 -0.0 1.9 2000s 0.5 0.1 0.4 -0.2 -0.5 1.0 2000s 1.9 1.0 1.0 -0.5 -0.4 1.9 2010s 1.2 -0.1 1.3 0.6 -0.4 1.2 2010s 2.3 0.7 1.6 0.5 0.1 1.0 Source: Kuroda, H., "Japan's Inflation Dynamics and the Role of Monetary Policy," speech at Columbia University in New York, April 22, 2022. Chart 13 III. Looking Ahead: Lessons from History CPI Inflation Rates: No Longer in Deflation y/y % chg. CPI (less fresh food) CPI (less fresh food and energy) Average from FY 2013 onward +0.4% -1 Average from FY 1998 to 2012 (less fresh food) -0.3% -2 -3 CY 85 Note: Figures from 1997 onward exclude the direct effects of the consumption tax hikes. Source: Ministry of Internal Affairs and Communications.
|
bank of japan
| 2,022 | 12 |
Speech by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the meeting of Councillors of Nippon Keidanren (Japan Business Federation), Tokyo, 26 December 2022.
|
December 26, 2022 Bank of Japan Toward Achieving the Price Stability Target in a Sustainable and Stable Manner, Accompanied by Wage Increases Speech at the Meeting of Councillors of Keidanren (Japan Business Federation) in Tokyo KURODA Haruhiko Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is a great honor to have this opportunity to address such a distinguished gathering of business leaders in Japan today. The year is almost coming to a close. Looking back on 2022, domestic and overseas economies have been hit by various shocks, while the impact of the novel coronavirus (COVID-19) has persisted. Russia's invasion of Ukraine has triggered a rapid rise in prices of commodities, including energy and grains. In addition to this, factors such as supply-side constraints, including difficulties in procuring parts that have arisen during the course of recovery from the pandemic, have caused goods prices to rise worldwide. Moreover, labor market conditions have tightened substantially, mainly because demand, which had been suppressed by the pandemic, has risen significantly during the course of economic recovery. These high commodity prices and tightening labor market conditions have intensified global inflationary pressure, and inflation rates, particularly in the United States and Europe, have risen to levels not seen in four decades (Chart 1). In order to prevent high inflation from becoming entrenched, central banks in the United States and Europe have raised policy interest rates rapidly. While the effects of monetary tightening feed through to economic activity and prices with a certain time lag, the International Monetary Fund (IMF) and other international organizations have forecast that inflation rates in the United States and Europe will fall next year. However, they have also projected that the growth rates for these economies will fall significantly due to the effects of monetary tightening, and that some economies will see negative growth. Unemployment rates are expected to rise in line with an easing of labor market conditions. Federal Reserve Chair Jerome Powell stated that this situation "will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain." Central banks in Europe have shown clear commitments to calming inflation while accepting the risk of there being some adverse economic effects. In sum, overseas economies are likely to remain subject to extremely high uncertainties next year. Japan, on the other hand, is expected to continue to see relatively stable economic growth. This is largely due to the difference in the timing of the economic resumption from the pandemic and to the fact that, unlike in the United States and Europe, accommodative financial conditions have been maintained in Japan. Moreover, while unemployment rates are likely to rise in the United States and Europe, it is expected that the rate will fall further in Japan and that labor market conditions will tighten. The Bank of Japan aims at achieving the price stability target in a sustainable and stable manner, accompanied by wage increases. Today, I would like to talk about economic activity and prices in Japan and the recent conduct of monetary policy based on their developments, and then discuss in detail the characteristics of the labor market and wage formation in Japan. I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy Economic and Price Developments Let me start with economic developments. Japan's economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19 (Chart 2). The driving force behind the pick-up in the economy has been the recovery in services demand, which is associated with the resumption of economic activity, and the virtuous cycle in the corporate sector from profits to investment. Looking at services demand, economic activity in the accommodations as well as eating and drinking services industries, which had been constrained by COVID-19, has picked up clearly. The introduction of the government's domestic travel discount program in October has also boosted the recovery in demand. The average number of inbound visitors for the January-September period was low -- being only around 4 percent of the number recorded in pre-pandemic 2019. However, reflecting the easing of COVID-19 border controls in October, the number of inbound visitors has improved: the figures for October and November 2022 were 20 percent and 38 percent, respectively, of the number recorded in 2019. Given this improvement, inbound tourism demand has started to recover. The increase in mobility has had a positive effect not only on the accommodations as well as eating and drinking services industries, but also on the transportation industry and the entertainment and recreation industry. Turning to the corporate sector, profits have remained at high levels, despite headwinds such as high commodity prices. Business fixed investment on an SNA basis has recovered moderately, with quarter-on-quarter rates of change increasing to 2.0 percent for the April-June quarter and 1.5 percent for the July-September quarter. The Tankan (Short-Term Economic Survey of Enterprises in Japan) released this month shows a year-on-year rate of increase of around 15 percent in business fixed investment planned for fiscal 2022, again suggesting an active investment stance among firms. With regard to the outlook, Japan's economy is likely to recover, with the impact of COVID-19 and supply-side constraints waning, although it is expected to be under downward pressure stemming from high commodity prices and slowdowns in overseas economies. Although private consumption is expected to be under downward pressure from the real income side due to price rises, it is projected to continue increasing. This is mainly because pent-up demand is likely to materialize, supported by household savings that had accumulated as a result of pandemic-related restrictions, as the resumption of consumption activities progresses further while public health is being protected. In addition, an uptrend in business fixed investment is expected to become clear as accommodative financial conditions provide support and supply-side constraints wane. I will now turn to price developments. The year-on-year rate of change in the consumer price index (CPI) for all items excluding fresh food was 3.7 percent in the latest figures, for November (Chart 3). The recent rise in inflation is mainly driven by energy, food, dining-out, and durable goods including white goods. All of these items are highly dependent on imported goods. The current rise in CPI inflation is due to a rise in import prices that reflects high commodity prices and the yen's depreciation, and to the resultant pass-through of cost increases. It should be noted, however, that international commodity prices, including crude oil prices, have already turned to a decline, as market participants have factored in the slowdowns in overseas economies. The effects of the pass-through led by the rise in import prices are likely to wane after the turn of the year. For this reason, it is projected that the year-on-year rate of increase in the CPI will decelerate toward the middle of fiscal 2023. That said, there have been significant uncertainties over the outlook for both economic activity and prices. Particular attention is warranted on developments in overseas economic activity and prices. As I said at the beginning, central banks in the United States and Europe have raised policy interest rates rapidly to contain inflation, and there is concern in the market over whether it is possible to contain inflation and maintain economic growth simultaneously. With central banks continuing to make rapid policy interest rate hikes, there is a risk that global financial conditions will tighten further through adjustments in asset prices, fluctuations in foreign exchange markets, and capital outflows from emerging economies, and that this will eventually lead to overseas economies deviating downward from the baseline scenario. Taking this risk into account, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. In addition, careful monitoring is required of the course of COVID-19 at home and abroad and its impact. The Bank's Conduct of Monetary Policy Next, I will talk about the Bank's conduct of monetary policy. Although Japan's economy has picked up, it has been under downward pressure stemming from high commodity prices. It is also on its way to recovery from the pandemic, as seen in the fact that its GDP has not recovered to the pre-pandemic level. In addition, there have been extremely high uncertainties for Japan's economy, including developments in overseas economic activity and prices, the situation surrounding Ukraine, and the impact of COVID-19. The CPI inflation rate currently exceeds 2 percent, but it is expected to decelerate to below 2 percent from fiscal 2023 in terms of the fiscal-year average. Given these developments in economic activity and prices, the Bank deems it necessary to conduct monetary easing and thereby firmly support the economy and provide a favorable environment for firms to raise wages. To this end, at the Monetary Policy Meeting held last week, the Bank decided to continue with large-scale monetary easing, in which it set the short-term policy interest rate at minus 0.1 percent and the target level of 10-year Japanese government bond (JGB) yields at around zero percent. The Bank also decided to modify the conduct of yield curve control in order to facilitate the transmission of monetary easing effects, including to corporate financing (Chart 4). These decisions were made unanimously by the Policy Board. Since early spring this year, volatility in overseas financial and capital markets has increased and this has significantly affected these markets in Japan. Ten-year JGB yields had been at low levels between around plus and minus 0.25 percentage points from the target level under the Bank's framework of yield curve control. However, deterioration had been observed in the functioning of Japan's bond markets, particularly in terms of relative relationships among interest rates of bonds with different maturities and arbitrage relationships between spot and futures markets. For example, interest rates of bonds with 8-9 years of maturity had been higher than those of bonds with 10-year maturity, and a price gap had been observed between spot and futures markets. In addition, while the yields for on-the-run issues of 10-year JGBs, which are eligible for fixed-rate purchase operations, had been at 0.25 percent or lower, issues of 20-year JGBs with a residual maturity of 10 years were traded at a higher interest rate (Chart 5). As you know, yields on JGBs are reference rates for corporate bond yields, bank lending rates, and other funding rates. We had seen such distortions in the JGB market being adjusted in the corporate bond market in the form of an expansion in their spreads. Financial conditions, mainly of firms, remain accommodative on the whole, but our view was that if the aforementioned market conditions persist, this could have a negative impact on financial conditions such as issuance conditions for corporate bonds. With a view to improving market functioning while maintaining accommodative financial conditions, the Bank decided to implement several measures in conducting yield curve control. First, the Bank will maintain the yield curve at a low level by increasing the amount of monthly JGB purchases from 7.3 trillion yen to about 9 trillion yen. Moreover, it will expand the range of 10-year JGB yield fluctuations from the target level: from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points. Other than with regard to the maturity of 10 years, the Bank will make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed-rate purchase operations. These measures will make it possible for the Bank to encourage a smoother formation of the yield curve while maintaining it at a low level. In fact, under the guideline for market operations decided at the December Monetary Policy Meeting, yield increases for JGBs with maturities other than 10 years were contained, although there has been a rise in 10-year JGB yields, which had seen a distortion (Chart 6). Furthermore, with respect to policy responses to the corporate bond market, the Bank is currently adjusting the amount outstanding of corporate bonds, so that it will return to the pre-pandemic level. In this adjustment, the Bank will give due consideration to issuance conditions for these bonds. Although these measures are expected to expand the range of 10-year JGB yield fluctuations, in continuing with monetary easing under the framework of yield curve control going forward, they have the significant merit of facilitating the transmission of monetary easing effects, such as through corporate financing, while maintaining the function of JGB yields as reference rates. As I just described, these measures have been implemented to conduct monetary easing in a sustainable and smooth manner while taking into account the transmission of monetary easing effects, including to corporate financing; this is definitely not a step toward an exit. The Bank will aim to achieve the price stability target in a sustainable and stable manner, accompanied by wage increases, by continuing with monetary easing under the framework of yield curve control. II. Characteristics of the Labor Market and Wage Formation in Japan Now, I would like to talk about the characteristics of the labor market and wage formation in Japan. In April 2013, the Bank introduced quantitative and qualitative monetary easing (QQE), a large-scale monetary easing framework still in place today, with the aim of achieving the price stability target. It should be noted that the Bank's goal is not merely to achieve inflation. In this regard, let me reiterate what I said in my speech at a Keidanren meeting nine years ago: "the Bank aims at creating and embedding an economic virtuous cycle of a moderate rise in prices, an increase in sales and profits, an increase in wages, a boost in consumption, and a moderate rise in prices." In other words, in order to achieve the price stability target in a sustainable and stable manner, it is crucial that price rises are backed by increases in corporate sales and profits, and by growing wages. A simultaneous increase in both wages and prices was observed as a matter of course even in Japan until around the mid-1990s (Chart 7). In addition, as many of you here today may feel, as executives of global businesses, it is quite natural in other economies for both prices and wages to rise simultaneously. With the introduction of QQE, Japan's economy has improved significantly and labor market conditions have tightened, also supported by government measures and various initiatives by firms. Under these circumstances, a positive inflation rate has taken hold, and wage growth has also been positive on average, albeit with fluctuations. Thus, Japan's economy is no longer in deflation, in the sense of a sustained decline in prices. However, we have not yet reached a situation where the price stability target of 2 percent has been achieved in a sustainable and stable manner, accompanied by wage increases. As background to this current situation, the Bank's Assessment for Further Effective and Sustainable Monetary Easing in March last year highlighted the following factors. First, people's mindset and behavior based on the assumption that prices will not increase easily have become deeply entrenched because of the experience of prolonged deflation, and it will take time for this mindset and behavior, especially firms' price- and wage-setting behavior, to change. Second, upward pressure on wages has been absorbed due to an increase in labor supply as a result of the advance in labor force participation of women and seniors. Today, I would like to examine whether there have been any changes in these two factors. Let me start with firms' price-setting behavior. The diffusion index (DI) for output prices in the December Tankan shows that an increasing number of firms have raised prices recently (Chart 8). This is due to the substantial increase in input costs led by the rise in import prices. Of course, there have been other periods in the past when input costs rose substantially, although not to the same extent as this time. However, for a long time, it has been difficult for firms to pass on these cost increases due to the severe competitive environment. One likely reason for this is that firms, taking account of price-setting by others in their particular industry, have been reluctant to pass on higher costs to maintain their price competitiveness. In the current phase, the rise in import prices has been large in terms of both size and the range of items affected, and thus many firms have passed on cost increases. However, the impact of the rise in import prices, which has caused costs to rise, will eventually dissipate. It is necessary to examine whether the change in price-setting behavior currently seen will take hold as the new norm, but for this to happen, it is important for the virtuous cycle of wage increases and price rises that I mentioned earlier to continue. The reason is that widespread wage hikes will put upward pressure on costs by increasing firms' personnel expenses, while at the same time, demand will increase through improvement in household income, and this is likely to lead to moderate inflation. Now, I would like to consider the wage-setting behavior of firms. To do so, I will first review the structure of the labor market in Japan. Characteristics of the Labor Market and Wage Formation in Japan A major feature of Japan's labor market is its "dual structure," consisting of two types of employment with different characteristics: regular employment with low job mobility as characterized by the term "lifetime employment," and the other, non-regular employment (Chart 9). The determinants of wages differ between the two types of employment. Looking back at long-term trends in Japan's labor market, a major characteristic is that the number of non-regular employees has increased over the past three decades or so. Since wages of non-regular employees are generally lower than those of regular employees, the increase in the share of non-regular employees has pushed down average nominal wages in Japan, curbing their growth. From the mid-1990s, firms' perception of excess regular employment strengthened significantly during the process of adjustment triggered by the collapse of the bubble economy, and the number of regular employees followed a downward trend.1 Non-regular employment filled the resulting gap or continued to grow even more, so that the share of non-regular employees increased at a rapid pace. Recent years have seen changes in this trend. While the number of non-regular employees has continued to rise, the number of regular employees has turned to an increase, mainly Note that the number of self-employed workers and family workers has also declined during this period. reflecting firms' efforts to retain human resources in response to growing labor shortages, which are partly due to economic improvement. As a result, the pace of increase in the share of non-regular employees has reached a plateau. Even though Japan's working-age population (i.e., those aged 15-64) has continued to decline since peaking in 1995, a simultaneous increase in the number of both regular and non-regular employees was possible because of the increased labor force participation of women and seniors. Their labor force participation has advanced, mainly because improvement in the economy has led to greater job opportunities and because the government and firms have taken steps to support a variety of working styles. This has led to a significant rise in the overall labor force participation rate. The resulting increase in labor supply is one of the factors that has suppressed the average growth rate of wages from a macroeconomic perspective. However, I would like to emphasize that this increase in labor supply has boosted employee income overall and has had a positive effect on economic growth. This "dual structure" of the labor market has important implications for predicting future wage trends. The reason is that the wage formation mechanism differs depending on the type of employment (Chart 10). In particular, the degree to which wages respond to labor demand differs substantially between regular and non-regular employment. Labor market conditions for both regular and part-time employees have been tightening consistently over the past decade, excluding the early phase of the pandemic. Over the past decade, hourly wages for part-time employees have continued to register a relatively high increase, at an average rate of about 2 percent, while wages for regular employees have only grown at a very modest rate of less than 1 percent. This difference is due to differences in job mobility in the two types of employment. In the case of non-regular employment, wages tend to reflect labor market conditions due to the high degree of job mobility. On the other hand, job mobility in regular employment is generally considered to be low due to long-term employment practices. Furthermore, another aspect of regular employment is that the experience of the weak economic growth that followed the collapse of the bubble economy led both labor and management to prioritize maintaining employment, resulting in restrained wage increases. The fact that wages of regular employees, who account for the larger share of total employment, have not risen so high is also a factor that restrained overall wage growth from a macroeconomic perspective, despite a tightening of labor market conditions. Differences in mobility can also be found across firm sizes, industries, and age groups (Chart 11).2 For example, regular employees in small and medium-sized firms are more likely to change jobs in search of better working conditions than those in large firms. Because of the higher degree of job mobility at small and medium-sized firms, wages tend to be more responsive to labor market conditions. In fact, while wage levels of regular employees at large firms have been more or less unchanged, those at small and medium-sized firms have been rising clearly. Similar trends have been observed in the face-to-face services industry, where small and medium-sized firms account for the larger share of total employment, and among younger workers, for whom job mobility is high, including somewhat recent graduates who are looking for a new job. Outlook for Wages Bearing in mind these features of Japan's labor market, I would now like to describe the outlook for wages. Basically, I believe that the growth rate of wages will increase gradually. First of all, labor market conditions, particularly for non-regular employees, are projected to tighten further. As Japan's economy recovers, labor demand is expected to increase, particularly in the face-to-face services industry. On the labor supply side, labor force participation of women and seniors is unlikely to increase to the same extent as has been the case to date (Chart 12). The labor force participation rate of women in Japan has risen markedly and has not only already exceeded that in the United States but is close to the level of the top members of the Group of Seven (G7) countries. Moreover, while the labor force participation rate of seniors has also risen, the baby boomer generation will eventually pass the age of 75, and the labor force participation rate for those aged 75 and over is For details of differences in wage formation across firm sizes and industries in the labor market for full-time employees, see Bank of Japan, "'Korona-ka ni okeru bukka dōkō o meguru shomondai' ni kansuru wākushoppu dai 3-kai 'wagakuni no chingin keisei mekanizumu' no moyō," BOJ Reports and Research Papers, December 2022, https://www.boj.or.jp/research/brp/ron_2022/ron221223a .htm/ (currently available only in Japanese). significantly low. Thus, since labor market conditions are likely to tighten from both the demand and supply sides, growth in wages of non-regular employees in particular is expected to accelerate. Furthermore, this upward pressure on wages of non-regular employees is likely to spread to wages of regular employees, especially those in small and medium-sized firms and the face-to-face services industry, and among younger workers; that is, to wages of regular employees for whom job mobility is relatively high. However, in order for wage increases to become full-fledged from a macroeconomic perspective, there needs to be a rise in wages of regular employees -- who account for the larger share of total employment -- including wages of regular employees in large firms, whose job mobility is relatively low. In next spring's labor-management wage negotiations, attention will be focused on the extent to which prices will be reflected in wages, in addition to the tightening of labor market conditions (Chart 13). In the past, labor and management in Japan both shared the idea of ensuring that workers were paid a "living wage," and price rises pushed up wages through increases in base pay. Base pay increases virtually disappeared during the deflationary period, but these have been seen for nine consecutive years since 2014, one year after the introduction of QQE. Given the rise in prices, the Japanese Trade Union Confederation, or Rengo, has decided to demand in next spring's labor-management wage negotiations an increase in base pay of 3 percent (excluding seniority- and performance-related wage increases), which is higher than wage increases demanded in the past, and I will be paying attention to how much base pay rises in practice. In this regard, it seems that firms' wage-setting behavior has started to move in the direction of taking price rises into account. Surveys suggest that managers of small and medium-sized firms also appear to be raising wages based on a greater awareness of price rises than in the past. It should be noted that, while corporate profits -- the source of wage increases -- have been at high levels on the whole, they vary across firms, depending on size and industry (Chart 14). It is also true that many managers of small and medium-sized firms say that, although their firm's performance has not improved, they have raised wages as a "defensive" step. In order for wage increases to spread in a sustainable manner, it is necessary for these to become full-fledged, especially among large firms, for which profits have improved significantly, and there need to be initiatives toward spreading the positive impact of increased profits overall, particularly to small and medium-sized firms, through improved business contract terms and other factors. In this regard, I am very encouraged by Chairman Tokura's message regarding next spring's labor-management wage negotiations, in which he stated that "prices should be the top priority among the various factors to be considered," and that it is desirable "to maintain the momentum of wage increases and realize a virtuous cycle of prices and wages." Furthermore, an increasing number of firms are participating in the Declaration of Partnership Building initiative, with the aim of building sustainable relationships that allow large firms and small and medium-sized firms to grow together. I hope that, through these efforts, moves to increase wages will spread throughout the economy. Concluding Remarks Let me conclude. As I have discussed today, labor market conditions in Japan are projected to tighten further, and firms' price- and wage-setting behavior is also likely to change. In this sense, we are approaching a critical juncture in breaking out of the prolonged period of low inflation and low growth since the collapse of the bubble economy. I would like to close my speech today by expressing my hope that firms will continue to make progress with their positive efforts, and by noting that the Bank will provide its utmost support by firmly maintaining accommodative financial conditions. Thank you for your attention. Toward Achieving the Price Stability Target in a Sustainable and Stable Manner, Accompanied by Wage Increases Speech at the Meeting of Councillors of Keidanren (Japan Business Federation) in Tokyo December 26, 2022 KURODA Haruhiko Governor of the Bank of Japan Introduction I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy II. Characteristics of the Labor Market and Wage Formation in Japan Concluding Remarks Chart 1 Introduction Forecasts for Economic Activity and Prices in Major Advanced Countries (IMF) Real GDP Growth Inflation y/y % chg. % Forecasts G7 countries other than Japan -2 CY 19 y/y % chg. Forecasts Japan Unemployment Rate -2 -4 -6 -8 CY 19 Forecasts CY 19 Note: The forecasts presented are those as of October 2022. Figures for the Group of Seven (G7) countries other than Japan are the arithmetic averages of figures for Canada, France, Germany, Italy, the United Kingdom, and the United States. Source: IMF. Chart 2 I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy Japan's Economy Economic Activity by Sector s.a., CY 2019 = 100 The BOJ's Forecasts for Real GDP s.a., ann., tril. yen FY 2024 +1.5% FY 2023 +1.9% FY 2022 +2.0% CY 20 Manufacturing Nonmanufacturing Accommodations, eating and drinking services Services for amusement and hobbies Transport FY 13 14 15 16 17 18 19 20 21 22 23 24 Notes: 1. In the left-hand chart, figures for manufacturing are from the Indices of Industrial Production, while those for the other sectors are from the Indices of Tertiary Industry Activity. Figures for nonmanufacturing exclude accommodations, eating and drinking services, services for amusement and hobbies, and transport. 2. In the right-hand chart, the forecasts presented are the medians of the Policy Board members' forecasts in the October 2022 Outlook for Economic Activity and Prices (Outlook Report). The values of real GDP for fiscal 2022 onward are calculated by multiplying the actual figure for fiscal 2021 by all successive projected growth rates for each year. Sources: Ministry of Economy, Trade and Industry; Cabinet Office; Bank of Japan. Chart 3 I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy Prices The BOJ's Forecasts for the CPI Crude Oil Prices y/y % chg. FY 2022 +2.9% $/bbl FY 2023 FY 2024 +1.6% +1.6% Forward month futures prices -1 -2 FY 13 14 15 16 17 18 19 20 21 22 23 24 FY 13 14 15 16 17 18 19 20 21 22 23 24 Notes: 1. In the left-hand chart, figures are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The forecasts presented are the medians of the Policy Board members' forecasts in the October 2022 Outlook Report. 2. In the right-hand chart, figures are futures prices of West Texas Intermediate (WTI). Figures through November 2022 are monthly averages, while the figure for December 2022 is the average for December 1-22. Figures for forward month futures prices are those as of December 22, 2022. Sources: Ministry of Internal Affairs and Communications; Bank of Japan; Bloomberg. I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy Chart 4 Modification of the Conduct of Yield Curve Control (YCC) Impact of Increased Volatility in Overseas Markets Deterioration in Japan's bond market functioning Relative relationships among interest rates of bonds with different maturities Arbitrage relationships between spot and futures markets Possibility of a negative impact on financial conditions Yields on Japanese government bonds (JGBs) are reference rates for corporate bond yields, bank lending rates, and other funding rates. JGB Yield Curve (Before the December 2022 MPM) 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 % years Source: Bloomberg. Measures Decided by the Bank of Japan Conduct of YCC Encourage a smoother formation of the entire yield curve Significant increase in the amount of JGB purchases: from 7.3 trillion yen per month to about 9 trillion yen per month Expansion of the range of 10-year JGB yield fluctuations from the target level: from between around േ0.25% pts to between around േ0.5% pts Nimble responses for each maturity: - Offer to purchase 10-year JGBs at 0.5% every business day through fixed-rate purchase operations - Make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed-rate purchase operations In adjusting the amount outstanding of corporate bonds, the Bank will give due consideration to their issuance conditions. Facilitate the transmission of monetary easing effects generated under the framework of YCC, such as through corporate financing residual maturity The Bank will aim to achieve the price stability target by enhancing the sustainability of monetary easing. Chart 5 I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy Yield Curve by JGB Issue 1.6 % 1.4 1.2 1.0 0.8 20-year JGBs (residual maturity of 10 years) 0.6 0.4 0.2 10-year JGBs (three on-the-run issues) 0.0 -0.2 years residual maturity Note: Figures are those as of the day before modification of the conduct of yield curve control (December 19, 2022). Source: Japan Securities Dealers Association. Chart 6 I. Recent Economic and Price Developments and the Bank's Conduct of Monetary Policy JGB Yields 2.0 % % 30-year 20-year 10-year 5-year 2.0 2-year 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 Oct. Oct.2022 -0.5 Nov. Dec. Note: Figures denoted by circles are for the day before modification of the conduct of yield curve control (December 19, 2022). Source: Bloomberg. Chart 7 II. Characteristics of the Labor Market and Wage Formation in Japan Wages and Prices y/y % chg. Hourly cash earnings Cash earnings per employee CPI (less fresh food) -1 -2 -3 -4 FY 85 Notes: 1. Figures for cash earnings before fiscal 1991 are for establishments with 30 or more employees, while those from fiscal 1991 onward are for establishments with 5 or more employees. Figures for cash earnings for fiscal 2022 are April-October averages. 2. Figures for the CPI exclude the effects of the consumption tax hikes, etc. Those from fiscal 2022 onward are the medians of the Policy Board members' forecasts in the October 2022 Outlook Report. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Bank of Japan. Chart 8 II. Characteristics of the Labor Market and Wage Formation in Japan Changes in Firms' Behavior: Price Setting DIs for Prices in the Tankan DI ("rise" - "fall"), % points "Rise" "Fall" Passing on Cost Increases (Small and Medium-Sized Firms) No need to pass on cost increases Nov. 2021 Fully pass on cost increases Nov. 2022 Cannot fully pass on cost increases Cannot pass on cost increases at all 10 20 30 40 50 60 70 80 90 % Reasons for Being Unable to Pass on Cost Increases Competitors' selling prices -20 Input prices Consumers' preference for cutting spending Output prices Decline in demand -40 -60 CY 00 02 04 06 08 10 12 14 16 18 20 22 Nov. 2021 Long-term contracts with fixed prices Nov. 2022 Notes: 1. In the left-hand chart, figures are for all industries and enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. 2. In the right-hand charts, figures are based on the LOBO survey, which surveys developments in the pass-through of increases in goods and services prices in business-to-business transactions. Sources: Bank of Japan; Japan Chamber of Commerce and Industry. % Chart 9 II. Characteristics of the Labor Market and Wage Formation in Japan Dual Structure in the Labor Market Number of Regular and Non-regular Employees mil. persons Share of Non-regular Employees and Labor Force Participation Rate % % Non-regular employees Regular employees CY 84 CY 84 Share of non-regular employees (left scale) Labor force participation rate (right scale) Note: Figures for the number of employees and the share of non-regular employees prior to 2002 are based on the February Special Survey of the Labour Force Survey, those for 2002-2012 are annual averages from the "detailed tabulations" in the Labour Force Survey, and those thereafter are annual averages from the "basic tabulations." All figures for 2022 are January-October averages. Sources: Ministry of Internal Affairs and Communications; Haver. Chart 10 II. Characteristics of the Labor Market and Wage Formation in Japan Wages and Labor Market Conditions by Employment Type Wages Labor Surplus/Shortage y/y % chg. DI ("shortage" - "surplus"), % points Regular staff, etc. Scheduled cash earnings per employee (full-time employees) Hourly scheduled cash earnings (part-time employees) Part-time workers "Shortage" "Surplus" -10 -1 -2 CY 94 -20 CY 07 Notes: 1. In the left-hand chart, quarters are defined as follows: Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions. Figures for 2022/Q3 are September-October averages. The rise in the year-on-year rate of change in hourly cash earnings of part-time employees to around 7 percent in 2020/Q1 is mainly due to the suspension of business activities during the pandemic. 2. In the right-hand chart, figures are based on the Survey on Labour Economy Trend. Source: Ministry of Health, Labour and Welfare. Chart 11 II. Characteristics of the Labor Market and Wage Formation in Japan Developments in Wages of Regular Employees Scheduled Cash Earnings of Regular Employees Voluntary Separation Rate share in total number of separations, % CY 2013 = 100 Small and medium-sized firms Large firms Firms with less than 100 employees Firms with 100 or more employees CY 00 CY 06 Notes: 1. In the left-hand chart, figures are based on full-time employees in the Survey on Employment Trends. Figures are the share of those leaving their job for personal reasons (excluding family reasons). 2. In the right-hand chart, figures are based on the Basic Survey on Wage Structure. Figures cover full-time regular staff in private establishments. Small and medium-sized firms are those employing 10 to 999 regular employees, while large firms are those employing 1,000 or more regular employees. Source: Ministry of Health, Labour and Welfare. Chart 12 II. Characteristics of the Labor Market and Wage Formation in Japan Changes in Labor Market Structure: Labor Force Participation of Women and Seniors % Labor Force Participation Rate of Women (G7 Countries) CY 2012 % Labor Force Participation Rate by Age Group (Japan) CY 2012 CY 2021 CY 2021 Note: The left-hand chart is based on OECD statistics for those aged 15-64, while the right-hand chart is based on the Labour Force Survey. Sources: Haver; Ministry of Internal Affairs and Communications. 75- 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 Italy France Germany United Kingdom United States Japan Canada age group Chart 13 II. Characteristics of the Labor Market and Wage Formation in Japan Changes in Firms' Behavior: Wage Setting Prices and Labor-Management Wage Negotiations y/y % chg. Actual base pay increase Base pay increase demanded by labor unions CPI inflation % Reasons for Wage Increase (Small and Medium-Sized Firms) Rise in prices Recruitment, retention, and raising motivation Rise in minimum wages Rise in new graduates' starting salary and non-regular employees' wages -1 -2 CY 88 CY 17 Notes: 1. In the left-hand chart, the figures for CPI inflation are for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The figure for 2022 is the January-November average. The figures for the base pay increase demanded by labor unions before 2023 are calculated by subtracting seniority- and performance-related wage increases, which are assumed to be equal to the actual figures, from the total increase in wages (the sum of seniority- and performance-related wage increases and the increase in base pay) demanded by unions. The figure for 2023 is from Rengo's policy for the spring 2023 labor-management wage negotiations. 2. In the right-hand chart, figures are based on the LOBO survey. Figures before 2022 are from the December survey, while those for 2022 are from the June survey. Sources: Japanese Trade Union Confederation (Rengo); Central Labour Relations Commission; Institute of Labour Administration; Ministry of Internal Affairs and Communications; Japan Chamber of Commerce and Industry. Chart 14 II. Characteristics of the Labor Market and Wage Formation in Japan Corporate Profits and Wage-Setting Behavior Plans for Raising Scheduled Cash Earnings (Small and Medium-Sized Firms) Corporate Profits s.a., tril. yen Small and medium-sized firms Wage increase with improving business performance (virtuous wage increase) Large firms June 2022 Wage increase without improving business performance (defensive wage increase) No wage increase CY 07 Undecided Notes: 1. In the left-hand chart, figures are current profits based on the Financial Statements Statistics of Corporations by Industry, Quarterly, and exclude "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. Small and medium-sized firms are firms with a capitalization of 10 million yen or more but less than 1 billion yen, while large firms are firms with a capitalization of 1 billion yen or more. 2. In the right-hand chart, figures are based on the LOBO survey. Sources: Ministry of Finance; Japan Chamber of Commerce and Industry. %
|
bank of japan
| 2,022 | 12 |
Speech by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Shizuoka, 2 February 2023.
|
February 2, 2023 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Shizuoka WAKATABE Masazumi Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with leaders in the fields of local government, economy, and finance in Shizuoka Prefecture. I would like to take this chance to express my sincere gratitude for your cooperation and support with the activities of the Bank of Japan's Shizuoka Branch. Shizuoka Prefecture and the Bank have a special link to Ieyasu Tokugawa, who is gaining the spotlight in this year's NHK Taiga Drama (the annual year-long historical drama television series produced by NHK [Japan Broadcasting Corporation]). He was the first Shogun of the Edo period (1603-1867) and established several official gold mints, or kinza. Kinza-machi in Aoi Ward, where the Bank's Shizuoka Branch is located, was for a time (1607-1612) the place where one of the kinza called Suruga kobanza was based, as is suggested by its Japanese name. The kinza was subsequently moved to Edo (now Tokyo), and the Bank's current Head Office was built on that site. It is known that modern monetary policy with a view to achieving price stability through monetary control had already started to emerge during the Edo period. In a sense, the kinza played the role of the Bank of Japan to some extent at the time of the Edo Shogunate.1 Turning to the present price developments, the inflation rates have been increasing in Japan since last year. After the economy fell into deflation in the mid-1990s, prices did not rise in a sustainable and stable manner for a long time. Is this time any different? Will the price stability target of 2 percent be achieved? In a nutshell, although the current situation differs from those seen in the past, there are extremely high uncertainties over future developments, and I believe that it is necessary to continue pursuing monetary easing steadily in order to achieve the price stability target in a sustainable and stable manner. Today, I would like to begin by talking about the current situation of and outlook for economic activity and prices based on the Outlook for Economic Activity and Prices (Outlook Report) that was released recently. The essence is that, while Japan's economy is likely to recover, inflation is expected to be relatively high in the short run and then decelerate (Chart 1). On See Bank of Japan Shizuoka Branch, Suruga kobanza to Nippon Ginkō [Suruga oval gold coin mint and the Bank of Japan], September 2015, https://www3.boj.or.jp/shizuoka/gaiyou/kobanshiryou.pdf. this basis, I would like to explain the Bank's thinking behind the recent conduct of monetary policy. Then, I will look back at its monetary policy since 2013. Lastly, I will touch upon the economy of Shizuoka Prefecture and then would like to hear your views on the situation in this region and on the Bank. I. Current Situation and Outlook for the Economy: Is This Time Any Different? A. Economic Activity at Home and Abroad Let me start with the global economy. The global economy has seen a slowdown in its pace of recovery recently and is expected to continue decelerating going forward. The Purchasing Managers' Indexes (PMIs), indicators of business sentiment, for all three major economies -the United States, Europe, and China -- have deteriorated (Chart 2). The central bank of the United States, the Federal Reserve, raised its policy interest rates by a total of more than 4 percentage points during the course of 2022 in order to curb high inflation. So far, the impact of this has been limited mainly to a decline in housing investment, which is susceptible to developments in interest rates. However, the U.S. economy is highly likely to decelerate due to the impact of higher prices and the policy interest rate hikes. European economies are also expected to slow, reflecting the policy interest rate hikes by the European Central Bank (ECB) as well as the prolonged invasion by Russia of Ukraine. Furthermore, in China, the surge in the number of cases of the novel coronavirus (COVID-19) since the end of last year has been weighing on the economy, especially on private consumption. As I just described, the global economy is expected to decelerate temporarily. Thereafter, however, it is likely to pick up as global inflationary pressure wanes, mainly reflecting the effects of monetary tightening.2 Next, I would like to talk about Japan's economy. Japan's economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19. While the slowdowns in overseas economies that I mentioned earlier, together with the impact of high commodity prices, are expected to put downward pressure on the economy, it is likely to continue recovering, supported by accommodative financial conditions and the effects of the government's economic measures (Chart 3). In the latest Outlook Report, the real GDP growth rates are projected to be 1.7 percent for fiscal 2023 and 1.1 percent for fiscal 2024, suggesting that the economy is expected to continue growing at a pace above its potential growth rate. The recovery is expected to be supported, for the time being, by the materialization of pentup demand reflecting the waning of the impact of COVID-19 and supply-side constraints -both of which have been weighing on the economy -- and thereafter by the gradual intensification of the virtuous cycle from income to spending (Chart 4). Looking at the household sector, although Japan has been in the midst of the eighth wave of COVID-19 since autumn last year, the consumption of services -- such as travel and dining It should be noted that there are various uncertainties regarding this outlook. For instance, although inflation rates in the United States and Europe have declined compared with a while ago, they are still high, at around 6 percent and around 9 percent, respectively. If inflation rates remain higher than expected, this will increase the degree of monetary tightening required and intensify downward pressure on the economy accordingly. Attention also needs to be paid to the risk that global monetary tightening could destabilize international financial and capital markets by, for example, causing adjustments in asset markets or leading to an outflow of funds from emerging economies with large external debt balances. In addition, the Chinese economy seems to entail high uncertainties with regard to containing COVID-19 infections and the normalization of economic activity. Once upside risks materialize -- that is, economic activity recovers rapidly after weakening temporarily -- this could intensify global inflationary pressure through increases in commodity and energy prices, making central banks around the world conduct further monetary tightening. Attention is also warranted on adjustments in the real estate sector, the course of various regulations, and a slowdown in medium- to long-term potential growth rates due to changes in demographics. Regarding developments in China's potential growth rates, see Sasaki, T. et al., "China's Long-Term Growth Potential: Can Productivity Convergence Be Sustained?" Bank of Japan Working Paper Series, no. 21-E-7 (June 2021), https://www.boj.or.jp/en/research/wps_rev/wps_2021/data/wp21e07.pdf. out -- has been firm as mobility has continued to recover as a trend. The government's domestic travel discount program and the increase in inbound tourism demand due to the easing of COVID-19 border controls have supported the recovery in services demand. Meanwhile, price rises for food, energy, and other items have put downward pressure on households' real income and sentiment. However, private consumption has continued to increase moderately, supported by the effects of the government's measures to address rising prices and household savings that have accumulated as a result of pandemic-related restrictions. Turning to the corporate sector, although slowdowns in overseas economies have pushed down exports and production, the levels of sales and profits have been high on the whole with the impact of COVID-19 and supply-side constraints waning. Against this backdrop, the business fixed investment plan in the December 2022 Tankan (Short-Term Economic Survey of Enterprises in Japan) suggests that business fixed investment for fiscal 2022 will see a double-digit percentage increase on a year-on-year basis, partly supported by accommodative financial conditions. However, this outlook for Japan's economy is subject to considerable uncertainties. In addition to the developments in overseas economic activity and prices that I explained earlier, developments in prices of commodities, including grains, and the course of COVID-19 at home and abroad need to be noted. Furthermore, we pay attention to developments in medium- to long-term expected growth rates, which have been on a downtrend to date (Chart 5). We are currently in a period of extreme change; besides the impact of the pandemic, the future dynamics of globalization are becoming uncertain due to heightened geopolitical risks. Global challenges, such as decarbonization, are also growing. If households and firms can successfully respond to such developments, this could raise medium- to long-term expected growth rates and thereby further strengthen the virtuous cycle in the economy. B. Price Developments in Japan Next, I would like to talk about price developments in Japan. The year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food has accelerated gradually, reaching 4.0 percent for December 2022 (Chart 6). This is the highest inflation rate in Japan in about four decades, and this is attributable to the effects of a pass-through to consumer prices of cost increases led by a rise in import prices. However, such upward pressure on consumer prices is highly likely to wane gradually. In fact, international commodity prices have already turned to a decline, and the rate of increase in Japan's import prices has clearly slowed. Furthermore, the effects of the government's economic measures pushing down energy prices will be reflected in price developments from this month onward. Therefore, the year-on-year rate of increase in the CPI is expected to decelerate toward the middle of fiscal 2023. Thereafter, with the economy continuing to recover, it is projected to accelerate again moderately, although it will take time. This acceleration is likely to be mainly due to tightening supply and demand conditions in the economy and a rise in wage growth, which I will touch upon later. In the Outlook Report, the year-on-year rate of change in the CPI (all items less fresh food) is projected to be 3.0 percent for fiscal 2022, and then fall below 2 percent for fiscal 2023 and 2024, being 1.6 percent and 1.8 percent, respectively. In terms of the effects of the government's economic measures, those measures to reduce the household burden of higher gasoline prices, electricity charges, and manufactured and piped gas charges are expected to push down the year-on-year rate of change in the CPI, mainly for the first half of fiscal 2023. For fiscal 2024, on the other hand, they are likely to push up the rate due to a waning of the effects they had of pushing down CPI inflation in the previous year. In this regard, looking at the CPI for all items excluding fresh food and energy, which is not directly affected by energy price fluctuations, the year-on-year rate of change for fiscal 2024 is projected to be at around 1.5 percent. Given these projections, it will still take time to achieve the price stability target in a sustainable and stable manner. As mentioned earlier, the recent CPI inflation is attributable to a variety of factors, such as the impact of the substantial rise in import prices, particularly for energy and grains, as well as the effects of the government's measures to address rising prices. Since it has become more difficult to grasp underlying inflation based on a single indicator, it is becoming even more important to carefully examine the mechanisms that determine price developments, including supply and demand conditions in the overall economy and wage developments, rather than just looking at superficial figures. From this perspective, I would like to highlight three points that I am closely monitoring in assessing current underlying inflation. The first is changes in the price change distribution by item (Chart 7). In Japan, unlike in the United States and Europe, price changes for many items have been concentrated in a narrow range of around 0 percent for a long time. However, comparing the most recent price change distribution with that before the pandemic, the right tail has become thicker -- that is, the distribution has shifted in the direction of rising prices. While this pattern has been observed mainly for goods, of which prices are susceptible to developments in import prices, it remains to be seen whether it will spread to services prices as well. The second point, which relates to the first one that I just mentioned, is firms' price-setting stance (Chart 8). According to the Tankan, the diffusion indexes (DIs) for output and input prices show not only that the share of firms reporting an increase in input prices has risen, but also that the share of those reporting an increase in output prices has increased recently. In addition, the distribution of firms' forecasts for prices, or inflation expectations, has shifted somewhat in the direction of price rises. The third point concerns firms' wage-setting stance (Chart 9). In achieving the price stability target, it is very important that this be accompanied by an increase in wages. It is noteworthy that, whereas firms' sense of labor shortage temporarily weakened during the early stage of the pandemic, it has intensified again amid the pick-up in the economy, already reaching the pre-pandemic level. Moreover, in predicting developments in wages for the time being, the annual labor-management wage negotiations this spring will be a major key. I believe that many firms are currently in the process of negotiating, and the rate of base pay increases demanded by unions is much higher than in the past, reflecting the price rises since last year. The government and many corporate executives have pointed to the importance of firmly raising wages while taking the current price rises into account. Therefore, I am paying attention to the degree to which base pay will increase in practice. What is important, however, is whether these changes will be sufficiently sustained and lead to the achievement of the 2 percent price stability target in a sustainable and stable manner. There remain high uncertainties in this regard. In particular, since the current changes were initially due to rising import prices since last year, it is necessary to carefully examine whether these changes will be maintained even after such cost-push pressures have diminished -- that is, whether changes in firms' price- and wage-setting behavior will take hold and people's medium- to long-term inflation expectations will be anchored at 2 percent. While making use of anecdotal information from firms in addition to a wide range of statistics, the Bank will assess appropriately the outcome of the annual labor-management wage negotiations this spring and how firms' price-setting strategies will develop in reflection of their experience of raising prices during the current phase. C. Recent Conduct of Monetary Policy So far, I have explained the Bank's view on developments in economic activity and prices. With such circumstances in mind, the Bank considers it important to firmly support the economy and provide a favorable environment for firms to raise wages. In this regard, the Bank decided at the Monetary Policy Meeting (MPM) held last month to continue with monetary easing. Meanwhile, at the December 2022 MPM, the Bank modified its conduct of yield curve control in order to improve market functioning while maintaining accommodative financial conditions. The modification was done with the aim of enhancing the sustainability of monetary easing under yield curve control. The Bank expects that the modification will facilitate the transmission of monetary easing effects generated under this framework. In order to stabilize the entire yield curve at a low level, the Bank has also increased its amount of Japanese government bond (JGB) purchases. In sum, the Bank's commitment to continuing with monetary easing has not changed at all. II. Monetary Policy: Achievements and Discussions since 2013 Now, I would like to talk about three aspects of the Bank's monetary policy from a somewhat longer-term perspective -- namely, the evolution and achievements of monetary easing since 2013, misconceptions and criticisms regarding the Bank's monetary policy, and the importance of inflation targeting. A. Evolution and Achievements of Monetary Easing since 2013 While the Bank has maintained monetary easing since the onset of deflation in the mid-1990s, the inflation rate turned clearly positive only after it introduced large-scale monetary easing in 2013. The recent history of monetary easing is shown in Charts 10 and 11. Three points are important here. First, the starting point for the current large-scale monetary easing was the adoption of the price stability target of 2 percent in January 2013. Major central banks around the world had already adopted such inflation targets, and it was at this time that Japan adopted one as well. The Bank decided on the adoption of the price stability target on its own initiative and addressed this in a joint statement with the government. Second, with this target, the Bank conducted monetary easing measures on a larger scale than before. Initially, this took the form of the introduction of quantitative and qualitative monetary easing (QQE) in April 2013, followed by the adoption of negative interest rates, and thereafter the current yield curve control. Third, the Bank has persistently pursued monetary easing to date. Over the years, there have been numerous exogenous shocks, such as large fluctuations in prices of commodities including crude oil, swings in overseas economies, weakened demand following the consumption tax hikes, multiple natural disasters, and the outbreak of COVID-19. On each occasion, the Bank has made various responses in an innovative and creative manner. The achievements of QQE are summarized in Chart 12.3 Let me highlight a few points. First of all, economic growth has been restored. Reflecting the declining and aging population, as well as the downtrend in working hours, Japan's GDP growth rate is trending downward, but when excluding the decline due to the pandemic, it has improved since 2013 as the unemployment rate has declined and the number of employed persons has increased. Looking at the real GDP growth rate per capita, the rate was at 0.4 percent in the 2000s, whereas it The descriptions in this subsection are based in part on Wakatabe, M., "The Future of Monetary Policy: Lessons from the History of Monetary Economics," keynote speech at the 38th annual meeting of the Japan Association of Business Cycle Studies, December 3, 2022, https://www.boj.or.jp/en/about/press/koen_2022/ko221222a.htm. Also see Kataoka, G., "Abenomikusu go o ikani norikiru ka: Nippon keizai 10-nen no kiseki to kongo no shinario" [How to cope with the time after Abenomics: Japan's economy over the past decade and scenarios for the future], Chuokoron (February 2023): pp. 94-101. recovered to 1.3 percent in the 2010s, almost equivalent to the average growth rate of the 1990s (Chart 13 [left chart]). I have always believed that the negative impact of a declining population on the economy tends to be overestimated in general discussion. As a matter of fact, an international comparison of population growth rates and per capita GDP growth rates shows that there is no clear correlation between them (Chart 13 [right chart]). While it is true that a declining population is a headwind for economic activity, economic growth is still possible even in such circumstances. Second, despite the decline in the young population, employment has increased. This increase was initially driven by a rise in non-regular employees, but regular employees have also increased since 2014. Moreover, the labor force participation rates for seniors and women have risen. 4 Improvement in employment conditions has led to an increase in the employment rate for new graduates and changed the situation drastically compared with the time of the "employment ice age." Of course, providing support for those who struggled to find a job during the employment ice age remains a crucial task. In this regard as well, largescale monetary easing, which provides support for the economy, is playing an important role. Third, tax revenues have increased, reflecting economic growth. Fourth, with regard to prices, we are now in a situation where the economy is no longer in deflation, in the sense of a sustained decline in prices. While the average year-on-year rate of change in the CPI (all items less fresh food) was minus 0.3 percent between fiscal 1998 and fiscal 2012, that from fiscal 2013 onward rose to 0.5 percent. Fifth, wages have risen. Base pay increases, which had not taken place in real terms for a prolonged period, have resumed since fiscal 2014, and nominal wages have increased, albeit See Charts B2-3 and B2-5 in Box 2 "Current Situation and Outlook for Labor Market Conditions" in the January 2023 Outlook Report. moderately.5 As I have described, large-scale monetary easing conducted over the last decade has produced positive effects in various aspects. B. Discussions over Monetary Policy However, the Bank's monetary policy since 2013 has been subject to criticism in various ways, including that based on misconceptions. The first criticism is that the monetary policy is ineffective. As already described, it has clearly been effective. In fact, estimates on what economic and price developments would have been in the absence of the monetary easing since 2013 suggest that the GDP growth rate would have been subdued and prices would have remained deflationary.6 The second criticism concerns the notion of the "interest rate buffer" and "zombie firms," both of which are often mentioned with regard to the allegedly harmful effects of low interest rates. Before I elaborate on each notion, let me briefly explain what interest rates should refer to in this context. When people talk about interest rates, they often refer to nominal interest rates, but it is important to distinguish them from real interest rates, which take inflation into account. When considering the economic impact, what is important is real interest rates. It is 5 The issues concerning statistical features and the compositional effects for analyzing real wages were explained in the following speech: Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with local leaders in Hiroshima, September 1, 2021, https://www.boj.or.jp/en/about/press/koen_2021/ko210901a.htm. For prices to rise in a sustainable and stable manner, both wages and inflation expectations need to increase. The link between prices and wages was described in the following speech: Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with local leaders in Okayama, June 1, 2022, https://www.boj.or.jp/en/about/press/koen_2022/ko220601a.htm. 6 The estimation result is explained in more detail in Appendix 2 of the Assessment for Further Effective and Sustainable Monetary Easing released in March (https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2021/k210319c.pdf). Compared with the hypothetical case where large-scale monetary easing has not been implemented, the results suggest that such easing, on average, pushed up the level of real GDP by between around 0.9 and 1.3 percent and the year-onyear rate of change in the CPI (excluding fresh food and energy) by between around 0.6 and 0.7 percentage points. only recently that real interest rates in Japan have been lowered. If the actual and expected inflation rates were low, real interest rates would have been high even when nominal interest rates were low. On this basis, the notion of the interest rate buffer is that, with a low interest rate policy continuing to be implemented, room for a monetary policy response to a possible future economic downturn or financial crises becomes small. While I agree that having room for monetary policy response is important, raising policy interest rates to create such room will damage the economy. This outcome would be in opposition to the intended objective. In finance, there is a saying that, "If you want to raise interest rates, lower them first; if you want to lower interest rates, raise them first." This means that, if you want to create room for a policy response, you should first encourage economic growth and lift inflation expectations through monetary easing, so that inflation rates will increase and the level of nominal interest rates that are neutral to the economy will rise accordingly. In fact, one of the reasons that many central banks set their inflation targets at 2 percent is based on this thinking. Let me now turn to the notion of zombie firms. Putting aside whether the term "zombie firms" is appropriate, these are generally considered to be firms that have poor performance and lack prospects for recovery, and only are able to continue existing with the support of banks in particular. The notion is that such firms are kept alive because of a low interest rate policy. As a matter of fact, it should be noted that the notion of zombie firms in the context of academic research does not directly connect to monetary easing measures, since it first emerged in relation to the disposal of nonperforming loans and measures to support corporate financing, not in relation to monetary policy. Moreover, some argue that such firms are increasing, but this is not necessarily supported by empirical evidence (Chart 14). 7,8 Rather, the low interest rate environment supports corporate financing and thereby contributes to expanding investment by firms and improving their performance. The third criticism is that, to boost economic growth, measures to tackle the declining birthrate and structural reforms are more important than monetary easing. Such measures and growth strategies, however, are not contradictory to policies to stabilize the macroeconomy, including monetary easing, and therefore should be pursued simultaneously, as stated in the joint statement by the government and the Bank in January 2013. There is no reason to oppose the pursuit of such stabilization policies, since monetary easing measures have been effective in boosting GDP growth and increasing employment, as mentioned earlier. Furthermore, if the natural rate of interest -- that is, the rate of interest at which the economy is in equilibrium -- were to fall due to a declining birthrate and a low potential growth rate, the central bank For example, a study of the share of zombie firms across countries was conducted by the Bank for International Settlements (BIS), and it shows that, in Japan, the share has been on a downtrend since the Global Financial Crisis (GFC). See Banerjee, R. N., and Hofmann, B., "Corporate Zombies: Anatomy and Life Cycle," BIS Working Papers, no. (2022), https://www.bis.org/publ/work882.htm. A study by the Bank's staff defined zombie firms quantitatively in terms of three criteria -namely, interest payment, solvency, and growth potential -- and found that the share of zombie firms in relation to the total number of firms has remained at a low level since the 2000s, after increasing significantly in the 1990s. That said, recent developments, particularly after the outbreak of the pandemic, must be interpreted with caution due in part to data limitations. See Yamada, K. et al., "Corporate Finance Facility and Resource Allocation: Research Trends and Developments during the Spread of COVID-19," Bank of Japan Working Paper Series, no. 23-E-1 (January 2023), https://www.boj.or.jp/en/research/wps_rev/wps_2023/data/wp23e01.pdf. The following study also shows that, although it depends on criteria, the number of firms that cannot continue their business without the support of financial institutions or governments surged at the time of the GFC but has not shown such a clear increase after the outbreak of the pandemic. See Uesugi, I. et al., "Korona shokku e no kigyō no taiō to seisaku shien sochi: Sābei chōsa ni motozuku bunseki" [The Economy and Society under the COVID-19 Pandemic: Evidence from Surveys], Economic Review 73, no. 2 (2022): pp. 133-59; Uesugi, I., Chūshō kigyō kin'yū no keizaigaku: Kin'yū kikan no yakuwari; Seifu no yakuwari [Economics of small business finance: The role of financial institutions; The role of the government] (Tokyo: Nikkei Publishing, 2022), pp. 43-47. 8 Moreover, recent studies have shown that small and medium-sized firms with no debt, which do not rely on bank loans, have a rather small appetite for capital investment. See Uesugi, Chūshō kigyō kin'yū no keizaigaku, pp. 35-38. would need to pursue policies to support the economy by further lowering market interest rates below the natural rate of interest.9 C. Revisiting the Importance of Inflation Targeting Earlier, I mentioned that the Bank adopted the price stability target of 2 percent in 2013. Here, I would like to explain the importance of inflation targeting once again. Currently, the most important mandate for many central banks is to maintain price stability. Inflation targeting clearly defines this mandate in quantitative terms, and many central banks around the world have adopted such targeting (Chart 15). Theoretically, one could argue that other indicators, such as the nominal GDP growth rate, could be set as a policy objective. However, it is the inflation rate that most naturally relates to the mandate of maintaining price stability. 10 Major central banks, such as the Federal Reserve and the ECB, also target a 2 percent inflation rate. Ambiguity in this inflation targeting would make the objective of monetary policy vague, and therefore could undermine the transparency of monetary policy and its effectiveness. 11 This applies to dealing with not only deflation but also inflation. III. Recent and Future Economic Activity in Shizuoka Prefecture Before closing my speech, I would like to talk about the economy of Shizuoka Prefecture. The prefecture's economy is currently picking up as a trend, despite being affected by In his paper published in 1998, which advocated at an early stage for Japan having more aggressive monetary easing, Professor Krugman assumes that Japan's natural rate of interest is falling due to a declining birthrate. The paper suggests that macroeconomic policies are necessary especially when there are structural problems. See Krugman, P. R., "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, no. 2 (1998): pp. 137-87. The future developments in the natural rate of interest was described in Wakatabe, "Future of Monetary Policy" (see n. 3). 10 The debate on the monetary policy framework taking place in the United States was described in the following speech: Wakatabe, M., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Aomori, June 27, 2019, https://www.boj.or.jp/en/about/press/koen_2019/ko190627a.htm. 11 Professor Orphanides at the Massachusetts Institute of Technology, who is an honorary advisor to the Institute for Monetary and Economic Studies of the Bank of Japan, argues that lack of clarity on the definition of price stability rendered the Bank's monetary policy inadequate before 2013. See Orphanides, A., "The Boundaries of Central Bank Independence: Lessons from Unconventional Times," Monetary and Economic Studies 36 (November 2018): pp. 35-55. COVID-19 and supply-side constraints. When considering the future development of the prefecture, the major challenge is how to deal with a declining population, as with other regions. Since its peak of 3.80 million people in fiscal 2007, the population of Shizuoka Prefecture has continued to decline at a faster pace than the nationwide average. Nevertheless, as I mentioned, the negative impact of a declining population is overestimated. As a matter of fact, gross prefectural product per capita in Shizuoka Prefecture has been on an uptrend since the 2010s after the GFC (Chart 16). The prefectural income per capita for fiscal 2019 ranks third highest among all prefectures nationwide. From the perspective of economics, the sources of economic growth can be basically grouped into accumulation of "capital," growth in "labor force," and "knowledge" in a broad sense, including technology. Enhancing each of these sources will be the key to achieving further development of the prefecture's economy going forward. I would like to touch upon three sets of initiatives in the prefecture that are attracting attention from this perspective. The first set of initiatives focuses on capital, involving the development of infrastructure and industrial promotion by taking advantage of such infrastructure. The Port of Shimizu, an international hub port, is laying the groundwork to make its logistics more efficient and highly competitive. The prefecture is also taking steps to promote exports of food, including products from other prefectures that are now easier to transport after the full opening of the Chubu Odan Expressway in 2021. In addition, as a network of roads takes shape along the Izu Peninsula, the prefecture is dedicating its efforts to promoting tourism and creating a healthcare industry centered on the peninsula's hot springs. Such initiatives are drawing notice since they are utilizing accumulated capital as a driving force to spark growth in exports and capture inbound tourism demand. The second set of initiatives involves the creation of new industries -- that is, efforts to harness knowledge.12 Mainly in the western part of the prefecture, where the automobile industry is concentrated, industry, academic institutions, and local government agencies are working together to address major changes in the environment, such as advancement of so-called CASE technologies.13 While tracking the technological demands of next-generation vehicles, this region is providing comprehensive support in areas ranging from development and design to manufacturing and sales, so that the relevant small and medium-sized firms can cultivate new businesses. Moreover, besides the efforts made by local governments, it is impressive that a growing number of regional financial institutions in the prefecture are fostering and supporting entrepreneurs and venture startups by leveraging their respective infrastructures, networks, and knowledge. The third set of initiatives involves creating communities that can attract people. Earlier, I noted that economic growth is possible even amid a declining population, but still, curbing the decline is a critical challenge in terms of encouraging technological innovation and business startups. To this end, it is essential to develop communities that provide comfortable places to work and live in. Efforts made by Nagaizumi Town and Fukuroi City are helpful guides here. They rank as the top two of the four municipalities in the prefecture that had positive rates of population change over the latest census period of five years. What both have in common is that they have created diverse work opportunities through proactive efforts to invite firms, while offering substantial fiscal support, including for child-rearing and the development of educational environments. With relocating or returning to regional areas drawing attention after the outbreak of the pandemic, my hope is that these efforts to create attractive living environments will lead to further vitalization of the region. As for the importance of harnessing knowledge, some state that the key for an industrial cluster is to be a core base that can produce spillover effects of knowledge. See Shimizu, H., Antorepurenāshippu [Entrepreneurship: From Basics to Frontiers] (Tokyo: Yuhikaku Publishing, 2022), p. 283. With regard to the effects of an industrial cluster bringing regional development, see also Kato, M., Sutātoappu no keizaigaku: Atarashī kigyō no tanjō to seichō purosesu o manabu [Economics of Start-Up: Understanding the Birth and Growth of New Firms] (Tokyo: Yuhikaku Publishing, 2022), pp. 69-78. 13 CASE, which stands for connected, autonomous, shared & services, and electric, refers to a concept illustrating the future landscape of the automobile industry. The Bank's Shizuoka Branch will celebrate its 80th anniversary this June. The Bank will continue working to contribute to development of the region through our central bank operations. We appreciate all your continued understanding and cooperation. Concluding Remarks Monetary policy since 2013, which began with the adoption of the 2 percent price stability target, has steadily produced positive effects. A decade later, the current situation differs from those seen in the past, but it will still take time to achieve the price stability target in a sustainable and stable manner. The Bank will continue to conduct monetary policy with the aim of achieving the 2 percent price stability target, accompanied by wage increases. Thank you. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Shizuoka February 2, 2023 WAKATABE Masazumi Deputy Governor of the Bank of Japan Chart 1 Introduction Highlights of the January 2023 Outlook Report (1) Japan's economy is likely to recover. (2) Inflation is likely to be relatively high in the short run and then decelerate. (3) There are high uncertainties, including developments in overseas economic activity and prices, and market developments warrant attention. (4) The Bank will continue with powerful monetary easing. Chart 2 I. Current Situation and Outlook for the Economy: Is This Time Any Different? Developments in the Global Economy Services PMI Manufacturing PMI s.a., DI s.a., DI United States United States Euro area Euro area China CY 18 China CY 18 Notes: 1. Figures for China are the Caixin China PMI. 2. In the right-hand chart, figures are the Services Business Activity Index. Source: Copyright © 2023 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved. Chart 3 I. Current Situation and Outlook for the Economy: Is This Time Any Different? The BOJ's Forecasts for Real GDP (January 2023 Outlook Report) s.a., ann., tril. yen 19/Q3 562 tril. yen Real GDP 22/Q3 554 tril. yen FY 2024 +1.1% Nominal GDP FY 2023 +1.7% 19/Q3 557 tril. yen FY 2022 +1.9% 22/Q3 547 tril. yen FY 06 Note: The forecasts presented are the medians of the Policy Board members' forecasts. The values of real GDP for fiscal 2022 onward are calculated by multiplying the actual figure for fiscal 2021 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. Chart 4 I. Current Situation and Outlook for the Economy: Is This Time Any Different? Virtuous Cycle of Income and Spending Rises in commodity and import prices Slowdowns in overseas economies Downward pressure on real exports Spending Downward pressure on real income Income Virtuous Cycle Services demand Business fixed investment Measures to reduce the burden of gasoline and electricity charges Prices and wages Waning of the impact of COVID-19 and supply-side constraints Recovery in corporate profits Government's economic measures Change in firms' price-setting stance Wage increases reflecting high corporate profits and inflation Chart 5 I. Current Situation and Outlook for the Economy: Is This Time Any Different? Medium- to Long-Term Expected Growth Rates 4.5 economic growth forecasts for 6 to 10 years ahead, % Japan 4.0 3.5 United States 3.0 2.5 2.0 1.5 1.0 0.5 0.0 CY 90 Source: Consensus Economics Inc., "Consensus Forecasts." Chart 6 I. Current Situation and Outlook for the Economy: Is This Time Any Different? The BOJ's Forecasts for the CPI (January 2023 Outlook Report) 4.5 Dec. 2022 All items : +4.0% All items less fresh food: +4.0% y/y % chg. y/y % chg. All items less fresh food All items less fresh food and energy FY 2022 +3.0 +2.1 FY 2023 +1.6 +1.8 FY 2024 +1.8 +1.6 4.0 Temporary factors 3.5 Energy <7%> 3.0 Services <50%> 2.5 Goods <40%> 2.0 CPI (less fresh food) 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY 19 Notes: 1. In the left-hand chart, figures for temporary factors are staff estimates and consist of mobile phone charges and the effects of the consumption tax hike, policies concerning the provision of free education, and travel subsidy programs. Figures in angular brackets show the share of each component. 2. In the right-hand chart, figures are the medians of the Policy Board members' forecasts. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 7 I. Current Situation and Outlook for the Economy: Is This Time Any Different? Price Change Distributions Pre-Pandemic United States Euro Area 40 share of the number of items, % 40 share of the number of items, % Dec. 2019 -10 -5 or less or more y/y % chg. 40 share of the number of items, % Sept. 2019 -10 -5 or less or more y/y % chg. -10 or less or more y/y % chg. or more y/y % chg. -5 Dec. 2022 -10 Dec. 2022 -5 or less 40 share of the number of items, % 40 share of the number of items, % Dec. 2022 Latest Japan 40 share of the number of items, % Goods Dec. 2019 Services Energy -10 or less -5 or more y/y % chg. -10 or less -5 or more y/y % chg. Note: Figures for the United States and the euro area are for the CPI for all items, while those for Japan are for the CPI for all items less fresh food. The pre-pandemic distribution for Japan is based on data for September 2019, which was before the CPI developments were affected by the consumption tax hike. Sources: BLS; Eurostat; Ministry of Internal Affairs and Communications. Chart 8 I. Current Situation and Outlook for the Economy: Is This Time Any Different? Firms' Price-Setting Stance Distributions of Firms' Medium- to Long-Term Inflation Expectations DIs for Firms' Output and Input Prices DI ("rise" - "fall"), % points Forecast % Dec. 2019 survey Output prices DI Dec. 2021 survey Input prices DI "Rise" Dec. 2022 survey "Fall" -10 -20 CY 18 -3 or less -2 -1 or more inflation rate nearest to expectation, % Notes: 1. Figures are for all industries and enterprises in the Tankan. 2. The right-hand chart shows the distributions of firms' forecasts for general prices (5 years ahead) based on the share of respondents. Source: Bank of Japan. Chart 9 I. Current Situation and Outlook for the Economy: Is This Time Any Different? Developments in Wages DIs for Firms' Employment Conditions -50 inverted, DI ("excessive employment" - "insufficient employment"), % points Labor-Management Wage Negotiations Manufacturing y/y % chg. Actual base pay increase Forecast -40 Nonmanufacturing Base pay increase demanded by labor unions CPI inflation -30 -20 "Insufficient" -10 "Excessive" CY 18 -1 -2 CY 88 Notes:1. In the left-hand chart, figures are for all enterprises in the Tankan. 2. In the right-hand chart, the figures for CPI inflation are for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The figures for the base pay increase demanded by labor unions before 2023 are calculated by subtracting seniority- and performance-related wage increases, which are assumed to be equal to the actual figures, from the total increase in wages (the sum of seniority- and performance-related wage increases and the increase in base pay) demanded by unions. The figure for 2023 is from Rengo's policy for the spring 2023 labor-management wage negotiations. Sources: Bank of Japan; Japanese Trade Union Confederation (Rengo); Central Labour Relations Commission; Institute of Labour Administration; Ministry of Internal Affairs and Communications. Chart 10 II. Monetary Policy: Achievements and Discussions since 2013 Evolution of BOJ's Monetary Policy y/y % chg. CPI (less fresh food) Average from FY 2013 onward +0.5% -1 Average from FY 1998 to 2012 -0.3% -2 -3 CY 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Zero Interest Rate Policy Feb. 1999 to Aug. 2000 Quantitative Easing Mar. 2001 to Mar. 2006 Comprehensive Monetary Easing Oct. 2010 to Apr. 2013 Quantitative and Qualitative Monetary Easing from Apr. 2013 onward Note: Figures exclude the effects of the consumption tax hikes, etc. Shaded areas denote recession periods. Source: Ministry of Internal Affairs and Communications. II. Monetary Policy: Achievements and Discussions since 2013 Chart 11 Monetary Easing from 2013 Onward Date MPM Decision Jan. Introduction of the price stability target of 2 percent Release of the joint statement with the government Apr. Introduction of quantitative and qualitative monetary easing (QQE) Oct. Expansion of QQE Dec. Introduction of supplementary measures for QQE (expanding eligible collateral, etc.) Jan. Introduction of QQE with a Negative Interest Rate July Enhancement of monetary easing (increasing purchases of ETFs, etc.) Sept. Introduction of QQE with Yield Curve Control ([1] yield curve control, [2] inflation-overshooting commitment) July Strengthening the framework for continuous powerful monetary easing (introducing forward guidance for the policy rates, etc.) Mar. Enhancement of monetary easing in light of the impact of the outbreak of the novel coronavirus (COVID-19) ( further ample supply of funds, [2] measures to facilitate corporate financing, [3] active purchases of ETFs and JREITs) Apr. Enhancement of monetary easing ([1] increase in purchases of CP and corporate bonds, [2] strengthening of the Special Operations in Response to COVID-19, [3] further active purchases of JGBs and T-Bills) May Introduction of a new fund-provisioning measure to support financing mainly of small and medium-sized firms Mar. Conduct of the Assessment for Further Effective and Sustainable Monetary Easing (establishing the Interest Scheme to Promote Lending, etc.) June Introduction of the Climate Response Financing Operations Sept. Phasing out of the Special Operations in Response to COVID-19, etc. Dec. Modification of the conduct of yield curve control Chart 12 II. Monetary Policy: Achievements and Discussions since 2013 Economic and Price Developments under the QQE Comparison with the Deflationary Period average FY 1998 to 2012 Real GDP (tril. yen) Nominal GDP (tril. yen) Number of employees (mil. persons) CPI inflation (less fresh food, %) Nominal wages (y/y, %) Money stock (M2, y/y, %) Bank lending (y/y, %) Tax revenue (tril. yen) FY 2013 to 2019 Change FY 2013 to present Change 500.8 543.3 +42.5 541.9 +41.1 522.5 541.5 +19.1 543.5 +21.0 54.30 57.92 +3.62 58.56 +4.26 -0.3 +0.5 +0.7 +0.5 +0.8 -0.8 +0.5 +1.3 +0.5 +1.3 +2.4 +3.3 +0.9 +4.0 +1.6 -1.8 +2.4 +4.2 +2.6 +4.4 45.9 55.8 +9.9 58.6 +12.8 Note: Figures for CPI inflation exclude the effects of the consumption tax hikes, etc. Those for nominal wages from fiscal 2016 onward are based on continuing observations following the sample revisions. Those for money stock prior to fiscal 2004 are from former series (M2+CDs). The figure for tax revenue for fiscal 2022 is on a budgeted basis. Changes indicate the difference from the period from fiscal 1998 to 2012. All of the latest figures are those available as of January 31, 2023. Sources: Cabinet Office; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Bank of Japan; Ministry of Finance. Chart 13 II. Monetary Policy: Achievements and Discussions since 2013 Economic and Price Developments under the QQE Population Growth and per Capita GDP Growth Decomposition of Economic Growth (a) (b) Total GDP = population × (c) (d) Employed Total hours GDP persons worked × × Total hours Total Employed worked population persons real GDP per capita (CY 1961-2021 average, y/y % chg.) GDP per capita real, average, % GDP GDP per Total population capita (a) Employed Hours GDP per persons/ worked hour Total per person worked population (b) (c) (d) 1990s 1.6 0.3 1.3 0.1 -1.2 2.4 2000s 0.5 0.1 0.4 -0.2 -0.5 1.0 2010s 1.2 -0.1 1.3 0.6 -0.4 1.2 0.0 0.5 1.0 1.5 2.0 2.5 population (CY 1961-2021 average, y/y % chg.) Note: In the right-hand chart, figures are those for 23 OECD member countries for which data from 1961 onward are available. Sources: Cabinet Office; Ministry of Internal Affairs and Communications; World Bank. Chart 14 II. Monetary Policy: Achievements and Discussions since 2013 Discussions over Monetary Policy Share of "Zombie Firms" % Banerjee and Hofmann Yamada et al. (2023): Listed firms Yamada et al. (2023): Small and medium-sized firms CY 85 Note: Figures for Yamada et al. (2023) are calculated using data from NIKKEI NEEDS-Financial QUEST and the Credit Risk Database. Sources: Banerjee, R. N., and Hofmann, B., "Corporate Zombies: Anatomy and Life Cycle," BIS Working Papers, no. 882 (2022), https://www.bis.org/publ/work882.htm; Yamada, K. et al., "Corporate Finance Facility and Resource Allocation: Research Trends and Developments during the Spread of COVID-19," Bank of Japan Working Paper Series, no. 23-E-1 (January 2023), https://www.boj.or.jp/en/research/wps_rev/wps_2023/data/wp23e01.pdf. Chart 15 II. Monetary Policy: Achievements and Discussions since 2013 Central Banks Adopting Inflation Targeting number of central banks adopting inflation targeting CY 1990 Note: Figures are based on the classification of monetary policy framework in the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions. Source: IMF. Chart 16 III. Recent and Future Economic Activity in Shizuoka Prefecture Population and Gross Prefectural Product per Capita in Shizuoka Prefecture 3.85 mil. persons FY 2000 = 100 3.80 3.75 3.70 3.65 Population (left scale) 3.60 Real gross prefectural product per capita (right scale) 3.55 FY 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Sources: Cabinet Office; Shizuoka Prefecture.
|
bank of japan
| 2,023 | 2 |
Speech by Mr Masazumi Wakatabe, Deputy Governor of the Bank of Japan, at the Center on Japanese Economy and Business, Columbia University, New York City, 27 February 2023.
|
February 27, 2023 Bank of Japan Seven Reflections on Japan's Economy, Monetary Policy, and the Bank of Japan Speech at the Center on Japanese Economy and Business, Columbia University in New York WAKATABE Masazumi Deputy Governor of the Bank of Japan I am extremely honored and happy to give a speech here today at Columbia University's Center on Japanese Economy and Business, or CJEB. I would like to take this opportunity to share my personal reflections on almost five years' experience as Deputy Governor of the Bank of Japan. The last time I gave a speech here was in October 2019. Three and a half years have passed since then, and a lot has happened during that time. My topic back then was "Japanification" and its potential lessons for the world; now inflation has returned. And I have returned too, but to a different venue, as CJEB has moved to a new campus. I would like to offer seven personal reflections. Let me start with the Bank of Japan. Reflection #1: It is all about teamwork I believe most university students have heard of, or at least must pretend to have heard of, the name Adam Smith. He is still right on many things. One notable insight he had is the importance of the division of labor.1 It is important in two senses. First, the division of labor within central banks. Central banks are like sophisticated machines, precisely designed and meticulously executed. The word people at the Bank of Japan frequently use to describe their business operations is kenkakusei, which means firmness and exactness. The first time I heard the word, I checked my Japanese dictionary to see whether it really exists: it does exist, but it is not something that crops up in everyday conversation. Economists and the public alike tend to take for granted the process from policy-making decisions to their implementation. But we cannot and should not. It takes an enormous amount of effort to implement central bank operations as smoothly and stably as they do. One good example is the issuing of banknotes. Nowadays we tend to use cash less and less, but delivering banknotes to whoever needs them, whenever and wherever, is no easy matter. Secondly, central banks are just part of overall economic policy. On the one hand there is the government, and on the other, the central bank, and these two are expected to cooperate with each other. The Bank of Japan Act stipulates that the Bank's autonomy regarding currency Those who are not familiar with the concept should watch "I, Pencil," which is readily available on YouTube. and monetary control must be respected, while the mandates of the Bank are stipulated in the act. 2 The act also stipulates that the Bank must always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government's economic policy are mutually compatible. This government-central bank cooperation is critical during crises. Reflection #2: Expect and prepare for the unexpected, but do not expect perfect foresight This virtually summarizes my five years at the Bank of Japan. During my term, a series of exogenous shocks have hit the Japanese economy. There were natural disasters, the rise of trade tensions between the United States and China, and weakened demand following the consumption tax hike. Especially, in March 2020, we had the COVID-19 pandemic, and in February 2022, the Russian invasion of Ukraine. I must confess that although we had been expecting and preparing for natural disasters, we were not prepared for the pandemic, nor for the Russian invasion.3 In the end, what central banks can do is inject liquidity into the markets, and control money and interest rates for the economy, but we have to be nimble. We must keep adapting to new challenges and do our best to prepare for whatever is to come. In cooperation with the government, the Bank of Japan has managed to sustain the economy during the COVID-19 pandemic (Chart 1). But we have to be humble. We cannot foresee everything, so we must keep learning from new situations. In this regard, I believe Andy Weir's novels such as The Martian and Project Hail Mary should be the required readings for all central bankers. Stanley Fischer argued that the goals or mandates of central banks must be determined by the legislature, so in that sense there is no goal independence, while central banks maintain instrument independence. See Stanley Fischer's classic article, Fischer (1995). He also suggested a theoretical possibility of central banks being too independent so that potential benefits from coordination of monetary and fiscal policies may be lost. See also, Orphanides (2018). 3 For the Bank's experience of the 2011 Great East Japan Earthquake and its preparations for natural disasters, see Wakatabe (2019). Reflection #3: Maintain focus, but adapt to changes This is a corollary of the previous one. We now take for granted the concept and existence of central banks, but central banks are products of history. Sveriges Riksbank, the oldest central bank, established in 1668, and the Bank of England, the second oldest, established in 1694, were founded to finance war and serve the government. The Bank of Japan, established in 1882, was founded to integrate payment systems and secure enough liquidity for the economy.4 An account of the process by which these banks became central banks, with our cherished mandates of price stability and financial system stability, would require at least a book. However, I would like to point out three factors. First, there is a natural tendency and logic to having a unified payment system, which in turn requires a de facto manager of the payment system.5 Second, the actual course of history has demanded such a manager to deal with economic and financial crises which involved price and financial fluctuations: the development of a financial sector with a fractional reserve system necessitated a lender of last resort (LOLR), a function which would be performed by central banks.6 Thirdly, throughout those economic and financial crises, economists had developed the concept of a central bank and demanded that existing banks become central banks.7 The upshot is that central banks are historical products, so are central bank mandates. Now central banks are facing new challenges, such as climate change and central bank digital currencies (CBDC). Should central banks engage with climate change, and if so, to what extent? These are extremely important questions, and the response of central banks to this challenge differs depending on the situation in each country. The Bank of Japan believes that climate change could have a potentially large impact on the economy, prices, and the financial system in the future, which in turn could affect price and financial system stability. The Bank For the history of central banks, see Edvinsson, Jacobson, and Waldenström, eds. (2018). See Edgeworth (1888) and Goodhart (1988). 6 How central banks have assumed this LOLR function is a matter of historical debate. For the case of the Bank of England, see Anson et al. (2017) and Book (2019). 7 I have discussed Henry Thornton's contributions to developing the idea of price stability and the lender of last resort (Wakatabe 2022b). has therefore decided that addressing this challenge is consistent with its mandate of maintaining price and financial system stability (Bank of Japan 2021; Wakatabe 2021, section II. A.). Reflection #4: Research is essential, and economics is essential to research, but that is not the whole story As I have explained, the relationship between economics and central banks has been a twoway street. John Hicks argued that the dynamics of money and the history of monetary economics are closely related to each other. He said monetary theory "belongs to monetary history" in a sense, because "a large part of the best work on Money is topical" and "throughout the whole time -- back before Ricardo, forward after Keynes -- money itself has been evolving" (Hicks 1967, pp. 156-57). Recent developments are characterized by closer international intellectual cooperation. A good example is Japan's fight against deflation: influential economists such as Paul Krugman, Ben Bernanke, and Lars Svensson have proposed a wide variety of plans to end deflation (Krugman 1998; Bernanke 1999; Svensson 2001). People at CJEB have also contributed to this debate (Ito, Patrick, and Weinstein, eds. 2005). Their research helped the Bank of Japan to adopt its 2 percent inflation target in 2013. So, research is essential and economics is essential to research. But that is not the whole story. Monetary policy should be grounded in sound economic principles and data, but applying these principles and gathering data require certain skills. In other words, monetary policy has two aspects, "science" and "art" (with "art" encompassing both technology and judgment). This is where central bank economists and researchers step in.8 They are first translators of academic analysis to policymakers. I can attest that no policymaker can keep up with stateof-the-art academic research. One function of the "translator" is to select relevant material In November 2022, Carl Walsh and Athanasios Orphanides, honorary advisers to the Bank's Institute for Monetary and Economic Studies, and I discussed this and other aspects of research at central banks. See Orphanides, Walsh, and Wakatabe (2023). from the vast sea of research. But they are also engineers. They must gather data and information. While central banks have used real time financial data, the COVID-19 pandemic has highlighted the importance of alternative economic data, including high-frequency data, textual data, and granular data (Chart 2).9 Data are about the past. To gain some ideas about the future, surveys and interviews are useful. The Bank has been compiling the Tankan survey (Short-Term Economic Survey of Enterprises in Japan) every quarter. 10 This is the most comprehensive survey of firms, which asks questions about a wide variety of topics such as business conditions, fixed investment plans, and the inflation outlook. Reflection #5: Japan offers exciting research topics Japan has been a source of fascinating research topics. The most well-known one is the zero lower bound (ZLB) or effective lower bound. Unfortunately, the Bank had to face this ZLB sooner than other central banks. Through my experience at the Bank, I am more convinced than ever that central banks need enough room for the inflation rate so that interest rates do not go down below zero. Another important topic is how inflation expectations are formed (Chart 3). Standard New Keynesian models used in modern macroeconomics assume the convergence of the inflation rate with the inflation target. This assumes that inflation expectations are well-anchored to the target rate or converging to it soon. It reminds me of the classic joke about economists when confronted with a can on a desert island: "Let us assume there is a can opener." In reality, inflation expectations are somewhat adaptive, formed through experience. This is especially important in the context where central banks have been trying to anchor inflation expectations at the target level. Let me discuss the topic that interests me most. Why is deflation bad? It may seem obvious to the general public, but it is puzzling for economists, who tend to think of the economy in terms of real variables. This goes straight to the question why central banks should care about price stability. Alan Greenspan, former chair of the Federal Reserve, once voiced concerns https://www.boj.or.jp/en/research/bigdata/index.htm. https://www.boj.or.jp/en/statistics/tk/index.htm. The Tankan survey has been used to estimate firms' inflation expectations (Coibion et al. 2020, p. 13). about deflation: deflation would sap pricing power from firms, so that business dynamism would be lost (Greenspan 2002; Watanabe 2022, pp. 285-87). In fact, since Japanese firms were unable to raise their selling prices under prolonged deflation, they could not increase wages and had to make enormous efforts to curb costs. Japan has also experienced a long period of stagnation with deflation or low inflation. One under-explored topic of great importance is what the effects of prolonged stagnation on the growth trend -- sometimes known as hysteresis -- exactly are.11 Reflection #6: Communication is absolutely necessary, extremely important, but really difficult The key to modern monetary policy is expectation management. The very idea of having a clearly defined inflation target is based on the importance of communication. Communication with the general public is particularly important since their perception plays a key role in anchoring inflation expectations, and thus, affects the actual evolution of inflation. But achieving good communication is easier said than done. Since the communication revolution in central banking (Blinder et al. 2008; Blinder et al. 2022), central banks have made greater efforts to engage with the general public, but the results are not entirely encouraging. In Japan, the Bank of Japan has been pursuing the 2 percent price stability target for ten years, but public understanding of this issue remains low (Chart 4). There is no consensus yet on the best practice for central bank communications with the general public. But it is clear that a one-size-fits-all approach in communication strategy is not appropriate. We should keep in mind that the general public are not experts in central banking or monetary policy. We need to avoid highly technical jargon and devise clear and concise explanations. The use of social media and digital technologies can also be effective in improving interaction with the general public. In this regard, the Bank of Japan has taken measures to improve the effectiveness of its communications with the public. For example, we have introduced infographics to convey the key messages of the Outlook for Economic Activity and Prices, or Outlook Report (Chart 5); we have started live streaming of the governor's press conference after Monetary Policy For hysteresis, see a survey by Cerra, Fatás, and Saxena (2020). Meetings; we are increasing our visibility on social media; and we have renewed our website with an enhanced user interface across various devices. Furthermore, we are taking a more digital friendly approach to providing information to the public. One example is the initiatives of the Bank's Institute for Monetary and Economic Studies to celebrate its 40th anniversary, which include devised ways to effectively disseminate information.12 Central bank communication is a never-ending quest. Reflection #7: Learn from the past, and prepare for the future13 Lastly, let me come back to where I left off three and a half years ago. Since the 2000s, the global economy has been concerned about secular stagnation or Japanification -- the combination of low inflation (or deflation), low growth, and low interest rates. Whatever happened to Japanification? Is the age of high inflation returning? Or, has the fear of secular stagnation passed? This is an ongoing debate.14 In my opinion, we have not seen the last of Japanification. The current narrative that we are about to enter a high-inflation regime is based on the following six factors (Chart 6). First is the growing role of government. Some argue that inflationary pressure on the economy will increase due to higher government spending, tighter regulations, and accumulating fiscal deficit and government debt. The second factor is the convergence of economic growth. With China's high growth coming to an end, growth rates in emerging economies are declining. This suggests that the growth rates of advanced economies and those of emerging economies are beginning to converge. https://www.imes.boj.or.jp/en_index.html. This section draws on my speech given in December 2022. For the full text, see Wakatabe (2022b). 14 For arguments in favor of the regime shift, see The Economist (2022a, 2022b), Spence (2022), and Rogoff (2022a, 2022b). For arguments against the regime shift, see Krugman (2022a, 2022b) and Blanchard (2023a, 2023b). The third factor is the end of globalization, or deglobalization. Sluggish growth in goods trade since 2008, coupled with recent geopolitical tensions and rising concern over economic security, has led to a global restructuring of supply chains. It has been argued that the shift from the era of integration and efficiency to that of segregation and stability will bring high inflation. The fourth factor is the change in demographics. According to Goodhart and Pradhan (2020), the global low inflation environment is the result of a significant increase in the world's labor supply from 1990 to 2018 due to the rise of China and developments in demographics in advanced economies. However, they argue that this trend is now reversing: a declining and aging population in China and advanced economies will lead to a return of inflation. The fifth factor is the transition to a decarbonized society to address climate change. Some have argued that this transition will lead to so-called greenflation. The sixth factor is the onset of a wartime economy. There is a view that growing geopolitical risks could lead to a wartime economy, including a return to the kind of inflationary environment that was seen during the Cold War (Pozsar 2022). Let us look at these factors one by one. First, the role of government has been steadily growing in size and scope.15 Since the 1980s, there have been periods when attempts were made to curb such growth, but the uptrend continues. Analyzing the effects of government regulation is not straightforward since the nature of such regulations may matter, but it is safe to say at least that they have tended to proliferate. Inflation has trended downward during this same period. Also, we can find no clear relationship between inflation rates and the ratio to GDP of government spending or government debt (Charts 7 and 8). With regard to the second factor, it is unclear whether the slowdown in growth rates is inflationary or deflationary in nature. Indeed, low growth is precisely the phenomenon over The Economist (2021) shows that the ratio of government spending to GDP in advanced economies has trended upward since 1870. Adolf Wagner's law of increasing state activity and Peacock and Wiseman's displacement effect hypothesis argue that government spending will inevitably increase. See also, Robinson (2020). which concern was raised amid secular stagnation, with some arguing that low growth is the cause of low inflation. As for the third factor, the argument over whether globalization has brought low inflation is empirically inconclusive (Kuroda 2018). Some hold that it is too early to tell whether globalization has even run its course. Although growth in goods trade has decelerated in recent years, trade in services continues to grow at a high rate (Chart 9). Naturally, the restructuring of supply chains from the perspective of economic security can serve as a costpush factor, as firms opt for the security of procurement over minimizing costs. On the other hand, given that services industries are labor intensive, if automation of the services sector moves ahead globally -- through the use of means such as artificial intelligence (AI) -- and wages converge on a global level, this may turn out to have a disinflationary effect (Baldwin 2022). Fourth, the impact of demographics is uncertain. It is true that the decline in labor supply due to a declining and aging population could become inflationary. On the other hand, longer life expectancies can motivate people to build up their precautionary savings and push up savings rates. Declining birthrates will cause reductions not only in the labor force population but also in the consumer population, which, among other factors, could have an adverse impact on the growth rate. This has more often been regarded as a deflationary factor, particularly in Japan. As for the fifth factor, greenflation, the impact of decarbonization on economic and financial conditions is complicated. If it is thought of as a response to negative externalities, this implies firms taking on costs that they have previously not faced, which becomes a cost-push factor. What is not clear is whether this will elevate inflation or have a disinflationary effect by suppressing aggregate demand. Conversely, if investment related to decarbonization rises, this could stimulate aggregate demand and feed into demand-pull inflation. In this respect, whether greenflation occurs will depend not so much on cost-push factors but on developments in aggregate demand (Schnabel 2022). The last factor, the onset of a wartime economy, is potentially the most inflationary one. One study finds that the last 12 largest wars resulted in a sharp rise in inflation and nominal interest rates during and in the aftermath of war. The study shows that, especially in wars fought globally, inflation peaked at 8 percent on average one year after the war ended and took about three years to subside (Chankova and Daly 2021). More generally, we should keep in mind the following three points. First, many of the inflation factors listed here are cost-push factors. However, it is well known that cost-push inflation does not last long. When an exogenous shock occurs, there is an adjustment from the old to a new price system. After adjustment, the rising inflation rate is likely to return to the steady-state inflation rate; so, the important point is how this rate is affected. Of course, it is possible that cost-push factors will remain, but whether they will push up the steady-state inflation rate is uncertain. Second, related to the fact that cost-push inflation is unsustainable, the factors being addressed here are real factors, and it is not obvious what their impact on prices would be. If we think of prices as the price of goods and services relative to money, it would seem necessary to take monetary factors into consideration. Third, when considering these issues within the framework of monetary policy, it is appropriate to consider the relationship between the natural rate of interest and market interest rates. For a real factor to be deemed inflationary, there has to be a tendency for the natural rate of interest to rise vis-à-vis market interest rates. In fact, however, the aforementioned real factors affect the natural rate of interest through various channels, and the rate can either rise or fall (Chart 10).16 To give an example from demographics, because post-retirement households tend to draw down their savings, capital supply may decrease. This would push up the natural rate of interest. On the other hand, households anticipating longer life expectancies will seek to Gopinath (2022) considers the following seven channels through which the COVID-19 pandemic will have an enduring effect on the natural rate of interest: inequality, demographics, labor supply, productivity, savings and safe assets demand, debt in advanced economies, and climate transition. She states that only the last two channels can clearly push up the natural rate of interest. augment their savings accordingly, which may increase capital supply. This would lower the natural rate of interest. Moreover, if the declining population reduces the labor force population, the per-capita capital equipment ratio will rise, leading to a fall in capital demand. This would also lower the natural rate of interest. We thus ought to say that the overall impact of demographics on the natural rate of interest is uncertain. Furthermore, if uncertainties increase on the whole, this could motivate people to build up their precautionary savings, which in turn would boost capital supply. This would consequently lower the natural rate of interest. What can history tell us about the future? Jordà et al. (2019) demonstrated that, for 16 countries, including Japan, from 1870 to 2015, the following relationship between the real rate of return on safe assets (r safe), the real economic growth rate (g), and the real rate of return on aggregate wealth (r wealth) held approximately true: rsafe < g < rwealth (Chart 11).17 Three further relationships follow from this, but let me focus on r safe < g.18 Except for the interwar period and the period between the Great Inflation and around the 2000s, rsafe < g held true. Although g reached the 4 percent range during the high-growth period following World War II, it fell to the 2 percent range in the 1970s. It then declined further with the onset of the global financial crisis (GFC) in the 2000s, but has recently remained at around 2 percent. In a similar vein, what about developments in the natural rate of interest? While there are various estimates of the natural rate of interest, one way to look at it is to analyze This relationship can be understood intuitively. Safe assets have the lowest rate of return. This is followed by the rate of return on the aggregate flow of goods and services in the economy. The rate of return on all assets, including risk assets, is the highest. See also, Barro (2021). 18 I have elaborated on the other two relationships in Wakatabe (2022b). developments in real interest rates. According to Schmelzing (2020), global real interest rates have historically been on a downtrend (Chart 12).19 What are the implications for future monetary policy if these relationships continue to hold? If the natural rate of interest continues on a declining trend, the challenge for central banks' monetary policy will continue to be how to lower real interest rates in an effective manner. Faced with the ZLB in an era of low inflation, central banks have taken steps to boost the effectiveness of their monetary policy. As a result, central banks have reaffirmed the importance of committing to the 2 percent inflation target. With regard to policy measures, the Bank of Japan has introduced such measures as quantitative easing, negative interest rates, diversification of asset purchasing, yield curve control, and forward guidance. The necessity for policy innovation to boost the effectiveness of monetary policy, both in terms of policy objectives and measures, may increase; it will certainly not diminish.20 My analysis is based on history and past trends. Should these trends change significantly, my conclusions will also change. We cannot rule out the possibility that such major changes will occur in the future. However, as I said earlier, it is uncertain whether the natural rate of interest will rise as a trend in the future. On the contrary, we cannot deny the possibility of an ongoing decline in the natural rate of interest. What history over the long term makes apparent is that the mild-inflation regime has not come to an end, and we should say that the potential dangers of secular stagnation and Japanification have not yet passed. Let me finish on a more positive note. There is no need for pessimism even during periods of Japanification. Having long been mired in deflation, the Bank adopted the 2 percent price stability target in January 2013 and changed policy with the introduction of quantitative and qualitative monetary easing (QQE) in April 2013, which has produced positive effects. Even Due to data limitations, global real interest rates in this study were calculated from GDP-weighted nominal interest rates and inflation rates using available data for eight countries: Italy, the Netherlands, France, Spain, the United Kingdom, Germany, the United States, and Japan. Since the study does not take into account the recent rise of China and emerging economies, the possibility of underestimation warrants attention. 20 Bernanke (2022, pp. 330-65) elaborates on this point. before its introduction, economic growth had been achieved despite the declining labor force population, but the GDP growth rate has improved and prices have risen clearly since 2013, as the unemployment rate declined and the number of employed persons increased (Charts 13 and 14). The overall GDP growth rate has been low because the labor force population has been declining; however, if we look at the real GDP growth rate per capita, which takes into account changes in the employment rate over time, we see that, while the rate was at 0.4 percent in the 2000s, it recovered to the 1990s level of 1.3 percent in the 2010s (Chart 15). Improved employment conditions led to an increase in the employment rate for new graduates and ended the so-called employment ice age. Of course, providing support for those who struggled to find jobs during the employment ice age remains a crucial task. In order to create an environment that can provide employment opportunities for this generation, it is important to maintain a high-pressure economy. While the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) was on average minus 0.3 percent between fiscal 1998 and fiscal 2012, the average rate from fiscal 2013 onward rose to 0.5 percent (Chart 16). Although it is true that the price stability target of 2 percent has not yet been achieved, we are now in a situation where the economy is no longer in deflation, in the sense of a sustained decline in prices.21 These improvements in economic activity and prices were made following the adoption of the price stability target of 2 percent in 2013. Japan's economy was in deflation for a prolonged period, but sustainable monetary easing has certainly had a positive effect on the real economy. I hope I have presented enough food for thought. Thank you very much. I am now looking forward to having discussions. For details of the relationship between wages and prices, see section II. B. in Wakatabe (2022a). References Anson, Mike, David Bholat, Miao Kang, and Ryland Thomas. 2017. "The Bank of England as Lender of Last Resort: New Historical Evidence from Daily Transactional Data." Bank of England Staff Working Paper, no. 691. https://www.bankofengland.co.uk/working-paper/2017/the-bank-of-england-aslender-of-last-resort-new-historical-evidence-from-daily-transactional-data. Baldwin, Richard. 2022. "Globotics and Macroeconomics: Globalisation and Automation of the Service Sector." CEPR Press Discussion Paper, no. 17530. Bank of Japan. 2021. "The Bank of Japan's Strategy on Climate Change." July 16, 2021. https://www.boj.or.jp/en/about/release_2021/rel210716b.htm. Barro, Robert J. 2021. "R Minus G." NBER Working Paper, no. 28002. Bernanke, Ben S. 1999. "Japanese Monetary Policy: A Case of Self-Induced Paralysis?" December 1999. https://www.princeton.edu/~pkrugman/bernanke_paralysis.pdf. ------. 2022. 21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19. New York: W.W. Norton & Company. Blanchard, Olivier. 2023a. Fiscal Policy under Low Interest Rates. Cambridge: The MIT Press. ------. 2023b. "Secular Stagnation Is Not Over." Realtime Economics, Peterson Institute for International Economics, January 24, 2023. https://www.piie.com/blogs/realtimeeconomics/secular-stagnation-not-over. Blinder, Alan S., Michael Ehrmann, Marcel Fratzscher, Jakob de Haan, and David-Jan Jansen. 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence." Journal of Economic Literature 46 (4): pp. 910-45. Blinder, Alan S., Michael Ehrmann, Jakob de Haan, and David-Jan Jansen. 2022. "Central Bank Communication with the General Public: Promise or False Hope?" NBER Working Paper, no. 30277. Book, Joakim. 2019. "When Did the Bank of England Become a Lender of Last Resort?" American Institute for Economic Research, June 11, 2019. https://www.aier.org/article/when-did-the-bank-of-england-become-a-lender-of-lastresort. Cerra, Valerie, Antonio Fatás, and Sweta C. Saxena. 2020. "Hysteresis and Business Cycles." IMF Working Paper, no. 2020/073. Chankova, Rositsa D., and Kevin Daly. 2021. "Inflation in the Aftermath of Wars and Pandemics." VoxEU, April 15, 2021. https://cepr.org/voxeu/columns/inflationaftermath-wars-and-pandemics. Coibion, Olivier, Yuriy Gorodnichenko, Saten Kumar, and Mathieu Pedemonte. 2020. "Inflation Expectations as a Policy Tool?" Journal of International Economics 124: pp. 1-27. The Economist. 2021. "Briefing: Governments Are Not Going to Stop Getting Bigger." November 20, 2021. ------. 2022a. "Free Exchange: Vertiginous Views." September 3, 2022. ------. 2022b. "Special Report: The World Economy." October 8, 2022. Edgeworth, Francis Y. 1888. "The Mathematical Theory of Banking." Journal of the Royal Statistical Society 51 (1): pp. 113-27. Edvinsson, Rodney, Tor Jacobson, and Daniel Waldenström, eds. 2018. Sveriges Riksbank and the History of Central Banking. Cambridge: Cambridge University Press. Fischer, Stanley. 1995. "Central-Bank Independence Revisited." American Economic Review 85 (2): pp. 201-6. Goodhart, Charles. 1988. The Evolution of Central Banks. Cambridge: The MIT Press. Goodhart, Charles, and Manoj Pradhan. 2020. The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival. London: Palgrave Macmillan. Gopinath, Gita. 2022. "How Will the Pandemic and the War Shape Future Monetary Policy?" Speech at the Jackson Hole Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, August 26, 2022. https://www.kansascityfed.org/Jackson%20Hole/documents/9029/F6.Gopinath_Jack son_Hole_23Aug2022.pdf. Greenspan, Alan. 2002, "Issues for Monetary Policy." Remarks before the Economic Club of New York, December 19, 2002. https://www.federalreserve.gov/boarddocs/speeches/2002/20021219/default.htm. Hicks, John. 1967. "Monetary Theory and History: An Attempt at Perspective." In Critical Essays in Monetary Theory, pp. 155-73. Oxford: Clarendon Press. Ito, Takatoshi, Hugh Patrick, and David E. Weinstein, eds. 2005. Reviving Japan's Economy: Problems and Prescriptions. Cambridge: The MIT Press. Jordà, Òscar, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. "The Rate of Return on Everything, 1870-2015." The Quarterly Journal of Economics 134 (3): pp. 1225-98. Krugman, Paul R. 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap." Brookings Papers on Economic Activity, no. 2: pp. 137-87. ------. 2022a. "Is the Era of Cheap Money Over?" The New York Times, June 21, 2022. ------. 2022b. "Is the Era of Low Interest Rates Over?" The New York Times, October 4, 2022. Kuroda, Haruhiko. 2018. "Globalization and Monetary Policy." Panelist speech at BIS Symposium to Mark the 20th Anniversary of the BIS Representative Office for Asia and the Pacific, October 15, 2018. https://www.boj.or.jp/en/announcements/press/koen_2018/ko181016a.htm. Orphanides, Athanasios. 2018. "The Boundaries of Central Bank Independence: Lessons from Unconventional Times." Monetary and Economic Studies 36 (November 2018): pp. 35-55. Orphanides, Athanasios, Carl E. Walsh, and Masazumi Wakatabe. 2023. "Research at Central Banks." The IMES Newsletter, February 2023. https://www.imes.boj.or.jp/en/newsletter/nl202302E1.html. Pozsar, Zoltan. 2022. "War and Interest Rates." Credit Suisse Economics, August 1, 2022. https://advisoranalyst.com/wp-content/uploads/2022/08/zoltan-pozsar-aug-2-warand-interest-rates-1.pdf. Robinson, Marc. 2020. Bigger Government: The Future of Government Expenditure in Advanced Economies. Arolla Press. Rogoff, Kenneth S. 2022a. "Institutional Innovation and Central Bank Independence 2.0." IMES Discussion Paper Series, no. 2022-E-9. https://www.imes.boj.or.jp/research/papers/english/22-E-09.pdf. ------. 2022b. "The Age of Inflation: Easy Money, Hard Choices." Foreign Affairs 101, no. 6 (November/December 2022). Schmelzing, Paul. 2020. "Eight Centuries of Global Real Interest Rates, R-G, and the 'Suprasecular' Decline, 1311-2018." Bank of England Staff Working Paper, no. 845. https://www.bankofengland.co.uk/working-paper/2020/eight-centuries-of-globalreal-interest-rates-r-g-and-the-suprasecular-decline-1311-2018. Schnabel, Isabel. 2022. "A New Age of Energy Inflation: Climateflation, Fossilflation and Greenflation." Speech at a panel on "Monetary Policy and Climate Change" at The ECB and its Watchers XXII Conference, March 17, 2022. https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220317_2~dbb3582f0a.e n.html. Spence, Michael. 2022. "Secular Inflation." Project Syndicate, October 12, 2022. Svensson, Lars E. O. 2001. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap." Monetary and Economic Studies 19 (S-1, February 2001): pp. 277-312. Wakatabe, Masazumi. 2019. "Financial and Settlement Systems as Social Infrastructure: Disaster Management Perspective." Opening remarks at the Symposium "The Impact of Natural Disasters on Financial Markets and Financial Institutions" held at Nagoya City University Graduate School, November 28, 2019. https://www.boj.or.jp/en/about/press/koen_2019/ko191225a.htm. ------. 2021. "Japan's Economy and Monetary Policy." Speech at a meeting with local leaders in Hiroshima (via webcast), September 1, 2021. https://www.boj.or.jp/en/about/press/koen_2021/ko210901a.htm. ------. 2022a. "Japan's Economy and Monetary Policy." Speech at a meeting with local leaders in Okayama, June 1, 2022. https://www.boj.or.jp/en/announcements/press/koen_2022/ko220601a.htm. ------. 2022b. "The Future of Monetary Policy: Lessons from the History of Monetary Economics." Keynote speech at the 38th Annual Meeting of the Japan Association of Business Cycle Studies, December 3, https://www.boj.or.jp/en/about/press/koen_2022/ko221222a.htm. Watanabe, Tsutomu. 2022. Bukka to wa nani ka [What are prices?] Tokyo: Kodansha. 2022. Seven Reflections on Japan's Economy, Monetary Policy, and the Bank of Japan Speech at the Center on Japanese Economy and Business, Columbia University in New York February 27, 2023 WAKATABE Masazumi Deputy Governor of the Bank of Japan Seven Reflections #1: It is all about teamwork #2: Expect and prepare for the unexpected, but do not expect perfect foresight #3: Maintain focus, but adapt to changes #4: Research is essential, and economics is essential to research, but that is not the whole story #5: Japan offers exciting research topics #6: Communication is absolutely necessary, extremely important, but really difficult #7: Learn from the past, and prepare for the future Reflection #1: It is all about teamwork Reflection #2: Expect and prepare for the unexpected, but do not expect perfect foresight Chart 1 Employment Situation and Financial Conditions Number of Employed Persons s.a., CY 2019 = 100 s.a., mil. persons Lending Attitudes of Financial Institutions DI ("accommodative" - "severe"), % points -10 Employed persons (left scale) Regular employees (right scale) Large enterprises in all industries -20 Small enterprises in all industries Small enterprises in face-to-face services industry Non-regular employees (right scale) CY08 -30 CY 08 Notes: 1. In the left-hand chart, figures for regular employees and non-regular employees prior to 2013 are based on the "detailed tabulation" in the Labour Force Survey. 2. Figures for small enterprises in the face-to-face services industry are the weighted averages of the DIs for retailing, transport & postal activities, services for individuals, and accommodations, eating & drinking services. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Reflection #3: Maintain focus, but adapt to changes Reflection #4: Research is essential, and economics is essential to research, but that is not the whole story Chart 2 BOJ's Research Examples since 2018 Alternative Data Analysis on Real Economy Year Research Papers Furukawa, K., and Hisano, R., "A Nowcasting Model of Exports Using Maritime Big Data," Bank of Japan Working Paper Series, no. 22-E-19. Furukawa, K. et al., "A Nowcasting Model of Industrial Production Using Alternative Data and Machine Learning Approaches," Bank of Japan Working Paper Series, no. 22-E-16. Nakajima, J., Takahashi, M., and Yagi, T., "An Assessment of Online Consumption Trends in Japan during the COVID-19 Pandemic," Bank of Japan Working Paper Series, no. 22-E-11. Nakazawa, T., "Constructing GDP Nowcasting Models Using Alternative Data," Bank of Japan Working Paper Series, no. 22-E-9. Okubo, T. et al., "Development of 'Alternative Data Consumption Index': Nowcasting Private Consumption Using Alternative Data," Bank of Japan Working Paper Series, no. 22-E-8. Mikami, T., Yamagata, H., and Nakajima, J., "Using Text Analysis to Gauge the Reasons for Respondents' Assessment in the Economy Watchers Survey," Bank of Japan Research Laboratory Series, no. 21-E-2. Nakajima, J. et al., "Extracting Firms' Short-Term Inflation Expectations from the Economy Watchers Survey Using Text Analysis," Bank of Japan Working Paper Series, no. 21-E-12. Matsuura, K. et al., "Nowcasting Economic Activity with Mobility Data," Bank of Japan Working Paper Series, no. 21-E-2. Oh, Y., and Takahashi, K., "R&D and Innovation: Evidence from Patent Data," Bank of Japan Working Paper Series, no. 20-E-7. Kobayashi, S. et al., "The Impact of COVID-19 on US Consumer Spending: Quantitative Analysis Using High-Frequency StateLevel Data," Bank of Japan Review Series, no. 2020-E-7. Miyakawa, D., and Shintani, K., "Disagreement between Human and Machine Predictions," IMES Discussion Paper Series, no. 2020-E-11. Abe, N., and Shinozaki, K., "Compilation of Experimental Price Indices Using Big Data and Machine Learning: A Comparative Analysis and Validity Verification of Quality Adjustments," Bank of Japan Working Paper Series, no. 18-E-13. Note: All papers are available at the Bank of Japan's website (https://www.boj.or.jp/en/research/bigdata/index.htm). Reflection #5: Japan offers exciting research topics Chart 3 BOJ's Research Examples since 2018 Formation of Inflation Expectations Year Research Papers Ikeda, S. et al., "Inflation in Japan: Changes during the Pandemic and Issues for the Future," Bank of Japan Working Paper Series, no. 22-E-18. Kurozumi, T., and Oishi, R., "A Comparison of Japanese and US New Keynesian Phillips Curves with Bayesian VAR-GMM," Bank of Japan Working Paper Series, no. 22-E-3. Takahashi, Y., and Tamanyu, Y., "Households' Perceived Inflation and CPI Inflation: the Case of Japan," Bank of Japan Working Paper Series, no. 22-E-1. Yoneyama, S., "Central Bank Transparency and Disagreement in Inflation Expectations," IMES Discussion Paper Series, no. 2021-E-12. Nakajima, J. et al., "Extracting Firms' Short-Term Inflation Expectations from the Economy Watchers Survey Using Text Analysis," Bank of Japan Working Paper Series, no. 21-E-12. Okuda, T., and Tsuruga, T., "Inflation Expectations and Central Bank Communication with Unknown Prior," IMES Discussion Paper Series, no. 2021-E-7. Hiraki, K., and Hirata, W., "Market-Based Long-Term Inflation Expectations in Japan: A Refinement on Breakeven Inflation Rates," Bank of Japan Working Paper Series, no. 20-E-5. Kitamura, T., and Tanaka, M., "Firms' Inflation Expectations under Rational Inattention and Sticky Information: An Analysis with a Small-Scale Macroeconomic Model," Bank of Japan Working Paper Series, no. 19-E-16. Inatsugu, H., Kitamura, T., and Matsuda, T., "The Formation of Firms' Inflation Expectations: A Survey Data Analysis," Bank of Japan Working Paper Series, no. 19-E-15. Ichiue, H. et al., "Households' Liquidity Constraint, Optimal Attention Allocation, and Inflation Expectations," Bank of Japan Working Paper Series, no. 19-E-8. Maruyama, T., and Suganuma, K., "Inflation Expectations Curve in Japan," Bank of Japan Working Paper Series, no. 19-E-6. Uno, Y., Naganuma, S., and Hara, N., "New Facts about Firms' Inflation Expectations: Short- versus Long-Term Inflation Expectations," Bank of Japan Working Paper Series, no. 18-E-15. Uno, Y., Naganuma, S., and Hara, N., "New Facts about Firms' Inflation Expectations: Simple Tests for a Sticky Information Model," Bank of Japan Working Paper Series, no. 18-E-14. Hogen, Y., and Okuma, R., "The Anchoring of Inflation Expectations in Japan: A Learning-Approach Perspective," Bank of Japan Working Paper Series, no. 18-E-8. Note: All papers are available at the Bank of Japan's website (https://www.boj.or.jp/en/research/rs_all/index.htm). Reflection #6: Communication is absolutely necessary, extremely important, but really difficult Chart 4 Public Recognition of the BOJ's Price Stability Target share of respondents who answered they knew the BOJ's price stability target, % CY 13 Note: The survey asks respondents the question "Do you know that the Bank has set the price stability target at 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI)?" Source: Bank of Japan. Chart 5 Highlights of the January 2023 Outlook Report (1) Japan's economy is likely to recover. (2) Inflation is likely to be relatively high in the short run and then decelerate. (3) There are high uncertainties, including developments in overseas economic activity and prices, and market developments warrant attention. (4) The Bank will continue with powerful monetary easing. Reflection #7: Learn from the past, and prepare for the future Chart 6 Is This the End of the Mild-Inflation Regime? Until Now: Concern over Japanification From Now On: Return of Inflation? Low Inflation (or Deflation) and Low Interest Rates High Inflation and High Interest Rates? • Smaller government, deregulation • Bigger government, re-regulation • Rise of China and emerging economies • Growth convergence • Globalization, market integration, global supply chain • Deglobalization, market fragmentation, economic security • Large labor supply • Declining and aging population • Carbonized • Decarbonization (greenflation) • Peace dividend • Wartime economy Chart 7 Government Spending and Inflation Rates: No Clear Relationship United Kingdom United States % y/y % chg. 30 % y/y % chg. 30 Government spending to GDP ratio (left scale) CPI (all items, right scale) -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 % -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Germany % Japan y/y % chg. 30 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Note: Figures for Germany prior to 1991 are those for West Germany. Sources: IMF; OECD. y/y % chg. -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Chart 8 Government Debt Outstanding and Inflation Rates: No Clear Relationship % United States y/y % chg. 30 Government debt outstanding to GDP ratio (left scale) 25 CPI (all items, right scale) United Kingdom % y/y % chg. 30 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Germany % y/y % chg. 30 y/y % chg. -5 CY50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Japan % -5 CY 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 Note: Figures for Germany prior to 1991 are those for West Germany. Sources: IMF; OECD. Chart 9 World Trade: Stagnant Goods, Growing Services 1,300 CY 1990 = 100 1,200 1,100 Goods 1,000 Other commercial services CY 90 Note: Figures are the sum of exports and imports on a U.S. dollar basis. Those for other commercial services exclude travel and transport. Sources: WTO; Baldwin, R., "Globotics and Macroeconomics: Globalisation and Automation of the Service Sector," CEPR Press Discussion Paper, no. 17530 (2022). Chart 10 Determinants of the Natural Rate of Interest Real interest rate Demand curve Supply curve Decrease in capital supply Aging population: withdrawing savings by retired households Financial crisis Increase in capital supply Aging population: precautionary savings caused by increased longevity Improved functioning of financial intermediation Increase in precautionary savings due to heightened uncertainty Natural rate of interest Increase in capital demand Decrease in capital demand Slowdown in business dynamism Depopulation: less labor input and excess capital stock Creating new investment opportunities such as innovation and GX Increase in fiscal deficit Savings and investment Chart 11 Looking Ahead: Lessons from History Jordà et al. (2019): rsafe < g < rwealth rsafe : Real rate of return on safe assets g : Real economic growth rate rwealth : Real rate of return on aggregate wealth Source: Jordà, Ò., Knoll, K., Kuvshinov, D., Schularick, M., and Taylor, A. M., "The Rate of Return on Everything, 1870-2015," The Quarterly Journal of Economics, 134 (3), pp. 1225-98 (2019). Chart 12 Historical Downtrend in Global Real Interest Rate 7-year moving average, % -5 -10 CY1317 Note: Figures are calculated based on GDP-weighted nominal interest rates and inflation rates using available data for eight countries: Italy, the Netherlands, France, Spain, the United Kingdom, Germany, the United States, and Japan. Source: Schmelzing, P., "Eight Centuries of Global Real Interest Rates, R-G, and the 'Suprasecular' Decline, 1311-2018," Bank of England Staff Working Paper, no. 845 (2020). Chart 13 Economic Growth despite Depopulation Working-Age Population and GDP per Working-Age Person Adoption of 2% price stability target (Jan. 2013) CY 1991 = 100 mil. persons Working-age population (left scale) Real GDP per working-age person (right scale) Nominal GDP per working-age person (right scale) CY 91 Source: World Bank. Chart 14 Increase in Employed Persons and Prices Adoption of 2% price stability target (Jan. 2013) CY 2020 = 100 mil. persons Employed persons (left scale) CPI (less fresh food, right scale) CY 80 Note: Figures for the CPI from 1997 onward exclude the direct effects of the consumption tax hikes. Source: Ministry of Internal Affairs and Communications. Chart 15 Decomposition of Economic Growth in Japan and the United States (a) (b) GDP = Total population × (c) Employed persons Total population × (d) Total hours worked Employed persons × GDP Total hours worked GDP per capita United States Japan average, % average, % GDP GDP per Total population capita (a) Employed Hours GDP per persons/ hour worked Total per person worked population (b) (c) (d) GDP GDP per Total population capita (a) Employed Hours GDP per persons/ hour worked Total per person worked population (b) (c) (d) 1990s 1.6 0.3 1.3 0.1 -1.2 2.4 1990s 3.2 1.2 2.0 0.1 -0.0 1.9 2000s 0.5 0.1 0.4 -0.2 -0.5 1.0 2000s 1.9 1.0 1.0 -0.5 -0.4 1.9 2010s 1.2 -0.1 1.3 0.6 -0.4 1.2 2010s 2.3 0.7 1.6 0.5 0.1 1.0 Source: Kuroda, H., "Japan's Inflation Dynamics and the Role of Monetary Policy," speech at Columbia University in New York, April 22, 2022. Chart 16 CPI Inflation Rates: No Longer in Deflation y/y % chg. CPI (less fresh food) CPI (less fresh food and energy) Average from FY 2013 onward +0.5% -1 Average from FY 1998 to 2012 (less fresh food) -0.3% -2 -3 CY 85 Note: Figures from 1997 onward exclude the direct effects of the consumption tax hikes. Source: Ministry of Internal Affairs and Communications.
|
bank of japan
| 2,023 | 2 |
Speech by Mr Naoki Tamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Gunma, 22 February 2023.
|
February 22, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Gunma TAMURA Naoki Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity 1. Current Situation I will begin my speech by talking about recent developments in economic activity in Japan. Japan's economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from COVID-19. The pace of recovery had remained moderate in Japan, partly because steps to resume economic activity had been taken more cautiously than in other advanced economies; nevertheless, real GDP growth has almost recovered to levels seen before the pandemic (Chart 1). Let me explain the current state of Japan's economy in more detail. First, a look at the household sector. Although Japan experienced the eighth wave of the pandemic this winter, the impact on private consumption has been limited compared with past cases, and private consumption continues to recover as a trend from the downturn brought about by the impact of the pandemic (Chart 2). This recovery trend has been supported by pent-up demand on the back of household savings that had accumulated during the pandemic and by the government's domestic travel discount program. Next, the corporate sector. Exports and production have increased as a trend, supported in part by high levels of order backlogs, with the effects of supply-side constraints waning (Chart 3). By goods, exports of automobile-related goods have increased moderately, as the tightness in global supply and demand conditions for semiconductors used in automobiles has gradually eased. Those of capital goods have increased, supported by high levels of order backlogs. In contrast, exports of IT-related goods such as semiconductors have been somewhat weak, with stronger adjustment pressure on those for smartphones and personal computers. As for corporate profits, while there are differences across industries and firm sizes, and despite having declined slightly recently, they have been at a historically high level on the whole, exceeding the level seen before the pandemic (Chart 4). By firm size, while corporate profits of large firms have been on a rising trend, those of small and medium-sized firms have been more or less flat. The business fixed investment stance has been active in both manufacturing and nonmanufacturing, due in part to pent-up demand for investments that had been restrained during the pandemic. 2. Outlook Next, I will turn to the outlook for economic activity. Economies in Europe and the United States are expected to slow against the background of significant policy interest rate hikes by central banks to contain rapid inflation (Chart 5). Meanwhile, Japan's economy is likely to recover, with the impact of COVID-19 and supply-side constraints waning and with support from accommodative financial conditions and the government's economic measures, although it is expected to be under downward pressure stemming from high commodity prices and slowdowns in overseas economies. In fact, the International Monetary Fund (IMF) projected in its January 2023 World Economic Outlook (WEO) Update that Japan would achieve the highest growth among the G7 countries in 2023 (Chart 6). As background to Japan's economic outlook, the following are five key developments. First, the waning of supply-side constraints will make a positive contribution to exports and production. Second, pent-up demand, which has recently been pushing up private consumption and business fixed investment, will continue to support the economy's recovery for the time being. Third, inbound tourism demand will increase, reflecting the government's relaxation of entry restrictions. Fourth, with corporate profits remaining at high levels on the whole, business fixed investment -- including that to address labor shortage, digital-related investment, and that related to growth areas and decarbonization -- will continue to increase. Fifth, as wage growth increases, reflecting tightening labor market conditions and price rises, a virtuous cycle from income to spending will intensify gradually. Taking these points into account, I expect that Japan's economy will recover. In terms of the medians of the Bank of Japan Policy Board members' forecasts -- as presented in the January 2023 Outlook for Economic Activity and Prices (Outlook Report) -- Japan's real GDP growth rate is expected to be at 1.9 percent for fiscal 2022, 1.7 percent for fiscal 2023, and 1.1 percent for fiscal 2024 (Chart 7). As Japan's recent potential growth rate is estimated to be in the range of 0.0-0.5 percent, the economy is projected to continue growing at a pace above its potential. However, the pace of growth is expected to decelerate gradually because the outlook factors in the government's economic measures and their waning effects, in addition to a weakening contribution from pent-up demand. There are extremely high uncertainties regarding the outlook. Those that especially warrant attention are (1) developments in overseas economic activity and prices and in global financial and capital markets, (2) developments in the situation surrounding Ukraine and their effects on the price of commodities, including grain, and (3) the impact of COVID-19 on the economy. In view of these factors, while there are upside and downside risks to the outlook, the Bank assesses that risks are skewed to the downside for the time being. B. Price Developments Turning to Japan's price developments, the year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food was 4 percent for December 2022 (Chart 8). In addition to higher energy prices, for goods, the pass-through of cost increases to selling prices has intensified for a wide range of items, especially food, daily necessities, and durable goods. The rate of increase in general services prices has also accelerated against the backdrop of an intensified pass-through of raw material costs, mainly for housework-related services, including services related to housing repairs and maintenance, as well as dining-out. Such price increases have been triggered by a rise in import prices, reflecting high commodity prices and the yen's depreciation. However, what is distinctive about the current phase is the change in firms' price-setting stance. In Japan, it had been difficult for firms to pass on cost increases to selling prices even when faced with a rise in input prices. However, this situation has started to change: firms -- even those that had taken a cautious stance toward changing their selling prices -- have sought price hikes, while their pricing decisions have been made in consideration of price setting by competitors (Chart 9). Furthermore, according to the Tankan (Short-Term Economic Survey of Enterprises in Japan), firms' outlook for output prices of their products for one year ahead has been higher than that for general prices in the most recent surveys. These mark the first time this has been observed since the launch of the survey in 2014, which can be viewed as indicating that firms' stance has shifted toward actively raising their selling prices. The rate of increase in the CPI is expected to decelerate toward the middle of fiscal 2023 due to a waning of the effects of the pass-through of cost increases to consumer prices led by a rise in import prices, as well as to the effects of pushing down energy prices from the government's economic measures (Chart 10). In terms of the medians of the Policy Board members' forecasts, the CPI for all items less fresh food is projected to see a year-on-year rate of increase of 3 percent for fiscal 2022. The rate of increase is then likely to decelerate to around 1.5-2.0 percent for fiscal 2023 and fiscal 2024 but remain somewhat high compared to the past. The outlook for prices also entails high uncertainties, and risks to prices are skewed to the upside for the time being. In my opinion, we cannot deny the possibility that prices will rise more than expected, given that firms' pass-through of cost increases to selling prices is ongoing and inflation momentum has continued, and that the pace of rises in services prices is accelerating gradually. Thus, it is necessary to continue to closely monitor price developments going forward. II. Conduct of Monetary Policy A. Achieving the Price Stability Target in a Sustainable and Stable Manner Now, I would like to turn to the Bank's conduct of monetary policy. The Bank conducts monetary policy with the aim of achieving the price stability target in a sustainable and stable manner. About 10 years ago, when Japan was struggling with deflation, the Bank set the price stability target at 2 percent in terms of the year-on-year rate of change in the CPI, and has since carried out large-scale monetary easing aimed at achieving this target. The current framework for monetary easing, called Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, consists of two components (Chart 11). The first is yield curve control, which involves controlling short- and long-term interest rates through market operations. The second is an inflation-overshooting commitment, in which the Bank has committed to continuing to expand the monetary base until the year-on-year rate of increase in the observed CPI exceeds the price stability target of 2 percent and stays above the target in a stable manner, thereby strengthening people's confidence that the target will be achieved. Specifically, yield curve control entails setting the short-term policy interest rate at minus 0.1 percent, while conducting purchases of Japanese government bonds (JGBs) and other operations for the long-term interest rate to ensure that 10-year JGB yields remain at around 0 percent. The Bank's monetary easing assumes a transmission mechanism that works in three ways (Chart 12): (1) nominal interest rates are pushed down through yield curve control; (2) inflation expectations are raised by working on people's expectations through the inflation-overshooting commitment, leading to a decline in real interest rates (i.e., nominal interest rates less inflation expectations); and (3) lower real interest rates encourage economic activity and improve the output gap, which in turn pushes up actual inflation. After almost 10 years since the Bank began large-scale monetary easing, Japan's economy has achieved a situation where it is no longer in deflation, in the sense of a sustained decline in prices (Chart 13). The output gap had continued to improve, clearly turning positive, until the economy was significantly affected by downward pressure stemming from the impact of COVID-19; it picked up thereafter and has returned to a level where it is poised to turn positive once again. In addition, the employment situation has improved, as evidenced by, for example, a continued decline in the unemployment rate. Successive increases in base pay, which were not seen during the deflationary period, have also been observed. As I mentioned earlier, however, the Bank projects that inflation will fall below 2 percent, and we are not yet at a point where the price stability target of 2 percent is achievable in a sustainable and stable manner. Furthermore, an important perspective would be to not simply examine how superficial figures develop but to consider whether an economic virtuous cycle is created in which price rises are backed by increases in corporate sales and profits and by wage hikes. At this juncture, whether wages will rise at a pace consistent with the ongoing significant rise in consumer prices would seem to be particularly critical in terms of achieving the price stability target in a sustainable and stable manner, and the outcome of the labor-management wage negotiations in spring 2023 warrants attention (Chart 14). While the context may differ among individual firms, my view is that there is a certain degree of possibility that relatively high wage increases will be achieved in light of (1) a positive stance toward wage hikes among the government, labor, and management; (2) generally favorable corporate profits; the labor-management relations in Japan, where there is a strong tendency to support each other; and (4) the labor shortages in the face-to-face services industry and among small and medium-sized firms. To share my perspective regarding the conduct of monetary policy for the immediate future, I see Japan's economy currently being in a rare situation, in which pent-up demand is underpinning economic activity even as the rise in consumer prices has been triggered by the rise in import prices. Given this situation, I believe that we are at a stage now where it is necessary to carefully monitor whether a virtuous cycle between wages and prices will be achieved in Japan. For the moment, therefore, I consider it appropriate for the Bank to continue with monetary easing. B. Side Effects of Large-Scale Monetary Easing The Bank has carried out large-scale monetary easing while striking a balance between its positive effects and side effects. Next, I would like to turn to some of the side effects. The first is the deterioration in market functioning. At its Monetary Policy Meeting (MPM) held last December, the Bank modified its conduct of yield curve control in light of this side effect. Let me explain the nature and background of the modification (Chart 15). Since early spring 2022, the JGB yield curve had been under significant upward pressure, in a situation where overseas central banks raised policy interest rates and consumer prices rose in Japan. While the Bank had been purchasing a necessary amount of long-term JGBs so that 10-year JGB yields stayed within the range of plus and minus 0.25 percentage points from 0 percent, upward pressure on interest rates had frequently caused long-term interest rates to remain at the 0.25 percent upper limit. In this situation, yields on bonds with 8- and 9-year maturities were higher than on 10-year bonds, and a price gap was observed between futures and spot markets. In addition, while the yields for the most recent issues of 10-year JGBs had been at 0.25 percent or lower, issues of 20-year JGBs with a residual maturity of 10 years were trading at higher yields. Amid such distortions in the yield curve, a survey of market participants conducted by the Bank found a growing perception that the functioning of the JGB market was deteriorating. JGB yields serve as reference rates and indicators for corporate bond yields, bank lending rates, and other funding rates. If such distortions persist, they could negatively impact financial conditions, such as issuance conditions for corporate bonds. With this in mind, the Bank decided to modify its conduct of yield curve control in order to improve market functioning, while maintaining accommodative financial conditions. Concretely, while significantly increasing the amount of JGB purchases, the Bank expanded the range of 10year JGB yield fluctuations from the target level, from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points. Although these modifications expanded the range of yield fluctuations, the Bank considered that they would have the significant merit of facilitating the transmission of monetary easing effects more smoothly, such as through corporate financing. It will take more time to assess the impact of the modifications on market functioning. At this stage, I believe it is critical to humbly and carefully monitor how markets settle, and to what extent market functioning improves. Regarding this modification of the conduct of yield curve control, many have questioned whether this was not a de facto interest rate hike or have said that the Bank's explanation of why this was actually not an interest rate hike was hard to follow. To be sure, long-term interest rates are rising. However, I would like to stress once again that these measures are meant to alleviate the side effects of monetary easing and make it sustainable, and are not intended as a move toward monetary tightening. The second side effect is a possible adverse impact on the functioning of financial intermediation, stemming from downward pressure on financial institutions' profits. The profitability of such institutions had been on a downtrend for many years, due mainly to the declining trend in domestic net interest income (Chart 16). While this had been due in part to the prolonged low interest rate environment, it was also likely to have been caused by intensifying competition among financial institutions, as declines in population and the number of firms in respective regions had limited the demand for funds. Recently, however, business efficiency has been enhanced, partly owing to the self-help efforts of various financial institutions, and this has sparked a turnaround in the downtrend in profitability. Financial intermediation can be judged as being functioning smoothly, as evidenced by the fact that financial institutions have been maintaining capital bases that are adequate to meet firms' demand for funds, and that the Tankan surveys have shown favorable levels both in terms of lending attitudes among financial institutions and the financial positions of firms (Chart 17). Another side effect involves productivity. Some suggest that prolonged, large-scale monetary easing has led to continuation of less productive investments and businesses, and furthermore allowed firms that otherwise should have been withdrawn from the market to keep operating, thereby causing delay in economic structural reforms and adversely affecting productivity. It is true that Japan's business entry and exit rates, or its economic metabolic rate, have remained at low levels compared to the United States and Europe (Chart 18). As this is basically a result of each economic entity's actions made based on individual decisions, my view is that large-scale monetary easing cannot necessarily be singled out as the main factor behind such phenomenon. However, I personally believe that it cannot be denied that prolonged, large-scale monetary easing is partly acting to restrain the effects of market principles that should have been at work. Going forward, we must consider what is needed to achieve economic growth that is accompanied by continuous wage increases. Looking first at the microeconomic level, it is important that individual firms continue to enhance their productivity by channeling resources into business fixed investment, research and development, and human capital, as well as through efforts such as reforming their business models. At the macroeconomic level, looking at Japan's economy as a whole, it is important for economic metabolism -- or business entry and exit rates -- to rise, which will lead to a greater proportion of firms with high productivity. Likewise, it is vital that labor mobility be invigorated so that more people will be working in highly productive firms and sectors. Such changes are expected to raise the level of productivity for Japan as a whole. I have spoken about the side effects of large-scale monetary easing. My view is that it is necessary to examine and assess at some point in future the Bank's conduct of monetary policy, including its monetary policy framework and the price stability target, and then carefully reconsider the balance between positive effects and side effects of monetary policy based on the examination and assessment. At this juncture, however, as I said earlier, I believe that it is appropriate to continue with monetary easing. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Gunma February 22, 2023 TAMURA Naoki Member of the Policy Board Bank of Japan Chart 1 Real GDP in Major Economies s.a., CY 2019 = 100 Japan United States Euro area CY 19 Sources: Cabinet Office; Eurostat; FRED. Chart 2 Private Consumption Consumption Activity Index Household Income and Savings tril. yen 1,150 160 s.a., CY 2018 = 100 Total number of overnight 500 s.a., tril. yen 110 s.a., CY 2018 = 100 1,100 Consumption of Services 1,050 Pre-pandemic trend line Total real private consumption Services CY 18 CY18 Disposable income, etc. (left scale) Cash and deposits (right scale) 1,000 80 guests (excluding inbound visitors) Sales in the food services industry CY 18 Notes: 1. In the left-hand chart, figures for "total real private consumption" are for the real Consumption Activity Index and are based on Bank staff calculations. The figures exclude inbound tourism consumption and include outbound tourism consumption. 2. In the middle chart, figures for "disposable income, etc." consist of disposable income and adjustment for the change in pension entitlements. The pre-pandemic trend line is based on the average rate of increase for 2010 through 2019. Sources: Cabinet Office; Japan Foodservice Association, "Market Trend Survey of the Food Services Industry"; Japan Tourism Agency; Bank of Japan. Chart 3 Exports and Production Real Exports and Industrial Production Real Exports by Type of Goods 140 s.a., CY 2018 = 100 Intermediate goods <21.8> Motor vehicles and related goods <20.5> 110 s.a., CY 2018 = 100 Industrial production Real exports CY18 IT-related goods <20.2> Capital goods <17.5> CY18 Note: Figures for real exports are based on Bank staff calculations. In the right-hand charts, figures in angular brackets show the share of each type of goods in Japan's total exports in 2022. Sources: Ministry of Economy, Trade and Industry; Ministry of Finance; Bank of Japan. Chart 4 Corporate Profits and Business Fixed Investment Planned and Actual Business Fixed Investment Corporate Profits s.a., tril. yen Small and medium-sized firms Large firms -5 -10 -15 CY07 y/y % chg. Private nonresidential investment (SNA, nominal) Tankan (actual) Tankan (planned investment in current fiscal year as of the December survey of each year) -20 FY 07 Notes: 1. In the left-hand chart, figures are current profits based on the Financial Statements Statistics of Corporations by Industry, Quarterly, and exclude "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. Small and medium-sized firms are firms with a capitalization of 10 million yen or more but less than 1 billion yen, while large firms are firms with a capitalization of 1 billion yen or more. 2. In the right-hand chart, the Tankan figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for all industries including financial institutions. The figure for private nonresidential investment for fiscal 2022 is the 2022/Q2-Q4 average. Sources: Cabinet Office; Ministry of Finance; Bank of Japan. Chart 5 Prices and Policy Interest Rates in Major Economies Inflation Policy Interest Rates y/y % chg. Japan % Japan United States United States Euro area Euro area -2 CY15 -1 CY15 Notes: 1. In the left-hand chart, figures for Japan are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. Those for the United States are the CPI for all items. Those for the euro area are the HICP for all items. 2. In the right-hand chart, figures for Japan are the rates applied to financial institutions' current accounts (the Policy-Rate Balances) at the Bank of Japan. Those for the United States are the medians of the target ranges for the federal funds rate. Those for the euro area are the rates on the deposit facility. Sources: Bloomberg; Eurostat; Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics. Chart 6 Forecasts for Economic Growth in G7 Countries Real GDP Growth Rates for 2023 (IMF Forecasts) 2.0 % 1.5 1.0 0.5 0.0 -0.5 -1.0 Japan Canada United States France Italy Germany United Kingdom Note: Figures are as of January 2023. Source: IMF. Chart 7 BOJ Forecasts for Real GDP s.a., ann., tril. yen FY 2024 +1.1% FY 2023 +1.7% FY 2022 +1.9% FY 13 14 15 16 17 18 19 20 21 22 23 24 Note: The forecasts presented are the medians of the Policy Board members' forecasts in the January 2023 Outlook Report. The values of real GDP for fiscal 2022 onward are calculated by multiplying the actual figure for fiscal 2021 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. Chart 8 Consumer Prices CPI (Less Fresh Food and Energy, Excluding Temporary Factors) CPI (Less Fresh Food) y/y % chg. 4.5 Mobile phone charges 4.0 Effects of travel subsidy programs 3.5 Effects of the consumption tax hike and 3.0 free education policies Energy 2.5 Excluding the above factors 2.0 CPI (less fresh food) 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY17 3.5 y/y % chg. 3.0 2.5 2.0 Goods General services (less housing rent) Housing rent (private and imputed rent) Administered prices CPI (less fresh food and energy) 1.5 1.0 0.5 0.0 -0.5 CY 17 Notes: 1. In the left-hand chart, figures for "energy" consist of those for petroleum products, electricity, and gas, manufactured & piped. 2. In the left-hand chart, figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. 3. In the right-hand chart, the CPI figures are staff estimates and exclude mobile phone charges and the effects of the consumption tax hike, policies concerning the provision of free education, and travel subsidy programs. Figures for "administered prices" (less energy) consist of those for public services and water charges. Source: Ministry of Internal Affairs and Communications. Chart 9 Changes in Firms' Price-Setting Stance DIs for Prices (Tankan) Firms' Inflation Outlook One Year Ahead (Tankan) DI ("rise" - "fall"), % points 3.5 "Rise" "Fall" y/y % chg. 3.0 General prices 2.5 Output prices 2.0 1.5 1.0 -20 Input prices -40 -60 CY00 0.5 Output prices 0.0 -0.5 CY 14 15 16 17 18 19 20 21 22 Notes: 1. In the left-hand chart, figures are for all industries and enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. 2. In the right-hand chart, figures are averages of all industries and enterprises. Source: Bank of Japan. Chart 10 BOJ Forecasts for the CPI y/y % chg FY 2022 +3.0% FY 2023 FY 2024 +1.6% +1.8% -1 -2 FY 13 14 15 16 17 18 19 20 21 22 23 24 Note: Figures are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The forecasts presented are the medians of the Policy Board members' forecasts in the January 2023 Outlook Report. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 11 QQE with Yield Curve Control (a) Yield Curve Control 1.0 0.8 0.6 % Target level of the long-term interest rate: around zero percent 0.4 0.2 0.0 Short-term policy interest rate: minus 0.1 percent -0.2 -0.4 (b) Inflation-Overshooting Commitment JGB yield curve -0.6 The Bank will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds the price stability target of 2 percent and stays above the target in a stable manner. Achieving the price stability target means attaining a situation where the inflation rate is 2 percent on average over the business cycle. (Statement released after the MPM in Sept. 2016) 0 1 2 3 4 5 6 7 8 9 101520 30 40 residual maturity, year Note: In the left-hand chart, the JGB yield curve shows the most recent shape for when the Bank conducted an assessment for further effective and sustainable monetary easing on March 19, 2021. Sources: Bloomberg; Bank of Japan. Chart 12 QQE with Yield Curve Control (c) Transmission Mechanism QQE with Yield Curve Control Inflation-overshooting commitment Yield curve control Strengthening forward-looking expectations formation Stabilizing interest rates at low levels Nominal interest rates Inflation expectations － ＝ Real interest rates Adaptive expectations formation Observed inflation rates Boosting economic activity through improvement in financial conditions Inflation expectations ＝ ＋ Improvement in the output gap Chart 13 Japan's Economy under the Large-Scale Monetary Easing Unemployment Rate and Labor Force Participation Rate Inflation Rate and Output Gap % y/y % chg. s.a., % Output gap (left scale) CPI (less fresh food and energy, right scale) -2 -1 -4 -2 -6 -3 -8 CY07 -4 s.a., % Unemployment rate (left scale) Labor force participation rate (right scale) CY07 Note: In the left-hand chart, CPI figures are Bank staff estimates and exclude mobile phone charges and the effects of the consumption tax hikes, policies concerning the provision of free education, and travel subsidy programs. Figures for the output gap are Bank staff estimates. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 14 Prices and Labor-Management Wage Negotiations y/y % chg. Actual base pay increase Base pay increase demanded by labor unions CPI inflation -1 -2 CY 91 Notes: 1. Figures for CPI inflation are for all items less fresh food, excluding the effects of the consumption tax hikes, etc. 2. Figures for actual base pay increase from 1991 to 2013 are those published by the Central Labour Relations Commission, while those from 2014 to 2022 are figures released by Rengo. Figures for the base pay increase demanded by labor unions before 2023 are calculated by subtracting seniority-related wage increases from the total increase in wages demanded. The figure for 2023 is from Rengo's policy for the spring 2023 wage negotiations. Sources: Central Labour Relations Commission; Japanese Trade Union Confederation (Rengo); Ministry of Internal Affairs and Communications. Chart 15 Modification of the Conduct of Yield Curve Control (YCC) Impact of Increased Volatility in Overseas Markets Deterioration in Japan's bond market functioning Relative relationships among interest rates of bonds with different maturities Arbitrage relationships between spot and futures markets Possibility of a negative impact on financial conditions Yields on JGBs are reference rates for corporate bond yields, bank lending rates, and other funding rates. JGB Yield Curve (Before the December 2022 MPM) 1.6 % 1.4 Measures Decided by the Bank of Japan Conduct of YCC Encourage a smoother formation of the entire yield curve Significant increase in the amount of JGB purchases: from 7.3 trillion yen per month to about 9 trillion yen per month Expansion of the range of 10-year JGB yield fluctuations from the target level: from around േ0.25% pts to around േ0.5% pts Nimble responses for each maturity: - Offer to purchase 10-year JGBs at 0.5% every business day through fixed-rate purchase operations - Make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed-rate purchase operations In adjusting the amount outstanding of corporate bonds, the Bank will give due consideration to their issuance conditions. 1.2 1.0 0.8 0.6 Facilitate the transmission of monetary easing effects generated under the framework of YCC, such as through corporate financing 0.4 0.2 0.0 -0.2 years Source: Bloomberg. residual maturity The Bank will aim to achieve the price stability target by enhancing the sustainability of monetary easing. Chart 16 Financial Institutions' Profitability Return on Equity Based on Pre-Provision Net Revenue Excluding Trading Income % Major banks Regional banks Shinkin banks FY00 Note: From fiscal 2012, profits and losses from investment trusts due to cancellations are excluded. Source: Bank of Japan. Chart 17 Financial Conditions Lending Attitudes of Financial Institutions (Tankan) DI ("accommodative" - "severe"), % points "Accommodative" DI ("easy" - "tight"), % points "Easy" "Severe" "Tight" -5 -5 -10 -15 CY 07 Firms' Financial Positions (Tankan) Manufacturing -10 Nonmanufacturing -15 -20 CY07 Note: Figures are for all enterprises. Source: Bank of Japan. Manufacturing Nonmanufacturing Chart 18 Entry and Exit Rates in Major Economies Entry Rate Exit Rate 16 % 16 % CY 08 Japan United Kingdom France United States Germany CY 08 Note: Figures for Japan are on a fiscal-year basis. Sources: Eurostat; Ministry of Health, Labour and Welfare; Small and Medium Enterprise Agency; U.K. Office for National Statistics; U.S. Census Bureau.
|
bank of japan
| 2,023 | 3 |
Speech by Ms Junko Nakagawa, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Fukushima, 1 March 2023.
|
March 1, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Fukushima NAKAGAWA Junko Member of the Policy Board (English translation based on the Japanese original) I. Current Situation of Economic Activity and Prices A. Economic Developments Abroad I would like to begin my speech by talking about the current situation of overseas economies. The pace of recovery in overseas economies has slowed as the effects of rapid policy interest rate hikes that have been carried out by central banks since 2022 have gradually started to weigh on the real economy. In its January 2023 World Economic Outlook (WEO) Update, the International Monetary Fund (IMF) projected that the global economic growth rate would slow from an estimated 3.4 percent in 2022 to 2.9 percent in 2023. An indicator measuring business sentiment has stayed below 50, the break-even point between improvement and deterioration (Chart 1). Let me take a look at developments in overseas economies by major region. In the United States, private consumption and the employment situation have been firm. However, a marked impact of policy interest rate hikes has been seen in housing investment, as evidenced by, for example, a decline in the number of housing starts. Production has remained more or less flat. In Europe, as the resumption of economic activity from the COVID-19 pandemic has run its course, signs of slowdowns are becoming clearer due to strong inflationary pressure stemming from the continued effects of the situation in Ukraine. In China, although private consumption and production have been weak, due in part to the surge in the number of COVID-19 cases at the end of 2022, there have been moves toward normalization of economic activity recently. Albeit with variation across countries and regions, as outlined earlier, signs of slowdowns in overseas economies are becoming clearer on the whole. B. Economic Developments in Japan Turning to the current situation of Japan's economy, the overall picture shows that it has picked up, particularly in terms of business fixed investment and private consumption, as the resumption of economic activity has progressed while public health has been protected from COVID-19. I would like to describe Japan's economic situation from two aspects: the corporate sector and the household sector. 1. Corporate sector Let me start with the corporate sector. Corporate profits have been at high levels on the whole, mainly reflecting the easing of supply-side constraints, although current profits for the July-September quarter of 2022 declined slightly from the previous quarter (Chart 2). Business sentiment is more or less unchanged on the whole. The Bank of Japan's December 2022 Tankan (Short-Term Economic Survey of Enterprises in Japan) showed that sentiment for nonmanufacturing has improved, mainly for private consumption-related industries such as eating and drinking services, accommodations, and retail. However, sentiment for manufacturing has been more or less flat due to the effects of high raw material costs and production adjustments for IT-related goods. With corporate profits being at high levels, business fixed investment has continued to increase moderately. There is a view that this increase has been driven mainly by digital- and labor saving-related investments, investment intended for construction of logistics facilities on the back of an expansion in e-commerce, and investment related to urban redevelopment projects. Production and exports have also continued on their uptrend, albeit with fluctuations, with the waning of supply-side constraints (Chart 3). Looking at industrial production by industry, that of transport equipment has returned to a moderate uptrend, as the effects of the global semiconductor shortage have gradually eased. Production of "electrical machinery, and information and communication electronics equipment" has increased for on-board equipment for motor vehicles, as has production of items used for personal computers and peripheral devices, partly due to renewal demand associated with the end of support for some operating systems. On the other hand, electronic parts and devices have been under stronger inventory adjustment pressure, particularly on memory for smartphones and personal computers. With respect to exports, those to advanced economies have increased as a trend, mainly for automobile-related and capital goods. As for exports to emerging economies, on the other hand, those to China as well as the NIEs and the ASEAN economies have been somewhat weak for intermediate and IT-related goods. 2. Household sector Next, I would like to explain developments in the household sector from the aspects of private consumption and the employment and income situation. Private consumption has increased moderately, as the resumption of consumption activities has progressed while public health has been protected (Chart 4). Breaking down household consumption by services and goods, services consumption as a whole has increased with a pick-up in travel and dining-out. Specifically, although overseas travel has remained at a low level, domestic travel has increased not only for short but also long distances, partly due to the positive contribution of the government's domestic travel discount program. Dining-out has shown signs of a pick-up from the plunge seen during the pandemic, albeit mainly in terms of small groups (Chart 5). As for goods consumption, that of durable goods has seen the following developments: while sales of new cars have increased on the back of a pick-up in production reflecting the waning of supply-side constraints, sales of household electrical appliances have declined for seasonal items in particular, presumably due in part to relatively higher temperatures in November than in normal years. When fluctuations are smoothed out, consumption of nondurable goods has increased, mainly for clothes, although the effects of high inflation have been seen for food. The employment and income situation has improved moderately on the whole. Labor market conditions have been considerably tight, with various related indicators being at levels close to those observed prior to the pandemic and during the bubble economy of the late 1980s (Chart 6). Under these circumstances, the number of regular employees has increased moderately, mainly in the medical, healthcare, and welfare services industry as well as the information and communications industry, both of which have faced a severe labor shortage; the number of non-regular employees has also risen moderately, mainly in the medical, healthcare, and welfare services industry as well as the face-to-face services industry (Chart 7). Total employee income has continued to increase in nominal terms due to moderate rises in both the number of employees and total cash earnings per employee. C. Price Developments in Japan Next, I would like to talk about price developments in Japan. Let me first touch on the price trend of goods and services traded within the domestic corporate sector. Reflecting the earlier raw material cost increases, the year-on-year rate of change in the producer price index (PPI), which covers goods prices, has remained high, marking 9.5 percent for January 2023 (Chart 8). That in the services producer price index (SPPI), which covers the price of services within the corporate sector, has also continued to see a moderate rise, although the rise has not been as steep as that of the PPI. Looking at the price indexes that divide demand into four stages of intermediate demand from the upstream to downstream stages of supply chains, the earlier raw material cost increases have continued to be passed on to selling prices at the midstream to downstream stages. In this situation, the consumer price index (CPI) has continued to reflect a pass-through to selling prices of raw material cost increases. Looking at the most recent data available, the year-on-year rate of change in the CPI for all items excluding fresh food was 4.2 percent for January, in reflection of rises in the price of such items as energy, food, and durable goods (Chart 9). The pass-through of cost increases to prices has been observed for a wide range of goods and services: food, daily necessities, and durable goods for the former, and dining-out for the latter. This holds true even when excluding the effects of (1) items with significant price fluctuations, such as energy, and (2) temporary factors, including the domestic travel discount program. In what follows, I would like to explain in detail the background to the recent price rises from the viewpoints of a change in firms' price-setting stance and the underlying trend in prices. 1. Firms' price-setting stance Let me start with firms' price-setting stance. Firms have been increasingly passing on cost increases to selling prices. According to an analysis based on the results of the Bank's Tankan surveys, firms that had not changed prices in the past have begun to change course toward raising prices. The diffusion index (DI) for output prices suggests that a significant number of these firms responded that output prices have changed to a "rise" for the first time in more than three decades (Chart 10). What lies behind the change in their price-setting stance is the significant rise in raw material costs. Previously, amid the relatively small rise in such costs, many firms did not change prices for fear of losing their customers and barely withstood the increased costs by improving efficiency and reducing expenses. However, even they have been obliged to decide on raising their prices, as a broad range of firms -- including competitors -- have opted for price hikes in reflection of the considerable increase in raw material costs since 2022. 2. Underlying trend in prices Next, I will explain the underlying trend in the CPI based on various indicators released by the Bank. First, it can be pointed out that, as firms' price-setting stance has changed, prices have increased for a broad range of items. Of all items covered by the CPI, those for which the price has increased accounted for over 80 percent, whereas those for which the price has declined accounted for around 10 percent, both on a year-on-year basis as of January 2023 (Chart 11). Even compared with around 2008, when the CPI rose triggered by higher import prices of crude oil and other items, price hikes have spread across a wider range of items. Let us also look at other indicators that take into consideration the price change distribution. In terms of both the trimmed mean -- calculated by excluding items that belong to the upper and lower 10 percent of the price change distribution -- and the mode -- which is the inflation rate with the highest density in the distribution -- the year-on-year rates of change in the CPI have increased to around 3 percent and around 1.5 percent, respectively (Chart 11). However, those increases have fallen short of a 4.3 percent rise in the headline CPI. One thing that is clear from those indicators is that, even though the pass-through of cost increases has been spreading to a wider range of items, the overall CPI has been significantly pushed up by a small group of items such as energy. As will be touched on again later when I explain the outlook for prices, the contribution made by items that have led CPI inflation is likely to become markedly smaller as the rise in import prices subsides. Consequently, the overall CPI inflation rate is expected to decelerate. While using the indicators that I just explained, the Bank will continue to examine the underlying trend in prices. II. Outlook for and Risks to Economic Activity and Prices A. Outlook Next, I would like to turn to the outlook for Japan's economic activity and prices. Japan's economy is likely to continue recovering with the impact of COVID-19 and supplyside constraints waning, although it is expected to be affected by slowdowns in overseas economies and high commodity prices. From a medium- to long-term perspective, the economy is projected to continue growing at a pace above its potential as a virtuous cycle from income to spending intensifies gradually. As presented in the Outlook for Economic Activity and Prices (Outlook Report) decided by the Bank at the January 2023 Monetary Policy Meeting (MPM), the medians of the Policy Board members' forecasts for real GDP growth rates are 1.7 percent for FY2023 and 1.1 percent for FY2024 (Chart 12). The rate of increase in consumer prices is expected to decelerate noticeably for the time being, given that (1) the contribution from higher import prices, which have been pushing up overall inflation thus far, is likely to dissipate, due in part to a decline in commodity prices, and the government's economic measures to contain inflation will take effect. Under these circumstances, the medians of the Policy Board members' forecasts for the year-on-year rate of change in the CPI for all items excluding food are 1.6 percent for FY2023 and 1.8 percent for FY2024, down from the forecast of 3.0 percent for FY2022 (Chart 12). B. Risks The outlook for economic activity and prices that I just mentioned entails a range of uncertainties. In what follows, I will describe the risks that I am paying particular attention to. First is developments in overseas economic activity and prices, and in global financial and capital markets. Central banks have made rapid policy interest rate hikes since 2022 in order to combat strong inflationary pressure. Owing in part to the effects of these rate hikes, global inflationary pressure has started to show signs of easing. The Bank's baseline scenario assumes that the pace of monetary tightening will become moderate and its effects on economic activity will be only relatively modest. However, given that the rate of increase in services prices has remained high in some advanced economies, there is a risk of continued uncertainty regarding how much monetary tightening will be needed before inflation abates. If stronger-than-expected monetary tightening will be required, this will accordingly exert a severe negative impact on economic activity. In that case, there is a possibility that sharp price fluctuations in financial markets and capital outflows from emerging economies will amplify the negative impact, and that this will lead to overseas economies deviating downward from the Bank's baseline scenario. Second is geopolitical risks and developments in the price of commodities, including grain. More than a year has passed since the onset of Russia's invasion of Ukraine, and the situation is becoming more prolonged. It is difficult to predict at this point how it will evolve; however, depending on the course of this situation, overseas economies, particularly Europe, could be pushed down further. Furthermore, the price of grain and other commodities, which has been more stable than previously, may be adversely affected. The third point that I am particularly attentive to is firms' and households' medium- to longterm growth expectations. Recently, firms have been actively making investment with a view to the post-COVID-19 era, digitalization, and decarbonization, and these initiatives are expected to enhance their growth potential in the long term. On the other hand, some firms have revised their strategies regarding supply chains. This is based on heightened concern over geopolitical risks, mainly reflecting the situation in Ukraine and the U.S.-China trade friction, and the experience of supply-side constraints caused by the pandemic. In doing so, they have reviewed so-called friend-shoring supply chains -- an approach of establishing trade networks mainly with allies and friendly nations. Since these actions are taken to prioritize stability even at the cost of sacrificing efficiency to some extent, they could induce upward pressure on prices. In the event of a change in the trend of globalization, which has supported the growth of the global economy to date, future developments in economic activity and prices may be affected through changes in firms' and households' medium- to long-term growth expectations. Lastly, I would like to point out firms' price- and wage-setting behavior as a risk that may significantly affect overall inflation. As I mentioned earlier, firms that had not changed their selling prices before have decided to raise them in the face of steep increases in raw material costs. If firms' inflation expectations become higher, the pass-through of cost increases could accelerate further. Wages are expected to rise in line with improvement in economic conditions. However, uncertainty is high as to what extent wages will rise. If the behavior and mindset based on the assumption that wages will not increase easily remain deeply entrenched, there is a risk that moves to increase wages will not strengthen as much as expected and prices will in turn be under downward pressure. At present, large firms in particular hold a stance of increasing wages at a rate exceeding the inflation rate. I am paying close attention to the extent to which small and medium-sized firms will follow suit. III. The Bank's Monetary Policy Next, I would like to talk about the Bank's monetary policy conduct. Since April 2013, the Bank has continued large-scale monetary easing with an unwavering commitment to achieving the price stability target of 2 percent at the earliest possible time. However, as it turned out, it has been taking time to achieve the target. In pursuing monetary easing over a long period, the Bank has been taking into consideration its side effects. An example of such side effects is the squeeze on financial institutions' profits under the low interest rate environment, which in turn may adversely affect the functioning of financial intermediation. Having said that, the Bank judges that, currently in Japan, financial institutions have sufficient capital bases and the financial intermediation function is being fulfilled smoothly. In addition, as the liquidity and functioning of bond markets have been deteriorating, the Bank, while taking measures to contain this side effect, has continued with its monetary easing. Specifically, in March 2021, the Bank conducted an assessment of the measures taken until then in order to continue with monetary easing in a sustainable manner. The Bank had previously been conducting yield curve control in a way that kept 10-year Japanese government bond (JGB) yields at around 0 percent; following the assessment, however, it made clear that the range of 10-year JGB yield fluctuations would be between around plus and minus 0.25 percentage points from the target level. The Bank also decided to purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) flexibly in a prioritized manner, as the findings of the assessment suggested that large-scale purchases of these instruments were effective during times of heightened market instability. Subsequently, at the December 2022 MPM, the Bank decided that, while significantly increasing the amount of JGB purchases, it would expand the range of 10-year JGB yield fluctuations from the target level from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points. The Bank also decided that it would make nimble responses by increasing the amount of JGB purchases even more and conducting fixed-rate purchase operations (Chart 13). These decisions were made in order to facilitate the transmission of monetary easing effects generated under the framework of yield curve control -- such as through corporate financing -- by encouraging a smoother formation of the entire yield curve. While 10-year JGB yields had been hovering in the range of around plus and minus 0.25 percentage points from the target level, a distortion has occurred in the relative relationships between the interest rates of JGBs with 10-year maturity and those with other maturities. A large price gap has also been observed between spot and futures markets. Such market distortions have resulted in, for example, difficulty in the pricing of corporate bonds at the time of issuance. If these market conditions persist, this could have a negative impact on firms' financing environment, such as issuance conditions for corporate bonds. Therefore, in order to improve market functioning while maintaining accommodative financial conditions, the Bank decided to modify the conduct of yield curve control. As the range of 10-year JGB yield fluctuations has been expanded, long-term interest rates have risen accordingly. However, in continuing with monetary easing under the framework of yield curve control going forward, the expansion has a greater merit of facilitating the transmission of monetary easing effects by improving the functioning of bond markets. As I have explained thus far, Japan's economy has started to show signs of a virtuous cycle, as evidenced by the overall high levels of corporate profits and moves to increase wages. However, it is premature to conclude that the price stability target has been achieved. Thus, I believe that, in its conduct of monetary policy for the time being, it is necessary for the Bank to maintain monetary easing and thereby support the economy. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Fukushima March 1, 2023 NAKAGAWA Junko Member of the Policy Board Bank of Japan Chart 1 Overseas Economies World Economic Outlook Global PMI y/y % chg. IMF projections s.a., DI World -2 Manufacturing -4 CY 90 Source: IMF. Services CY 07 Note: Figures for manufacturing are the J.P.Morgan Global Manufacturing PMI. Figures for services are the J.P.Morgan Global Services Business Activity Index. Source: Copyright © 2023 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved. Chart 2 Corporate Sector in Japan Corporate Profits Business Conditions s.a., tril. yen s.a., tril. yen DI ("favorable" - "unfavorable"), % points All industries Manufacturing Nonmanufacturing -20 Sales (left scale) "Favorable" -40 Current profits (right scale) CY 07 "Unfavorable" -60 CY 90 Notes: 1. Based on the Tankan. All enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. 2. Shaded areas denote recession periods. Source: Bank of Japan. . Notes: 1. Based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance." 2. Figures from 2009/Q2 onward exclude pure holding companies. 3. Shaded areas denote recession periods. Source: Ministry of Finance. Chart 3 Corporate Sector in Japan Industrial Production Real Exports s.a., CY 2015=100 s.a., CY 2015=100 Production CY 07 Real exports Notes: 1. Shaded areas denote recession periods. 2. The figure denoted by the circle to the right is calculated using projections by the Ministry of Economy, Trade and Industry for January and February 2023. Source: Ministry of Economy, Trade and Industry. CY 07 Notes: 1. Shaded areas denote recession periods. 2. Based on Bank staff calculations. The figure for 2023/Q1 is that for January. Sources: Ministry of Finance; Bank of Japan. Chart 4 Household Sector in Japan Private Consumption Consumption Activity Index (CAI, Real) s.a., CY 2015=100 s.a., 2017/Q1=100 s.a., 2017/Q1=100 Consumption Activity Index (travel balance adjusted, real) CY 12 Note: Figures for the Consumption Activity Index (CAI) are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. Source: Bank of Japan. Nondurable goods <40.5> Services <50.7> Durable goods <8.9> CY 17 18 19 20 21 22 17 18 19 20 21 22 Notes: 1. Based on Bank staff calculations. Figures in angle brackets show the weights in the CAI. 2. Nondurable goods include goods classified as semi-durable goods in the SNA. Sources: Bank of Japan, etc. Chart 5 Household Sector in Japan Consumption of Services Consumption of Durable Goods s.a., CY 2015=100 s.a., ann., mil. units s.a., CY 2015=100 Sales in the food services industry CY 12 Sources: Japan Foodservice Association, Market Trend Survey of the Food Services Industry; Japan Tourism Agency. New passenger car registrations (including small cars with engine sizes up to 660cc, left scale) Sales of household electrical appliances (real, right scale) Total number of overnight guests (excluding inbound visitors) CY 12 Note: Figures for real sales of household electrical appliances are based on Bank staff calculations using the retail sales index of machinery and equipment in the Current Survey of Commerce and the price index of related items in the CPI. Sources: Japan Automobile Dealers Association; Japan Light Motor Vehicle and Motorcycle Association; Ministry of Economy, Trade and Industry; Ministry of Internal Affairs and Communications. Chart 6 Employment and Income Situation in Japan Various Measures of Labor Market Conditions CY 1990-2019 avg.=0, standard deviation CY 1990-2019 avg.=0, standard deviation Labor shortage Labor shortage -1 -1 -2 -2 Active job openings-to-applicants ratio Employment conditions DI (Tankan) ( ) Labor input gap -3 -4 CY 80 Employment rate gap Unemployment rate Short-term unemployment rate Long-term unemployment rate -3 -4 CY 80 Notes: 1. Figures for each measure of labor market conditions are normalized by the standard deviation from 1990 to 2019. 2. Figures for the active job openings-to-applicants ratio and the unemployment rate for 2022/Q4 are October-November averages. 3. The labor input gap and the employment rate gap are Bank staff estimates. 4. Figures for the short- and long-term unemployment rates up through 2001 are on a semiannual or annual basis. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Bank of Japan, etc. Chart 7 Employment and Income Situation in Japan Number of Employed Persons s.a., mil. persons s.a., CY 2019=100 Employee Income y/y % chg. -2 Employed persons (left scale) Regular employees (right scale) Total cash earnings Number of employees Employee income Non-regular employees (right scale) CY 07 Note: Figures for regular employees and non-regular employees prior to 2013 are based on the "detailed tabulation" in the Labour Force Survey. Source: Ministry of Internal Affairs and Communications. -4 12/Q1 14/Q1 16/Q1 18/Q1 20/Q1 22/Q1 Notes: 1. Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. The figure for 2022/Q4 is that for December. 2. Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey) 3. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the Monthly Labour Survey. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 8 Producer Prices Final Demand-Intermediate Demand (FD-ID) Price Indexes (All Commodities) Goods and Services Prices y/y % chg. CY 2015=100 ID index (stage 1) ID index (stage 2) ID index (stage 3) ID index (stage 4) FD index (excluding exports) -2 PPI -4 SPPI -6 CY 15 CY 15 Note: Figures exclude the effects of the consumption tax hike. Source: Bank of Japan. Note: The indexes divide demand into the final demand stage and four stages of intermediate demand based on the Input-Output Tables for Japan. Goods and services prices are then aggregated according to the stage to which they belong to compile the FD index and the ID indexes for stages 1 to 4, ranging from the upstream to downstream stages of the production process. Source: Bank of Japan. Chart 9 Consumer Prices CPI (Less Fresh Food) CPI (Excluding Temporary Factors) y/y % chg. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY17 3.5 Mobile phone charges Effects of travel subsidy programs 3.0 Effects of the consumption tax hike and free education policies Energy 2.5 y/y % chg. Administered prices General services 2.0 Excluding the above factors Goods (less food) Food 1.5 CPI (less fresh food) CPI (less fresh food and energy) 1.0 0.5 0.0 Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. -0.5 CY 17 Notes: 1. "Food" consists of "food products" and "agricultural, aquatic, and livestock products." 2. "Administered prices" excludes energy prices and consists of public services and water charges. 3. The CPI figures are Bank staff estimates and exclude the effects of the consumption tax hike, free education policies, travel subsidy programs, and mobile phone charges. Source: Ministry of Internal Affairs and Communications. Chart 10 Consumer Prices Change in Firms' Price-Setting Stance output prices DI, % points Number of Years between the Latest and Previous Price Rises share of firms, % Firms cautious about changing output prices (20%) Other firms (80%) -10 -20 -30 -40 CY 07 less than 1 yr. Note: Figures are for all industries and enterprises in the Tankan survey. Figures for "firms cautious about changing output prices" are for firms that replied that their output prices were "unchanged" for at least about 95 percent of the period from 1991 to 2019. The dotted lines represent forecasts from the September 2022 survey. Source: Ikeda, S. et al., "Firms' Recent Price-Setting Stance: Evidence from the Tankan," Bank of Japan Review Series, no. 23-E-2 (February 2023), https://www.boj.or.jp/en/research/wps_rev/rev_2023/data/rev23e02.pdf. 1-4 yrs. 5-9 yrs. 10-14 yrs. 15-19 yrs. 20-24 yrs. 25-29 30 yrs. yrs. and over Note: The panel shows the distribution of firms that responded that they had raised their output prices since the September 2021 Tankan survey in terms of the number of years that had passed until the first price rise since that survey from the previous price rise. Firms are selected on the basis of being "cautious about changing output prices," having replied that their output prices were "unchanged" for at least about 95 percent of the period from 1991 to 2019. Source: Ikeda, S. et al., "Firms' Recent Price-Setting Stance: Evidence from the Tankan," Bank of Japan Review Series, no. 23-E-2 (February 2023), https://www.boj.or.jp/en/research/wps_rev/rev_2023/data/rev23e02.pdf. Chart 11 Consumer Prices DI of Price Changes Measures of Core Inflation % points -10 -20 -30 -40 -50 -60 -70 -80 CY 07 % DI (left scale) Share of increasing items (right scale) Share of decreasing items (right scale) 3.5 3.0 Note: The diffusion index (DI) is defined as the share of increasing items minus the share of decreasing items. The share of increasing/decreasing items is the share of items for which price indices increased/decreased from a year earlier. Based on Bank staff calculations using the CPI (less fresh food) excluding the effects of the consumption tax hikes, free education policies, and travel subsidy programs. The CPI figures from April 2020 onward are Bank staff estimates and exclude the effects of measures such as free higher education introduced in April 2020. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Trimmed mean Weighted median Mode 2.5 2.0 1.5 1.0 0.5 y/y % chg. 0.0 -0.5 -1.0 -1.5 CY 07 Note: All figures are based on Bank staff calculations using the CPI excluding the effects of the consumption tax hikes, free education policies, and travel subsidy programs. The CPI figures from April 2020 onward are Bank staff estimates and exclude the effects of measures such as free higher education introduced in April 2020. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 12 Outlook for Economic Activity and Prices (as of January 2023) y/y % chg. Real GDP CPI (all items less fresh food) (Reference) CPI (all items less fresh food and energy) FY2022 +1.9 to +2.0 [+1.9] +3.0 to +3.0 [+3.0] +2.1 to +2.1 [+2.1] Forecasts made in Oct. 2022 +1.8 to +2.1 [+2.0] +2.8 to +2.9 [+2.9] +1.8 to +1.9 [+1.8] FY2023 +1.5 to +1.9 [+1.7] +1.6 to +1.8 [+1.6] +1.7 to +1.9 [+1.8] Forecasts made in Oct. 2022 +1.5 to +2.0 [+1.9] +1.5 to +1.8 [+1.6] +1.5 to +1.8 [+1.6] FY2024 +0.9 to +1.3 [+1.1] +1.8 to +1.9 [+1.8] +1.5 to +1.8 [+1.6] Forecasts made in Oct. 2022 +1.3 to +1.6 [+1.5] +1.5 to +1.9 [+1.6] +1.5 to +1.8 [+1.6] Note: Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). Source: Bank of Japan. Chart 13 Modification of the Conduct of Yield Curve Control (YCC) Impact of Increased Volatility in Overseas Markets Deterioration in Japan′s bond market functioning Relative relationships among interest rates of bonds with different maturities Arbitrage relationships between spot and futures markets Possibility of a negative impact on financial conditions Yields on Japanese government bonds (JGBs) are reference rates for corporate bond yields, bank lending rates, and other funding rates. JGB Yield Curve (Before the December 2022 MPM) 1.6 1.6 % 1.4 1.4 Measures Decided by the Bank of Japan Conduct of YCC Encourage a smoother formation of the entire yield curve Significant increase in the amount of JGB purchases: from 7.3 trillion yen per month to about 9 trillion yen per month Expansion of the range of 10-year JGB yield fluctuations from the target level: from between around ±0.25% pts to between around ±0.5% pts Nimble responses for each maturity: - Offer to purchase 10-year JGBs at 0.5% every business day through fixed-rate purchase operations - Make nimble responses for each maturity by increasing the amount of JGB purchases even more and conducting fixed-rate purchase operations In adjusting the amount outstanding of corporate bonds, the Bank will give due consideration to their issuance conditions. 1.2 1.2 1.0 1.0 0.8 0.8 0.6 0.6 Facilitate the transmission of monetary easing effects generated under the framework of YCC, such as through corporate financing 0.4 0.4 0.2 0.2 0.0 0.0 ‐0.2 -0.2 11 22 years years Source: Source:Bloomberg. Bloomberg residual maturity maturity residual The Bank will aim to achieve the price stability target by enhancing the sustainability of monetary easing.
|
bank of japan
| 2,023 | 3 |
Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Fintech Summit FIN/SUM 2023, Tokyo, 28 March 2023.
|
Haruhiko Kuroda: Evolution of payments - payment systems for "Neoteric Individuals" Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Fintech Summit FIN/SUM 2023, Tokyo, 28 March 2023. *** Introduction I am delighted to be given this opportunity to speak to you at the FIN/SUM 2023. The main theme of this year's FIN/SUM is "Fintech, the era of 'Neoteric Individual." While the term "neoteric" is open to interpretation, I will be speaking today within the context of "moving forward" or "evolution." In a world where information proliferates owing to widespread access to the Internet and smartphones, the diverse decisions and actions of consumers - neoteric individuals - are based on the vast array of readily available information. Consequently, diversification of user needs related to financial services has increased rapidly; continuing to merely provide uniform services is no longer sufficient for meeting the various user needs. Under these circumstances, financial services are undergoing continuous progress and innovation as they capture cutting-edge technologies and business ideas. The field of payments, an example of financial services, is no exception. My first opportunity to speak at the FIN/SUM was in September 2019. Even if we focused exclusively on the period since, efforts by the private sector toward realizing novel payment services have proven to be remarkable. Unbundling of Services and Functions Of the notable developments in payment services, some have drawn my attention in particular, the first of which is progress being made in the unbundling of services that have been provided as tightly coupled thus far. To give an example, with fintech businesses utilizing payment functions provided by banks through an open Application Programming Interface (open API), moves to innovate customer services as well as develop a convenient and comfortable user experience are growing increasingly common. Shifting our focus to overseas, various stablecoins circulated on permissionless blockchains are emerging. This can be considered an unbundling of two payment functions: one for issuing liabilities, or put differently, settlement assets, and the other for recording interest in settlement assets. This unbundling also applies to "programmability," a popular term these days. While additional functions such as conditional payments have thus far been provided by the entity in charge of the payment functions, the unbundling of functions allows for a wide 1/3 BIS - Central bankers' speeches range of entities, including service users, to carry out the programming of such functions other than core payment functions themselves. This point warrants attention. Simplification of Payment Arrangements through Creation and Discharge of Financial Liabilities The second area of focus is efforts to proceed with the simplification of payment arrangements, which have involved the creation and discharge of financial liabilities. For example, many of the Fast Payment Systems introduced overseas in recent years feature real-time gross settlement between banks. This is a byproduct of technological advancement allowing for the elimination of the process involving the calculation of net positions, and further, the replacement of obligations between banks, resulting in the simplification of arrangements for the creation and discharge of liabilities. If we take a step back and think, we realize that quite a few of the existing arrangements have been shaped amid technical constraints in the past. One such case involves correspondent banking arrangements for cross-border payments, in which funds were transferred from the payer to the payee through multiple entities, creating and discharging liabilities in the process. Attempts to utilize stablecoins issued by the private sector and wholesale central bank digital currency (CBDC) for interbank settlement in cross-border payments can be considered to have stemmed from the idea that simplifying the existing banking arrangements would significantly enhance efficiency. Emergence of Novel Domains of Economic Activities The third area warranting attention is the emergence of novel domains of economic activities. Given that payments discharge any financial obligations resulting from economic activities, it goes without saying that economic activity and payments are closely related to each other. With various economic activities taking place online, online payments will become even more prevalent. Recently, the terms Web3 and Web 3.0 have become familiar to the ear. While the implications of these notions may differ from person to person, the Web3 Foundation founded by Gavin Wood, who coined the term Web 3.0 - defines it as "a decentralized and fair internet where users control their own data, identity and destiny." How such ideas will evolve in reality and how economic activity will be shaped under those circumstances have yet to be seen. In considering the evolution of payments, it is necessary to also bear in mind how novel domains of economic activities will emerge alongside this evolution. The Roles of Central Bank Money The evolution of payments that I have just mentioned carries the potential to bring about enhanced user convenience, new business opportunities, and ultimately, economic growth. Even amid such notable evolution, however, some things ought to be maintained. 2/3 BIS - Central bankers' speeches By this, I am referring to the coexistence of various forms of money. I say this because, under the appropriate arrangements and regulations, such payment instruments as cash, bank deposits, electronic money, and stablecoins compete against one another, building on their respective strengths. Only by doing so can a payment system as a whole remain safe, efficient, and resilient over the course of time. Under these circumstances, central bank money, such as cash and central bank deposits, is expected to assume a leading role in a world where various forms of privatesector money - including bank deposits, which serve a key function, namely, financial intermediation - coexist. When central bank money, which provides the unit of account, is converted without friction to and from other forms of money, this makes it possible to ensure the uniformity of money; in other words, maintaining a situation where "one yen is one yen," regardless of payment instrument. Even if novel domains of economic activities continued to emerge to the extent that payment services were provided in these unprecedented domains, it would be desirable that the unit of account in such novel domains was connected with that of the real world. Closing Remarks As I bring my remarks to a close, let me briefly touch upon CBDC. Ensuring the coexistence of CBDC with various other forms of money, and upon doing so, providing in collaboration with the private sector a payment instrument in digital form that is safe and usable anywhere, anytime - this is something that we need to and will in fact achieve in the future. With various options lying before us in terms of how and when to carry this out, preparing ourselves so as to respond flexibly to any change in circumstance is indeed the central bank's duty. From the viewpoint of preparing thoroughly for the future, the Bank of Japan, two years ago, began its technical experiments for retail CBDC assuming a wide range of users including individuals and firms. Taking the findings into account, the Bank has decided to launch a pilot program this April. In the pilot program, we will fully utilize the skills and insights of private businesses engaged in retail payments or in related technologies through the soon-to-be established CBDC Forum. We would like to ask for your continued invaluable support so that the evolution of payments will lead to the establishment of payment systems for neoteric individuals. Thank you for your attention. 3/3 BIS - Central bankers' speeches
|
bank of japan
| 2,023 | 4 |
Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at a meeting held by the Naigai Josei Chosa Kai (Research Institute of Japan), Tokyo, 19 May 2023.
|
May 19, 2023 Bank of Japan Basic Thinking on Monetary Policy and the Outlook for Economic Activity and Prices Speech at a Meeting Held by the Naigai Josei Chosa Kai (Research Institute of Japan) UEDA Kazuo Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity to address you today at the Naigai Josei Chosa Kai. This is my first speech since assuming office as Governor of the Bank of Japan. As I fulfill my duties as governor over the next five years, one of the things I will endeavor to do is to make logical decisions and provide explanations as clearly as possible. Monetary policy exerts its intended effects by working on financial markets and people's behavior at large. Therefore, it is important for the Bank to gain the public's understanding of the thinking underlying the Bank's policy conduct and the background to its policy decisions. Since the economy is driven by a complex interplay of a variety of factors and monetary policy involves specialized and technical aspects, I will try to provide clear and detailed explanations, unraveling the complexities one by one. I have been an economist for nearly 50 years. Academics focus on a particular aspect of what is actually happening and construct theories designed for that aspect. In contrast, central bank policymakers are confronted with the actual complexities of the economy and need to make timely and appropriate decisions, so the perspectives of the two groups naturally differ. However, economic theory provides a useful perspective for understanding economic phenomena, and conversely, insights gained from the policy field can lead to the development of new theories. Economic theory and policy practice evolve in a closely interrelated manner, and I am committed to implementing the practice of monetary policy responsibly, while keeping the theoretical basis in mind. Today, as a first step, I would like to share with you the Bank's basic thinking on monetary policy, including the course of policy conduct to date. I will also talk about the Bank's current conduct of monetary policy, referring to the Outlook for Economic Activity and Prices (Outlook Report) released at the end of April. I. The Basic Thinking on Monetary Policy The Bank is currently conducting large-scale monetary easing, with the aim of achieving the price stability target of 2 percent. The last time I was involved in the Bank's monetary policy conduct was from 1998 to 2005 as a Policy Board member. 1998 was the year that the new Bank of Japan Act came into effect and monetary policy was implemented under a new framework, including the Monetary Policy Meetings; it was also the year when deflation began. It is no exaggeration to say that the 25 years since then have been marked by a battle toward achieving price stability. In the following, I would like to explain the Bank's basic thinking on monetary policy, while also referring to this history. Transmission Mechanisms of Monetary Policy Let me start with the mechanisms through which monetary policy affects prices. Today, I will explain a somewhat simplified version of the main mechanisms, focusing on two (Chart 1). The first mechanism concerns the relationship between interest rates and economic activity. The starting point for monetary policy is interest rates. The Bank raises or lowers interest rates to influence economic activity. For example, when the Bank lowers interest rates, the borrowing rates at which firms make business fixed investment and households purchase homes also decline, thereby stimulating demand. This creates employment and boosts economic activity. Conversely, an increase in interest rates works in the direction of reducing demand and suppressing economic activity and employment. The second mechanism concerns the relationship between economic activity and prices. Prices are thought to be determined by the balance between supply of and demand for goods and services in the economy as a whole, or the output gap. When the economy is booming and demand is high, there is a higher probability of a rise in the inflation rate. Conversely, when the economy is sluggish and demand is weak, the inflation rate falls. This relationship between the inflation rate and the output gap is known as the "Phillips curve" in economics. It is named after the New Zealand economist William Phillips, who first discovered the relationship between the nominal wage growth rate and the unemployment rate in the late 1950s. Since then, it has become an important framework for explaining the relationship between prices and economic activity. Once the position and shape of the Phillips curve are identified, it becomes clear how monetary policy should be conducted. To adjust the output gap to a level that corresponds to the inflation target, monetary policy should be tightened if the inflation rate is above the target, and conversely should be eased if it is below the target. This is the simple yet most fundamental principle of monetary policy. Of course, monetary policy in practice is not that straightforward. This is partly because the position of the Phillips curve can change and the inflation rate can temporarily deviate from the curve (Chart 2). I will explain two factors behind these developments here: inflation expectations and temporary supply shocks. Inflation expectations refer to people's expectations about the future rate of inflation. When firms set prices for goods and services, they consider not only supply and demand at that point in time, but also their expectations for prices in the future. For example, when setting the price of ramen noodles, firms make their outlooks for the price of ingredients and the wages of part-time workers and add an appropriate profit margin to determine the price. Since frequent price changes may confuse customers, prices are not revised that frequently. Therefore, if raw material prices and part-time wages are expected to rise, firms will set correspondingly higher prices in advance. In other words, for a given current supply and demand environment, higher inflation expectations will lead to higher inflation, and vice versa. Applying this to the Phillips curve, changes in inflation expectations will cause the curve itself to shift up or down. What about the other factor, temporary supply shocks? A typical example is a sharp rise in crude oil prices, such as that seen last year due to supply concerns associated with the situation surrounding Ukraine. International commodity prices such as crude oil prices are determined regardless of the domestic output gap in Japan. However, since crude oil is widely used as an energy source and raw material, a rise in the price of crude oil will not only increase the price of gasoline, but also the prices of various goods and services, including dining-out. If such developments are not sustained and instead are temporary, the observed inflation rate will rise briefly to a greater extent than what can be explained by the output gap and thereafter move back to somewhere on the original Phillips curve again as the effects of the supply shock fade away. Needless to say, if inflation expectations rise due to a supply shock, this could shift the Phillips curve upward, and thus the two factors are interrelated. The rise in inflation brought through these developments is known as the second-round effects of the supply shock. So far, I have talked about the basic framework of monetary policy. Next, I would like to explain in detail changes in the environment surrounding prices over the past 25 years and the Bank's policy responses, using the framework of the Phillips curve. The "Two Challenges" since the Bursting of the Bubble Economy Let me turn the clock back to the 1990s. Monetary policy faced major challenges in the two mechanisms I mentioned earlier; namely, the relationship between interest rates and economic activity and that between economic activity and prices (Chart 3). First, in terms of interest rates and economic activity, monetary policy faced the lower bound on interest rates. As a result of a series of policy rate cuts following the bursting of the bubble economy, short-term interest rates fell to almost zero percent by the late 1990s. This meant that it was no longer possible to stimulate the economy by lowering interest rates further. Second, in terms of economic activity and prices, as wage growth and the rate of inflation declined, a mindset and behavior based on the assumption that wages and prices will not rise have taken hold in Japan. In terms of inflation expectations, this corresponds to a situation where these have become entrenched at a low level. How did the actual Phillips curve change during this period (Chart 4)? Two developments can be noted here. First, the economy deteriorated substantially following the bursting of the bubble economy. Since there was little room to lower interest rates, monetary easing measures lacked sufficient power to boost the economy. As a result, the output gap deteriorated, moving down to the left along the Phillips curve, which put downward pressure on the inflation rate. Second, the Phillips curve itself shifted downward as a result of a decline in people's inflation expectations, meaning that the inflation rate that could be achieved with the same output gap was lower. Due to these two developments, a situation where the economy and prices stagnate for a prolonged period took hold. Unconventional Monetary Policy as a Means of Overcoming the Two Challenges Faced with this situation, the Bank devised a variety of measures, which later were to be called "unconventional monetary policy" (Chart 5). First, in 1999, the Bank made a commitment to continue with monetary easing so as to generate the policy duration effect and thereby influence longer-term interest rates. While short-term interest rates, the conventional monetary policy tool, were already at zero percent, the Bank committed to maintaining short-term interest rates at zero percent "until deflationary concern is dispelled." The policy duration effect exerted through this commitment was intended to create the expectation that short-term interest rates would remain at zero percent into the future. The idea was that longer-term interest rates, which reflect expectations for future short-term interest rates, would also decline, thus providing additional economic stimulus. This approach has since been widely adopted by other central banks and has come to be called "forward guidance." Next, in 2001, as a further easing measure, the Bank introduced quantitative easing, which increased the amount of funds supplied to financial institutions. Since there were concerns over financial instability at that time, supplying large amounts of funds to the market had the effect of supporting the economy through improving banks' liquidity and reducing the negative impact from the financial side. However, because this policy was simply the exchange of assets that were economically similar in nature -- that is, the purchase of treasury bills to supply current account deposits at the Bank -- my understanding is that it had only a limited stimulative effect on the economy in this regard. Subsequently, in the aftermath of the Global Financial Crisis in 2008, the Federal Reserve introduced a policy of large-scale purchases of long-term bonds, such as government bonds and mortgage-backed securities. The large-scale purchases of government bonds and mortgage-backed securities, which are risk assets, were intended to have a positive impact on the economy -- the former by pushing down even longer-term interest rates than forward guidance and the latter by reducing risk premiums. Since then, quantitative easing has come to mainly refer to policies that directly lower long-term interest rates by purchasing long-term government bonds, rather than those that simply supply a large amount of funds. Furthermore, in 2013, the Bank introduced quantitative and qualitative monetary easing (QQE). This policy incorporated to the greatest extent possible the unconventional monetary policy experience gained until then both at home and abroad, such as making clear the Bank's stance on the future policy conduct, pushing down long-term interest rates through large-scale purchases of government bonds, and strengthening the impact of lowering risk premiums in stock markets through an increase in purchases of exchange traded funds (ETFs). This, together with measures by the government, had been effective in pushing up economic activity and prices even under the first challenge -- the lower bound on interest rates -- and Japan's economy achieved a situation where it was no longer in deflation, in the sense of a sustained decline in prices (Chart 6). There have also been changes in inflation expectations and wage growth, as seen in the fact that base pay, which virtually stopped rising during the deflationary period, has started to increase again since 2014. However, I must add that it gradually became clear that the second challenge -- the entrenched mindset that prices and wages were unlikely to rise -- would take more time to overcome. Review of Monetary Policy over the Past 25 Years from a Broad Perspective As described, the Bank has devised various monetary policy measures, with Japan's economy facing the challenge of deflation and the need to transform the mindset and behavior based on the assumption of low inflation, as the aftereffect of deflation. However, since the conduct of these measures had no precedent, practice may have preceded theory in some respects. In this sense, there remains some room for further analysis regarding, for example, the positive effects and side effects of the measures. Furthermore, although I spoke earlier about macroeconomic developments during the past 25 years in a very simplified manner, in practice, the various factors are intricately intertwined, such as problems in the financial system after the bursting of the bubble economy, rapid advances in deregulation and globalization, and demographic changes. Moreover, the series of monetary easing measures has been implemented in response to such developments in economic activity, prices, and financial conditions. Therefore, the positive effects and side effects of the easing measures should be understood and examined in the context of interaction with these developments. Based on these considerations, the Bank decided at its Monetary Policy Meeting last month to conduct a review of its monetary policy over the past 25 years from a broad perspective (Chart 7). The purpose of the review is to further deepen the Bank's understanding of the interaction between monetary policy, economic activity, and various other factors, and to gain insights that will be useful for future policy conduct. The Bank intends to steadily work on this project and spend a sufficient amount of time of around one to one and a half years, drawing on the knowledge it has gained from its experience to date and the research that has accumulated in the academic community in Japan and abroad. II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy So far, I have described the basic thinking on and history of monetary policy. I would now like to change the subject and talk about the outlook for economic activity and prices and the conduct of monetary policy for the time being. I will begin with an overview of developments in economic activity and prices in Japan, based on the Outlook Report that was just published at the end of April. Outlook for Economic Activity and Prices Japan's economy has picked up (Chart 8). Currently, what is driving the economy is pent-up demand; that is, the materialization of demand that had been suppressed during the pandemic. This consists mainly of demand for services, including inbound tourism, and business fixed investment. The economy is expected to continue recovering moderately until around the middle of fiscal 2023, mainly due to such materialization of pent-up demand. Thereafter, the main driver of improvement in the economy is expected to shift from pent-up demand to a more sustainable factor of a virtuous cycle from income to spending. The rate of wage increases in this year's annual spring labor-management wage negotiations appears to be significantly higher than that of last year. This is likely to boost private consumption through improvement in household incomes. Moreover, it is expected that the impact of past high commodity prices will wane and overseas economies will pick up again. Under these circumstances, corporate profits are likely to improve and business fixed investment to increase further. The increase in demand at home and abroad is projected to lead to further increases in wages and corporate profits, creating a virtuous cycle. As a result, the output gap, one of the factors that determine prices, which is currently slightly negative, is expected to turn positive around the middle of fiscal 2023 and expand moderately thereafter. Next, let me turn to prices. The year-on-year rate of change in the consumer price index (CPI) for all items less fresh food has been at 3.4 percent, owing to the effects of a pass-through to consumer prices of cost increases led by a rise in import prices (Chart 9). The main reason why the rate has come down from a peak of around 4 percent in January is that the government's economic measures have pushed down energy prices. Looking ahead, it is expected that the effects of the pass-through will wane and the CPI inflation rate will decelerate to a level below 2 percent toward the middle of fiscal 2023. In fact, the year-on-year rate of change in the import price index has turned negative recently. It is expected that, after running below 2 percent, the rate of increase in the CPI will accelerate again moderately, albeit with fluctuations, as the output gap improves and as medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms' price- and wage-setting behavior. However, the uncertainties surrounding this outlook are extremely high. I would like to raise two key points regarding the economic and price outlooks. The first concerns overseas economies (Chart 10). The main scenario is that overseas economies will pick up again as global inflationary pressures, which increased significantly last year, decline. However, there are persistent concerns in the market over whether it will be possible to contain inflation and maintain economic growth simultaneously. Although central banks in the United States and Europe have been raising interest rates rapidly since last year, there is still a high level of concern about the risk of inflation rates remaining high through wage increases. Since early spring, there have been phases when market participants' risk sentiment deteriorated, mainly due to the effects of issues surrounding some financial institutions in the United States and Europe. Attention needs to be paid to the risk that global financial conditions will tighten further, mainly through adjustments in asset prices, fluctuations in foreign exchange markets, changes in financial institutions' lending positions, and capital outflows from emerging economies, leading overseas economies to deviate downward from the baseline scenario. The second point concerns wage increases (Chart 11). The base pay increase following this year's annual spring labor-management wage negotiations is expected to mark its highest level in three decades. This is the result of a combination of various factors, including widespread moves to reflect higher prices in wages that were partly due to calls from the government and various sectors, efforts by firms facing labor shortages to recruit and retain employees, and the fact that an overall favorable environment surrounding corporate profits has allowed firms to secure the resources to raise wages. With regard to the outlook, labor market conditions are more likely to tighten further as it becomes difficult for the labor force participation of women and seniors, which has supported labor supply to date, to see an additional increase. On the other hand, wage developments also depend on various factors, including the future course of overseas economies and the domestic economy, as well as developments in moves to pass on higher labor costs to selling prices. The Bank will carefully examine whether the wage increases will be sustained and whether they will take hold. Conduct of Monetary Policy for the Time Being and the Bank's Thinking At the Monetary Policy Meeting held at the end of April, the Bank decided to continue with its existing monetary easing in the form of QQE with Yield Curve Control. I would like to explain the Bank's thinking behind this decision in response to questions that are often asked. (1) Why continue with monetary easing even though the inflation rate is above the 2 percent target? Since last year, a question that is often asked is why the Bank continues to pursue monetary easing when CPI inflation is above 2 percent. The answer to this question is that the Bank aims to achieve price stability in a sustainable and stable manner. The main reason prices are currently rising at a rate above 3 percent is not strength of demand, but cost-push factors originating from overseas. In terms of the Phillips curve I mentioned earlier, this can be interpreted as a temporary upward deviation (Chart 12). Since cost-push inflation puts downward pressure on real income and corporate profits, it places a burden on households and firms. However, tightening monetary policy in an attempt to rein in such inflation will worsen the economic and employment situations. As a result, households and firms will have to shoulder a different kind of burden and the inflation rate will be even lower once the cost-push factors have abated. The Bank aims to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. To this end, it is necessary for the Bank to support economic activity by continuing with monetary easing. (2) How is an underlying inflation trend assessed? The second question is how an underlying inflation trend is assessed. One way, for example, is to construct indicators that make it easier to gauge the trend in prices by excluding items with large short-term price fluctuations or by performing certain statistical processing. However, in a situation such as the current one, where the price of a wide range of items fluctuates due to the impact of rising import prices, such an impact cannot be completely eliminated. As much as policymakers and economists struggle with this problem, there is unfortunately no "ideal indicator" that can be used on its own to assess the underlying inflation trend. Therefore, what is required is to make a comprehensive assessment, not only by taking the various price indicators and their individual characteristics into account, but also by examining factors that shape prices, such as the output gap, inflation expectations, and wage growth, as well as considering anecdotal information from firms. (3) Given that base pay is expected to increase substantially and inflation is projected to approach 2 percent, can't it be said that there is an increasing possibility that the target will be achieved? There is no doubt that this year's large increase in base pay is a tailwind for achieving the 2 percent target. The Outlook Report also shows that the underlying rate of inflation is expected to near 2 percent through fiscal 2025. Therefore, the third question is, if this is the case, isn't the possibility of achieving the price stability target getting higher? Regarding developments in wages, it is necessary to examine whether wage increases will be sustained and whether they will take hold, including the extent to which they spread to small and medium-sized firms. Moreover, although the underlying rate of inflation is expected to gradually increase toward the price stability target, it is likely to take some more time. Furthermore, this outlook is based on the assumption that the output gap will improve and that medium- to long-term inflation expectations and wage growth will rise. In order to achieve the price stability target of 2 percent, it is necessary for inflation expectations to rise and the Phillips curve to shift upward (Chart 13). The Bank aims to achieve this situation amid a virtuous cycle where both wages and prices increase. Although it projects in its Outlook Report that Japan's price developments will gradually approach this situation, the uncertainties surrounding the outlook for prices are high, as mentioned earlier, as risks to economic activity are considered to be skewed to the downside for the time being, especially with regard to overseas economies. The Bank therefore judges that, at this point in time, achieving the price stability target of 2 percent in a sustainable and stable manner has not yet come in sight. (4) How are side effects evaluated? Needless to say, it is necessary to pay close attention not only to the positive effects but also to the side effects of conducting monetary easing over a long period. The fourth question therefore is: what are the Bank's thoughts on this point? One of the side effects often pointed out is that conducting monetary easing over a long period undermines the functioning of financial intermediation. In this context, the Bank's assessment is that Japan's financial institutions are well capitalized and have ample liquidity, and that financial intermediation has continued to function smoothly. In fact, lending by financial institutions has recently seen a year-on-year rate increase of more than 3 percent. Moreover, financial institutions' lending attitudes as perceived by firms have remained accommodative. In regard to the impact on the functioning of the bond market, various data and surveys suggest that market functioning has deteriorated to a certain extent. However, in addition to taking measures such as expanding the range of 10-year Japanese government bond (JGB) yield fluctuations last December, the Bank has deliberated on the specifics of daily market operations, such as temporary lending of JGBs. On top of this, overseas interest rates have declined, and the Bank's assessment therefore is that some improvement in the market functioning has been observed recently, such as the relatively smooth shape of the yield curve. In any case, it is important not to focus on and evaluate the side effects of monetary easing only, but to consider the balance with its positive effects on economic activity and prices, such as whether and to what extent the side effects offset or outweigh the positive effects. The Bank's Thinking on the Future Conduct of Monetary Policy As mentioned, it is necessary for the Bank to firmly continue with monetary easing at this stage. In this regard, the Bank decided at its Monetary Policy Meeting last month to clearly express its basic stance that, with the extremely high uncertainties surrounding economies and financial markets at home and abroad, it would patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions, and that by doing so, it would aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases (Chart 7). In addition to expressing its basic stance, the Bank, based on changes in the assessment of risks associated with the pandemic and other factors, has reexamined and clarified its stance on the future conduct of monetary policy. The expression regarding its stance on the policy rates related to the pandemic was deleted because it became unsuitable in view of the reclassification of COVID-19 under the Infectious Disease Control Law and a decline in the risk of COVID-19 affecting economies and financial markets at home and abroad. Although risks associated with the pandemic have decreased, the uncertainties surrounding economies and financial markets at home and abroad are extremely high. The Bank's stance of patiently continuing with monetary easing therefore is unchanged. Under these circumstances, the Bank will continue to maintain the stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary. The Bank will continue with large-scale monetary easing under yield curve control. Conduct of monetary policy can be viewed as the process of identifying realistic options and selecting the most appropriate one in the face of various constraints and uncertainties regarding developments in economic activity and prices, as well as financial conditions. On this point, when conducting monetary policy, there is an approach that places importance on the social welfare implications of each of the various future paths of the economy, based on the assumption that the economy entails uncertainties. This approach is known as the risk management approach, which was advocated by former Federal Reserve Chairman Alan Greenspan. Applying this to the current situation in Japan, the cost of impeding the nascent developments toward achieving the 2 percent price stability target, which are finally in sight, by making hasty policy changes would likely be extremely high. While there is an opposite risk that inflation will remain above 2 percent if a change in policy falls behind the curve, the cost of waiting for underlying inflation to rise until it can be judged that 2 percent inflation has fully taken hold is not as large as the cost of making hasty policy changes. In this sense, it is appropriate to take time to decide on adjustments to monetary easing toward a future exit. The Bank will carefully support these nascent developments to mature and aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Thank you very much for your attention. Basic Thinking on Monetary Policy and the Outlook for Economic Activity and Prices Speech at a Meeting Held by the Naigai Josei Chosa Kai (Research Institute of Japan) May 19, 2023 UEDA Kazuo Governor of the Bank of Japan Introduction I. The Basic Thinking on Monetary Policy II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Chart 1 I. The Basic Thinking on Monetary Policy Mechanisms of Conventional Monetary Policy (1) Relationship between Interest Rates and Economic Activity Central banks (2) Relationship between Economic Activity and Prices (Represented by the Phillips Curve) Monetary tightening Monetary easing Interest rate hikes Interest rate cuts Firms and households inflation rate, % 2 percent target Increase in demand Decrease in demand Deterioration in the output gap Improvement in the output gap Improvement in the output gap Deterioration in the output gap -3 -2 -1 output gap, % Chart 2 I. The Basic Thinking on Monetary Policy Determinants of Inflation Other than the Output Gap and Their Effects Inflation Expectations Temporary Supply Shocks inflation rate, % inflation rate, % Temporary deviation from the Phillips curve Upward or downward shift in the Phillips curve -1 -3 -2 -1 output gap, % -3 -2 -1 output gap, % Chart 3 I. The Basic Thinking on Monetary Policy The Two Challenges since the Bursting of the Bubble Economy (2) The Entrenched Mindset and Behavior Based on the Assumption That Wages and Prices Will Not Rise (1) Lower Bound on Interest Rates Overnight Rate Inflation Expectations % y/y % chg. y/y % chg. Inflation expectations (left scale) CPI inflation (left scale) Wage growth (right scale) -1 -2 -2 FY 90 91 92 93 94 95 96 97 98 99 00 01 -4 -1 FY 90 91 92 93 94 95 96 97 98 99 00 01 Notes: 1. In the left-hand chart, figures are monthly averages of the uncollateralized overnight call rate. 2. In the right-hand chart, figures for inflation expectations are economists' forecasts for 6 to 10 years ahead. Figures for CPI inflation are for all items excluding the effects of the consumption tax hike. Figures for wage growth before the January-March quarter of 1991 are for establishments with 30 or more employees, while figures from that quarter onward are for establishments with 5 or more employees. Sources: Bank of Japan; Consensus Economics Inc., "Consensus Forecasts"; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. Chart 4 I. The Basic Thinking on Monetary Policy Changes in the Phillips Curve through the Deflationary Period CPI (less fresh food and energy), y/y % chg. Before the deflationary period (CY 1983 to 1997) (1) Deterioration in the output gap (2) Decline in inflation expectations During the deflationary period (CY 1998 to 2012) Averages for each period Output gap -1 ● ■ +0.7 -1.0 % Inflation y/y chg. +1.5 -0.3 -2 -6 -5 -4 -3 -2 -1 output gap (2-quarter lead, %) Note: The CPI figures exclude fresh food and energy, for which prices are volatile. They also exclude temporary factors, which consist of mobile phone charges and the effects of the consumption tax hikes, policies concerning the provision of free education, and travel subsidy programs. These Phillips curves are based on statistical estimates and should be interpreted with some latitude (the same applies to Charts 6 and 12). Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 5 I. The Basic Thinking on Monetary Policy Evolution of Unconventional Monetary Policy and Quantitative and Qualitative Monetary Easing * Each policy was first introduced by Evolution of Unconventional Monetary Policy the central banks shown in parentheses. ■ Apr. 1999: Introduction of the idea of the policy duration effect (forward guidance) (Bank of Japan) ― Commitment to continue with the existing monetary policy until deflationary concern is dispelled ■ Mar. 2001: Introduction of quantitative easing (Bank of Japan) ― Change in the target for market operations from the uncollateralized overnight call rate to the outstanding balance of the current accounts at the Bank ■ From Nov. 2008 onward: Introduction of large-scale asset purchases (Federal Reserve) ― Purchases of mortgage-backed securities, which are risk assets, and U.S. Treasury securities at a large scale ■ July 2012: Introduction of negative interest rate policy (Danmarks Nationalbank) ■ Sept. 2016: Introduction of yield curve control (YCC) (Bank of Japan) ― Maintain the short-term policy interest rate at minus 0.1 percent and the 10-year JGB yields at around zero percent BOJ's Quantitative and Qualitative Monetary Easing (From Apr. 2013 Onward) ■ Commitment with regard to the future conduct of monetary policy ■ Lowering of long-term interest rates through large-scale purchases of JGBs ― Introduction of negative interest rate policy in Jan. 2016 and YCC in Sept. 2016 ■ Lowering of risk premiums in stock markets, etc. through purchases of risk assets such as ETFs Positive Effects ■ Economic improvement, significant increase in employment ■ Achievement of a situation where Japan's economy is no longer in deflation ⇒ Effective in pushing up economic activity and prices Side Effects ■ Impact on the functioning of financial intermediation ■ Impact on market functioning ⇒ BOJ responded by devising various measures Chart 6 I. The Basic Thinking on Monetary Policy Changes in the Phillips Curve since the Introduction of QQE CPI (less fresh food and energy), y/y % chg. Averages for each period Output gap -1.0 +0.2 ■ ◆ % Inflation y/y chg. -0.3 +0.5 Period under QQE (pre-pandemic, CY 2013 to 2019) During the deflationary period (CY 1998 to 2012) -1 -2 -6 -5 -4 -3 -2 Note: Figures for the CPI (less fresh food and energy) exclude temporary factors (see note in Chart 4). Sources: Ministry of Internal Affairs and Communications; Bank of Japan. -1 output gap (2-quarter lead, %) Chart 7 I. The Basic Thinking on Monetary Policy Monetary Policy Meeting (April 27 and 28, 2023) "A Broad-Perspective Review" of Monetary Policy Stance on Future Conduct of Monetary Policy ■ Since the late 1990s, when Japan's economy fell into deflation, achieving price stability has been a challenge for a long period of 25 years. ■ During this period, the Bank has implemented various monetary easing measures. These measures have interacted with and influenced wide areas of Japan's economic activity, prices, and financial sector. ■ In light of this, the Bank has decided to conduct a broadperspective review of monetary policy, with a planned time frame of around one to one and a half years. ■ The Bank reexamined its stance on the future conduct of monetary policy, given the reclassification of COVID-19 under the Infectious Disease Control Law and a decline in the risk of COVID-19 affecting economies and financial markets at home and abroad. y/y % chg. CPI (less fresh food, adjusted for the effects of the consumption tax hikes) Newly Included Its Basic Stance in the Statement With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions. By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Maintained the Following Stance The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will continue to maintain stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary. -1 Negative interest rate policy Quantitative easing -2 -3 CY 98 Zero interest rate policy, policy duration effect Comprehensive monetary easing Quantitative and qualitative monetary easing Yield curve control II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Chart 8 Japan's Economy Economic Activity by Sector The BOJ's Forecasts for Real GDP s.a., CY 2019 = 100 s.a., ann., tril. yen FY 2025 +1.0% FY 2024 +1.2% FY 2023 +1.4% CY 20 Manufacturing Nonmanufacturing Accommodations, eating and drinking services Services for amusement and hobbies Transport FY 13 14 15 16 17 18 19 20 21 22 23 24 25 Notes: 1. In the left-hand chart, figures for manufacturing are from the Indices of Industrial Production, while those for the other sectors are from the Indices of Tertiary Industry Activity. Figures for nonmanufacturing exclude accommodations, eating and drinking services, services for amusement and hobbies, and transport. 2. In the right-hand chart, the forecasts presented are the medians of the Policy Board members' forecasts in the April 2023 Outlook for Economic Activity and Prices (Outlook Report). The values of real GDP for fiscal 2023 onward are calculated by multiplying the actual figure for fiscal 2022 by all successive projected growth rates for each year. Sources: Ministry of Economy, Trade and Industry; Cabinet Office; Bank of Japan. Chart 9 II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Prices The BOJ's Forecasts for the CPI Import Prices y/y % chg. Energy Food products Goods (less food products) Services Temporary factors CPI (less fresh food) +1.8% Commodity prices, etc. Exchange rates Import prices +2.0% +1.6% Estimated contribution of changes in the CPI (less fresh food and energy) y/y % chg. (FY 2023) -1 -2 CY 22 (FY 2024) (FY 2025) -10 CY 21 Notes: 1. In the left-hand chart, figures for temporary factors are staff estimates and consist of mobile phone charges and the effects of travel subsidy programs. The forecasts presented are the medians of the Policy Board members' forecasts in the April 2023 Outlook Report. The estimated contribution to changes in the forecasts is calculated using the medians of the members' forecasts for the CPI (all items less fresh food) and for the CPI (all items less fresh food and energy), and using the respective shares of each index in the overall CPI as weights. 2. In the right-hand chart, the contribution of changes in commodity prices, etc. is calculated using changes in the import price index on a contract currency basis. The contribution of changes in exchange rates is calculated using the difference between the index on a yen basis and that on a contract currency basis. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 10 II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Overseas Economies Inflation Policy Interest Rates y/y % chg. United States Germany France % United States Euro area -2 -4 CY 80 -1 CY 85 Notes: 1. In the left-hand chart, figures are based on national statistics compiled by the OECD. 2. In the right-hand chart, figures for the United States are the federal funds target rate or the medians of the target ranges. Those prior to July 1995 are monthly averages of the effective federal funds rate. Figures for the euro area are the rates on the deposit facility. Sources: Haver; Bloomberg. Chart 11 II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Wages Business and Employment Conditions in the Tankan DI, % points inverted, DI, % points Inflation and Base Pay Increase -60 y/y % chg. Business conditions: "favorable" Employment conditions: "insufficient" -40 CPI inflation Employment conditions (right scale) Base pay increase -20 -20 -40 -60 CY 88 Business conditions (left scale) Business conditions: "unfavorable" Employment conditions: "excessive" -1 -2 CY 88 Notes: 1. In the left-hand chart, figures are for all industries and enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. 2. In the right-hand chart, figures for CPI inflation are for all items less fresh food, excluding the effects of the consumption tax hikes, etc. The figure for base pay increase for 2023 is from Rengo's fifth aggregation. Sources: Bank of Japan; Ministry of Internal Affairs and Communications; Japanese Trade Union Confederation (Rengo); Central Labour Relations Commission; Institute of Labour Administration. II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Chart 12 Phillips Curve before and after the Pandemic CPI (less fresh food and energy), y/y % chg. 23/Q1 Since the outbreak of the pandemic (from CY 2020 onward) Period under QQE (pre-pandemic, CY 2013 to 2019) -1 -5 -4 -3 -2 -1 Note: Figures for the CPI (less fresh food and energy) exclude temporary factors (see note in Chart 4). Sources: Ministry of Internal Affairs and Communications; Bank of Japan. output gap (2-quarter lead, %) Chart 13 II. Outlook for Economic Activity and Prices and the Conduct of Monetary Policy Upward Shift in the Phillips Curve CPI (less fresh food and energy), y/y % chg. Rise in inflation expectations -1 -5 -4 -3 -2 -1 Note: Figures for the CPI (less fresh food and energy) exclude temporary factors (see note in Chart 4). Sources: Ministry of Internal Affairs and Communications; Bank of Japan. output gap (2-quarter lead, %)
|
bank of japan
| 2,023 | 5 |
Opening remarks by Mr Kazuo Ueda, Governor of the Bank of Japan, at the 2023 Bank of Japan and Institute for Monetary and Economic Studies (BOJ-IMES) conference, hosted by the Institute for Monetary and Economic Studies, Tokyo, 31 May 2023.
|
Ueda Kazuo: Opening remarks - 2023 BOJ-IMES conference Opening remarks by Mr Ueda Kazuo, Governor of the Bank of Japan, at the 2023 BOJIMES conference, hosted by the Institute for Monetary and Economic Studies, Tokyo, 31 May 2023. *** I. Introduction It is my great pleasure to welcome you all to our BOJ-IMES Conference. We had the first conference back in 1983. This one is the 28th conference, and the first in-person conference since 2019. On behalf of the conference organizers, I would like to thank you all for your participation. The theme of this year's conference is "Old and New Challenges for Monetary Policy." The theme of the 2019 conference was "Central Bank Design under a Continued Low Inflation and Interest Rate Environment," and the common concern in the conference was how to raise the low inflation and bring it steadily closer to the target. The economic environment has changed dramatically in the last four years, and inflation in many countries has reached levels not seen in decades. High inflation is an old challenge for the study of monetary policy. Fifty years ago, in around 1973, many countries, including Japan, started to see what is today referred to as the Great Inflation. The inflation rate exceeded 10 percent, and how to tackle surging inflation was a major policy agenda. Against this background, a great deal of theoretical and empirical analysis was conducted during the 1970s and beyond. Economic theory has been developed on the causes of the high inflation and on monetary policy for price stabilization. The framework of monetary policy implementation has been established following these developments. At this year's conference, we would like to put this old challenge on the table again. Admittedly, we also need to take into account new perspectives, as suggested by the words in the conference theme "new challenges." That is, how to identify the key differences from the past and how to exploit them for today's policy making. For example, in the period of "low for long" interest rates that preceded the outbreak of the pandemic, concerns about secular stagnation were frequently raised in policymakers' discussions. Attention was drawn to a decline in r-star for a number of developed economies. Secular changes, such as globalization, emergence of a saving glut, a slowdown in the growth rate of technology, and demographic changes, were considered to have depressed the r-star. With policy rates approaching the effective lower bound, monetary policy toolkits have become highly diversified. The past fifty years have brought not only new challenges but also new opportunities. Society has become increasingly and widely digitalized. In addition to the advances in the use of alternative data and improvements in computing power, large-scale language models are rapidly developing. There has also been a rapid expansion in the type and amount of information and in the information technology and communication channels available to central bankers. They are all new opportunities for monetary policy. 1/4 BIS - Central bankers' speeches Here, I will review the discussion about the Great Inflation and give an overview of the new challenges and new opportunities. II. Lessons from the Great Inflation in the 1970s, and New Challenges Lessons from the Great Inflation in the 1970s First, I would like to touch upon two lessons learned from the Great Inflation in the 1970s. One is the importance of identifying the causes of inflation. The Great Inflation occurred during a period that included two oil crises, and its causes are sometimes associated with cost-push factors. However, there are strong arguments that for some countries, including Japan and the United States, accommodative monetary policy and the subsequent excess increase in demand played a major role. Whether inflation is caused by demand or supply has very important implications for monetary policy making. Theoretically, in response to demand-driven inflation, policy tightening is desirable to reduce excess demand and contain inflation. In response to supply-driven inflation, central banks' decision making faces the difficult dilemma between considerations of economic activity and the need to tackle surging inflation. Taking the current increase in global inflationary pressure as an example, it has been pointed out that the increase in inflationary pressure has been caused by supply factors such as a rapid rise in commodity prices, labor shortages, and disruptions to supply chains. It may have been influenced also by demand factors, including the effects of expansionary fiscal and monetary policy measures and the pent-up demand after the spread of pandemic. In addition, the impact of these factors may appear with some lags. Identifying the factors in real time is an even more difficult task. In light of these points, it is extremely important to carefully analyze various indicators and examine the underlying trend in prices. The other lesson from the Great Inflation is the importance of stabilizing inflation expectations. There are studies that point out that sudden and significant rises in inflation expectations occurred at the outset of the Great Inflation period. In theory, of course, such changes in inflation expectations are contained by the central bank's commitment to aggressive tightening to control inflation. Indeed, since the 1980s, many countries have developed monetary policy frameworks with a view to stabilizing inflation expectations. Inflation targeting, of course, is a typical example. However, there are many issues that need to be better understood regarding inflation expectations. For example, market participants, firms, and households all have different expectations formation, given different perceptions of current inflation. In addition, these expectations are susceptible to the influence of their experience or psychological conditions, as well as to the central bank's communication. Moreover, there is no guarantee that the way they are formed will remain stable over time. There is still much room for further research in this area, including in relation to central bank communication. New Challenges Next, I would like to mention two new challenges. The first is about the changing inflation and economic environment. From a long-term perspective, many countries, 2/4 BIS - Central bankers' speeches including Japan, typically went through a period of Great Inflation and the subsequent Great Moderation, followed by the Global Financial Crisis, and then faced a period of "low for long" before the pandemic. There is a view that the current ongoing global inflationary pressure will eventually subside and that a period of "low for long" will resume. On the other hand, there is also a view that the current period of high inflation will change people's views on prices, leading to a departure from "low for long." We have seen higher levels of public and private debt as a result of the pandemic and the policy responses. In addition, people have once again been concerned about geopolitical risks since 2022, leading to a partial reversal of globalization. Therefore, it may be difficult to deny the possibility that we are already in a new normal that is different from the period of "low for long." The second challenge is about the changes in central banks themselves. In the period of "low for long," many central banks faced the effective lower bound of policy rates, which is the traditional policy instrument, and have created various unconventional policy toolkits, including large-scale asset purchases and forward guidance. While a number of empirical studies support some effectiveness of these instruments in stimulating demand, it seems that the mechanisms at play are not fully understood even today. Compared to conventional instruments, which have a long history, unconventional instruments have issues such as limited experience and data constraints in measuring their effectiveness, and further theory building and testing will be required. As a result of increases in the variety of toolkits and also advances in monetary policy making, central banks need to be more careful about how they communicate. These points are related to the recent decision of the Bank of Japan made at the end of April to conduct a review of its monetary policy from a broad perspective. Since the late 1990s, when Japan's economy fell into deflation, the Bank has implemented various monetary easing measures. We will review the interaction between these measures and economic activity, prices, and financial conditions, and the positive effects and the side effects, drawing on the knowledge in Japan and abroad. III. New Opportunities Finally, I would like to talk about new opportunities. In recent years, both academics and policy makers have benefitted greatly from digitalization. They have exploited new types of data in their analyses, including highly granular data at the level of individual firms, households, and persons; daily and intraday high-frequency data; people flow data; and text data. Improvements in computational power have made the analysis of such data far easier and more advanced than before. These examples of new opportunities played a particularly large role in understanding economic conditions at the outbreak of the pandemic, for instance. In the rapidly changing economic conditions brought about by the spread of the virus, it became necessary for policymakers to observe the economic activities of firms and individuals on a weekly or daily basis. The Bank of Japan was no exception. For example, the Bank used high frequency data such as consumption developments based on credit card payment data and nighttime population of downtown Tokyo based on smartphone location data. IV. Conclusion 3/4 BIS - Central bankers' speeches We are now about to start the 28th BOJ-IMES Conference. This year's Mayekawa lecture will be given by Professor Maurice Obstfeld of University of California, Berkeley. Professor Obstfeld served as Honorary Adviser to the IMES from 2001 to 2014 and has participated in BOJ-IMES conferences 12 times. I have had the pleasure of participating with him in nine of them. I am looking forward to his lecture based on his experience as an academic, policy maker, and old friend of the Bank of Japan. In the keynote speech, Professor Athanasios Orphanides of MIT, one of our honorary advisers, will share his views on the policy communication aspect of monetary policy strategy, in particular, issues relating to forward guidance. As is well known, he is one of the first academics to point out the importance of real time analysis, and he will also give a valuable speech based on his various experience including of course that as a central bank governor. The papers to be presented today exploit new opportunities, namely highly granular data and text data analysis, to provide new perspectives on old and new challenges for monetary policy. Using highly granular data, the first and second papers analyze households' inflation expectations in the United States, and the fourth, price developments in Japan. The third paper uses text data from the FOMC transcripts to analyze monetary policy making. In the policy panel discussion, we welcome speakers from the central banks of seven countries and regions, and the IMF as panelists. Part A will discuss "old challenges" and Part B will discuss "new challenges." From the Bank of Japan, Deputy Governor Himino will participate in Part B, and I will participate in Part A. We are now facing new challenges. The key is how to use the lessons learned from the past "old challenges" to augment the "new opportunities." In-depth analysis as well as thoughtful and lively discussions are crucial to policy making. At the 2008 BOJ-IMES conference, Professor Obstfeld described our conference as "a venue in which abstract monetary theory and practical policy questions can comfortably be discussed in full depth and side by side." I hope that the discussions at the conference today and tomorrow will deepen our understanding of the current state of central banks and help us address the new challenges. Thank you for your kind attention. 4/4 BIS - Central bankers' speeches
|
bank of japan
| 2,023 | 6 |
Speech by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Kagoshima, 21 June 2023.
|
June 21, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kagoshima ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity First, I would like to touch on developments regarding COVID-19. While three years have passed since its outbreak, COVID-19 was downgraded in Japan to a Class V infectious disease under the Infectious Disease Control Law on May 8, 2023, bringing about further normalization of socioeconomic activity. Although a certain degree of vigilance is necessary, leading examples of such normalization overseas suggest that COVID-19 will have much less impact on Japan's economy than previously. Taking this into account, I will now talk about recent developments in Japan's economic activity. The economy has continued to recover moderately, although the pace of recovery has decelerated recently, as evidenced by some slowdown in certain indicators of private consumption and in exports. These developments in private consumption are likely due to price rises, and those in exports to a slowdown in the pace of recovery in overseas economies. Let us look at private consumption in more detail. Consumption of durable goods such as automobiles has recovered on the back of a waning of the effects of supply-side constraints. Services consumption has also recovered, partly because demand that was suppressed during the pandemic has materialized as the economy reopens. Therefore, private consumption overall has increased (Chart 1). That said, the effects of price rises have been observed. For instance, regarding consumption of items such as daily necessities, demand seems to have shifted to lower-priced goods and affordable private brand products. Next, I will turn to exports. While exports to advanced economies have remained on an uptrend on the back of the waning of the effects of supply-side constraints, those to the NIEs, the ASEAN economies, and some other Asian economies have decreased due to weakness in global demand for IT-related goods, as seen in a drop in exports of electronic parts, such as semiconductors mainly for smartphones and personal computers. Those to China have also been somewhat weak, particularly for capital goods. In terms of total exports, they have been more or less flat recently (Chart 2). Meanwhile, business fixed investment has been generally firm. This is attributable to firmness in (1) IT-related investment aimed at digital transformation (DX) and labor saving, and construction investment in urban redevelopment projects and in logistics facilities resulting from expanding e-commerce. In addition, firms have become more positive about making investment aimed at strengthening supply chains, partly owing to government support. Under these circumstances, business fixed investment plans for fiscal 2023 suggest firmness in such investment (Chart 3). Since the collapse of the bubble economy, Japanese firms have in some respects been risk averse in making investment, in that they have restrained fixed investment and preferred to secure ample on-hand liquidity, given the widespread prospects for prolonged low growth and the experience of negative external shocks. However, Japanese firms lately appear to be starting to change positively in a way not seen since the 1990s. This is suggested, for example, by the Annual Survey of Corporate Behavior released by the Cabinet Office in March 2023, which shows that, based on firms' responses, the expected real economic growth rate for the next five years has increased (Chart 4). To encourage such positive moves among Japanese firms, it is important for the Bank of Japan to provide steady support for the economy when conducting monetary policy, which I will explain later. B. Price Developments in Japan 1. Price situation I will now talk about recent price developments and then their outlook. Starting with recent price developments, the year-on-year rate of increase in the consumer price index (CPI) for April 2023 was 3.4 percent for all items less fresh food (core CPI) and 4.1 percent for all items less fresh food and energy (core-core CPI) (Chart 5). As for the core CPI, the rate of increase is slower than the latest peak of 4.2 percent in January, mainly due to the effects of pushing down energy prices from the government's economic measures. On the other hand, the rate of increase in the core-core CPI has accelerated, reflecting, for example, a pass-through to selling prices of increases in costs such as of raw materials led by the past rise in import prices. My impression is that prices are currently rising faster than I had so far expected. Meanwhile, inflation expectations have stayed almost flat after rising moderately, although this differs depending on economic entity (Chart 6). Specifically, households appear to expect that prices will continue rising. This is evidenced, for example, by the 93rd Opinion Survey on the General Public's Views and Behavior (March 2023 Survey) released by the Bank in April, which shows that 85.7 percent of the respondents expected that prices "will go up" over the year ahead.1 As for the perception of the present price levels compared with one year ago, 94.5 percent answered that prices "have gone up," suggesting that the respondents expected inflation momentum to level off slightly (Chart 7).2 The price situation in Japan that I have just described can be regarded as a move toward overcoming deflation, which Japan has experienced for a long period. On the other hand, if the pace of inflation is too fast, this could have the effect of pushing down the economy, such as downward pressure on real income. In the conduct of monetary policy -- I will return to this topic later -- the Bank will thoroughly assess economic and price developments including various factors brought about by changes in the price situation. 2. Outlook for prices I would like to move on to future price developments. I mentioned earlier that prices are currently rising faster than I had so far expected. The Bank's baseline scenario for the price outlook is that the year-on-year rate of increase in the CPI will decelerate temporarily and thereafter accelerate again toward the Bank's price stability target. This scenario is subject to considerable uncertainty, however, and both the upside and downside risks are likely to be high. In what follows, I would like to talk about what informs my thinking in this area. Before elaborating on the upside and downside risks to prices, I would like to touch on a perspective that I think is a useful starting point when considering price fluctuations. The figure comprises the proportions of respondents who chose "will go up significantly" and "will go up slightly," which accounted for 33.1 percent and 52.6 percent, respectively. The figure comprises the proportions of those who chose "have gone up significantly" and "have gone up slightly," which accounted for 62.8 percent and 31.7 percent, respectively. While there are various methods for analyzing consumer prices, I think it is helpful to focus on the frequency of price changes in each item by separating the two categories of "sticky" and "flexible" consumer prices. Sticky consumer prices are those for items whose prices change relatively infrequently, and in Japan's CPI these are mainly services prices. On the other hand, flexible consumer prices are those for items whose prices change relatively frequently, and these are mainly goods prices (Chart 8). Sticky consumer prices are thought to be affected by medium- to long-term inflation expectations, wages, and firms' medium- to long-term growth expectations (or demand forecasts) that are likely to affect wages. Wage growth in this year's annual spring labormanagement wage negotiations is projected to exceed the past average and the previous forecast by a wide margin. This could feed into further price rises. In terms of future price developments, however, a crucial point will be whether this wage growth is for the current fiscal year alone or will continue into the next fiscal year and beyond. On this point, it is possible that firms will continue raising wages to secure their workforces given a further tightening of labor market conditions, amid the dim outlook for additional labor force participation by women and seniors, which has so far underpinned the labor supply. It is likely that sticky consumer prices elevated the CPI considerably from the mid-1980s through the first half of the 1990s, before Japan fell into deflation. In the current situation, however, sticky consumer prices, which are mainly composed of services prices, have not yet made a significant contribution to a rise in the CPI, though they could potentially make a greater contribution in response to the results of this year's annual spring labor-management wage negotiations. The key here, as previously mentioned, will be a sustained increase in wages. I am paying attention to the extent of the spillover effects that wage hikes by firms will have on services prices, which have so far seen only a marginal increase (Chart 9). Next, flexible consumer prices are susceptible to the business cycle and the output gap, and to raw material prices that mainly reflect commodity market conditions. Due in part to this last factor, flexible consumer prices in the past tended to track movements in import prices with a time lag. Looking at the corporate goods price index (CGPI) released by the Bank, after reaching a peak in September 2022, the import price index has continued to decline, due to such factors as a fall in raw material prices. According to the past trends I referred to earlier, this decline in import prices is likely to dampen the rise in flexible consumer prices with a time lag. In fact, developments in producer prices show that the decrease in import prices is beginning to spread by demand stage from upstream to downstream (Chart 10). As for the outlook, the drop in producer prices is basically projected to spill over into the CPI eventually. Given what I have just outlined, let me interpret the Bank's baseline scenario for the price outlook mentioned earlier using the framework of "sticky" and "flexible" consumer prices. It can be said that sticky consumer prices are expected to rise gradually along with wage growth; however, as the spillover of a fall in import prices to a decline in flexible consumer prices fully takes hold, the rate of increase in overall prices is projected to be pushed down for the time being. 3. Upside risks to prices Next, I will discuss risks to the outlook for prices. In my view, upside risks require attention for the time being, but thereafter, more attention should be paid to downside risks. I will first focus on the upside risks to prices. It is assumed that sticky consumer prices will continue to rise, but also that, in contrast to the baseline scenario, there is a risk that the rate of increase in flexible consumer prices will not cool down. Earlier, I said that flexible consumer prices tend to track movements in import prices with a time lag. However, this is simply an observation based on the fact that such a relationship existed in the past. As I mentioned earlier when talking about price developments in Japan, the latest Opinion Survey on the General Public's Views and Behavior, along with other reports, points out the possibility that households' perception of inflation that prices will not rise, which has been deeply entrenched, may be on the verge of changing. From the standpoint of firms, they may consider that the time has come to rethink the price-setting behavior that took root during the past period of deflation. In other words, in setting product prices, firms may think along this line: "When prices of raw materials eventually come down, sales may not contract even if we do not lower product prices." If an increasing number of firms adopt such price-setting behavior, they will not reduce selling prices even if import prices decline. As a result, the rate of increase in flexible consumer prices may not cool down as much as expected. Meanwhile, if firms continue to raise wages by tapping into higher margins, the rate of increase in sticky consumer prices could also rise. In relation to upside risks to prices in Japan, I would now like to touch on the points I am focusing on in terms of the price change distribution by item in the CPI. Let us take as an example the United States, which has already experienced an upswing in prices. While it should be noted that underlying conditions differ from those in Japan, before the COVID-19 pandemic, the price change distribution by item in the U.S. CPI was mountain-shaped, with its peak in the 2 percent vicinity. This changed after the outbreak, however, with the peak above the 2 percent level expanding and then plummeting (so the graph is trapezoid-shaped). In Japan, the price change distribution by CPI item is still unchanged, with the peak around 0 percent (Chart 11). I would like to monitor whether a change in the distribution, if any, will lead to an upswing in prices. 4. Downside risks to prices I would now like to explain the downside risks to prices. Specifically, the rate of increase in flexible consumer prices, which is projected to decelerate temporarily, may not accelerate again as expected. It is likely that this risk arises from overseas factors rather than domestic factors. The current global economy is marked by a range of uncertainties. Depending on the course of the situation in Ukraine, the downward pressure on European economies could heighten, particularly for those in the euro area. In China, there are concerns over adjustment pressure in the real estate market and over the risk of economic stagnation amid the elevated youth unemployment rate. Having said that, I believe uncertainties surrounding the U.S. economy warrant particular attention. In the United States, with inflation having peaked in the second half of 2022 and now gradually settling down, there seems to be a growing consensus in the market that the policy interest rate hike cycle is nearing its end phase and interest rates will begin to decline accordingly, so that a major economic downturn can be avoided. However, one still cannot dismiss the view that the inverted yield curve in the United States, in which short-term interest rates exceed long-term rates, is a signal of future economic downturn. In addition, since developments in employment tend to lag behind economic activity, if the U.S. economy decelerates faster than expected, the unemployment rate could rise by more than expected, following in the wake of such an economic slowdown. In terms of uncertainties surrounding the U.S. economy, I would like to add the risk that financial conditions will also lead to an economic downturn. The United States has experienced many cases where financial stress exacerbated a recession, such as after the savings and loan (S&L) crisis intensified in the late 1980s and after the Global Financial Crisis in 2008. That said, even if financial stress arises, it is not easy to accurately predict its impact on the real economy. Monetary tightening is intended to curb overheating of the economy and return it to a "Goldilocks" situation. However, if financial stress increases before the economy returns to a proper level of economic growth, it will become difficult to provide an outlook for economic activity and prices, and policymakers will face a hard decision: whether to continue monetary tightening, to halt it, or to shift to monetary easing. For example, if the shift to monetary easing is premature, there is concern that an insufficient curbing of an overheated economy may lead to the entrenchment of high inflation. On the other hand, if the shift to monetary easing is put off and financial stress intensifies significantly, the adverse impact on the economy could increase. Although the United States has experienced multiple bank failures since March 2023, the financial market seems to have regained stability, owing to swift responses by the U.S. authorities. A review by U.S. supervisory bodies and other analyses have pointed out that bankruptcies were attributable to the peculiar structure of the financial institutions' balance sheets and the poor level of risk management, such that these institutions were unable to adhere to basic practices for managing interest rate and liquidity risks. It seems to be widely recognized therefore that these bankruptcies were basically caused by factors at the level of individual institutions. The downside risks to the U.S. economy that I explained, if they were to materialize, could have a significant impact on Japan's economy. It is therefore imperative that the Bank carefully monitor the course of developments, including financial conditions. II. Conduct of Monetary Policy Basic Idea I would like to present my views regarding the Bank's conduct of monetary policy, based on the current economic and price developments and the future scenario I have explained so far (Chart 12). Since 2022, particularly in the face of rising prices, some have suggested that the time has come for the Bank to revise its monetary policy. Indeed, with observed inflation rates increasing at a fast pace and expected rates showing a moderate rise, I consider that a change has started to take hold in the deflationary mindset or people's perception of inflation that prices will not rise. In that sense, we are coming closer to achieving the price stability target. However, a revision of monetary policy is still premature because there is considerable uncertainty about the baseline scenario regarding the price outlook that I described earlier. Let me reiterate the Bank's baseline scenario: the year-on-year rate of increase in the CPI is likely to decelerate temporarily and thereafter accelerate again toward the Bank's price stability target. In deciding whether or not monetary policy should be revised, it is important to judge, under the baseline scenario, whether the CPI will move toward a sustainable and stable rise when it starts to increase again following the temporary deceleration. It should also be noted that, as I have described so far, there are both upside and downside risks to the outlook for prices due to considerable uncertainty. From the long-term perspective, I think that risks are more skewed to the downside. It is necessary to take into careful account the risks mentioned when deciding whether monetary policy should be revised. As I mentioned earlier, there is uncertainty over recent developments in the global economy, especially the U.S. economy. Attention should thus be paid to downside risks to Japan's price developments under the risk scenario of the global economy. If downside risks to the U.S. economy materialize, the negative output gap in Japan could widen, causing a downswing in economic activity and prices. If the U.S. dollar comes under downward pressure due, for example, to a decline in U.S. interest rates, this could exert downward pressure on Japan's import prices and in turn consumer prices. Due attention should also be paid to the scenario of an upswing in prices in Japan. As I mentioned earlier, there is the possibility that flexible consumer prices will not decline. Having said that, it is important at this point for the Bank to carefully assess developments in achieving the 2 percent price stability target in a sustainable and stable manner based on the recognition that uncertainty is high regarding the price outlook. At the Monetary Policy Meeting held in April 2023, the Bank confirmed that it will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions. It also decided to conduct a broadperspective review of the monetary policy it has been implementing for the past 25 years. Achieving price stability has been a challenge facing Japan's economy for a long period since it fell into deflation in the late 1990s. To address the challenge, the Bank has devised various monetary policy measures. These measures have interacted with and influenced wide areas of Japan's economic activity, prices, and financial sector. Through the review, the Bank aims to deepen its understanding of the interaction between monetary policy, economic activity, and various other factors, and make use of the insights gained for future policy conduct. To this end, the Bank will spend a sufficient amount of time, around a year to 18 months, drawing on the knowledge it has gained from its experience to date, the research that has accumulated in the academic community in Japan and abroad, and the opinions received at meetings with local leaders and on other occasions. Yield Curve Control For the last topic of monetary policy conduct, I will focus briefly on yield curve control. Yield curve control is a framework in which the Bank applies a negative interest rate of minus 0.1 percent as the short-term policy interest rate and purchases a necessary amount of Japanese government bonds (JGBs) so that long-term interest rates, specifically 10-year JGB yields, remain at around 0 percent. Let us look back at the introduction of yield curve control. Following the introduction of negative interest rates in January 2016, the Bank introduced yield curve control in September that year to strengthen the policy framework thus far implemented, aiming to achieve the 2 percent price stability target at the earliest possible time. The Bank assessed at that time that a weakening of inflation expectations was a major factor in delaying achievement of the target. Although inflation expectations have risen recently, I believe that the framework of yield curve control is necessary given the Bank's baseline scenario regarding the price outlook and downside risks to prices, as I discussed earlier. Since the introduction of yield curve control, the Bank has devised various measures to enhance the sustainability of monetary easing under this framework. Here are some examples of controlling long-term interest rates under yield curve control. In 2022, the functioning of bond markets deteriorated, particularly in terms of relative relationships among interest rates of bonds with different maturities and arbitrage relationships between spot and futures markets. Specifically, interest rates of bonds with 8-9 years of maturity were higher than those of bonds with 10-year maturity, and a price gap was observed between spot and futures markets. A gap was also observed between the yields for on-the-run issues of 10-year JGBs, which are eligible for the Bank's fixed-rate purchase operations, and those for issues of 20year JGBs with a residual maturity of 10 years. This is likely because a gap was created between the Bank's yield target and yields based on market participants' predictions, as volatility in overseas financial and capital markets increased from early spring 2022. Yields on JGBs are reference rates for corporate bond yields, bank lending rates, and other funding rates. The Bank judged that if these market conditions persisted, this could have had a negative impact on financial conditions such as issuance conditions for corporate bonds. In response, the Bank decided to modify the conduct of yield curve control in order to improve market functioning and encourage a smooth formation of the yield curve. Specifically, it decided to expand the range of 10-year JGB yield fluctuations from the target level while increasing the amount of JGB purchases. Owing to this modification, along with a decline in overseas interest rates, the shape of the JGB yield curve is generally smoother at present, and market functioning has shown signs of improvement (Chart 13). All of this has convinced me that it is appropriate for the Bank to continue with monetary easing under the framework of yield curve control. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kagoshima June 21, 2023 ADACHI Seiji Member of the Policy Board Bank of Japan Chart 1 Private Consumption s.a., CY 2015=100 Consumption Activity Index (travel balance adjusted) Consumption of households (excluding imputed rent) CY 13 Note: Figures for the Consumption Activity Index (CAI) are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. The figure for 2023/Q2 is that for April. Sources: Cabinet Office; Bank of Japan, etc. Chart 2 Exports Total Real Exports Real Exports by Region s.a., CY 2020=100 s.a., 2018/Q1=100 s.a., 2018/Q1=100 CY 07 United States <18.6> EU <9.5> CY 18 China <19.4> NIEs, ASEAN, etc. <37.1> Other economies <15.4> 22 23 18 22 23 Note: Figures are based on Bank staff calculations. Figures for 2023/Q2 are those for April. In the right panel, figures in angle brackets show the share of each country or region in Japan's total exports in 2022. Figures for the EU exclude those for the United Kingdom for the entire period. Sources: Ministry of Finance; Bank of Japan. Chart 3 Business Fixed Investment y/y % chg. Private nonresidential investment (SNA, nominal) Tankan (actual) Tankan (planned investment for the next fiscal year as of the March survey of each year) -5 -10 -15 -20 FY 08 Note: Figures based on the Tankan include software and R&D investments but exclude land purchasing expenses. R&D investment is not covered as a survey item before the March 2017 survey. The figures are for all industries including financial institutions. Sources: Cabinet Office; Bank of Japan. Chart 4 Expected Growth Rate % Japan's expected real growth rate (over the next 5 years) CY 85 Note: Based on the Annual Survey of Corporate Behavior. Figures show the results for listed firms in a particular survey year for the next five years. Source: Cabinet Office. Chart 5 CPI for All Items Less Fresh Food 4.5 y/y % chg. 4.0 Mobile phone charges 3.5 Effects of travel subsidy programs 3.0 2.5 Effects of the consumption tax hike and free education policies Energy 2.0 Excluding the above factors 1.5 CPI (less fresh food) 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY 17 Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 6 Inflation Expectations 2.5 y/y, ann. avg., % Market participants (QUICK, 2 to 10 years ahead) Economists (7 to 11 years ahead) Households (over the next 5 years) Firms (5 years ahead) 2.0 1.5 1.0 0.5 0.0 CY 05 Notes: 1. Figures for economists are the forecasts of forecasters surveyed for the ESP Forecast. 2. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method for a 5-choice question. 3. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: Japan Center for Economic Research (JCER), "ESP Forecast"; QUICK, "QUICK Monthly Market Survey <Bonds>"; Bank of Japan. Chart 7 Households' Current and Future Perception of Price Levels Present Compared with One Year Ago One Year Ahead Compared with the Present share of responses, % share of responses, % 45.4 41.6 31.7 58.4 60.8 "Have gone up" 94.5% 58.8 65.4 57.7 56.8 52.5 52.6 29.4 28.9 32.5 33.1 "Will go up" 85.7% 59.8 52.6 46.4 8.9 63.9 16.6 22.4 52.7 62.8 30.6 Have gone down significantly Have gone down slightly Have remained almost unchanged Have gone up slightly Have gone up significantly 8.4 13.4 20.4 Will go down significantly Will go down slightly Will remain almost unchanged Will go up slightly Will go up significantly Note: "Have gone up" comprises "have gone up significantly" and "have gone up slightly." "Will go up" comprises "will go up significantly" and "will go up slightly." Source: Bank of Japan. Chart 8 CPI for Goods and Services Goods Services y/y % chg. -2 -2 -4 -6 -8 y/y % chg. -4 Food products Textile products Other industrial products -10 CY 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 -6 General services -8 Public services -10 CY 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 Source: Ministry of Internal Affairs and Communications. Chart 9 Wages and Services Prices y/y % chg. General services Nominal wages -5 FY 71 Note: Figures for nominal wages are for establishments with 30 or more employees up through fiscal 1990, and with 5 or more employees from fiscal 1991 onward. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 10 Spillover Effects of Import Prices on the CPI for Goods y/y % chg. y/y % chg. y/y % chg. -10 -5 -10 -20 -30 CY 16 -20 CY 16 Import price index ID index (stage 1) ID index (stage 2) -10 CY 16 ID index (stage 4) ID index (stage 3) FD index (excluding exports) ID index (stage 4) CPI for goods (less fresh food and energy) Note: The import price index is on a yen basis. The FD-ID price indexes divide demand into the final demand (FD) stage and four stages of intermediate demand (ID) based on the Input-Output Tables for Japan. Goods and services prices are then aggregated according to the stage to which they belong to compile the FD index and the ID indexes for stages 1 to 4, ranging from the upstream to downstream stages of the production process. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 11 Price Change Distributions Pre-Pandemic United States Japan 40 share of the number of items, % Goods Dec. 2019 Services Energy share of the number of items, % Sept. 2019 -5 or more y/y % chg. 40 share of the number of items, % Apr. 2023 Recent -10 or less -10 -5 or less or more y/y % chg. 40 share of the number of items, % Apr. 2023 -10 -5 or more or less or more y/y % chg. y/y % chg. Note: Figures for the United States are for the CPI for all items, while those for Japan are for the CPI for all items excluding fresh food. The pre-pandemic distribution for Japan is based on data for September 2019, which was before the CPI developments were affected by the consumption tax hike. Sources: Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics (BLS). -10 or less -5 ID index (stage 2) Chart 12 Conduct of Monetary Policy Guideline for market operations under yield curve control Stance on future conduct of monetary policy The short‐term policy interest rate: Apply a negative interest rate of minus 0.1 percent to the Policy‐Rate Balances in current accounts held by financial institutions at the Bank. Basic stance With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions. By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. The long‐term interest rate: Purchase a necessary amount of JGBs without setting an upper limit so that 10‐year JGB yields will remain at around 0 percent. The Bank will continue to allow 10‐year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level, and will offer to purchase 10‐year JGBs at 0.5 percent every business day through fixed‐rate purchase operations, unless it is highly likely that no bids will be submitted. It will make nimble responses for each maturity by increasing the amount of JGB purchases and conducting fixed‐rate purchase operations. Future conduct of monetary policy Asset purchases (other than JGBs) Purchase as necessary with following upper limits on annual paces of increase in their amounts outstanding The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year‐ on‐year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will continue to maintain stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary. ETFs: About 12 trillion yen J‐REITs: About 180 billion yen CP: Maintain the amount outstanding at about 2 trillion yen Corporate bonds: Purchase at about the same pace as prior to the COVID‐19 pandemic, so that their amount outstanding will gradually return to the pre‐pandemic level of about 3 trillion yen. Chart 13 Yield Curve 1.8 1.6 1.4 % December 19, 2022 (first day of December MPM) Latest (June 16, 2023) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 0 1 2 3 4 5 6 7 8 9 10 year Source: Bloomberg. residual maturity
|
bank of japan
| 2,023 | 6 |
Speech by Mr Asahi Noguchi Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Okinawa, 22 June 2023.
|
June 22, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Okinawa NOGUCHI Asahi Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Developments at Home and Abroad I will begin my speech by talking about recent economic developments at home and abroad. The global macroeconomic landscape has changed significantly with the COVID-19 pandemic that began in 2020 marking a divide: the global economy is now experiencing a high-inflation, high-interest rate environment more or less for the first time since the 1970s, having transformed from a low-inflation, low-interest rate environment known as secular stagnation. In the United States and Europe, rapid inflation began around spring 2021, when these economies began to emerge from the pandemic driven by widespread vaccination, and by 2022, inflation rates had reached around 8 to 10 percent (Chart 1). In this situation, central banks in these economies have rapidly raised their policy interest rates in order to contain high inflation (Chart 2). As I will touch on later, a tightening of labor market conditions that had taken place as economies began to emerge from the pandemic can be pointed to as background to the rapid inflation. However, labor market conditions have remained tight in these economies amid a moderate economic slowdown due to the policy interest rate hikes, and nominal wages have continued to rise at a pace above the historical trend. Given this situation, the monetary tightening phase is expected to continue, and the global economy is likely to continue decelerating for the time being (Chart 3). I will now turn to developments in Japan's economy. The economy has continued to pick up as consumption, particularly in the face-to-face services industry, has been increasing moderately with the impact of COVID-19 waning, although exports and industrial production have been more or less flat amid the continued slowdown in overseas economies (Chart 4). As for the outlook, although such slowdown is likely to continue for some time, I expect Japan's economy to recover moderately on the back of the following factors: (1) further expansion in inbound tourism demand against the background of the yen's depreciation; full-fledged normalization of the face-to-face services industry with the downgrading of COVID-19 to a Class V infectious disease; (3) easing of supply-side constraints that had remained in some areas, such as semiconductors; as well as (4) an expected expansion in business fixed investment due to Japanese manufacturers transferring their production sites back home and to labor-saving investment to address labor shortages. Concerning risks to the outlook, overseas economies and global financial conditions warrant attention. As I mentioned earlier, overseas central banks have so far been raising their policy interest rates at a high pace in order to contain rapid inflation. Issues surrounding some financial institutions in the United States and Europe since March 2023, however, show that some overseas financial sectors have not necessarily been able to adequately respond to the recent changes in financial conditions (Chart 5). Such issues have not led to affecting the whole financial system, due in part to swift responses taken by the respective authorities. However, given that global macroeconomic conditions, triggered by the COVID-19 pandemic, have undergone a rapid change from a low-inflation, low-interest rate environment to a high-inflation, high-interest rate environment, there is a risk that some kind of financial shock would occur in an unexpected manner. Meanwhile, as high inflation has continued, mainly against the background of wage increases, central banks have not been able to change their monetary tightening stance. Such a situation is likely to make policy responses more difficult and create increasing uncertainties for the global economy. B. Price Developments Turning to Japan's price developments, the year-on-year rate of change in the consumer price index (CPI) for all items less fresh food continued to rise, exceeding 2 percent in April 2022, reaching 3 percent in September, and 4 percent in December (Chart 6). What triggered this inflation was a surge in energy prices that occurred in the process of a global recovery from a downturn caused by the pandemic. Moreover, since spring 2022, imported goods prices have risen across the board due to such factors as a further rise in international commodity prices that mainly reflected the situation in Ukraine, as well as the yen's depreciation during a situation of high global inflation and rising interest rates. Initially, the effects of such factors emerged mostly in the form of a rise in producer prices. However, since last summer, a passthrough of cost increases to selling prices at the retail level has also started to be observed, and moves to raise prices, particularly of food, have rapidly become widespread (Chart 7). The year-on-year rate of change in the CPI, after having reached its peak at 4.2 percent in January 2023, has fallen to the range of 3 to 4 percent, due partly to a decline in energy prices owing to the government's support measures. However, as there seems to be a change in firms' price-setting stance, price rises, such as of food, are expected to continue for a while, and the situation of inflation exceeding 2 percent will likely remain for the time being, with a contribution mainly from rises in goods prices. Nonetheless, since the effects of import price rises will gradually dissipate as the pass-through of cost increases in the upstream of the distribution process to the downstream peaks out, the year-on-year rate of change in the CPI for all items less fresh food is expected to fall below 2 percent toward the middle of fiscal 2023. Subsequent to the slowdown, in order for the year-on-year rate of change to accelerate again toward 2 percent and stay at such a level, it is important that the underlying trend in prices rise. As I will describe in more detail later on, in terms of the outlook, I am paying particular attention to developments in nominal wages and services prices. In this regard, the fact that wage increases at the highest level in about 30 years were achieved in the 2023 annual spring labor-management wage negotiations holds important implications. Although this year's negotiation results were prompted by global inflation, which is an exogenous factor, they could be suggesting that improvement in labor market conditions brought about by the Bank of Japan's patient conduct of monetary easing has finally started to bear fruit in the form of a synergy between price rises and wage increases. II. Monetary Policy A. Conduct of Yield Curve Control Let me now turn to the Bank of Japan's policy conduct. In order to overcome prolonged deflation and achieve the price stability target of 2 percent, the Bank introduced quantitative and qualitative monetary easing (QQE) in April 2013. Thereafter, in order to enhance monetary easing while responding to developments in economic activity and prices, it introduced QQE with a Negative Interest Rate in January 2016, and QQE with Yield Curve Control in September. Under this so-called yield curve control policy, the Bank set the target level of 10-year Japanese government bonds (JGB) yields at "around zero percent" and, in practice, such yields had been in the range of around plus and minus 0.1 percent. Thereafter, given that market transactions were sluggish because of the narrow range of yield fluctuations, in July 2018, the Bank decided that the yields may move upward and downward to some extent, mainly depending on developments in economic activity and prices, with a specific figure of "about double the range of around plus and minus 0.1 percentage points" in mind. Moreover, given the findings of the Assessment for Further Effective and Sustainable Monetary Easing conducted in March 2021, the Bank made clear that the range of 10-year JGB yield fluctuations from the target level would be "between around plus and minus 0.25 percentage points." In December 2022, it was further expanded to "between around plus and minus 0.5 percentage points." In this way, the Bank has been expanding the range of 10-year JGB yield fluctuations from the target level under the yield curve control policy. This is because, while long-term interest rates need to be kept stable at low levels in order to achieve the 2 percent price stability target, holding down such rates also could affect market functioning. Meanwhile, in the case where the range of 10-year JGB yield fluctuations from the target level is expanded so as to ensure market functioning, long-term interest rates could rise as a result, leading to a less accommodative monetary environment and a delay in economic recovery. The management of 10-year JGB yield fluctuations therefore needs to be considered based on the judgment of the trade-off between monetary easing effects at a macroeconomic level and effects on market functioning, among others. The Bank's decision to expand the range of 10-year JGB yield fluctuations from the target level in December 2022 also was made based on such judgment. In 2022, as a result of economic recovery in various countries and regions, inflation accelerated and interest rates rose globally. These developments also affected Japan, as was seen in the 10-year JGB yields approaching 0.25 percent -- the upper limit of the yield curve control policy of the time -- in March 2022. The Bank subsequently took measures, such as devising its conduct of JGB purchase operations, and prevented a heightening of long-term interest rates, which potentially could have hindered Japan's economic recovery. At the same time, these measures caused marked distortions in the yield curve. The shape of the JGB yield curve, however, is now generally smooth due to the measures taken in December 2022 to expand the range of 10-year JGB yield fluctuations, the various deliberations with regard to its JGB purchase operations, and, furthermore, in part to the recent global decline in interest rates (Chart 8). B. Policy Responses to COVID-19 and Forward Guidance At the Monetary Policy Meeting (MPM) held in March 2020, when COVID-19 started to exert a severe impact on Japan's economy, the Bank decided to take three measures, including the Special Program to Support Financing in Response to the Novel Coronavirus (COVID19) (the Special Program), and it has continued with them through the addition of amendments (Chart 9). Concurrently, the Bank introduced a forward guidance that it will closely monitor the impact of COVID-19 for the time being and will not hesitate to take additional easing measures if necessary, and as for the policy rates, the Bank added that it expects short- and long-term interest rates to remain at their present or lower levels. Although the risk of a resurgence of COVID-19 remains, the pandemic, after three years since its outbreak, is finally becoming a thing of the past. At the same time, I would like to reiterate that uncertainties surrounding economies and financial markets at home and abroad have become extremely high. In view of such situation, at the April 2023 MPM, the Bank deleted the description associated with the pandemic from its forward guidance for monetary policy and made clear its stance that it "will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions. By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases." The new guidance shows the Bank's strong commitment to patiently maintain its monetary accommodation, with a continued aim to achieve the price stability target in a sustainable and stable manner. C. Broad-Perspective Review of Monetary Policy Also at its April 2023 MPM, the Bank decided to conduct a broad-perspective review of monetary policy, with a planned time frame of around one to one and a half years. It will go over the various monetary easing measures it has implemented with the aim of achieving price stability since the late 1990s, when Japan's economy fell into deflation. The direction of the review is entirely a matter for upcoming discussions, but in what follows I would like to underscore two points that I personally feel are particularly germane. The first is the importance of an international perspective. One focus of the review will be to reassess the Bank's unconventional monetary policy measures, starting with quantitative easing. The Bank was compelled to put these measures in place by an urgent situation in which the country was poised to slide into deflation but there was virtually no scope for the traditional means of lowering the short-term policy interest rate. In the wake of the Global Financial Crisis and the COVID-19 pandemic, however, many major central banks have come up against similar constraints on their ability to control short-term interest rates and have shifted toward a strategy of purchasing more assets to apply an easing effect to financial conditions more broadly, including real long-term interest rates. The upshot is that the basic monetary policy frameworks of major central banks now involve a two-pronged approach of adjusting short-term policy interest rates and purchasing assets using their own balance sheets. In other words, the very measures that were called unconventional 10 years ago have now become global standard practice. The Bank of Japan turned out to be the forerunner of this trend. The second point involves a situation that is unique to Japan, which is the influence of people's perception of prices, called norms. Many central banks are currently having to grapple with high inflation. What this actually means is that the recoveries sparked by their expansionary policy responses were unexpectedly robust. By contrast, although Japan was the first to introduce an unconventional monetary easing policy, it is still the farthest away from exiting such easing. This is ostensibly due to the fact that, when deflation or zero inflation persists for too long, as it did in Japan, this state becomes the fixed norm -- that is, the normative belief -- and displacing such a norm becomes extremely difficult. In fact, in many advanced economies like the United States and Europe, popular inflation expectations are generally consistent with the nominal anchor inflation target, but in Japan, they are not anchored to the 2 percent target (Chart 10). This is considered to be one reason why the price stability target has not been achieved in Japan. III. Aiming for a Virtuous Cycle between Prices and Wages A. Why Price Stability Needs to Be Accompanied by Higher Wages The impact of global inflation has extended to prices in Japan as well, through rises in commodity and energy prices, for example. As I mentioned earlier, in Japan, the year-on-year rate of change in the CPI for all items excluding fresh food has been above 2 percent since the spring of 2022, exceeding 4 percent at the start of this year. Even so, while other central banks have moved forward with rapid monetary tightening to contain high inflation, the Bank of Japan has patiently continued with monetary easing. This reflects the fact that the inflation seen in Japan since spring 2022 is basically due to the rise in imported goods prices. The Bank has therefore judged that the underlying trend in prices, which is the inflation trend based on Japan's domestic macroeconomic factors, has not yet risen enough. In speeches and on other occasions, the Bank has long stressed that, to achieve the price stability target of 2 percent in a sustainable and stable manner, price increases must be accompanied by wage increases. 1 Judging the current situation from this perspective, although consumer prices may rise temporarily on the back of cost-push factors from overseas, unless the underlying inflation trend itself converges on the 2 percent target accompanied by wage increases, it is considered highly likely that inflation will fall back below 2 percent once the temporary factors subside. In terms of which prices we consider key in trying to discern price trends, among the items making up the CPI -- rather than, for example, energy prices, which are subject to significant fluctuations -- it is important to pay more attention to trends in services prices, which are both less volatile and more sticky. Services prices are better indicators of underlying price movements because they more closely reflect movements in highly sticky wages, which account for the bulk of the cost of services.2 In other words, if there is a given uptrend in For example, see Kuroda, H., "Japan's Economy and Monetary Policy: Toward Overcoming Deflation," speech at a meeting held by the Naigai Josei Chousa Kai (Research Institute of Japan) in Tokyo, July 29, 2013, and "Toward Achieving the Price Stability Target in a Sustainable and Stable Manner, Accompanied by Wage Increases," speech at the meeting of Councillors of Keidanren (Japan Business Federation) in Tokyo, December 26, 2022. In a November 2022 speech, Federal Reserve Chair Jerome H. Powell pointed out that, in discerning underlying price movements, it was critical to look at the core inflation rate, which excludes the impact of food and energy. Furthermore, of particular importance among core inflation components were core services other than housing, which cover "a wide range of services from health care and education to haircuts and hospitality. . . . Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category" in the United States. See Jerome H. Powell, "Inflation and the Labor Market," speech at the Hutchins Center on Fiscal and Monetary Policy, Brookings Institution, Washington, D.C., November 30, 2022. wages, there will also tend to be a given uptrend in prices themselves, mainly through the contribution of services prices.3 The importance of services items in the underlying inflation trend is also apparent in the decomposition of factors affecting consumer prices (Chart 11). In the United States, before COVID-19, the contribution of goods prices to changes in the CPI was extremely limited, indicating that increases in the CPI were almost entirely driven by higher services prices. It is also clear that the contribution of services prices to inflation was relatively large in Europe. In the post-pandemic phase, we first saw inflation expand on the back of higher prices of both energy and goods, and then a gradual transition to inflation driven by services prices in the United States and Europe, as the contributions of energy and goods prices diminished. The above factors suggest that services prices and the wages that lie behind them are keys to understanding the underlying trend in inflation. B. Nominal Wages Finally Starting to Rise As of June 2023, inflation in the United States and Europe continues to significantly exceed the target rate of 2 percent. This is because -- although the rates of increase in consumer prices seem to have peaked out as energy prices have declined -- services prices, which are sticky, have continued to rise faster than the trend in prices due to the tightening of labor market conditions. In this situation, the Federal Reserve and the European Central Bank (ECB) have announced that they will continue with monetary tightening to suppress aggregate demand until it becomes possible to truly envisage the 2 percent inflation rate being achieved.4 Since the real wage growth rate is virtually identical to the labor productivity growth rate over the long term, the inflation rate is considered to trend at a level that is equal to the difference between the nominal wage growth rate and the labor productivity growth rate. 4 Federal Reserve Chair Powell pointed out in the aforementioned speech that, "in the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time." He then noted that "for the near term, a moderation of labor demand growth will be required to restore balance to the labor market." ECB President Christine Lagarde also stated in her speech in March 2023 that it is necessary to suppress demand in order to prevent price rises caused by further wage increases. See Christine Lagarde, "The Path Ahead," speech at "The ECB and Its Watchers XXIII" conference, Frankfurt am Main, March 22, 2023. The current situation of Japan's labor market, however, differs greatly from the aforementioned situation in the United States and Europe. Indeed, the rate of increase in services prices has recently started to accelerate in Japan as well, but this is mainly attributable to price increases such as of food and electricity, and thus the effects of the rise in wage costs have not been that strong so far. Although it is said that Japan is facing labor shortage, a tightening of labor market conditions such as those seen in the United States and Europe has not been observed, at least not statistically. Since 2021 in the United States, not only has there been a decline in the unemployment rate -- which surged during the pandemic -- but the job vacancy rate has increased rapidly. As a result, the ratio of job openings to unemployment, which had stood at around 0.7 on average since the 2000s, has risen to a high of around 2 (Chart 12). In contrast, the unemployment rate and the active job openings-toapplicants ratio in Japan still have not recovered to pre-pandemic levels as of June 2023 (Chart 13). Despite the recovery being only moderate, the situation for Japan's labor market differs from that seen in the past in terms of wage increases, especially since the turn of this year. This is best demonstrated by the results of the 2023 annual spring labor-management wage negotiations. The rate of increase in wages -- which is increases in regular salaries and base pay combined -- is in the range of 3.5-4.0 percent based on the results available to date, marking the highest level in about 30 years (Chart 14). However, even at this level, the rate of increase in base pay merely exceeds 2 percent, which is extremely low compared to the wage growth in the United States and Europe. Still, this increase in wages represents the largest rate of increase achieved in a year since 1980, and it can be viewed as a favorable development for realizing a virtuous cycle between prices and wages. C. Shift in the Price and Wage Norm Triggered by a Big Push Despite considerable improvement in labor market conditions, nominal wages in Japan have not risen sufficiently. If it is true that market mechanisms determine nominal wages, then such wages should tend to rise if job openings expand vis-à-vis job seekers, causing an increase in the active job openings-to-applicants ratio, which is the ratio of labor demand to labor supply. In the United States, a clear correlation between job openings to unemployment and nominal wage growth can, in fact, be observed. In Japan, however, since the late 1990s, when the country entered a deflationary period, no such clear correlation between the job openings-toapplicants ratio and nominal wage growth has been found. Focusing solely at the 2010s -including the years from 2013, when the Bank introduced QQE -- growth in nominal wages remained negligible even though the job openings-to-applicants ratio continued to rise more or less by itself up until immediately before the outbreak of the pandemic (Chart 15). This situation seems to have been attributable to various factors. Perhaps the most pertinent is the zero price and wage norm that has been the normative belief of firms and households regarding prices and wages. Although the Bank's conduct of monetary easing helped Japan overcome the deflation that had continued since the late 1990s, in the sense of a sustained decline in prices, the price stability target accompanied by wage increases has not been achieved. This is likely owing to the experience of Japanese firms during the prolonged period of stagnation, which saw mounting instances of price hikes leading directly to sales declines. Firms thus came to prioritize a stance of maintaining stable selling prices by holding down wage costs.5 This seems to have caused the zero price and wage norm -- the belief that both prices and wages do not rise -- to take root among firms and households. This zero price and wage norm, which had been deeply entrenched, seems to finally be shifting under the impact of a so-called big push -- an exogenous shock from the rise in imported goods prices stemming from global inflation. In stark contrast to the past, firms across the board are now passing on the higher costs of imported raw materials to selling prices, even at the retail level. The likelihood that the price and wage norm seems to be shifting is indicated most of all by the first real increase in the CPI since the 1980s. Of course, this increase is basically due to cost-push factors and therefore will not directly lead to an increase in underlying prices. Nevertheless, if these developments go on to encourage firms to pass on costs, including wage costs, to selling prices, in turn inducing further wage hikes, this will push up the underlying inflation trend (Chart 16). See Aoki, K., Hogen, Y., and Takatomi, K., "Price Markups and Wage Setting Behavior of Japanese Firms," Bank of Japan Working Paper Series, no. 23-E-5 (April 2023). This paper, by using the data from fiscal 2005 to 2020, explains that, during this period, Japanese firms had reduced their price markups -- in which they pass on costs to selling prices -- while they had increased their price markdowns -- in which they hold down wages to avoid price rises. One possible way of understanding why wage hikes have not quite materialized is that, while firms found it difficult to pass on wage hikes to prices, they had tended in particular to refrain from increasing the wages of regular employees, who are less likely to leave their jobs.6 Nonetheless, improvements in labor market conditions brought about by the Bank's patient conduct of monetary easing to date have already begun to step up the pressure on firms to raise wages of regular employees, both in terms of the external pressure to curb turnover and of the internal pressure to ensure fairness among peers.7 In this regard, the recent big push may have literally acted as a decisive factor driving this year's wage negotiations. D. Outlook for Sustainable Wage Increases The key issue now is to lock in the momentum behind wage hikes that is finally beginning to gather as a result of continued monetary easing, and to establish this as a lasting trend. If this happens, it should at last bring back the kind of economic growth based on a virtuous cycle between prices and wages that has long been missing from Japan's economic landscape. The ultimate goal of the Bank's patient conduct of monetary easing is to restore Japan's economy to this state. Meanwhile, for Japan's economy to continue growing and for real incomes to continue increasing steadily, raising labor productivity through technological advances is essential. This is basically the purview of individual private firms and their efforts in the areas of research and development and the improvement of business and production processes. The For more details, see Fukunaga, I. et al., "Wage Developments in Japan: Four Key Issues for the Post-COVID-19 Wage Growth," Bank of Japan Working Paper Series, no. 23-E-4 (March 2023). For a study on external and internal pressure on wages, see Furukawa, K., Hogen, Y., and Kido, Y., "Labor Market of Regular Workers in Japan: A Perspective from Job Advertisement Data," Bank of Japan Working Paper Series, no. 23-E-7 (April 2023). role of monetary policy is simply to encourage these endeavors by providing accommodative financial conditions.8 It is important to note, however, that Japanese firms have by no means neglected to make such efforts. In the 2010s, at least, although Japan's economic growth rate as a whole clearly remained only moderate, owing to ongoing declines in the population and in working hours, Japan nevertheless outperformed the United States in terms of GDP growth per hour worked (Chart 17). These developments suggest the real likelihood of continued steady growth in Japan's economy, accompanied by productivity gains. The fundamental issue lies in the fact that the zero price and wage norm has become entrenched in Japan over a prolonged period of deflation and excessively low inflation, and the fact that we have not yet achieved a virtuous cycle between prices and wages. The Bank, for the time being, should carefully assess whether or not this norm is on the verge of being shifted. Thank you. Some economists argue that monetary policy brings about positive effects on productivity indirectly. For example, according to the theory of high-pressure economics put forth by Arthur M. Okun and Janet L. Yellen, if macroeconomic policies bring about tighter labor market conditions, investment in labor saving will expand, which will result in a further increase in labor productivity (see also Chart 16). For more details, see Arthur M. Okun, "Upward Mobility in a High-Pressure Economy," Brookings Papers on Economic Activity, no.1 (1973), and Janet L. Yellen, "Macroeconomic Research after the Crisis," remarks at the 60th annual economic conference sponsored by the Federal Reserve Bank of Boston titled "The Elusive 'Great' Recovery: Causes and Implications for Future Business Cycle Dynamics," October 14, 2016. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Okinawa June 22, 2023 NOGUCHI Asahi Member of the Policy Board Bank of Japan Chart 1 High Inflation in the United States and Europe United States Germany United Kingdom y/y % chg. y/y % chg. CPI CPI CPI -5 CY 1980 y/y % chg. -5 CY 1980 -5 CY 1980 Note: Figures for Germany prior to the reunification of the country are those for the former West Germany. Figures for the United Kingdom prior to 1989 are from the Bank of England's (BOE's) "A millennium of macroeconomic data" and those from 1989 onward are from the Office for National Statistics' (ONS') data. Sources: BOE; OECD; ONS. Chart 2 Policy Interest Rates in the United States and Europe % United States Euro area United Kingdom -1 CY 18 Note: Figures for the United States are the medians of the target ranges for the federal funds rate. Those for the euro area are the rates on the deposit facility. The latest figures for June 2023 are as of June 15. Sources: BIS; BOE; ECB; FRB. Chart 3 IMF Forecasts for Global Growth Major Economies' Growth Rates Global Growth Rate y/y % chg., % points y/y % chg. IMF forecasts CY 2020 CY 2021 CY 2022 World -2.8 6.3 3.4 2.8 3.0 -4.2 5.4 2.7 1.3 1.4 United States -2.8 5.9 2.1 1.6 1.1 Euro area -6.1 5.4 3.5 0.8 1.4 United Kingdom -11.0 7.6 4.0 -0.3 1.0 Japan -4.3 2.1 1.1 1.3 1.0 -1.8 6.9 4.0 3.9 4.2 China 2.2 8.5 3.0 5.2 4.5 India -5.8 9.1 6.8 5.9 6.3 ASEAN-5 -4.4 4.0 5.5 4.5 4.6 Advanced economies CY 1990-2019 average: +3.6% -1 -2 -3 CY 2023 CY 2024 [Forecast] [Forecast] Emerging market and developing economies -4 -5 -6 CY 00 02 04 06 08 10 12 14 16 18 20 22 24 Note: Figures are as of April 2023. Source: IMF. Chart 4 Private Consumption Number of Visitors to Downtown Areas Consumption Activity Index s.a., CY 2018=100 Jan. 2020=100, 7-day backward moving avg. CY 2023 CY 2021 CY 2019 CY 2022 CY 2020 Real Consumption Activity Index Services CY 18 Jan. 1 Mar. 1 May. May 11 Jul. July11 Sep. Sept.11 Nov. 1 Notes: 1. In the left chart, figures for the real Consumption Activity Index are travel balance adjusted. 2. In the right chart, figures are the sum of the differences in the number of visitors between 9 p.m. and 4 a.m. on the following day in 53 downtown areas. Sources: AGOOP Corp.; Bank of Japan. Financial Difficulties Experienced by U.S. and European Banks Collapse of Silicon Valley Bank (U.S.) on March 10 March 2023 Collapse of Signature Bank (U.S.) on March 12 Acquisition of Credit Suisse (Switzerland) by UBS on March 18 May 2023 Collapse of First Republic Bank (U.S.) on May 1 Chart 5 Chart 6 Consumer Prices y/y % chg. 22/Q2 Q3 Q4 23/Q1 23/January February March April CPI for all items 2.4 2.9 3.9 3.6 4.3 3.3 3.2 3.5 Less fresh food 2.1 2.7 3.7 3.5 4.2 3.1 3.1 3.4 Less fresh food and energy 0.9 1.5 2.8 3.5 3.2 3.5 3.8 4.1 Energy 1.3 1.3 1.2 0.3 1.2 -0.1 -0.3 -0.4 Food products 0.5 0.7 1.2 1.3 1.2 1.3 1.3 1.5 General services -0.1 0.1 0.4 0.6 0.5 0.6 0.7 0.7 (Reference: contribution to the CPI for all items less fresh food) Source: Ministry of Internal Affairs and Communications. Chart 7 Producer Prices Import Price Index Producer Price Index y/y % chg. Exchange rates Commodity prices, etc. Import prices -10 -3 -20 CY 20 y/y % chg. -6 CY 20 Notes: 1. In the left chart, the contribution of changes in commodity prices, etc., is calculated using changes in the import price index on a contract currency basis. The contribution of changes in exchange rates is calculated using the difference between the index on a yen basis and that on a contract currency basis. 2. In the right chart, figures are adjusted to exclude the effects of the consumption tax hike. Source: Bank of Japan. Chart 8 JGB Yield Curves 1.8 % December 19, 2022 (first day of December 2022 MPM) 1.6 January 17, 2023 (first day of January 2023 MPM) March 9, 2023 (first day of March 2023 MPM) 1.4 Latest (June 16, 2023) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 0 1 year 9 10 residual maturity Source: Bloomberg. Chart 9 The Bank's Policy Responses to COVID-19 Supporting Corporate Financing Special Program to Support Financing in Response to COVID-19 Purchases of CP and corporate bonds: amount outstanding of about 20 tril. yen at maximum (previous amount outstanding of about 5 tril. yen) Special Funds-Supplying Operations to Facilitate Financing in Response to COVID-19 Stabilizing Financial Markets Ample and Flexible Provision of Yen and Foreign Currency Funds Active purchases of JGBs and T-Bills U.S. Dollar Funds-Supplying Operations Lowering Risk Premia in Asset Markets Purchases of ETFs and J-REITs ETFs: annual pace with an upper limit of about 12 tril. yen J-REITs: annual pace with an upper limit of about 180 bil. yen Chart 10 Inflation Expectations % Japan CY 07 United States Euro area Note: Figures are medium- to long-term inflation expectations of economists. Figures for Japan are based on the Consensus Forecasts (CPI inflation, 6 to 10 years ahead), those for the United States are based on the Survey of Professional Forecasters (PCE inflation, 10 years ahead), and those for the euro area are based on the Survey of Professional Forecasters (CPI inflation, long run). Sources: Consensus Economics Inc.; ECB; Federal Reserve Bank of Philadelphia. Chart 11 Decomposition of Changes in Consumer Prices Japan y/y % chg. y/y % chg. Energy <7%> Temporary factors Energy <7%> Goods <40%> Services <50%> CPI (less fresh food) <100%> Euro Area United States Services <63%> CPI <100%> Energy <10%> Goods <46%> Services <44%> HICP <100%> Goods <30%> -2 CY16 y/y % chg. -2 CY16 -2 CY 16 Notes: 1. Figures for temporary factors for Japan are Bank staff estimates and consist of (1) the effects of the consumption tax hike and policies concerning the provision of free education, (2) the effects of travel subsidy programs, and (3) mobile phone charges. 2. Figures in angular brackets show the share of each component. Sources: Haver Analytics; Ministry of Internal Affairs and Communications. Chart 12 Labor Market Conditions in the United States ratio of job openings to unemployment 2.5 1.5 0.5 CY 00 Source: Bureau of Labor Statistics. Chart 13 Labor Market Conditions in Japan Unemployment Rate Job Openings-to-Applicants Ratio s.a., % s.a., ratio 1.5 0.5 CY 05 CY 05 Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 14 Wage Increases in Spring Wage Negotiations y/y % chg. Base pay increase Total wage increase -1 CY 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Note: Figures for 2023 are from Rengo's sixth aggregation. Sources: Japanese Trade Union Confederation (Rengo); Central Labour Relations Commission. Chart 15 Labor Market Conditions and Wage Growth United States (Hourly Wages) Japan (Total Cash Earnings) average hourly wages, y/y chg., 3-month backward moving avg., % 2023/Apr. total cash earnings, y/y chg., 3-month backward moving avg., % -1 CY 2010 to CY 2019 -1 -2 From CY 2020 onward -2 CY 2010 to CY 2019 From CY 2020 onward 2023/Apr. -3 -3 0.0 0.5 1.0 1.5 2.0 ratio of job openings to unemployment, 3-month backward moving avg. 0.0 0.5 1.0 1.5 2.0 active job openings-to-applicants ratio, 3-month backward moving avg. Notes: 1. In the left chart, figures for average hourly wages are from the Atlanta Fed's Wage Growth Tracker. 2. In the right chart, figures for total cash earnings are for all employees. Figures from 2016 onward are based on continuing observations following the sample revisions. Sources: Haver Analytics; Ministry of Health, Labour and Welfare. Chart 16 Correlation between Wages and Prices 2022 phase Big push Hike in raw material prices Accumulated savings during the pandemic Increase in the CPI Moderate increase in private consumption Pass-through of wage increases to selling prices Stronger correlation between wages and prices and increased pass-through Increase in wages Current phase Investment for labor substitution Rise in workers' bargaining power due to labor shortages and an increase in turnover Rise in real wages Improvement in productivity Decomposition of Economic Growth in Japan and the United States Japan Sources: Cabinet Office; Ministry of Internal Affairs and Communications; OECD. United States Chart 17
|
bank of japan
| 2,023 | 7 |
Speech by Mr Shinichi Uchida, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Chiba, 2 August 2023.
|
August 2, 2023 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Chiba UCHIDA Shinichi 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 leaders in administrative, economic, and financial areas in Chiba Prefecture. I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan. Today, I will explain Japan's economic activity and prices, as well as the Bank's conduct of monetary policy. I. Current Situation of and Outlook for Economic Activity I will start by talking about Japan's economic developments. Japan's economy has recovered moderately. Economic activity in both the household and corporate sectors has improved steadily, as pent-up demand, i.e., demand that had been suppressed during the pandemic, has materialized. Japan's economy is likely to continue recovering moderately, supported for the time being by pent-up demand and subsequently by increases in wages and corporate profits. In the Bank's Outlook for Economic Activity and Prices (Outlook Report) released last week, it is projected that the economic growth rates will be in the range of 1.0-1.5 percent for fiscal 2023 and 2024 and around 1 percent for fiscal 2025 (Chart 1). In what follows, I will explain developments in the household and corporate sectors. First, regarding the household sector, private consumption has increased steadily at a moderate pace, mainly for services such as accommodations as well as eating and drinking, as pent-up demand has materialized due in part to the reclassification of COVID-19 under the Infectious Disease Control Law (Chart 2). Recovery in inbound tourism demand has also been a tailwind for the face-to-face services industry. In addition to pent-up demand, what underpins the increase in private consumption is growing expectations for improvement in household income. The wage growth rate agreed in the annual spring labor-management wage negotiations this year marked its highest level in three decades, including the base pay increase (Chart 3). Until around early 2023, there were many who argued that, even if large firms were able to raise wages, it would be difficult for local small and medium-sized firms to do the same. However, concerns over the possibility of being unable to hire and retain employees without raising wages trumped that assumption, and wage increases were seen across a wide range of firm sizes. Obviously, this was attributable to severe labor shortages. Over the past decade, the year-on-year rate of change in employee income has remained at around 2-3 percent (Chart 4). Prior to the pandemic, the increase was driven by a rise in the number of employees. With the outbreak of the COVID-19 pandemic, however, the increase for the past two years or so has been led by a rise in wages, given the limited room for additional labor supply of women and seniors. The wage increases this spring, of course, partly reflect last year's price rises, but are also a result of overall labor market conditions. My assessment is that the basic structure of the labor market will be unchanged next year and beyond. This means that firms will continue to hold concern over labor shortages, but from the perspective of labor market conditions, the environment where wages are likely to increase will continue. That said, private consumption has been affected by higher prices. For example, some supermarkets have pointed out that an increasing number of households have become defensive in their spending, as seen in a decline in the number of items purchased and a shift to lower-end products. This spending behavior is particularly evident for food and daily necessities, and consumption of these goods and other nondurable goods has been somewhat weak (Chart 5 [left chart]). Even with higher prices, various confidence indicators related to private consumption have been improving to date, supported by an improving trend in employment and wage conditions (Chart 5 [right chart]). Regarding the outlook, it is necessary to carefully examine the balance among wages, prices, and private consumption, with particular focus on (1) whether wages will continue to increase sufficiently relative to prices, which have increased by more than expected, (2) whether such wage increases will be able to support private consumption in a sustained manner, and (3) whether this will then lead to sustained wage increases next year and beyond. Turning to developments in the corporate sector, with central banks having rapidly raised their policy interest rates to contain inflation, the pace of recovery in overseas economies has slowed. Although Japan's exports and production have been affected by such developments in overseas economies, they have been more or less flat, mainly supported by a waning of the effects of supply-side constraints, such as on semiconductors used in automobiles. Meanwhile, corporate profits have been at high levels, and in this situation, business fixed investment has continued to increase moderately (Chart 6). Investment is projected to increase steadily in a wide range of areas, including investment to address labor shortages, investment in digitalization, investment to address climate change, and research and development (R&D) investment. The largest risk to the outlook for the corporate sector is developments in overseas economies. The main scenario is that overseas economies will achieve a soft landing, where inflation rates around the world will gradually decline due to the effects of policy interest rate hikes and the economies will move toward a stable growth path without significant turmoil. That said, risks are significantly skewed to the downside; for example, there remains the risk of inflation rates staying elevated through wage increases, and financial conditions could tighten further through the financial system and the financial and capital markets. In March 2023, there were phases when problems in the financial system were of concern, triggered by the failure of Silicon Valley Bank (SVB) in the United States. Thereafter, such concern has eased as many have come to understand that failed banks were outliers that had unique business models, and because financial authorities responded swiftly to the failures. That said, given the rapid pace of policy interest rate hikes to date in the United States, it is inevitable that the impact of the rate hikes on the real economy and finance entails uncertainty. Regarding the Chinese economy, while progress toward the normalization of economic activity has been seen, the economy is experiencing a slowdown in its pace of pick-up due to the impact of global adjustments in the IT sector and prolonged adjustments in the real estate market. The employment and income situation has also been slow to recover, with attention being given to a high youth unemployment rate, for example, and recovery in private consumption has been somewhat weaker than was widely projected, despite the lifting of pandemic-related restrictions. There are significant uncertainties over the pace of pick-up in the Chinese economy ahead. It is necessary to pay due attention to the impact of these risks surrounding overseas economies on Japan's economic activity and prices, including on developments in financial and foreign exchange markets. II. Current Situation of and Outlook for Prices Next, let me talk about price developments. The latest figure for the year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food was for June, at 3.3 percent (Chart 7). Looking at the breakdown, an increase in goods prices, such as food and daily necessities, has made a significant contribution, suggesting the large effects of a pass-through to consumer prices of cost increases led by a rise in import prices. On this point, import prices peaked around the middle of last year and the year-on-year rate of change has been negative recently. As this will have an impact with a certain time lag, the rate of increase in the CPI is also likely to decelerate. Thereafter, it is projected to accelerate again moderately as Japan's economy continues to recover, the output gap improves, firms' wage- and price-setting behavior changes, and wage growth and people's medium- to long-term inflation expectations rise. In the Outlook Report, the year-on-year rate of change in the CPI is projected to be 2.5 percent for fiscal 2023, 1.9 percent for fiscal 2024, and 1.6 percent for fiscal 2025 (Chart 8). There are extremely high uncertainties over the outlook for prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior. The Bank's assessment is that sustainable and stable achievement of the price stability target of 2 percent has not yet come in sight. The CPI forecast for fiscal 2023 in the July Outlook Report has been revised significantly upward from the previous forecast in April. This revision reflects the fact that the CPI data obtained around the turn of the fiscal year and anecdotal evidence were stronger than earlier anticipated. The important factor to consider here is the background to the strong readings and evidence. It was initially projected that inflation due to cost-push factors, where goods prices mainly increased, would fade, and thereafter prices would rise again in reflection of gradual changes in firms' wage- and price-setting behavior and the subsequent rise in services prices, accompanied by wage increases. Identifying the causes of the recent higher-than-expected inflation is extremely important but difficult. Two hypotheses can be proposed here: (1) the effects of cost-push factors are lasting longer than expected, and firms' wage- and price-setting behavior is changing somewhat earlier than anticipated. As mentioned earlier, until now, the rise in goods prices has been the main driver of the upswing in prices. Services for which prices have risen notably are those that use imported raw materials, such as dining-out and home renovation (Chart 9). These developments are in line with the first hypothesis that, because the price of a wide range of imported goods has risen significantly to date, greater pass-through of cost increases may have taken place over a longer period than before. On the other hand, one highly plausible explanation regarding corporate strategies is that firms may have started to consider setting prices in view of potential future wage hikes, mainly on the back of higher-than-expected results of this year's annual spring labor-management wage negotiations and a rise in hourly wages of part-time workers. In addition, goods prices are partly affected by wage increases because many workers are involved in the supply chain, such as in the distribution process or at retail stores. These aspects support the hypothesis that firms' behavior might be changing earlier than expected. Of course, neither hypothesis is 100 percent correct, and the answer probably lies somewhere in between the two. My assessment at this point is that signs of change have been seen in firms' wage- and price-setting behavior. This may sound like an inconclusive assessment, but since we are trying to determine the critical inflection point where firms' behavior that took root during the period of deflation may change, it is necessary to carefully assess the situation by scrutinizing information from a micro and a macro perspective. In particular, in times of change such as the current one, it is important to gather anecdotal information through the Bank's Head Office and branches; for example, by exchanging views with those at firms at meetings like the one we are holding today. III. The Bank's Conduct of Monetary Policy The Basic Thinking on Monetary Policy Next, I will explain the Bank's conduct of monetary policy. In its policy statement, the Bank has made clear its basic thinking on the conduct of monetary policy that, "with extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions. By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases." The orthodox approach to conducting monetary policy is called the risk-management approach, which assesses both upside and downside risks and weighs the costs associated with each of the risks. With this approach in mind, the Bank assesses that the downside risk of missing a chance to achieve the 2 percent target due to a hasty revision to monetary easing currently outweighs the upside risk of the inflation rate continuing to exceed 2 percent if monetary tightening falls behind the curve. As previously mentioned, signs of change have been seen in firms' wage- and price-setting behavior. This could cause higher inflation than anticipated. However, even if inflation were to be somewhat higher in Japan, it is very unlikely that wage increases and a consequent additional rise in prices will be as significant as in the United States and Europe. Accordingly, although those economies have been experiencing inflation above 2 percent, it is unlikely that this also will be the case in Japan. Therefore, the Bank needs to patiently continue with monetary easing in the current phase and support Japan's economy so that wages continue to rise steadily next year. If firms' behavior that took root during the period of deflation is starting to change, that is the change that Japan's economy has long been waiting for. During the period of deflation, a cautious stance was widely observed among firms. Concerned about the possibility of losing customers to their competitors if they were the only ones to raise prices, firms kept prices unchanged, secured profits by cutting costs, and thus were cautious about raising wages. This stance became so deeply entrenched and was difficult to change even after Japan's economy achieved a situation where it was no longer in deflation. But today, although the initial trigger was a rise in import prices, firms are developing more forward-looking strategies for setting prices. In response to labor shortages, they are also concerned with being unable to hire employees without raising wages and are now racing to recruit them. While this mindset and behavior is inherent in the economy and supports economic dynamism, it lost strength with the collapse of the bubble economy and during the period of deflation thereafter. I have met with many corporate executives, and their view seems to be that firms' behavior from the period of deflation should change and that they would work on changing it if the situation allows. Although we are only seeing signs of change in their behavior, this might be the chance to finally change Japan's economy. Therefore, the Bank will patiently continue with monetary easing to carefully nurture these signs. Continuation and Conduct of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control I will now dive into slightly technical aspects of specific policy measures. Currently, the Bank is pursuing monetary easing under the framework of yield curve control, in which the short-term policy interest rate is set at minus 0.1 percent, the target level of 10-year Japanese government bond (JGB) yields is around zero percent, and the range of 10-year JGB yield fluctuations is around plus and minus 0.5 percentage points from the target level (Chart 10). I will focus on three points regarding this monetary policy. First, the short-term policy interest rate is decided and controlled solely by the Bank. If, in the future, the Bank were to terminate its negative interest rate policy and apply, for example, a zero interest rate, it would raise the short-term policy interest rate by 0.1 percentage point. This decision will be made if the Bank assesses that it would be appropriate to prevent price rises by suppressing demand in the real economy. Applying this to the risk-management approach, by maintaining a negative interest rate of minus 0.1 percent, the upside risk of the inflation rate continuing to exceed 2 percent if monetary tightening falls behind the curve becomes a greater concern than the downside risk. Given current developments in economic activity and prices in Japan, the Bank assesses that there is still a long way to go before such decisions are made. Second, in its policy statement, the Bank has made a commitment to continue with the current framework of QQE with Yield Curve Control, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. At this point in time, sustainable and stable achievement of the 2 percent target has not yet come in sight. Therefore, the Bank will maintain the current framework in accordance with its commitment. Third, in conducting yield curve control under the current policy framework, the Bank has been striking a balance between its positive effects and side effects from the viewpoint of keeping in mind the impact on the functioning of financial intermediation and the market while continuing with monetary easing in a sustained manner. Every policy has its positive effects, but it also always comes with costs. There is no free lunch for any policy. Given that the Bank is conducting monetary easing at such a large scale, this has had positive effects, but at the same time, profits of financial institutions and the functioning of financial intermediation have been affected (Chart 11). In addition, controlling interest rates inevitably has had an impact on market functioning. The balance between the positive effects and side effects changes depending on the situation, especially on inflation expectations of people and market participants. While I will explain this in detail later, when inflation expectations rise, not only the easing effects but also the side effects strengthen. It is necessary to strike an optimum balance between the two. In December 2022, the Bank modified the conduct of yield curve control by, for example, expanding the range of 10-year JGB yield fluctuations from around plus and minus 0.25 percentage points to around plus and minus 0.5 percentage points from the target level. In fact, given that in 2022, inflation rates abroad remained extremely high and the rate in Japan also rose, inflation expectations increased for most of the year. As nominal interest rates were unchanged, a rise in inflation expectations lowered real interest rates and strengthened the effects of monetary easing. However, the Bank contained the rise in market interest rates that reflected the increase in inflation expectations, and the side effects of monetary easing on market functioning were large. Just before the Bank modified the conduct of yield curve control at the end of 2022, it purchased a large amount of 10-year JGBs in order to avoid the yields exceeding 0.25 percent, and its holding of the bonds reached 100 percent. As a result, 10-year JGB yields were contained at 0.25 percent, but distortions were seen in the relationship between those yields and yields on JGBs with other maturities. In the corporate bond market, the distorted JGB yields could not be used as a benchmark and yield spreads between corporate bonds and JGBs widened unnaturally (Chart 12). Forcibly capping 10-year JGB yields at 0.25 percent had undermined the intended effects of monetary easing on firms. In order to patiently continue with monetary easing, the modification was necessary. About half a year has passed since the modification of the conduct of yield curve control. Given the changes in the economic and price situation in the meantime, the Bank decided at the Monetary Policy Meeting held last week to conduct yield curve control with greater flexibility. Specifically, the Bank will continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level while regarding the upper and lower bounds of the range as references, not as rigid limits, in its market operations. Accordingly, it will allow the yields to move beyond the range depending on market conditions. However, at 1.0 percent, fixed-rate purchase operations for consecutive days, through which the Bank purchases an unlimited amount of JGBs at fixed rates, will be conducted to strictly contain the rise in interest rates. When the rates are between 0.5 percent and 1.0 percent, the Bank will contain an excessive rise in the rates by making nimble responses through, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations for nonconsecutive days and the Funds-Supplying Operations against Pooled Collateral, depending on factors such as the levels and the pace of change in long-term interest rates (Chart 13). Despite facing some twists and turns since the Bank modified the conduct of yield curve control last December, the shape of the yield curve has been smooth and the functioning of the corporate bond market has recovered (Chart 12). At this point, side effects, such as distortions on the yield curve, are not as evident as last December. However, as mentioned earlier, there are extremely high uncertainties surrounding economic and price developments at home and abroad, involving both upside and downside risks. Regarding upside risks, as wages and prices have both increased by more than anticipated and signs of change have been seen in firms' wage- and price-setting behavior this spring, inflation expectations have shown some upward movements again. If these developments continue and the Bank tries to strictly cap 10-year JGB yields at 0.5 percent, problems may arise. For instance, bond markets could become distorted, and volatility in other financial markets, including foreign exchange markets, could be affected. As was the case around December 2022 when the Bank modified the conduct of yield curve control, in the face of a rise in long-term interest rates, the potential side effects of strictly capping 10-year JGB yields by conducting fixed-rate purchase operations for consecutive days at 0.5 percent -the strongest policy tool -- are too large, even when considering the balance with the easing effects. The Bank therefore decided at this stage to adopt a measure in advance that would mitigate the potential side effects. In other words, the aim of this policy decision is to be prepared for any possible changes in the economic and price conditions, such as higher-than-expected inflation, so that the Bank can continue with monetary easing without causing confusion. Downside risks are also significant, especially with regard to overseas economies. Even if they materialize, the Bank will continue to not strictly respond to the lower bound of the range of 10-year JGB yield fluctuations under yield curve control. Therefore, long-term interest rates will naturally decline and the effects of monetary easing will be maintained. Of course, when the Bank should modify its policies depends on the situation at that time because, while it is possible to maximize the easing effects by keeping the policy unchanged until the last minute, settling the situation once a problem arises is more difficult than addressing it in advance. Given that the modification of yield curve control in December 2022 had created expectations in the bond markets that the Bank would eventually make responses if problems arose, the Bank deemed it appropriate to decide to conduct yield curve control with greater flexibility at the July Monetary Policy Meeting. In sum, the Bank's decision to conduct yield curve control with greater flexibility aims at patiently continuing with monetary easing while nimbly responding to both upside and downside risks under extremely high uncertainties for economic activity and prices at home and abroad. Needless to say, we do not have an exit from monetary easing in mind. In order to make this point clear, my earlier explanation on the Bank's monetary policy today was divided into three parts. Although there is no clear definition of an exit from monetary easing, an exit should be considered in relation to the achievement of the price stability target in any discussion. In other words, it is related to the first and second points; namely, the decisions regarding whether to continue with the negative interest rate policy or maintain the framework of QQE with Yield Curve Control. Given that sustainable and stable achievement of the price stability target of 2 percent has not yet come in sight, there is still a long way to go before the Bank can make changes to these decisions. In contrast, the third point -- the conduct of yield curve control under the current policy framework -- is a different type of challenge than the first and second ones because, given the characteristics of the framework, adjustments are required in order to continue with monetary easing. Patiently continuing with such easing is of the upmost importance for now, and to this end the Bank will conduct yield curve control with greater flexibility. Conducting the Monetary Policy Review from a Broad Perspective To conclude my talk on monetary policy conduct, I would like to say a few words about the review of monetary policy from a broad perspective that the Bank is currently conducting (Chart 14). The Bank decided to conduct a review from a broad perspective in April 2023 and has been carrying out assessments of Japan's economic developments and monetary policy over the past 25 years. In the late 1990s, Japan's economy fell into deflation, and monetary accommodation did not produce sufficient stimulative effects even when short-term interest rates were lowered to 0 percent. Since then, the Bank has continued with unconventional monetary policy, which goes beyond the scope of conventional policy. The unconventional policy has had not only positive effects but also side effects, and the Bank will assess the policy measures objectively and reasonably in its review. A crucial point in conducting the review is not to assess the monetary policy measures alone but to evaluate them in the context of interactions with Japan's economic conditions at each point in time. In this sense, today's meeting is a valuable opportunity to hear your candid opinions on Japan's economic activity and prices and the Bank's conduct of monetary policy. IV. Recent and Future Economic Activity in Chiba Prefecture Lastly, I would like to talk about the economy of Chiba Prefecture. The prefecture has been pursuing a range of forward-looking, strategic actions to address economic and social changes, such as the shift to carbon neutrality, as well as digitalization and population decline. For example, Chiba Prefecture has set guidelines for promoting carbon neutrality, while firms such as those in steel and chemical industries gathered in the Keiyo Industrial Zone have been vigorously pursuing technological development aimed at lowering carbon dioxide (CO2) emissions and capturing CO2. Furthermore, efforts are underway to introduce offshore wind power generation off the coasts of Choshi, Isumi, and Kujukuri. Although Chiba Prefecture's population had continued to increase for many years, it turned to a decline after peaking in 2020. To address this situation, the prefecture is currently promoting various initiatives under a comprehensive strategy for regional revitalization, which include boosting productivity through the use of artificial intelligence (AI) and other cutting-edge technologies, supporting childcare, and enhancing the framework for providing health care. The hope is that the prefecture will take a leading role in addressing a major issue facing Japan; namely, the establishment of a sustainable regional community. In recent years, Chiba Prefecture has been struck by a string of natural disasters, such as typhoons and earthquakes. In particular, Typhoons No. 15 and No. 19 in 2019 wreaked massive damage on the region. Nevertheless, I still recall vividly how economic activity in the prefecture was quickly restored thanks to the efforts of countless stakeholders and financial institutions. I would like to express my respect for your efforts to ensure the region's economic and financial resilience. This year marks the 150th anniversary of the birth of Chiba Prefecture. Let me conclude by offering my congratulations and hope that its economy will continue to flourish. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Chiba August 2, 2023 UCHIDA Shinichi Deputy Governor of the Bank of Japan Introduction I. Current Situation of and Outlook for Economic Activity II. Current Situation of and Outlook for Prices III. The Bank's Conduct of Monetary Policy IV. Recent and Future Economic Activity in Chiba Prefecture Chart 1 I. Current Situation of and Outlook for Economic Activity The BOJ's Forecasts for Real GDP (July 2023 Outlook Report) 580 s.a., ann., tril. yen FY 2025 +1.0% FY 2023 +1.3% FY 2024 +1.2% FY 13 Note: The forecasts presented are the medians of the Policy Board members' forecasts. The values of real GDP for fiscal 2023 onward are calculated by multiplying the actual figure for fiscal 2022 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. Chart 2 I. Current Situation of and Outlook for Economic Activity Private Consumption s.a., CY 2019 = 100 Total real private consumption Of which, services CY 15 Note: Figures for total real private consumption are the real Consumption Activity Index (travel balance adjusted) based on staff calculations, which exclude inbound tourism consumption and include outbound tourism consumption. Source: Bank of Japan. Chart 3 I. Current Situation of and Outlook for Economic Activity Results of Spring Wage Negotiations Developments over Time Results by Type of Employment and Firm Size y/y % chg. CY 2022 CY 2023 Rate of wage increase +2.1% +3.6% Base pay increase +0.6% +2.1% total wage increase CY 2022 CY 2023 Regular employees 2.1% 3.6% Base pay increase 1,000 or more 2.1% 3.7% Regular wage increase 300 to 999 2.0% 3.4% 100 to 299 2.0% 3.3% 99 or less 1.9% 2.9% Part-time employees 2.3% 5.0% -1 CY 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 Notes: 1. In the left-hand chart, figures from 1980 to 2014 are those published by the Central Labour Relations Commission, while those from 2015 to 2023 are figures released by Rengo. 2. In the right-hand chart, figures for the breakdown by the number of regular employees are aggregated values based on the number of union members. Part-time employees include fixed-term employees. Sources: Japanese Trade Union Confederation (Rengo); Central Labour Relations Commission. Chart 4 I. Current Situation of and Outlook for Economic Activity Employee Income y/y % chg. -1 Nominal wages (total cash earnings) Number of employees -2 Employee income -3 -4 CY 12 Real employee income Notes: 1. Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. 2. Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey) 3. Figures from 2016/Q1 onward are based on continuing observations following the sample revisions of the Monthly Labour Survey. 4. Figures for real employee income are based on staff calculations using the CPI (less imputed rent). Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 5 I. Current Situation of and Outlook for Economic Activity Private Consumption and Consumer Confidence Confidence Indicators Related to Private Consumption Private Consumption by Type s.a., CY 2019 = 100 60 s.a. Services Durable goods Nondurable goods Improved Consumer Confidence Index Worsened Economy Watchers Survey (household activity) CY 19 CY 19 Notes: 1. In the left-hand chart, figures are based on the real Consumption Activity Index. 2. In the right-hand chart, figures for the Economy Watchers Survey are those for the current economic conditions DI. Sources: Bank of Japan; Cabinet Office. Chart 6 I. Current Situation of and Outlook for Economic Activity Business Fixed Investment Plans Annual Survey of Corporate Behavior Tankan y/y % chg. +12.3% +7.6% y/y % chg. y/y % chg. Forecast of the real growth rate of industry demand (left scale) Growth rate of capital investment (right scale) -5 -10 Actual -15 Planned investment in current fiscal year as of the June survey of each year -20 FY 07 -1 FY 01 -2 Notes: 1. In the left-hand chart, figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. Figures are for all industries including financial institutions. 2. In the right-hand chart, figures show the average of firms' forecasts of the real growth rate of industry demand over the next five years and of the growth rate of firms' planned fixed investment over the next three years. Sources: Bank of Japan; Cabinet Office. Chart 7 II. Current Situation of and Outlook for Prices Consumer Prices and Import Prices Consumer Prices Import Prices y/y % chg. Temporary factors Energy Food products +4.2% +3.3% Goods (less food products) Services June 2023 y/y % chg. Commodity prices, etc. Exchange rates Import prices CPI (less fresh food) CPI (less fresh food and energy) -1 -2 CY 19 -10 -20 CY 21 Notes: 1. In the left-hand chart, figures for temporary factors are staff estimates and consist of mobile phone charges and the effects of the consumption tax hike, policies concerning the provision of free education, and travel subsidy programs. 2. In the right-hand chart, the contribution of changes in commodity prices, etc. is calculated using changes in the import price index on a contract currency basis. The contribution of changes in exchange rates is calculated using the difference between the index on a yen basis and that on a contract currency basis. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 8 II. Current Situation of and Outlook for Prices The BOJ's Forecasts for the CPI (July 2023 Outlook Report) y/y chg. Fiscal 2023 Forecasts made in Apr. 2023 Fiscal 2024 Forecasts made in Apr. 2023 Fiscal 2025 Forecasts made in Apr. 2023 All items less fresh food (Reference) All items less fresh food and energy +2.5% +3.2% +1.8% +2.5% +1.9% +1.7% +2.0% +1.7% +1.6% +1.8% +1.6% +1.8% Note: Figures indicate the medians of the Policy Board members' forecasts (point estimates). Source: Bank of Japan. Chart 9 II. Current Situation of and Outlook for Prices Prices of Goods and Services Goods General Services y/y % chg. y/y % chg. Meals outside the home Food products Durable goods Services related to domestic duties Other goods Other general services -1 CY 21 -1 CY 21 Note: In the left-hand chart, figures exclude fresh food and energy. In the right-hand chart, figures exclude hotel charges and mobile phone charges. Figures for services related to domestic duties include services related to housing repairs and maintenance. Source: Ministry of Internal Affairs and Communications. Chart 10 III. The Bank's Conduct of Monetary Policy Framework of Yield Curve Control Short-term policy interest rate: minus 0.1 percent Target level of the longterm interest rate: around zero percent ±0.5% 0% residual maturity 10 years Chart 11 III. The Bank's Conduct of Monetary Policy Interest Rate Spreads on Loans and the Degree of Bond Market Functioning Interest Rate Spreads on Loans and Banks' Profits 1.8 % tril. yen Pre-provision net revenue excluding trading income (right scale) Interest rate spreads on loans (left scale) 1.6 1.4 Degree of Bond Market Functioning (Current Situation) DI ("High" - "Low"), % points -10 1.2 1.0 0.8 0.6 0.4 0.2 -60 0.0 FY 09 10 11 12 13 14 15 16 17 18 19 20 21 22 -70 CY 15 -20 -30 May 2023 -46 -40 -50 Feb. 2023 -64 Notes: 1. In the left-hand chart, figures cover major and regional banks. Figures for interest rate spreads on loans are those for loans in the domestic business sector. In calculating the interest rate spreads, interest expenses on interest rate swaps are deducted from funding costs. 2. In the right-hand chart, the survey from February 2018 onward includes responses from major insurance companies, asset management companies, etc., in addition to those from eligible institutions for the Bank's outright purchases and sales of JGBs. Regarding the figures for February 2018, the reference data, which are based on responses only from eligible institutions for the Bank's outright purchases and sales of JGBs, are also indicated. Source: Bank of Japan. Chart 12 III. The Bank's Conduct of Monetary Policy Yield Curves and Issuance Spreads of Corporate Bonds Yield Curves 1.8 % 0.8 1.6 July 27, 2023 (first day of July 2023 MPM) 0.7 1.4 Dec. 19, 2022 (first day of Dec. 2022 MPM) 0.6 1.2 % Issuance Spreads of Corporate Bonds AAA-rated AA-rated 0.5 1.0 0.8 0.4 0.6 0.3 0.4 0.2 0.2 0.1 0.0 -0.2 1 2 3 4 5 6 7 8 910 years residual maturity 0.0 CY 17 Note: In the right-hand chart, figures are the averages for domestically issued bonds launched on a particular date. Bonds issued by banks and securities companies, etc., are excluded. Issuance spreads for corporate bonds = Issuance yields for corporate bonds – Yields on JGBs with the same residual maturity as corporate bonds Sources: Bloomberg; Capital Eye; I-N Information Systems. Chart 13 III. The Bank's Conduct of Monetary Policy Conducting Yield Curve Control (YCC) with Greater Flexibility The Bank judges that sustainable and stable achievement of the price stability target of 2 percent has not yet come in sight, and thus patiently continues with monetary easing. With extremely high uncertainties for economic activity and prices, the Bank enhances the sustainability of monetary easing by conducting YCC with greater flexibility. Conduct of YCC with Greater Flexibility Previous Conduct of YCC Strictly capping 10-year JGB yields 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 % Strictly capping 10-year JGB yields 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 by fixed-rate purchase operations ↓ Range of 10-year JGB yields fluctuations Outlook for Prices y/y % chg. food and energy) +2.5 ↓ 2.5 % +3.2 Forecasts made in Apr. 2023 +1.8 +2.5 Fiscal 2024 +1.9 +1.7 Forecasts made in Apr. 2023 +2.0 +1.7 Fiscal 2025 +1.6 +1.8 Market participants Economists Households Firms Forecasts made in Apr. 2023 +1.6 +1.8 - Decline in real interest rates 1.0 - Mitigating the effects on the functioning of bond markets, etc. 0.5 CY 08 Reference <not rigid limits> Range of 10-year JGB yields fluctuations If upside risks to Japan's economic activity and prices materialize 1.5 0.0 Nimbly conducting market operations Enhancing the sustainability of monetary easing by conducting YCC with greater flexibility Inflation Expectations CPI (Reference) (all items less 2.0 CPI fresh food) (all items less fresh Fiscal 2023 % by fixed-rate purchase operations Note: Figures for market participants, economists, households, and firms are from "QUICK Monthly Market Survey," "ESP Forecast," "Opinion Survey on the General Public's Views and Behavior," and "Tankan," Note: Figures indicate the medians of the Policy Board members' respectively. forecasts (point estimates). If downside risks to Japan's economic activity and prices materialize - Decline in long-term interest rates III. The Bank's Conduct of Monetary Policy Chart 14 Approach to Conducting the Monetary Policy Review from a Broad Perspective 1. Approach to Analyses The Bank will assess the effects of various unconventional monetary policy measures that have been implemented over the past 25 years in the context of interactions with developments in economic activity and prices at each point in time. In addition, it will analyze the impact of these measures on financial markets and the financial system, including their side effects. - Deepen understanding on (1) how various changes in the economic environment -- e.g., globalization and the declining and aging population -- have affected factors such as corporate and household behavior and the formation mechanisms of wages and prices and (2) the implications that the effects of these changes have had for monetary policy - Flexibly consider specific themes of the analyses during the course of the review 2. Approach to Exchanging Views and Other Initiatives The Bank will incorporate diverse expertise and take various initiatives with a view to enhancing the review's objectivity and transparency. Such initiatives include not only internal analyses but also those listed below. Make use of existing series of materials, such as reports and surveys, and invite public comment Exchange views on occasions such as meetings with local and business leaders Hold discussions, such as at workshops (scheduled around December 2023 and May 2024) Exchange views with foreign experts 3. Launch of a Webpage
|
bank of japan
| 2,023 | 8 |
Panel remarks by Mr Ueda Kazuo, Governor of the Bank of Japan, at "Structural Shifts in the Global Economy", an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 26 August 2023.
| null |
bank of japan
| 2,023 | 9 |
Speech by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Gifu, 31 August 2023.
|
August 31, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Gifu NAKAMURA Toyoaki Member of the Policy Board (English translation based on the Japanese original) I. Economic and Price Developments at Home and Abroad A. Recent Developments and Outlook for Economic Activity and Prices I will begin my speech by talking about recent developments in overseas economies. The pace of their recovery has slowed, weighed down in part by the situation in Ukraine; inverted yield curves have been seen in eight countries using the Group of Ten (G10) currencies, with inflationary pressure remaining on a global basis and continued policy interest rate hikes by central banks (Chart 1).1 The U.S. economy has been affected by price rises and continued policy interest rate hikes, but private consumption has been resilient on the back of wage growth continuing to exceed 4 percent since the latter half of 2021. There are growing expectations that the economy will be able to avoid recession, as real GDP for the April-June quarter of 2023 was higher than expected, at 2.4 percent on an annualized quarter-on-quarter basis.2 Although concern over energy supply has eased, European economies have slowed in reflection of continued policy interest rate hikes, with the impact of the situation in Ukraine and the widening inflation gap across euro area economies. As for the Chinese economy, services consumption has increased, whereas goods consumption has been weak. Although the economy is projected to continue picking up, partly with policy support, there is concern over a decline in growth expectations and a slowdown in economic recovery due to a prolongation, for example, of the sluggish real estate market, the high youth unemployment rate, weaker exports, the U.S.-China tension, and a decrease in foreign investment. As I have explained, the risks to overseas economies are skewed to the downside on the whole. Let me move on to recent developments in Japan's economic activity and prices. The economy has recovered moderately. In the corporate sector, although exports and production have been affected by the slowdown in the pace of recovery in overseas economies, they have been more or less flat, supported by a waning of the effects of supply-side constraints. In addition, corporate profits have been at high levels due to strengthening of firms' earning power and improvement in their pricing power. In this situation, firms' appetite for fixed investment has increased, as growth expectations have risen and the government's policy measures have become more predictable, so as to avoid the harm caused by budget formulation that focuses only on a single fiscal year. With regard to the household sector, private consumption has Data on the inverted yield curves are as of August 24, 2023. The first preliminary estimate. increased moderately, along with improvement in the employment and income situation. For example, the pressure to raise wages has continued due to tighter labor market conditions, and the surge in import prices has peaked out. Turning to prices, the year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food has slowed from the latest peak of 4.2 percent for January 2023, mainly due to the effects of pushing down energy prices from the government's economic measures. Nevertheless, it marked 3.1 percent for July, significantly exceeding 2 percent (Chart 2). As for the outlook, despite being under downward pressure stemming from the slowdown in the pace of recovery in overseas economies, Japan's economy is likely to recover moderately for the time being. This is mainly due to the materialization of pent-up demand, supported in part by household savings that accumulated as a result of COVID-19 pandemic-related restrictions, accommodative financial conditions, the government's economic measures, and firms' efforts to strengthen their earning power. Thereafter, with overseas economies picking up, the economy is projected to continue growing at a pace above its potential growth rate as the virtuous cycle from income to spending gradually intensifies. Regarding prices, the yearon-year rate of increase in the CPI for all items less fresh food is likely to decelerate, with a gradual waning of the effects of a pass-through to consumer prices of cost increases led by the surge in import prices (Chart 3). B. Risk Factors for Economic Activity and Prices The outlook just described is subject to uncertainties; specifically, I am paying attention to the following two factors. First is the sustainability of wage growth. Looking at the final results of firms' responses regarding the 2023 annual spring labor-management wage negotiations released by the Japan Business Federation, or Keidanren, the wage growth rate was the highest for the first time in 31 years for major firms, at 4.0 percent, and in 29 years for small and medium-sized firms, at 3.0 percent. Furthermore, the Keidanren's final results showed that summer bonuses and lump-sum payments of major firms, after having risen at a high rate of 8.8 percent in the previous year, continued to increase this year, marking 0.5 percent year on year. Nevertheless, by industry, the number of those experiencing increases in summer bonuses and lump-sum payments was almost the same as those experiencing decreases. It is necessary to carefully monitor the progress in active initiatives taken by firms, including small and medium-sized ones, such as strengthening of their earning power and wage system reforms, which are imperative to sustainable wage growth. Second is developments in overseas economic activity and prices. In advanced economies, the effects of policy interest rate hikes have become unclear, mainly because of postpandemic pent-up demand and of wage growth due to tighter labor market conditions. In this situation, the CPI for all items less food and energy has remained elevated, and the risk of economic overkill through continued policy rate hikes is also of concern. In addition, a 1 percentage point change in China's GDP is estimated to affect the GDP of other Asia-Pacific regions by about 0.3 percentage point.3 Depending on the extent of deceleration of overseas economies, this may have a significant impact on Japan's exports and production, and therefore careful monitoring is warranted of changes in the situation overseas. II. Conduct of Monetary Policy In light of recent economic and price developments, I would like to share my views on the conduct of monetary policy for the immediate future. I believe that the Bank of Japan needs to patiently continue with the current monetary easing for the time being in view of the price stability target of 2 percent, primarily for two reasons. The first reason concerns achieving inflation accompanied by wage increases. A major problem facing Japan's economy is that there has been almost no increase in the three key economic and financial indicators of prices, wages, and interest rates since the second half of the 1990s (Chart 4). The distribution of selling price changes has clustered near 0 percent for many years (Chart 5). Firms have curbed investment given the difficulty of recovering it. This led to declines in their capacity for innovation and earning power, thereby causing a slump in labor productivity. To propel a change in this economic activity stagnation, the Bank has continued with monetary easing. As a result, coupled with the government's policies, Japan's economy is no longer in deflation. However, with setbacks such as the Global Financial Crisis See International Monetary Fund (IMF), "Regional Economic Outlook for Asia and Pacific," October 2022. (GFC) and the COVID-19 pandemic, the deflationary mindset has not yet been dispelled. Considering that the principle of monetary policy is to achieve price stability, thereby contributing to the sound development of the national economy, it is important for a virtuous cycle to take shape in which wages increase on the back of stable price rises, economic activities such as investment and consumption become aggressive, and interest rates rise accordingly. For this to happen, the country's economic and wage structures need to change so that wages increase alongside economic growth, as is the case in the United States and Europe. Monetary policies in these economies aim to curb demand and subdue high inflation, in the context of their present economic and wage structures. In the case of Japan, however, the structures of sluggish economic activity and wages need to be changed, and the price stability target seems to serve as a barometer for gauging the progress of this change. The year-on-year rate of increase in the CPI for all items less fresh food has exceeded 2 percent for 16 consecutive months, and labor shortages have also exerted greater pressure on firms to raise wages. Nevertheless, developments in the GDP deflator -- which measures the change in prices of value-added generated in the domestic economy -- show that, unlike in the United States and Europe, a substantial increase in unit labor costs has not been observed in Japan (Chart 6). Thus, the current inflation in the country seems to be due mainly to the effects of the pass-through to consumer prices of cost increases led by the surge in import prices with a lag, and inflation accompanied by wage increases has not yet been achieved. The second reason I believe the Bank needs to continue with monetary easing concerns boosting the earning power of firms, including small and medium-sized ones, which allows for wage growth that can keep up with inflation. The June 2023 Tankan (Short-Term Economic Survey of Enterprises in Japan) shows that the diffusion index (DI) for output prices has been positive for nine consecutive quarters, and that the gap with the input prices DI has been narrowing since its peak in the January-March quarter of 2022.4 This points to firms' ongoing efforts to pass on higher costs to selling prices. Furthermore, a virtuous cycle appears to be emerging in which wage growth strengthens employee engagement, leading to creation of innovative products and services that allow firms to reflect value-added in their The DIs for output and input prices are calculated by deducting the proportions of enterprises answering that such prices have fallen from the proportions of those answering that such prices have risen. prices, bringing about a boost in the earning power. That said, the earning power of Japanese small and medium-sized firms -- which represent almost 70 percent of the country's workforce -- is not as strong as that of large firms (Chart 7). By contrast, it appears that the situation for German small and medium-sized firms differs significantly, in that they have continued to grow while maintaining their profitability at a level comparable to that of large firms.5 Partly owing to the progress in the pass-through of cost increases to prices, the latest Tankan shows that the current profits of small and medium-sized firms in Japan marked an increase of 3.9 percent for fiscal 2022 from the previous fiscal year, which was higher than the forecast presented in the March Tankan. Nonetheless, the forecast is for a decline in the profits of such firms for fiscal 2023, and progress in boosting the earning power to secure funds for raising wages remains uncertain among small and medium-sized firms. Therefore, achievement of the 2 percent price stability target cannot be assumed with confidence yet. Media reports suggest that a considerable number of major firms have already resolved to raise wages next spring. That said, it is necessary to monitor whether firms, including small and medium-sized ones, are making steady headway in boosting their earning power to enable them to raise wages to keep up with inflation. Current inflation in Japan is still largely characterized by import-driven cost-push factors (Chart 6). Given this, making a shift to monetary tightening before the increases in selling prices translate to those in wages runs the risk of suppressing demand and weakening firms' earning power again. This will also lead to another lowering of people's growth expectations and require considerable costs and time to recover. Therefore, the Bank needs to thoroughly grasp the situation and make cautious judgment before revising its monetary policy. There are extremely high uncertainties about economic activity and prices, as evidenced, for example, by the significant upward revision to the median of the Policy Board members' CPI forecasts for fiscal 2023, from 1.8 percent to 2.5 percent. Taking account of such uncertainties, the Bank decided to conduct yield curve control with greater flexibility. At present, however, sustainable and stable achievement of the price stability target of 2 percent, accompanied by This development among small and medium-sized firms in Germany (those with sales of less than 50 million euros) can be confirmed by the data from the extrapolated results of the Financial Statement Statistics and from the Consolidated Financial Statement Statistics, both released by the Deutsche Bundesbank. wage increases, has not yet come in sight, and my view is that the Bank needs more time before making a shift to monetary tightening. III. Reforms of Economic and Wage Structures Drawing from my experience in the private sector, I would now like to talk about the importance of changing Japan's economic and wage structures and of strengthening the earning power of firms and households to this end. I believe that these are needed to achieve the 2 percent price stability target in a sustainable and stable manner. A. Structural Challenges Facing Japan's Economy Japan's economy, after having grown in line with an increasing population, experienced stagnation due to delayed responses to a subsequent population decline and changes in the economic environment. As a result, there has been almost no increase in the three key economic and financial indicators of prices, wages, and interest rates. When the population was increasing, Japan's economy achieved high growth under an efficiency-oriented business model of mass production and vertical integration, through which a large volume of low-priced, quality products was provided. The yen then appreciated sharply following the 1985 Plaza Accord, spurring major firms to step up their overseas expansion. Many small and medium-sized firms, however, could not expand their businesses overseas and instead faced fierce competition in a domestic market that was experiencing sluggish demand and price competition with firms from emerging economies. Furthermore, firms fell behind in transforming their existing business model into one involving a horizontal division of labor, which focuses on creating added value and adapts to globalization and a population decline. With every wave of recession, many firms made all possible efforts to cut costs, because this measure had proved effective in the past. While the global economy grew steadily due to, for example, the rise of emerging economies and advances in digitalization, Japan's economy saw sluggish wage growth amid the situation of a declining and aging population. This was because businesses were sustained with a rise in the labor force participation rate, especially among non-regular employees such as married women and the elderly. There was also the issue of a so-called salary ceiling -- that is, part-time workers try to adjust their working hours so that their salaries stay under the ceiling for tax exemption. Moreover, due to cost-cutting reforms in all possible areas, firms restrain not only fixed investment but also investments in human capital and in growth areas including research and development (R&D), which are the key to creating innovation that is vital to sustainable corporate growth (Charts 8 and 9).6 Digitalization was also delayed. As a result, Japan's per capita labor productivity fell to 29th among the 38 Organisation for Economic Co-operation and Development (OECD) countries, suggesting a decline in its international competitiveness (Chart 10).7 Since prices did not rise during the prolonged deflationary period, firms were able to rely on the goodwill of their employees, knowing that they would continue to work even if wages and investment in human resource development were restrained. The current economy characterized by low growth, low inflation, and low wage growth -- stemming from a declining and aging population and low labor productivity -- presents a structural challenge for Japan. In the wake of the GFC and the COVID-19 pandemic, reform efforts to address such structural challenge have progressed. For example, Japanese firms have channeled greater management resources, mainly through mergers and acquisitions (M&As), including business succession to the next generation, and through sales of businesses (Chart 11). Furthermore, with structural labor shortages becoming acute in Japan, firms find it difficult to recruit and retain workers unless they raise wages. As in other economies, Japan is seeing an upsurge in "survival of the fittest," and therefore firms need to shift from management that relies on the goodwill of employees to one that increases employee value. Labor shortages are a global issue. The Talent Shortage Survey -- a survey of employers in 41 countries carried out by U.S.-based ManpowerGroup -- released in March 2023 found that a record-high 77 percent of employers worldwide faced labor shortages on average, which is an increase of 37 percentage points from when the survey first began in 2006. Meanwhile, wages have remained sluggish in Japan (Chart 12). In 2022, a major firm based overseas announced that it would hire new workers at a high starting salary as it made inroads into the Kyushu region, and this attracted significant interest. In light of this incident and further Human capital is a concept indicating that human resources are valuable for corporate management. Ranking as of 2021. In that year, Japan ranked 27th in terms of labor productivity per hour. tightening of labor market conditions, there is a growing awareness across the country of the need to reform the current business structure so that firms can raise wages (Chart 13). B. Boosting Labor Productivity: Strengthening Firms' Earning Power Since wage growth has become indispensable to securing human capital, strengthening firms' earning power has become an urgent management issue. For a long time, many Japanese firms have found it difficult to raise selling prices, instead offsetting the impact of higher costs mainly by reducing costs and developing new products and services. As a result, despite their sophisticated technology, these firms have tended to fall into a structure in which the benefits of new product and services development do not feed into wage growth for their employees. In order to make a shift to a business structure in which firms can raise wages after experiencing the COVID-19 pandemic, they have been developing and providing innovative products and services that customers recognize as having value. They have also been pursuing initiatives to create value across the entire supply chain, which includes small and medium-sized firms. As a result of the 2023 annual spring labor-management wage negotiations, many firms have raised base pay and nominal wages have recently marked relatively high growth on a yearon-year basis. Offered wages also have shown high growth, reflecting acute labor shortages (Chart 13). These developments in Japan suggest that now is a golden opportunity to transform the entrenched deflationary mindset into a growth mindset. In fact, I sense that a virtuous cycle of growth and profit sharing is starting to operate (Chart 14 gives a simplified representation). That is, firms are developing innovative products and services with strong pricing power, and this in turn is driving growth in their profits. As firms are pursuing more aggressive investments and higher wages, firms and households are starting to raise their growth expectations. By strengthening management resources, including through business succession and M&As, and by boosting employee engagement, firms are improving their productivity and capacity for innovation. As a result, coupled with consumers' increased appetite for spending, they are heightening the value of their products and employees as well as raising their sales, thereby strengthening their earning power and realizing sustainable growth. This in turn is leading to bolstering of both the supply and demand sides by further raising wages and expanding consumption, suggesting the start of a virtuous cycle of growth and profit sharing. In order to maintain this virtuous cycle, it is crucial for firms targeting growth to keep strengthening their earning power. For this reason, I think that changes to Japan's business and economic structures are needed to realize wage growth that can keep up with inflation. This will come about through various supply-side reforms, including firms' efforts to proceed with identifying and concentrating on their core competencies, accelerate realignment of their business portfolios, make active investment in technological advances that drive innovation, improve corporate metabolism, and increase the number of startups and unicorns (private startups valued at over 1 billion U.S. dollars) in line with the government's Startup Development Five-Year Plan. In order to assess the progress toward achieving an economic structure in which wages rise along with economic growth, I am attentive to growth in nominal GDP, which closely reflects the actual experience of various economic entities. From fiscal 2001 to 2011, which was during the deflationary period, the nominal GDP growth rate relative to the previous fiscal year contracted by 0.6 percent in terms of the simple arithmetic average, whereas real GDP increased by 0.6 percent (Chart 15). Over this period, the nominal consumption of durable goods declined by about 10 percent, from 25 trillion yen to 22 trillion yen, indicating that household consumption was in fact shrinking. The real value of consumption of durable goods, however, increased by about 90 percent, from 11 trillion to 21 trillion in chained 2015 yen. Since nominal GDP is representative of the sentiment of firms and households, I believe that it is a familiar and vital indicator in terms of stimulating growth expectations of each economic entity and changing the deflationary mindset. The Bank therefore will continue providing accommodative financial conditions to support efforts to seize this current golden opportunity so that the economy will achieve growth in nominal GDP and a rise in nominal wages that can keep up with inflation. Looking back at the speed at which nominal GDP recovered from the past shocks, during Japan's deflationary period, it took 19 years to recover to the level seen in fiscal 1997. In contrast, during the COVID-19 pandemic, nominal GDP surpassed the fiscal 2019 level in three years, setting a new record high in fiscal 2022. Moreover, nominal GDP is expected to reach a new record high for two consecutive years in fiscal 2023, growing by more than 4 percent.8 In terms of corporate profits, the Financial Statements Statistics of Corporations by Industry, Quarterly shows that current profits for a January-March quarter reached a record high in 2023. The June Tankan also envisages a high level being maintained throughout fiscal 2023. I sense that these are signs of progress in structural reforms and of a rise in growth expectations. In addition, business fixed investment plans for fiscal 2023 in the June Tankan show an increase of 12.3 percent on a year-on-year basis, indicating a strong appetite for investment.9 The DI for employment conditions in the same survey also indicates more acute labor shortages. Furthermore, in addition to the materialization of high wage growth for the first time in about 30 years as a result of the 2023 annual spring labor-management wage negotiations, the national average of minimum wages was raised to 1,004 yen, increasing by 4.5 percent from the previous fiscal year. As evidenced by these developments, investment and wage growth are gaining momentum, and I therefore expect firms to continue with their efforts to strengthen their earning power. C. Strengthening Earning Power of Small and Medium-Sized Firms To realize wage growth that can keep up with inflation, it is crucial that small and mediumsized firms boost their earning power. Currently, the ratio of exports to sales for such firms in Japan is low relative to large firms, at only 3 percent (Chart 16). In this situation, while employees at small and medium-sized firms account for almost 70 percent of the overall workforce, the current profits of such firms comprise only about a quarter of the country's total and one-fifth or one-sixth of large firms in terms of per employee, suggesting limited capacity for raising wages (Chart 17). Their pricing power is also weak because of fierce competition in the domestic market, giving rise to a structure in which these firms easily become trapped in a vicious cycle of being unable to raise wages (Chart 14). For instance, the domestic market that most small and medium-sized firms target tends to get caught up in price competition not only among themselves but also with imported goods. Such firms therefore have continued to face difficulty in strengthening their earning power. I hope that the number of growing small and medium-sized firms will increase, as with the case in See "Mid-Year Economic Projection for FY2023" released by the Cabinet Office on July 20, 2023. Including software and R&D investments but excluding land purchasing expenses; based on all industries and enterprises including financial institutions. Germany, as they tap into demand from various regions of the world that are growing in line with a population increase. Small and medium-sized firms in Germany have distinctive characteristics, in that they have technology, competitiveness, and pricing power in niche markets, mainly through using a scheme to support strengthening of competitiveness provided by the German government and other institutions. This can be seen in these firms' exports accounting for 20 to 30 percent of their sales, and their pre-tax profitability being at about 6 percent.10,11 Meanwhile, for Japan, it seems that many small and medium-sized firms have delayed putting in place measures to strengthen the competitiveness of their products and services and export strategies, due to a dearth of management resources and severe competition. Nevertheless, firms such as startups and small and medium-sized firms engaged in generational changes and business succession have in recent years begun taking on the challenge of growing by seeking to augment their management resources and technologies. I expect that small and medium-sized firms and startups will enhance their R&D capabilities and responsiveness to the market down the road, and they will also be able to take advantage of support measures provided by the national and local governments, universities, and other entities to strengthen their ability to grow. These developments are then expected to pave the way for highly autonomous management. Supporting such firms and startups as they take on these challenges requires the backing and guidance of regional financial institutions familiar with their respective regions. D. Boosting Households' Earning Power To realize sustainable growth of Japan's economy, in addition to boosting the earning power of firms, it is necessary to steadily increase the disposable income of households by strengthening their earning power. Labor income accounted for 94 percent of Japanese For the ratio of exports to sales, see Tanaka, N., "International Expansion of German SMEs: Corporate Behavior in Exports and Investments," Quarterly International Trade and Investment published by the International Institute for International Trade and Investment, Spring 2017, no.107. Small and medium-sized firms in Germany in terms of the ratio of exports to sales are those with annual sales of 500 million euros or less. 11 For profitability, see the data from the extrapolated results of the Financial Statement Statistics released by the Deutsche Bundesbank. Small and medium-sized firms in Germany are those with sales of less than 50 million euros. households' disposable income as of the end of 2019, so much higher than the proportion for the United States (Chart 18). Moreover, dividend and interest income is small, at 4 percent, suggesting that households' income is highly susceptible to the earning power of the firms where they work. Almost 70 percent of Japanese workers are employed by small and mediumsized firms and stay at the same firm for a long period of time. However, about 60 percent of such firms operate at a loss and expectations for sustainable wage growth are low. 12 Many households tend to have a higher preference for holding on to their cash and deposits so as to be prepared for future expenses. To boost their earning power, an effective option is to hone capabilities by reskilling, or acquiring new skills, seek to earn higher wages commensurate with ability, and change jobs, as is the case in the United States and Europe (Chart 19). The job-switching rate in Japan has remained lower than those in the United States and Europe (Charts 20 and 21). However, labor market conditions are tight, as evidenced by the unemployment rate being at a historically low level of 2.5 percent for June 2023 (Chart 13). If a smooth migration of labor is made to growing industries, where wages are higher and aggressive investment in human resource development is made to boost the value of employees, this will enhance the added value of entire regions and accelerate the virtuous cycle of growth and profit sharing. My view is that this will turn hope about wage growth that can keep up with inflation into confidence. In the Guidelines for Integrated ThreePronged Labor Market Reforms that it announced in May 2023, the Japanese government has committed to compiling various models for job-based pay according to the actual circumstances of individual firms by the year-end. At the same time, the government is planning subsidies and tax reforms in terms of facilitating diverse working styles and labor mobility. I am paying attention to the positive responses from firms and households in this regard. Another key to strengthening households' earning power is increasing their dividend and interest income. In Japan, cash and deposits make up 54 percent of household financial assets, while equity and investment trusts make up 15 percent. Compared to the United States and Germany, there is a higher preference in Japan for holding on to cash and deposits (Chart 22). If there is progress with a shift in the deflationary mindset of holding money to a growth- Percentage of firms in deficit is that among firms with capital of less than 100 million yen in the sampling survey on firms for fiscal 2021 conducted by the National Tax Agency. oriented mindset of using money effectively, this will lead households to reallocate some of their savings into investment in financial assets focusing on the long term, on regular contributions, and on risk diversification. This will boost households' earning power through the acquisition of dividend income from many listed firms that they have invested in, and at the same time promote future asset formation through the growth of firms that they have invested in. Simply keeping cash and deposits drives households far away from the benefits of growth in Japan's economy, which has been achieved through the business activities of many firms. Developments in the Tokyo Stock Price Index (TOPIX) and dividend yields from 2001 onward show that asset values have risen in tandem with the growth of listed firms even after significant shocks such as the GFC, and dividend yields have remained at around 2 percent since that crisis (Chart 23). The economy continues to grow through activities of a large number of firms. During the Showa Era, from 1926 through 1989, Japan's economy realized growth driven by exports, and industrial clusters were formed, bringing about a society in which almost all Japanese people considered themselves to be middle-class based on income earned from the firms where they work, a concept widely shared during the 1970s when Japan's population exceeded 100 million. As a result of firms' earning power weakening accompanied by the yen's appreciation following the 1985 Plaza Accord, as well as a population decline, and also of sluggish wages, it is now necessary for households to change the structure for boosting their earning power. It is important that households invest in equity and investment trusts as a means of linking to multiple listed firms, transforming the structure for strengthening their earning power to one that promotes not only sustainable and stable increases in wages and financial income accompanying nominal GDP growth but also asset formation. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Gifu August 31, 2023 NAKAMURA Toyoaki Member of the Policy Board Bank of Japan Chart 1 IMF Projections in the World Economic Outlook Update (July 2023) y/y % chg. IMF projections -2 -4 Japan United States -6 China World output -8 CY 80 Source: IMF. Euro area Chart 2 Consumer Prices Japan -1 -2 United States y/y % chg. Temporary factors Energy <7%> Housing rent <19%> Services (less housing rent) <31%> Goods <40%> CPI (less fresh food) <100%> Latest peak: +4.2% (Jan. 2023) CY 18 -1 -2 Euro Area y/y % chg. -1 -2 Energy <7%> Housing rent <33%> Services (less housing rent) <30%> Goods <30%> CPI <100%> Latest peak: +9.1% (June 2022) CY 18 y/y % chg. CY 18 Energy <10%> Housing rent <6%> Services (less housing rent) <38%> Goods <46%> HICP <100%> Latest peak: +10.6% (Oct. 2022) Notes: 1. Figures for temporary factors for Japan are Bank staff estimates and consist of the effects of the reduction in mobile phone charges, the consumption tax hike, free education policies, and travel subsidy programs. 2. Figures in angular brackets show the share of each component. Figures for 2023/Q3 are those for July. Sources: Haver; Ministry of Internal Affairs and Communications. Chart 3 Forecasts of the Majority of the Policy Board Members y/y % chg. Real GDP CPI (all items less fresh food) (Reference) CPI (all items less fresh food and energy) Fiscal 2023 +1.2 to +1.5 [+1.3] +2.4 to +2.7 [+2.5] +3.1 to +3.3 [+3.2] Forecasts made in April 2023 +1.1 to +1.5 [+1.4] +1.7 to +2.0 [+1.8] +2.5 to +2.7 [+2.5] Fiscal 2024 +1.0 to +1.3 [+1.2] +1.8 to +2.2 [+1.9] +1.5 to +2.0 [+1.7] Forecasts made in April 2023 +1.0 to +1.3 [+1.2] +1.8 to +2.1 [+2.0] +1.5 to +1.8 [+1.7] Fiscal 2025 +1.0 to +1.2 [+1.0] +1.6 to +2.0 [+1.6] +1.8 to +2.2 [+1.8] Forecasts made in April 2023 +1.0 to +1.1 [+1.0] +1.6 to +1.9 [+1.6] +1.8 to +2.0 [+1.8] Notes: 1. Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). 2. The forecasts of the majority of the Policy Board members are constructed as follows: each Policy Board member's forecast takes the form of a point estimate -- namely, the figure to which they attach the highest probability of realization. These forecasts are then shown as a range, with the highest figure and the lowest figure excluded. The range does not indicate the forecast errors. 3. Each Policy Board member makes their forecasts taking into account the effects of past policy decisions and with reference to views incorporated in financial markets regarding the future conduct of policy. Source: Bank of Japan. Chart 4 Three Economic and Financial Indicators CPI (Less Fresh Food) y/y % chg. Nominal Wages Overnight Rates y/y % chg. -2 -2 -2 -4 -4 FY 90 95 00 05 10 15 20 % -4 FY 90 95 00 05 10 15 20 FY 90 95 00 05 10 15 20 Notes: 1. The CPI figures are Bank staff estimates and exclude the effects of consumption tax hikes, policies concerning the provision of free education, travel subsidy programs, and the reduction in mobile phone charges. 2. Figures for nominal wages are for establishments with 30 or more employees for fiscal 1990, and with 5 or more employees from fiscal 1991 onward. 3. Figures for overnight rates are annual averages of the uncollateralized overnight call rates. 4. Regarding figures for fiscal 2023, those for the CPI (less fresh food) and overnight rates are April-July averages; that for nominal wages is the April-June average. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Bank of Japan. Chart 5 Distribution of Consumer Price Changes Japan United States share of the number of items, % Euro Area share of the number of items, % July 2023 July 2023 September 2019 September 2019 July 2023 -10 or less -5 or more y/y % chg. -10 or less -5 or more y/y % chg. September 2019 share of the number of items, % -10 or less -5 Note: Figures for Japan are based on items excluding fresh food and energy. Those for the United States and the euro area are based on items excluding energy. Sources: Eurostat; Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics (BLS). or more y/y % chg. Chart 6 GDP Deflators s.a., cumulative chg. from 2019/Q4, % Unit labor costs (ULCs) Unit profits Other GDP deflator <United States> <Japan> -5 FY 20 CY 20 <Euro area> CY 20 Note: Figures for Japan for the first half of fiscal 2023 are those for the April-June quarter. Figures for the United States and the euro area for the first half of 2023 are those for the January-March quarter. Sources: Cabinet Office; Eurostat; U.S. Bureau of Economic Analysis (BEA). Chart 7 Corporate Profitability % Large firms Small and medium-sized firms FY 90 Notes: 1. Figures are based on the Financial Statements Statistics of Corporations by Industry, Annually, and exclude the finance and insurance industries. 2. Large firms are commercial corporations with capital of 100 million yen or more. Small and medium-sized firms are commercial corporations with capital of less than 100 million yen. Figures are the ratio of current profits to sales. Source: Ministry of Finance. Chart 8 Business Fixed Investment and Business Performance FY2000＝100 Private nonresidential investment (SNA, nominal) Current profits FY 95 Note: "SNA" stands for the System of National Accounts. Figures for current profits are based on the Financial Statements Statistics of Corporations by Industry, Annually, and exclude the finance and insurance industries. Sources: Cabinet Office; Ministry of Finance. Chart 9 Ratio of Firms' Human Resource Development Costs to GDP 2.5 % 2.0 1.5 1.0 0.5 0.0 United States France Germany Italy 1995-1999 2000-2004 2005-2009 United Kingdom Japan 2010-2014 Note: Figures are estimated by Professor MIYAGAWA Tsutomu (Gakushuin University) based on the SNA compiled by the Cabinet Office, JIP Database, and INTAN-Invest Database. Source: Ministry of Health, Labour and Welfare. Chart 10 Comparison of Labor Productivity in G7 Countries ten thou. USD, constant prices, 2015 PPPs Japan United Kingdom Italy United States Germany Canada France CY91 Note: GDP per person employed. Source: OECD. Chart 11 Number of M&As and Sales of Subsidiaries and Businesses 1,000 number of cases M&As by listed firms Sales of subsidiaries and businesses by listed firms CY 13 Note: Compiled based on data provided by the Japan Exchange Group. M&As are those involving the transfer of management rights (excluding intra-group restructuring). Source: M&A Online. Chart 12 Comparison of Average Annual Wages in G7 Countries ten thou. USD, constant prices, 2022 PPPs Japan United States Canada United Kingdom Germany France Italy CY 91 Note: Average annual wages in full-time equivalent. Source: OECD. Chart 13 Labor Market Conditions Employment Conditions DI DI ("excessive" - "insufficient"), % points Unemployment Rate % Average Hourly Wage at Time of Recruitment 1,200 yen 1,150 -10 -20 -30 -40 -50 CY 90 1,100 Forecast CY 90 1,050 CY 20 Notes: 1. The figure for the unemployment rate for 2023 is the average of the January-June period. 2. Figures for the average hourly wage at the time of recruitment are those for part-time jobs and cover the three largest metropolitan areas (the Tokyo metropolitan, Tokai, and Kansai areas). Sources: Ministry of Internal Affairs and Communications; Recruit Co., Ltd., "Report on Average Hourly Wages for Part-Time Jobs at Time of Recruitment" (available only in Japanese); Bank of Japan. Chart 14 Promoting a Virtuous Cycle by Strengthening the Earning Power of Firms Virtuous Cycle: Vicious Cycle Continuous Challenge for Growth Unable to pass on cost increases to prices Pass-through of cost increases to prices Efforts to absorb cost increases through cost reductions and new product development effects, etc. Contribution to profits from cost reductions and new product development effects, etc. Decline in capacity for raising wages Equipment, human capital, R&D, marketing, etc. Sluggish wages Sluggish consumers' appetite for spending and high saving rates Improvement in capacity for raising wages Investment restraint Equipment, human capital, R&D, marketing, etc. Sustainable wage growth Increase in consumers' appetite for spending and lower saving rates Decline in growth expectations Decline in employee engagement Expansion of investment Lack of management resources Rise in growth expectations Boosting of employee engagement Strengthening of management resources Decline in productivity and innovation capacity Increase in productivity and innovation capacity Price competition and sluggish sales Increase in the value of employees and products, etc. and expansion of sales Decline in earning power and sluggish business performance Strengthening of earning power and sustainable growth Chart 15 Nominal GDP and Nominal Wages y/y % chg. tril. yen Nominal GDP (level, right scale) Real GDP (growth rate, left scale) Nominal GDP (growth rate, left scale) Nominal wages (growth rate, left scale) -3 3 years 19 years -6 -9 -12 FY 95 Average growth rate for fiscal 2001-2011: -0.6% for nominal GDP, +0.6% for real GDP Sources: Cabinet Office; Ministry of Health, Labour and Welfare. Chart 16 Exports by Firms Ratio of Firms Engaged in Direct Exports Ratio of Exports to Sales % Small and medium-sized firms Large firms % Small and medium-sized firms Large firms FY02 FY 97 99 01 03 05 07 09 11 13 15 17 19 Notes: 1. Firms engaged in direct exports are those which directly conduct transactions with foreign firms. 2. The ratio of exports to sales is calculated by dividing the value of exports by sales. Data before fiscal 2011 are based on the 2016 White Paper on Small and Medium Enterprises in Japan compiled by the Small and Medium Enterprise Agency, and those from fiscal 2011 onward are based on the Cabinet Office's publication on Japan's economy from 2022 to 2023. 3. Figures are compiled by the Cabinet Office and the Small and Medium Enterprise Agency using the questionnaire information of the Basic Survey of Japanese Business Structure and Activities by the Ministry of Economy, Trade and Industry. Sources: Cabinet Office; Small and Medium Enterprise Agency. Chart 17 Earning Power of Small and Medium-Sized Firms Proportion of Small and Medium-Sized Firms % % Current Profits per Employee mil. yen per employee Number of employees (left scale) Current profits (right scale) FY90 Small and medium-sized firms Large firms FY90 Notes: 1. Figures for current profits are based on the Financial Statements Statistics of Corporations by Industry, Annually, and exclude the finance and insurance industries. 2. Large firms are commercial corporations with capital of 100 million yen or more. Small and medium-sized firms are commercial corporations with capital of less than 100 million yen. 3. The proportion of small and medium-sized firms is that among all firms. Source: Ministry of Finance. Chart 18 Household Disposable Income Japan United States tril. yen Germany tril. USD 2.0 tril. EUR 2.4 1.6 1.2 Disposable income Employee compensation Interest income 0.8 Dividend income 0.4 0.0 CY90 CY90 CY90 Notes: 1. Figures for Japan before 1994 are calculated using year-on-year changes in each item in the GDP statistics based on the benchmark year of 2000. 2. Figures for interest income and dividend income in Germany are "other interests, rents" and "distributed income of corporations," respectively. Sources: BEA; Cabinet Office; Statistisches Bundesamt. Chart 19 Wages of Job Changers/Stayers Japan United States annual income growth rate, % Job changers Job changers Job stayers % Job stayers year before changing job year of changing job year after changing job CY 98 Notes: 1. The left panel shows an analysis from the Cabinet Office's publication on Japan's economy from 2022 to 2023, using the survey data for the period of 2016-2022 from the Japanese Panel Study of Employment Dynamics released by the Recruit Works Institute. The annual income growth rate is the rate of increase from the year before the job change. 2. In the right panel, figures are hourly data of 12-month backward moving averages of median wage growth. Sources: Cabinet Office; Federal Reserve Bank of Atlanta. Chart 20 Labor Mobility in Japan shares of total employees, % Unemployed→Employed Employed→Unemployed Job changers (excluding between regular employment) Job changers (between regular employment) CY 13 Note: Job changers are employees who left their previous jobs in the past year and are currently employed. "Employed→Unemployed" refers to those who left employment in the past year and are not currently employed. Source: Ministry of Internal Affairs and Communications. Chart 21 Labor Mobility in the United States and Europe (as of 2019) EU-OECD countries axis, % USA axis,% Job-to-job Separations to non-employment Hirings from non-employment Notes: 1. Figures for Europe are percentages of those for which employment status has changed from the previous year relative to the number of all employed persons. Non-employment refers to the status of being unemployed or inactive in the labor force. Figures for Norway are based on data for 2018. 2. Figures for the United States are percentages of those for which employment status has changed from the previous quarter relative to the number of all employed persons. Non-employment refers to non-employment that has lasted for more than one quarter. Quarterly average is the average over four quarters. Annual estimate is the cumulative total of four quarters. Source: Causa, O., Luu, N., and Abendschein, M., "Labour market transitions across OECD countries: Stylised facts," OECD Economics Department Working Papers, No.1692, 2021. Chart 22 Household Financial Assets Japan 2,200 tril. yen Financial assets (total) Cash and deposits Equity Investment trusts 2,000 1,800 % International Comparisons (as of end-March 2023) 2.1 Other 2.7 2.9 26.2 1,600 Insurance, pension, and standardized guarantees 29.1 28.6 11.0 1,400 1,200 4.4 1.3 1,000 21.0 10.1 FY 90 Equity 39.4 Investment trusts 2.2 Debt securities 54.2 11.9 4.9 35.5 Cash and deposits 12.6 Japan United States Euro area Notes: 1. In the right panel, "Other" is the residual after deducting "Cash and deposits," "Debt securities," "Investment trusts," "Equity," and "Insurance, pension, and standardized guarantees" from total financial assets. 2. Also in the right panel, figures are from "Flow of Funds: Overview of Japan, the United States, and the Euro area," released by the Bank's Research and Statistics Department on August 25, 2023. Source: Bank of Japan. Chart 23 TOPIX and Dividend Yields 2,500 pts % TOPIX (left scale) Dividend yields (right scale) 2,000 1,500 1,000 CY 01 Notes: 1. The latest data are as of July 31, 2023. 2. Dividend yields are calculated by dividing the total dividend per stock that became an ex-dividend stock within the last 12 months by the latest stock prices. Source: Bloomberg.
|
bank of japan
| 2,023 | 9 |
Speech by Ms Junko Nakagawa, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Kochi, 7 September 2023.
|
September 7, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kochi NAKAGAWA Junko Member of the Policy Board (English translation based on the Japanese original) I. Current Situation of Economic Activity and Prices A. Current Economic Developments Abroad I would like to begin my speech by talking about the current situation of overseas economies. The pace of recovery in these economies has slowed from a strong post-pandemic rebound. In its July 2023 World Economic Outlook Update, the International Monetary Fund (IMF) projected that the global economic growth rate would slow from an estimated 3.5 percent in 2022 to 3.0 percent in both 2023 and 2024 (Chart 1). While business sentiment for the services industry has improved due to the ongoing reopening of the economy, that for the manufacturing industry has been around the break-even point between improvement and deterioration. Let me take a look at developments in overseas economies by major region. In the United States, while monetary tightening has been impacting the real estate and housing markets, private consumption and the employment situation have been resilient thus far. European economies have slowed moderately despite concern over energy supply easing, due to strong inflationary pressure stemming from the continued effects of the situation in Ukraine. In China, weakness has been seen in the real estate market and in the sectors incorporating external demand, while recovery in private consumption has been modest and the pace of pick-up in the economy has slowed. B. Current Economic Developments in Japan Turning to the current situation of Japan's economy, despite being affected by the slowdown in the pace of recovery in overseas economies, demand that was suppressed during the pandemic has begun to rebound and business fixed investment and private consumption have increased moderately. An improved income situation, reflecting the results of this year's annual spring labor-management wage negotiations, has led to stronger household sentiment and thus has supported this economic upswing. Next, I would like to explain developments in Japan's economy from two aspects: the corporate sector and the household sector. 1. Corporate sector Let me start with the corporate sector. Corporate profits have been trending upward, particularly for nonmanufacturers, supported by a recovery in economic activity and hikes in selling prices (Chart 2). Under these conditions, business sentiment has improved moderately on the whole. The Bank of Japan's July 2023 Tankan (Short-Term Economic Survey of Enterprises in Japan) showed a marked improvement in business sentiment for nonmanufacturing. Improvement has also been clear in private consumption-related industries, especially eating and drinking services and accommodations, reflecting a waning of the impact of COVID-19 and the progress in the pass-through of cost increases to prices. On the other hand, sentiment for manufacturing has been more or less flat recently, following the post-pandemic pick-up. The slowdown in the pace of recovery in overseas economies and adjustment pressure on IT-related goods have continued to exert downward pressure. Business fixed investment has increased moderately, led by digital- and labor saving-related investments (Chart 3). Construction investment also has seen moderate growth, led by construction of logistics facilities on the back of an expansion of online shopping and by urban redevelopment projects. As in fiscal 2022, business fixed investment plans for fiscal 2023 are expected to continue to show relatively strong growth in both the manufacturing and nonmanufacturing industries. Large-scale investments, such as in semiconductor-related fields, have been in the news recently. I find it intriguing to see the positive reaction to such investments coming from outside Japan. Although industrial production and exports have been affected by the slowdown in the pace of recovery in overseas economies, they have been more or less flat, with the waning of supply-side constraints (Chart 4). By region, exports to advanced economies have been on an uptrend, mainly led by automobile-related goods, on the back of the waning of the effects of supply-side constraints (Chart 5). Exports to China have bottomed out and remained at low levels. Exports to the NIEs and the ASEAN economies have continued to be relatively weak, reflecting global adjustment pressure on IT-related goods. By goods, exports of automobilerelated goods have increased clearly, buoyed by the waning of supply-side constraints for semiconductors used in automobiles. Exports of capital goods have been at reduced levels, reflecting a downturn in exports of semiconductor production equipment due to semiconductor manufacturers postponing fixed investment. Exports of IT-related goods have been relatively weak, mainly for smartphones and personal computers, although those for automobiles have been firm. Exports of intermediate goods have also been impacted by global adjustment pressure on IT-related goods. 2. Household sector I now turn to the household sector, focusing on private consumption and the employment and income situation. Although higher prices have led to a lower volume of purchases, private consumption in real terms has continued to increase steadily, supported by so-called pent-up demand after the reclassification of COVID-19 under the Infectious Disease Control Law, and also by improvement in consumer sentiment reflecting the results of this year's annual spring labor-management wage negotiations (Chart 6). Let me look at the developments of private consumption separately for goods and services. As for goods, consumption of durable goods has begun to pick up on the back of growth in new car sales owing to the waning of supply-side constraints for semiconductors used in automobiles. Consumption of nondurable goods has been relatively weak due to the effects of high prices of beverages, food, and clothes. Services consumption has increased moderately, with the impact of COVID-19 waning and fueled by pent-up demand. For example, even with the ongoing price rises, the dining-out industry has seen an increase in customer footfall across a wide range of restaurants, including izakaya (Japanese-style bars), which had been slow to recover. Domestic travel has been firm, even as the effects of the government's domestic travel discount program have waned gradually, because long-distance travel, which was at a low level during the pandemic, has been recovering. Overseas travel has remained at a low level but has continued to increase moderately. The employment and income situation has improved moderately. The number of employed persons has seen moderate growth. The growth in regular employees is led by the medical, healthcare, and welfare services industry and by the information and communications industry, both of which have faced a severe labor shortage, while that in non-regular employees is led by industries such as face-to-face services. Nominal wages per employee have also increased moderately (Chart 7). Scheduled cash earnings have also been on the rise. This is because the wages of full-time employees have started to gradually reflect the results of this year's annual spring labor-management wage negotiations, which ended up with the highest wage growth rate since 1993, and also because hourly wages for part-time employees have been rising as labor market conditions have tightened. Special cash earnings have increased as well, reflecting larger bonuses on the back of improvement in corporate earnings. As a result, total employee income, which is the product of the number of employees and nominal wages per employee, is also on the rise. Until recently, there were many who argued that it would be difficult to raise wages. Recently, however, more firms are acknowledging that wage increases are essential to hiring and retaining employees. As labor market conditions have begun to grow increasingly tight, it appears that firms' wage-setting stance is beginning to change. C. Current Price Developments in Japan Next, I would like to talk about price developments in Japan. Specifically, I will touch upon producer and consumer prices. 1. Producer prices I will first explain developments in producer prices. The year-on-year rate of change in the import price index has become negative recently because prices of crude oil and other goods have been at somewhat reduced levels (Chart 8). In this situation, the year-on-year rate of change in the producer price index (PPI), which is based on prices of goods traded within the domestic corporate sector, slowed to 3.6 percent for July 2023, as the impact of the earlier raw material cost increases gradually waned. Nevertheless, the year-on-year change in the PPI has remained positive amid a continued pass-through to selling prices of higher costs, mainly for items in downstream stages of supply chains such as machinery, beverages, and food. The year-on-year rate of change in the services producer price index (SPPI) has continued to increase moderately on the whole, reflecting higher prices for items such as hotels, passenger transportation, and services related to business fixed investment, against the backdrop of a recovery in travel demand -- including inbound tourism demand -- and a rise in personnel expenses and property costs. 2. Consumer prices The year-on-year rate of increase in the consumer price index (CPI) for all items less fresh food has slowed, mainly due to the effects of pushing down electricity and gas charges from the government's economic measures. However, with a continued pass-through to selling prices of increases in raw material costs, the rate of increase has remained relatively high, at 3.1 percent for July 2023 (Chart 9). Firms' price-setting stance is beginning to change, as firms across a broad range of industries -- including competitors -- have opted for price hikes in reflection of the considerable increase in raw material costs. The CPI (all items less fresh food and energy) shows that the rates of increase have been accelerating for a wide range of goods, especially for food and daily necessities, and for services, chiefly hotel charges. II. Outlook for and Risks to Economic Activity and Prices A. Outlook Next, I would like to turn to the outlook for Japan's economic activity and prices. The economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies. Thereafter, the economy is projected to continue growing at a pace above its potential growth rate as a virtuous cycle from income to spending gradually intensifies in the overall economy. As presented in the Outlook for Economic Activity and Prices (Outlook Report) decided by the Bank at the July 2023 Monetary Policy Meeting (MPM), the medians of the Policy Board members' forecasts for the real GDP growth rate are 1.3 percent for fiscal 2023, 1.2 percent for fiscal 2024, and 1.0 percent for fiscal 2025 (Chart 10). The year-on-year rate of increase in the CPI is likely to decelerate, with a waning of the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices. Thereafter, the Bank's baseline scenario is that the CPI will rise moderately as the output gap improves along with economic recovery and the rates of increase in inflation expectations and wages become higher. Given this context, the medians of the Policy Board members' forecasts for the year-on-year rate of change in the CPI (all items excluding fresh food) are 2.5 percent for fiscal 2023, 1.9 percent for fiscal 2024, and 1.6 percent for fiscal 2025 (Chart 10). B. Risks The outlook for economic activity and prices that I mentioned entails a range of uncertainties. In what follows, I describe three risk factors for economic activity and one for prices. 1. Risks to economic activity The first risk factor for economic activity is developments in overseas economic activity and prices, and in global financial and capital markets. Although inflation rates abroad have become lower, inflationary pressure has remained on a global basis. Central banks have made rapid policy interest rate hikes since 2022 in order to combat strong inflationary pressure. Owing to the effects of these rate hikes, global inflationary pressure has been on an easing trend. The Bank's baseline scenario is that overseas economies will gradually shift to stable growth as policy rate hikes help inflation rates moderate. However, given that the rate of increase in services prices has remained high through wage growth, mainly in advanced economies, there is a risk of inflation rates staying elevated, as well as a risk of financial conditions tightening further. Thus, attention is warranted on the possibility of overseas economies deviating downward from the Bank's baseline scenario. Second is geopolitical risks and developments in prices of commodities, including grain. The prices of grain and other commodities have declined on the whole after reaching their peak around the middle of 2022; nevertheless, they may put stronger downward pressure on economic activity depending on various geopolitical factors including the situation in Ukraine. The third factor is firms' and households' medium- to long-term growth expectations. Advances in digitalization, which reflect the experience of COVID-19 and labor shortages, as well as efforts regarding labor market reform are expected to have positive effects on Japan's growth potential. Meanwhile, some firms have revised their strategies regarding supply chains, based on heightened concern over geopolitical risks and the experience of supply-side constraints caused by the pandemic. This implies that the trend of globalization, which has supported the growth of the global economy to date, is starting to change. Such structural changes could exert both positive and negative effects on Japan's medium- to longterm growth expectations and the potential growth rate. 2. Risks to prices A risk factor for prices is firms' price- and wage-setting behavior in coming months. In the face of steep increases in raw material costs, moves to raise selling prices have been spreading even to firms that had not changed their selling prices for long (Chart 11). In this situation, medium- to long-term inflation expectations of economic entities, such as households, firms, and market participants, have also been rising. If rises in observed and expected inflation rates continue and create synergy effects, this could lead inflation to become higher than expected. Meanwhile, there is also a possibility that the opposite will occur, if moves to rush the passthrough of cost increases to selling prices pause, supported by the projected high corporate profits. As for wages, the annual spring labor-management wage negotiations this year resulted in the highest wage growth rate since 1993. However, it is necessary to closely monitor future developments, considering that wage increases depend on business performance, even with a severe labor shortage. III. The Bank's Monetary Policy Next, I would like to talk about the Bank's monetary policy conduct. The Bank has continued with its monetary easing, aiming to achieve the price stability target of 2 percent in a sustainable and stable manner. As the specific measure of monetary easing, the Bank has conducted yield curve control, which involves controlling short- and long-term interest rates, and asset purchases. Under the current framework of yield curve control, the short-term policy interest rate is set at minus 0.1 percent, the target level of 10-year Japanese government bond (JGB) yields is around 0 percent, and the range of 10-year JGB yield fluctuations is around plus and minus 0.5 percentage points from the target level. As I have explained thus far, Japan's economy has shown positive developments and signs of change have been seen in firms' price- and wage-setting behavior. However, it is premature to conclude that the price stability target has been achieved in a sustainable and stable manner. Thus, I believe that, in its conduct of monetary policy for the time being, it is appropriate for the Bank to maintain monetary easing. Modification of the Conduct of Yield Curve Control It should be noted that monetary easing comes with various side effects. The Bank has conducted monetary policy with due consideration in this regard. For instance, at the December 2022 MPM, it decided to modify the conduct of yield curve control and expand the range of 10-year JGB yield fluctuations from the target level from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points. In 2022, overseas central banks raised policy interest rates significantly in a short period of time as inflation rates abroad remained extremely high. Given this situation, speculation spread in the JGB market that interest rates would rise in the near future, resulting in strong selling pressure. The Bank was able to contain upward pressure on 10-year JGB yields by conducting fixed-rate purchase operations for consecutive days, through which the Bank purchases an unlimited amount of 10-year JGBs at 0.25 percent. However, distortions on the yield curve intensified as a price gap widened between JGBs with 10-year maturity and those with other maturities. Consequently, as a side effect, there was difficulty in the pricing of corporate bonds at the time of issuance because of reduced representativeness of 10-year JGB yields, which are regarded as benchmark interest rates. The measure the Bank decided in December 2022 aimed to address side effects such as this. After the measure was implemented, along with a decline in overseas interest rates, distortions on the yield curve dissipated and the issuance conditions for corporate bonds headed toward improvement. Moreover, at the July 2023 MPM, the Bank decided to conduct yield curve control with greater flexibility (Chart 12). Specifically, it decided to continue allowing 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level, and at the same time to conduct yield curve control flexibly, regarding the upper and lower bounds of the range as non-rigid limits. Accordingly, it allows the yields to move beyond the range depending on market conditions. However, when the yields are at 1.0 percent, the Bank purchases an unlimited amount of JGBs at that rate to contain the rise in the yields to below 1.0 percent. When the yields are between 0.5 percent and 1.0 percent, the Bank conducts market operations nimbly, depending on factors such as the levels and the pace of change in the yields. At the time of the decision, stress observed in the JGB market was not as severe as that in December 2022; however, some market participants held back on bond investment as they viewed that there were high uncertainties surrounding future interest rate developments. Taking account of extremely high uncertainties for economic activity and prices, upward movements in prices and inflation expectations are likely to continue. It is even possible that market participants' moves to hold back on bond investment could accelerate. In that case, if the Bank tries to strictly contain the rise in 10-year JGB yields through fixed-rate purchase operations for consecutive days at 0.5 percent, distortions on the yield curve and unintended turmoil could be caused in financial markets, as in December 2022. I think that the measure decided at the July 2023 MPM will help alleviate the side effects of monetary easing on market functioning in the event of unexpected developments. Some may view that allowing the rise in 10-year JGB yields is virtually monetary tightening. However, the degree of monetary accommodation in terms of real interest rates will not decline as long as mediumto long-term inflation expectations are rising on the back of an increase in long-term interest rates. I believe that it is possible to patiently conduct accommodative monetary policy while taking account of market functioning. Thus far, I have explained the case where prices and inflation expectations deviate upward from the Bank's baseline scenario. If, on the other hand, downside risks to Japan's economic activity and prices materialize, the current framework of yield curve control is designed to ensure that monetary easing effects will be maintained through a decline in long-term interest rates. As I have described, I consider that the sustainability of monetary easing has been enhanced by the new measure, which enables the Bank to nimbly respond to both upside and downside risks to economic activity and prices. A Review of Monetary Policy from a Broad Perspective As a last note, let me talk about a review of monetary policy from a broad perspective, which the Bank has been working on. With this review, the Bank aims to analyze the effects and side effects of its monetary policy conduct over the past 25 years since the late 1990s, when Japan's economy fell into deflation. In doing so, the Bank not only plans to conduct internal analyses but also to incorporate diverse expertise. In that sense, I consider that today's meeting with local leaders is a truly valuable opportunity. I will be very glad to hear comments on the Bank's conduct of monetary policy and changes in firms' behavior over the years, in addition to views on recent economic developments in Kochi. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Kochi September 7, 2023 NAKAGAWA Junko Member of the Policy Board Bank of Japan Chart 1 Overseas Economies World Economic Outlook Global PMI y/y % chg. IMF projections s.a., DI World -2 Manufacturing -4 CY 90 Source: IMF. Services CY 08 Note: Figures for manufacturing are the J.P.Morgan Global Manufacturing PMI. Figures for services are the J.P.Morgan Global Services Business Activity Index. Source: Copyright © 2023 by S&P Global Market Intelligence, a division of S&P Global Inc. All rights reserved. Chart 2 Corporate Sector in Japan Corporate Profits Business Conditions s.a., tril. yen s.a., tril. yen -20 -40 DI ("favorable" - "unfavorable"), % points All industries Manufacturing Nonmanufacturing Sales (left scale) Current profits (right scale) CY 10 "Unfavorable" "Favorable" -60 CY 90 Notes: 1. Based on the Tankan. All enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. 2. Shaded areas denote recession periods. Source: Bank of Japan. Notes: 1. Based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance." 2. Shaded areas denote recession periods. Source: Ministry of Finance. Chart 3 Corporate Sector in Japan Coincident Indicators of Business Fixed Investment s.a., ann., tril. yen Planned and Actual Business Fixed Investment s.a., CY 2015=100 y/y % chg. Private nonresidential investment (SNA, real, left scale) Domestic shipments and imports of capital goods (right scale) Private construction completed (nonresidential, real, right scale) CY 08 Note: Figures for real private construction completed are based on Bank staff calculations using the construction cost deflators. Sources: Cabinet Office; Ministry of Economy, Trade and Industry; Ministry of Land, Infrastructure, Transport and Tourism. -5 Private nonresidential investment (SNA, nominal) -10 Tankan (actual) -15 -20 FY 08 Tankan (planned investment in current fiscal year as of the June survey of each year) Notes: 1. The Tankan figures include software and R&D investments and exclude land purchasing expenses. R&D investment is not included before the March 2017 survey. The figures are for all industries including financial institutions. 2. The figure for private nonresidential investment for fiscal 2023 is that for 2023/Q2. Sources: Cabinet Office; Bank of Japan. Chart 4 Corporate Sector in Japan Industrial Production Real Exports and Imports s.a., CY 2020=100 s.a., CY 2020=100 s.a., % of real GDP Real trade balance (right scale) Real exports (left scale) -2 Real imports (left scale) Production CY 08 CY 08 Notes: 1. Shaded areas denote recession periods. 2. The figure for 2023/Q3 is that for July. Source: Ministry of Economy, Trade and Industry. -4 Note: Based on Bank staff calculations. Figures for 2023/Q3 are those for July. Sources: Cabinet Office; Ministry of Finance; Bank of Japan. Chart 5 Corporate Sector in Japan Real Exports by Region Real Exports by Type of Goods s.a., 2018/Q1=100 s.a., 2018/Q1=100 United States <18.6> EU <9.5> CY 18 China <19.4> NIEs, ASEAN, etc. <37.1> Other economies <15.4> 23 18 s.a., 2018/Q1=100 s.a., 2018/Q1=100 Intermediate goods <21.8> Motor vehicles and related goods <20.5> IT-related goods <20.2> Capital goods <17.5> CY 18 Notes: 1. Based on Bank staff calculations. Figures in angular brackets show the share of each country or region in Japan's total exports in 2022. Figures for 2023/Q3 are those for July. 2. Figures for the EU exclude those for the United Kingdom for the entire period. Sources: Ministry of Finance; Bank of Japan. 23 18 Note: Based on Bank staff calculations. Figures in angular brackets show the share of each type of goods in Japan's total exports in 2022. Figures for 2023/Q3 are those for July. Sources: Ministry of Finance; Bank of Japan. Chart 6 Private Consumption in Japan Real Private Consumption and Confidence Indicator Consumption Activity Index (CAI, Real) s.a., DI s.a., CY 2015=100 Consumption Activity Index (travel balance adjusted, left scale) Economy Watchers Survey (household activity, right scale) CY 13 Nondurable goods <40.5> Services <50.7> s.a., 2018/Q1=100 s.a., 2018/Q1=100 Durable goods <8.9> CY Notes: 1. Figures for the Consumption Activity Index (CAI) are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. 2. Figures for the Economy Watchers Survey are those for the current economic conditions DI. Sources: Cabinet Office; Bank of Japan, etc. 22 23 18 22 23 Notes: 1. Based on Bank staff calculations. Figures in angular brackets show the weights in the CAI. 2. Nondurable goods include items classified as semi-durable goods in the SNA. Sources: Bank of Japan, etc. Chart 7 Employment and Income Situation in Japan Nominal Wages Employee Income y/y % chg. Special cash earnings (bonuses, etc.) Non-scheduled cash earnings Scheduled cash earnings Total cash earnings y/y % chg. Total cash earnings Number of employees Employee income -2 -1 -2 13/Q1 15/Q1 17/Q1 19/Q1 21/Q1 23/Q1 Notes: 1. Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures for 2023/Q2 are those for June. 2. Figures from 2016/Q1 onward are based on continuing observations. Source: Ministry of Health, Labour and Welfare. -4 13/Q1 15/Q1 17/Q1 19/Q1 21/Q1 23/Q1 Notes: 1. Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures for 2023/Q2 are those for June. 2. Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey) 3. Figures of the Monthly Labour Survey from 2016/Q1 onward are based on continuing observations. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 8 Producer Prices Goods and Services Prices Import Price Index y/y % chg. y/y % chg. Yen basis Contract currency basis PPI SPPI -2 -10 -4 -20 CY 18 -6 CY 15 Note: Figures exclude the effects of the consumption tax hike. Source: Bank of Japan. Source: Bank of Japan. Chart 9 Consumer Prices CPI (Less Fresh Food) CPI (Excluding Temporary Factors) y/y % chg. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY 18 4.5 Mobile phone charges y/y % chg. Goods (less food) 4.0 Effects of travel subsidy programs Food 3.5 Effects of the consumption tax hike and free education policies Energy General services (less housing rent) 3.0 Housing rent (private and imputed rent) Excluding the above factors 2.5 Administered prices CPI (less fresh food) 2.0 CPI (less fresh food and energy) 1.5 1.0 0.5 0.0 Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. -0.5 CY 18 Notes: 1. "Food" excludes fresh food and consists of "agricultural, aquatic, and livestock products" and "food products." 2. "Administered prices" excludes energy prices and consists of public services and water charges. 3. The CPI figures are Bank staff estimates and exclude the effects of the consumption tax hike, free education policies, travel subsidy programs, and changes in mobile phone charges. Source: Ministry of Internal Affairs and Communications. Chart 10 Outlook for Economic Activity and Prices (as of July 2023) y/y % chg. Real GDP CPI (all items less fresh food) (Reference) CPI (all items less fresh food and energy) Fiscal 2023 +1.2 to +1.5 [+1.3] +2.4 to +2.7 [+2.5] +3.1 to +3.3 [+3.2] Forecasts made in April 2023 +1.1 to +1.5 [+1.4] +1.7 to +2.0 [+1.8] +2.5 to +2.7 [+2.5] Fiscal 2024 +1.0 to +1.3 [+1.2] +1.8 to +2.2 [+1.9] +1.5 to +2.0 [+1.7] Forecasts made in April 2023 +1.0 to +1.3 [+1.2] +1.8 to +2.1 [+2.0] +1.5 to +1.8 [+1.7] Fiscal 2025 +1.0 to +1.2 [+1.0] +1.6 to +2.0 [+1.6] +1.8 to +2.2 [+1.8] Forecasts made in April 2023 +1.0 to +1.1 [+1.0] +1.6 to +1.9 [+1.6] +1.8 to +2.0 [+1.8] Note: Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). Source: Bank of Japan. Chart 11 Environment Surrounding Prices Output Prices Inflation Expectations DI ("rise" - "fall"), % points 2.5 y/y, ann. avg., % Market participants (QUICK, 2 to 10 years ahead) Households (over the next 5 years) Firms (5 years ahead) Manufacturing 2.0 Nonmanufacturing 1.5 1.0 -10 -20 0.5 -30 -40 0.0 -50 CY 74 Note: Based on the Tankan. All enterprises. There is a discontinuity in the data for December 2003 due to a change in the survey framework. Source: Bank of Japan. CY 05 Notes: 1. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method for a five-choice question. 2. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: QUICK, "QUICK Monthly Market Survey <Bonds>"; Bank of Japan. Conducting Yield Curve Control (YCC) with Greater Flexibility Chart 12 The Bank judges that sustainable and stable achievement of the price stability target of 2 percent has not yet come in sight, and thus patiently continues with monetary easing. With extremely high uncertainties for economic activity and prices, the Bank enhances the sustainability of monetary easing by conducting YCC with greater flexibility. Conduct of YCC with Greater Flexibility Previous Conduct of YCC 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 Strictly capping 10-year JGB yields % Strictly capping 10-year JGB yields by fixed-rate purchase operations ↓ Range of 10-year JGB yield fluctuations 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 % by fixed-rate purchase operations ↓ Nimbly conducting market operations Reference <not rigid limits> Range of 10-year JGB yield fluctuations Enhancing the sustainability of monetary easing by conducting YCC with greater flexibility If upside risks to Japan's economic activity and prices materialize - Decline in real interest rates - Mitigating the effects on the functioning of bond markets, etc. If downside risks to Japan's economic activity and prices materialize - Decline in long-term interest rates
|
bank of japan
| 2,023 | 9 |
Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at a meeting with business leaders, Osaka, 25 September 2023.
|
ÿ 234536738ÿ9 ÿ99ÿ UMDVÿNWÿRMSMDÿ ÿ ÿÿÿÿ!ÿ ÿ "#$$%&ÿ()ÿ(ÿ*$$)+,-ÿ.+)&ÿ/01+,$11ÿ2$(3$41ÿ+,ÿ51(6(ÿ 789ÿ:;<ÿ =>?$4,>4ÿ>@ÿ)&$ÿ/(,6ÿ>@ÿA(#(,ÿ ÿ BCDEFGHIÿKLMDHFMKGNDÿOMHPQÿNDÿKIPÿRMSMDPHPÿNLGEGDMFTÿ ÿ ÿ 23456789463ÿ ÿÿÿÿÿÿÿÿÿÿÿÿ!ÿ!ÿÿÿ ÿ"ÿ#ÿÿÿÿ$ÿ%ÿÿ!ÿ&ÿÿ&ÿÿÿÿ ÿÿÿÿ"ÿÿÿ!ÿÿ ÿ"ÿÿ'&ÿ"ÿ ()ÿ#ÿÿ*&+ÿ$#+ÿÿ$%ÿ,ÿÿÿ"ÿÿÿ-.ÿ+ÿÿÿ!ÿÿ #ÿ"ÿÿ'&)ÿ/ÿ'ÿÿ-..0+ÿÿÿÿÿÿ&ÿ"ÿÿÿÿ !ÿÿ"ÿÿÿÿ$ÿ#ÿ%ÿÿÿÿÿ!ÿÿÿÿ ÿ!ÿ!ÿÿ#ÿ+ÿÿÿ&ÿ"!ÿÿÿÿÿ ÿÿÿ!%ÿ ÿ '"ÿÿ"ÿ+ÿÿ!ÿ&ÿÿ&ÿ#ÿÿÿ()ÿÿ ÿÿÿÿÿÿ'&)ÿ&ÿÿÿ ÿ"ÿÿ%ÿ ÿ 22ÿ4565378ÿ99636: 9ÿ;94<4=ÿ >?@@ABCÿEFC?GCFHBÿHIÿJKHBHLFKÿMKCFNFCOÿ Qÿÿÿ#ÿ&ÿ#ÿÿÿÿ"ÿÿ ÿÿ(%ÿ()ÿ ÿÿÿ+ÿ!ÿÿRÿ"ÿSÿ+ÿ%%+ÿ ÿÿÿ#ÿÿÿÿ+ÿÿÿ!ÿ"ÿSÿ ÿTUÿVW%ÿ ÿ ÿÿÿ +ÿÿÿÿÿÿÿ+ÿÿ SÿÿÿR+ÿÿ"ÿ ÿÿ!ÿÿÿÿ &ÿTUÿ-W%ÿÿ+ÿ#ÿÿÿÿÿÿÿÿ ÿÿ(ÿÿ#ÿ"%ÿ ÿ ,ÿÿÿÿ +ÿ ÿ"ÿÿ" ÿÿÿÿ ÿÿÿÿÿÿ%ÿÿÿ" ÿ+ÿÿ"#ÿ "" ÿ"ÿÿÿÿ#ÿ +ÿ!ÿ" ÿÿ!ÿ"ÿSÿ ÿ"ÿ +ÿÿÿÿÿÿ%ÿÿÿ+ÿ ÿÿ#ÿÿÿÿÿ#"ÿÿÿTUÿ0W%ÿUÿ"ÿ ÿÿ!ÿ&ÿ"ÿÿXS(ÿYÿ"ÿ-.-0+ÿÿÿÿÿÿÿ 0ÿ 234456789 7ÿ9ÿ946ÿ8344ÿ69ÿ4ÿ284ÿ3ÿ444ÿÿ466ÿ734ÿ96ÿ 69ÿ4ÿ8ÿ9264ÿ ÿ ÿ !"#$ÿ%&ÿ#'ÿ()#)&ÿ +679 7ÿ83ÿ,-.ÿ98ÿ67ÿ+285/ÿ03868ÿ4791ÿ6736ÿ946ÿ3ÿ134ÿ491736ÿ 132ÿ674ÿ289ÿ68ÿÿ99ÿ3663ÿ4ÿ23ÿ69ÿ96ÿ4918ÿ2652ÿ 3ÿ3ÿ67ÿ13ÿ9ÿ422354ÿ9468364ÿ177ÿ73ÿÿ8ÿ99ÿ 8983ÿ49ÿ38ÿ396ÿÿ26ÿ3ÿ678ÿ368ÿ69ÿ96ÿ98ÿ9ÿ5ÿ684ÿ9ÿ 99ÿ9264ÿ368ÿ674ÿ6314ÿ73ÿ44ÿ6ÿ1ÿÿ298636ÿ69ÿ3ÿ 619ÿ2964ÿ ÿ 67ÿ846ÿ94ÿ9264ÿÿ98434ÿ994ÿ+4ÿ369ÿ8364ÿ73ÿ68ÿ69ÿ3ÿ 38ÿÿ67ÿ83ÿ994ÿ9ÿ67ÿ76ÿ86364ÿ3ÿ9678ÿ9684ÿ73ÿÿ8ÿ 3ÿ263694ÿ98ÿ3ÿ496ÿ3ÿ73ÿ776ÿ+6ÿ674ÿ296ÿ7918ÿ369ÿ8364ÿ 38ÿ46ÿ491736ÿ77ÿ836ÿ69ÿ67ÿ683ÿ32ÿ63864ÿ56ÿ4ÿ6ÿ69ÿ286ÿ17678ÿ6ÿ 4ÿ2944ÿ69ÿ363ÿ99ÿ89167ÿ17ÿ8ÿ369ÿ8364ÿ32ÿ91ÿ69ÿ674ÿ 63864ÿ5ÿ67ÿ76ÿ86364ÿ49ÿ36984ÿ4 46ÿ3ÿ496ÿÿ67ÿ398ÿ3826ÿ47ÿ 34ÿ3ÿÿÿ67ÿ8ÿ9ÿ99ÿ924:ÿ9ÿ67ÿ9678ÿ73ÿ134ÿ73ÿ96ÿ69ÿ 891ÿ36ÿ3ÿ77ÿ836ÿ3ÿ678ÿ4ÿ3ÿ294463ÿ6736ÿ67ÿ369ÿ836ÿ1ÿ96ÿÿ34ÿ 7ÿ 34ÿ26ÿ;<7386ÿ=ÿ>6ÿ7386?@ÿ5ÿ369ÿ96ÿ36669ÿ4ÿ138836ÿ9ÿ67ÿ842ÿ 6736ÿ67ÿ236ÿ9ÿ832ÿ6846ÿ836ÿ724ÿ69ÿ36ÿ1ÿ68ÿ96ÿ69ÿÿ436ÿ167ÿ3ÿ3ÿ 9ÿ967ÿ67ÿ83ÿ993ÿ3ÿ67ÿ33ÿ4346ÿA9898ÿÿ36669ÿ4ÿ69ÿÿ23ÿ 69ÿ67ÿ236ÿ6736ÿ9264ÿÿ78ÿ33ÿ9694ÿ73ÿ9ÿ93ÿ33ÿ3ÿ 98ÿ73ÿ38264ÿ67ÿ49191ÿÿ67ÿ23ÿ9ÿ2252ÿÿ67ÿ<74ÿ993ÿ4ÿ 349ÿ9ÿ98ÿ67ÿ86ÿ13244ÿÿ67ÿ993ÿ33ÿÿ366863ÿ69ÿ468683ÿ 36984ÿ47ÿ34ÿ394664ÿÿ67ÿ83ÿ4636ÿ3826ÿ3ÿ3ÿ77ÿ3967ÿ2936ÿ836ÿ ;<7386ÿ=ÿ>876ÿ7386?@ÿ+4ÿ678ÿ4ÿ69ÿÿ77ÿ86364ÿ4889ÿ67ÿ96ÿ 98ÿ99ÿ8983ÿÿ<73ÿ67ÿB32ÿ1ÿ943ÿ9698ÿ9264ÿÿ67ÿ 993ÿ ÿ CDEÿFEGHIJÿKHLIMÿLINHONEFÿPDEMDEQÿRÿNLQMSHSFÿGTGOEÿUQHVÿULQVFWÿKQHULMFÿRIJÿDHSFEDHOJFWÿ LIGHVEÿMHÿMDELQÿFKEIJLIXÿPLOOÿLIMEIFLUTÿLIÿYRKRIZÿ[IÿMDEÿGHQKHQRMEÿFEGMHQ\ÿPLMDÿKQHULMFÿ 0ÿ 234567678ÿ5ÿ68ÿ33ÿ624ÿ53ÿ7ÿ663ÿ33437ÿÿ55678ÿ26ÿÿ 673437ÿ2ÿ23ÿ82 ÿÿ5ÿ673437ÿ2353ÿ ÿ68656567ÿ57ÿ 35276567ÿ7ÿ 3ÿ3ÿ32ÿ337ÿ5ÿ 3ÿ72667ÿ24ÿ37ÿ3457ÿ 3537ÿ2653ÿ7467ÿ6ÿ333ÿÿ7673ÿ67235678ÿ23ÿÿ5ÿ263ÿ67ÿ 6743ÿÿ 3ÿ4437ÿ6ÿ263ÿ263ÿ368678ÿ7ÿ7467ÿ3ÿ33763ÿ 563ÿ52ÿ37678ÿÿÿ5ÿ6678ÿ3457ÿ52ÿ6733763ÿ2ÿÿ523ÿ 3678ÿ323ÿ6ÿ23852ÿÿÿ57ÿ 32ÿ634ÿ 5ÿ53ÿ337ÿ5283ÿ263ÿ672353ÿ !7467ÿÿ77253ÿ8ÿ67678ÿ 33ÿ634ÿ5ÿ337ÿ886ÿ5ÿ5ÿ23ÿ "! 52ÿ#$ÿ% 63ÿ 6ÿ352ÿ5775ÿ2678ÿ52457583437ÿ583ÿ7386567ÿ373ÿ67ÿ 23563ÿ68ÿ583ÿ63ÿ 3ÿ&57ÿ6ÿ5ÿ3ÿ53767ÿÿ 3 32ÿ43ÿÿ672353ÿ 583ÿ6ÿ7673ÿ57ÿ 3 32ÿ3ÿ732677678ÿÿ2653ÿ7467ÿ24ÿ3ÿ6743ÿ 63ÿ6ÿ2378 37ÿ ÿ ''(ÿ*+,-.ÿ/.0.1234.567ÿ,5ÿ89395ÿ ;<=>?@A?BCDÿ?AFÿ;>?BCDÿGHI@DJDKDA>ÿLMÿ>IDÿNO@HDÿ;>?B@C@>PÿQ?ORD>ÿ TUVWXÿZÿ[\]]ÿW^_`ÿWaÿWbUÿWac\dÿaeÿc_\dUfgÿ ÿ hbUÿij`kÿj\lfÿWaÿjdb\UmUÿWbUÿc_\dUÿfWjn\]\WoÿWj_pUWÿaeÿqÿcU_dU`Wÿ\`ÿjÿf^fWj\`jn]Uÿj`rÿfWjn]Uÿ lj``U_Xÿjddalcj`\Urÿnoÿ[jpUÿ\`d_UjfUfgÿhaÿWb\fÿU`rXÿWbUÿea]]a[\`pÿm\_W^a^fÿdod]Uÿ̀UUrfÿWaÿ nUÿ_Uj]\sUrtÿ[jpUfÿ\`d_UjfUÿa`ÿWbUÿnjdkÿaeÿUda`al\dÿ\lc_amUlU`WXÿ]Ujr\`pÿWaÿfW_a`pU_ÿ c^_dbjf\`pÿca[U_ÿaeÿba^fUba]rfXÿj`rÿ\`ÿW^_`ÿc_\dUÿb\kUfÿnoÿe\_lfuÿjfÿjÿ_Uf^]WXÿda_ca_jWUÿ fj]Ufÿj`rÿc_ae\Wfÿ\lc_amUXÿ[b\dbÿnUdalUfÿWbUÿfa^_dUÿaeÿf^ddUff\mUÿ[jpUÿb\kUfgÿvfÿf^dbÿ dod]UÿWjkUfÿfbjcUXÿ\`e]jW\a`ÿUVcUdWjW\a`fÿaeÿe\_lfÿj`rÿba^fUba]rfÿj_UÿUVcUdWUrÿWaÿ_\fUXÿj`rÿ ea_[j_r]aak\`pÿ[jpUÿj`rÿc_\dUfUWW\`pÿnUbjm\a_ÿWbjWÿj`W\d\cjWUfÿda`W\`^Urÿc_\dUÿ\`d_UjfUfÿ \fÿ]\kU]oÿWaÿp_jr^j]]oÿWjkUÿ_aaWgÿhb\fÿ[\]]ÿ_Uf^]Wÿ\`ÿjÿla_Uÿf^fWj\`jn]Uÿm\_W^a^fÿdod]UÿnUW[UU`ÿ [jpUfÿj`rÿc_\dUfgÿ ÿ Z`ÿWb\fÿ_Upj_rXÿf\`dUÿWbUÿ]jWUÿwxxyfÿ\`ÿzjcj`Xÿ\`ÿjÿf\W^jW\a`ÿ[bU_UÿWbUÿl\`rfUWÿj`rÿnUbjm\a_ÿ njfUrÿa`ÿWbUÿjff^lcW\a`ÿWbjWÿ[jpUfÿj`rÿc_\dUfÿ[\]]ÿ`aWÿ\`d_UjfUÿbjmUÿnUU`ÿU`W_U`dbUrÿ\`ÿ fad\UWoXÿ[jpUfÿbjmUÿ`aWÿ_\fU`ÿe\_l]oÿ\`ÿWj`rUlÿ[\Wbÿc_\dUfgÿZ`ÿWbUÿqyyyfXÿj]Wba^pbÿWbU_Uÿ [U_UÿW\lUfÿ[bU`ÿda`f^lU_ÿc_\dUfÿfj[ÿ_U]jW\mU]oÿ]j_pUÿ\`d_UjfUfÿa[\`pÿWaÿb\pbU_ÿdallar\Woÿ c_\dUfXÿ[jpUfÿ[U_UÿfWjp`j`WXÿcj_W]oÿnUdj^fUÿaeÿWbUÿfUmU_UÿdalcUW\W\mUÿU`m\_a`lU`WÿjWÿbalUÿ 0ÿ 234ÿ2678249ÿ78 ÿ ÿ 4ÿ2ÿ838 ÿ2ÿ784ÿ ÿ72ÿ8ÿ372ÿ3ÿ 68 ÿ2ÿ234ÿ7ÿ734ÿ8ÿ6ÿ68 ÿ734ÿ8ÿ8ÿ6ÿ849ÿ ÿ ÿ6ÿ2ÿ672!3ÿ8ÿ8ÿÿ283ÿ234ÿ23ÿÿ78ÿÿ63ÿ2ÿ 234ÿ7ÿ84ÿ6ÿ323ÿ632ÿ68 ÿ87ÿ3442ÿ7 ÿ234ÿ ÿ872ÿ 838 9ÿ"ÿ3ÿ38ÿ 23ÿ7 ÿ343ÿÿ4ÿ8ÿ72ÿ3ÿ7ÿ24ÿ63ÿ 8 2ÿ8 4ÿ8ÿ248ÿ63ÿ72ÿ 2ÿ 2#4ÿ3ÿ89ÿ$ ÿ28ÿ 24ÿ8ÿ6ÿ27ÿ28ÿ268ÿ723ÿ2ÿ3ÿ 2ÿ84ÿ244ÿ8ÿ%4ÿ89ÿÿ7 ÿ 23ÿ672!ÿ8ÿ8ÿ ÿ283ÿ234ÿ 7ÿ7ÿ72ÿ68 ÿ47ÿ ÿÿ6ÿ67ÿ 26ÿ8ÿ73ÿ 7ÿ8ÿ8ÿ2ÿ8 7ÿ 23ÿ3ÿ8ÿ234ÿÿ2ÿ727ÿ8ÿ87ÿ 23ÿ72ÿÿ2ÿ483ÿ3ÿÿ22444ÿ7849ÿ$ ÿ 2ÿ32ÿ 72ÿ23ÿ8873ÿ 2ÿ24ÿ8ÿ 7ÿ7ÿ7849ÿÿ7 ÿ78 8ÿ ÿ8ÿ 48 3ÿ7 7ÿÿÿ%4ÿ 2ÿ ÿ432 ÿ8ÿ ÿ838 ÿÿ6ÿ32349ÿÿ 88!ÿ87274ÿ8ÿ273ÿ87ÿ8383ÿ83ÿÿ27ÿ279ÿ ÿ &'(()*+ÿ-.+'/+.0*ÿ01ÿ2(.3)4ÿ 68ÿÿ ÿ82ÿ3ÿ 34ÿÿ84ÿ!ÿ8ÿ2!ÿ2ÿ88!ÿ2ÿ73ÿ7ÿ48 39ÿ$ ÿ 278327ÿ72ÿ8ÿ372ÿ3ÿ ÿ83 7ÿ7ÿ34%ÿ789ÿ2ÿ ÿÿ7ÿ884:ÿ 274ÿ2723ÿ2ÿ27ÿ773ÿ27834ÿ;ÿ73ÿ2ÿÿ6333ÿ8ÿ ÿ279ÿ$ ÿ 72ÿ8ÿ372ÿ6<3ÿ4724ÿ4ÿ3ÿ27ÿ8ÿ ÿ873 3=ÿ838 ÿ 27ÿ3ÿ483ÿ37ÿ7ÿ6ÿ 2ÿ87ÿ>ÿÿ ÿ2ÿ7ÿÿ2ÿÿ2ÿ ?9ÿ73ÿ78 27ÿ@ÿAÿ27B:9ÿ ÿ $8ÿ87ÿ27ÿ2ÿ87!ÿ634ÿ ÿ7ÿ7ÿ3ÿ2ÿ279ÿ$ ÿ7ÿ87ÿÿ ÿ 2 78ÿ8ÿ ÿ323ÿ7ÿ3ÿ87ÿ7ÿ3ÿÿ8ÿ3ÿ79ÿC88!3ÿ2ÿ 83 7ÿ7ÿ6ÿ ÿ ÿ7ÿ2ÿ63ÿ3826ÿ87ÿ884ÿ234ÿ8 7ÿ ÿ 2ÿÿ2ÿ 27ÿ788783ÿ8ÿ874ÿ8849ÿ$ ÿÿÿ27ÿ 2ÿ ÿ7ÿ87ÿ2ÿ473ÿ ÿ8ÿ ÿ7ÿ7ÿ8ÿ429ÿ$ 2ÿ24ÿ ÿ87ÿÿ2ÿ63ÿ4ÿ6ÿ ÿ 8727ÿ8!ÿ8ÿ 372ÿ3ÿ87ÿ7ÿ ÿ6ÿÿ327ÿÿ23ÿ329ÿ7 ÿ2ÿ63ÿ 23ÿ83ÿ8ÿ372ÿ8ÿ3ÿ7ÿ8ÿ2ÿ727ÿ%3ÿ 23ÿ3ÿ ÿ2ÿ234ÿÿÿ7ÿ 2ÿ ÿ3283ÿ72ÿ2ÿ63ÿ268ÿÿ73ÿ87ÿ2ÿ78834ÿ784ÿ8ÿ9ÿD87ÿÿ 0ÿ 234456ÿ89ÿ 9ÿ5ÿ6ÿ326ÿ3549ÿ636ÿ334ÿ92545ÿÿ259ÿ65ÿ3294ÿ69ÿ29ÿ 6386ÿ6396ÿ4ÿ3ÿ634389ÿ34ÿ6389ÿ3449ÿ ÿ 9ÿ9ÿ65ÿ394ÿ969ÿ6ÿÿ259ÿ65ÿ3294ÿ69ÿ29ÿ6386ÿ6396ÿÿ69ÿ9254ÿ 529ÿ2ÿ25ÿ6 9ÿ69ÿ65ÿ229ÿ896994ÿ39ÿ34ÿ29ÿÿ529ÿ254294ÿ !"ÿ969ÿ69ÿ9234ÿ998ÿ39ÿ42939ÿ54ÿ69ÿ832ÿ5ÿ925452ÿ59946ÿ 934ÿ65ÿ59369ÿ43654ÿÿ694694ÿ34ÿ#"ÿ969ÿ53$554ÿ39ÿ34ÿ 29ÿ9664ÿ636ÿ3462369ÿ69ÿ29ÿ42939ÿÿ4ÿ64ÿ89259ÿ993ÿ%4ÿ6ÿ 93ÿÿ8935ÿ3ÿ89 4ÿ65ÿ6ÿ59ÿ653ÿ34ÿ39ÿ34ÿ29ÿ4ÿ59ÿ 3926ÿ92946ÿ34ÿÿ949ÿÿ636ÿ6ÿ9254ÿ529ÿÿ3 3ÿ6364ÿ65ÿ39ÿ34ÿ 326ÿ54ÿ29ÿ%4ÿ69ÿ5ÿ39ÿ9664ÿ34ÿÿ39ÿ69ÿ65ÿ3ÿ59ÿ63692ÿ 3532ÿ65ÿ926ÿ34ÿ9634ÿ9599ÿ& 4ÿ69ÿ3443ÿ4ÿ385$3439946ÿ39ÿ 49563654ÿ34ÿÿ39ÿ69ÿ39ÿ56ÿ369ÿ36ÿ6ÿ69ÿ3ÿ5ÿ344ÿ34ÿ 9 9ÿ4ÿ9264ÿ49ÿ3 369ÿ%4ÿ3 654ÿ69ÿ385ÿ396ÿ5ÿ58ÿ2349ÿ9'2 4ÿ 82ÿ95946ÿ929ÿ3ÿ9'349ÿ3ÿ59ÿÿ39ÿ39ÿ$9 9ÿ956ÿ65ÿ 926ÿ659ÿ4ÿ$2399ÿ3ÿ9 3ÿ9599ÿ34ÿ2596654ÿ59ÿ34ÿ9529ÿ3ÿ 89259ÿ59ÿ46949ÿ(6ÿ925452ÿ3266ÿ92594ÿ34ÿ385ÿ5639ÿ54ÿ ÿ99ÿ65ÿ39ÿ92549ÿ69ÿ6263ÿ9ÿ636ÿ2546346ÿ54ÿ385ÿÿ39ÿ 9ÿ65ÿ6694ÿ 9ÿ4ÿ36ÿ65ÿ9532ÿ2349ÿ ÿ %4ÿ3 654ÿ699ÿ39ÿ8994ÿ49ÿ995946ÿ4ÿ59ÿÿ3532ÿ65ÿ9664ÿ94ÿ 29ÿ)59ÿÿ9569ÿ636ÿ6ÿ655ÿ69ÿ5ÿ69ÿ65ÿ39ÿ29ÿ36ÿ93ÿ969ÿ9ÿ 256ÿ429ÿ69ÿ3ÿ456ÿ39ÿ94ÿ29ÿ5ÿ3ÿ54ÿ69ÿ34ÿ329ÿ69ÿ45$5ÿ65ÿ5ÿ 5ÿ*599ÿ2349ÿ4ÿ6ÿ63654ÿ39ÿ8994ÿ994ÿ92946ÿ6ÿÿ94ÿ29ÿ 59ÿ9+946ÿ,5959ÿ699ÿ39ÿ8994ÿ59ÿ65ÿ96ÿ29ÿ636923-ÿ456ÿ54ÿ39ÿ ÿ99269ÿ46ÿ29ÿ4ÿ94ÿ29ÿ86ÿ69ÿ35ÿ39ÿ3569ÿ5ÿ9'39ÿ 432ÿ24ÿ99ÿ69ÿ2349ÿ29ÿ9944ÿ54ÿ69ÿ954ÿ5ÿ69ÿ5ÿ3ÿ)59ÿ ÿ39ÿ35ÿ6369ÿ65ÿ96ÿ29ÿ4ÿ3ÿ53$554ÿ3449ÿ4ÿ2ÿ69ÿ39ÿ39ÿ 94ÿ29ÿ4ÿ34623654ÿ5ÿ69ÿ256ÿ42939ÿ2ÿ3ÿ4ÿ69ÿ5ÿ39ÿ256ÿ)2ÿ 995946ÿ3346ÿ36694654ÿ3ÿ56346ÿ2349ÿ636ÿ 96ÿ3ÿ6549ÿ439ÿ 896994ÿ39ÿ34ÿ29ÿ ÿ 0ÿ 2345667ÿ96ÿ ÿ ÿÿÿÿÿÿÿÿ!"ÿ#ÿ$%&!ÿ'%!ÿ!%ÿ!ÿ%ÿÿ(%ÿ%ÿ !)ÿÿ!ÿÿ)%*%+ÿ!ÿ(ÿÿ!ÿÿÿÿ!*ÿ,ÿ!+)ÿ ÿ-!ÿ+ÿ'ÿ%)!ÿ%*ÿ!"ÿ#ÿ!ÿÿ..ÿ%(+,ÿÿ!ÿÿÿ %!!.)ÿÿ!ÿ%!!ÿ..ÿ%!ÿ'ÿ*ÿ'+ÿ(ÿ!,ÿ%*ÿÿ+%..+%ÿ%ÿÿ %!ÿÿ!ÿ!ÿ%!ÿ*%*ÿ%ÿ%)ÿ%ÿ%ÿÿÿ(**ÿÿ%!ÿ+%ÿ /0%ÿ1ÿ2)ÿ%34"ÿ5)ÿÿ!ÿÿ!ÿ%+ÿ%*ÿ'+ÿ*-(!ÿÿ %%ÿ((*+ÿ!,ÿÿ'%!%+ÿ!ÿ6*ÿÿ)%*%+ÿ%"ÿ7ÿÿÿ %*,ÿÿ(!&ÿ%).ÿ%*ÿ.!)ÿ'%-ÿ!ÿÿ%),ÿÿ!ÿ6*ÿ%ÿÿ !*ÿÿ..ÿÿ%)ÿ)ÿ% %!ÿ)ÿÿ(ÿ(-(,ÿ%*)ÿÿ (*%ÿ%ÿ..ÿÿ!)"ÿ ÿ 9%-)ÿ(%*ÿÿÿ!ÿ6%!,ÿÿ(!ÿ%**ÿ%ÿÿ%ÿ6(+ÿ)ÿ %!ÿ!*)ÿÿ'%!ÿ!%,ÿ%*ÿ%,ÿ%ÿ!ÿ,ÿÿ!ÿ%ÿÿ ÿÿ'%ÿ"ÿ:-,ÿÿ6%(,ÿ%ÿÿÿ'ÿ!!ÿ(ÿÿ%**%ÿ%'ÿ!+ÿ ÿ;%%,ÿ%+ÿ*ÿÿ*()%ÿ%)!,ÿÿ!(!ÿ)+ÿ+ÿ%,ÿÿÿ(+ÿ !ÿÿ(-,ÿ(ÿ-ÿ(%ÿ!!ÿÿ'(ÿ(ÿ!ÿ%*ÿ %)ÿ)ÿÿ!"ÿÿ%,ÿ%ÿ'%-ÿ(%+ÿ%)ÿ%!ÿ%ÿ6*"ÿ7ÿÿ ÿ%*,ÿÿ%)(ÿ%ÿÿ%!ÿ!*%'ÿ(ÿÿ%ÿ*%(%ÿ%)ÿÿ%ÿ *%%+ÿ(*!ÿÿ%ÿÿÿ%!ÿ'(ÿ*ÿ!ÿ%!ÿ!%!-"ÿÿ %**,ÿÿ%ÿ)%-ÿ!ÿÿÿ ,ÿÿÿ;%%ÿÿ%'%*,ÿ!ÿ*ÿ*!ÿÿ (((ÿÿÿ%)!ÿ%ÿ%-ÿ!%*ÿÿ'ÿ'!-*ÿ%*ÿÿ%)!ÿ%*ÿ!ÿÿ%ÿ !%ÿÿ+ÿ*ÿÿ%!ÿ%!+"ÿ<ÿ(%+ÿ(!ÿ*)ÿ=*)(ÿ%ÿÿ ((ÿ%'ÿÿÿÿÿ%-+ÿ)ÿ%)ÿ!ÿ6ÿ+%ÿ%*ÿ'+*,ÿÿ !ÿ!!%+ÿÿ6%(ÿÿ6ÿÿÿ %)!ÿÿ%).!)ÿ'%-ÿ%ÿ !!%%'"ÿ ÿ >>>?ÿABCÿDEFGHIÿJKFLMNOÿKPÿQKFCOERSÿTKUVNSÿ W6,ÿÿÿ6%ÿÿ$%&!ÿ*ÿÿ(%+ÿ+"ÿ ÿ 5!ÿÿ(*ÿ%,ÿÿÿ!%ÿ!ÿ%ÿ%)!ÿ%-ÿ!%*ÿÿ'ÿ!ÿÿ!(ÿ %!!ÿÿ(!&ÿ%).ÿ%*ÿ.!)ÿ'%-,ÿ'ÿÿ%ÿ6(+ÿ)ÿ 0ÿ 234567893795ÿ8ÿ7ÿ 5756ÿ755ÿ4835ÿ 9ÿ545ÿ 95658ÿ3ÿ79ÿ9728793ÿ75ÿ 83ÿ25ÿ787ÿ2789385ÿ83ÿ785ÿ84955537ÿÿ75ÿ6945ÿ78997ÿ78657ÿÿÿ564537ÿ 8448395ÿÿ85ÿ9346585ÿ8ÿ37ÿ57ÿ45ÿ93ÿ97ÿ883 ÿ543ÿ8ÿ537565ÿ8ÿ 4697948ÿ85ÿ93ÿ756 ÿÿ6589!93ÿ8ÿ96722ÿ445ÿ57553ÿ85ÿ83ÿ6945ÿ83ÿ87ÿ9ÿ 967837ÿ87ÿ79ÿ85ÿ9ÿ7ÿ48652ÿ3267265ÿ75ÿ2ÿÿ4835ÿ93ÿ75ÿ543ÿ85ÿ3ÿ 79ÿ8 5 537ÿÿ75ÿ9728793ÿ75ÿ83 ÿ894ÿ79393ÿ3ÿ75ÿ43247ÿÿ 35786ÿ94ÿ 9ÿ787ÿ97ÿ9ÿ3545 86ÿ7ÿ879537ÿ4379325ÿ 97ÿ 35786ÿ5893ÿ2356ÿ75ÿ685 6ÿÿ 95ÿ4265ÿ4376ÿ ÿ # 556ÿ95ÿ75ÿ4266537ÿ685 6ÿ6ÿ5593ÿ3$756ÿ9375657ÿ6875ÿ87ÿ ÿ55ÿ8ÿ 8ÿ93994837ÿ7922ÿ5547ÿ3ÿ75ÿ543ÿ97ÿ8 ÿ486695ÿ75ÿ 9997ÿÿ62493ÿ 763ÿ95ÿ5547ÿ93ÿ4567893ÿ85ÿ%56565ÿ7893ÿ27265ÿ234567893795ÿ937ÿ844237ÿ83ÿ 76993ÿ8ÿ88345ÿ57553ÿ 9795ÿ5547ÿ83ÿ95ÿ5547ÿ8 ÿ75ÿ83ÿ7ÿ2625ÿ75ÿ 5547ÿÿ 35786ÿ5893ÿ2356ÿ75ÿ4266537ÿ685 6ÿ&6ÿ79ÿ5654795ÿ87ÿ75ÿ ' 35786ÿ(94ÿ'55793ÿ5ÿ93ÿ2ÿ75ÿ83ÿ5495ÿ7ÿ8937893ÿ97ÿ78657ÿ55ÿÿ )*$586ÿ88355ÿ563537ÿ3ÿ+,-ÿ95ÿ87ÿ.8623ÿ!56ÿ564537.ÿ83ÿ75ÿ 24728793ÿ6835ÿÿ755ÿ95ÿ87ÿ.8623ÿ2ÿ83ÿ932ÿ*/ÿ56453785ÿ937ÿ6ÿ75ÿ 78657ÿ55.ÿ 95ÿ97ÿ5495ÿ7ÿ8 ÿ75ÿ7ÿ 5ÿ53ÿ75ÿ*/ÿ564537ÿ23ÿ 55393ÿ3ÿ8657ÿ439793ÿ658693ÿ75ÿ256ÿ83ÿ 56ÿ23ÿÿ75ÿ6835ÿ8ÿ 65565345ÿ37ÿ8ÿ699ÿ997ÿ93ÿ97ÿ8657ÿ568793ÿ+0867ÿ1-ÿ%9ÿ9ÿ85ÿ3ÿ75ÿ 8 5 537ÿ787ÿ9ÿ2 86ÿ 5537ÿ93ÿ6945ÿ4379325ÿ8775793ÿ7ÿ76947ÿ55ÿ 3$756ÿ9375657ÿ6875ÿ87ÿ ÿ55ÿ42ÿ8547ÿ75ÿ23479393ÿÿ3ÿ8657ÿ83ÿ75ÿ 87997ÿ93ÿ756ÿ9383498ÿ8657ÿÿ5955ÿ787ÿ4324793ÿ95ÿ4265ÿ4376ÿ 97ÿ 658756ÿ529997ÿ8ÿ8ÿ75ÿ5547ÿÿ5383493ÿ75ÿ278938997ÿÿ 35786ÿ5893ÿ 2356ÿ75ÿ4266537ÿ685 6ÿ ÿ 3456789:45ÿ %8ÿÿ85ÿ785ÿ827ÿ654537ÿ54394ÿ83ÿ6945ÿ55537ÿ83ÿ75ÿ83 ÿ43247ÿ ÿ 35786ÿ94ÿÿ 2ÿ95ÿ7ÿ43425ÿÿ554ÿÿ72493ÿ3ÿ75ÿ6595 ÿÿ 35786ÿ94ÿ6ÿ8ÿ68ÿ5654795ÿ94ÿ583ÿ93ÿ<69ÿ ÿ 0ÿ 2345673ÿ93ÿ4 ÿ93ÿÿÿ95ÿ ÿ9ÿ6497ÿ5ÿ93ÿ59 ÿ9ÿÿ ÿ9ÿ5ÿ456ÿ65 95ÿ594ÿ5ÿ 64ÿ9ÿ3ÿ59ÿÿ93ÿ 9ÿÿÿ95ÿ7ÿ739ÿ939ÿ ÿÿ66ÿ54ÿ6964ÿ5ÿ569ÿ349ÿ!"#ÿ$ÿ 46ÿ59ÿÿ5697ÿ93ÿ4 ÿÿ95ÿ 69ÿ93ÿ594ÿ5ÿ 64ÿ59ÿÿ 595ÿ69ÿÿ93ÿ59%9ÿ5ÿ9495ÿ 93ÿ&'ÿ55ÿ595ÿ9ÿ3ÿ59ÿÿ 9 #ÿ(9ÿÿ5ÿ4ÿ95ÿ7ÿÿ 4ÿ6497ÿ5ÿ93ÿ45ÿ3ÿÿ 45 9ÿ ÿ33ÿ4ÿÿ59ÿ4ÿÿ49ÿÿ&#ÿ ÿ (ÿ45 7ÿ 93ÿ93ÿ4 ÿ9ÿÿ5499ÿ95ÿ54549ÿ 4ÿ%49ÿÿ3ÿ 93ÿ4 'ÿ5*9 9ÿÿ944#ÿ236ÿ67ÿ93ÿ954ÿ5ÿ9ÿ+ ÿ,ÿÿ 43ÿ93ÿÿ 56ÿÿ95ÿ646ÿ576ÿ 93ÿ4#ÿ25ÿ5ÿ449ÿÿ 6ÿ554969ÿ95ÿ%37ÿ ÿ 93ÿ6ÿ4ÿÿ93ÿ-ÿ475#ÿ(ÿ56ÿ 49ÿ347ÿ564ÿÿ55ÿ5ÿ95ÿ63ÿÿ&'ÿ55ÿ9 9ÿÿ 4ÿ37ÿÿ54549ÿ3 54ÿÿ93ÿ59 ÿ9ÿÿÿ9ÿ5ÿ93ÿ'ÿ 456ÿ5ÿ 64ÿ5 4ÿ93ÿ9ÿ./ÿ4#ÿ ÿ 23ÿ56ÿ 4ÿ63ÿ54ÿ564ÿ9995#ÿ 0ÿ %2&'(ÿ)&4*ÿ&+ÿ,&136*ÿ-./)* 0$1ÿ!ÿ!ÿ234ÿ53ÿ67377ÿ8!97ÿ3ÿ:7!"! 012314516ÿ89ÿ88 ÿ ÿÿÿ!"ÿÿ#!$! ;&36+)3/& ;< %2&'(ÿ)&4/)ÿ)3/=/3* ;;<-6/)1ÿ1=1.241&3(ÿ/&ÿ%2& ;;;<>?1ÿ@&A'(ÿB&+)3ÿCÿ,&136*ÿ-./)* B&).(/& %ÿ4 &ÿ'()ÿ*+ÿ,- !ÿ"#$ 392 ÿÿ 46 40 43 ÿ ÿ &ÿ'()ÿ*+ÿ,- $-ÿ+( %ÿ5 =>?@ABCDE>?ÿGHDEIEDJÿK?LMN OABPMQÿ>RÿK?P>A?LÿSE@ED>Q@ 442 ÿ5241ÿTÿ422 ;ÿÿ(-ÿ+( ÿ7%%ÿ- 43 47 48 49 41 52 54 55 56 ÿ( 63 ÿ*ÿ+ (ÿ%ÿ./ÿ ÿ/ÿ%ÿ0 ,*,1 1&* % 46 40 43 47 48 49 41 52 54 55 56 1ÿ4ÿ&ÿ%ÿ2%/ÿ%ÿ0ÿÿÿÿ(-ÿ+(ÿÿ%ÿÿ+(ÿ,-ÿ&/3ÿ4-ÿÿ/5/6ÿ /ÿÿ ÿ ÿ7%%ÿ3/ÿ/ +ÿ+(ÿ/ÿ/ÿ/ÿ+ÿ+( 5ÿ&ÿ%ÿ0%2%/ÿ%ÿ0ÿÿ*(ÿ%ÿ./ÿ ÿ/ÿ%ÿ0ÿ/ÿ ÿ/5+ÿ ÿ8 9ÿÿ'(:ÿ'(ÿ1 ÿ;+ÿ0<ÿ4'1;6 ÿR\ÿM#ÿXIK ST736/2ÿ*);ÿU63;<+/(3)ÿ ÿL 5<660)/ÿU634(/2 "ÿ7 V<2()022ÿ'(T0;ÿ:)W02/10)/ 71 ÿK 581 ÿ6161ÿÿ511 59 KAKÿZÿ"% [567Z [20Z D9 D51 X ÿ Y ÿI#ÿ D59 ÿ ÿ$ÿKÿÿ$ÿ" R ÿIKÿ$ÿ"ÿK D61 121455575952546567 121455575952546567 @12 14 55 57 59 52 54 65 67 !ÿ5ÿ ÿ"ÿ# ÿ"ÿ$%ÿÿ&ÿÿ"'()*)+(*,ÿ./*/010)/2ÿ./*/(2/(+2ÿ34ÿ536736*/(3)2ÿ89ÿ:);<2/69=ÿ><*6/06,9 ÿ ÿ?$ÿ ÿ?ÿ@%ÿ$#ÿ6114AB6ÿ Cÿ ÿÿ"%ÿ# 6ÿ ÿ"ÿ%"D" ÿ"ÿ$%ÿÿ&ÿÿ"ÿE*)F*)ÿ %ÿ$Cÿ ÿGHÿI#ÿ ÿ %ÿ ÿ"%ÿÿGHÿI#ÿÿÿ ÿ&$ÿ "ÿJ"ÿ6152ÿIKÿ@%ÿÿ$ÿÿ ÿ %ÿ$ÿ L!ÿJKÿ$ÿM#KÿNÿ ÿ KOÿJKÿ$ÿ@OÿPQÿ$ÿR "ÿ8 ÿR\ÿM#ÿXIK aKÿYÿ$ÿ"ÿ@!ÿ]5^bIÿM# c*d02ÿ*);ÿU6(+02ÿ()ÿ/e0ÿf)(/0;ÿ./*/02 51 KAKÿZÿ"% XI%ÿ"Kÿ% #ÿÿ]ÿ#^ L!ÿ̀IOÿM 5e()020ÿg0*,ÿS2/*/0ÿh*6F0/ KAKÿZÿ"% 79 31 KAKÿZÿ"% ÿÿ]$ÿÿ$ÿ^ _ÿÿÿÿ Kÿ]%"ÿ^ 71 D61 D81 D01 14 55 57 59 52 54 65 67 98ÿ#\4ÿ)11ÿ22 K3ÿD124ÿ1ÿ23ÿ(235ÿ+<ÿH1431ÿ%321 P8Q:5/;ÿR-.S7MN/Q-.ÿ62ÿT2N; 2ÿU LMN1-2;;ÿO.?-M; U Bÿ[ÿ8 & $ @ $ 01ÿC34 03ÿ1ÿ31334 & +212ÿ4ÿ34< )133ÿ13 Z3ÿ3133ÿ13 U Y7 7$ 7& 7U 7A 7V 7W 7X @ 7 $ 7U 488Yÿ@7Xÿ!ÿ7@@ %334 7@ '3ÿ114 77U 77@ 013ÿ114 7@U 7@@ XU X@ WU W@ VU V@ AU Y7X @ $ 012345ÿ78ÿ9ÿ23ÿ32ÿ2ÿ34ÿ3ÿ43ÿ1ÿ23ÿ3ÿ1421ÿ22ÿ938ÿ 8ÿ9ÿ23ÿ2ÿ2ÿ7ÿ!ÿ""ÿÿ!ÿ#342ÿ$ÿ!ÿ%32330133ÿ&ÿ!ÿ'333(38ÿ)133ÿ13ÿ!ÿ*12ÿ4ÿ34ÿ+,-./012ÿ456-78 978:;2<ÿ= 03ÿ1ÿ31334ÿ+456-78>-8?;ÿ978:;2<8ÿ(34ÿ1ÿ@7AB7ÿ1Cÿ3ÿ43ÿ1ÿ12ÿ143214ÿ11Cÿ23ÿ43ÿ3414ÿ1ÿ23ÿ,-./012ÿ 456-78978:;28ÿ(34ÿ1ÿ3ÿ3133ÿ13ÿ3ÿ43ÿ1ÿ42 ÿ214ÿ4ÿ23ÿD9ÿ+344ÿ23ÿ32<8 %1345ÿEFÿ1ÿ#Gÿ"42ÿ1ÿH32ÿI1ÿJ33Gÿ"42ÿ1ÿ923ÿ 4ÿÿ12148 2ÿA 998ÿD3ÿ'331324ÿÿ# 143ÿD34ÿÿ912ÿD34 R-.S7M;8ÿP8Q?;S OMN-8/ÿP8Q?;S U B[ÿ8 *31ÿ214 & ) 3 (11ÿ124 ]114ÿ+344ÿ11ÿ124< $ %334 D9ÿ+344ÿ34ÿ11< D9ÿ+344ÿ34ÿ11ÿÿ33< 8ÿ@$ A@ Bÿ[ÿ1 12ÿ34ÿ328 ^&8$[ ) 3ÿ234 U@ 912ÿ ^$87[ &@ $@ @ 7@ @ @ Y7X U 7@ @ $ @ Y7 $ 012345ÿ78ÿ9ÿ23ÿ32ÿ2ÿ34ÿ1ÿ231ÿ214ÿ3ÿ42 ÿ342234ÿÿ1442ÿ1ÿ13ÿ13ÿ34ÿÿ23ÿ3 324ÿ1ÿ23ÿ1421ÿ2ÿF3ÿ134ÿ13ÿ23ÿ 141ÿ1ÿ33ÿ321ÿÿ23ÿ44ÿ148ÿ 8ÿ9ÿ23ÿ2ÿ2ÿ23ÿ1221ÿ1ÿ34ÿÿ112ÿ34ÿ328ÿ4ÿ23ÿ4ÿ34ÿÿ23ÿ12ÿ3ÿ3ÿ1ÿÿ1223ÿ448ÿ* 3ÿ1221ÿ1 34ÿÿ33ÿ234ÿ4ÿ23ÿ4ÿ23ÿ333ÿ32C33ÿ23ÿ3ÿ1ÿÿ3ÿ44ÿÿ22ÿ1ÿÿ122ÿ3ÿ448ÿ %1345ÿ"42ÿ1ÿ923ÿ 4ÿÿ1214GÿEFÿ1ÿ#8 A
|
bank of japan
| 2,023 | 9 |
Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at the 2023 Autumn Annual Meeting of the Japan Society of Monetary Economics, Fukuoka, 30 September 2023.
| null |
bank of japan
| 2,023 | 10 |
Speech by Mr Asahi Noguchi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Okinawa, 12 October 2023.
|
October 12, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Niigata NOGUCHI Asahi Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Developments at Home and Abroad I will begin my speech by talking about recent economic developments at home and abroad. Currently, Japan's economy seems to be approaching a significant turning point with the reopening of the economy from the COVID-19 pandemic, in that moves to realize a virtuous cycle between prices and wages, which has been a longstanding challenge for the economy, have gradually been observed. The economy has been trapped in sluggish growth in prices and wages since the bursting of the bubble economy in the 1990s. Nevertheless, the high inflation observed overseas since spring 2021 has started to affect Japan, and accordingly, the year-on-year rate of increase in Japan's consumer price index (CPI) for all items less fresh food has continued to exceed 2 percent since spring 2022. In this situation, wage growth has become the highest in 30 years, following the 2023 annual spring labor-management wage negotiations. The major focal point at this time is whether the momentum of such wage growth will be sustained. Turning to overseas economies, many countries and regions have continued to see moderate economic slowdown, as the high inflation caused by the post-pandemic normalization of economic activity has finally begun to be subdued. Specifically, in the United States and Europe, inflation rates reached around 8 to 10 percent in 2022 (Chart 1). Central banks in these economies have rapidly raised their policy interest rates in order to contain high inflation (Chart 2). Until very recently, interest rates and foreign exchange rates in the markets had sometimes been highly volatile because there remained considerable uncertainty as to what extent central banks would continue monetary tightening to contain persistently high inflation (Chart 3). That said, as far as the economic situation across countries and regions shows, I believe that the path toward bringing down inflation to the target level has started to come into sight at last. If high inflation can be subdued without the need for central banks to conduct additional policy interest rate hikes by a large margin, the risk of a hard landing, which had been a matter of concern, will likely decrease, despite the moderate economic slowdown continuing for some time (Chart 4). Meanwhile, Japan's economy has recovered moderately with the progress in overcoming the pandemic, as evidenced by the fact that the GDP for the January-March quarter of 2023 increased by 3.2 percent, and that for the April-June quarter also rose by 4.8 percent, both on an annualized quarter-on-quarter basis (Chart 5). A breakdown by GDP component shows that, while the rise in the January-March quarter can mostly be explained by an increase in domestic demand, the rise in the April-June quarter was due mainly to a surge in net exports offsetting the negative contribution from domestic demand components such as private consumption. It seems that the surge in net exports was brought about by (1) a recovery in production and exports of automobiles on the back of abating of supply-side constraints, an expansion in inbound tourism demand reflecting the easing of COVID-19 border controls as well as the yen's depreciation, (3) a shift from imported goods to domestic goods due to the yen's depreciation, and (4) robustness in overseas economies. As I have explained, overseas economies, albeit slowing, have remained robust. Against this background, attention has suddenly been drawn to the risk of the Chinese economy falling into deflation, or so-called Japanification. In Japan's case, after the bursting of the asset bubble, the economy fell into prolonged deflation with deterioration in the balance sheets of firms, financial institutions, and households, which made them restrain private-sector investment and consumption. It is still uncertain whether the Chinese economy is actually on the verge of being trapped in such a situation. Nonetheless, it is true that (1) the real estate industry, which has been the backbone of the country's economic growth, has faced difficulties; (2) the unemployment rate has risen, mainly among the younger generation; and (3) the country's inflation has been low recently. Therefore, close monitoring is warranted of future developments in the Chinese economy, including fiscal and monetary policy measures taken by the country's authorities. B. Price Developments Turning to Japan's price developments, the year-on-year rate of increase in the CPI for all items less fresh food exceeded 2 percent for April 2022 and reached around 4 percent for December and January. Since then, it has fallen to around 3 percent, due partly to a decline in energy prices owing to the government's support measures (Chart 6). As I have described, inflationary pressure, which reflects the effects of higher import prices caused by global inflation, has finally started to show signs of subsiding recently. Nevertheless, the inflationary pressure has turned out to be stronger than expected, as indicated by the fact that the projected year-on-year rate of increase in the CPI for all items less fresh food for fiscal 2023, presented in the Outlook for Economic Activity and Prices (Outlook Report), was raised from 1.8 percent in April to 2.5 percent in July (Chart 7). This is because a pass-through to selling prices of raw material cost increases has continued across a wide range of goods, especially food and daily necessities, despite prices of imported raw materials having already started to decline (Chart 8). Since the effects of import price rises are projected to gradually dissipate as the pass-through of cost increases peaks out, the year-on-year rate of change in the CPI is expected to fall toward the second half of fiscal 2023. After this fall comes to a halt, in order to achieve the price stability target of 2 percent in a sustainable and stable manner, the following factors are indispensable, as I will elaborate on later. First, nominal wages must continue rising at a pace clearly exceeding 2 percent, and this must be established as a lasting trend. Second, as a result, the zero price and wage norm that has been entrenched in Japan must be dispelled. In this regard, there are important implications in the highest level of wage increases in 30 years achieved in the 2023 annual spring labor-management wage negotiations. II. Monetary Policy A. Conduct of Yield Curve Control with Greater Flexibility Let me now turn to the Bank of Japan's policy conduct. With the aim of achieving the price stability target of 2 percent, the Bank introduced quantitative and qualitative monetary easing (QQE) in April 2013. Thereafter, in order to enhance monetary easing while responding to developments in economic activity and prices, it introduced QQE with a Negative Interest Rate in January 2016, and QQE with Yield Curve Control in September that year. Under this so-called yield curve control policy, the Bank set the target level of 10-year Japanese government bond (JGB) yields at around zero percent, and the market yields were initially in the range of around plus and minus 0.1 percent. In July 2018, the Bank decided that it would allow the yields to move upward and downward, mainly depending on developments in economic activity and prices, with a specific figure of about double the range of around plus and minus 0.1 percentage points in mind. Moreover, in March 2021, the Bank made clear that the range of 10-year JGB yield fluctuations from the target level would be between around plus and minus 0.25 percentage points. With a view to strictly capping the yields, it also introduced fixed-rate purchase operations for consecutive days, through which it conducts the fixed-rate purchase operations consecutively for a certain period of time and purchases an unlimited amount of JGBs at fixed rates. In December 2022, the Bank further expanded the range of 10-year JGB yield fluctuations to between around plus and minus 0.5 percentage points. In this way, the Bank has been expanding the range of 10-year JGB yield fluctuations from the target level. This is because, while long-term interest rates need to be kept stable at low levels in order to achieve the 2 percent price stability target, holding down these rates could affect market functioning. In fact, the impact on market functioning became a major concern for some time in 2022. As long-term interest rates rose in various countries along with an acceleration of global inflation, from spring 2022, 10-year JGB yields also remained at around 0.25 percent -- the upper bound of the yield curve control policy at the time. Subsequently, the Bank actively took measures, such as the fixed-rate purchase operations, thereby preventing a surge in long-term interest rates, which could have hindered Japan's economic recovery. At the same time, these measures caused marked distortions in the yield curve. Following the expansion of the range of 10-year JGB yield fluctuations under yield curve control in December 2022, however, these distortions have almost dissipated, with interest rates declining globally in spring 2023 (Chart 9). Furthermore, the Bank decided in July 2023 to continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level, and at the same time to regard the upper and lower bounds of the range as non-rigid limits; it also raised the upper bound of the yields to be strictly capped through the fixed-rate purchase operations from 0.5 percent to 1.0 percent (Chart 10). This expanded range of 10-year JGB yield fluctuations implies that the Bank conducts yield curve control with greater flexibility. That said, when 10-year JGB yields exceed the upper bound of the range and fall between 0.5 percent and 1.0 percent, the Bank will hold down the yields moderately through the nimble conduct of market operations, depending on factors such as the levels and the pace of change in long-term interest rates. Given that the Bank will contain excessive rises in interest rates when the rises are not accompanied by changes in such factors as inflation expectations, conducting yield curve control with greater flexibility does not imply an unwinding of monetary accommodation. The Bank decided at this time to conduct yield curve control with greater flexibility in view of the inherent nature of the yield curve control policy because it will become difficult to maintain the policy without a forward-looking response. If 2 percent inflation takes hold in Japan's economy and a rise in the policy interest rate is bound to happen, long-term interest rates will naturally rise as the markets factor in the future path of the policy interest rate. Should the Bank attempt to forcibly hold down 10-year JGB yields at that point, the yield curve will inevitably be distorted significantly. Moreover, there is a possibility that speculative attacks will occur frequently in the markets, aimed at going beyond the upper bound of 10-year JGB yields, and in the worst case, the Bank could face difficulties in maintaining the yield curve control policy itself. Thus, at a time when inflation expectations are starting to rise, a certain degree of flexibility is required in order to continue with monetary easing under the yield curve control policy. B. Monetary Easing and Central Bank Balance Sheets The Bank has set two aims in the forward guidance it has pursued since September 2016; to continue with QQE with Yield Curve Control as long as it is necessary for maintaining the price stability target of 2 percent in a stable manner, and (2) to continue expanding the monetary base until the year-on-year rate of increase in the observed CPI for all items less fresh food exceeds 2 percent and stays above the target in a stable manner. The ongoing expansionary trend of the Bank's balance sheet under this policy guidance has been subjected to some criticism, in that the Bank will face difficulties in conducting monetary tightening to curb inflation when it becomes necessary. My conclusion is that such criticism is not necessarily warranted. Many major central banks, including the Bank of Japan, significantly expanded their balance sheets as a result of making a shift to a large-scale asset purchase policy to address the lower bound of policy interest rates in the wake of the Global Financial Crisis and the COVID-19 pandemic (Chart 11). In this situation, these overseas central banks are currently pursuing monetary tightening by substantially raising their policy interest rates, while taking some time in making adjustments to their balance sheets through quantitative tightening. This differs from when conventional monetary policy was implemented; in that framework, money market rates were used as policy interest rates and were guided and maintained solely by means of money market operations. Now, policy interest rates are determined and guided mainly by means of applying interest rates to current account balances held by financial institutions at central banks, so that policy interest rate control and balance-sheet adjustments are conducted independently. As long as the current high inflation persists globally, central banks will likely continue to reduce the size of their balance sheets, while at the same time raising policy interest rates. On the other hand, it is also possible that the current high inflation will subside while central banks maintain sizeable balance sheets. In that case, for the time being, central banks will not return to the conventional monetary policy framework, under which money market rates are guided and maintained through money market operations, given that the size of balance sheets is determined passively. III. Path toward Achieving Economic Growth through Price Stability A. Effects of Global Inflation and Underlying Inflation Trend To date, a number of central banks have raised policy interest rates to curb high inflation caused by further normalization of economic activity. Meanwhile, in many countries and regions, supply-side constraints have eased and pent-up demand has now run its course. Inflation rates, which had been accelerating, have finally started declining. Even now, however, many countries and regions are still seeing inflation well above the targets set by their respective central banks, and they have made it clear that they will continue with monetary tightening until they achieve their inflation targets. The impact of global inflation reached Japan as well, with the year-on-year rate of increase in the CPI for all items less fresh food continuing to exceed the Bank of Japan's price stability target of 2 percent since spring 2022. Unlike other central banks, however, the Bank has consistently maintained monetary easing. The reason is that the Bank sees current inflation as basically due to the impact of higher import costs and considers that the underlying inflation trend based on domestic macroeconomic factors has not yet risen sufficiently. The underlying inflation trend needs to remain stable at around 2 percent in order to achieve the Bank's price stability target of 2 percent in a sustainable and stable manner -- even after the impact of higher import prices disappears completely. To that end, it is necessary above all for nominal wages to continue rising at a level consistent with the 2 percent price stability target.1 This is because, if there is a given uptrend in nominal wages, this will contribute to higher prices, mainly for services, and thus, there will also tend to be a given uptrend in general prices. This is why the Bank made clear in its forward guidance in April 2023 that, by patiently continuing with monetary easing, it aims to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. B. Significance of Achieving Both Price Stability and Economic Growth As I have just outlined, major central banks around the world, including the Bank of Japan, have been conducting monetary policy with the aim of achieving and maintaining a situation in which the year-on-year rate of increase in consumer prices is stable at around 2 percent, albeit with differences in their policy directions. This stance is based on the experience of various countries to date and the insights of experts. Namely, a certain degree of mild inflation taking hold as a trend is considered desirable in order to achieve both price stability and economic growth. Thus, high inflation, deflation, and excessively low inflation are all deemed undesirable. The reason why many major central banks have continued with monetary tightening at this point is that current inflation in a large number of countries and regions is considered to be the result of excess demand outstripping the economy's potential production capacity, which is mainly constrained by labor supply. Implementing further economic stimulus measures under these circumstances will merely result in higher inflation and will not induce a higher level of production. Moreover, excessively high inflation carries its own economic Since the real wage growth rate is virtually identical to the labor productivity growth rate over the long term, if the labor productivity growth rate is 1 percent, adding 2 percent to that value yields a value of 3 percent, which will be the nominal wage growth rate consistent with the 2 percent price stability target. However, the labor productivity growth rate is fundamentally determined after incorporating the efforts of individual private-sector firms, such as research and development and improvements in business and production processes, and thus its value cannot be determined in advance. inefficiencies. Inflation basically means the impairment of the value of the currency upon which various economic transactions are based. Thus, from the perspective of maintaining stable conduct of economic transactions, it can be considered desirable to keep the inflation rate as low as possible, unless this impedes long-term economic growth. Central banks are particularly concerned about the second-round effects of inflation -- in which continued high inflation becomes incorporated into inflation expectations and this drives further increases in nominal wages -- and about the setting off of a wage-price spiral through these effects. In the 1970s, this actually occurred in many advanced economies, a situation which the respective policy authorities found very challenging to deal with. It is likely that one major objective of the monetary tightening that many central banks have pursued to date has been to avoid being forced into a similar situation again.2 On the other hand, deflation and excessively low inflation are also undesirable in terms of achieving sustainable economic growth. An overview of macroeconomic trends in Japan to date makes this abundantly clear. Following the bursting of the asset bubble in the 1990s, Japan's economy remained sluggish for a long period. The most distinctive phenomenon that occurred at the time was disinflation, where the inflation rate declines, followed by deflation, or a drop in prices. From the late 1990s to the 2000s in particular, the decline in nominal wages exceeded that in prices, so that real wages continued on a downtrend, as Japan's economic growth rate became sluggish and the unemployment rate rose (Chart 12). Since around 2013, when the Bank began large-scale monetary easing, the issue of deflation, in the sense of a sustained decline in prices, has almost been resolved. Moreover, the unemployment rate has fallen due to improved labor market conditions, and nominal wages are at least no longer continuing to decline. However, the zero price and wage norm, which I will talk about later, has been deeply entrenched. That is, at least up until immediately before While the United Kingdom has continued to experience high inflation, the Bank of England's Monetary Policy Committee noted on this point that there was "the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge." For details, see, https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2023/august-2023. the outbreak of the pandemic, neither the CPI inflation rate nor the nominal wage growth rate reached even 1 percent in a stable manner. C. The Necessity of Achieving the 2 Percent Price Stability Target Taking into account Japan's experience just outlined, I consider it necessary for consumer prices to continue to see a steady increase of around 2 percent, so that stable economic growth will continue and people's real wages will keep rising steadily. This is because an excessively low inflation rate that remains at around 0 percent further reinforces the inherently strong rigidity or stickiness of prices and wages, and this can hinder economic efficiency and growth potential. Firms' price-setting behavior often reflects a strong tendency to avoid price hikes as far as possible.3 Especially during Japan's period of economic stagnation from the 1990s, there were growing instances of price hikes leading directly to sales declines. Many firms thus came to prioritize a stance of maintaining selling prices by holding down wage costs.4 This seems to have caused the zero price and wage norm -- the generally accepted idea that both prices and wages do not usually rise -- to take root thoroughly among firms and households. It is easy to see the strong upward price rigidity taking root in Japan by comparing with other advanced economies, where growth in consumer prices has tended to be higher. For example, when comparing the price change distribution by item between Japan and the United States, there is a significant difference in both the position of the peak of the distribution and its dispersion, particularly for the pre-pandemic period in September 2019 (Chart 13). Specifically, in Japan, many items cluster around the point where the rate of change in prices is 0 percent, and the degree of concentration is high. By contrast, in the United States, the largest number of items cluster around the rate of increase in prices of about 2 percent, but This phenomenon has long been explained using the concept of a kinked demand curve. The idea behind this is that firms adopt strategies to counter their competitors, so-called strategic complementarity. See Koga, M., Yoshino, K., and Sakata, T., "Strategic Complementarity and Asymmetric Price Setting among Firms," Bank of Japan Working Paper Series, no.19-E-5 (March 2019). This corporate behavior can be observed as markdowns. See Aoki, K., Hogen, Y., and Takatomi, K., "Price Markups and Wage Setting Behavior of Japanese Firms," Bank of Japan Working Paper Series, no. 23-E-5 (April 2023). the degree of concentration is low, and the overall dispersion of price changes is significant. Currently, the overall distribution of price changes for both Japan and the United States has shifted to the right, reflecting higher inflation. A market economy essentially brings about the efficient use of production resources, including labor force, by the appropriate adjustment of prices of goods and services in response to various changes or shocks that occur on both the supply and demand sides. Therefore, the presence of the strong price rigidity seen in Japan suggests that there may be structural inefficiencies in the allocation of resources through quantity rationing, such as in order quantity adjustments. Moreover, the upward rigidity of prices and nominal wages implied by the zero price and wage norm also suggests a structural distortion in income distribution. If the rates of increase in prices and nominal wages are 0 percent despite an increase in labor productivity, the rate of increase in real wages will also be 0 percent. This means that workers will receive none of the benefits of increased productivity. In fact, during the pre-pandemic period of the 2010s in Japan, even though labor productivity per hour rose by about 1 percent on average and corporate profits trended upward, increases in real wages did not readily follow suit. Furthermore, deflation or excessively low inflation can negatively affect the potential growth rate of an economy, in terms of its long-term growth potential. The theory of high-pressure economics argues that, in order to improve productivity in an economy as a whole through aggressive labor-saving investment by firms, a sufficient degree of labor market tightening and an accompanying sufficient rise in inflation are necessary. The theory also argues that, on the other hand, a deflationary or low-inflation environment is more likely to induce a sluggish potential growth rate via contraction in investment and a delay in productivity improvement. In fact, from the 1990s in Japan, amid deflation and low inflation, privatesector investment was sluggish and the savings-investment balance in the private sector -which is normally in the red, indicating inadequate funds -- was constantly in the black, indicating a surplus of funds (Chart 14). During this period, the potential growth rate continued to trend downward more than the change in labor input (Chart 15). D. Conditions for a Shift from the Zero Price and Wage Norm The challenge now for Japan is whether 2 percent inflation can be achieved in a sustainable and stable manner, accompanied by wage increases. For this to happen, it is necessary to change the zero price and wage norm -- the generally accepted idea that prices and wages do not rise -- which became entrenched in Japan as the country underwent deflation and low inflation. There are three essential conditions for this norm to change. The first is progress in firms' pass-through of cost increases. The second is nominal wage increases that clearly exceed 2 percent. And the third is the entrenchment of expectations for wage growth that can keep up with inflation. Regarding the first condition, firms' price pass-through can be judged as making faster progress than expected on the whole, as evidenced by the ongoing uptrend in the CPI. It is true that there is a persistent view that small and medium-sized firms face difficulties in sufficiently passing on higher costs to prices. However, the situation clearly appears to be improving, given the initiatives such as the Partnership Building Declaration under the leadership of the government, which aims to support firms to coexist and mutually prosper with their clients. Further progress in the price pass-through is critical, because without this it will be difficult to achieve the second condition, which is nominal wage increases that clearly exceed 2 percent. For firms, wage increases that outstrip improvements in labor productivity lead directly to a decline in profits. Therefore, it is extremely challenging for firms to implement wage increases that exceed a rise in labor productivity if they cannot pass wage hikes on to prices. Rather, firms in that situation will increasingly tend to implement wage markdowns -- which indicate a gap between firms' marginal revenue product of labor and wages -- by holding down labor costs in response to higher raw material costs so that they can contain the rise in selling prices. In the current cost-push phase of inflation in Japan, firms are mostly carrying out price pass-through instead of cutting labor costs. This is because labor market conditions are already quite tight, so that firms are facing the difficulty of lowering labor costs by cutting wages or shifting to non-regular workers, which were methods used by many firms during Japan's deflationary period. Regarding the second condition of nominal wage increases that clearly exceed 2 percent, there has been considerable progress, especially since the turn of 2023 (Chart 16). In the 2023 annual spring labor-management wage negotiations, firms raised base pay by 2.12 percent; when combined with an increase in regular salaries, this represents a 3.58 percent increase. Before the outbreak of the pandemic, patient monetary easing in Japan helped to expand labor demand and improve labor market conditions, so that the unemployment rate and the active job openings-to-applicants ratio improved to nearly the most advantageous levels observed during the bubble economy. Despite this, nominal wage increases were slow to materialize. One possible reason for this is that, while firms found it difficult to pass on wage hikes to prices, they tended in particular to refrain from increasing the wages of regular employees, who are less likely to leave their jobs. The rapid increase in the momentum for wage hikes since the start of 2023 can be attributed to the so-called big push caused by the shock of a surge in import prices just at a time when labor market conditions were already sufficiently tight. The third condition for changing the zero price and wage norm is not only households' medium to long-term inflation expectations rising to 2 percent but also expectations being entrenched among households that wage increases will continue to exceed that level. Household inflation expectations have been steadily rising due to price increases since 2022 (Chart 17). However, if prices continue to rise while wages do not, households will have no choice but to reign in their real consumption. In fact, recent developments in private consumption suggest that the tendency to curb real consumption because of rising prices has become somewhat stronger (Chart 18). This tendency of households to curb consumption will probably continue until real wages rise in such a way that wage growth can keep up with inflation and households gain confidence that this wage growth will continue. In resolving this issue, what is critical first and foremost is for the real wage growth rate, which is currently negative, to turn positive, as factors pushing up import prices subside and firms make further progress in raising wages. The Bank's mission for the time being is to help bring about this situation as swiftly as possible by continuing with patient monetary easing. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Niigata October 12, 2023 NOGUCHI Asahi Member of the Policy Board Bank of Japan Chart 1 High Inflation in the United States and Europe United States Germany United Kingdom y/y % chg. y/y % chg. CPI CPI CPI -5 CY 1980 y/y % chg. -5 CY 1980 -5 CY 1980 Note: Figures for Germany prior to the reunification of the country are those for the former West Germany. Figures for the United Kingdom prior to 1989 are from "A millennium of macroeconomic data" compiled by the BOE, and those from 1989 onward are from Office for National Statistics (ONS) data. Sources: BOE; OECD; ONS. Chart 2 Policy Interest Rates in the United States and Europe % United States Euro area United Kingdom -1 CY 18 Note: Figures for the United States are the medians of the target ranges for the federal funds rate. Those for the euro area are the rates on the deposit facility. Sources: BIS; BOE; ECB; FRB. Chart 3 Developments in Financial Markets 10-Year Government Bond Yields % U.S. Dollar/Yen and Euro/Yen Japan United States Germany yen U.S. dollar/yen Euro/yen Yen depreciation Yen appreciation -1 CY13 Source: Bloomberg. CY13 Chart 4 IMF Forecasts for Global Growth Major Economies' Growth Rates Global Growth Rate y/y % chg. y/y % chg. IMF forecasts CY 2020 CY 2021 CY 2022 CY 2023 [Forecast] -2.8 6.3 3.5 3.0 3.0 -4.2 5.4 2.7 1.5 1.4 United States -2.8 5.9 2.1 1.8 1.0 Euro area -6.1 5.3 3.5 0.9 1.5 United Kingdom -11.0 7.6 4.1 0.4 1.0 Japan -4.3 2.2 1.0 1.4 1.0 -1.8 6.8 4.0 4.0 4.1 World Advanced economies 1990-2019 average: +3.6% -1 Emerging market and developing economies -2 CY 2024 [Forecast] -3 China 2.2 8.4 3.0 5.2 4.5 -4 India -5.8 9.1 7.2 6.1 6.3 ASEAN-5 -4.4 4.0 5.5 4.6 4.5 -5 -6 CY 00 02 04 06 08 10 12 14 16 18 20 22 24 Note: Figures are as of July 2023. Source: IMF. Chart 5 Real GDP Level Annualized Quarterly Growth Rate s.a., ann., tril. yen s.a., ann., q/q % chg. -5 -10 -15 Domestic demand -20 Net exports -25 Real GDP -30 CY 08 -35 Source: Cabinet Office. CY 20 Chart 6 Consumer Prices y/y % chg. 22/Q1 Q2 Q3 Q4 23/Q1 Q2 23/July August CPI for all items 0.9 2.4 2.9 3.9 3.6 3.3 3.3 3.2 Less fresh food 0.6 2.1 2.7 3.7 3.5 3.3 3.1 3.1 Less fresh food and energy -0.9 0.9 1.5 2.8 3.5 4.2 4.3 4.3 Energy 1.4 1.3 1.3 1.2 0.3 -0.6 -0.8 -0.9 Food products 0.3 0.5 0.7 1.2 1.3 1.5 1.6 1.7 General services -1.3 -0.1 0.1 0.4 0.6 0.7 0.9 0.9 (Reference: contribution to the CPI for all items less fresh food) Source: Ministry of Internal Affairs and Communications. Chart 7 Forecasts of the Majority of the Policy Board Members (as of July 2023) Note: Figures in brackets indicate the medians of the Policy Board members' forecasts (point estimates). Source: Bank of Japan. Chart 8 CPI for Goods and Services Goods (Less Petroleum Products) 3.5 General Services (Less Mobile Phone Charges) contribution to y/y chg. in consumer prices, % points 3.5 Daily necessities, etc. Apparel Durable goods Food products Agricultural, aquatic, and livestock products CPI for goods (less petroleum products) 3.0 2.5 2.0 contribution to y/y chg. in consumer prices, % points 3.0 Other 2.5 Eating out 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 Housing rent Culture and recreation Services related to domestic duties CPI for general services (less mobile phone charges) -0.5 -0.5 CY 19 CY 19 Notes: 1. Figures are the contribution to year-on-year changes in the CPI (less fresh food and energy). Figures are Bank staff estimates and exclude the effects of the consumption tax hike, policies concerning the provision of free education, travel subsidy programs, and the reduction in mobile phone charges. 2. In the right panel, figures for services related to domestic duties include services related to housing repairs and maintenance. Source: Ministry of Internal Affairs and Communications. Chart 9 JGB Yield Curves 2.0 % December 19, 2022 (first day of December 2022 MPM) 1.8 January 17, 2023 (first day of January 2023 MPM) July 27, 2023 (first day of July 2023 MPM) 1.6 Latest (October 5, 2023) 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 0 1 year Source: Bloomberg. 9 10 residual maturity Chart 10 Conducting Yield Curve Control (YCC) with Greater Flexibility The Bank judges that sustainable and stable achievement of the price stability target of 2 percent has not yet come in sight, and thus patiently continues with monetary easing. With extremely high uncertainties for economic activity and prices, the Bank enhances the sustainability of monetary easing by conducting YCC with greater flexibility. Conduct of YCC with Greater Flexibility Previous Conduct of YCC Strictly capping 10-year JGB yields 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 % Strictly capping 10-year JGB yields 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 by fixed-rate purchase operations ↓ Range of 10-year JGB yield fluctuations Outlook for Prices y/y % chg. food and energy) +2.5 ↓ 2.5 % +3.2 Forecasts made in Apr. 2023 +1.8 +2.5 Fiscal 2024 +1.9 +1.7 Forecasts made in Apr. 2023 +2.0 +1.7 Fiscal 2025 +1.6 +1.8 Market participants Economists Households Firms Forecasts made in Apr. 2023 +1.6 +1.8 - Decline in real interest rates 1.0 - Mitigating the effects on the functioning of bond markets, etc. 0.5 CY 08 Reference <not rigid limits> Range of 10-year JGB yield fluctuations If upside risks to Japan's economic activity and prices materialize 1.5 0.0 Nimbly conducting market operations Enhancing the sustainability of monetary easing by conducting YCC with greater flexibility Inflation Expectations CPI (Reference) (all items less 2.0 CPI fresh food) (all items less fresh Fiscal 2023 % by fixed-rate purchase operations Note: Figures for market participants, economists, households, and firms are from the QUICK Monthly Market Survey, the ESP Forecast, the Opinion Survey on the General Public's Views and Behavior, and the Tankan Note: Figures indicate the medians of the Policy Board members' (Short-Term Economic Survey of Enterprises in Japan), respectively. forecasts (point estimates). If downside risks to Japan's economic activity and prices materialize - Decline in long-term interest rates Chart 11 Central Bank Balance Sheets Level 1,400 1,200 1,000 Ratio to Nominal GDP end of CY 2006=100 Japan Euro area Australia United States United Kingdom Canada % Japan Euro area Australia United States United Kingdom Canada CY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 CY 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Note: Figures for the United Kingdom until September 2014 are for total assets; from October 2014, they are for the sum of the main components of assets. Sources: Data from central banks and statistical authorities; Haver. Chart 12 Major Economic Indicators CPI, Real GDP, and Unemployment Rate y/y % chg. inverted, % CPI and Wages y/y % chg. Nominal wages Real GDP (left scale) Real wages CPI (less fresh food, left scale) Unemployment rate (right scale) CPI (less fresh food) -2 -2 -4 -6 CY 85 -4 -6 CY 85 Note: Figures for the CPI (less fresh food) exclude the effects of consumption tax hikes. In the right panel, figures for nominal wages and real wages from 2016 onward are based on continuing observations following the sample revisions. Sources: Cabinet Office; Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 13 Distribution of Consumer Price Changes Japan United States share of the number of items, % share of the number of items, % August 2023 August 2023 September 2019 September 2019 -10 or less -5 or more y/y % chg. -10 or less -5 or more y/y % chg. Note: Figures for Japan are based on items excluding fresh food and energy. Those for the United States are based on items excluding energy. Sources: Ministry of Internal Affairs and Communications; U.S. Bureau of Labor Statistics. Chart 14 Savings-Investment Balance in Japan tril. yen Excess savings Corporate sector Household sector General government Domestic savings-investment balance Excess investment -20 -40 -60 -80 FY 85 Source: Bank of Japan. Chart 15 Potential Growth Rate in Japan y/y % chg. Total factor productivity Capital input Labor input Potential growth rate -1 -2 FY 85 Note: Figures are Bank staff estimates. Source: Bank of Japan. Chart 16 Wage Increases in Spring Wage Negotiations y/y % chg. Base pay increase Total wage increase -1 CY 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Sources: Central Labour Relations Commission; Japanese Trade Union Confederation (Rengo). Chart 17 Inflation Expectations 2.5 y/y, ann. avg., % Market participants (QUICK, 2 to 10 years ahead) Economists 1 (6 to 10 years ahead) Economists 2 (7 to 11 years ahead) Households (over the next 5 years) Firms (5 years ahead) 2.0 1.5 1.0 0.5 0.0 CY 05 Notes: 1. "Economists 1" shows the forecasts of economists in the Consensus Forecasts. "Economists 2" shows the forecasts of those surveyed for the ESP Forecast. 2. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method for a 5-choice question. 3. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: Consensus Economics Inc., Consensus Forecasts; Japan Center for Economic Research (JCER), ESP Forecast; QUICK, QUICK Monthly Market Survey (Bonds); Bank of Japan. Chart 18 Real Private Consumption in Japan Consumption Activity Index s.a., Jan. 2018=100 Private Consumption by Type s.a., Jan. 2018=100 Non-durable goods Services Real Consumption Activity Index Nominal Consumption Activity Index CY 18 CY 18 Notes: 1. In the left panel, figures for the Consumption Activity Index are travel balance adjusted. 2. In the right panel, figures are based on the real Consumption Activity Index. Source: Bank of Japan.
|
bank of japan
| 2,023 | 10 |
Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at a meeting with business leaders, Nagoya, 6 November 2023.
|
November 6, 2023 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya UEDA Kazuo Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Tokai region. I would like to take this chance to express my sincerest gratitude for your cooperation with the various activities of the Bank of Japan's Nagoya Branch. I look forward to exchanging views with you today. In order to deepen its understanding on the positive effects and side effects of the unconventional monetary policy measures that have been implemented over the past 25 years, and to gain insights that will be useful for future policy conduct, the Bank has been reviewing monetary policy from a broad perspective. In proceeding with the review, it has been exchanging views with people in various fields. I would appreciate hearing your candid opinions today on topics such as Japan's economic activity and prices, changes in corporate behavior, and the positive effects and side effects of the Bank's various policy measures over the past 25 years. Before hearing from you, I would like to talk about developments in Japan's economic activity and prices and explain the Bank's thinking on the conduct of monetary policy, while outlining the latest Outlook for Economic Activity and Prices (Outlook Report), which was released last week. I. Economic Developments Current Situation of Economic Activity and Baseline Scenario of the Outlook Let me start by talking about economic developments. Japan's economy has recovered moderately. It is likely to continue recovering, and in the latest Outlook Report, the Bank projects that the economy will grow at a relatively high rate of 2.0 percent for fiscal 2023 and then continue growing at a rate of around 1 percent for fiscal 2024 and 2025, which is somewhat above its potential growth rate (Chart 1). Looking at the corporate sector, although exports have been weak for IT-related and other goods amid the lack of momentum in overseas economies, exports overall have been at higher levels than before the pandemic, mainly on the back of a rise in automobile-related exports, which reflects a waning of supply-side constraints for semiconductors (Chart 2). In this situation, corporate profits have marked a new record high, mainly due to the normalization of domestic economic activity and to progress in the pass-through of cost increases to selling prices. The expansion in profits has spread to business fixed investment. The plans for such investment for fiscal 2023 in the September Tankan (Short-Term Economic Survey of Enterprises in Japan) indicate that investment is likely to increase clearly, by around 10 percent from fiscal 2022 (Chart 3). Looking ahead, the corporate sector is expected to continue to see improvement, as a virtuous cycle operates in which improvement in corporate profits leads to a rise in business fixed investment. Turning to the household sector, private consumption has been on an increasing trend, reflecting the materialization of pent-up demand, i.e., demand that had been suppressed during the pandemic. It should be noted that, although wage hikes have been achieved through the annual spring labor-management wage negotiations, the pace of increase in private consumption has been moderate so far, with price rises continuing (Chart 4). As for the outlook, pent-up demand is projected to gradually slow, but it is expected that wages will continue increasing firmly in reflection of high prices, and that an underpinning of private consumption from wage increases will become evident. Risks Surrounding Economic Activity However, there are extremely high uncertainties surrounding this baseline scenario. One major risk concerns overseas economies. Although the International Monetary Fund (IMF) projects in its latest World Economic Outlook (WEO) that the global economy will continue growing at a moderate rate of around 3 percent, each economy faces downside risks. In advanced economies, inflation rates have been declining but are still somewhat high relative to central bank targets. In the United States in particular, as the economy has continued to see firm developments, long-term interest rates have risen significantly since summer, with market participants expecting prolonged monetary tightening. In addition, it is possible that the impact of rapid policy interest rate hikes in advanced economies to date will turn out to be significant, with a time lag, on both the real economies and financial systems. Given this, due attention needs to be paid to the impact of this risk on global financial and foreign exchange markets. Attention is also warranted on whether or not the Chinese economy will lose its recovery momentum as it faces structural issues such as adjustments in the real estate market. Moreover, it is necessary to keep an eye on the risk of upward pressure being exerted on prices of commodities, including grains, due to factors such as geopolitical risks surrounding Ukraine and the Middle East. On the domestic front, with progress in the pass-through of the rise in import prices to consumer prices, attention continues to be warranted on the risk that wage increases will not catch up with inflation and private consumption will be constrained as a result. In fact, with regard to food and other items that have seen large price increases, households' defensive attitudes toward spending -- such as shifting demand toward inexpensive products -- have been observed. In order for private consumption to remain resilient even after pent-up demand slows, it is necessary that wages and prices rise in a well-balanced manner, which I will elaborate on later. II. Price Developments Current Situation of and Outlook for Prices: Upward Revisions Attributable to the First Force I will now turn to price developments in Japan. In the latest Outlook Report, the Bank projects that the year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food will remain high at 2.8 percent for fiscal 2023 and 2024 and then be at 1.7 percent for fiscal 2025 (Chart 5). The projected rates of increase in this CPI for fiscal 2023 and 2024 are higher than those presented in the July Outlook Report. Two forces are at work behind the inflation rate remaining relatively high for the time being. The first force is inflationary pressure resulting from the pass-through of the rise in import prices to consumer prices. The rise in import prices, including of energy and grains, has spread to consumer prices with a time lag. The second force is inflationary pressure associated with the mechanism whereby wages and prices interact and increase on the back of continuing economic improvement. The main reason why the Bank, in its latest Outlook Report, significantly revised upward its CPI forecasts for the period through fiscal 2024 is that, of those two forces, it deemed that the first force will persist. With regard to food and daily necessities in particular, while the pass-through of the past rise in import prices to selling prices has diminished for some items and industries, some firms have decided to newly raise their selling prices as price hikes have spread, including among their competitors. Moreover, assuming that the effects of pushing down energy prices from the government's economic measures will dissipate next spring, the recent rise in crude oil prices will exert inflationary pressure, mainly for fiscal 2024. It should be noted that the year-on-year rate of increase in import prices, which have been the driver of the first force, decelerated after reaching a peak in the middle of last year, and the rate of change has been negative since around spring this year. In addition, the rate of increase in producer prices has clearly slowed since the beginning of the year, and the year-on-year rates of increase in prices of items such as food and daily necessities at supermarkets and other retail stores have started to decelerate recently (Chart 6). Taking these points into account, the effects of the first force pushing up prices are likely to gradually wane, even if a rise in crude oil prices, for example, causes that process to take time. Based on this thinking, the Bank projects that the year-on-year rate of increase in the CPI for all items excluding fresh food for fiscal 2025 will be lower than that for the period through fiscal 2024. The Second Force and Sustainable and Stable Achievement of the Price Stability Target That said, the projected year-on-year rate of increase in the CPI for fiscal 2025 is at 1.7 percent for all items excluding fresh food and at 1.9 percent for all items excluding energy in addition to fresh food. The Bank projects that, even after the first force diminishes, the inflation rate will not return to the range of 0.0-1.0 percent, which was the pre-pandemic level. This is because the Bank expects that underlying CPI inflation will increase gradually toward 2 percent as the second force pushing up prices -- namely, the virtuous cycle between wages and prices -- strengthens. The Bank has been aiming to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases, as the second force strengthens. Recently, some aspects of firms' behavior have begun to shift more toward raising wages and prices. On the wage side, the wage growth rate agreed in this year's annual spring labor-management wage negotiations marked the highest level in 30 years, partly on the back of price rises. As for price setting, some firms in industries where personnel expenses account for a large proportion of costs have reported that they have raised prices in anticipation of a continued increase in personnel expenses. Looking at the Tankan, figures for firms' outlook for output prices for one year ahead have declined because raw material costs have settled down, while those for five years ahead have increased somewhat, particularly for the nonmanufacturing industry. This suggests that firms may have started to expect that there will be a continued increase in costs such as wages. In addition, mediumto long-term inflation expectations have risen moderately, which seems to have influenced firms' wage- and price-setting behavior (Chart 7). In this situation, the likelihood of realizing the outlook for achieving the price stability target of 2 percent seems to be gradually rising. However, as there are high uncertainties over the extent to which the second force will strengthen, sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point. Mainly due to the experience of prolonged low growth and deflation, the behavior and mindset based on the assumption that wages and prices will not increase easily have been entrenched in Japanese society, continuing to make it difficult for the second force to take effect. It is necessary to closely examine whether changes in firms' wage- and price-setting behavior will become widespread and the virtuous cycle between wages and prices will intensify. I would like to raise two points that may be crucial in making such an examination. The first point concerns whether wage hikes will continue and take hold in society. In particular, next year's annual spring labor-management wage negotiations are an important aspect of the examination, and it is necessary to closely monitor developments in these negotiations. Regarding the environment surrounding wages, labor market conditions have steadily tightened. The Tankan shows that the net "insufficient" in the diffusion index (DI) for employment conditions has expanded to a level close to its pre-pandemic peak. As the labor market for regular employees looking for new jobs has expanded, it may have become easier for the effects of the tightening of labor market conditions to spill over to wages (Chart 8). Corporate profits, which are the source of wage hikes, have marked a new record high on the whole. However, the pace of improvement in profits varies across industries and firm sizes. Some firms, especially small and medium-sized firms, have reported that they had raised wages this year at a time when their profitability was not necessarily adequate. It is thus unclear whether these firms will continue with moves to raise wages next year. The Bank will examine changes in firms' wage-setting behavior by continuing to assess developments in labor market conditions and corporate profits, and by carefully analyzing corporate behavior using both macro data and anecdotal information. The second point concerns whether firms' stance will shift more toward raising their selling prices while taking account of increases in costs such as wages. In order for the virtuous cycle between wages and prices to be realized, firms need to stably secure profits as a source for future wage hikes. As I pointed out earlier, there have been new developments in some firms' price-setting behavior. However, many argue that, unlike raw material costs, increases in wages and other indirect costs are difficult to pass on to selling prices. The Bank needs to monitor developments going forward to see if changes in firms' price-setting behavior will become widespread. III. The Bank's Conduct of Monetary Policy Basic Thinking on the Conduct of Monetary Policy Now, I would like to talk about the Bank's conduct of monetary policy. As I have explained thus far, the Bank's projection that underlying CPI inflation will increase is based on the expectation that the virtuous cycle between wages and prices will intensify. In this regard, it is encouraging to see that some aspects of firms' behavior have begun to shift more toward raising wages and prices. However, as I mentioned earlier, it is still unclear whether the virtuous cycle will intensify as expected. In this situation, the Bank's basic thinking on the conduct of monetary policy is that it will patiently continue with monetary easing under the framework of yield curve control, aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases. Conduct of Yield Curve Control Meanwhile, in order to patiently continue with monetary easing under the framework of yield curve control, it is necessary to strike a balance between the economic stimulus effects stemming from strictly keeping long-term interest rates at low levels and the resulting side effects. Based on this thinking, the Bank decided to modify the conduct of yield curve control at the Monetary Policy Meeting held last week. Specifically, while the Bank maintained the target level of 10-year Japanese government bond (JGB) yields at around zero percent, it decided to conduct yield curve control with the upper bound of 1.0 percent for these yields as a reference and to control the yields mainly through large-scale JGB purchases and nimble market operations. Operations through which the Bank offered to purchase an unlimited amount of 10-year JGBs at 1.0 percent every business day were ceased. These decisions were made because, with extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank judged it appropriate to increase the flexibility in the conduct of yield curve control, so that long-term interest rates will be formed smoothly in financial markets in response to future developments (Chart 9). In a phase where upward pressure is exerted on interest rates, strictly capping long-term interest rates could affect the functioning of bond markets and the volatility in other financial markets. The modification of the conduct of yield curve control is likely to contribute to mitigating such side effects. Even in this modified conduct of yield curve control, the Bank will continue with large-scale JGB purchases and, in a phase of rising interest rates, will keep making nimble responses through market operations depending on factors such as the levels and the pace of change in long-term interest rates. Therefore, the Bank deems that 10-year JGB yields are unlikely to be significantly above 1 percent even if upward pressure is exerted on them. Although long-term interest rates could rise somewhat, real interest rates, which are adjusted by inflation expectations, are important in capturing the effects of monetary policy on economic activity and prices. As I explained earlier, since last year, inflation expectations have risen moderately and, despite an increase in long-term interest rates, real interest rates have continued to be negative. As real interest rates are likely to remain so, sufficiently accommodative financial conditions are expected to be maintained. Concluding Remarks In closing, I would like to touch on the Tokai region's economy from a medium- to long-term perspective. Let me first comment on the progress with innovation. The Tokai region has been Japan's important base for monozukuri (manufacturing) and its competitiveness has been supported by constant innovation, which has seen new developments recently. For instance, as the electrification of vehicles progresses, major changes have started to take place in the automobile industry, including its supply chains, with technologies that could transform the industry itself being launched one after another. In addition, numerous firms and local governments have been collaborating on, for example, building supply chains for hydrogen and ammonia as well as carrying out experiments with a view to creating demand for these fuel sources. Moreover, firms in cutting-edge industries, including the robotics industry, have been gathering in the Tokai region, with active support from local governments. It is encouraging to see such efforts being made to ensure that the region continues to be a wellspring of innovation for Japan. Furthermore, the Tokai region has been attracting attention for a theme park that aims at coexistence with nature, and progress has been made in efforts to enhance the appeal of cities in the region, including redevelopment of city centers. I would like to close by expressing my hope that the Tokai region will increase its appeal further and be chosen by many people both as a base for monozukuri and as a tourist destination, and that its economy will thereby develop in a sustainable and diverse manner. Thank you very much for your attention. Japan's Economy and Monetary Policy Speech at a Meeting with Business Leaders in Nagoya November 6, 2023 UEDA Kazuo Governor of the Bank of Japan Introduction I. Economic Developments II. Price Developments III. The Bank's Conduct of Monetary Policy Concluding Remarks Chart 1 I. Economic Developments The BOJ's Forecasts for Real GDP (Oct. 2023 Outlook Report) 580 s.a., ann., tril. yen FY 2023 +2.0% FY 2024 +1.0% FY 2025 +1.0% FY 13 Note: The forecasts presented are the medians of the Policy Board members' forecasts. The values of real GDP for fiscal 2023 onward are calculated by multiplying the actual figure for fiscal 2022 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. Chart 2 I. Economic Developments Corporate Sector: Exports Real Exports Real Exports by Item 115 s.a., CY 2019 = 100 s.a., CY 2019 = 100 120 s.a., CY 2019 = 100 Motor vehicles and related goods IT-related goods (left scale) Semiconductor production equipment (right scale) CY 15 Real exports from Japan World trade volume CY 19 CY 19 Note: In the left-hand chart, figures for the world trade volume are those for world real imports. The figure for the world trade volume for 2023/Q3 is the July-August average. Sources: Bank of Japan; CPB Netherlands Bureau for Economic Policy Analysis; Ministry of Finance. Chart 3 I. Economic Developments Corporate Sector: Profits and Business Fixed Investment Business Fixed Investment Current Profits 16 s.a., tril. yen -5 -10 y/y % chg. +13.1% +7.6% Actual Large firms Small and medium-sized firms CY 07 Planned investment in current fiscal year as of the Sept. survey of each year -15 -20 FY 07 Notes: 1. In the left-hand chart, figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly and exclude "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. 2. In the right-hand chart, figures are based on the Tankan, including software and R&D investments and excluding land purchasing expenses. R&D investment is not included before the March 2017 survey. Figures are for all industries including financial institutions. Sources: Ministry of Finance; Bank of Japan. Chart 4 I. Economic Developments Household Sector Employee Income Scheduled Cash Earnings y/y % chg. Consumption Activity Index y/y % chg. -1 -2 -1 -2 -3 CY 17 Scheduled cash earnings for full-time employees Hourly scheduled cash earnings for part-time employees -3 -4 -5 CY 17 s.a., CY 2019 = 100 Nominal wages (total cash earnings) Number of employees Employee income Real employee income CY 17 Total real private consumption Of which, services Notes: 1. In the left-hand and middle charts, Q1 = March-May, Q2 = June-August, Q3 = September-November, Q4 = December-February. Figures are based on continuing observations following the sample revisions of the Monthly Labour Survey. 2. In the middle chart, Employee income = Total cash earnings (Monthly Labour Survey) × Number of employees (Labour Force Survey). Figures for real employee income are based on staff calculations using the CPI (less imputed rent). 3. In the right-hand chart, figures for total real private consumption are the real Consumption Activity Index (travel balance adjusted) based on staff calculations, which exclude inbound tourism consumption and include outbound tourism consumption. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Bank of Japan. Chart 5 II. Price Developments The BOJ's Forecasts for the CPI (Oct. 2023 Outlook Report) Developments over Time Forecasts y/y % chg. y/y % chg. 5 Energy +3.8% Food products Goods (less food products) +2.8% Services +2.8% CPI (less fresh food) +1.9% CPI (less fresh food and energy) +1.9% +1.7% CPI (less fresh food) -1 -1 CPI (less fresh food and energy) -2 -2 CY 19 FY 23 Note: In the right-hand chart, figures are the medians of the Policy Board members' forecasts. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 6 II. Price Developments Current Situation Surrounding the First Force Producer Prices Import Prices y/y % chg. y/y % chg. High-Frequency Data for Consumer Prices Producer price index -10 -3 -2 -20 CY 19 -6 CY 19 Services producer price index Notes: 1. In the left-hand chart, figures are the import price index (yen basis). 2. In the middle chart, figures exclude the effects of the consumption tax hike. Sources: Bank of Japan; Nowcast Inc.; Research Center for Economic and Social Risks, Hitotsubashi University. y/y % chg. -4 CY 19 T-index (Nikkei CPINow) SRI-Hitotsubashi Unit Value Price Index Chart 7 II. Price Developments Current Situation Surrounding the Second Force: Changes in Corporate Behavior Firms' Outlook for Output Prices in the Tankan Manufacturing 5.0 chg. from the current level, % 1 year ahead 4.5 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 CY 14 3 years ahead Market participants (QUICK, 2 to 10 years ahead) Economists 1 (6 to 10 years ahead) Economists 2 (7 to 11 years ahead) Households (over the next 5 years) Firms (5 years ahead) 2.0 1.5 1.0 0.5 -0.5 CY 14 y/y, ann. avg., % 5 years ahead 3.5 3.0 2.5 1 year ahead 4.0 5 years ahead 3.5 5.0 chg. from the current level, % 4.5 3 years ahead 4.0 Inflation Expectations Nonmanufacturing 0.0 CY 05 Note: In the right-hand chart, "Economists 1" shows the forecasts of economists in the Consensus Forecasts, while "Economists 2" shows the forecasts of forecasters surveyed for the ESP Forecast. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method for a 5-choice question. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: Bank of Japan; QUICK, "QUICK Monthly Market Survey <Bonds>"; JCER, "ESP Forecast"; Consensus Economics Inc., "Consensus Forecasts." Chart 8 II. Price Developments Current Situation Surrounding the Second Force: Labor Market Conditions Job-Switching Rates among Firms' Perception of Regular Employees Regular Employee Shortage Firms' Perception of Labor Shortage -40 inverted, DI ("excessive" "insufficient"), % points % 3 DI ("shortage" - "surplus"), % points "Insufficient" "Shortage" -30 -20 "Excessive" "Surplus" -10 -1 -2 -3 Regular employees, etc. -4 CY 10 Employment conditions DI (left scale) Output gap (right scale) Part-time employees -10 CY 10 -5 -6 8 % Notes: 1. In the left-hand chart, the employment conditions DI figures are based on the Tankan. 2. In the middle chart, figures are the DIs for firms' employment conditions in the Survey on Labour Economy Trend. 3. In the right-hand chart, figures are the share of regular employees in their 20s to 50s who switched jobs in the past year. Sources: Bank of Japan; Ministry of Health, Labour and Welfare; Mynavi, "Job Change Trends Survey 2023 (2022 Results)." CY 16 Chart 9 III. The Bank's Conduct of Monetary Policy Further Increasing the Flexibility in the Conduct of Yield Curve Control (YCC) The Bank will patiently continue with monetary easing under Yield Curve Control (the short-term policy interest rate: -0.1%, the long-term interest rate: around 0%), aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases. Toward the end of the projection period, the Bank expects that underlying CPI inflation will increase gradually toward achieving the price stability target of 2 percent, while this increase needs to be accompanied by an intensified virtuous cycle between wages and prices. With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank judges that it is appropriate to increase the flexibility in the conduct of yield curve control, so that long-term interest rates will be formed smoothly in financial markets in response to future developments. <Conduct of YCC after Further Increasing the Flexibility> <Previous Conduct of YCC> % 1.0 0.5 0.0 -0.5 % Strictly capping 10-year JGB yields Nimbly conducting by fixed-rate purchase operations market operations ↓ Nimbly conducting market operations 1.0 Range of 10-year JGB yields fluctuations as a reference Upper bound for 10-year JGB yields as a reference 0.0 <Outlook for Prices> y/y % chg. Fiscal 2023 Forecasts made in July CPI (all items less fresh food) (Reference) CPI (all items less fresh food and energy) Fiscal 2024 Forecasts made in July Fiscal 2025 Forecasts made in July +2.8 +2.5 +2.8 +1.9 +1.7 +1.6 +3.8 +3.2 +1.9 +1.7 +1.9 +1.8 Note: Figures indicate the medians of the Policy Board members' forecasts (point estimates).
|
bank of japan
| 2,023 | 11 |
Statement by Mr Kazuo Ueda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 17 November 2023.
|
Ueda Kazuo: The Bank's Semiannual Report on Currency and Monetary Control Statement by Mr Ueda Kazuo, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 17 November 2023. *** Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan's economy has recovered moderately. Exports and industrial production have been more or less flat, supported by a waning of the effects of supply-side constraints. Corporate profits have been at high levels on the whole, and business sentiment has improved moderately. In this situation, business fixed investment has increased moderately. The employment and income situation has improved moderately. Private consumption has increased steadily at a moderate pace, despite being affected by price rises. With regard to the outlook, Japan's economy is likely to continue recovering moderately, supported by the materialization of pent-up demand, as well as by factors such as accommodative financial conditions and the government's economic measures, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies. The year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food is slower than a while ago, mainly due to the effects of pushing down energy prices from the government's economic measures, but it has been in the range of 2.5-3.0 percent recently owing to the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices. Regarding the outlook, it is likely to be above 2 percent through fiscal 2024 and then decelerate in fiscal 2025. Meanwhile, through fiscal 2025, the Bank expects that underlying CPI inflation will increase gradually toward achieving the price stability target of 2 percent. Concerning risks to the outlook, there are extremely high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior. Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. Meanwhile, Japan's financial system has maintained stability on the whole. Although attention is warranted on, for example, the impact of the tightening of global financial conditions, the financial system is likely to remain highly robust on the whole, even in the case of an adjustment in the real economy at home 1/2 BIS - Central bankers' speeches and abroad and in global financial markets, mainly because Japanese financial institutions have sufficient capital bases. Regarding financial risks from a longer-term perspective, while there is a possibility that prolonged downward pressure on financial institutions' profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. The Bank considers that sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point, and that it is important to closely monitor whether a virtuous cycle between wages and prices will intensify. In this situation, it will patiently continue with monetary easing under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases. In October, the Bank decided to conduct yield curve control with the upper bound of 1.0 percent for 10-year Japanese government bond (JGB) yields as a reference and to control the yields mainly through large-scale JGB purchases and nimble market operations. This decision was based on the assessment that it was appropriate for the Bank to increase the flexibility in the conduct of yield curve control. The Bank will conduct monetary policy with the aim of achieving the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Thank you. 2/2 BIS - Central bankers' speeches
|
bank of japan
| 2,023 | 11 |
Statement by Mr Kazuo Ueda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 7 December 2023.
|
Kazuo Ueda: The Bank's Semiannual Report on Currency and Monetary Control Statement by Mr Kazuo Ueda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Councillors, Tokyo, 7 December 2023. *** Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan's economy has recovered moderately. Exports and industrial production have been more or less flat, supported by a waning of the effects of supply-side constraints. Corporate profits have been at high levels on the whole, and business sentiment has improved moderately. In this situation, business fixed investment has increased moderately. The employment and income situation has improved moderately. Private consumption has increased steadily at a moderate pace, despite being affected by price rises. With regard to the outlook, Japan's economy is likely to continue recovering moderately, supported by the materialization of pent-up demand, as well as by factors such as accommodative financial conditions and the government's economic measures, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies. The year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food is slower than a while ago, mainly due to the effects of pushing down energy prices from the government's economic measures, but it has been at around 3 percent recently owing to the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices. Regarding the outlook, it is likely to be above 2 percent through fiscal 2024 and then decelerate in fiscal 2025. Meanwhile, through fiscal 2025, the Bank expects that underlying CPI inflation will increase gradually toward achieving the price stability target of 2 percent. Concerning risks to the outlook, there are extremely high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior. Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. Meanwhile, Japan's financial system has maintained stability on the whole. Although attention is warranted on, for example, the impact of the tightening of global financial conditions, the financial system is likely to remain highly robust on the whole, even in the case of an adjustment in the real economy at home 1/2 BIS - Central bankers' speeches and abroad and in global financial markets, mainly because Japanese financial institutions have sufficient capital bases. Regarding financial risks from a longer-term perspective, while there is a possibility that prolonged downward pressure on financial institutions' profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. The Bank considers that sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point, and that it is important to closely monitor whether a virtuous cycle between wages and prices will intensify. In this situation, it will patiently continue with monetary easing under Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control, aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases. In October, the Bank decided to conduct yield curve control with the upper bound of 1.0 percent for 10-year Japanese government bond (JGB) yields as a reference and to control the yields mainly through large-scale JGB purchases and nimble market operations. This decision was based on the assessment that it was appropriate for the Bank to increase the flexibility in the conduct of yield curve control. The Bank will conduct monetary policy with the aim of achieving the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Thank you. 2/2 BIS - Central bankers' speeches
|
bank of japan
| 2,023 | 12 |
Speech by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Hyogo, 30 November 2023.
|
ÿ ÿ )%*+,-+.ÿ/01ÿ202/ !"#$ÿ%&ÿ'"("# =>?@>ÿ3>ABACÿDE>FGCÿ ?Hÿ5 ?FAEÿD I>ÿ?ÿJK?ÿ ÿ LMÿÿÿNOÿPÿQÿQRÿNÿSOÿ 23435673ÿ9 ÿ ÿÿÿÿÿ 34#56789ÿ:."#86":7%#ÿ-"8+;ÿ%#ÿ:9+ÿ'"("#+8+ÿ%.757#"6<ÿ ÿ ÿ 34ÿ67898 7ÿ 8 9ÿÿ8 ÿ9ÿ8ÿ ÿÿÿ!"ÿ#$%&ÿ"ÿ'()ÿ(*+'ÿ,%'ÿ-.*$!'#ÿÿ(-ÿ'&ÿ*+'**)ÿ/*,ÿ*.,#(#ÿ %**!#0ÿ ÿ 1 %,'('#ÿ#+,,*+-ÿ'&#ÿ%**!#ÿ&(.ÿÿ&&'2ÿ'&ÿ/('*(,"ÿ$,##+,ÿ ,!(ÿ*ÿ(ÿ*(ÿ(##2ÿ%*+$-ÿ'&ÿ'&ÿ//%'#ÿ*/ÿ#+%%##.ÿ$*%"ÿ',#'ÿ,('ÿ&)#ÿ "ÿ%',(ÿ()#2ÿ'&ÿ#'+('*ÿÿ1),(2ÿ(-ÿ,#ÿ%*%,#ÿ*.,ÿ,*ÿ'#*#ÿÿ'&ÿ 3--ÿ4(#'ÿ56&(,'ÿ170ÿ8&ÿ1090ÿ%**!"ÿ&(#ÿÿ/,!2ÿ'&ÿ'&ÿ!$*"!'ÿ(-ÿ%*!ÿ #'+('*ÿ,!(ÿ,#'2ÿ(-ÿ#ÿ%,(#"ÿ:$%'-ÿ'*ÿ!()ÿ(ÿ#*/'ÿ(-0ÿ;*.,2ÿ (%&.ÿ'&ÿ<ÿ$,%'ÿ/('*ÿ'(,'ÿ)"ÿÿ'()ÿ'!2ÿ-+ÿ!("ÿ'*ÿ(ÿ**ÿ :$(#*ÿÿ/#%(ÿ#$-ÿ(-ÿ'*ÿ(ÿ%*'+*+#"ÿ&&ÿ(ÿ,*'&ÿ,('0ÿ=+,'&,!*,2ÿ'&,ÿ #ÿ(ÿ$*##'"ÿ'&('ÿ$*$ÿ&(.ÿ/,*'>*(--ÿ'&,ÿ%*#+!$'*2ÿ!("ÿ*/ÿ**-#2ÿ#%ÿ(ÿ ,*'&ÿ&(#ÿ:%--ÿ?ÿ$,%'ÿ/*,ÿ!*,ÿ'&(ÿ'*ÿ"(,#ÿ(-ÿ&&ÿ/('*ÿ&(#ÿ%*!ÿ $,**-0ÿ@+ÿ'*ÿ'&#ÿ$*##'"ÿ(-ÿ'&ÿ-* (,-ÿ$,##+,ÿ*ÿ$,.('ÿ%*#+!$'*ÿ(-ÿ +###ÿ$,/*,!(%2ÿ#*!ÿ&(.ÿ.*%-ÿ%*%,#ÿ*.,ÿ(ÿ$*''(ÿ%**!%ÿ#*-* 2ÿ(-ÿ !"ÿ.ÿ#ÿ'&('ÿ'&#ÿ%*+-ÿ.ÿ(-ÿ'*ÿ#'(/('*0ÿ9$%/%("2ÿ'&#ÿ$,##+,ÿ#ÿ:,'-ÿ"ÿ'&ÿ //%'#ÿ*/ÿ#+%%##.ÿ$*%"ÿ',#'ÿ,('ÿ&)#2ÿ(ÿ-%ÿÿ:%##ÿ#(.#2ÿ(-ÿ(ÿ,#+!$'*ÿ */ÿ#'+-'ÿ*(ÿ,$("!'#0ÿÿ4+,*$2ÿ(ÿ/('*ÿ($ÿ&(#ÿ,!(-ÿ(%,*##ÿ%*+',#0ÿÿ'&#ÿ #'+('*2ÿ4+,*$(ÿ%**!#ÿ&(.ÿ#'("-ÿ*ÿ(ÿ#*ÿ',-2ÿ!("ÿ,/%'ÿ&&'-ÿ *$*'%(ÿ,#)#ÿ(-ÿ'&ÿ//%'#ÿ*/ÿ#+%%##.ÿ$*%"ÿ',#'ÿ,('ÿ&)#0ÿ8&ÿ#*ÿ',-ÿ (#ÿ(#*ÿ-!*#',('-ÿÿ'&ÿ+,*ÿ(,(A#ÿ,(ÿB@Cÿ/*,ÿ'&ÿD+">9$'!,ÿE+(,',ÿ*/ÿ<F<G2ÿ &%&ÿ-%,(#-ÿ"ÿF01ÿ$,%'ÿ/,*!ÿ'&ÿ$,.*+#ÿE+(,',0ÿB.ÿ'&#ÿ-.*$!'#2ÿ'&,ÿ (,ÿ%*%,#ÿ'&('ÿ4+,*$(ÿ%**!#ÿ!("ÿ/(ÿ'*ÿ,%##*0ÿ8&ÿ6&#ÿ%**!"ÿ#ÿ $,*H%'-ÿ'*ÿ%*'+ÿ$%)ÿ+$2ÿ$(,'"ÿ'&ÿ$*%"ÿ#+$$*,'0ÿI*'&##2ÿ'#ÿ$*''(ÿ,*'&ÿ ,('ÿ#ÿ:$%'-ÿ'*ÿ)$ÿ-%,(#ÿ%(+#ÿ,*'&ÿ:$%'('*#ÿÿ)"ÿ-%ÿ(-ÿ &*+#&*-#ÿ(-ÿ$,.('ÿ/,!#ÿÿ)"ÿ&(.ÿ(ÿ&&,ÿ$,/,%ÿ'*ÿ#+$$,##ÿ'&,ÿ#$-0ÿ 8&ÿ(%),*+-ÿ'*ÿ'ÿÿ(--'*ÿ'*ÿ(ÿ$*$+('*ÿ-%ÿ(-ÿ(ÿ$,*',(%'-ÿ&&ÿ"*+'&ÿ +!$*"!'ÿ,('2ÿ#ÿ'&('ÿ'&ÿ6&#ÿ%**!"ÿ-*#ÿ*'ÿ"'ÿ&(.ÿ,*'&ÿ-,.,#ÿ'&('ÿ&(.ÿ %*!ÿ#',*ÿ*+&ÿ'*ÿ,$(%ÿ'&ÿ-,.,#ÿ'&('ÿ&(.ÿ-ÿ'&ÿ&&ÿ%**!%ÿ,*'&ÿ'*ÿ-('2ÿ %+-ÿ,(ÿ#'('ÿ.#'!'2ÿ/*,ÿ/,!#Aÿ.#'!'ÿ(-ÿ'%&**"ÿ',(#/,2ÿ(-ÿ :$*,'#0ÿÿ(--'*2ÿ/+,'&,ÿ,*'&ÿ*/ÿ'&ÿ-(ÿ%**!"ÿ#ÿ('%$('-2ÿ!("ÿ-ÿ"ÿ(ÿ :$(#*ÿ*/ÿ-*!#'%ÿ-!(-ÿ-+ÿ'*ÿ(ÿ$*$+('*ÿ%,(#ÿ(-ÿ"ÿ/*,ÿ/,!#Aÿ!*,ÿ 1ÿ ÿ 3445677896ÿ856 ÿ89676 ÿ37ÿ6ÿ 5ÿ7667ÿÿ7836ÿ87ÿ33 584ÿ76 5ÿ 54ÿ6ÿ36ÿ8ÿ 83ÿ8883896ÿ ÿ 6ÿ6ÿ96ÿÿÿ566 ÿ6966 7ÿ8ÿ337ÿ68ÿ3 898ÿ3 ÿ5867ÿ6ÿ6ÿ 37ÿ569656ÿ6536ÿÿ6ÿ5536ÿ76 5ÿ34ÿ657ÿ3 ÿ5 8ÿ396ÿ66ÿ 36 6ÿÿ3ÿ7! ! ÿ8ÿ6ÿ36ÿÿ56965ÿ8ÿ9657637ÿ6867ÿ6ÿ396ÿ66ÿ56ÿ 5ÿ677ÿ3ÿ756ÿÿ3ÿ!384ÿÿ6ÿ66 7ÿÿ7"786ÿ75387ÿ63!86ÿ 8 ÿ587ÿ63 ÿ37ÿ8 56376ÿ566 84ÿ6ÿ56684ÿÿ6ÿ6ÿ3 ÿ6ÿ67ÿ 656838ÿÿ3 88ÿ78677ÿ6553 6ÿ37ÿ 86ÿÿ8596ÿ!8ÿ565ÿ 7564684ÿÿ857ÿ63584ÿ!65ÿ38ÿ6ÿÿ685ÿ8596ÿ5884ÿ!65ÿ3 ÿ 545677ÿ8ÿ78677ÿ5657ÿÿ87ÿ7838ÿ857ÿ3686ÿ5ÿ86ÿ89676 ÿ37ÿ 8 56376ÿ38ÿ6376ÿ45!ÿ66 387ÿ396ÿ68466ÿ3 ÿ6ÿ7865ÿ8ÿ56ÿ 86ÿ3ÿ89676 ÿ77ÿ!8ÿ6ÿ569656ÿÿ6ÿ3ÿÿ 86ÿ66 387ÿ5ÿ8465ÿ 838ÿ#8ÿ56435ÿÿ6ÿ76ÿ76 5ÿ58936ÿ78ÿ37ÿ8 56376ÿ6536ÿ 87ÿ87ÿ38ÿ6376ÿ6ÿ6 ÿ5ÿ538784ÿ!3467ÿ37ÿ 86ÿ566 84ÿ39536ÿ 78677ÿ6553 6ÿ3 ÿ8465ÿ35ÿ356ÿ 887ÿ3 ÿ6 "ÿ 63 ÿ37ÿ 365838$6ÿ584ÿÿ5867ÿ6ÿ635""635ÿ536ÿÿ8 56376ÿ8ÿ6ÿ765ÿ586ÿ8 6ÿ %&'(ÿ5ÿ3ÿ867ÿ677ÿ567ÿÿ37ÿ7!6ÿ5ÿ6ÿ367ÿ63ÿÿ)1ÿ656 ÿ5ÿ335ÿ 1*1+ÿÿ1,ÿ656 ÿ5ÿ- 65ÿ38ÿ6ÿÿ6ÿ66 7ÿÿ784ÿ! ÿ6654ÿ5867ÿ5ÿ 6ÿ49656 7ÿ68ÿ637567ÿ%&35ÿ1(ÿ.69656677ÿ76ÿ857ÿ3ÿ377ÿÿÿ 7684ÿ5867ÿ6ÿ7ÿ8 563767ÿ3ÿ396ÿÿ6ÿ66ÿ566 6ÿ3 ÿ5867ÿÿÿ3 ÿ6654ÿ 3ÿ5876ÿ3438ÿÿ3ÿ65656ÿ35835ÿ36 896ÿÿ56ÿ586ÿ6966 7ÿ ÿ /7ÿ5ÿ6ÿÿ6786ÿ684ÿ 65ÿ! !35ÿ567756ÿ7684ÿ5ÿ6ÿ7! ! ÿ8ÿ 6ÿ36ÿÿ56965ÿ8ÿ9657637ÿ6867ÿ5ÿ6ÿ86ÿ684ÿ337ÿ6ÿ87ÿ86ÿÿ 56965ÿ6536ÿ34ÿ!8ÿ!346ÿ8 563767ÿ87ÿ87ÿ38ÿ6ÿÿ6ÿ!840ÿ6ÿ 365838$38ÿÿ6 "ÿ63 ÿ!8ÿ87ÿ35ÿ756ÿÿ76ÿ739847ÿ3ÿ 3 36ÿ37ÿ3ÿ567ÿÿ&-12"3,ÿ3 68"5636ÿ56758874ÿ3 3896ÿ 83 83ÿ 8874ÿ6ÿ49656 7ÿ68ÿ6375674ÿ3ÿ6378ÿ8ÿ78677ÿ86ÿ 89676 ÿ566 84ÿ8465ÿ45!ÿ66 387ÿ3 ÿ8 56376ÿ3!356677ÿ5ÿ6ÿ66ÿÿ 84838$6ÿ78677ÿ3 898867ÿ3 ÿÿ3 5677ÿ69856 3ÿ877674ÿ3 ÿ857ÿ657ÿÿ 75646ÿ685ÿ63584ÿ!65ÿ656365ÿ!8ÿ9657637ÿ6867ÿ45!84ÿ6536ÿ 1ÿ ÿ 345678ÿ978ÿ37387ÿ3 ÿ876ÿ3ÿ67ÿ33ÿ6ÿ7ÿ 686ÿ8ÿ876ÿ 97ÿ38ÿ3ÿ36ÿ35 6ÿ78ÿ868734ÿ 98ÿ386ÿ3ÿ86ÿ78ÿ46ÿ ÿ76ÿ8ÿ 67ÿ3344ÿ786776ÿ78ÿ63ÿ8ÿ86ÿ3ÿÿ33ÿ 47ÿ 3ÿ656ÿ! "ÿ 638ÿ ÿ734ÿ#$#%ÿ6686ÿ7ÿ86ÿ&856ÿ#$#1ÿ'()*++,ÿ.+/ÿ01+2+341ÿ51)464)7ÿ829ÿ :/41;<ÿ=&84 ÿ>6 8?ÿ86ÿ673ÿÿ86ÿ 638ÿ ÿ86ÿ63@@63ÿ386ÿÿ7636ÿ7ÿ 86ÿ! "ÿ ÿ344ÿ786ÿ46ÿ6ÿ ÿ93ÿ#Aÿ668ÿ77ÿ ÿ86ÿ67ÿ 687ÿ7ÿ 86ÿ4ÿ&84 ÿ>6 8ÿB 966ÿ86ÿ93ÿ677ÿ7ÿ384ÿ5636ÿ86ÿ&856ÿ 638ÿ966ÿ36ÿ536ÿÿ86ÿ387ÿ838ÿ86ÿ 668ÿ636ÿ8ÿ66ÿ86ÿ 6 4ÿ56ÿÿ76ÿ66ÿ76ÿ9744ÿ56ÿ867386ÿ3 ÿ86ÿ6ÿÿ734ÿ#$#1ÿ Cÿ ÿ86ÿ&856ÿ 638ÿ7ÿ86ÿÿ86ÿ! "ÿ ÿ344ÿ786ÿ46ÿ6ÿ ÿ3ÿ66ÿ9 7ÿ 7ÿ8ÿ7684ÿ3686ÿ5ÿ48387ÿ7ÿ66ÿ76ÿ86ÿ673ÿ ÿ734ÿ#$#%ÿ93ÿDEÿ 668ÿ=! 38ÿ1?ÿ ÿ FFGÿIJKLMNOÿJPÿQJKROSTUÿVJWXNUÿ "ÿ478ÿÿ668ÿ67ÿ3ÿ76ÿ66468ÿ"ÿ9 4ÿ9ÿ476ÿ8ÿ36ÿÿ769ÿÿ 86ÿ8ÿÿ 683ÿ47ÿ ÿ86ÿ767386ÿ86ÿ 746ÿ86ÿ63@@63ÿ386ÿÿ 7636ÿ7ÿ86ÿ! "ÿ ÿ344ÿ786ÿ46ÿ6ÿ ÿ ÿY68656ÿ#$#1ÿ93ÿ#Aÿ668ÿ@@ÿ3447ÿ 5649ÿ1ÿ668ÿ ÿ86ÿ78ÿ876ÿ7ÿD1ÿ 8ÿ@@ÿ"ÿ564766ÿ838ÿ86ÿ3ÿ66ÿ8ÿ387684ÿ 876ÿ978ÿ86ÿ 68ÿ 683ÿ637ÿ ÿ86ÿ876ÿ567ÿ7ÿ769ÿÿ86ÿ76ÿ8357478ÿ 8368ÿÿ#ÿ668ÿZÿ63ÿ36ÿ3ÿ449ÿ ÿ [GÿIJKLMNOÿJPÿQJKROSTUÿVJWXNUÿSKLÿI\SWWRK]R^ÿ_SNXK]ÿ̀SaSKb^ÿcNJKJdUÿ e 6ÿ7746ÿÿ86ÿ3ÿ 683ÿ47ÿ7ÿ8ÿ3766ÿ76ÿ8357478ÿ8665ÿ87587ÿ 8ÿ86ÿÿ66468ÿÿ86ÿ38734ÿ6ÿ"ÿ86ÿf786ÿY8386ÿ3ÿg 6ÿ9 66ÿ 76ÿ3ÿ936ÿ36ÿ 6ÿ6374ÿ476ÿ74387ÿ3ÿ936ÿ7636ÿ36ÿ566ÿ8376ÿ ÿ3ÿ63ÿZ639 746ÿ6h676ÿ74387ÿ7ÿÿ6ÿ3ÿ56ÿÿ86ÿ6ÿ3ÿ 6h676ÿ936ÿ7636ÿ838ÿ36ÿ8ÿ3376ÿ5ÿ7 668ÿ7ÿ435 ÿ 8778ÿ36ÿ 8ÿ8373546ÿ"ÿÿ769ÿ87ÿ7ÿ3ÿ63ÿ ÿ86ÿ74387ÿ8368ÿ7ÿ866ÿ676ÿ8ÿ56ÿ 68ÿ38ÿ#ÿ668ÿYÿ8368ÿ36ÿ676ÿÿ67ÿ3ÿ936ÿ886ÿ7ÿ9 7ÿ76ÿ 76ÿ36ÿ3376ÿ5ÿ936ÿ7636ÿ3ÿ86ÿ36ÿ68ÿ8ÿ56ÿ6h676ÿ74387ÿ"ÿ 86ÿ 68ÿ743873ÿ67 68ÿ86ÿ74387ÿ386ÿ636ÿ38ÿEDÿ668ÿ7ÿ86ÿf786ÿ Y8386ÿ3ÿD$iÿ668ÿ7ÿ86ÿ6 ÿ363ÿ687ÿ86ÿ66ÿ ÿ74387ÿ8368ÿ838ÿ38344ÿ 1ÿ ÿ 3456789ÿ7ÿ4 4554ÿ878ÿ3ÿÿ4ÿ578ÿ5ÿ94348ÿ8ÿ68ÿ434ÿ584ÿ4ÿ 54789ÿÿ7ÿ4ÿ5ÿ434ÿ5ÿ448ÿ!75ÿ87ÿ83454ÿ8ÿ6345ÿ89ÿ"#45ÿ3ÿ1ÿ$5ÿ ÿ345ÿ4ÿ4787!%ÿ4ÿ87ÿÿ63778#49ÿ64379ÿ7ÿ5#878ÿ89438#ÿ3!5&ÿ88778ÿ 89ÿ58#ÿ"#4ÿ445ÿ73ÿ#%ÿ564 '49ÿ!8ÿ6ÿ7ÿÿ489ÿ743ÿ!(73ÿ 4787!45ÿ8ÿ$5ÿ3ÿ)ÿ*ÿ444ÿÿ4ÿ637#3455ÿ!94ÿ7"39ÿ48#ÿ4ÿÿ64348ÿ 634ÿ5 %ÿ3#4ÿ57ÿ54345ÿ5ÿÿ37!443ÿ73ÿ##8#ÿ4ÿ637#3455ÿ7ÿ4ÿ3473!5ÿ7ÿ 4787! ÿ89ÿ"#4ÿ53 345ÿ++ÿ8ÿ" ÿ7ÿ878ÿ89ÿ"#45ÿ354ÿ78#594ÿ4787! ÿ #37"ÿ++ÿ844949ÿ7ÿ34,ÿ7ÿ7ÿ5ÿ5#878ÿ ÿ $43ÿ8#ÿ#37"8ÿ78#ÿ" ÿ8ÿ83458#ÿ67678ÿ68ÿ4ÿ87ÿÿ#37"ÿ36ÿ"434ÿ 4ÿ4787!%ÿ4#8ÿ7ÿ5#84ÿ8ÿ84ÿ" ÿÿ9488#ÿ67678ÿ89ÿ4ÿ34567854ÿ7ÿ 8#45ÿ8ÿ4ÿ4787! ÿ48378!48ÿ"5ÿ94%49ÿ-73ÿ8584ÿ#48ÿ4ÿ63 4ÿ7ÿ 4!4ÿ4!67%!48ÿ!8%ÿ3!5ÿ!8849ÿ8ÿ4 48%+734849ÿ58455ÿ!794ÿ7ÿ!55ÿ 6379 78ÿ37#ÿ" ÿ4%ÿ637949ÿÿ3#4ÿ7!4ÿ7ÿ7"+6349ÿ.%ÿ6379 5ÿ89ÿ "434ÿ57"ÿ7ÿ38573!ÿ43ÿ58455ÿ!794ÿ87ÿ784ÿÿ7545ÿ78ÿ348#ÿ9949ÿ4ÿ 89ÿ965ÿ7ÿÿ9488#ÿ67678ÿ/ ÿ443%ÿ"4ÿ7ÿ3445578ÿ3!5ÿ"73,49ÿ78ÿ !6378#ÿ43ÿ64373!84ÿ37#ÿ48 75ÿ4735ÿ7ÿÿ755ÿ89ÿ34538ÿ845!48ÿ 6 8#ÿ6373%ÿ78ÿ5588#ÿ5845545ÿ89ÿ4!67%!48ÿ454ÿ5ÿ6637ÿ9ÿ63749ÿ 44 4ÿ938#ÿ65ÿ7ÿ57,5ÿ35ÿ0ÿ89ÿ1ÿ*ÿ444ÿÿ5ÿ6637ÿ"5ÿ549ÿ78ÿ !8#4!48ÿ63 45ÿ8ÿ" ÿ3!5ÿ3449ÿ78ÿ4ÿ#779"ÿ7ÿ43ÿ4!67%445ÿ358#ÿÿ 4!67%445ÿ"79ÿ7884ÿ7ÿ"73,ÿ448ÿÿ43ÿ"#45ÿ"434ÿ3453849ÿ5ÿ78#ÿ5ÿ3!5ÿ !8849ÿ43ÿ4!67%!48ÿ4ÿ4ÿ75ÿ938#ÿ4ÿ3445578ÿ643795ÿ"5ÿ78ÿ944854ÿ !8#4!48ÿ" ÿ!78#ÿ743ÿ8#5ÿ49ÿ3!5ÿ7ÿÿ6756784ÿ4735ÿ7ÿ948%ÿ89ÿ 784834ÿ78ÿ734ÿ7!6448 45ÿ5ÿ"4ÿ5ÿ7ÿ34#8ÿ43ÿ58455ÿ673775ÿ++ÿ!8%ÿ 37#ÿ!43#435ÿ89ÿ.5 785ÿ23$5ÿ89ÿ545ÿ7ÿ 5845545ÿ++ÿ 7ÿ!49ÿÿ 5348#488#ÿ4388#ÿ67"43ÿ89ÿÿ5663455ÿ845!48ÿ8ÿ!8ÿ6ÿ89ÿ34543ÿ89ÿ 94476!48ÿ435ÿ" ÿ34ÿ,4%ÿ345ÿÿ49ÿ7ÿ348#ÿ88778ÿ4ÿ657ÿ"5ÿ 94%49ÿ345678545ÿ7ÿ8#45ÿ8ÿ4ÿ4787! ÿ48378!48ÿ498#ÿ7ÿ5#88ÿ"#45ÿ89ÿ 94845ÿ8ÿ#37"ÿ464 785ÿ5ÿ"4ÿ5ÿ94437378ÿ8ÿ7ÿ4!67%44ÿ48##4!48ÿ89ÿ 4ÿ.%ÿ7ÿ73ÿ5ÿ7 7!4ÿ549ÿ68ÿ7ÿ3ÿ4ÿ56449ÿ7ÿ#37"ÿ8ÿ4ÿ345ÿ7ÿ4ÿ ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ4ÿ67ÿ#34ÿ5ÿ73ÿ84ÿÿ89ÿ4ÿ437ÿ34ÿ#34ÿ5ÿ73ÿ8 743ÿÿ%43ÿ ÿ!8ÿ6 ÿ5ÿÿ7846ÿ89 8#ÿÿ!8ÿ3457345ÿ34ÿ4ÿ73ÿ736734ÿ!8#4!48ÿ 1ÿ ÿ 345678ÿ9ÿ 8ÿ45ÿ968ÿÿÿ5ÿ99ÿ6945ÿ547ÿ754ÿ4ÿÿ94ÿÿ ÿ5994ÿ45ÿ44ÿ4!4594ÿ97ÿ" 64 ÿ# "$ÿ45 ÿ#95ÿ$%ÿ & ÿ9ÿ4 ' 8ÿ(99ÿ 66ÿ4ÿ9ÿ4!9667ÿ643ÿ595ÿ44ÿ95)7ÿÿ643ÿ 5438ÿ643ÿ 6948ÿ97ÿ643ÿ39ÿ5438ÿ3ÿ*ÿ6ÿ9ÿ5 ÿ4ÿ9ÿ7 69495ÿ 7 %ÿ ÿ +,ÿ./012ÿ34ÿ5ÿ.6275/189ÿ:/28ÿ/1ÿ;</=82ÿ519ÿ>5082ÿ ?5 8ÿ39 8ÿ97ÿ5 ÿ59 ÿ9ÿÿ4ÿ9ÿÿ(998ÿ43ÿ4ÿ34ÿ945@ÿÿ 5ÿÿ45ÿ5 ÿ97ÿ45ÿ9ÿ6945ÿ459 %ÿA 957ÿ5 8ÿÿ6496ÿ5ÿÿ 5 ÿ9ÿ597ÿ(99ÿ9ÿ3 668ÿ54ÿ9ÿ9ÿ4ÿÿÿ7 ÿ4ÿ5 ÿ43957ÿ 9 ÿ4ÿ5ÿ4ÿ4ÿ 66ÿ5 ÿ97ÿÿ5ÿ5ÿ59 %ÿBÿC5ÿDÿ EFGHFGÿ#C45!B5ÿ44ÿC5ÿ4ÿ 55 ÿÿ(99$ÿ43 7ÿ98ÿ36ÿÿ 74ÿ7ÿ#"*$ÿ45ÿÿ5 ÿ#96697ÿÿ77ÿÿ54454ÿ4ÿ 55 ÿ 9 3 5ÿI966Iÿ54ÿÿ54454ÿ4ÿ4 ÿ9 3 5ÿI5 I$ÿÿ5 7ÿ743 39578ÿÿ"*ÿ 45ÿ4ÿ5 ÿ#I5 IÿÿI966I$ÿ59 ÿ8ÿ4ÿ45ÿÿ996ÿ5 6ÿ97ÿÿ4598ÿ 97ÿÿ9ÿ3 ÿÿ34ÿÿ95543ÿ#95ÿ$%ÿBÿ4ÿ4ÿ9ÿ57 7ÿ66ÿ4ÿ 95 ÿÿ5 Jÿ5! ÿ945%ÿ ÿ A 957ÿÿ4 ÿ97ÿ64 ÿ948ÿÿC5ÿEFGHFGÿ797ÿ45ÿ9ÿ 6945ÿ459 8ÿ3ÿÿ996ÿ5 6ÿ45ÿÿ64 ÿ474 ÿ"*ÿ#I ÿ 64 IÿÿI ÿ64 I$ÿ97ÿ9ÿÿÿ5 9ÿ4ÿ97ÿ ÿ459ÿ9ÿÿKÿ5 9ÿ4ÿ#95ÿLD$%ÿM46643ÿÿDÿ9 96ÿ5ÿ6945! 99 ÿ39ÿ 494 8ÿ3ÿ95)7ÿÿ ÿ39ÿ543ÿÿ94ÿDÿ958ÿ 6945ÿ459N94 ÿ67ÿÿ(99 ÿB597ÿO 4ÿ 4 75948ÿ45ÿA 48ÿ9ÿ 5 7ÿ9ÿÿ39ÿ)ÿ95ÿÿDPÿ9ÿ3 66%ÿO 6)ÿÿO 7ÿC9 ÿ97ÿ548ÿ35ÿ 39ÿ543ÿ9ÿ ÿ5696ÿ8ÿ39 ÿÿ(99ÿ3 5ÿ99ÿ45ÿ5 ÿ797 %ÿ"5ÿ ÿ7 69495ÿ5478ÿ(99 ÿ5 ÿ5 7ÿ39 ÿ97ÿ ÿ3ÿÿ45%ÿ Bÿ 97ÿ596ÿ967ÿ45 9ÿ9 ÿ4ÿ57ÿ4ÿ97ÿ697ÿ6496ÿ5 8ÿ 45ÿ4ÿÿ543ÿ4ÿ5 ÿÿ 5ÿ44 %ÿ*ÿÿ948ÿ39 ÿÿ ÿ 44 ÿ47ÿ5%ÿQ9R45ÿ45 9ÿ44 ÿ9ÿ6ÿÿ6945ÿ95)ÿÿ3ÿ 39ÿ66ÿ95ÿ97ÿÿ758ÿR4ÿ8ÿ97ÿ)66ÿ668ÿ9)ÿÿ95ÿ45ÿ5 ÿ97ÿ ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿA9)ÿ9ÿ4ÿDL%ÿ*ÿ9ÿ958ÿ(99ÿ59)7ÿKÿÿ5 ÿ4ÿ6945ÿ547ÿ5ÿ45%ÿ 1ÿ ÿ 34567ÿ89ÿ6ÿ 6ÿ7ÿ34567ÿ495ÿ967647ÿ7ÿ46ÿ76ÿ3ÿÿ666ÿ7ÿ7 5ÿ 96889ÿ89ÿ46ÿ4ÿ484ÿ487ÿÿ4ÿ !ÿ8ÿ7667ÿ8ÿ89ÿ984 ÿ86ÿ 9489ÿ9893ÿ9ÿ6594ÿ4647ÿ"ÿ97 5ÿ9 "ÿ9ÿ6676ÿ445668ÿÿ3ÿ 7ÿ766ÿ64 57ÿ4ÿ4 84 ÿ69"68ÿ#9366ÿ93ÿ848ÿ49ÿ468ÿ697ÿ 46ÿ65ÿ89ÿ46ÿ6434"ÿ4ÿ679767ÿ89ÿ4567ÿ ÿ86ÿ699ÿ6968ÿ46ÿ 696ÿ677684ÿÿ$44ÿ"ÿ7676ÿ7ÿ848ÿ99486ÿ44567ÿ46ÿ647 5"ÿ76786ÿ89ÿ 86ÿ66ÿ9ÿ86ÿ69"667ÿ89ÿ46ÿ56486ÿ%9ÿ7487489ÿ"ÿ99785ÿ86ÿ64 5ÿ936ÿ 9ÿ86ÿ7ÿ4ÿ46 5ÿ7784 4 6ÿ3456ÿ 64767ÿ&9ÿ87ÿ6479ÿÿ6'68ÿ89ÿ766ÿ 95677ÿ ÿ697ÿ785ÿ9ÿ445668ÿ848ÿ667ÿ9ÿ86ÿ5993 ÿ9ÿ69"667ÿ89ÿ 96ÿ848ÿ64767ÿ69"66ÿ46ÿ6ÿ$44676ÿ59668ÿ7ÿ479ÿ39 5ÿ89ÿ6 96ÿ87ÿ 798ÿ9ÿ64767ÿ6486ÿ89ÿ67 5ÿ9ÿ6'46ÿ38ÿ86ÿ9%686ÿ9ÿ64( 5ÿ 7884ÿ3456ÿ64767ÿ))ÿ848ÿ7ÿ76885ÿ56ÿ34567ÿ89ÿ48848ÿ5"ÿ7 6ÿ4ÿ484ÿ 866"ÿ647 5ÿ99486ÿ988"ÿ3ÿÿ8ÿ3 ÿ64ÿ89ÿ86ÿ3456ÿ64767ÿÿ 666ÿ7ÿ848ÿ986ÿ593 5ÿ4ÿ47 5ÿ34567ÿ3 ÿ6'4ÿ86ÿ39967ÿ47ÿ 74867ÿ ÿ5938ÿ98684ÿ4ÿ3456ÿ 6476ÿ4867ÿ6656ÿ68366ÿ7ÿ848ÿ46ÿ6456ÿ 89ÿ6846ÿ 84867ÿ89ÿ6476ÿ69"66ÿ46ÿ4ÿ8976ÿ848ÿ46ÿ4776ÿ38ÿ86ÿ 6ÿ 9ÿ3967ÿ45 5ÿ%97ÿÿ764ÿ9ÿ6886ÿ4"ÿ4ÿ56486ÿ%9ÿ7487489ÿ647 5ÿ48ÿ4ÿ 466486ÿ46ÿÿ48ÿ86ÿ%9)738 5ÿ486ÿ47ÿ65ÿ89ÿ76ÿ66ÿÿ$44ÿ47ÿ86ÿ486ÿ9ÿ 3456ÿ 64767ÿ9ÿ3967ÿ39ÿ738ÿ%97ÿ747767ÿ848ÿ9ÿ8976ÿ39ÿ9ÿ98ÿ487ÿ*ÿ 4ÿ+!ÿ,95ÿ38ÿ86ÿ45 5ÿ 768ÿ9ÿ69"667ÿ4ÿ445668ÿ866ÿ46ÿ757ÿ9ÿ 46 5ÿ3456ÿ5938ÿ848ÿ983657ÿ489ÿ ÿ -.ÿ012ÿ324255678ÿ79ÿ-9:76:;2ÿ<9:27=>8ÿ?=56:@ÿ A46ÿ"ÿ4ÿ78ÿ ÿ86ÿ64894"ÿ 768ÿ ÿ$44ÿ4ÿ78697ÿ6987ÿ9ÿ86ÿ48ÿ9ÿ 7ÿ4ÿ86ÿ59668ÿ7867ÿ89ÿ96ÿ99486ÿ445668ÿ46ÿ65 5ÿ89ÿ66ÿ89ÿ 56ÿ76 5ÿ67ÿ4ÿ34567ÿÿ6'68ÿ848ÿ4ÿ897ÿ"6ÿ9ÿ5938ÿ4ÿ98ÿ74 5ÿ 3 ÿ7848ÿ89ÿ96486ÿ48ÿBÿ567ÿ4ÿ76ÿ66768489!ÿC64"ÿ47ÿ69"66ÿ 6545668ÿ4ÿ98489ÿ89ÿ 9486ÿ6476ÿ7ÿ46ÿ6485ÿ96ÿ464 5ÿ987ÿ 4ÿ7667ÿ4ÿ766 5ÿ98ÿ56486ÿ64 5ÿ936ÿ4ÿ56ÿ49ÿ988"ÿ6ÿ678ÿ 3 ÿ6ÿ7784 4 6ÿ3456ÿ5938ÿ4ÿ97697ÿ6 5ÿ6886ÿ9ÿÿ8ÿ87ÿ3 ÿ64ÿ89ÿ 56ÿ486ÿ9789ÿ56486ÿ67868ÿ4ÿ6476ÿ7784 4 8"ÿ9ÿ$44D7ÿ794ÿ 1ÿ ÿ 3456789ÿÿ985894ÿ99ÿ983ÿ879663ÿ554ÿ8ÿ54ÿ8ÿ84ÿ647ÿ44ÿ8ÿÿÿ 743ÿ9ÿ4ÿ4ÿ7ÿ94ÿ69674ÿ ÿ 4ÿ4747ÿ794ÿÿ857434ÿ8ÿ94ÿÿ7ÿÿ8943ÿ433ÿ743ÿÿ7ÿ49447ÿ!"ÿ 3ÿ #ÿ47549$ÿ8ÿ89ÿ94ÿ74ÿÿ"ÿ47549ÿ7ÿ94ÿ8739ÿ984ÿ8ÿ%"ÿ93ÿ &44794433$ÿ74ÿ 43ÿ4ÿ4584ÿ47ÿÿ47ÿ7ÿ%#ÿ53456984ÿ93ÿ'89ÿ7ÿ 5393$ÿÿ549ÿÿ94ÿ()ÿ497$ÿ4ÿ9ÿ857434ÿ363998ÿ8ÿ$ÿ68*4ÿ8ÿ 94ÿ'894ÿ9943ÿÿ+674ÿ,79ÿ%-.ÿ83ÿ364393ÿ99ÿ567749ÿ898ÿ474ÿ83ÿ74ÿ 5759478/4ÿÿ879784ÿ53963ÿ5973ÿ99ÿ4ÿ9*4ÿ4459ÿ89ÿÿ$ÿ85ÿ843ÿ ÿ763ÿ7ÿ58454ÿ99ÿ94ÿ7854ÿ39889ÿ9749ÿÿÿ47549$ÿ5584ÿÿ 4ÿ 8574343$ÿ8ÿ4ÿ5844ÿ36398ÿ03ÿ45 ÿ3ÿ49474ÿÿ578985ÿ34$ÿ478ÿ 94ÿ774ÿ79689ÿ9ÿ5844ÿÿ879663ÿ554ÿ4944ÿ 43ÿÿ78543ÿ 746ÿ743343ÿ 74ÿ963ÿ54ÿ7$ÿÿÿ53847ÿ99ÿ34ÿ74ÿ984ÿ83ÿ444ÿ474ÿ *8ÿ748383ÿ9ÿ 94ÿ497ÿ438ÿ85 ÿ ÿ 1112ÿ456789:ÿ;7ÿ<=>=?@:ÿAB7?79Cÿ &$ÿÿ6ÿ8*4ÿ9ÿ435784ÿ94ÿ87954ÿÿ398ÿ8730ÿ478ÿ47ÿÿÿ 7478ÿ4585ÿÿ 4ÿ3976596743$ÿ3ÿ9ÿ74ÿ454337ÿ9ÿ5844ÿ94ÿÿ47549ÿ7854ÿ 39889ÿ9749ÿ8ÿÿ363984ÿ 47ÿ ÿ D2ÿE77:;F?GÿHF89:@ÿA=8?F?GÿI7J58ÿ=?Kÿ456789F?GÿAB7?79FBÿ=?KÿL=G5ÿM;8NB;N85:ÿ ÿ5844ÿ363984ÿ 4ÿ8574343ÿÿ94ÿ879663ÿ554ÿÿ79ÿÿ789ÿ378$ÿ89ÿ 83ÿ454337ÿ9ÿ39ÿ8730ÿ478ÿ47ÿ3ÿ4ÿ3ÿ54ÿ4585ÿÿ 4ÿ3976596743ÿ 3ÿ99ÿ9ÿ78543ÿÿ 43ÿ7834ÿO7ÿ983ÿ9ÿ4$ÿÿ4844ÿ99ÿ36384ÿ7473ÿ74ÿ 7794ÿ ÿ ÿ94ÿ39ÿ4ÿ348ÿ78543ÿ8ÿ9ÿ54$ÿ ÿ434ÿ873ÿ4P478454ÿÿ389698ÿ 474ÿ94ÿ44593ÿÿ539ÿ746598ÿÿÿ4ÿ64ÿ57494ÿ976ÿ94ÿ4449ÿÿ 4ÿ76593ÿÿ3478543ÿ474ÿ349ÿÿ94ÿ859ÿÿ847ÿ5393ÿ83ÿ389698ÿ 4ÿ89ÿ 88569ÿ7ÿ873ÿ9ÿ44794ÿ63ÿ9ÿ7834ÿ 43ÿÿ8439ÿ8ÿ79ÿ743ÿQ3ÿÿ74369$ÿ94ÿ 4ÿ44ÿ7ÿ8ÿ3*84ÿ6 ÿ589ÿ8ÿÿ83ÿÿ48ÿ934ÿ8ÿ947ÿ R7ÿQ38ÿ 45843ÿ,79ÿ-.ÿS89ÿ94ÿÿ3674ÿ8ÿ78543ÿÿ857438ÿ5694ÿ7ÿ37943ÿ 1ÿ ÿ 3456758759ÿ7 ÿ5ÿ64ÿ4ÿ45ÿÿ59ÿ4ÿ7576767ÿÿ7538ÿ4759ÿ755467ÿ 4836ÿ5ÿ73ÿ64ÿ446ÿ67ÿ73759ÿ4ÿ336759ÿ795 56ÿ4ÿ67ÿ875ÿ 46474ÿ64ÿ359ÿ67ÿ875ÿ68368ÿ64ÿ37ÿ96ÿ4836776ÿÿ7567759ÿ 5ÿ3453566759ÿ45ÿ67ÿ34ÿ34 6537ÿ 759ÿ367ÿ75656ÿ75ÿ63544973ÿ 53ÿ66ÿ7ÿ75546745ÿ5ÿ345476759ÿ875ÿ64ÿ7543ÿ 59 56ÿ 483ÿÿ6ÿ4ÿ75537ÿ77ÿ!ÿÿ ÿ "4ÿ7 ÿ75ÿ6738ÿ 4ÿ 7759ÿ64ÿ88ÿ83ÿ4 ÿ#ÿ5ÿ66ÿ7 ÿÿ5ÿ67ÿ65965759ÿ67ÿ 5759ÿ4ÿ6ÿ$%!ÿ ÿ #ÿ ÿ4ÿ66567ÿ64ÿ$!ÿ7 &ÿ 46ÿ64ÿ45ÿÿ45ÿ79ÿ346ÿ64ÿ73ÿ5ÿ36ÿ 75546745ÿ34ÿ6ÿ8ÿ375ÿ7538759ÿ ÿ5ÿ 78 '7(ÿ7 ÿ)!ÿ5ÿ753ÿ 75ÿ6ÿ58 ÿ4ÿ668ÿ36759ÿ5ÿ6ÿ5ÿ*!ÿ49ÿ75ÿ6ÿ 446ÿ796745ÿ4ÿ 4ÿ7564ÿ94759ÿ75867ÿ ÿ #ÿ48ÿ546ÿ66ÿ5ÿÿ+5ÿ3456758ÿ64ÿ,753ÿÿ375759ÿ5ÿ8'9759ÿ 486745ÿ4 ÿ64ÿ3454 73ÿ5ÿ9ÿ68368ÿ66ÿ5ÿ46ÿ73ÿ5ÿ9ÿ64ÿ 7ÿÿ5ÿÿ76ÿ6ÿ3673ÿ4ÿ767ÿ 4 56ÿ5ÿ57476'ÿ9ÿ 6 ÿ 75759ÿ#ÿ ÿ64ÿ759ÿ6656745ÿ64ÿ7 &ÿ 46ÿ64ÿ359ÿ67ÿ9ÿ 4ÿÿ45ÿ6ÿ37736745ÿ4ÿ"4'ÿ9ÿ64ÿÿ56ÿÿ6ÿ945 56ÿ75ÿ -3 ÿ).)*ÿ76ÿÿ6576745ÿ4 ÿ57476'ÿ9ÿ64ÿ"4'ÿ45ÿ66ÿ7ÿÿ 64ÿ9ÿ7ÿ34 586ÿ76ÿ46ÿ79ÿ756745ÿ5ÿ74ÿ 4ÿ7ÿ75ÿÿ ÿ66ÿ7ÿ876ÿ64ÿ+5ÿ7 ÿ#ÿ ÿ4ÿ66567ÿ64ÿ6ÿ736ÿ4ÿ945 56ÿ4737ÿ 7759ÿ64ÿ76ÿ4ÿ469ÿ5ÿ53489ÿ4ÿ4776ÿ7538759ÿ7759ÿ846ÿ 5ÿÿ39ÿ4ÿ8ÿ64ÿÿ6ÿ78ÿ4ÿÿ4'3ÿ 7ÿ4ÿ558ÿ7534 ÿ''ÿ66ÿ 7ÿ484&ÿ345ÿ5ÿ6ÿ64ÿ"86ÿ67ÿ4759ÿ48ÿ4ÿ66ÿ67ÿ7534 ÿ6ÿ 85ÿ6ÿ37759ÿ4ÿ6,ÿ, 6745ÿ ÿ /0ÿ23456789:ÿ;3<==ÿ<9>ÿ?@>8A3B;8C@>ÿD853EFÿG<4<H8IJÿK65ÿL8:M@5ÿN<:@Eÿ<9>ÿ297@EI3@9Iÿ #5ÿ6 ÿ4ÿ6ÿÿ6ÿ73ÿ54 75ÿ-Oÿ34ÿ64ÿ6ÿÿ5ÿ74ÿ64ÿ3454 73ÿ 43ÿ8759ÿ+5&ÿ6745ÿ74ÿ76ÿ644ÿ$Pÿÿ64ÿ34ÿ64ÿ6ÿÿ5ÿ75ÿ 73ÿ$PPQÿ#5ÿ34566ÿ8759ÿ6ÿRS#-'$Pÿ5 73ÿ54 75ÿ-Oÿ8ÿ6ÿ73ÿ ).$Pÿÿ75ÿ6ÿÿ66759ÿÿ5ÿ34ÿ79ÿ4ÿ486ÿTP.ÿ67745ÿ5ÿ45ÿ5ÿ5587(ÿ 1ÿ ÿ 34565ÿ789ÿ ÿ7695ÿ47ÿ87ÿ7654ÿÿ 49ÿÿ ÿÿ!!"#"!$ÿ!!$!$ÿ%&ÿ '%()%(!%$ÿ*+ÿ,-.$!(+ÿ58/ 0ÿ4ÿ1992ÿ398765ÿ94 0ÿ4ÿ9890ÿ64ÿ82ÿ4ÿ5495ÿ34565ÿ 789ÿ7654ÿ6ÿ420ÿ458ÿ5 ÿ4ÿ2/ÿ9890ÿ82ÿ4ÿ714995ÿ34565ÿ789ÿ ÿ83969:12ÿ71499ÿ87ÿ ÿ8890624ÿ8ÿ ÿ;3 <39ÿ=>6ÿ ÿ78945ÿ789ÿ1992ÿ398765ÿ789ÿ7654ÿÿ/45ÿ 9?650ÿ13/4906ÿ420ÿ3156255ÿ76@0ÿ62?5< 2ÿ3425ÿ58/ 0ÿ4ÿ5499829549ÿ62945ÿ87ÿÿ 392AÿB494ÿ769<5ÿ62ÿ3496149ÿ5 <ÿ8ÿ3ÿ4462624ÿ<89ÿ827602ÿ62ÿ 69ÿ492624ÿ38/ 96ÿ <4625ÿ45ÿ4ÿ951ÿ87ÿ9789<5ÿ8ÿ 69ÿ3156255ÿ38978685ÿ4ÿ4?ÿ3 2ÿ1209/45ÿ788/624ÿ ÿCDEÿ 5ÿ4ÿ62064 ÿ4ÿ ÿ<8< 21<ÿ789ÿ/44ÿ629455ÿ45ÿ38< ÿ598249ÿ ÿ F82 556ÿ6ÿ65ÿ?64ÿ789ÿ5<4ÿ420ÿ< 061<956G0ÿ769<56ÿ/ 85ÿ<385 5ÿ4812ÿ789ÿHÿ 392ÿ87ÿ ÿ84ÿ/89I789ÿ62ÿ:43426ÿ8ÿ3885ÿ 69ÿ492624ÿ38/ 9ÿ58ÿ45ÿ8ÿ946Gÿ/44ÿ 498/ ÿ 4ÿ42ÿI 3ÿ13ÿ/6ÿ6274682HÿB88I624ÿ4ÿ ÿ43465ÿ789ÿ64 9ÿ/445ÿ420ÿ 62?5< 2ÿ35ÿ1992ÿ398765ÿ39ÿ<385 6ÿ ÿ764195ÿ789ÿ5<4ÿ420ÿ< 061<956G0ÿ769<5ÿ789ÿ 7654ÿÿ/ 9ÿ45ÿ788/5JÿEÿ<6682ÿ52ÿ789ÿ 85ÿ/6ÿ4364ÿ87ÿ55ÿ 42ÿÿ<6682ÿ 52ÿ/6ÿ 69ÿ<385 5ÿ4812624ÿ789ÿ1ÿ392ÿ87ÿ ÿ84ÿ/89I789KÿLHÿ<6682ÿ52ÿ 789ÿ 85ÿ/6ÿ4364ÿ87ÿÿ<6682ÿ52ÿ89ÿ<89ÿ31ÿ 55ÿ 42ÿEÿ<6682ÿ52ÿ/6ÿ 69ÿ <385 5ÿ4812624ÿ789ÿAÿ392ÿ87ÿ ÿ84ÿ/89I789Kÿ420ÿÿ<6682ÿ52ÿ789ÿ85ÿ /6ÿ4364ÿ87ÿEÿ<6682ÿ52ÿ89ÿ<89ÿ31ÿ55ÿ 42ÿÿ<6682ÿ52ÿ/6ÿ 69ÿ<385 5ÿ 4812624ÿ789ÿAÿ392ÿ87ÿ ÿ84ÿ/89I789ÿ8<3490ÿ8ÿ ÿ4?944ÿ4<824ÿ494ÿ769<5ÿ /6ÿ4364ÿ87ÿÿ<6682ÿ52ÿ89ÿ<89ÿE1ÿ<6682ÿ526ÿ1992ÿ398765ÿ39ÿ<385 ÿ789ÿ ÿ4789< 26820ÿ4 48965ÿ87ÿ769<5ÿ5420ÿ4ÿ8292 6ÿ82956@ 6ÿ420ÿ829767 ÿ87ÿ ÿ? ÿ 789ÿ494ÿ769<56ÿ9536? 5ÿ 65ÿ514455ÿ4ÿ ÿ4949ÿ ÿ54 ÿ87ÿ31562556ÿ ÿ4949ÿ ÿ 43465ÿ789ÿ64 9ÿ/445ÿ420ÿ62?5< 2ÿ 49ÿLÿ ÿ ÿAÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ ÿ76419ÿ789ÿ3156255ÿ76@0ÿ62?5< 2ÿ3425ÿ62105ÿ587/49ÿ420ÿMNOÿ62?5< 25ÿ31ÿ@105ÿ 420ÿ31945624ÿ@3255Kÿ6ÿ65ÿ3450ÿ82ÿ4ÿ62015965ÿ420ÿ2 9396556ÿ@10624ÿ ÿ76242ÿ420ÿ 6251942ÿ62015965ÿ Eÿ8ÿ 519?5ÿ87ÿÿ3956025ÿ87ÿ<4P89ÿ769<5ÿ9 450ÿ35ÿF6II6ÿQ2ÿ62ÿ:15ÿÿ58/ 0ÿ 4ÿ4381ÿ Aÿ392ÿ87ÿ769<5ÿ82769< 0ÿ 69ÿ62 2682ÿ8ÿ9465ÿ/445ÿ62ÿ539624ÿAÿQÿ4Iÿ65ÿ45ÿ?602ÿ4ÿ 769<5ÿ49ÿ4462624ÿ<89ÿ827602ÿ62ÿ 69ÿ492624ÿ38/ 9ÿ Hÿ ÿ 76419ÿ65ÿ3450ÿ82ÿ ÿÿ!!"#"!$ÿ!!$!$ÿ%&ÿ'%()%(!%$ÿ*+ÿ,-.$!(+RÿS.+ÿ789ÿ 7654ÿÿ420ÿ@105ÿ ÿ76242ÿ420ÿ6251942ÿ62015965ÿ 1ÿ ÿ 45ÿ677689ÿ7 ÿ89ÿ5ÿ759ÿ6989ÿ5 ÿ8 ÿÿ6ÿ69ÿ 88 ÿ8ÿ89ÿ 69ÿÿ8ÿ89ÿ669ÿ7ÿ6 97ÿ7 8ÿ696 97ÿ5ÿ69ÿ969ÿ7 8ÿ !ÿ668878ÿ69ÿ6 7ÿ598"9ÿ75ÿ689ÿ6ÿ8 ÿ ÿ5ÿ67595ÿ5ÿ767ÿ 7 ÿ69ÿ "5ÿ57ÿ69ÿ"8ÿ75ÿ557ÿ7 8ÿ889ÿ5 ÿ69ÿ767ÿ#5789ÿ 89ÿ69ÿ9ÿ89ÿ678"87$%ÿ&75ÿ7 ÿ6"686ÿ676ÿ6ÿ887 ÿ7 ÿ9ÿ 5ÿ' &ÿÿ6ÿ69ÿ 88 ÿ8ÿ89ÿ669ÿ5ÿ75ÿ()1*ÿ89ÿ(2(1ÿ6ÿ"95ÿ 896ÿ5ÿ(21)ÿ69ÿ5"ÿÿÿ8ÿ75ÿ797 9ÿ696 97ÿ5ÿ6ÿ889ÿ ÿ76$ÿ'55"ÿ7 ÿ6ÿ65ÿ676ÿ789ÿ767ÿ59ÿ8 97ÿ6ÿ5ÿ8 ÿ75ÿ 97ÿ9ÿ89ÿ678"87ÿ69ÿ7 ÿ8ÿ6ÿ589ÿ9ÿ5ÿ6ÿ ÿ5567ÿ 696 97ÿ8ÿ589ÿ59ÿÿ75ÿ9678596ÿ69ÿ5ÿ7867ÿ89ÿ 859$ÿ+ÿ#7ÿ767ÿ776ÿ89ÿ5ÿ8ÿ5ÿ 8ÿ8ÿ ÿ89ÿ657ÿ 6ÿ57ÿ767ÿ57 8ÿ8967859ÿ,- 67ÿ1./$ÿ07 5ÿ657ÿ12ÿ97ÿ5ÿ27ÿ 5ÿ6ÿ69ÿ 88 ÿ8ÿ75ÿ6ÿ5ÿ' &ÿ69867ÿ6ÿ6 ÿ75ÿ896986ÿ 897877859$1ÿ4 5ÿ87ÿ7 ÿ689ÿ69ÿ869ÿ5ÿ8596ÿ896986ÿ897877859ÿ+ÿ 5ÿ75ÿ ÿ6ÿ589ÿ5ÿ5ÿÿ6ÿ5ÿ89ÿ5ÿ69ÿ#7ÿ767ÿÿ 5ÿ8ÿ5 ÿ8 6ÿ69ÿ667$ÿ ÿ 34ÿ6789:;<=>?ÿ9@ÿABC<=>?7?=;Dÿ9@ÿE;<:;F8Dÿ G55789ÿ7 ÿ6989ÿ5 ÿ5ÿ#8789ÿ8ÿ659ÿ8ÿ957ÿ95ÿ75ÿ68ÿ7 ÿ57ÿ67ÿ5ÿ 669Hÿ595$ÿ4 ÿ5ÿ5ÿ767ÿ8ÿ#7 ÿ857697ÿ89ÿ767ÿ7 ÿ67ÿ9ÿ6 7ÿ 75ÿ9ÿ79558ÿ69ÿ6ÿ57$ÿ7ÿ6ÿ69ÿ767ÿ89ÿ669ÿ6 ÿ6"69ÿ 69ÿ5"ÿ5958ÿ57ÿ89ÿ7 ÿ(27ÿ97ÿ87ÿ8ÿ9786ÿ75ÿ557ÿ7 ÿ57ÿ5ÿ 767ÿ89ÿ7 ÿ(17ÿ97ÿ6ÿ $ÿI5 "ÿ7 ÿ6ÿ5ÿ989ÿ69ÿ7 ÿ9ÿ5ÿ9859ÿ ,8"67ÿ767ÿ"6 ÿ67ÿ5"ÿ1ÿ8859ÿJ$K$ÿ56/ÿ97ÿ6ÿ5" 89ÿ5ÿ 8ÿ8ÿ59ÿ5ÿ7 ÿ5978789ÿ675ÿ75ÿ5958ÿ76967859$ÿ+ÿ7 5ÿ5ÿ767ÿ9 ÿ 7 ÿ5"9 97HÿK767ÿ! "5 97ÿ08"L 6ÿM69ÿ69ÿ767ÿ8ÿ6 ÿ67ÿ ÿ%ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ4 ÿNOPQPROQSÿUVQVWXWPVYÿUVQVOYVORYÿZ[ÿ\Z]^Z]QVOZPYÿ_`ÿaPbcYV]`dÿePPcQSS̀ÿ5 ÿ767ÿ7 ÿ76#ÿ 587ÿ689ÿ5ÿ6ÿ69ÿ 88 ÿ8ÿ89ÿ669ÿ6ÿ659ÿ*ÿ97$ÿ' 69 8ÿ7 ÿ #76567 ÿ7ÿ5ÿ7 ÿNOPQPROQSÿUVQVWXWPVÿUVQVOYVORYÿ6 ÿÿ7 ÿ! 7 ÿG9 69ÿ 5 ÿ767ÿ7 ÿ76#ÿ587ÿ689ÿ5ÿ6ÿ69ÿ 88 ÿ8ÿ89ÿ 69ÿ,75ÿ87ÿ6ÿ 5ÿÿ769ÿf2ÿ8859ÿ5/ÿ6ÿ659ÿgÿ97$ÿ 1ÿ4 ÿ hihhÿjkOVWÿlQ^W]ÿZPÿUXQSSÿmPVW]^]OYWYÿOPÿnQ^QPÿ6 ÿÿ7 ÿK6ÿ69ÿ' 8ÿo978ÿ &9ÿ5 ÿ767ÿ7 ÿ57ÿ56ÿ6ÿ5ÿ8 ÿ8ÿ75ÿ89ÿ' &ÿ69867ÿ6ÿ75ÿ ÿ7 ÿ ÿ5ÿ896986ÿ897877859$ÿ 12ÿ ÿ 3453678986 ÿ364ÿ68 ÿ938 ÿÿ ÿÿ8ÿ4858986ÿÿ68 ÿ8768ÿÿ 3 6ÿ8ÿ8769ÿÿ938ÿ834 3ÿ 34ÿ8796ÿÿÿ53ÿ3ÿÿ ÿ !ÿ#$$%&'()ÿ*$+%,-$./%0ÿ123('()ÿ4$5,3ÿ 66ÿ7366ÿ73368ÿ87697ÿ364ÿ38ÿ 78ÿÿÿ9 36ÿÿ88ÿ89 ÿ6ÿ6ÿÿ 8ÿÿ48ÿÿ3ÿÿ8ÿ489364ÿ48ÿÿ8ÿ 86866ÿÿ848ÿ8366ÿ 8ÿÿ3ÿ8ÿ438ÿ6798ÿÿ834ÿ67838ÿ6ÿ438ÿ6798ÿ ÿÿ ÿ7696ÿ898648ÿ4ÿ8ÿ6ÿ3ÿ48768ÿ6ÿ356ÿ38ÿ364ÿ4ÿ888ÿ 37ÿ 363ÿ:ÿÿ836ÿ6ÿ8858ÿ3ÿ ÿ89 ÿ38ÿ6878 3ÿ;8ÿ ÿÿ3ÿ 89ÿ 34ÿ956ÿ8988ÿ798636ÿ 7ÿ3776 ÿÿ36ÿ89 898ÿÿ 6ÿÿ733688ÿ848ÿ438ÿ6798ÿ3ÿ<=ÿ8786ÿ3ÿ1<ÿ> ÿ6ÿ 986684ÿ838ÿÿÿ9 36ÿÿ ÿ8ÿ8366ÿ 8ÿÿ9 ÿ6746ÿ93ÿ364ÿ 9849?@84ÿ68ÿ364ÿÿÿ93638986ÿÿ68ÿ3ÿ67838ÿ8988ÿ538ÿ>68ÿ 6ÿÿÿ64543ÿÿ7368ÿAÿ364ÿ958ÿÿ3ÿ9ÿ86ÿ8ÿ38ÿ ÿ ;8ÿ8764ÿ89ÿ3ÿ6ÿ6ÿÿ6878 3ÿÿ7366ÿ84ÿ63673ÿ3 8ÿ796ÿ 66ÿ7336ÿ73ÿ364ÿ48ÿ938ÿÿB=ÿ8786ÿÿ84ÿ63673ÿ3 8 ÿ8ÿ8Cÿ 364ÿ658 986ÿ ÿ938ÿÿ1Bÿ8786ÿ3ÿÿ9384ÿÿ8ÿD684ÿE38ÿ364ÿ8ÿ 8ÿ383ÿ84ÿ63673ÿ3 8 ÿ6ÿ7336ÿ38ÿ73378@84ÿÿ3ÿ8ÿ 6ÿÿ73ÿ 364ÿ48ÿ;ÿ8ÿ 6ÿÿ454864ÿ364ÿ688 ÿ6798ÿ3ÿ938ÿÿ438ÿ 6798ÿÿ ÿ3ÿ=ÿ8786ÿE678ÿ8686ÿ8ÿ48363ÿ84ÿ3ÿ8988ÿ798636ÿ 3ÿ36384ÿ848ÿ63673ÿ88 3ÿ3ÿ4878384Fÿ ÿ8ÿ ÿ356ÿ38ÿ8ÿ 889ÿÿ358ÿ8586ÿ98ÿÿ3ÿ48363ÿ9648ÿÿ8 6ÿ8ÿ8646ÿ364ÿ346ÿ 968ÿÿ838ÿÿ8ÿ89868ÿ3ÿ1ÿG6ÿ 34ÿ3ÿ438ÿ6798ÿ 67838ÿ84ÿÿ6884ÿÿ 8ÿ3ÿ88ÿ33678ÿ8 886ÿ7696ÿ356ÿ364ÿ 658 986ÿ364ÿÿÿ3ÿ ?8684ÿ9648ÿÿ6ÿ968ÿ88758ÿ;ÿÿ 6878 3ÿ6ÿ58 ÿÿ37856ÿ3ÿ834ÿ67838ÿ6ÿ438ÿ6798ÿ ÿ > ÿ733688ÿ84ÿ 8ÿ3 8ÿ936ÿ58ÿ8ÿ7 8ÿÿHÿÿBÿ83 ÿÿ 658 986ÿ6ÿ63673ÿ3 8 ÿ76ÿ6ÿ8ÿ6ÿ89ÿ83ÿ76 6ÿ364ÿÿ 458 736ÿ8ÿ3ÿ87856ÿ4 6ÿÿÿ9ÿ84ÿ9 ÿ6ÿ8ÿ9ÿÿ ÿ<ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ;8ÿ8ÿÿ3ÿÿ8ÿ864ÿÿ1<ÿ 11ÿ ÿ 456547849ÿ ÿ5867978ÿ9979ÿ7ÿ547ÿ7778ÿ9749ÿ84ÿ7ÿ78 ÿ5ÿ7ÿ 9787874ÿ5658ÿ597ÿÿÿ659ÿ7ÿ7458ÿÿ5867978ÿ84ÿ7ÿ89 581ÿ ÿ77ÿÿÿ767879ÿ84ÿ95ÿ58987ÿ7 5 9ÿÿ5ÿ7ÿ979ÿ ÿÿ54ÿ 84ÿ5ÿ995987ÿÿ5ÿ58797ÿ84ÿÿ7ÿ78 ÿ5ÿ ÿ57ÿ8ÿ 57ÿ 87ÿ7778ÿ9778774ÿ58 7ÿÿ54ÿ84ÿ5ÿ995987ÿ59ÿ585874ÿÿ 7ÿ59ÿÿ59ÿ5ÿ7578ÿÿ7ÿ995855ÿ ÿ95ÿ975ÿ84ÿ ÿ 77589ÿ957ÿ567ÿ89 58ÿ84ÿ7678ÿ58ÿÿ9774ÿ957ÿ58ÿÿ 984ÿ4767 78ÿ ÿ7ÿ858ÿ78 ÿ ÿ 8!ÿÿ ÿ1ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ"ÿ7954785ÿ 7ÿ59ÿÿ5ÿ5885ÿ997ÿ ÿ#8797ÿ9749ÿ7ÿ5798ÿ ÿ 979ÿ58ÿ#8ÿ59ÿ799ÿ8ÿ$ÿ79ÿ84ÿ7ÿ978484ÿ958ÿ !7ÿ59ÿ9 ÿ858ÿ ÿ 8ÿ1%ÿ778ÿ ÿ7ÿ958ÿ !7ÿ67ÿ59ÿ !79ÿ979ÿ 9ÿ89 7ÿ47ÿ 49ÿ 4ÿ8ÿ58ÿ9ÿÿ ÿ97ÿ997ÿ 58ÿ ÿ757 78ÿ8ÿ7ÿ&8574ÿ'79ÿ7ÿ5798ÿ ÿ 979ÿ59ÿ 9ÿ(ÿ79ÿ84ÿ7ÿ978484ÿ958ÿ !7ÿ !79ÿÿ)*ÿ778ÿ ÿ7ÿ67ÿ 958ÿ !7ÿ797ÿ579ÿ77ÿ574ÿ ÿ4ÿ8ÿ7ÿ958ÿ97 ÿ77974ÿ58ÿ59ÿ222ÿ 97589ÿ+$,ÿ1ÿ-1.ÿ84ÿ+*,ÿ/ÿ-2.ÿ 574ÿÿ7ÿ5859ÿ ÿ084ÿ8 97ÿ 89 ÿ84ÿ 59 ÿ-657ÿ8ÿ58ÿ#8797.ÿ 12ÿ 01232451ÿ7185958 ÿ 51ÿ 3ÿ238 ÿ251ÿ53ÿ3 ÿÿÿ!ÿ"ÿ#$%ÿ#&'(ÿÿ)*$!$ +,-./0.1ÿ345ÿ6463 +7879:;7ÿ<,=,>?@ 9./0.1ÿ,AÿBC.ÿD,E@F=ÿG,>1H G>I?ÿ,AÿJ>K>I LC>1BÿM N9OÿD1,P.FB@,IQÿ@IÿBC.ÿR$'%&ÿS$$TÿUV%$$W X YF B , . Z =g=hÿFCi^ Ma Mb M6 M4 ` a b _6 _b _a _` Lj`4 [,\1F.]N9O^ N9OÿK1,P.FB@,IQ J>K>I LC@I> `c :[email protected]ÿ[B>B.Q NIH@> d4 dc e\1,ÿ>1.> f,1EHÿ,\BK\B 4c M4 Mc 6c %Iÿ # E D C B A ' $ # @ @ /0102 F65177ÿ 173 G267ÿHCIJ *1432ÿ762ÿHEIJ )67 63ÿK633ÿ1432ÿ762LÿH$IJ M113ÿH'#IJ 09-ÿK633ÿ763ÿ11LÿH##IJ O63ÿ6 P'IÿK2ÿ#$L 01234567ÿ9763 324567ÿ95056: %Iÿ 0 7ÿ ;<=>ÿ?=60 %Iÿ # G267ÿHCIJ # G267ÿH#IJ E *1432ÿ762ÿH$$IJ E *1432ÿ762ÿHBIJ 633ÿ1432 633ÿ1432 D )76627LÿH6$3#ÿKIJ D )76627LÿH6$3DÿKIJ C M113ÿH$#IJ C M113ÿH'BIJ B 09-ÿH##IJ B *-09ÿH##IJ A O63ÿ6 A O63ÿ6 ' PEIÿK426ÿ#L ' P#BIÿK( ÿ#L $ $ # # @ @ @ @ 0ND E # $ 0ND E # $ 0ND E # $ 163ÿÿ4763ÿ17ÿ65177ÿ 173ÿ17ÿ2ÿ76ÿ 2ÿ3ÿ635 63ÿ2ÿ1233ÿ1ÿ6ÿ663ÿ1ÿ6ÿ1234512ÿÿ6 1 63ÿ126722ÿ6ÿ71 312ÿ1ÿ766ÿ64 12ÿ7 6ÿ34!3ÿ71753ÿ2ÿ6ÿ76412ÿ2ÿ51!6ÿ126ÿ 763 ÿ4763ÿ2ÿ26ÿ!7 63ÿ31"ÿ6ÿ3 76ÿ1ÿ6 ÿ151262ÿ4763ÿ17ÿ#$%&'ÿ76ÿ136ÿ17ÿ( 1!67 )14763ÿ* 67+ÿ, 237ÿ1ÿ-2672ÿ.73ÿ2ÿ015542 123 0 7ÿ$ 176 33ÿ1ÿ6ÿ, Q17ÿ1ÿ6ÿ91ÿ17ÿ,65!673 %ÿIÿ KV667626L 09-ÿKÿ653ÿ633ÿ763ÿ11ÿ2 6267L 09-ÿKÿ653 ÿ633ÿ763ÿ11L PDÿ1ÿP# PCÿ1ÿP$# P$Aÿ1ÿP$E 3 ÿ#$ TP#U TPDU TP$DU P ÿ ÿ P A P ' ÿ ÿ P C P $ ÿ1ÿP$$ 176 33ÿ5 6ÿ2ÿ4ÿ#$ TP$U TPAU TP$U P#Eÿ1ÿP' PCÿ1ÿP$ PBÿ1ÿP 3 ÿ#' TP#U TPDU TPEU P#ÿ1ÿP$ PDÿ1ÿP PAÿ1ÿP# 176 33ÿ5 6ÿ2ÿ4ÿ#$ TPU TPEU TPCU P # D ÿ ÿ P P B ÿ ÿ P # P Dÿ1ÿP 3 ÿ#A TP#U TPCU TPEU P#ÿ1ÿP PBÿ1ÿP# PDÿ1ÿP 176 33ÿ5 6ÿ2ÿ4ÿ#$ TP#U TPBU TPDU 163ÿÿ4763ÿ2ÿ!7 63ÿ2 6ÿ6ÿ56 23ÿ1ÿ6ÿ91ÿ17ÿ565!673Rÿ176 33ÿK12ÿ635 63L ÿF 6ÿ176 33ÿ1ÿ6ÿ5 Q17ÿ1ÿ6ÿ91ÿ17ÿ565!673ÿ76ÿ123746ÿ3ÿ11"3ÿ6 ÿ91ÿ17ÿ565!67R3ÿ176 3ÿÿ 63ÿ6ÿ175ÿ1ÿÿ12ÿ635 6ÿ@@256ÿ6ÿ476ÿ1ÿ" ÿ6ÿ ÿ6ÿ63ÿ71!!ÿ1ÿ76S12ÿF 636ÿÿÿ 176 33ÿ76ÿ62ÿ31"2ÿ3ÿÿ726ÿ"ÿ6ÿ63ÿ476ÿ2ÿ6ÿ1"63ÿ476ÿ646ÿF 6ÿ726ÿ163ÿ21ÿ2 6ÿ6ÿÿ 176 3ÿ677173 $ÿG ÿ91ÿ17ÿ565!67ÿ5 63ÿ67ÿ176 33ÿ2ÿ21ÿ 142ÿ6ÿ663ÿ1ÿ3ÿ1ÿ6 3123ÿ2ÿ"ÿ7667626 1ÿ6"3ÿ217176ÿ2ÿ22 ÿ5 763ÿ7672ÿ6ÿ4476ÿ124ÿ1ÿ1 )1476ÿ 2ÿ1ÿ2 V6ÿMW9 9 ÿ ÿÿÿ !" 63 ?M?N 1/ @O73 78 33 38 63 68 23 21-ÿ1 # $%&'(ÿ)'* 63 ?M?N 1/ÿÿÿÿ @O73 78 33 38 63 68 23 +,-.ÿ6/ÿ01ÿ293ÿ45 ÿ ÿ67ÿ-44ÿ-8-ÿÿ9:5ÿ-1ÿ44 -ÿ,4ÿ,58;-,ÿ-9ÿ17<ÿ;,: ÿ, ÿ-1 ;,=,ÿ,4ÿ4 ÿ5-,<ÿ-=:ÿ5>?ÿ;,8<ÿÿ-1ÿ5-,ÿÿ8,>:ÿ;1,ÿ1/ 2/ÿ@5 ÿ4,ÿ,8:ÿAÿ ÿ4,ÿ->:18 -ÿA-1ÿB3ÿ,ÿ8, ÿ8;:,? ÿ4,ÿ4:ÿ6773<ÿÿA-1ÿ8ÿ,ÿ8, ÿÿÿÿ 8;:,? ÿ4,8ÿ4:ÿ6776ÿ,A/ B/ÿC ÿ45 ÿ4,ÿ4:ÿ232B<ÿ-1-ÿ4,ÿ-1ÿ293ÿD:ÿ4 1ÿ4,,Eÿÿ-1ÿF; :0G -,> = Hÿ-1-ÿ4,ÿ,8: Aÿÿ-1ÿF; :0I;-8> ÿ= / I,5 .ÿJ -?ÿ,4ÿK :-1<ÿL>,5ÿÿ :4 HÿJ -?ÿ,4ÿ3-:ÿF44ÿÿ2,885 -,/ F5:ÿ3,8 .ÿ 2,8;,ÿA-1ÿFÿV,,8 ÿDÿ,4ÿ2322E 133 -1,5/ÿTIU B83 P;ÿDP;ÿ48E 21ÿD6 QE B33 I,5-1ÿR, 01: S -8 VW5=:-ÿ-, VW5=:-ÿ-,ÿ ;,-,ÿ: ÿ8 ÿ,ÿ8 ÿÿ:ÿ48 ÿÿ:ÿ48 +,-.ÿ6/ÿ01ÿ1, X,-:ÿ9ÿ1,Aÿ-1ÿ:=:ÿ,4ÿ-1ÿ;,-,ÿ:ÿÿ4ÿ>?ÿJ /ÿ01ÿ:=:ÿ,4ÿ-1ÿ;,-,ÿ:ÿ :,A ÿ-1ÿÿ9 5-=ÿÿÿ:ÿ48ÿÿ1,Aÿÿ-1ÿ1-Hÿ-1ÿ45-1 ÿ-,ÿ-1ÿ1-<ÿ-1ÿ11 ÿ-1ÿ;,-,ÿ :/ 2/ÿ@5 ÿ:5ÿ -=ÿ;ÿ4,ÿ633ÿ; -ÿ1 =8 -ÿ,4ÿ; 4,8 ÿÿ ÿ-1ÿ8 ÿ4,ÿ1 ;,-,ÿ:/ I,5 .ÿJ <ÿYZYYÿ[\'(ÿ]$^&'\%&ÿ_^`a/ 21-ÿ8ÿ '38ÿ8ÿ 87ÿ!ÿ7"ÿ#$ 6ÿ9$9ÿ%9&9968ÿ'8ÿ8ÿ%( 010 56789ÿ889 9 6 8 56789ÿ76 6 323 4000400 4002400 4030403 )89*ÿ7$9ÿ9ÿ987 89ÿ+ÿ(!9ÿ,-../.ÿ0$8$ÿ1 2$3$76ÿ567&9784ÿ+9ÿ6ÿ839ÿ89ÿ!ÿ) 876 .$68ÿ1).4ÿ79ÿ+ÿ839ÿ' +7698ÿ5!!796ÿ6ÿ6$87ÿ($87&78ÿ1(4ÿ% 8+96ÿ6ÿ)0.)6&98 % 8+91 $9*ÿ,7678ÿ!ÿ#9836ÿ7+$ÿ6ÿ/9!91 '38ÿTÿ 9$769ÿ7:9ÿ6&98968ÿ6ÿ9$769ÿ(9! 69 U00 -4000V300 (7&89ÿ66979687ÿ76&98968ÿ1).6ÿ6764 '$968ÿ!78 -2 )89*ÿ7$9ÿ!ÿ$968ÿ!78ÿ9ÿ+9ÿ6ÿ839ÿ;<=>=?<>@ÿBC>CDED=CFÿBC>C<FC<?FÿGHÿIGJKGJ>C<G=FÿLMÿN=OPFCJMQÿR==P>@@M6ÿ 6ÿ9:$9ÿ839ÿ!7669ÿ6ÿ76$69ÿ76$8791 $9*ÿ' +7698ÿ5!!79Sÿ,7678ÿ!ÿ76691 045ÿÿ 0123456718ÿ1ÿ415ÿ5166ÿ68ÿÿ018567 "% "#17ÿ(-ÿ18748ÿ3567-ÿ$#".ÿ 7 '4348 (86ÿ47 (86ÿ)68*12 5248 ,4 "$ +548 "# ! 0/&" &! #" 1ÿ ÿ35ÿ35718ÿ231 15ÿ0 #! "" "! $" 045ÿ&ÿ ,7ÿ15ÿ3ÿ48ÿ,83ÿ567 "## ,ÿ685678ÿ18487-ÿ9ÿ31687 ,ÿ15ÿ683ÿ3567ÿ2687ÿ,ÿ15ÿ13ÿ3567ÿ656*ÿ747 # ,ÿ15ÿ683ÿ3567ÿ6ÿ747 !# ,ÿ15ÿ13ÿ3567ÿ6ÿ747 %# :67 $# # 1$# 1%# 1!# 0/&# &. ## #. "# ". 17ÿ"ÿ+6*57ÿ45ÿ15ÿ4ÿ687567ÿ48ÿ8535677-ÿ068*ÿ684864ÿ68766187 $ÿ+6*57ÿ15ÿÿ1512 5ÿ2455ÿ1ÿ$#$3ÿ45ÿ15477 15ÿ4485ÿ1ÿ'4348 9ÿ31687 # $# # !# .# %# 3# $# "# # 4149ÿ.@ 01234ÿ614789ÿ3 93ÿ ÿÿÿ ÿ!ÿ "#$!%ÿ&'$ÿ(!% !ÿ)ÿ*ÿ+$' P@ :;HN8=98E8NÿCN 233989NJ<ÿWÿ63 9 S W .<>@@ 88 V@ P A@ >@ .<.P@ V .@ @ A C.@ .<.@@ > C>@ ;233989 CA@ . CV@ @ .<@P@ CP@ X>@ >. >> >A XR@ RP @@ @P .@ .P >@ XR@ RP @@ @P .@ .P >@ ,398-ÿ./ÿ01248ÿ334ÿ948ÿ856738589ÿ93 93ÿ:;ÿ148ÿ334ÿ177ÿ 2948ÿ1 ÿ8984648<ÿ8=972 1ÿ3 1917ÿ99293/ >/ÿ?48ÿ31248ÿ334ÿ948ÿ2856738589ÿ4198ÿ334ÿ>@>Aÿÿ948ÿB12148CD86985284ÿ1E84118/ A/ÿ01248ÿ334ÿ948ÿ1E84118ÿ432478ÿF118ÿ19ÿ948ÿ958ÿ33ÿ489429589ÿ148ÿ9438ÿ334ÿ6149C958ÿG32ÿ1 ÿ93E84ÿ948ÿ94488ÿ714189 5894363791ÿ1481ÿH948ÿ?3783ÿ5894363791<ÿ?371<ÿ1 ÿI11ÿ1481J/ D32498-ÿ6 948ÿ33ÿ;98417ÿK3314ÿ1 ÿ3552 9193LÿM89429ÿ3/<ÿ09/<ÿNM86349ÿ3ÿ1E84118ÿ432478ÿF118ÿ334ÿ6149C958ÿG32ÿ 19ÿ958ÿ33ÿ489429589<Nÿ4996-OOG249/489429/93/G6O191O191>@>A...PQ>RST/4957ÿH1E171278ÿ378ÿÿB16188JLÿU17ÿ33ÿB161/ 4149ÿ.. 356143ÿ33ÿKE84118ÿK 217ÿ\118ÿÿ]Tÿ32948 R .@9432/ÿ_D:<ÿ93919ÿ6498<ÿ>@>>ÿ̀``ÿÿ B161 _ 98ÿD9198 ^ _ 98ÿI 135 ]84518 ;9178 T S P V A XR. RS @. ,398-ÿKE84118ÿ1 217ÿF118ÿÿ3277C958ÿ8Y2E1789/ D32498-ÿZ[ :/ @S .. .S >. +2ÿ7 0 3ÿ1ÿ,134ÿ,1ÿ+3ÿ#14ÿ%3ÿ1ÿ )13ÿ-132ÿ+1214 70! 7!ÿ2148ÿ3414 7"! 7! 77! 7!! /! .! +47" 70 71 7. 7/ ! " 012345ÿ78ÿ9 34ÿ33432ÿ23ÿ3ÿ1ÿ134ÿ1ÿ32ÿ23ÿ314ÿ1ÿ2ÿ23ÿ42ÿ3ÿÿ423ÿ21ÿÿ3 13ÿÿ143ÿ341ÿ1ÿ3ÿ23ÿ314ÿ1ÿ4ÿ21ÿÿÿ1ÿ2ÿ3223ÿ3132ÿ12148 8ÿ3ÿ 3ÿ1ÿ!"ÿ4ÿ23ÿ#$%3233ÿ338ÿ&23ÿ 34ÿ3ÿ23ÿ&213$'333ÿ33ÿ1ÿ23ÿ 34323ÿ38 %1 35ÿ( 42ÿ1ÿ)23ÿ*4ÿÿ+1 2148 +2ÿ7" %3ÿ1ÿ,134ÿ,1ÿ-5333ÿÿ,3ÿ)343ÿ ÿ7!ÿ=332ÿ1ÿ(13ÿ23ÿÿ#1ÿ+3 0! > "1 "! ! 94! !0 !2 !. 7! 7. ! 012345ÿ78ÿ9 34ÿ41ÿ23ÿ1121ÿ1ÿ134ÿ1ÿ35333ÿÿ3ÿ3ÿ343ÿ1ÿ2ÿ342ÿ7!ÿ332ÿ23 ÿ14ÿ21ÿ23ÿ212ÿ1ÿ134ÿ1ÿ3ÿ148 8ÿ3ÿ 3ÿ1ÿ4ÿ!"ÿ4ÿ23ÿ33ÿ1ÿ23ÿ* $#3ÿ623ÿÿ23ÿ#$%3233ÿ6238 %1 35ÿ73 2ÿ+18ÿ828ÿ'331324ÿÿ3ÿ34ÿ1ÿ42ÿ14ÿ 22459983 281893411934433439!"977!:737.82ÿ;3ÿ1ÿÿ#343<8 "ÿ?@ 97945ÿÿ!49ÿ" 231ÿ #ÿ15 1545ÿ1ÿ545ÿ91ÿ9ÿ$47 '(45+*+,ÿ./)016 '()(*+,ÿ./)01 .*75(7+*+,ÿ.890017:1ÿ;*4ÿ<4*=58 %5#31ÿ9ÿ8ÿ95ÿ29ÿ45211ÿ9ÿ8421 39ÿ9ÿ29ÿ45211ÿ9ÿ8421 9ÿ9ÿ#9#ÿ29ÿ45211ÿ9ÿ29ÿ12495ÿ 5ÿ51ÿ892ÿ11398715ÿ112ÿ12 "954#495ÿ9ÿ894ÿ97ÿ29ÿ12495ÿ 5ÿ51ÿ892ÿ11398715ÿ112ÿ12 0123451ÿ45ÿ2824 ÿ 9ÿ41ÿ 1 0123451ÿ45ÿ2824 ÿ 9ÿ451715 7891715ÿ45ÿ2824 ÿ 9ÿ41ÿ 1 3 4ÿ 1 51715ÿ145 48715ÿ7 5ÿ2843ÿ 07 145ÿ12 45#31ÿ 1ÿ9 3 4ÿ29571&ÿ 88141ÿ9ÿ81545 0123451ÿ45ÿ9ÿ1812 495 0123451ÿ45ÿ1783911ÿ 15 1715 41ÿ45ÿ9ÿ1812 495 29945ÿ9ÿ1783911ÿ 15 1715 >2ÿ9ÿ7 5 1715ÿ 15 1545ÿ9ÿÿ 7 5 1715ÿ1921 0123451ÿ45ÿ89244 ÿ5ÿ4559 495ÿ2824 5211ÿ45ÿ89244 ÿ5ÿ4559 495ÿ2824 421ÿ297814495ÿ53 4ÿ31 0123451ÿ45ÿ1545ÿ891ÿ5 3 4ÿ#451ÿ8197 521 3 4ÿÿ1151ÿ5ÿ295215ÿ#9ÿ 45#434 ÿ9ÿ9243ÿ124 5211ÿ45ÿ1ÿ31ÿ9ÿ1783911ÿ5ÿ 892ÿ12ÿ5ÿ185495ÿ9ÿ31 15 1545ÿ9ÿ1545ÿ891ÿ 5ÿ 45#31ÿ9 5211ÿ45ÿÿ1151ÿ5ÿ47891715ÿ45ÿ 45#434 ÿ9ÿ9243ÿ124 ?J MÿNÿ2 H 5211ÿ45ÿ29571&ÿ 88141ÿ9ÿ81545 7891715ÿ45ÿ2824 ÿ 9ÿ451715 85495ÿ9ÿ451715 48715ÿ7 5ÿ2843ÿ 07 145ÿ12 "ÿ?G %54ÿ>#9ÿ"9 L85 %541ÿ 1 9ÿ1 @ I 3@ 3H "OKG II IG ?I 921Aÿ" #451ÿB421CÿD 1Cÿ%ÿ21ÿ9ÿ>#9ÿ 442ÿE2>F ?G JI 7!12ÿ89 0123435ÿ789 2ÿ8ÿ42 ÿ 8<; 242363 8;; >; 9; =; <; ; A?; ?@ ;; ;@ 8; 8@ <; :#ÿÿÿÿÿ&#% >D C @ = B < ; A?; ?@ ;; ;@ 8; 8@ <; 8ÿ452ÿ121 ÿ83ÿ!ÿ"#$#%ÿ&#'ÿ&#$ÿÿ(#ÿ)*ÿ+,*-ÿ.#%%*/ÿ13ÿ012 ÿ!ÿ43131ÿ 13ÿ432131ÿ43243 4821ÿ543426ÿ8ÿ431313ÿ 7!12ÿ8C 8 4312FG7 9 6M6ÿDÿ1!53 8 4312ÿFG7ÿH2I2/ÿ245!ÿ112J K 12ÿFG7ÿH5289!ÿ21/ÿ2ÿ112J B 2423ÿ63 C@; 8 4312ÿFG7ÿH5289!ÿ21/ÿ2ÿ112J 9@; ; EB Bÿ612 8?ÿ612 E9 @@; E? E8< A?@ ;; 4821ÿ7143ÿL 413 ;@ 8; 8@ <; =@; 01213456ÿ89ÿ4 ÿ1ÿ1ÿ55 0 5ÿ9845ÿ2ÿ296 ÿ!"ÿ#$% 0 15ÿ(F #"-//ÿ-,8ÿG%89"H#$%8ÿ!"1ÿ6ÿ4-50-/ÿ N 4)6ÿ2ÿ296 >)A 4)6ÿ2ÿ296 012451ÿ98ÿIAÿ449ÿ6ÿ9ÿ9ÿ+5ÿÿ51ÿ(AAÿ449ÿ6 ?1 ÿ84 I 012451ÿ98ÿ(Aÿ449ÿ6ÿ9ÿ9ÿ+5ÿÿ51ÿIAÿ449ÿ6 ()I B1ÿ1ÿ4C4Dÿ84 012451ÿ98ÿÿ51ÿ(Aÿ449ÿ6 M ()A L A)I > A)A ( CA)I A *KJA JI AA AI (A (I >A *KJA JI AA AI (A (I >A &95'ÿ()ÿ*4ÿ1+1ÿ9ÿ5ÿ,-,.-/ÿ#0-0%"%,01ÿ#0-010.1ÿ23ÿ42!52!-02,1ÿ6ÿ7,8910!:ÿ;,,9-//<ÿ1ÿ=3ÿ5ÿ8413ÿ 1ÿ413ÿ454) >)ÿ?1 ÿ84ÿ1ÿ39341ÿ39291549ÿ@45ÿ312451ÿ98ÿ(AAÿ449ÿ6ÿ9ÿ9)B1ÿ1ÿ4C4Dÿ84ÿ1 39341ÿ39291549ÿ@45ÿ312451ÿ98ÿÿ51ÿ(AAÿ449ÿ6)ÿ B93'ÿE4456ÿ98ÿ*413)ÿ 0 15ÿ(J 9 ÿ4ÿB5351ÿO89ÿ+6 B1ÿ1ÿE4CB4Dÿ*4 Z,0!ÿ,02ÿ̀%aÿ91,%11ÿ;.0b0 6ÿ;c%ÿ23ÿY!%18%,0 GP;ÿ4-1%1 L<AAA +98ÿ31 e4ÿ3349ÿ2295ÿ35 ><IAA Iÿ1 5ÿ+9\ÿ98ÿ1ÿ1ÿ4C4Dÿ84 ><AAA (<IAA (<AAA IAA A *K(M (I (N (d (F (J >A >( hÿMA >A)Jf >J)(f g(IF MA gJA( (L)>f >N)Nf IA g(<MNL (A)If >d)(f NA g(<FdF F)(f >d)>f dA gdFF F)Nf >I)(f ]ÿdA (A)If (d)(f g(AI Af >Af 1ÿ13546ÿ5 1ÿ95ÿ5 MAf IA)Af NA)>f N>)Mf NM)df NN)>f d>)Mf NAf FAf (AAf 1ÿ5ÿ59ÿ9ÿ=55 &95'ÿ()ÿQ ÿ85ÿ21ÿ4ÿ+1ÿ9ÿ151ÿ89ÿ5ÿ295ÿ14ÿ5ÿ299549ÿ98ÿERSÿ19ÿ1ÿ1ÿ4C4Dÿ84ÿÿ 1ÿ+6ÿ5ÿB1ÿ1ÿE4ÿ524ÿS 36ÿ9ÿTÿ>(<ÿ>A>>) >)ÿQ ÿ4 5ÿ21ÿ4ÿ+1ÿ9ÿ151ÿ89ÿ*4ÿ(C(CFJÿ4ÿ5ÿUVUUÿWX0%ÿY-5%!ÿ2,ÿ#"-//ÿZ,0%!5!1%1ÿ,ÿ[-5-,<ÿ1ÿ 9@ÿ5ÿ56ÿ459ÿ@ÿ+4ÿ1354456ÿ185ÿ5ÿ95+1\ÿ98ÿ0]^_C(Jÿ1141+ÿ96ÿ4ÿT121) B93'ÿB1ÿ1ÿE4ÿ524ÿS 36) 7898 ÿ ÿÿ99 89ÿ9ÿ9ÿ ÿÿÿ $%E 13.)%ÿ3!'K 12)ÿ,2)4!ÿ*ÿ-!2)6 E%Y <(231ÿ;E QRSÿ7Tÿ9ÿ ÿÿUV '402!3 W+EEE FE 13.)%@0]ÿÿÿÿÿÿÿÿ'402!3ÿÿÿÿ$ ÿÿÿ+ÿEÿÿEÿE$E 13.)%@0]ÿÿ 7)!*1ÿ612)!: 402!3ÿ*ÿ*.306ÿ*4'-!73.6(1ÿ612)!: E%X E%W E%; E%E <\ $W $Z $X $[ $Y $D ;E ;$ ;; ;Z F+EEE ;E ;+EEE $Z $E $+EEE Z E E @'.1!-ÿ0121!6 <(.'2 '402!3ÿÿÿÿÿÿ$ÿÿEÿÿE ÿÿÿÿÿÿ 0.'2)ÿ?]8ÿ.'ÿ;E;;ÿ7)!*1ÿ612)!: 402!3ÿ*ÿ4'.13'6ÿ73.6(1ÿ612)!: YEE Y YE XEE X XE WEE W WE ;EE ; ;E E ^252' ?!302'3 &'-.2 @'.1!- J32'1! E E _.'6-0 1!6"ÿ$%ÿ&'ÿ1(!ÿ)!*1ÿ52'!)+ÿ1(!ÿ112)ÿ,2)4!ÿ*ÿ-!2)6ÿ.6ÿ-!*.'!-ÿ26ÿ*))/6"ÿ*3ÿ4').61!-ÿ61231456+ÿ1(!ÿ20 4'1ÿ*ÿ*4'-6ÿ32.6!-ÿ6.'1!ÿÿÿÿ 1(!.3ÿ!6122).6(0!'1ÿ1ÿ1(!ÿ1.0!ÿ*ÿ1(!ÿ643,!3+ÿ.'ÿ1!306ÿ*ÿ!44.13ÿ3ÿ1(!3ÿ*.'2'1.2)ÿ.'61340!'16ÿ1(21ÿ023ÿ2!ÿ1',!31!-ÿ.'1 !44.135ÿ*3ÿ61231456ÿ1(21ÿ)24'1(!-ÿ.'.1.2)ÿ542).1ÿ**!3.'66ÿ7&896:+ÿ1(!ÿ20 4'1ÿ*ÿ*4'-6ÿ32.6!-ÿ.00!-.21!)3ÿ2!*3!ÿ1(!ÿ&89% ;%ÿ&'ÿ1(!ÿ3.6(1ÿ52'!)+ÿ1(!ÿ'402!3ÿ*ÿ4'.13'6ÿ.6ÿ12)14)21!-ÿ226!-ÿ'ÿ<=ÿ&'6.6(16+ÿ>?)22)ÿ@'.13'ÿ<)42"ÿ83.,21!ÿÿ < 052'.!6ÿA2)4!-ÿ21ÿB$=Cÿ726ÿ*ÿ9112!3ÿ$D1(+ÿ;E;F:+>ÿ(1156"GG///%12.'6.6(16%10G3!6!231(H4'.13'H1052'.!6% 0431!6"ÿ<=ÿ&'6.6(165ÿ&IJ5ÿ&&K&LM+ÿ>N$ÿ;E;FÿL'2)36.6"ÿ82'-!0.1HO32ÿJ4'-.'6ÿK3!'-6ÿP!,!36.'6%> <(231ÿ;$ N 46!()-ÿ].65622)!ÿ&'10!ÿ2'-ÿ02,.'6ÿP21!6 99ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿa ;Z ;W 13.)%ÿ@0] W;E 13.)%ÿ3!'ÿÿÿÿÿÿ]. 65622)!ÿ.'10!ÿ7)!*1ÿ612)!: O05)3!!ÿ105!'621.'ÿ7)!*1ÿ612)!: &'1!3!61ÿ.'10!ÿ7)!*1ÿ612)!: ].,.-!'-ÿ.'10!ÿ7)!*1ÿ612)!: 02,.'6ÿ321!ÿ73.6(1ÿ612)!: FZE ;YE ;E ;E $Z $X 02,.'6ÿ321!6 ;EEEH;E$Dÿ2,6%";%Za ;E;E"$$%Ea ^2'%H^4'!ÿ;E;F2,6%"$%Xa ;$E $WE $E $; [E E <\DE DZ EE EZ $E $Z ;E U8ÿ7898ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ a ;Z ;E 02,.'6ÿ321!6 ;EEEH;E$Dÿ2,6%"Z%;a ;E;E"$Z%Wa ^2'%H0!51%ÿ;E;F2,6%"W%Xa $Z $E Z Y Z E W E HZ E <\DE DZ EE EZ $E $Z ;E HZ 1!"ÿ&'ÿ1(!ÿ)!*1ÿ52'!)+ÿ*.643!6ÿ2!*3!ÿ$DDWÿ23!ÿ12)14)21!-ÿ46.'6ÿ3!23H'H3!23ÿ1(2'6!6ÿ.'ÿ!21(ÿ.1!0ÿ226!-ÿ'ÿ1(!ÿ2!'1(023`ÿ3!23ÿ*ÿ;EEE%ÿ 0431!6"ÿ<22.'!1ÿ9**.1!5ÿ@%0%ÿ=43!24ÿ*ÿO1'0.1ÿL'2)36.6ÿ7=OL:% G892ÿ'' F1381ÿ66$ ÿ&32 E181- '')) 29+ÿ36 K)) 66$ ÿ32ÿM212N '))) G 8ÿ6ÿ312 L) O KJ)) J) 5632362ÿ292 KI)) Q) KH)) I) K')) () K))) H) J)) *) I)) ') H)) K) ')) ) ) PL) L( )) )( K) K( ') ,-./0-1.23-14ÿ637810293-9 :19ÿ3;ÿ/-<=>10?@ÿABACD S 'I+'ÿ KK+)ÿ (H+'ÿ 'J+Iÿ H+Hÿ K+*ÿ '+Kÿ2839 '+Qÿ '+Lÿ *L+Hÿ KK+Lÿ K'+Iÿ 5696$3ÿ 3616ÿ6ÿ 269R3ÿ 'L+Kÿ 'K+)ÿ K)+Kÿ O2 5632362ÿ292 '+'ÿ%32ÿ3$923 H+Lÿ *(+(ÿ G 8ÿ6ÿ312 6 623ÿ223 91ÿ93 0123456ÿ283ÿ9 82ÿ 63ÿ 93ÿ93ÿ91ÿ1ÿ1ÿ64ÿ393ÿ1ÿ 6ÿ283ÿ623ÿ223ÿ6ÿ283ÿ91ÿ93ÿ9333ÿÿÿÿÿ 283ÿ 6!"ÿ#339$8ÿ6ÿ222$ÿ%3 92362ÿ16ÿ&2ÿ'(ÿ')'*+ 19$34ÿ 6!ÿ1ÿ 6+ÿÿ
|
bank of japan
| 2,023 | 12 |
Speech by Mr Seiji Adachi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Ehime, 29 November 2023.
|
November 29, 2023 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Ehime ADACHI Seiji Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity I would like to start my speech by talking about points that are noteworthy in examining the current situation and outlook for Japan's economy. Amid the ongoing reopening of the economy and society, as seen in, for example, the downgrading of COVID-19 to a Class V infectious disease under the Infectious Disease Control Law in May 2023, Japan's economy has recovered moderately (Chart 1). With such progress in reopening, demand that was suppressed during the pandemic, or pent-up demand, will likely continue to be a factor pushing up economic activity. However, as a significant rise in such demand is expected to peak out in the near future, it seems that the actual strength of Japan's economy has begun to be tested. Let us look at recent developments in Japan's economic activity in detail. With respect to private consumption, the positive effects from pent-up demand have remained in consumption of some durable goods such as automobiles. I have an impression that consumption overall has regained the pre-pandemic trend of a stable increase, albeit at a moderate pace (left panel of Chart 2). That said, due in part to a decline in real disposable income stemming from recent price rises, households have been defensive about spending; for instance, their demand for frequently purchased items including beverages, food, and daily necessities has shifted to lower-priced goods such as affordable private brand products. Meanwhile, services consumption such as entertainment, travel, and accommodations has remained firm despite having been affected by price hikes (right panel of Chart 2). These developments suggest that households, faced with high inflation, have increasingly been selective with their spending patterns, in that they are willing to spend money for certain goods and services regardless of price while opting for lower prices on other goods and services or refraining from spending in the first place. These changes in spending patterns will potentially affect price developments, which I will describe later. Next, I will turn to business fixed investment. The environment surrounding such investment has been extremely favorable in Japan. Specifically, a number of promising projects are scheduled to take place: (1) IT-related investment aimed at digital transformation (DX) and labor saving; (2) construction investment in, for example, urban redevelopment projects and in logistics facilities resulting from expansion in e-commerce; and (3) large-scale fixed investment projects by large domestic and overseas manufacturing firms that aim at strengthening supply chains and are backed by the yen's depreciation. Accordingly, reflecting firms' positive stance toward fixed investment, the Bank of Japan's September 2023 Tankan (Short-Term Economic Survey of Enterprises in Japan) showed firmness in such investment plans (Chart 3). However, hard data on business fixed investment collected from the results of statistics on GDP and machinery orders representing actual economic activity have shown somewhat weaker results relative to the plans presented in the Bank's Tankan (Chart 4). In some respects, there may be fundamental reasons for such weakness in fixed investment -namely, amid high uncertainties regarding developments in overseas economies, firms have still been reluctant to take on risks and invest for their future growth. Exports have been more or less flat on the whole. By region, exports of transportation machinery to the United States and Europe in particular have been on an uptrend, mainly led by automobiles, which had been burdened by high levels of order backlogs due to semiconductor shortages. In contrast, those to China have remained weak, mainly for capital goods, and this is also the case for those to the NIEs and the ASEAN economies due to a drop in demand for digital-related parts such as semiconductors for smartphones and personal computers (Chart 5). Given what I have just outlined, I believe that the following points are crucial in forecasting the future course of Japan's economy. First, with respect to private consumption, how a rise in firms' earning power will be allocated to households in the form of wages is important. With regard to business fixed investment, it is worth examining how firms will raise their growth expectations and in turn boost their investment activities. Lastly, in terms of exports, whether Japan can take a lead in the restructuring of global supply chains warrants attention. These all suggest that it is time for the actual strength of Japan's economy to begin to be tested. To foster these key factors for economic growth, underpinnings from the government's policy measures may also be necessary. Moreover, since business fixed investment and exports are influenced by overseas economies, future developments in these economies are also of significance to Japan's economy. While European economies in particular have been pushed down by the effects of the situation in Ukraine since 2022, geopolitical risks in the Middle East have been heightening most recently, and this could be a new factor that will give rise to uncertainties. Adjustments in China's real estate market have been heightening uncertainties regarding the outlook for its economy. Moreover, while the U.S. economy has been firm despite its rapid and substantial monetary tightening, attention should continue to be paid to economic developments as the impact of the rapid policy interest rate hikes to date might emerge with a time lag. B. Price Developments in Japan 1. Price situation I will now talk about recent price developments in Japan. The year-on-year rate of increase in the consumer price index (CPI) for October 2023 was 2.9 percent for all items less fresh food and 4.0 percent for all items less fresh food and energy (Chart 6). The rate of increase for all items less fresh food has been slower than the peak marked in January 2023, partly because the government's economic measures have been pushing down energy prices (Chart 7). On the other hand, the rate of increase for all items less fresh food and energy has accelerated since early spring 2023 and has remained elevated in the range of 4.0 to 4.5 percent, as a pass-through to selling prices of cost increases such as for raw materials has intensified for a wide range of items. Meanwhile, inflation expectations -- an important factor in considering monetary policy -have risen moderately, although they differ depending on economic entity (Chart 8). Until recently, it was believed that prices were highly unlikely to rise as many people, the younger generation in particular, had never experienced a situation in which prices rise and found it difficult to expect future inflation. Currently, however, the situation may be starting to change. 2. Future price developments that are subject to considerable uncertainties The Bank aims to achieve the price stability target of 2 percent in a sustainable and stable manner. It is thus highly important to examine how prices will progress. To state the conclusion first, the Bank's baseline scenario does not assume that prices will continue to rise at the current pace. In other words, the effects of cost pass-through led by the increase in import prices, which have been pushing up consumer prices to date, are expected to wane gradually. On the other hand, the strengthening of a virtuous cycle between wages and prices -- which I will touch on later -- will in part contribute to gradually pushing up prices. With such shift in the main factor pushing up prices, the year-on-year rate of increase in the CPI for all items less fresh food -- in terms of the median of the Bank's Policy Board members' forecasts presented in the October 2023 Outlook for Economic Activity and Prices -- was projected at 1.7 percent for fiscal 2025. The baseline scenario involves extremely high uncertainties and is subject to both upside and downside risks. Given actual price developments until recently, though, my sense is that risks are skewed to the upside. Before I talk specifically about risks to the outlook for prices, I would like to touch on a perspective that I have referred to in my past speeches, which I think is a useful starting point when considering developments in consumer prices. I would like to note that, although the CPI consists of prices of a variety of items, price fluctuations vary by item. Given this aspect, I would like to focus on the frequency of price changes, specifically by separating the category of "flexible" consumer prices, made up of items for which prices change relatively frequently, and "sticky" consumer prices, made up of items for which prices change relatively infrequently. Flexible consumer prices are mainly composed of goods prices while sticky consumer prices are mainly composed of services prices. Having made this distinction, I would like to explain the reasons behind my thinking that risks to the outlook for prices are skewed to the upside. First, let me talk about flexible consumer prices. On a yen basis, import prices have been trending downward since peaking in September 2022. Flexible consumer prices, which are primarily composed of goods prices, tend to track movements in import prices with a time lag, because they are made up of items for which prices change relatively frequently. Currently, however, even as import prices have decreased, the rate of decline in flexible consumer prices has been slower than expected. The decrease in import prices, which mainly consist of raw material and fuel prices, will spread from upstream to downstream demand stages in producer prices, and presumably this will eventually spill over into consumer prices. The decline in import prices has in fact been spreading from upstream to downstream demand stages, but it seems possible that prices in the downstream have become less likely to fall than before (Chart 9). This may be because, compared to the past deflationary period, firms have become more likely to pass on cost increases to selling prices at each stage of demand. Let us look back at firms' business strategies in the deflationary environment. Many firms at the time, faced with intense price competition, were forced to maintain or lower their selling prices even at the expense of some measure of profit. In this context, they secured profits through business strategies that emphasized cutting costs, including the wages of workers. With these points in mind, the current situation -- where firms' pass-through of cost increases has been more widespread than expected -- seems to suggest that the deflationary environment in which price competition was predominant is beginning to undergo a sea change. Next, I would like to touch on sticky consumer prices. These prices are thought to be more susceptible to medium- to long-term inflation expectations than short-term expectations, since their index is made up of items for which prices change relatively infrequently. Sticky consumer prices are also considered to be affected by wage developments. As I suggested earlier, if we take it that firms have recently begun to emerge from a deflationary environment, the addition of upward pressure on workers' wages, which firms restrained in the deflationary environment, is likely to affect sticky consumer prices. There is a strong tendency in Japan for firms to revise wages at the outset of the fiscal year, especially for regular employees, as typified by the annual spring labor-management wage negotiations. Given the results of the spring 2023 negotiations, sticky consumer prices are also expected to rise (Chart 10). Several points are crucial to keep in mind when considering the outlook for price developments in this context. One concerns whether or not wage hikes at firms following the 2023 annual spring labor-management wage negotiations, which became more aggressive, are temporary or will continue in fiscal 2024 (Chart 11). On this score, there have been positive comments from both labor and management, mainly among large firms. By contrast, many local small and medium-sized firms have expressed concerns that this year's wage hikes were as much as they could manage, and that further increases will impair business continuity. Thus, the outlook for wages is unclear at present. In light of unfolding demographic changes in Japan, and also considering the unprecedented increase in the labor force participation rate of seniors and women, another scenario regarding wage developments can be considered: as constraints on labor supply intensify, labor market conditions will tighten further and firms will raise wages more actively to recruit and retain employees. In considering this scenario, though, a question arises as to whether many firms have an incentive that is strong enough to lead them to raise wages at the expense of profit to recruit and retain employees. In this regard, for firms to raise wages sustainably from fiscal 2024 onward, one of the key factors will be economic activity at home and abroad remaining stable, fostering an environment conducive to solid corporate profits. Having said that, given the considerable uncertainties over the outlook for overseas economies, there is a risk that, depending on economic developments going forward, downward pressure will be exerted on wages and then on prices. On the other hand, if changes in firms' wage- and price-setting behavior continue and the virtuous cycle between wages and prices strengthens, these -- together with the stable increase in private consumption that I described earlier -- will likely push up prices further. II. Conduct of Monetary Policy Further Increasing the Flexibility in the Conduct of Yield Curve Control Based on the economic and price developments I have explained so far, I would now like to present my views regarding the Bank's current conduct of monetary policy, focusing on its conduct of yield curve control in particular. At the Monetary Policy Meeting (MPM) held in October 2023, the Bank decided by a majority vote to further increase the flexibility in the conduct of yield curve control. Within this modification, the Bank -- while maintaining the basic framework of yield curve control by setting the short-term policy interest rate at minus 0.1 percent and the target level of 10year Japanese government bond (JGB) yields at around 0 percent -- decided to conduct yield curve control with the upper bound of 1.0 percent for 10-year JGB yields as a reference and control the yields mainly through large-scale JGB purchases and nimble market operations. Specifically, the upper bound of 1.0 percent for 10-year JGB yields prior to the modification in October was a "rigid cap," in that when the yields were at 1.0 percent, fixed-rate purchase operations for consecutive days were to be conducted to strictly contain the rise in the yields to below 1.0 percent. However, given that developments in economies and financial markets at home and abroad are extremely uncertain at present, the Bank considered that strictly capping 10-year JGB yields could entail large side effects. It therefore decided to further increase the flexibility in the conduct of yield curve control with a "flexible cap," which regards the upper bound of 1.0 percent for 10-year JGB yields as a reference (Chart 12). Increasing the Flexibility in the Conduct of Yield Curve Control and Basic Stance on Monetary Policy The Bank's decision in October to further increase the flexibility in the conduct of yield curve control marks the third time over the past year that it has modified such conduct, following moves of the sort in December 2022 and July 2023. These modifications appear to have been the subject of various interpretations in financial and capital markets at home and abroad. I would like to take this opportunity to offer my own summary of the conduct of monetary policy to date. At the July 2023 MPM, multiple numerical guidelines were attached to the conduct of yield curve control: the target level of 10-year JGB yields, the permissible fluctuation range of these yields from the target level, and the rigid upper bound for strictly capping the yields. This resulted in a complex monetary policy scheme, which might have made understanding its intended purposes difficult. In this context, the Bank decided in October to further increase the flexibility in the conduct of yield curve control, with the result that it has maintained the target level of 10-year JGB yields at around 0 percent and has set the upper bound of 1.0 percent for these yields as a reference. I believe that the latest modification has allowed for a simpler scheme for conducting monetary policy. Given that the conduct of yield curve control has been simplified, some have started to become skeptical as to whether the Bank's decision in October to further increase the flexibility in such conduct was laying the groundwork for an exit from monetary easing. However, current developments in economic activity and prices necessitate that the Bank patiently continue with monetary easing; I think that it is still too early for the Bank to deliberate on an exit. The Bank aims to achieve the price stability target of 2 percent in a sustainable and stable manner. This does not imply that simply achieving 2 percent in terms of recent figures for the year-on-year rate of change in the CPI is enough. Rather, the underlying economic mechanism should be capable of sufficiently guaranteeing the achievement of sustainable and stable 2 percent inflation. To this end, it is important for the Bank to clearly confirm that the virtuous cycle between wages and prices is at work. At present, budding developments toward such a virtuous cycle may be appearing, but it has not yet taken hold. Therefore, the Bank should patiently continue with monetary easing for the moment. Furthermore, as in the past statements on monetary policy, the Bank presented in its statement released immediately after the October MPM that it will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI for all items less fresh food exceeds 2 percent and stays above this target in a stable manner, and it will not hesitate to take additional easing measures if necessary. Monetary policy measures remain well prepared to combat downside risks to economic activity and prices. It is thus clear that the Bank's decision at the October MPM to further increase the flexibility in the conduct of yield curve control did not aim at normalizing monetary policy. To sum up, the three rounds of modifications to increase the flexibility in the conduct of yield curve control, including the one decided at the October MPM, did not intend to lay the groundwork for an exit from monetary easing. Rather, I would like to emphasize that the modifications aimed at continuing with accommodative monetary policy to achieve the price stability target. Informational Value of Long-Term Interest Rates Formed in Financial Markets Next, I would like to express my thoughts on the significance of continuously increasing the flexibility in the conduct of yield curve control. Conventional monetary policy, in my understanding, involves controlling short-term policy interest rates and communicating with financial institutions through day-to-day market operations, to form a perception of optimal interest rates to ensure stability in economic activity and prices. In this context, long-term interest rates are an indicator reflecting market participants' outlook for monetary policy as well as the results of their comprehensive assessment of developments in and prospects for economic activity and financial market conditions at home and abroad. Long-term interest rates are thus regarded as an extremely informative indicator in conducting monetary policy. Given these considerations, the framework of yield curve control, in which a central bank controls long-term interest rates more directly, carries the disadvantage of losing the valuable information provided by such rates. The Bank's decision to introduce yield curve control, despite this disadvantage, was based on its judgment that a framework for continuing with powerful monetary easing is necessary to achieve the price stability target of 2 percent. However, amid the ongoing elevated inflation that started during the pandemic, I believe the room for making effective use of the informational value pertaining to long-term interest rates is gradually expanding. Thus, there seems to be a change in the balance between the policy effects of the conduct of yield curve control, in which the Bank works to stabilize long-term interest rates so that Japan's economy will make an exit from the prolonged deflationary trap, and the informational value of long-term interest rates that could be gained by leaving the formation of these rates up to the financial markets to some extent. From the perspective of making use of the informational value of long-term interest rates, I consider it as highly significant that the Bank has increased the flexibility in the conduct of yield curve control as necessary. I should point out that the increased flexibility does not imply that the effects of yield curve control to hold down long-term interest rates are no longer needed. This is because, if 10-year JGB yields rise to a level well above 1.0 percent, the resultant increase in real interest rates could undermine the effectiveness of monetary easing and significantly dampen economic activity, which could hinder the economy's transition to a virtuous cycle between wages and prices. Risk Management in the Conduct of Monetary Policy Risk management is another aspect that I consider as critical in the conduct of monetary policy. To continue conducting monetary policy appropriately, the key is the Bank's baseline scenario for economic and price developments that forms the basis for policy conduct. Having said that, drawing from my many years of experience as an economist, it is extremely difficult to always be accurate in predicting such developments. Moreover, given the current situation overseas and geopolitical risks, even greater uncertainties over economic and price developments at home and abroad are anticipated. Under such conditions, a risk management perspective becomes critical in the conduct of monetary policy. I view the Bank's modifications to date to increase the flexibility in the conduct of yield curve control as a sort of risk management in monetary policy conduct. During the pandemic, emphasis was placed on addressing downside risks to prices, but recently, it also has become necessary to take upside risks into account. In this context, I believe that the Bank's decision to increase the flexibility in the conduct of yield curve control has had the following two benefits. The first is the improvement in market functioning. This applies to such factors as the formation of a consistent relative relationship among interest rates of bonds with different maturities and the narrowing of the yield differential between JGB issues that are eligible for the Bank's outright purchases and those that are not. If the Bank attempts to strictly contain yield increases for bonds with specific maturities through, for example, fixed-rate purchase operations for consecutive days in its conduct of yield curve control, not only will the curve see a distortion, but distortion in terms of bond prices could also emerge -- namely, as the Bank purchases specific bond issues, market bond prices for issues purchased and those for other issues with approximately the same residual maturity may end up being completely different. With respect to such market price gaps, there is generally room in the market for arbitrage to operate, and price distortions among different bond issues will be mostly eliminated; however, should yields under yield curve control be far removed from those predicted based on actual macroeconomic conditions, the price gaps among different bond issues will not be resolved. Furthermore, since JGB yields serve as reference rates for corporate bond yields, bank lending rates, and other funding rates, there is concern that, if yield distortions are left unaddressed, they will adversely affect corporate financing. Indeed, the second half of 2022 saw the risk of some concerns of this sort coming true. However, as the Bank's decision to increase the flexibility in the conduct of yield curve control has mostly eliminated such yield distortions, firms' funding conditions have been favorable recently. The second benefit is the effects of enhancing the sustainability of monetary easing. As I mentioned earlier, if yields under yield curve control turn out to be far removed from those predicted based on actual macroeconomic conditions, attempts to forcibly maintain yields at that level may spark speculative moves in financial markets. Such moves were seen in foreign exchange markets of several economies in the past during their course of abolishing fixed exchange rate systems. Let me touch on the case of Australia's central bank. Although the framework differs from the Bank of Japan's yield curve control, the Reserve Bank of Australia (RBA), since March 2020, adopted a target for the yield on the three-year Australian Government bond. However, with mounting inflationary pressure, it was forced to discontinue the yield target in November 2021, earlier than expected. The Bank's decision in October to further increase the flexibility in the conduct of yield curve control, before 10-year JGB yields actually reach the rigid upper bound set in July, may result in raising the level of such yields to some extent. Given past examples, however, this modification is at the same time enhancing the sustainability of monetary easing under the framework of yield curve control. Thank you. Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Ehime November 29, 2023 ADACHI Seiji Member of the Policy Board Bank of Japan Chart 1 Real GDP s.a., ann., tril. yen CY 08 Source: Cabinet Office. Chart 2 Private Consumption Real Private Consumption Consumption Activity Index (CAI, Real) s.a., CY 2015=100 Consumption Activity Index (CAI, travel balance adjusted) Consumption of households (excluding imputed rent) Disposable income, etc. (SNA) CY 13 Nondurable goods <40.5> Services <50.7> Durable goods <8.9> CY 18 19 20 21 22 23 18 19 20 21 22 23 Developments in Business Fixed Investment Plans y/y % chg. FY2023 Average (FY2004-2022) -3 -6 -9 Mar. FY2019 FY2020 FY2021 FY2022 June Chart 3 Notes: 1. In the left panel, figures for the CAI are based on Bank staff calculations. The CAI figures (travel balance adjusted) exclude inbound tourism consumption and include outbound tourism consumption. 2. In the left panel, "disposable income, etc." consists of disposable income and adjustment for the change in pension entitlements. Real values are obtained using the deflator of consumption of households. 3. In the right panel, figures are based on Bank staff calculations. Figures in angle brackets show the weights in the CAI. 4. In the right panel, nondurable goods include goods classified as semi-durable goods in the SNA. Sources: Cabinet Office; Bank of Japan, etc. s.a., 2018/Q1=100 s.a., 2018/Q1=100 Sept. Dec. Forecast Actual Notes: 1. Figures are based on the Tankan and are for all industries including financial institutions. 2. Figures include software and R&D investments but exclude land purchasing expenses. R&D investment is not covered as a survey item before the March 2017 survey. 3. There is a discontinuity in the data for December 2021 due to a change in the survey sample. Source: Bank of Japan. Chart 4 Business Fixed Investment Indicators of Business Fixed Investment s.a., ann., tril. yen s.a., ann., tril. yen Capital Stock Cycles business fixed investment, y/y % chg. 1.5% FY2023 Private nonresidential investment (SNA, real, left scale) Machinery orders (private sector, excluding volatile orders, right scale) -5 -10 CY 08 1% 0.5% 0% Expected growth rate: -2% -15 9.5 Investmentcapital stock ratio at the end of FY2022 10.0 10.5 11.0 -1% 11.5 12.0 12.5 13.0 investment-capital stock ratio at the end of the previous fiscal year, % Notes: 1. In the left panel, volatile orders are orders for ships and those from electric power companies. 2. In the right panel, each broken line represents the combination of the rate of change in business fixed investment and the investment-capital stock ratio at a certain expected growth rate. The figure for fiscal 2023 is that for 2023/Q2. Source: Cabinet Office. Chart 5 Exports Total Real Exports Real Exports by Region s.a., CY 2020=100 s.a., 2018/Q1=100 CY 08 s.a., 2018/Q1=100 United States <18.6> EU <9.5> CY China <19.4> NIEs, ASEAN, etc. <37.1> Other economies <15.4> 18 19 20 21 22 23 18 19 20 21 22 23 Notes: 1. Figures are based on Bank staff calculations. 2. Figures for 2023/Q4 are those for October. 3. In the right panel, figures in angle brackets show the share of each country or region in Japan's total exports in 2022. Figures for the EU exclude those for the United Kingdom for the entire period. Sources: Ministry of Finance; Bank of Japan. Chart 6 Developments in the CPI 5.0 y/y % chg. CPI (less fresh food) 4.0 CPI (less fresh food and energy) 3.0 2.0 1.0 0.0 -1.0 -2.0 CY 18 Source: Ministry of Internal Affairs and Communications. Chart 7 CPI for All Items Less Fresh Food y/y % chg. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 CY 18 Mobile phone charges Effects of travel subsidy programs Effects of the consumption tax hike and free education policies Energy Excluding the above factors CPI (less fresh food) Notes: 1. Figures for "energy" consist of those for petroleum products, electricity, as well as manufactured and piped gas charges. 2. Figures for the "effects of the consumption tax hike and free education policies" from April 2020 onward are Bank staff estimates and include the effects of measures such as free higher education introduced in April 2020. Source: Ministry of Internal Affairs and Communications. Chart 8 Inflation Expectations 2.5 y/y, ann. avg., % Market participants (QUICK, 2 to 10 years ahead) Economists (7 to 11 years ahead) Households (over the next 5 years) Firms (5 years ahead) 2.0 1.5 1.0 0.5 0.0 CY 05 Notes: 1. Figures for economists are the forecasts of forecasters surveyed for the ESP Forecast. 2. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method for a 5-choice question. 3. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: Japan Center for Economic Research (JCER), ESP Forecast; QUICK, QUICK Monthly Market Survey (Bonds); Bank of Japan. Chart 9 Spillover Effects of Import Prices on the CPI for Goods y/y % chg. y/y % chg. y/y % chg. -10 -5 -10 -20 -30 CY 16 Import price index ID index (stage 1) ID index (stage 2) -20 CY 16 ID index (stage 2) ID index (stage 3) ID index (stage 4) -10 CY 16 ID index (stage 4) FD index (excluding exports) CPI for goods (less fresh food and energy) Note: The import price index is on a yen basis. The FD-ID price indexes divide demand into the final demand (FD) stage and four stages of intermediate demand (ID) based on the Input-Output Tables for Japan. Goods and services prices are then aggregated according to the stage to which they belong to compile the FD index and the ID indexes for stages 1 to 4, ranging from the upstream to downstream stages of the production process. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Chart 10 Developments in Wages and Prices y/y % chg. CPI (less fresh food) Nominal wages -5 FY 71 Notes: 1. The CPI figures are Bank staff estimates and exclude the effects of the consumption tax hikes, policies concerning the provision of free education, and travel subsidy programs. Figures for nominal wages are for establishments with 30 or more employees up through fiscal 1990, and with 5 or more employees from fiscal 1991 onward. 2. For fiscal 2023, the figure for the CPI (less fresh food) is the April-October average, while that for nominal wage is the April-September average. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications. Chart 11 Base Pay Increases % -1 FY 92 Note: Figures show actual base pay increases. Figures from fiscal 1992 to 2013 are those published by the Central Labour Relations Commission, while figures from fiscal 2014 to 2023 are those released by the Japanese Trade Union Confederation (Rengo). Sources: Central Labour Relations Commission; Rengo. Chart 12 Further Increasing the Flexibility in the Conduct of Yield Curve Control (YCC) The Bank will patiently continue with monetary easing under Yield Curve Control (the short-term policy interest rate: -0.1%, the long-term interest rate: around 0%), aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases. Toward the end of the projection period, the Bank expects that underlying CPI inflation will increase gradually toward achieving the price stability target of 2 percent, while this increase needs to be accompanied by an intensified virtuous cycle between wages and prices. With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank judges that it is appropriate to increase the flexibility in the conduct of yield curve control, so that long-term interest rates will be formed smoothly in financial markets in response to future developments. <Conduct of YCC after Further Increasing the Flexibility> <Previous Conduct of YCC> % 1.0 0.5 0.0 -0.5 % Strictly capping 10-year JGB yields Nimbly conducting by fixed-rate purchase operations market operations ↓ Nimbly conducting market operations 1.0 Range of 10-year JGB yields fluctuations as a reference Upper bound for 10-year JGB yields as a reference 0.0 <Outlook for Prices> y/y % chg. Fiscal 2023 Forecasts made in July CPI (all items less fresh food) (Reference) CPI (all items less fresh food and energy) Fiscal 2024 Forecasts made in July Fiscal 2025 Forecasts made in July +2.8 +2.5 +2.8 +1.9 +1.7 +1.6 +3.8 +3.2 +1.9 +1.7 +1.9 +1.8 Note: Figures indicate the medians of the Policy Board members' forecasts (point estimates).
|
bank of japan
| 2,023 | 12 |
Speech by Mr Ryozo Himino, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Oita, 6 December 2023.
|
December 6, 2023 Bank of Japan Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Oita HIMINO Ryozo Deputy Governor of the Bank of Japan (English translation based on the Japanese original) Introduction Good morning, everyone. Thank you for joining me today. I am pleased to be here in Oita, the home prefecture of the great thinker and educator of the Meiji era, Fukuzawa Yukichi, whom I admire a lot. The 10,000 yen Bank of Japan note has featured Fukuzawa's portrait since 1984. The Bank plans to issue a new series of banknotes around the first half of July 2024, but the current series will remain valid, and we will continue to see Fukuzawa notes in circulation. The 40 years we have spent with Fukuzawa notes have been a turbulent age. We witnessed an asset price boom in the late 1980s, its collapse in the early 1990s, and the banking crisis and the start of deflation in the late 1990s. We suffered from the Global Financial Crisis in 2008 and the Great East Japan Earthquake in 2011. We struggled to exit from deflation in the 2010s, and the 2020s began with COVID-19. We are now in the process of recovering from the economic shock caused by the pandemic. After the start of deflation in the late 1990s, the Bank implemented various forms of nontraditional monetary policy. It is reviewing their positive and side effects from a broad perspective. We are keen to have your input and hear your views on how the Bank's policy worked in different phases of the past quarter century. Fukuzawa is known to have placed value on active debates conducted with the spirit of freedom. The Bank would particularly welcome critical views on its analysis and suggestions on what it should learn from the past. I. Economic Activity and Prices Developments since the Pandemic in Japan, the United States, and the Euro Area The COVID-19 pandemic had an enormous impact on the Japanese economy. It exerted an equally severe impact on the U.S. economy and an even bigger one in the euro area. Subsequently, while the U.S. and euro area economies have seen a rapid recovery, Japan's recovery has been more moderate (Chart 1). In the United States and the euro area, the combination of the rapid economic recovery and the global commodity price hike resulted in a significant acceleration of inflation, with the year-on-year rate of increase in consumer prices at one point exceeding 10 percent in the euro area and reaching 9 percent in the United States. By contrast, the inflation rate in Japan peaked at around 4 percent. While the Federal Reserve and the ECB rapidly raised policy rates to contain the inflation, the Bank of Japan has maintained monetary easing and continued to support the economy. Recently, the recovery in the euro area economy has slowed moderately. The U.S. growth surprised many by staying firm despite the rate hikes. Japan's recovery has remained moderate. What We Have Heard from Japanese Firms on Their Pricing Practices A key issue for Japan now is if the current higher-than-the-target inflation will abate. Chart 2 shows recent and forecasted inflation rates, one excluding the effects of fresh food price changes and the other excluding fresh food and energy. The former, which is closer to the actual makeup of household budgets, was at around 3 percent in fiscal year 2022 and is projected to stay around the level for fiscal years 2023 and 2024, exceeding the price stability target of 2 percent. The prices of food and other frequently purchased daily necessities are rising at even higher rates, making many households feel burdened by even more than the 3 percent rate may imply. This is a serious issue. On the other hand, until recently, it had been a prevailing norm that neither wages nor prices could rise. Japan had worked for many years to break free from this, and simply returning to such a frozen state after the current high inflation comes down would not be a desirable outcome either. The Bank aims to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases. Such an outcome would require walking a fine line in which inflation decreases, but not too far. The Japanese monetary policy faces multiple needs: addressing the current inflation, supporting the moderate economic recovery, facilitating a favorable environment for wage increases, and preventing the economy from reverting to a deflationary state. The Bank is struggling to find a solution and this is by no means an easy task. In exploring a solution, we must examine various factors at home and abroad. Today, let me focus on the question of how firms set prices and wages. Changes in firms' wage- and price-setting behavior in recent years are a highly complex matter, but, at the risk of oversimplification, let me try to break them down into four stages (Chart 3). Stage 1 is where firms reflect higher import prices in their selling prices. Stage 2 is where they reflect the increase in general price levels in wages they pay. Stage 3 is where they reflect higher labor costs in their selling prices. Stage 4 is where firms' pricing policies become more diverse, facilitating firms' exploration of strategies of selling more attractive products and services at commensurate prices in addition to those of selling good products and services at low prices. This stage may provide firms with broader options for attaining higher productivity. Some might argue that firms have always endeavored to develop products and services that are attractive to customers and to set prices at levels commensurate with the value, and that this has been the case regardless of whether firms have entered stages 1 to 3. While I believe this to be true, let me examine if there could be a development which could facilitate and encourage a broader range of firms to make further efforts. In recent months, the import price index has declined more than 10 percent compared to a year ago, and thus if the firms just stop at stage 1 -- a pass-through of higher import prices -- the Japanese economy may revert to the former deflationary state. On the other hand, if a virtuous cycle begins in which both stage 2 -- wage hikes -- and stage 3 -- a pass-through of higher labor costs to selling prices -- progress, moderate inflation may be sustainable. However, if wages increase just as much as prices rise, this will not make people better off in real terms. Living standards would rise if the wage-price cycle ushers in stage 4 -- firms diversifying pricing strategies and pursuing broader options in adding higher value to their products and services as well as in enhancing productivity -- and if the gains from the enhanced productivity are shared with stakeholders. Stage 1 corresponds to imported inflation, or what we call "the first force," and stages 2 and 3 correspond to homemade inflation, or what we call "the second force." 1 Stage 4 does not necessarily correspond to inflation if firms' pricing is commensurate with the increased value added to their products. Judging from what we have heard from firms, progress seems to be mixed in each of the four stages at present. Regarding stage 1, a survey of small and medium-sized firms showed that many firms could pass on only a portion of higher import prices. There was similar feedback from a large Japanese firm in the basic materials industry with a worldwide operation. According to the firm, distinctive features of the Japanese market in the past were that (1) nearly all firms had a policy of demanding that suppliers find ways to avoid passing on cost increases, and they did not accept the norm that the balance of supply and demand determines the prices of materials. The firm further argued that only with the recent hike in the prices of imported materials could it start price negotiations with its clients. Even for a firm whose product line includes many competitive items that command high shares in the world market, it seems that barriers to making a stage 1 pass-through in the Japanese market are quite high. A major chain restaurant reported to the effect that it had entered stage 2 but not stage 3; it had significantly raised hourly wages for its part-time employees and had absorbed this wage hike with the cost cuts made during the pandemic period. The same chain restaurant reported that it had been passing on higher raw material costs, but rather than simply raising prices, it was expanding the price range on its menu by introducing items with higher value-added. A Japanese confectionery maker, which suffered from higher red bean prices, reported that it had packaged its products so that they could be used as romantic gifts and then sold them in the Ginza shopping district. Despite much higher prices, the products sold out. These episodes may be interpreted as the emergence of Regarding the first and second forces, see Ueda, K., "Japan's Economy and Monetary Policy," speech at a meeting with business leaders in Nagoya, November 6, 2023. a strategy that combines stages 1 and 4, making it possible to pass on higher import prices with an increase in the value of products. A major firm in the food production industry reported that it had raised prices while increasing the value of its products, taking account of not only past rises in production costs but also projected rises in labor and transportation costs, and that demand had been firm even after the price hikes. The Bank organizes periodic gatherings of its branch general managers, and a participant in the October meeting observed that, in the hotel industry in their district, firms that shifted to focusing on high-quality services for tourists travelling on their own had succeeded in raising prices without losing customers and in securing manpower, while those that continued to provide standard services for those travelling in large groups had not been able to pass on the cost increases to their customers and were having a difficult time in hiring enough employees. These reports can be interpreted as showing a polarization between those who combine stages 2, 3, and 4 -- wage hikes, the pass-through of higher labor costs, and the shift to higher-value products and services -- and those who keep the past strategies. Oita Prefecture is renowned for its hot springs and ranked first in a survey on tourist satisfaction for fiscal year 2022. I am curious to hear what was the key to enhancing tourist satisfaction. I asked some branch managers at the meeting how widespread such strategies of increasing the value of products and services, raising wages, and securing human resources were. They responded that, while some firms had started to report that they have taken such approaches, many seemed to be determined to weather labor shortages without raising their break-even point so that they could survive the next wave. Branch managers also argued that, as the competition remained fierce, many firms were making pricing decisions mainly with an eye on other competitors. Therefore, the possibility cannot be ruled out that, after stage 1 -- the pass-through of higher import prices, which triggered price rises -- subsides, stages 2, 3, and 4 might also fade away. On the other hand, it also might be that once a firm reaches stage 4, reverting to the former state of affairs may become less likely, at least for the firm in question. Future developments in demand -- in other words, how consumption, investment, and exports will develop -- will also have a major impact on the outlook. What Statistics Tell Us on the Relationship between Firms' Price-Setting Behavior and Inflation So far, I have focused on what we have heard from specific firms. I believe that firm-by-firm stories are essential in grasping what is happening, particularly at the turning point of a structural development. Individual stories, however, cannot capture the overall trends. Fukuzawa once argued that one should not speculate on the nationwide trends by just looking at specific cases, and he emphasized the importance of statistics. Let us now turn to statistical data. To tell you my conclusion first, solid progress is observed in the transformation of firms' wage- and price-setting behavior. An analysis by the Bank's staff shows that the effect of higher prices feeding into wages, or the stage 2 effect, using my term, was statistically significant in the first half of the 1990s, then became much less clear in the 2010s, but has become significant again in the recent period (Chart 4). The effect of higher wages feeding into prices, or the stage 3 effect, was also statistically significant in the first half of the 1990s and much less clear in the 2010s. The stage 3 effect has not turned statistically significant yet, but the estimated level of effect has risen in the recent period. I think that these results are signs in the right direction, if not definitive. As I said earlier, without a virtuous cycle between wages and prices, Japan will most likely revert to the deflationary state in the past. The analysis I just presented considers developments in prices and wages in general. Let us now look more closely at the details. Price tags on some items purchased by households, such as gasoline, change frequently, whereas those of other items are much more stable; some snacks continued to be priced at 10 yen each for 42 years. Chart 5 shows the proportion of items for which prices have changed more than 0.5 percent year on year. A value of 50 percent means that the prices of half of the items have been almost flat year on year, while a value of 90 percent means that the prices of most items have changed. Developments in this proportion show that prices of individual items became increasingly static amid a prolonged period of zero inflation or deflation. For 1994 and 2007, the average inflation rates were roughly the same, at around zero, but the proportion of items for which prices changed year on year fell from slightly above 80 percent to slightly below 60 percent. 2 Meanwhile, it appears that prices of most items change every year during periods of inflation over 2 percent. Currently, the way prices change has returned to how it was before the start of deflation. A recent paper by the Bank's staff finds a nonlinear pass-through of changes in producer prices, exchange rates, and wages to consumer prices. 3 When the rate of increase in producer prices, which could be considered as a proxy for domestic input prices, (2) foreign exchange rates, which affect imported input prices, or (3) wages, which correspond to labor costs, exceeds a certain threshold, there is a spike in the degree to which it is reflected in the rate of increase in the CPI. This may imply a pattern of corporate behavior in which, as long as the rates of cost increases stay below that threshold, firms try to swallow their impact without revising selling prices, but they revise them if the rates reach a level at which either they or their suppliers can no longer endure. Although some argued that the decline in the pricing power of firms helped to keep inflation low in the United States in the late 1990s, John Taylor argued that the low inflation itself may have contributed to that decline. See Taylor, J. B., "Low Inflation, Pass-Through, and the Pricing Power of Firms," European Economic Review 44 (2000): pp. 1389-1408. 3 Sasaki, T., Yamamoto, H., and Nakajima, J., "Nonlinear Input Cost Pass-Through to Consumer Prices: A Threshold Approach," Bank of Japan Working Paper Series, no. 23-E-9 (May 2023). Firms intending to revise prices after years of keeping them flat have to start collecting and analyzing data in order to determine the timing and degree of price changes. They also need to coordinate internally and negotiate with business partners. In addition to such costs, firms face the risk that customers or competitors will react in unexpected ways. Some firms may also have asymmetric internal incentive structures. For instance, individuals are held accountable when they fail at something they initiate, but if a failure occurs due to inaction, where the blame lies may remain unclear. Likewise, if employees embark on something new and succeed, they are not rewarded much, but if they launch something and fail, they are severely reprimanded. Given the costs and risks associated with price setting and the asymmetry in the incentive structure, a strategy of maintaining selling prices while working to cut costs or asking business partners to lower costs is appealing. By contrast, taking initiatives such as adopting new pricing strategies or making inroads into high value-added segments requires determination and courage. However, if the cycle between wages and prices begins to operate throughout the economy, the barriers to taking action will come down and the risks from inaction will rise. It may be that at some point the relationship between the cost and risk of action and those of inaction will become inverted, giving rise to nonlinear change. The pass-through paper I referred to estimates the threshold levels at which such nonlinear change occurs (Chart 6). Although the estimated levels should not be taken as definitive, I am tempted to argue that, once entering a state above the threshold, it becomes easier to break free from the barriers arising from the costs and risks of pricing changes and asymmetrical incentives. A state with zero percent inflation may be quite far from the state above the threshold, but a state with 2 percent inflation may have affinity with it. In short, it may be that a state of zero percent inflation is not one in which prices do not change, but one in which firms cannot change prices. Around spring this year, a management consultant told me that, in the past, the clients of their firm mostly requested advice on cutting costs, but recently advice on pricing strategies has started to be sought. I suppose that Japanese firms have always paid close attention to pricing policies, but given the difficulty of raising prices, perhaps they had no choice but to make cost-cutting as their main strategy. Of course, cost-cutting, pricing, shifting to higher value-added segments, and competing through use of the appeal of low-cost products are all valuable strategies. If the pricing rigidities create undue biases toward cost-cutting and make firms' product portfolios move toward low-cost products, however, this may not necessarily be conducive to enhancement of the country's industrial structure. On the other hand, if the prevailing norm that prices cannot be raised starts to dissipate, firms may find it easier to explore a variety of pricing strategies, new initiatives, and ways to develop higher-end products and services and enhance productivity. Stage 4, which I mentioned earlier, may gain momentum. II. Monetary Policy Patiently Continuing with Monetary Easing Let me turn to the topic of how the Bank should conduct monetary policy if it aims to achieve this outcome. It has patiently continued with large-scale monetary easing, aiming to support the economic activity and thereby facilitate a favorable environment for wage increases. In the current monetary policy framework, yield curve control -- in which the Bank sets the short-term policy interest rate at minus 0.1 percent and the target level of 10-year Japanese government bond (JGB) yields at around zero percent -- plays a central role. In December last year, and in July and October this year, the Bank increased the flexibility in controlling 10-year JGB yields to some extent. These decisions were made because, although strictly capping long-term interest rates will have strong positive effects, it also could entail large side effects. Currently, the Bank regards the upper bound of 1.0 percent for 10-year JGB yields as a reference in its market operations (Chart 7). While taking measures to balance the positive and side effects, the Bank will patiently continue with monetary easing until sustainable and stable achievement of the price stability target, accompanied by wage increases, comes in sight. What Would Happen If an Exit from the Large-Scale Monetary Easing Starts in the Future? What then would happen if the virtuous cycle between wages and prices were to finally take hold, and, as a result, sustainable and stable achievement of the price stability target were to come in sight? A question that is often posed is whether this new phase would trigger a variety of additional problems. Some argue as follows. Realizing such economic conditions has been a long-standing goal of the country and should be considered as a positive development in itself, but, if this happens, the Bank will likely gradually revise the large-scale monetary easing it has implemented to date. Modification of monetary policy will naturally have some effects on consumption and investment, but would that be the only impact? Given that very strong monetary easing has been continued for an extended period of time, could an exit from it go without exerting novel stresses on the household sector, the corporate sector, or financial institutions? These are complex questions that need to be considered from various perspectives. In addition, the outcome of an exit would significantly depend on the specific condition at the time and on the way monetary policy is modified. Thus, there would be no easy or simple way to predict the outcome. Today, I would like to offer one perspective by looking at what happened to net interest income for relevant sectors in the past transition from a state with positive interest rates to a state without them. Interest rates may not necessarily return to past levels in the first place, and of course, the opposite would not necessarily happen in the reverse process. This perspective therefore would fall short of providing an answer but may shed some light on the questions. The government's Annual Report on the Japanese Economy and Public Finance this year includes an analysis of how changes in interest rates thus far have affected interest receipts, interest payments, and net interest income for various economic agents (Chart 8). Net interest income is the difference between each entity's financial assets multiplied by the rate for interest received and the balance of borrowings and other financial liabilities multiplied by the rate for interest paid. Looking at households, while interest rates on deposits and other assets they held declined first, interest rates on mortgages and other borrowings followed suit. However, since households overall have a larger amount of deposits than mortgage liabilities, net interest income has deteriorated on a scale of trillions of yen compared to the time of positive interest rates. Conversely, if positive interest rates were to return, it may be expected that the household sector, which holds more financial assets than liabilities, will see improvement in net interest income on the whole. However, the interest rates on deposits and mortgages may rise at different speeds and the difference can affect the impact on the household sector. The impact will also vary across individual households. Next, looking at the corporate sector, it has reduced its debt, has accumulated funds on hand, and has come to register a net interest income surplus. Therefore, the impact of rising interest rates on the net interest income of the overall corporate sector may be more limited than would have been the case when the sector had more debt and less funds. Of course, as some firms carry high debt while others have a significant amount of financial assets, the impact would vary across individual firms. Lastly, looking at financial institutions, their profit margins have continued to deteriorate during the phase of declining interest rates, with net interest income falling to less than half of its peak. It cannot be guaranteed that, during a phase of rising interest rates, the opposite would simply happen and profit margins would increase accordingly. Moreover, this phase would raise some concerns, including whether the financial institutions would face unrealized losses on the long-term bonds they hold, and whether some borrowers, facing the need to pay higher interest, would default on their loans. However, this phase would also pave the way for financial institutions to raise their investment yields by replacing the bonds they hold with new ones. In addition, if the corporate sector makes active investments along with economic improvement during the exit phase, this will likely increase loan demand and make it easier for the financial institutions to secure profit margins between deposits and lending. In other words, while there may be a certain degree of stress in the shorter term, it would be much easier for banks to find ways to be profitable compared to when they were in an environment of continued low interest rates. Appropriate risk management will be needed to weather the stress in the transition phase, but, in our view, the financial system on the whole has the necessary resilience to withstand such stress. 4 The presentation above focused on nominal interest rates alone. In the environment where the exit occurs, inflation expectations may be higher than today, and the increase in real interest rates could be smaller than that in nominal rates. The impact on households and firms could thus differ from the impact described above. In any case, relevant economic agents would need to carefully navigate and manage the exit phase. In particular, the Bank of Japan should carefully monitor the evolution of wages and prices, judge the timing of the exit, and design its process. If this is done properly, there would be a sufficient possibility of achieving a positive outcome from the exit, since a wide range of households and firms would benefit from the virtuous cycle between wages and prices. Conclusion Fukuzawa was born in Japan's Edo period, when the country was isolated from Western civilization, and lived into the era after the Meiji Restoration, when Japan suddenly opened itself up to the West. He described this experience as living two lives with a single self. He argued that Japanese scholars of his day had a big advantage, since, although they had a fairly limited knowledge of Western civilization, they gained a unique perspective that Western scholars, who remained within a single civilization, could not have. The experience of those of you in my generation and older may also be compared to living two lives with a single self. We experienced a period in which Japanese industries gained Bank of Japan, Financial System Report, October 2023, Section C of Chapter IV. dominance in global markets one after another, and most of the world's 10 largest banks, as well as the world's largest and third-largest stock exchanges, were located in Japan. At one point, the scale of the Japanese economy surpassed 70 percent of the size of the U.S. economy. This was followed by the deflationary period, which saw continued declines in Japan's world rankings in a number of areas. If the matters that I have described today unfold in a positive direction, however, we may experience a new third phase in which the Japanese economy will make a comeback. As I mentioned at the beginning, the Bank is conducting its review of monetary policy over the past 25 years from a broad perspective (Chart 9). The Bank reviews how monetary policy to date has influenced Japan's economic activity, prices, and financial sector, and what lessons it should draw on for the future. The Bank is analyzing a wide range of issues, including those related to the points I have raised today, and is keen to gain input and feedback from you. In the following sessions, I would appreciate hearing your views on a number of issues, including the situation in Oita Prefecture. Thank you. Japan's Economy and Monetary Policy Speech at a Meeting with Local Leaders in Oita December 6, 2023 HIMINO Ryozo Deputy Governor of the Bank of Japan Introduction I. Economic Activity and Prices Developments since the Pandemic in Japan, the United States, and the Euro Area What We Have Heard from Japanese Firms on Their Pricing Practices What Statistics Tell Us on the Relationship between Firms' Price-Setting Behavior and Inflation II. Monetary Policy Patiently Continuing with Monetary Easing What Would Happen If an Exit from the Large-Scale Monetary Easing Starts in the Future? Conclusion Chart 1 I. Economic Activity and Prices Recent Developments in Japan, the United States, and the Euro Area Consumer Prices Real GDP 2019/Q4 = 100 year-on-year % change Japan 6 % Japan Japan United States Short-Term Interest Rates Euro area United States Euro area Euro area United States 19/Q4 20/Q4 21/Q4 22/Q4 -2 Oct. 19 Oct. 20 Oct. 21 Oct. 22 Oct. 23 -1 Oct. 19 Oct. 20 Oct. 21 Oct. 22 Oct. 23 Notes: 1. In the middle chart, figures for Japan are the CPI for all items less fresh food, excluding the effects of the consumption tax hike, while those for the United States and the euro area are the CPI for all items. 2. In the right-hand chart, figures for each economy are as follows: for Japan, the uncollateralized overnight call rate; for the United States, the effective federal funds rate; for the euro area, EONIA before 2020 and €STR thereafter. Sources: Cabinet Office; Ministry of Internal Affairs and Communications; Bank of Japan; ECB; BEA; BLS; Bloomberg. Chart 2 I. Economic Activity and Prices Recent and Forecasted Inflation Rates of Japan Forecasts by the Bank of Japan Recent Developments Outlook Report, October 2023 year-on-year % change year-on-year % change 5 +3.8% CPI (less fresh food) +2.8% +2.8% CPI (less fresh food and energy) +1.9% +1.9% +1.7% CPI (less fresh food) -1 -1 CPI (less fresh food and energy) -2 -2 Note: In the right-hand chart, figures are the medians of the Policy Board members' forecasts. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. Fiscal year 23 Chart 3 I. Economic Activity and Prices Changes in Firms' Wage- and Price-Setting Behavior Stage 1 Firms reflect higher import prices in selling prices. Stage 2 Firms reflect higher general price levels in wages. Stage 3 Firms reflect higher labor costs in selling prices. Stage 4 Firms' pricing policies become more diverse, facilitating firms to explore strategies of selling more attractive products and services at commensurate prices, not just good products and services at low prices. Chart 4 I. Economic Activity and Prices Feedback between Wages and Prices Response of Wages to a 1% Increase in Prices 1.4 Response of Prices to a 1% Increase in Wages cumulative impact on level, % cumulative impact on level, % 0.8 1.2 0.6 1.0 0.8 0.4 0.6 0.4 0.2 0.2 0.0 0.0 -0.2 -0.4 -0.2 Early 1990s Early 2010s Latest Early 1990s Early 2010s Latest Notes: 1. Figures show the estimation results of a time-varying parameter VAR model consisting of the output gap, nominal wages, and the CPI (less fresh food). Import prices are added as an exogenous control variable. The CPI figures are staff estimates and exclude temporary factors. 2. Figures are 4-quarter cumulative impulse responses. The bands indicate the 75 percent confidence intervals, while the broken lines indicate that the results are not statistically significant. 3. Figures for the early 1990s are as of 1991/Q2, those for the early 2010s are as of 2012/Q2, and the latest figures are as of 2023/Q2. Sources: Ministry of Internal Affairs and Communications; Cabinet Office; Ministry of Health, Labour and Welfare; Bank of Japan. Chart 5 I. Economic Activity and Prices Proportion of CPI Items with Prices Changes % Proportion of CPI items with price changes The background colors in the chart show the year-onyear rates of change in the CPI (all items less fresh food, excluding the effects of the consumption tax hikes) for each fiscal year. above 2% above 1% and up to 2% above 0% and up to 1% up to 0% 90 92 94 Fiscal year Notes: 1. Figures are the proportion of the weight of CPI items for which the year-on-year rates of increase or decrease were over 0.5 percent. 2. Figures are calculated using the CPI for all items less fresh food and imputed rent. 3. The broken lines show the periods that were affected by the consumption tax hikes (fiscal 1997, fiscal 2014, and from October 2019 to September 2020). 4. The figure for fiscal 2023 is the April-October average. Source: Ministry of Internal Affairs and Communications. Chart 6 I. Economic Activity and Prices Nonlinear Input Cost Pass-Through to Consumer Prices: A Threshold Approach Sasaki, T., Yamamoto, H., and Nakajima, J., Bank of Japan Working Paper Series (May 2023) There is a statistically significant nonlinearity in that the pass-through to CPI inflation of increases in producer prices, exchange rates, and wages rises once the increase in each of these variables exceeds a certain threshold. • Estimated Thresholds Producer Prices Exchange Rates year-on-year % change Data series Wages year-on-year % change year-on-year % change Estimated threshold -2 -10 -4 -6 -1 -2 -20 -8 -3 -30 -10 -4 Note: The estimated thresholds are for CPI inflation (less fresh food and energy). The estimation period is from 1991 to 2019. The gray lines in the figures show the end of the estimation period. Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare; Bank of Japan; FRED. Chart 7 II. Monetary Policy Further Increasing the Flexibility in the Conduct of Yield Curve Control (YCC) (Decided at the October 2023 Monetary Policy Meeting) The Bank will patiently continue with monetary easing under Yield Curve Control (the short-term policy interest rate: -0.1%, the long-term interest rate: around 0%), aiming to support Japan's economic activity and thereby facilitate a favorable environment for wage increases. Toward the end of the projection period, the Bank expects that underlying CPI inflation will increase gradually toward achieving the price stability target of 2 percent, while this increase needs to be accompanied by an intensified virtuous cycle between wages and prices. With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank judges that it is appropriate to increase the flexibility in the conduct of yield curve control, so that long-term interest rates will be formed smoothly in financial markets in response to future developments. <Previous Conduct of YCC> <Conduct of YCC after Further Increasing the Flexibility> % 1.0 0.5 0.0 -0.5 % Strictly capping 10-year JGB yields Nimbly conducting by fixed-rate purchase operations market operations ↓ Nimbly conducting market operations 1.0 Range of 10-year JGB yields fluctuations as a reference Upper bound for 10-year JGB yields as a reference 0.0 Chart 8 II. Monetary Policy Impact of the Past Interest Rate Changes on Net Interest Income Corporate Sector Household Sector 10 % trillion yen 15 Net interest income (right scale) Rate for interest received (left scale) Rate for interest paid (left scale) 10 % Financial Institutions trillion yen trillion yen 10 % -5 -10 -15 -20 -5 -10 -15 81 85 90 95 00 05 10 15 -25 -30 -35 -40 81 85 90 95 00 05 10 15 Source: Cabinet Office, "Annual Report on the Japanese Economy and Public Finance 2023." 81 85 90 95 00 05 10 15 Chart 9 Conclusion Monetary Policy Review from a Broad Perspective 1. Approach to Analyses The Bank will assess the effects of various unconventional monetary policy measures that have been implemented over the past 25 years in the context of interactions with developments in economic activity and prices at each point in time. In addition, it will analyze the impact of these measures on financial markets and the financial system, including their side effects. - Deepen understanding on (1) how various changes in the economic environment -- e.g., globalization and the declining and aging population -- have affected factors such as corporate and household behavior and the formation mechanisms of wages and prices and (2) the implications that the effects of these changes have had for monetary policy - Flexibly consider specific themes of the analyses during the course of the review 2. Approach to Exchanging Views and Other Initiatives The Bank will incorporate diverse expertise and take various initiatives with a view to enhancing the review's objectivity and transparency. Such initiatives include not only internal analyses but also those listed below. Make use of existing series of materials, such as reports and surveys, and invite public comment Exchange views on occasions such as meetings with local and business leaders Hold discussions, such as at workshops (one held on December 4, 2023 and another scheduled for around May 2024) Exchange views with foreign experts
|
bank of japan
| 2,023 | 12 |
Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at the Meeting of Councillors of Keidanren (Japan Business Federation), Tokyo, 25 December 2023.
|
December 25, 2023 Bank of Japan Wages and Prices: Past, Present, and Future Speech at the Meeting of Councillors of Keidanren (Japan Business Federation) in Tokyo UEDA Kazuo Governor of the Bank of Japan (English translation based on the Japanese original) Introduction It is a great honor to have this opportunity to address such a distinguished gathering of business leaders in Japan today. Last year in his speech at the Keidanren meeting, former Bank of Japan Governor Kuroda pointed out that we were "approaching a critical juncture in breaking out of the prolonged period of low inflation and low growth." Looking back on 2023, it was indeed a year that saw moves toward a transition. Japan's economy has turned to a moderate recovery, mainly reflecting the normalization of economic activity and a waning of supply-side constraints, and the output gap has improved to around 0 percent. Japan's inflation rate, measured in terms of the consumer price index (CPI), has continued to exceed 2 percent. This is mainly due to a pass-through of the past rise in import prices to consumer prices, but with economic improvement, some changes have been seen in firms' wage- and price-setting behavior. Given these changes, the likelihood of Japan's economy getting out of the low-inflation environment that it has been in over the past 25 years and achieving the Bank's price stability target of 2 percent in a sustainable and stable manner seems to be gradually rising. Today, I would like to talk about recent price and wage developments, which are closely related. In assessing the current situation of wages and prices and predicting their future, it is essential to consider the issue of why the situation in which wages and prices do not increase easily has continued to this day. Therefore, let me begin with reflections on the past. I. The Past: Overview of and Background to the Low-Inflation Environment Changes in the Wage and Price Situation in the Late 1990s First, let me turn the clock back 25 years to the late 1990s. Wages and prices in Japan continued to rise, albeit slightly, until around the mid-1990s. In the late 1990s, the year-on-year rates of change turned 0 or negative (Chart 1). Regarding changes seen in the late 1990s, not only did the aggregate rate of inflation fall to around 0 percent, but data at a more micro level show that the tendency of firms to keep prices unchanged had strengthened for many items to a considerable degree. It is natural for prices of individual items to rise and fall in accordance with their costs and demand; from the mid-1990s, however, the share of items for which prices were unchanged increased and the frequency of price revisions declined, especially for services in these two cases (Chart 2). Similarly, when it comes to wages, the practice of increasing base pay fell by the wayside at many firms. Wage growth slowed as, in addition to the fact that inflation declined, labor and management cooperated in prioritizing job retention under the difficult economic environment. These changes can be summarized as a shift from a state in which wages and prices move to one in which they do not. Although wage growth and price inflation also declined in the United States and Europe during this period, prices were still being revised to some extent, and there was no major shift toward a situation in which firms kept wages and prices unchanged. Entrenchment of the Low-Inflation Environment So, why did low inflation become entrenched in society and why did wages and prices stop moving in Japan? I think the basic background is that various downward pressures on wages and prices were operating for a long time. In other words, the economic stagnation lasted for a prolonged period from the late 1990s, due to the protracted balance-sheet adjustment pressure following the collapse of the bubble economy and to Japan's financial crisis resulting from that collapse and the subsequent decline in the functioning of financial intermediation. In the mid-2000s, the economy finally began to recover in earnest and the output gap turned positive for a while (Chart 3). Thereafter, however, Japan underwent a series of large shocks, including the Global Financial Crisis and the Great East Japan Earthquake, and its economic activity and prices were thus pushed down again. While Japan's economy intermittently came under strong downward pressure from the demand side, it should not be overlooked that structural changes, such as demographic changes and globalization, continued to push down wages and prices. The declining population likely pushed down expectations of growth in domestic demand and acted to restrain factors such as business fixed investment. In some respects, advances in globalization also exerted downward pressure on wages and prices. While the growth of emerging economies created new markets, it also intensified international competition. Price competition from low-priced imports had a large impact on Japan, mainly due to its industrial structure and geographic position. Moreover, analyses using firms' financial data suggest that, as firms' price competitiveness in product markets declined, it became difficult for them to add increases in costs, such as of raw materials, to selling prices, forcing them to hold down wages (Chart 4).1 Given the downward pressure on wages and prices, the Bank of Japan became the first central bank in the world to adopt unconventional monetary easing measures, such as the introduction of quantitative easing in the early 2000s, and endeavored to prevent, for example, the economy from falling into a marked slowdown, concern over financial system stability from growing, and prices from declining significantly. However, with short-term interest rates -- the main monetary policy tool -- having fallen to 0 percent, there was limited room for reducing interest rates, so the Bank could not sufficiently stimulate the economy and bring wage growth and price inflation back into clearly positive territory. As the rates of change in wages and prices remained at around 0 percent, as just described, this may have gradually increased people's expectation that wages and prices would continue not to move. With customers keeping a keen eye on prices and given that competitors were unlikely to choose to raise prices, it was difficult for firms -- even if their Fukunaga, Kido, and Suita (2023) show that shocks originating abroad pushed down prices in Japan from the 1990s through the 2010s. Similarly, Aoki, Hogen, and Takatomi (2023) and Hogen et al. (2023) show that, under the severe competitive environment, Japanese firms' price markups shrank and downward pressure on wages intensified to make up for this. Fukunaga, I., Kido, Y., and Suita, K., "Japan's Inflation and Global Inflation Synchronization," mimeo (2023). Aoki, K., Hogen, Y., and Takatomi, K., "Price Markups and Wage Setting Behavior of Japanese Firms," Bank of Japan Working Paper Series, no. 23-E-5 (April 2023). Hogen, Y. et al., "Changes in the Global Economic Landscape and Issues for the Japanese Economy," mimeo (2023). costs had risen somewhat -- to opt to be the only ones to raise prices.2 As you may recall, there were even cases in which a price hike by a single firm made headlines. When not raising prices becomes the norm, the barriers to raising prices become even higher. In macroeconomics, the costs that firms incur when revising prices are called "menu costs." While the term menu costs originally comes from the costs that restaurants incur when changing the prices of their dishes, firms incur a variety of costs when actually raising prices, including explaining and negotiating price rises to and with customers. In Japan, in a situation where, for example, firms kept prices unchanged for a prolonged period and the know-how for raising prices was thus lost, menu costs may have become quite large, and this may have been one of the factors that led to the entrenchment of a state in which prices did not move. As it became the norm for wages and prices not to move, in the second half of the 2010s, increases in wages and prices remained small even as the output gap continued to be positive and labor market conditions became increasingly tight. II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Global Upward Pressure on Prices Next, let me turn the clock forward to the present. After the impact of the COVID-19 pandemic waned in 2021, inflation rose rapidly around the world. This was the result of a rapid recovery in demand following the normalization of economic activity, coupled with supply-side constraints, which were mainly due to supply-chain disruptions, and high commodity prices following Russia's invasion of Ukraine. In the United States and the euro area, year-on-year inflation rates at one point registered around 10 percent, and in Japan -with the significant increase in the cost of imported raw materials being transmitted with a lag -- the inflation rate has continued to exceed 2 percent since spring last year. The shock In this context, Sasaki, Yamamoto, and Nakajima (2023) find that, in Japan, there is a nonlinearity in the impact (pass-through) of increases in firms' input costs on the rate of CPI inflation, depending on the size of cost increases. Moreover, using microdata from the Tankan (Short-Term Economic Survey of Enterprises in Japan), Ikeda et al. (2023) show that firms tend not to raise selling prices even if costs rise when their competitors do not raise prices. Sasaki, T., Yamamoto, H., and Nakajima, J., "Nonlinear Input Cost Pass-Through to Consumer Prices: A Threshold Approach," Bank of Japan Working Paper Series, no. 23-E-9 (May 2023). Ikeda, S. et al., "Firms' Recent Price-Setting Stance: Evidence from the Tankan," Bank of Japan Review Series, no. 23-E-2 (February 2023). of rising import prices has brought about a major change in firms' price-setting behavior, at least in the short term, as seen in the fact that even firms that had long kept their selling prices unchanged have raised them (Chart 5). So, the question is whether the state in which wages and prices do not move has truly become a thing of the past. The first notable point is that the year-on-year rate of change in import prices, which have led the recent price rises, has been negative since around spring this year and that the rate of increase in producer prices has decelerated to around 0 percent recently. Looking at the CPI, the rates of increase in prices of goods such as food and daily necessities have started to decelerate. Given these developments, although it will take time, the effects of the past rise in import prices pushing up overall prices are likely to gradually wane. Virtuous Cycle between Wages and Prices As the impact of the rise in import prices wanes, an important issue in assessing whether wages and prices have started to move is whether the recent changes in firms' behavior will be sustained. The recent price rises are attributable to the unusual situation of the surge in import prices, and some argue that wages and prices will stop moving again if the impact of this surge wanes. However, I expect that this time around, Japan's economy will get out of the low-inflation environment and achieve a virtuous cycle between wages and prices. In the past, there were times when moves to raise prices did not become widespread, as improving trends in the economy were cut short by declines in corporate profits and household income due to rising costs of imported raw materials. In contrast, during the current phase, demand has been underpinned by, for example, the government's economic measures and the Bank's continuation of monetary easing, thus providing support for achieving a virtuous cycle between wages and prices. A major difference from the past is that, in this situation, corporate profits have improved and set a record high. Moreover, changes have also been seen in some of the factors that have exerted structural downward pressure on wages and prices thus far, such as demographic developments and globalization. It remains the case that the aging and declining population tends to act to curb growth expectations for domestic demand. However, the pace of increase in labor supply, especially among seniors, is projected to slow, in part because the baby boomer generation is approaching the age of 75, a level beyond which the labor force participation rate declines significantly (Chart 6). This is expected to act as a factor leading to higher wages. As for globalization, at least the environment in which competition from low-priced imports from abroad pushes down prices has started to change. From a somewhat long-term perspective, it is necessary to keep an eye on the possibility that supply-side shocks to prices are changing in frequency, persistence, and nature due to factors such as (1) moves toward strengthening supply chains and economic security in countries around the world, (2) firms' efforts toward addressing climate change, and (3) heightened awareness of other environmental, social, and governance issues, and that these changes are affecting the global price environment. In fact, firms' price-setting stance and indicators of inflation expectations show that there has also been a change in the medium- to long-term outlook, and a view that changes in the wage and price situation are not temporary appears to be gradually becoming widespread. Firms have maintained their outlook for selling prices that prices will rise firmly over the medium term despite a decline in import prices. Similarly, indicators of medium- to long-term inflation expectations show that inflation expectations have risen moderately among all groups -- firms, households, and economists (Chart 7). Moreover, some firms reported that, having experienced a price hike for the first time in a long time, they will find it easier to negotiate price revisions in the future. This suggests that the menu costs I mentioned earlier may be getting smaller. Key Points for the Future In sum, the likelihood of Japan's economy getting out of the low-inflation environment and achieving the price stability target is gradually rising. However, I should note that this likelihood is still not sufficiently high at this point. Since there are extremely high uncertainties surrounding economic activity and prices at home and abroad, it is necessary to examine how firms' wage- and price-setting behavior will change. In terms of wage setting, the key point is whether wages will continue to rise markedly in next year's annual spring labor-management wage negotiations. Looking at the recent situation surrounding wages, labor market conditions have tightened even relative to last year (Chart 8). Corporate profits, which are the source of wage hikes, have increased due to improvement in economic activity, progress in the pass-through of cost increases to selling prices, and the yen's depreciation. Meanwhile, the labor share seems to have declined recently (Chart 9). Although a pass-through of higher raw material prices to selling prices is necessary to secure corporate profits, price rises due to this pass-through mean an increase in the burden of households. In order for the economy to see a sustained recovery led by domestic demand and for the virtuous cycle between wages and prices to intensify, it is essential that the increase in corporate profits lead to improvement in household income. Therefore, in terms of price setting, the key is whether firms will be able to reflect increases in costs besides raw material costs, such as wages and indirect costs, in selling prices. If firms cannot reflect wage increases in selling prices to a certain extent, the virtuous cycle between wages and prices will not last long. On this point, attention should be paid to the fact that the year-on-year rate of increase in prices of services, for which labor costs account for a large share in total costs, has gradually accelerated recently. However, what we have heard from firms gives me the impression that many of them still consider it difficult to pass on higher labor costs to selling prices (Chart 10). Recently, the government formulated guidelines on price negotiations for an appropriate pass-through of labor costs, and its impact on firms' price-setting behavior warrants attention. The Bank's Thinking on the Conduct of Monetary Policy Next, I will briefly explain the Bank's thinking on the conduct of monetary policy given the wage and price developments just described. To this day, the Bank has patiently continued with monetary easing while striking a balance between its positive effects and side effects. This policy response may seem in contrast to responses taken by central banks in the United States and Europe, which had raised policy interest rates substantially to address the rapid increase in inflation. The most significant factor behind the difference in policy responses between these central banks and the Bank of Japan is the divergence in the situation surrounding prices and wages. The central banks in the United States and Europe had taken a wait-and-see approach when prices began to rise, based on the assessment that the rises were "frictions" associated with the resumption of economic activity following the pandemic. Thereafter, however, with further upward pressure on wages, for which developments had been generally consistent with the 2 percent inflation, they became vigilant against the risk of a wage-price spiral and thus significantly raised their policy interest rates. On the other hand, as I emphasized earlier in this speech, Japan had remained in a situation where wages and prices did not move. In order to turn the situation around and achieve sustainable and stable inflation accompanied by wage increases, the Bank of Japan has patiently continued with monetary easing. That said, if the virtuous cycle between wages and prices intensifies and the likelihood of achieving the price stability target of 2 percent in a sustainable and stable manner rises sufficiently, the Bank will likely consider changing its monetary policy. Given the uncertainties surrounding economies and financial markets at home and abroad, the timing of a policy change is yet to be decided. The Bank will carefully examine economic developments as well as firms' wage- and price-setting behavior, and thereby decide on future monetary policy in an appropriate manner. III. The Future: Price Stability, Firms, and the Economy Moderate Inflation and Room for Policy Responses So far, I have looked back on the past and talked about recent changes in the wage and price situation in Japan. Now, I will turn the clock forward to the future. By "future," I'm referring to a state in which the virtuous cycle between wages and prices will have been achieved. I would like to consider what this cycle would mean to firms and Japan's economy as a whole. In standard economics, the most obvious benefit of a slightly positive inflation rate is larger room for monetary policy responses to an economic downturn. The primary transmission channel of monetary easing is lowering interest rates to stimulate economic activity. When inflation continues to be 0, nominal interest rates accordingly are low and there is little room for reducing them further. In contrast, in a state in which the inflation rate continues to be positive, nominal interest rates are higher, providing room to substantially lower interest rates if necessary. It is considered that conducting monetary policy effectively reduces the risk of the economy deteriorating significantly or reverting to deflation. This view is widely accepted around the world, and I believe that greater economic stability as a result of securing room for monetary policy responses will have a significant positive effect on firms as they formulate their business plans. Effects on Resource Allocation and Other Factors Moreover, based on Japan's experience, I think that, if wages and prices start to move, this will likely add to the positive effect just mentioned on the overall economy. As I have explained today, a key feature of the low-inflation environment that Japan fell into was the strong bias toward the status quo in wage- and price-setting behavior, which resulted in prices of many items being unchanged. This meant that relative prices between individual goods were less likely to change and the market's price discovery function was less effective. As a result, it may have become inefficient to allocate resources, which may have led to reduced productivity of the economy as a whole. The same is true for wages. While I believe that it was important to maintain employment during difficult times by freezing base pay and cutting bonuses, if a situation where wages do not increase easily continues even after these difficult times pass, the allocation of labor and changes in the wage system will become static. If the situation becomes such that wages increase every year, this could lead to more efficient allocation of labor through setting wages flexibly. In this regard, changes have been seen recently as the labor market has tightened, such as an increasingly active labor market for regular employees looking for new jobs. These developments are also expected to benefit the economy as a whole, as they promote the appropriate allocation of human resources to areas where they are most needed. Impact on Firms' Behavior So, how will this movement in wages and prices affect the business community? 3 As part of its review of monetary policy from a broad perspective, which was initiated this spring, the Bank of Japan is currently conducting a large-scale survey of firms. In the survey, it is asking firms about whether and why a state in which wages and prices move or do not move is preferable for them, as well as common questions regarding their views on corporate behavior over the past 25 years and recent changes in this behavior. Many of the firms represented by you have also participated in the survey, and I would like to thank you for your cooperation. While the Bank aims to understand the views of the business community through such dialogue, one possible hypothesis at this time is that, in a state in which wages and prices move in general, it will be easier for individual firms to do so as well. For example, if wages and prices move, it may be easier than in the past for firms to be more flexible in their wage and price setting and their product strategies when formulating business plans. There is no shortage of issues and topics for firms to address, such as digitalization and labor saving amid the expected continuation of labor shortages, decarbonization and other climate change responses, and strengthening supply chains. In this new environment, if firms take these issues as a business opportunity and show a higher tendency to move proactively, the positive impact should permeate throughout the economy. Of course, the shift to a state in which wages and prices move will present new challenges for firms. Whether it is recruiting and retaining employees or developing pricing and product strategies, firms may need to find different approaches than what they have taken thus far, including investment in new groups of people and resources. I strongly hope that firms will take full advantage of the benefits that should arise in a state in which a virtuous cycle between wages and prices is achieved, and that they will strengthen their positive moves. While there are not many theoretical or empirical studies examining this effect, one example is a series of studies by Professor Watanabe Tsutomu of the University of Tokyo on the effects of low inflation and a deflationary environment on the economy and firms' behavior. See, for example, Watanabe, T. and Watanabe, K., "Defure-ki ni okeru kakaku no kōchokuka: Gen'in to gan'i," Bank of Japan Working Paper Series, no. 16-J-2 (February 2016) (available only in Japanese). Concluding Remarks The time for my speech is running out. Today, I talked about the past, present, and future of the wage and price situation in Japan. I would like to conclude my speech by turning the clock to the present again. Firms' wageand price-setting behavior is changing and the likelihood of achieving the price stability target of 2 percent in a sustainable and stable manner is gradually rising. In order to ensure these developments, the Bank has patiently continued with monetary easing, aiming to facilitate a favorable environment for wage increases. Going forward, it will carefully examine economic developments and closely monitor whether the virtuous cycle between wages and prices will intensify -- in other words, whether wages will be raised in reflection of price rises and such wage increases will be reflected in selling prices. By doing so, the Bank aims to appropriately assess whether the price stability target has been achieved in a sustainable and stable manner. Thank you very much for your attention. Wages and Prices: Past, Present, and Future Speech at the Meeting of Councillors of Keidanren (Japan Business Federation) in Tokyo December 25, 2023 UEDA Kazuo Governor of the Bank of Japan Introduction I. The Past: Overview of and Background to the LowInflation Environment II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy III. The Future: Price Stability, Firms, and the Economy Concluding Remarks Chart 1 I. The Past: Overview of and Background to the Low-Inflation Environment Wages and Prices y/y % chg. CPI (less fresh food) Nominal wages -2 -4 FY 80 Notes: 1. The CPI figures are staff estimates and exclude the effects of the consumption tax hikes, policies concerning the provision of free education, and travel subsidy programs. Figures for nominal wages are for establishments with 30 or more employees up through fiscal 1990, and with 5 or more employees from fiscal 1991 onward. 2. Figures for fiscal 2023 are April-October averages. Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. Chart 2 I. The Past: Overview of and Background to the Low-Inflation Environment Price-Setting Trends Price Change Distribution share of the number of items, % Frequency of Price Changes % Goods Dec. 2018 Dec. 1999 Services Dec. 1992 -10 or less -5 or more y/y % chg. CY 91 Notes: 1. In the left-hand chart, figures are based on the CPI for all items less fresh food. 2. In the right-hand chart, figures are the share of prices (based on the average for each item and city) that changed from the previous month (12-month backward moving average). Data excludes fresh food, electricity, manufactured and piped gas, water charges, housing rent, periods of consumption tax hikes, and temporary price changes mainly due to special sales. Source: Ministry of Internal Affairs and Communications. Chart 3 I. The Past: Overview of and Background to the Low-Inflation Environment Output Gap 6 % -1 -2 -3 -4 -5 -6 -7 CY 90 Note: Figures are staff estimates. Source: Bank of Japan. Chart 4 I. The Past: Overview of and Background to the Low-Inflation Environment Impact of Globalization Changes in Wage and Price Setting Prices and Overseas Factors y/y % chg. 1.3 ratio ratio 2.2 ↑Wage surpression Others Overseas factors 1.2 1.8 1.1 1.4 CPI (less fresh food and energy) ↓Selling price surpression 1.0 1.0 Price markups (left scale) -1 Wage markdowns (right scale) -2 CY 97 99 01 03 05 07 09 11 13 15 17 19 21 23 0.9 FY 95 0.6 Notes: 1. In the left-hand chart, shocks are identified by combining short- and long-term zero and sign restrictions using a structural VAR model with domestic and international macro data. 2. In the right-hand chart, figures are estimated based on the approach used by Aoki, Hogen, and Takatomi (2023). Price markups = Output prices / Marginal costs, and Wage markdowns = Marginal revenue product of labor / Marginal wage costs. Sources: Ministry of Internal Affairs and Communications; Bank of Japan; Development Bank of Japan (DBJ); Cabinet Office. Chart 5 II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Consumer Prices and Output Prices Consumer Prices in Japan, the United States, and the Euro Area y/y % chg. Japan United States Pass-Through of Cost Increases to Output Prices Euro area output prices DI ("rise" - "fall"), % points Firms cautious about changing output prices Other firms "Rise" ↑ ↓ "Fall" -10 -20 -30 -40 -2 CY 15 -50 CY 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 Notes: 1. In the left-hand chart, figures for Japan are the CPI for all items less fresh food, excluding the effects of the consumption tax hike, while those for the United States and the euro area are the CPIs for all items. 2. In the right-hand chart, figures are based on the Tankan (all industries and enterprises). Figures for "firms cautious about changing output prices" are for firms that for at least about 95 percent of the period from 1991 to 2019 replied that their output prices were "unchanged." Sources: Ministry of Internal Affairs and Communications; Haver; Bank of Japan. Chart 6 II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Structural Changes in the Labor Market Population by Age Group Labor Force Participation Rate by Age Group mil. persons 100 % 65-74 20-64 0-19 75- 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 CY 1995 age group Notes: 1. In the left-hand chart, figures are based on the Population Pyramid for Japan released by the National Institute of Population and Social Security Research. 2. In the right-hand chart, figures are based on the Labour Force Survey (2022). Sources: National Institute of Population and Social Security Research; Ministry of Internal Affairs and Communications. II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Chart 7 Changes in Price-Setting Behavior Firms' Outlook for Output Prices in the Tankan Manufacturing Nonmanufacturing 5.0 chg. from the current level, % 5.0 4.5 4.5 4.0 4.0 chg. from the current level, % Economists 2 (7 to 11 years ahead) Firms (5 years ahead) 3.5 1 year ahead 3.0 5 years ahead 3.0 5 years ahead 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 1.5 1.0 0.5 -0.5 CY 14 Households (over the next 5 years) 2.0 1 year ahead 2.5 y/y, ann. avg., % 2.5 Economists 1 (6 to 10 years ahead) 3.5 -0.5 CY 14 Inflation Expectations 0.0 CY 05 Note: In the right-hand chart, "Economists 1" shows the forecasts of economists in the Consensus Forecasts, while "Economists 2" shows the forecasts of forecasters surveyed for the ESP Forecast. Figures for households are from the Opinion Survey on the General Public's Views and Behavior, estimated using the modified Carlson-Parkin method for a 5-choice question. Figures for firms show the inflation outlook of enterprises for general prices (all industries and enterprises, average) in the Tankan. Sources: Bank of Japan; JCER, "ESP Forecast"; Consensus Economics Inc., "Consensus Forecasts." II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Chart 8 Labor Market Conditions Firms' Perception of Labor Shortage Firms' Perception of Labor Shortage by Employment Status inverted, DI ("excessive" -40 "insufficient"), % points "Insufficient" % 3 DI ("shortage" - "surplus"), % points "Shortage" -30 -20 "Excessive" -10 -1 -2 "Surplus" -3 Regular employees, etc. -4 Employment conditions DI (left scale) Part-time employees -5 Output gap (right scale) CY 10 -6 -10 CY 10 Notes: 1. In the left-hand chart, the employment conditions DI figures are based on the Tankan. 2. In the right-hand chart, figures are the DIs for firms' employment conditions in the Survey on Labour Economy Trend. Sources: Bank of Japan; Ministry of Health, Labour and Welfare. Chart 9 II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Corporate Profits and Labor Share Labor Share Current Profits 16 s.a., tril. yen Large firms 76 4-quarter backward moving avg., % Small and medium-sized firms CY 08 CY 08 Notes: 1. Figures are based on the Financial Statements Statistics of Corporations by Industry, Quarterly and exclude "finance and insurance." Figures from 2009/Q2 onward exclude pure holding companies. 2. In the right-hand chart, Labor share = Personnel expenses / Value-added, and Value-added = Operation profits + Personnel expenses + Depreciation expenses. Source: Ministry of Finance. II. The Present: Changes in the Wage and Price Situation and the Bank's Thinking on the Conduct of Monetary Policy Chart 10 Developments in Prices Passing on Higher Labor Costs to Output Prices Consumer Price Index (Goods/Services) Firms experiencing difficulty in passing on higher labor costs to output prices • We have been forced to pass on increases in raw material costs to our output prices and have continued to raise prices. On the other hand, we have absorbed higher labor costs by raising productivity and have not passed them on to output prices (eating and drinking). • Further output price hikes could lead to a decline in demand. Given the ongoing labor shortages, we intend to continue raising wages from next spring onward but plan to keep prices unchanged (hotel). • Although upward pressure on labor costs has continued, since we are concerned about losing customers, we do not plan to pass on higher labor costs to output prices (services for individuals). y/y % chg. Goods General services Firms making progress in passing on higher labor costs to output prices • We plan to raise wages next fiscal year. In light of this, we have raised prices for the first time since our establishment (services for individuals). -1 CY 21 • In response to rising electricity charges as well as higher labor costs partly due to the effects of the increase in minimum wages this fall, we have raised output prices (pharmacy). Notes: 1. In the left-hand chart, figures for goods exclude fresh food and energy, while those for general services exclude mobile phone charges.. 2. The box on the right shows responses by firms in interviews with the Bank of Japan. The industry of the interviewee is shown in parentheses. Sources: Ministry of Internal Affairs and Communications; Bank of Japan.
|
bank of japan
| 2,023 | 12 |
Speech by Mr Shinichi Uchida, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Nara, 8 February 2024.
|
ÿ 23456758ÿ9ÿ ÿ ZRI[ÿS\ÿWRXRIÿ ÿ ÿÿÿÿ!ÿ ÿ "#$$%&ÿ()ÿ(ÿ*$$)+,-ÿ.+)&ÿ/0%(1ÿ/$(2$34ÿ+,ÿ5(3(ÿ 6789:;ÿ<=!!=!ÿ >$#?)@ÿA0B$3,03ÿ0Cÿ)&$ÿD(,Eÿ0CÿF(#(,ÿ ÿ GHIJKLMNÿPQRIMKRPLSIÿTRMUVÿSIÿPNUÿWRXRIUMUÿSQLJLIRKYÿ ÿ ÿ 3456789574ÿ ÿÿÿÿÿÿÿÿÿÿ!ÿ"ÿ"ÿÿÿ #ÿ#ÿÿ$ÿÿÿ%ÿ&$'ÿÿ"ÿ(ÿÿ(ÿÿ ÿÿÿÿÿ!ÿ$ÿÿÿ"ÿÿÿ$ÿÿ)(ÿ $ÿ*'ÿ)$ÿ!ÿ$ÿ#ÿÿ"ÿÿ*+ÿÿÿÿ#ÿÿ "ÿÿÿ)(+ÿÿ$ÿÿ'ÿ ÿ 3,ÿ. 747/ ÿ0121374/1455ÿ ÿ"ÿ(ÿÿ$ÿÿÿ"ÿ$ÿÿÿÿÿÿ%ÿ&ÿ67(ÿ ÿÿÿÿÿÿÿ$$'ÿÿÿÿÿÿÿ "ÿ!ÿÿ"$ÿÿ8'ÿ9!!ÿÿÿÿ$ÿÿ7(#ÿÿ ÿ$ÿ#ÿÿ$ÿ"ÿ!#ÿ8ÿ(ÿÿÿ$$ÿ$ÿÿÿ ÿ!#ÿÿ!"!ÿ8ÿ$ÿÿÿ!ÿ'ÿ:ÿÿÿ$ÿÿ ÿÿ"ÿÿ#ÿ!ÿÿÿÿÿÿÿÿ 'ÿ:ÿ)(ÿ"ÿÿÿÿÿÿ$ÿ$!ÿÿÿÿ ÿ$ÿ$#ÿ"ÿÿ!ÿÿÿÿ!ÿÿ;ÿ<$$#ÿ 8#ÿÿÿ$$#ÿ!ÿÿ=>"ÿ)'ÿ ÿ ?ÿÿÿ"ÿ@ÿA'ÿ*+ÿÿÿÿ'ÿÿÿÿÿ!"ÿ ÿÿÿ8ÿÿÿ!"ÿ#ÿ"ÿÿBÿ!"ÿÿ8!ÿÿA'Cÿ ÿ$ÿ$ÿDEDF#ÿA'Dÿÿ$ÿ$ÿDEDG#ÿÿA'Eÿÿ$ÿ$ÿDEDH'ÿ ÿ ?(!ÿÿ@ÿD#ÿÿ$ÿÿ8ÿÿI!ÿÿ$ÿ8ÿ!ÿ$ÿ ÿÿÿI>ÿ$'ÿÿÿ#ÿ8ÿ$ÿÿÿ ÿÿÿIIÿÿ$ÿÿÿÿ"ÿ8ÿADÿÿ$ÿ$ÿ DEDF#ÿÿÿ8ÿÿÿÿ8ÿ!#ÿÿÿÿ8>#ÿ ÿ!Iÿ'ÿ ÿ J"#ÿ!ÿÿÿ$ÿÿÿÿÿÿ"#ÿÿÿ Bÿÿ!"ÿ#ÿ8ÿ"ÿÿÿÿÿ!'ÿ:!ÿÿ @ÿF#ÿÿÿKÿL#ÿÿ$ÿÿÿÿÿÿFÿÿ"ÿ 8!ÿ ÿ8ÿÿ!$ÿÿ""#ÿÿÿ$ÿ!ÿÿÿ 1ÿ ÿ 345674ÿ94ÿ 4ÿ4ÿÿ94ÿ749ÿ 4ÿ9ÿÿ454ÿ96ÿ9ÿ9ÿ54ÿ9ÿÿ 9ÿ94ÿ974ÿ6ÿ94ÿ96ÿ94ÿ96ÿ6ÿ96ÿ94ÿÿ4549ÿ6ÿÿ9ÿ99ÿ94ÿ946ÿ 34944ÿ456675ÿ69ÿÿ96ÿÿ44ÿ674 9ÿ54ÿ94ÿ439ÿ6ÿ 7649ÿ65ÿ 4ÿ! 44ÿ45667ÿÿ5ÿ"#9749ÿ 4#4ÿÿ94ÿ36ÿÿ4ÿ 4994ÿ749ÿ$4 4ÿ9ÿÿ4ÿ667ÿ6ÿ7649ÿÿ5ÿ65ÿÿ99496ÿÿ 94ÿ6ÿ 494ÿ94ÿ45667ÿ5ÿ#4ÿ#5ÿ 65ÿ667ÿ96ÿ74ÿ454ÿ "#9749ÿÿ544ÿ934ÿ69ÿ ÿ ! 9ÿ%ÿ 449ÿ446749ÿÿ94ÿ6#46ÿ4596ÿÿ&ÿ'7 644ÿ5674ÿÿ4ÿ 7ÿ#4ÿ96ÿÿ544ÿÿ67ÿ4ÿ3#9ÿ9ÿÿ69ÿ5#9ÿ#ÿ9ÿ 54ÿ4ÿ(ÿ6ÿ 94ÿ56#7 96ÿ56#7 96ÿ6ÿ4 54ÿ)4ÿ4*ÿ#5ÿÿ94ÿÿ6#9ÿÿ 544ÿ# 694ÿ3ÿ49#ÿ47ÿ4ÿ47ÿ99ÿÿ344ÿ# 44ÿ#ÿ94ÿ 475ÿ+ÿ94ÿ694ÿÿ9ÿ4ÿ96ÿ66ÿ 6#59ÿÿÿ45494ÿ 5ÿ 4ÿ44ÿ4ÿ 54ÿ544ÿ6#46,ÿ444ÿ999#4ÿ96ÿ4ÿ4ÿ344ÿ 634 4ÿ#5ÿÿÿ9ÿ96ÿ444ÿ 6#59ÿ ÿ ÿ4ÿ96ÿÿ454ÿÿ 6#34ÿ66ÿ)44ÿ4*ÿ 4ÿ54ÿ6ÿ544ÿÿ64ÿ 94ÿ56#7 96ÿ)3#4ÿ 4*ÿÿ5# 49ÿ76494ÿÿ947ÿ6ÿ9ÿ6#966ÿ4ÿ99ÿ49#ÿ47ÿÿ 6"4594ÿ 96ÿ#ÿ4ÿÿ7"6ÿ4ÿ4ÿÿ7 64749ÿÿ6#46ÿ5674ÿ9477ÿ67ÿ 4ÿ4ÿ ÿ --.ÿ0123ÿ145ÿ67893ÿ:8;<1;8=4ÿ ?@AABCDÿFGD@HDGICÿIJÿHCKÿL@DMIINÿJIAÿOAGPBQÿ ÿ6#ÿ6ÿ4ÿ96ÿ9ÿ36#9ÿ4ÿÿ 54ÿ 4ÿ44 ÿ96ÿ! 9ÿSÿ 4ÿ 464ÿ94ÿ6ÿ544ÿÿ94ÿ56#74ÿ 54ÿ4ÿ)!T*ÿ6ÿÿ947ÿ4ÿ4ÿ66ÿ ÿUÿ4549ÿ6ÿV454734ÿ9ÿ4ÿW66ÿ9ÿ94ÿ346ÿ94ÿ5693#96ÿ6ÿ 44ÿ) 94ÿ3*ÿÿ344ÿ494ÿ7ÿ#4ÿ96ÿ94ÿ64749,ÿ74#4ÿ96ÿ4#54ÿ 94ÿ6#46ÿ3#4ÿ6ÿ4ÿ44ÿ 54ÿ 4ÿ694ÿ5693#96ÿ6ÿ66ÿ 6#59ÿ )9ÿ3#4ÿ3*ÿÿ694ÿ66ÿ)ÿ3#4ÿ3*ÿ4ÿ4544ÿÿ94ÿ9 6#ÿ6ÿ569ÿ 544ÿÿ44ÿ6#9ÿ+ÿ94ÿ694ÿÿ94ÿ5693#96ÿ6ÿ4 54ÿ)ÿ3*ÿÿ 344ÿ6ÿÿ76494ÿ#94ÿ(96#ÿ9ÿÿ4ÿ993#934ÿ96ÿ94ÿ4ÿÿ694ÿ54ÿ 4ÿ3ÿ36#ÿ96#7ÿ47ÿ 54ÿ6ÿ694ÿ4 54ÿ4ÿ6ÿ#ÿ994ÿ96ÿ 4ÿ 1ÿ ÿ 34ÿ678ÿ9 ÿ7977ÿ9ÿ4ÿ879ÿ99ÿ ÿ9 ÿ44987ÿ76ÿ749ÿ844ÿÿ79 ÿ 97ÿÿ84ÿ4ÿ4ÿ76ÿ484ÿÿ84ÿ7ÿÿÿ844ÿ 87ÿ64ÿ !"ÿ8ÿ697ÿ4ÿ ÿ97ÿ84ÿ8ÿ978ÿÿ89ÿ4789ÿÿÿ 8974ÿ ÿ9 ÿ4ÿÿ84ÿ#9ÿ4ÿÿ49ÿ76ÿ9 ÿÿ8ÿ678ÿ 9 ÿ878ÿ89ÿ76ÿÿÿ9 ÿ$%&ÿ678ÿÿ94ÿ 44ÿ684ÿ677ÿ4ÿ ÿ97ÿÿ'ÿ 89ÿ678ÿ64ÿ!(ÿÿ9 8698ÿ4ÿ879ÿ97ÿÿ9ÿ87ÿÿ89)ÿ46ÿ*ÿ 89ÿ678ÿ64ÿ!*ÿÿ+'ÿ89ÿ678ÿ64ÿ!"ÿ ÿ ,-./0102ÿ45678ÿ98/:88;ÿ<=>82ÿ=;?ÿ@.-682ÿ &ÿ788ÿ97ÿ8Bÿ94ÿ7977ÿ9 ÿ8974ÿ ÿ 4ÿ97ÿ946ÿÿ79ÿ8974ÿ687ÿ 84ÿ97ÿ4ÿÿ687ÿ4ÿ97ÿ84ÿ34ÿ678ÿ9 ÿ6849ÿ897ÿ9 ÿC 497ÿ4ÿ 9 8ÿ 4ÿÿ84ÿÿÿ9ÿÿ84ÿÿ84ÿDÿ94ÿ478ÿÿ984ÿ76ÿ9 ÿ 8777ÿ87 9ÿEÿ4ÿ4 ÿ78ÿ678 ÿ 7 94ÿ9ÿ49ÿ8ÿ 34ÿ&ÿ 97ÿ88ÿ78789ÿ87694ÿÿ ÿ9ÿÿ 4ÿÿ4ÿ47ÿÿ$ 89ÿFÿ 78ÿ47894ÿÿ7 ÿ84ÿ9ÿ34ÿÿ868ÿ697ÿ89ÿ9 ÿ$%&ÿ68ÿ 678ÿ9 ÿ874ÿ8ÿ7ÿÿ 88ÿ44ÿ4ÿ ÿ9ÿ9 ÿ9 ÿ76ÿ9 ÿÿ48ÿ 78 9ÿÿ79974ÿ ÿ89ÿ76ÿ84ÿÿ9 ÿ$%&ÿ4ÿ"ÿ89ÿ678ÿ ! ÿÿ4ÿ 8ÿ678ÿ!(ÿ9ÿ(ÿ89ÿ ÿ 39ÿ9 ÿ 9ÿ76ÿ8ÿ84ÿ76ÿ9 ÿGH4ÿ8 4ÿ ÿ49ÿ79ÿÿ8ÿ76ÿ 84ÿ8789ÿ99ÿ74ÿÿ684ÿ97ÿ 9ÿÿ4ÿÿ ÿÿ 7 9ÿ88ÿ9ÿ49ÿ8ÿI9ÿ9 8ÿ8ÿ8994ÿ7ÿ94ÿ6879ÿ4ÿÿ 684ÿ8ÿ76ÿ9 ÿ49ÿ99ÿÿ98ÿ9 ÿ46ÿJ99ÿ76ÿÿ4ÿ9 ÿÿ9ÿ 79ÿ76ÿ69784ÿ4ÿ4ÿ9 ÿ4997ÿ678ÿ9 8ÿ799784ÿ ÿ4ÿ76ÿ684ÿÿÿ 87ÿ8ÿ48Bÿÿ9 ÿE8ÿ!*ÿKLMNOPQRÿTUOPOVNUÿKLWOXYÿ8 4ÿ7ÿ9 ÿÿ 76ÿ9 ÿ 9ÿ ÿGÿÿ79 ÿ97ÿ9 8ÿ67897ÿ987ÿ94ÿ97ÿ 978ÿ7449ÿ76ÿ9 ÿZ ÿD66ÿ8 4ÿÿ7ÿ7664ÿ[7878ÿ 7 94ÿ ÿ9 ÿÿ48ÿ78 9ÿÿ79974ÿÿ7 ÿ 8ÿÿ ÿ784ÿ 47ÿÿ9 ÿ678ÿ76ÿ9ÿ684ÿ ÿGÿÿ86 ÿJÿ 7 94ÿÿÿ 4ÿ ÿ9 ÿ794ÿ49ÿ 97ÿ ÿ 1ÿ ÿ 345ÿ7589 ÿ 589ÿ8985 7ÿ4545ÿ7ÿÿ558ÿ5ÿ 85757ÿ ÿ45ÿ75ÿ 857ÿ7ÿ4ÿÿ7497ÿ494ÿ57ÿ9ÿ7ÿ999ÿ9ÿ75ÿ 857ÿ9ÿ95ÿ5ÿ 45ÿ45ÿ585ÿ7ÿÿ5 ÿ8977ÿ45ÿ75ÿ9ÿ895ÿ9 ÿ4975ÿ9ÿ5ÿ57ÿ 45ÿ45ÿ5 5ÿÿ55ÿ44ÿ557ÿÿ57ÿ4ÿ45ÿ75ÿ75ÿ 857ÿ 7ÿÿ89ÿÿ45ÿ5!589ÿ4ÿ"9ÿ8977ÿÿ895ÿ9ÿ75ÿ#9595ÿ45ÿ$ÿ 55957ÿ9ÿ484ÿÿ5! 5ÿ55ÿ7497ÿ4ÿ75857ÿ 857ÿ45ÿ 8575ÿ 955ÿ585ÿ ÿ % ÿ45ÿ945ÿ4 ÿ7ÿ595ÿ4ÿ5ÿÿ5ÿ8977ÿ"9ÿ897ÿ 85757ÿ5ÿ 8ÿ9ÿ77ÿ9ÿ9ÿ75ÿ 857ÿÿ4 ÿÿ7ÿ5ÿ4ÿÿ7ÿ5ÿ8 ÿ4ÿ ÿ9ÿ 845 ÿ79ÿ34ÿ7 ÿ8995ÿ97ÿ"5 ÿÿ44ÿ557ÿ ÿÿ9ÿ"9ÿ 745ÿ757ÿ4ÿÿ57ÿ9ÿÿ8958998ÿ57585ÿ455ÿ47ÿ"55ÿ795ÿ555ÿ 9ÿ"9ÿ897ÿ77&494ÿ345ÿ"9ÿ745ÿ9ÿ7ÿ47ÿ585ÿ585ÿ 8 ÿ9ÿ 7ÿ7ÿÿ7ÿ4ÿ"55ÿ"5ÿ9ÿ77ÿ9ÿ7ÿ7 7ÿ5ÿ85757ÿ9ÿ 857ÿÿÿ 45ÿ97ÿ9ÿ45ÿ8985ÿ ÿ45ÿ"9ÿ745ÿ9ÿ45ÿ 8575ÿÿ4 ÿ4ÿ 47ÿ 857ÿ45ÿ977"ÿ4ÿ45ÿ79ÿ 57ÿ9ÿ7ÿ ÿ45ÿ985ÿ9ÿ 9 5ÿ897ÿ77&494ÿÿ"7 577&9&"7 577ÿ7897ÿ ÿ % ÿ47ÿ7589 ÿ 589ÿ455ÿ7ÿ9ÿ55ÿ4ÿ8ÿ"5ÿÿ 89ÿ89"5ÿ9ÿ45ÿ ÿ 7 ÿ"9&55ÿ5ÿ 5997ÿ'955ÿ45ÿ(ÿÿ5ÿÿ 8954575ÿ)5ÿ"75ÿ9ÿ897ÿ784ÿ7ÿ 85ÿ55957ÿ ÿ9ÿ75857ÿ 857ÿ ÿ55957ÿ ÿ 5ÿ8979ÿ4ÿ79ÿ45ÿ ÿ 9ÿ45ÿ597ÿ 9ÿ"84ÿ57ÿ5ÿ5ÿ45ÿ5779ÿ4ÿ 757ÿ ÿ7ÿ4ÿ45ÿ"55ÿ"5ÿ 9ÿ77ÿ9ÿ5ÿ 85757ÿ9ÿ 857ÿ45ÿ5 5ÿ9ÿ75ÿ57ÿ95ÿ494ÿ4ÿÿ 755ÿ9"97ÿÿ7497ÿ4ÿ9577ÿ ÿ45ÿ7ÿ 589ÿ ÿ4ÿ ÿ45ÿ7589 ÿ5ÿ9ÿ 7 57ÿ9ÿ45ÿ75ÿ89 ÿ*55 ÿ47ÿ57585ÿÿ ÿÿ9ÿ5ÿ9ÿ5! 5ÿ4575ÿ9ÿ 5897ÿ97 5ÿ95ÿ945ÿ ÿ +++,ÿ./0ÿ123456ÿ7839:;<ÿ8=ÿ>830<2?@ÿA8BC;@ÿ E5!ÿÿÿ5! ÿ45ÿ(7ÿ89 8ÿ9ÿ95ÿ98ÿ$575ÿ5ÿÿ99ÿÿ4ÿFÿ G9ÿ45ÿ7ÿ9ÿ57ÿ9ÿ79ÿ45ÿ5&9&5ÿ5ÿ9ÿ8575ÿÿ45ÿ$ÿ47ÿ"55ÿ"95ÿ45ÿ (7ÿHÿ585ÿ5ÿ'955ÿ47ÿ7ÿ ÿ5ÿ9ÿ897&74ÿ897ÿ9ÿ95757ÿ 1ÿ ÿ 34564ÿ58ÿ9 ÿÿ85ÿ85 59ÿ4ÿ 9ÿ58ÿ ÿ645ÿ4ÿÿ69ÿ ÿ59ÿÿ 88 59ÿ9ÿ8 ÿ 99ÿ6695ÿÿ3 ÿ59688ÿÿ458ÿ9ÿ5ÿ48ÿ6959ÿ 354ÿ86ÿ 9 ÿ859ÿÿ859ÿ4ÿ84ÿ56ÿ598ÿÿÿ598ÿÿ 69ÿ9ÿ8459ÿ9ÿ598ÿ8ÿ 39ÿ ÿ3ÿ8ÿ9ÿ4ÿ!3 ÿ!ÿ 5ÿ6ÿ69ÿ ÿ "9ÿ4ÿ ÿ"ÿ865ÿ5ÿ5ÿ58ÿ#6ÿ4 ÿ4ÿ9ÿ8ÿ!ÿ5968ÿ59ÿ4ÿ $%"ÿ 4ÿ!ÿÿ58ÿ88ÿ!84ÿ! ÿ9ÿ!ÿÿ58ÿ88ÿ!84ÿ! ÿ9ÿ9ÿ35ÿÿÿ 9ÿÿ69ÿ44ÿ!586ÿ&ÿ458ÿ58ÿ8ÿ9ÿ4ÿ'659ÿ4 ÿ(9)8ÿ69ÿ 35ÿ6959ÿ659ÿ ÿ9ÿ4ÿ58ÿ66ÿ39ÿ3 8ÿ9ÿ568ÿ35ÿ 59985!ÿ"9ÿ 4ÿ3 8ÿ4ÿÿ69ÿ ÿ58ÿ#6ÿ ÿÿ645ÿ59ÿÿ85ÿ 99ÿ6695ÿÿ3 ÿ59688ÿ4ÿ554 ÿ!ÿ5*59ÿ458ÿ ÿ48ÿ9ÿ ÿ5859ÿ44ÿ4ÿ 59ÿ454ÿ965958ÿÿ!ÿ98ÿ ÿ + 59ÿ!3 ÿ4ÿ 9ÿ35ÿ 95ÿ98ÿ59ÿ4ÿ58ÿ66ÿ39ÿ3 8ÿ 9ÿ568ÿÿ6!ÿ#5959ÿ58ÿ ÿ9ÿ59! 59ÿ,9ÿ458ÿ858ÿ5!ÿ88 59ÿ 9ÿ8 ÿ6459ÿ!ÿ4ÿÿ69ÿ ÿ68ÿ59ÿ854ÿ4ÿ86ÿ 9 ÿ 859ÿ35ÿ4ÿ!!5ÿ58ÿÿ9ÿ4ÿ 9ÿ35ÿ#ÿ344ÿ5ÿ84ÿÿ58ÿ +59ÿ4 ÿ458ÿ86ÿ859ÿ48ÿ9ÿ59ÿ6ÿ!ÿ ÿ49ÿÿ8ÿ88ÿ!ÿ4ÿ 559ÿ!ÿ56ÿ5859ÿ4ÿ 9ÿ98ÿ ÿ58ÿ 4ÿ6956 59ÿ9ÿ ÿ 598ÿ8ÿ8ÿ9 ÿÿ6 ÿ5869595ÿ59ÿ!59965ÿ 8ÿ!ÿ9ÿ!ÿ4ÿ5859ÿ -ÿ458ÿ865ÿ5ÿ58ÿ59ÿ!ÿ4ÿ 9ÿ ÿ#59ÿ58ÿ856ÿ45959ÿ9ÿ 95ÿ 58598ÿÿ5955ÿ88ÿ8ÿ!ÿ8ÿ58ÿ885ÿ"9ÿ34 ÿ!38ÿ"ÿ3 ÿ5ÿÿ84ÿ 34 ÿ"ÿ69ÿ8ÿÿ458ÿ59ÿ59ÿ.8598ÿ4 ÿ4ÿ!9ÿ9ÿ8ÿÿ69588ÿ 9ÿ'9588ÿ69ÿ ÿ /01234ÿ6789:9;8ÿ<=89ÿ 4ÿ!58ÿ.859ÿ58ÿ43ÿ ÿ8ÿ4ÿ84ÿ56ÿ598ÿÿ5!ÿ4ÿ 9ÿ59 8ÿ58ÿ 9 5ÿ598ÿÿ56ÿ!ÿ59 659ÿ458ÿ56ÿ4ÿ 9ÿ5ÿÿÿ69ÿ 598ÿÿ ÿ4ÿ#688ÿ88ÿ59ÿ69ÿ6698ÿ4ÿÿ!59965ÿ5985598ÿ ÿ4ÿ 9ÿ4ÿ965*ÿ6ÿÿ59ÿ4ÿ 9ÿ ÿ4ÿ59ÿ4ÿ9ÿ!ÿÿ ÿÿ 69ÿ8ÿÿ8ÿ!ÿ5ÿ986598ÿ39ÿ!59965ÿ5985598ÿ4 ÿ4ÿ4ÿ 1ÿ ÿ 34456789ÿ37ÿ859ÿ 5ÿÿ758ÿÿ8 ÿ37ÿ ÿ85ÿ7ÿ89ÿ9863857ÿ34ÿ89ÿ56ÿ 37ÿ3ÿÿ4783ÿ578ÿ7898ÿ38ÿÿ974ÿ8 ÿ4678ÿ6745383 ÿ43ÿ38ÿ9ÿ 7ÿ8 ÿ37ÿ5ÿ769ÿÿ85ÿÿ478ÿ 8ÿ ÿ578ÿ568ÿ838ÿ89ÿ996ÿ9ÿ3995438 ÿ 3ÿ8ÿ5ÿ85ÿ37837ÿ8 ÿ6748577ÿ5ÿ8 ÿ57 ÿ38ÿ ÿ !8ÿ948ÿ85ÿ8 ÿ348ÿ57ÿ8 ÿ4575 ÿ3ÿ5ÿ4843ÿ996ÿ9ÿ8 ÿ969"678ÿ38ÿ5ÿ 8 ÿ958#8ÿ54ÿ7898ÿ38ÿ$ ÿ37%9ÿ394ÿ877ÿ9ÿ85ÿ&37ÿ8 ÿ4678ÿ 9863857ÿ5ÿ37ÿ56855ÿ5ÿ45754ÿ348'8ÿ37ÿ49ÿ37ÿ8 7ÿ98ÿ8 ÿ54ÿ7898ÿ 38ÿ38ÿ37ÿ3538ÿ'ÿ95ÿ838ÿ()ÿ73857ÿÿÿ38ÿ3567ÿ8 ÿ*ÿ478ÿ838ÿ+7ÿ 89ÿ399ÿ8 ÿ34863ÿ38ÿ73863ÿ 79ÿ57ÿ686ÿ45754ÿ37ÿ4ÿ '5 789ÿ $ 38ÿ93ÿ'7ÿ8 ÿ56855ÿÿ&37 ÿ3ÿ'7ÿÿ8 ÿ37ÿ ÿ85ÿ8738ÿ8 ÿ 738'ÿ7898ÿ38ÿ54ÿ8ÿ9ÿ3ÿ85ÿ37ÿ3ÿ38ÿ7ÿ 4ÿ8ÿ56ÿ8 7ÿ ÿ397ÿ 8 ÿ7898ÿ38ÿ3ÿ$ ÿ37ÿ56ÿÿ87ÿ37837ÿ3445538'ÿ73743ÿ 4578579ÿ'7ÿÿ8 ÿ873857ÿ ÿ85ÿ83ÿ34ÿ,9ÿ( 38ÿ-ÿ959ÿ8 ÿ38ÿ 4678ÿ9ÿ39967ÿ3ÿ'ÿ363ÿ38ÿ5ÿ8 ÿ54ÿ7898ÿ38ÿ$ ÿ37ÿ9ÿ85ÿ 964ÿ'9ÿ745538 ÿ7ÿ73743ÿ389ÿ 7ÿ37ÿ39968579ÿ57ÿ8 ÿ54ÿ 7898ÿ38ÿ85ÿ3ÿ89ÿ56855ÿ5ÿ45754ÿ348'8ÿ37ÿ49ÿ.578 99ÿ8 ÿ37ÿ 59ÿ758ÿ5/48ÿ838ÿ73857ÿÿ974378ÿ&4 ÿ*ÿ478ÿ,9ÿ957ÿ7ÿ( 38ÿÿ8 ÿ 4678ÿ9863857ÿ9ÿ838ÿ0337%9ÿ3ÿ7898ÿ389ÿ3'ÿ 7ÿ96983783ÿ738'ÿ37ÿ 73743ÿ4578579ÿ3'ÿ 7ÿÿ3445538'ÿ$ 9ÿ9863857ÿ9ÿ758ÿ&48 ÿ85ÿ 437ÿ64ÿ ÿ +7ÿ8 ÿ58 ÿ37ÿ95 ÿ3ÿ5ÿ8 ÿ5757ÿ943ÿ357ÿ5'939ÿ38ÿ3843789ÿ 37ÿ4575989ÿ838ÿ7ÿ3ÿ9838ÿ ÿ73857ÿ9ÿ*ÿ478ÿ8 ÿ7573ÿ7898ÿ38ÿ838ÿ9ÿ 7683ÿ85ÿ8 ÿ4575 ÿ956ÿÿ*ÿ478ÿ'7ÿÿ8 ÿ73863ÿ38ÿ5ÿ7898ÿ9ÿÿ478ÿ7ÿ 3ÿ89ÿ+ÿ39 ÿ57ÿ89ÿ95 ÿ9698ÿ838ÿÿ8 ÿ 9 ÿ54ÿ7898ÿ38ÿ9ÿ 434638 ÿ697ÿ3ÿ9ÿ 85ÿÿ8 ÿ$35ÿ6ÿ89ÿ56ÿÿ3ÿ64ÿ ÿ 6ÿ ÿ ÿÿ758ÿ8ÿ85ÿ36ÿ ÿ 4ÿ'ÿ9ÿ4548ÿ37ÿ56ÿÿ85ÿ838ÿ838ÿ8ÿ3ÿ 79ÿ57ÿ686ÿ45754ÿ37ÿ4ÿ '5 789ÿ+7ÿ89ÿ399ÿ8ÿ ÿ9698ÿ838ÿ8ÿ9ÿ 3ÿ8ÿ468ÿ85ÿ39999ÿ8 ÿ9863857ÿ7ÿ0337ÿ856ÿ37359ÿ8ÿ165ÿ37ÿ8 ÿ278 ÿ 1ÿ ÿ 3454678ÿ7ÿ 54ÿÿ77ÿÿ4ÿ46ÿ46ÿ345467ÿ5ÿ46ÿ6ÿ565ÿ54ÿ57ÿ56ÿÿ 664ÿ 6ÿ645ÿ57ÿ65ÿ57ÿ46ÿÿ46674ÿ5467ÿÿ!"!!ÿ ÿ56ÿ76ÿ 4ÿ5ÿ754ÿ7ÿÿ6#ÿ66$7ÿ66ÿ454ÿ54ÿÿ6ÿ54ÿ5ÿ!ÿ 664ÿ6ÿ46ÿ#6#ÿ4ÿÿ46#8ÿ% 6ÿ 64ÿ54ÿ7454ÿÿ&55ÿ7ÿ#56ÿ 6648ÿ 46ÿ666ÿ4ÿ'6ÿ5ÿ46ÿ46ÿ345467ÿ 66ÿ#6#(ÿ4ÿ (46#ÿ54ÿ6)64547ÿ56ÿ66ÿ56ÿ54ÿ!ÿ664ÿ7ÿ454ÿ476ÿ6)64547ÿ ÿ&55ÿ56ÿ74ÿÿ46ÿ677ÿÿ#ÿ45ÿ!ÿ6648ÿ% 7ÿ#657ÿ454ÿ5ÿ 5##546ÿ#645 ÿÿ7ÿ666ÿ4ÿ4ÿ54ÿ6)64547ÿ46ÿ5ÿ4ÿ6ÿ #ÿÿ46ÿ7ÿ454ÿ46ÿÿ5ÿ558ÿ*66#647ÿÿ&55$7ÿ55ÿ#5647ÿ 766#ÿ4ÿ56ÿ66ÿ66ÿÿ4676ÿ54ÿ5#7ÿ454ÿ56ÿ664ÿ#ÿ'6ÿ 5ÿ46ÿ46ÿ345467ÿ46ÿ54ÿ454ÿ54ÿ6)64547ÿ56ÿ4ÿ66ÿ56ÿ54ÿ!ÿ 664ÿ5ÿÿ645467ÿ577546ÿ4ÿ4676ÿ5478ÿ676ÿÿ&55$7ÿ54ÿ 5#7ÿ56ÿ4ÿ56ÿÿ5ÿ((ÿ ÿ7ÿ 54ÿ46ÿ+5ÿ5#7ÿÿ57ÿ,ÿÿ6)5ÿ ÿ#6ÿ645ÿ546ÿ((ÿ#564ÿ67ÿÿ74ÿ66ÿÿ46ÿ766ÿÿ46ÿ56ÿ 5#ÿ46ÿ5478ÿ-46#6ÿ4ÿÿ6ÿ75ÿ454ÿÿ5ÿ&55$7ÿ54ÿ 5#7ÿ46ÿ+5ÿÿ#545ÿ5##546ÿ55ÿ478ÿ ÿ ./012ÿ45670ÿ489:681ÿ;92ÿ<56=>;?0?ÿ8@ÿAB=>;9C0DE6;202ÿF592?ÿGAEF?Hÿ;92ÿI:>06ÿJ??0:?ÿ 46ÿL674ÿ67ÿ46ÿ776ÿ67ÿ4ÿ46ÿ6ÿ6ÿ4ÿ5#68ÿ 7ÿ 47ÿ5#6ÿ7ÿ5ÿ#ÿÿL544546ÿ657ÿMN'Oÿ#6#646ÿ4 ÿ6#64ÿ ÿ5767ÿ7#ÿ46#54ÿ4ÿ7ÿ4ÿ46ÿ6ÿÿ46ÿ74 8ÿP65677ÿÿ 646ÿ46ÿ 5#6ÿÿ6ÿ46#546ÿÿ6ÿ46ÿÿ7#6ÿ5ÿ46ÿ+5ÿ#74ÿ76ÿÿ4ÿ 66ÿ4ÿ776L64ÿ&55676ÿ6#64ÿÿM&Q+Oÿ5767ÿ5ÿÿ4ÿ#545ÿ 46ÿ7454ÿÿ#5647ÿÿ454ÿ6778ÿ,ÿ47ÿ7676ÿ46ÿ4ÿÿ6ÿ6ÿ4ÿ 5ÿ776L64ÿ&Q+ÿ5767ÿ56ÿ54ÿÿ5ÿ4ÿ6778ÿ6ÿ46ÿ 64ÿ 5#6ÿ46ÿ5#4ÿÿ4676ÿ5767ÿ7ÿ646#6ÿ667ÿÿ4564ÿ46ÿ 66ÿÿ46674ÿ54678ÿ,ÿ46ÿ+5ÿ46#5467ÿÿ567ÿ47ÿ5#6ÿ4ÿÿ76ÿ46ÿ 674ÿ5ÿ4ÿ546ÿ ÿ4ÿÿ4ÿ&Q+ÿ5767ÿ45ÿ54ÿÿ#564ÿ 47ÿ54ÿ454ÿ4ÿÿ4#6ÿ5ÿ6574ÿ66#647ÿÿ46ÿ58ÿRÿ76ÿÿ 46ÿ+5ÿ67ÿ676ÿ46ÿ5#6ÿ4ÿÿ6ÿ#6ÿ45ÿ644ÿ46674ÿ5467ÿ6ÿ 646#6ÿÿ46ÿ#5648ÿ,ÿÿ7ÿ66ÿ4ÿÿ456ÿ56ÿ#65767ÿ7ÿ57ÿ4ÿ4ÿ 1ÿ ÿ 345675ÿ9 3 77ÿ545ÿ69ÿ6754ÿ75ÿ45 ÿ69ÿÿ65ÿ45ÿ767ÿ75ÿ6 7ÿÿ ÿ4365ÿÿ 7ÿ365ÿ 367ÿ69ÿ75457ÿ4675ÿÿ 7ÿ45ÿ469ÿ ÿ ÿ6997 ÿ75ÿ6ÿ6ÿ43659ÿ!"ÿ69ÿ66ÿ456ÿ57675ÿ5757ÿ747ÿ#$% !&ÿ 6ÿ647ÿ ÿ7ÿ645$365ÿ 5764ÿ56 ÿ' 554ÿ 35ÿ 76 65ÿ69ÿ 765ÿ 635557ÿÿ75ÿ(ÿ54357ÿ76457ÿ35ÿ ÿ 7ÿ69ÿ75ÿ6ÿ45 5ÿ75ÿ645$365ÿ 5764ÿ56 ÿ7ÿ 9ÿ5ÿ6746ÿ7ÿ9 3 75ÿ755ÿ4365ÿÿ7 ÿ45649ÿ7455ÿ 564ÿ6ÿÿ)643ÿ(*(+ÿ75ÿ6ÿ3659ÿ7ÿ955ÿ4ÿ6 57ÿ4365ÿ45 ÿ7ÿ 65ÿ4365ÿ5,ÿ ÿ6ÿ4 47-59ÿ6 54ÿ94 ÿ75ÿÿ6457ÿ 767ÿ. 35ÿ 75ÿ75ÿ4365ÿ6 7ÿÿ755ÿ6 57ÿ6ÿ55ÿ6/ÿ75ÿ6ÿ7ÿ(+*ÿ ÿ5ÿ ÿ!"ÿ69ÿ ÿ$% !ÿ67ÿ564ÿ5ÿÿ75ÿ6ÿ9 3 75ÿ755ÿ4365ÿ69ÿ565ÿ 435ÿ467 ÿ5745ÿ7ÿ75ÿ6457ÿ7ÿÿ5ÿ767ÿ75ÿ637ÿ ÿ6374ÿ3ÿ6ÿ6457ÿ 3 97 ÿÿ 7ÿ5ÿ 367ÿ0ÿ345ÿ75ÿ7456757ÿÿ75ÿ!"ÿ69ÿ$% !ÿ64569ÿ 59ÿÿ75ÿ6ÿÿ6 754ÿ67754/ÿ95ÿ7ÿ75ÿ5,7455ÿ645ÿ365ÿ 59ÿ75ÿ6ÿ 9ÿ559ÿ7ÿ765ÿ75ÿ7ÿ3 954ÿ767ÿ 5ÿ ÿ 123ÿ5ÿ6789:9;ÿ<=:9>ÿ?=8ÿ@ABA9CDÿEF=9=GHÿ J57ÿ5ÿ 5ÿ ÿ7ÿ75ÿ5,7ÿ73ÿ66Kÿ53 ÿ ÿ67ÿ6ÿ3436ÿ74 ÿ 7ÿ4ÿ 543 ÿ9567 ÿÿ67ÿ ÿÿ 9ÿ5ÿ7ÿ76ÿ67ÿ365ÿ34457ÿ 9 ÿÿ75ÿ3 75,7ÿÿ75ÿ 74ÿÿ66Kÿ53 ÿ 35ÿ75ÿ+LL*ÿ69ÿ3 954ÿ75ÿ 367 ÿÿ755ÿ365ÿ ÿ 5 ÿ66557ÿ ÿ MNOPOQRNÿTUVWPVUROPÿVPXÿYZ[\VUROPÿRPÿ]V^VPÿ J57ÿÿ765ÿ6ÿ ÿ67ÿ`647ÿ+(ÿa754ÿ5754 ÿ75ÿ+LL*ÿ66ÿ5,545359ÿ75ÿ47ÿÿ 75ÿ5ÿ53 ÿ69ÿ6ÿ5b57ÿ 636ÿ34 ÿ7ÿ6 ÿ7459ÿ7ÿ69945 ÿ6ÿ 953 ÿ67 ÿ69ÿ6967ÿ7ÿ75ÿ6-67 ÿ47ÿ67ÿÿ75ÿ45ÿÿ554 ÿ 53 5ÿa ÿ6ÿ457ÿ66Kÿ53 3ÿ47ÿ4675ÿ95359ÿ6ÿ6ÿ7459ÿ69ÿ75ÿ53 ÿ 5ÿ7ÿ6ÿ7675ÿÿ34 3ÿ9569ÿ4765ÿ!5ÿ67 ÿ4675ÿ7459ÿ5675ÿÿ+LLcÿ69ÿ 9567 ÿ54 759ÿ4ÿ+dÿ564ÿÿ754 ÿÿ 5764ÿ3ÿ55ÿ54 ÿ75457ÿ4675ÿ7ÿ *ÿ54357ÿ39ÿ 7ÿ554675ÿ357ÿ56 ÿ5537ÿ69ÿ7 ÿ659ÿ7ÿ46 5ÿ75ÿ 67 ÿ 4675ÿ!5ÿ5457ÿ364459ÿ7ÿ6 5ÿ36ÿ59 ÿ7ÿ65ÿÿ4ÿ9569ÿ4765ÿ 69ÿ55759ÿ64 ÿ 95ÿ69ÿ3ÿ34597ÿ446 ÿ7ÿ47537ÿ557ÿ 1ÿ ÿ 3456784ÿ5 38ÿ65653ÿ573ÿÿ34ÿ3736ÿ3ÿÿ375ÿ65ÿ5ÿ36ÿ 5633ÿ34 ÿÿ7738ÿ35ÿ55 ÿÿ78ÿ7ÿ4ÿÿ 63ÿ 5345ÿ34ÿ8ÿ655668ÿ 3 3ÿÿ5375ÿ34ÿ6ÿÿ5ÿ ! "ÿÿ#$$%ÿ4ÿÿ 5ÿ 3ÿ6ÿ5ÿ343ÿ4ÿ3 ÿ5ÿ73ÿ34 ÿ78ÿÿ 35ÿ6ÿ 3 3ÿ&4ÿ75345ÿ35 834 ÿ5'ÿ3 ÿ365ÿ8ÿ36ÿÿ 458ÿ(757ÿÿ34ÿ ÿ36ÿ34ÿ6ÿ538ÿÿ63ÿ357375ÿ343ÿ ÿ34ÿ36ÿ 343ÿ34ÿ )3ÿ6ÿ46ÿ3ÿ6ÿ)3 8ÿ345ÿ7 ÿ ÿ *+,-./01+2.ÿ456.7+,8ÿ9+:;6-ÿ 3ÿÿ 3ÿ343ÿ34ÿ7 3ÿ6736ÿ36ÿ34ÿ7ÿÿ36ÿ35 834 ÿ='ÿ85634ÿ 63 3ÿ>6 5ÿ3ÿ3ÿ3 ÿ65ÿ34ÿ36ÿ5ÿ573ÿÿ34ÿ 3 ÿ34ÿ7ÿÿ 6 67ÿÿ34ÿ53ÿ?3ÿ=ÿ?534(7ÿÿ#$@@ÿ44ÿ8 ÿ5ÿ36ÿÿ3736ÿ 6 ÿÿ34ÿA)ÿ4Aÿÿ34ÿ3736ÿ34ÿBÿ) ÿ 5ÿ6ÿ36ÿ3ÿ 67ÿ3ÿÿ56ÿÿ3567ÿ58ÿ6 35ÿ 8ÿ3538ÿ34ÿ (7333 ÿÿ(733 ÿ6 35ÿ8ÿ!CC?"ÿÿ#$@DÿE4 ÿ634ÿ34ÿ63 3ÿ 85634ÿ53ÿÿ36ÿ) 336ÿ5ÿ6ÿ34ÿ353ÿ53ÿ343ÿÿ 735ÿ36ÿ34ÿ 66ÿ6 ÿ)35 ÿ6ÿ&47ÿ8ÿ6 35ÿ8ÿ3 ÿ 6784ÿ5(75ÿ 83ÿ6 58ÿ353ÿ53ÿF6 348ÿ4ÿ36ÿÿ6 ÿ36ÿ6 56 ÿ34ÿG56ÿ6 5ÿ 67ÿ6ÿ6ÿ353ÿ53ÿF6ÿ34ÿBÿ ÿ345ÿ36ÿÿ465335ÿ353ÿ 53ÿ 83 ÿ65ÿ36ÿ74ÿ6 ÿ 7ÿÿ6835ÿ353ÿ53ÿ 6(7 3ÿ3ÿ 67ÿ7ÿ 38ÿ634ÿHÿ675ÿ34ÿ 75ÿ6 ÿ34ÿÿ3ÿÿ3ÿÿ 335ÿ36ÿ6ÿ74ÿ 75ÿÿ6ÿ>6 5ÿ34673ÿ35678ÿ34ÿ34ÿ(736ÿ 467ÿ4 ÿ5 ÿÿ36ÿ43ÿ67843ÿ36ÿÿ6 ÿ ÿ I656 5ÿ6 5ÿ34ÿ5ÿJ 5 ÿ3567ÿC?ÿÿ34ÿÿ6ÿ34ÿ ÿÿÿ 6345ÿ 35ÿÿ73ÿ76 36ÿ6ÿÿÿÿ34ÿ3ÿÿ6534ÿ8ÿ56ÿÿ 4365ÿ 5 3 ÿ36ÿ43ÿ)3 3ÿ34ÿ 35ÿ8ÿ673ÿÿÿ46ÿ467ÿ4 ÿ 757ÿ34ÿ76 36ÿ6ÿ&43ÿÿ7ÿ 35ÿÿ4ÿ6ÿ46ÿ73ÿ 36ÿ6 53ÿÿ34ÿ8 ÿ3736ÿÿ843ÿ6ÿ74ÿ573ÿ3ÿ46 ÿÿ56ÿÿ ÿ343ÿ38ÿ6ÿ76 36ÿ36ÿÿ63ÿÿ636ÿ65ÿ34ÿBÿ6ÿ=ÿHÿ 675ÿ ÿÿÿ34673ÿÿ5K7ÿ4345ÿ7ÿ6ÿ 75ÿ 5ÿ 5653ÿÿ6 58ÿ345ÿ63 ÿ3ÿÿÿ3ÿ 1ÿ ÿ 45678ÿ 785ÿ5ÿ765ÿ57ÿ ÿÿ!ÿ"#$ÿ%&'(ÿ))*ÿ&'ÿ(ÿ%+(,%(&ÿ&(-./(ÿ.&((ÿ(ÿ0"1.23ÿ&'ÿ3.(1'ÿ 2%/(ÿ2"&"1$ÿ+"ÿ"4ÿ&'ÿ1"&-4(5ÿ(1ÿ.&((ÿ(ÿ#((ÿ.-&.6.2&13ÿ&(-./(7ÿ*/(&ÿ "%-ÿ(ÿ&%1ÿ(ÿ"6ÿ.&((ÿ#ÿ1"#$ÿ.ÿ00"2ÿ2(('ÿ6.13ÿ22"55"'./(ÿ 6.&&2.1ÿ2"&'.."&7ÿÿÿ(%1$ÿ'(5&'ÿ"-(ÿ#((ÿ("1/('ÿ&'ÿ(ÿ%&(501"35(&ÿ (ÿ'(21.&('ÿ%+&.1137ÿ8&ÿ(ÿ1+"ÿ%0013ÿ.'($ÿ(501"35(&ÿ"(ÿ2"&.'(+13ÿ'%(ÿ"ÿÿ .-(ÿ1+"ÿ6"2(ÿ0.2.0."&ÿ(ÿ"6ÿ#"5(&ÿ&'ÿ(&."7ÿ9(&$ÿ(ÿ2"0(ÿ6"ÿ.&2(.&-ÿ 1+"ÿ%0013ÿ.&ÿ.ÿ#3ÿ-'%113ÿ&"#('$ÿ&'ÿ(ÿ.%(ÿ"6ÿ1+"ÿ"-(ÿ"(ÿ'%.&-ÿ (ÿ0(40&'(5.2ÿ0(."'ÿ+(#((&ÿ:;<ÿ&'ÿ:;=7ÿ ÿ ÿ>ÿ?%ÿ(@01.&('$ÿ5"&(3ÿ(.&-ÿÿ0"/.'('ÿÿ0"#(6%1ÿ.5%1%ÿ"ÿ(ÿ(2"&"53$ÿ 1('.&-ÿ"ÿ&ÿ.&2((ÿ.&ÿ'(5&'ÿ&'ÿ.-ÿ1+"ÿ5A(ÿ2"&'.."&$ÿ#.2ÿÿ0"50('ÿ 6.5ÿ&'ÿ"(ÿ(2"&"5.2ÿ(&..(ÿ"ÿA(ÿ2."&7ÿ9.ÿ.ÿ0(2.(13ÿ(ÿ.5ÿ"6ÿ(ÿB&ACÿ 1-(421(ÿ(.&-ÿ0"1.237ÿD%2ÿ&ÿ00"2ÿ2&ÿ+(ÿ(6(('ÿ"ÿÿÿE.-40(%(ÿ(2"&"5.2ÿ (-37EÿF"5ÿ(ÿ/(3ÿ(13ÿ-(ÿ"6ÿ(ÿ1-(421(ÿ5"&(3ÿ(.&-$ÿ(ÿB&Aÿ-%('ÿ $ÿ.&ÿ(ÿ0"2(ÿ"6ÿ"/(2"5.&-ÿ'(61."&$ÿ2"50(.."&ÿ"/(ÿ(2%.&-ÿ%5&ÿ("%2(ÿ #ÿ+"%&'ÿ"ÿ.&(&.63$ÿ"ÿ6.5ÿÿ""Aÿ0((50./(ÿ2."&ÿ"ÿ''(ÿ%2ÿ(&/."&5(&1ÿ 2&-(ÿ#"%1'ÿ+(ÿ+1(ÿ"ÿ-.&ÿ&ÿ'/&-(7ÿD.&2(ÿ.ÿ""Aÿ.5(ÿ6"ÿ.ÿ.%."&ÿ"ÿ%&6"1'$ÿ (ÿB&ACÿ2"55%&.2."&ÿ53ÿ/(ÿ+((&ÿÿ1.1(ÿ""ÿ(13ÿ"ÿ.&6"5ÿ(ÿ'(2.."&ÿ"6ÿ6.5$ÿ +%ÿ.&ÿ(ÿ(&'ÿ.ÿ+(25(ÿ(ÿ5?"ÿ(&'ÿ.&ÿG0&7ÿ>&ÿ62$ÿ(0"&(ÿ"ÿ1+"ÿ"-(ÿ 53ÿ2ÿÿÿ'./.&-ÿ6"2(ÿ6"ÿ+%.&(ÿ&6"5."&ÿ&'ÿ.50"/(5(&ÿ.&ÿ0"'%2./.3$ÿÿ %--(('ÿ+3ÿ(ÿ.&2(.&-ÿ&%5+(ÿ"6ÿ6.5ÿ$ÿ6"ÿ(@501($ÿ5'(ÿ1+"4/.&-ÿ .&/(5(&ÿ&'ÿ'.2"&.&%('ÿ.&(66.2.(&ÿ"ÿ(@2(./(ÿ(/.2(ÿÿ#((ÿ&"ÿ0"6.+1(7ÿ 1"%-ÿ((ÿ5"/(ÿ%+(,%(&13ÿ/(ÿ+(2"5(ÿ%+1(ÿ'%(ÿ"ÿ(ÿ0&'(5.2$ÿ(3ÿ(ÿ 1.A(13ÿ"ÿ/(ÿ2"&.&%('ÿÿ&ÿ%&'(13.&-ÿ(&'7ÿ ÿ 9(ÿ(2"/(3ÿ0"2(ÿ6"5ÿ(ÿ0&'(5.2ÿÿ0A('ÿ-1"+1ÿ.&61."&$ÿ&'ÿ.ÿÿ+"%-ÿ +"%ÿ.-ÿ0.2(ÿ'./(&ÿ+3ÿ2"40%ÿ62"ÿ.&ÿG0&$ÿA.&ÿ"ÿ"(ÿ2"%&.(ÿ&'ÿ(-."&7ÿ 9.ÿ.%."&ÿ.ÿ&"ÿ'(.+1($ÿ"6ÿ2"%($ÿ+%ÿ.ÿ1('ÿ"ÿ1ÿ0.&-Cÿ#-(ÿ.A(ÿ"&ÿ(ÿ+2Aÿ"6ÿ 1+"ÿ"-(7ÿH./(&ÿ.ÿ+2A-"%&'$ÿ(ÿ2%(&ÿ.-ÿ1+"ÿ5A(ÿ2"&'.."&ÿ(ÿ %&1.A(13ÿ"ÿ2&-(7ÿF.5ÿ#.11ÿ&(('ÿ"ÿ.&2"0"(ÿ.ÿÿ(3ÿ5&-(ÿ(.ÿ+%.&(($ÿ .&21%'.&-ÿ6"5%1.&-ÿ0.2.&-ÿ(-.(7ÿ 12ÿ ÿ 34567855ÿ 7 8 87ÿ67ÿ7ÿ7 ÿ6ÿ ÿ 85ÿ ÿÿ!"#ÿ$%&$ÿ'ÿ%&#ÿ(")&!!*ÿ+$&$,ÿ$-ÿ.-/ÿ01ÿ'"$%ÿ&ÿ.!0ÿ$-ÿ+-!#")2ÿ$%ÿ (0),&/)$&!ÿ"++0ÿ-(ÿ+$)2$%)")2ÿ3&1&)4+ÿ2-'$%ÿ1-$)$"&!5ÿ6&-ÿ+%-$&2+ÿ/&*ÿÿ ,"+$++")2ÿ$-ÿ"),"#",0&!ÿ("/+ÿ 0$ÿ$%*ÿ&!+-ÿ ")2ÿ-11-$0)"$"+5ÿ71."(".&!!*ÿ!&-ÿ +%-$&2+ÿ,"#ÿ"),"#",0&!ÿ("/+4ÿ$&)+(-/&$"-)ÿ&),ÿ"/1-#ÿ$%ÿ/$&-!"+/ÿ-(ÿ$%ÿ .-)-/*ÿ(-/ÿ$%ÿ#&)$&2ÿ1-")$ÿ-(ÿ'-8")2ÿ1-1!ÿ*ÿ1-/1$")2ÿ("/+ÿ$-ÿ0"!,ÿ1-("$ÿ /-,!+ÿ$%&$ÿ)&!ÿ+0+$&"),ÿ'&2ÿ%"8+ÿ&),ÿ$-ÿ/&8ÿ((-$+ÿ$-ÿ&$$&.$ÿ1-1!ÿ$-ÿ'-8ÿ(-ÿ $%/5ÿ9(ÿ.-0+ÿ+").ÿ.&1"$&!"+/ÿ")#-!#+ÿ.-/1$"$"-)ÿ$%"+ÿ,-+ÿ)-$ÿ/&)ÿ$%&$ÿ"$ÿ'"!!ÿ )("$ÿ&!!5ÿ:;.-)-/".ÿ/$&-!"+/:ÿ0+0&!!*ÿ%&+ÿ&ÿ1-+"$"#ÿ.-))-$&$"-)ÿ&),ÿ$-ÿ/*ÿ/"),ÿ&$ÿ !&+$ÿ"+ÿ-($)ÿ0+,ÿ")ÿ&ÿ+-/'%&$ÿ(&."!ÿ/&))ÿ0$ÿ$%ÿ%&,ÿ&!"$*ÿ"+ÿ$%&$ÿ"$ÿ"/1!"+ÿ$%ÿ <"$ÿ-(ÿ&ÿ.$&")ÿ)0/ ÿ-(ÿ("/+ÿ(-/ÿ$%ÿ/&8$5ÿ7-/ÿ("/+ÿ/&*ÿ!--8ÿ&.8ÿ'"+$(0!!*ÿ&$ÿ $%ÿ,(!&$"-)&*ÿ1"-,ÿ'%".%ÿ&!!-',ÿ$%/ÿ$-ÿ2$ÿ*ÿ&+ÿ!-)2ÿ&+ÿ$%*ÿ,",ÿ)-$ÿ-#<$),ÿ $%/+!#+5ÿ= +)$ÿ+0.%ÿ,*)&/"+/ÿ%-'#ÿ'ÿ.&))-$ÿ<1.$ÿ3&1&)4+ÿ.-)-/*ÿ&+ÿ&ÿ '%-!ÿ$-ÿ.-#ÿ"$+ÿ2-'$%ÿ1-$)$"&!ÿ&/",ÿ&ÿ,.!")")2ÿ1-10!&$"-)5ÿ>%(-ÿÿ$%")8ÿ$%&$ÿ&ÿ &!"+$".ÿ+-!0$"-)ÿ'"!!ÿÿ$-ÿ1-.,ÿ'"$%ÿ.-)-/".ÿ/$&-!"+/ÿ'"$%ÿ/")"/0/ÿ$&)+"$"-)ÿ .-+$+5ÿ;.-)-/".ÿ/$&-!"+/ÿ!,ÿ*ÿ!&-ÿ+%-$&2+ÿ)$&"!+ÿ!&$"#!*ÿ!-'ÿ$&)+"$"-)ÿ.-+$+ÿ")ÿ $%&$ÿ"$ÿ"+ÿ!++ÿ!"8!*ÿ$-ÿ2"#ÿ"+ÿ$-ÿ0)/1!-*/)$5ÿ?#$%!++ÿ)-$ÿ#*-)ÿ'%-ÿ'&+ÿ '-8")2ÿ/&*ÿÿ&!ÿ$-ÿ("),ÿ&ÿ)'ÿ@-ÿ"2%$ÿ&'&*ÿ+-ÿ$%"+ÿ/$&-!"+/ÿ'"!!ÿ+$"!!ÿ")#-!#ÿ1&")5ÿ )ÿ$%"+ÿ+)+ÿ"$ÿ"+ÿ).-0&2")2ÿ$%&$ÿ.)$!*ÿ$%ÿ&ÿ&)ÿ").&+")2ÿ)0/ ÿ-(ÿ.&++ÿ")ÿ '%".%ÿ("/+ÿ10+0ÿ/2+ÿ&),ÿ&.A0"+"$"-)+ÿ&+ÿ'!!ÿ&+ÿ0+")++ÿ+0..++"-)ÿ.&0+ÿ$%*ÿ &ÿ&$$&.$,ÿ$-ÿ$%ÿ/1!-*+ÿ'%-ÿ'-8ÿ(-ÿ$%ÿ$&2$ÿ("/+5ÿÿ<1.$ÿ2"-)&!ÿ(")&)."&!ÿ ")+$"$0$"-)+ÿBBÿ'%".%ÿ%&#ÿ.!-+ÿ$"+ÿ$-ÿ!-.&!ÿ.-//0)"$"+ÿ").!0,")2ÿ)0/-0+ÿ("/+ÿBBÿ$-ÿ 1!&*ÿ$%ÿ-!ÿ-(ÿ!-.&!ÿ)$'-8+5ÿ ÿ C ÿD467ÿ8ÿE8FG67ÿH86Dÿ I&)'%"!ÿ")ÿ3&1&)4+ÿ$&)+"$"-)ÿ-0$ÿ-(ÿ,(!&$"-)ÿ("/+4ÿ0+")++ÿ+$&$2"+ÿ%&#ÿ)ÿ %"),,ÿ*ÿ$%ÿ+-."&!ÿ%&#"-ÿ&),ÿ)-/ÿ")ÿ'%".%ÿ1-1!ÿ&++0/ÿ$%&$ÿ'&2+ÿ&),ÿ1".+ÿ '"!!ÿ)-$ÿ").&+ÿ-ÿ.%&)25ÿJ"/+ÿ&ÿ-(ÿ$%ÿ#"'ÿ$%&$ÿ0),ÿ$%"+ÿ,(!&$"-)&*ÿ)-/ÿ"$ÿ%&+ÿ )ÿ,"((".0!$ÿ(-ÿ$%/ÿ$-ÿ/-#ÿ")ÿ$%ÿ,".$"-)ÿ-(ÿ/&8")2ÿ$$ÿ1-,0.$+ÿ&),ÿ&"+")2ÿ1".+5ÿ -'#ÿ"$ÿ"+ÿ)-$ÿ).++&"!*ÿ.!&ÿ$%-02%ÿ'%".%ÿ.%&))!+ÿ$%"+ÿ)-/ÿ%&+ÿ&,#+!*ÿ &((.$,ÿ$%ÿ.-)-/*5ÿJ-/ÿ&ÿ$%-$".&!ÿ1+1.$"#ÿ"$ÿ+%-0!,ÿÿ1-++"!ÿ$-ÿ.%&)2ÿ$%ÿ !&$"#ÿ1".+ÿ-(ÿ"),"#",0&!ÿ1-,0.$+ÿ2&,!++ÿ-(ÿ$%ÿ-#&!!ÿ")(!&$"-)ÿ&$5ÿ 11ÿ ÿ 456786ÿ76ÿ7ÿ5 ÿ7ÿ7ÿÿ6ÿ8856ÿ76ÿ66ÿ8ÿ7ÿ7ÿ8ÿÿ 5ÿ 76ÿÿ6786ÿÿ8ÿ ÿ78ÿ768ÿ!6ÿ"ÿ8ÿ8668ÿ67ÿ7"ÿ86ÿ 78ÿ786ÿ7#ÿ 5ÿ6786ÿ$6ÿ88"ÿ6#ÿ 5ÿ 86ÿ5%8ÿ7#68ÿÿ 76ÿ7868ÿ&8ÿ86ÿ78868ÿ657ÿÿ'6ÿ57ÿ(ÿ668ÿÿÿ 57ÿ68ÿ ÿ6ÿ7ÿ7ÿ)ÿ66ÿ6!6#ÿ#67ÿ%%ÿÿ6$756"ÿ668ÿ56ÿ 6ÿ7ÿ6ÿ*6ÿ+768"ÿ78ÿ655ÿ78ÿ,77ÿÿ6ÿ-./8ÿ%%ÿ6!6ÿÿ7ÿÿ7868ÿ786ÿ7#ÿ ÿÿÿ6ÿ#67"ÿ8ÿ 5ÿ ÿ676ÿ7ÿ6786ÿÿ8ÿ$6ÿ88ÿ6786ÿÿ7ÿ 76ÿÿÿ8ÿ86ÿ#ÿ78ÿ786ÿ7#ÿ67868ÿÿ6ÿ55ÿ#67ÿ06 6"ÿ ÿ!6755ÿ75ÿ768ÿ6786ÿ6!6#ÿ#67"ÿ!75ÿ8ÿ 5ÿ6ÿ756ÿ ÿ78ÿ 768ÿ 6ÿ56$5#ÿÿ56ÿÿ7 8ÿ8ÿ78ÿ6ÿ8688ÿ676ÿ"ÿÿ6$756"ÿ ÿ77ÿ#6ÿ 68ÿÿ8675'6ÿ7ÿ6868ÿ&8ÿ5ÿ6ÿ7ÿ7!776ÿÿ 7ÿ6ÿÿÿ6ÿ6577#ÿ6ÿ1 6!6"ÿ(ÿ7ÿ ÿ665#ÿ!6ÿ 7ÿ8ÿ756ÿ 5ÿ6ÿ7ÿ76ÿ76ÿÿ86#ÿ ÿ 256ÿ6ÿ77!6ÿÿ6ÿÿÿ6ÿ6577#ÿ6ÿ6ÿ668ÿ665#ÿ ÿ6ÿ 66ÿ66ÿ768ÿ7ÿ68ÿÿ ÿ6786"ÿ(ÿ656!6ÿ7ÿÿ8ÿ66887#ÿÿ67ÿ 8ÿÿ78ÿ6ÿ 6ÿ56$"ÿ!5!ÿ65#ÿ6"ÿ875"ÿ7ÿ575ÿ 868ÿ&686ÿ868ÿ56ÿ66ÿ6ÿ7 ÿ8ÿ7ÿÿ67ÿ 8768"ÿ5 86ÿ57ÿ76ÿ8ÿ7ÿ7$6#ÿ7ÿ65#6"ÿ7ÿ!78ÿ876#ÿ 68ÿ7ÿ6756ÿ8ÿ ÿ6ÿ#ÿ86ÿ(ÿ757"ÿ7ÿ68!6ÿ7 "ÿÿ#ÿ!6"ÿ78ÿ 36ÿ87ÿ66ÿ8ÿ5ÿ6ÿ656ÿÿ7!ÿ ÿ786ÿ7683ÿ!6ÿ6ÿ78ÿ /ÿ#678"ÿ6!6ÿÿ,7748ÿ6#ÿ8ÿÿ56ÿÿ657"ÿÿ78ÿ66ÿ8ÿ7ÿ ÿ !66ÿ8ÿÿ(ÿÿ7ÿ8ÿ8ÿ6786ÿÿ ÿ7ÿ5ÿ6ÿÿ6ÿ67ÿ86ÿ ÿ678ÿ57ÿ85#ÿÿ7ÿ7ÿÿ7ÿ6ÿ357ÿ876ÿ6#3ÿÿ6ÿ7ÿ ÿ (ÿ8ÿ8686"ÿ75ÿ6ÿ6ÿ78ÿ66ÿ8%8ÿ7 8ÿ7ÿ!68678"ÿ768ÿÿ ,77ÿ7!6ÿÿ7ÿ66ÿ8"ÿ7ÿ(ÿ665ÿ7ÿ6ÿ876ÿ8ÿÿ6ÿ86ÿÿ,7748ÿ6#ÿ ÿ76ÿ26ÿ76ÿÿ7ÿ6ÿ#ÿ ÿ67ÿÿÿ6ÿ86ÿ7ÿ67!ÿÿ 6ÿ6577#ÿ6ÿ7ÿÿ7ÿ7ÿ6#ÿ66ÿ768ÿ7ÿ68ÿ6786ÿ(ÿ 8ÿ6!86ÿ8688ÿ 658ÿ7ÿ6756ÿ8"ÿ7ÿ656ÿ 86ÿ ÿ ÿ7ÿ8ÿ7ÿ 866ÿÿÿ8"ÿ66ÿ 5ÿ6ÿ7ÿ#ÿ ÿ675'6ÿ7ÿ6#ÿÿ676ÿ !6755ÿÿ 675ÿ&6ÿ57ÿ55ÿÿ8ÿ 67#ÿ5#ÿ ÿ77ÿ8756ÿ7ÿ 12ÿ ÿ 4556776849 ÿ454ÿ56896ÿ48ÿ69ÿ9ÿ54ÿ6ÿ949ÿ9ÿÿ94ÿ669ÿ ÿ949ÿ9ÿ69 ÿ99ÿ49ÿÿ69ÿÿ45 8ÿ7 ÿ96ÿ9ÿ4ÿ4ÿ 99ÿ49ÿ9ÿÿ6ÿÿ6ÿÿ56675ÿ459 9ÿ48ÿ5ÿ76 ÿ9ÿ 4!ÿ9ÿ9496ÿÿ4ÿ99ÿ49ÿÿ4649ÿ ÿ "#ÿ%&'&()ÿ*(+ÿ,-)-.&ÿ/'0(012'ÿ3')242)5ÿ2(ÿ6*.*ÿ7.&8&')-.&ÿ :49ÿÿ68ÿÿ96ÿ94ÿ469ÿ9ÿ5667ÿ6ÿ;44ÿ<59ÿÿ=49ÿ>?ÿ@ÿ 85ÿ6496ÿ4ÿ6ÿ ÿ9ÿ499ÿ565ÿ6ÿ4ÿ6ÿÿA44ÿÿ 85ÿ9ÿÿ6ÿ46ÿ694 ÿ67 97 ÿ66ÿ4ÿ8 88ÿ6ÿ84 7 9ÿ 655ÿ@ÿ74ÿÿ54ÿ9ÿÿ4ÿ7B9ÿ6ÿ64ÿÿ58ÿ6496ÿ 696ÿ48ÿ9ÿÿ6ÿ46ÿ749ÿ56896ÿÿ9ÿ4964ÿ5667ÿ@49ÿ48ÿ9ÿÿ4ÿ 7499ÿ6ÿ459ÿ949ÿA44ÿ6 4ÿ4ÿ ÿ6ÿ4ÿ98ÿÿ46ÿ749ÿ56896ÿ4 ÿ 748ÿ99ÿ48ÿÿ6ÿ6ÿ4ÿ567ÿ4ÿ54ÿ44ÿ48ÿ545ÿ ÿ65ÿÿ47 ÿ949ÿ ÿ64ÿ5667ÿÿ45ÿ9ÿ94ÿ6ÿ8ÿ4ÿ 96ÿ499459ÿ6ÿ96ÿ ÿ48ÿ6ÿ9ÿÿ9ÿ48ÿÿ ÿ949ÿ;44ÿ<59ÿ4ÿ 69948ÿ44ÿÿ 4ÿ59ÿ ÿ C6ÿB47ÿ9ÿ4ÿ4ÿ455ÿ96ÿ74D6ÿ59ÿ4ÿ48494ÿÿ97ÿ6ÿÿ5699ÿ 48ÿ59ÿ6ÿ48458ÿ45ÿ48ÿ854964ÿ999ÿ58ÿ9ÿE 44ÿ F5 5ÿ=9ÿ;44ÿG67 HÿI 9ÿ948ÿ4ÿC459ÿ6ÿJ ÿ48ÿ4ÿ ÿ 56859ÿ45ÿÿ56649ÿ9ÿ654ÿ7ÿÿ48896ÿ96ÿ9ÿ74ÿ 65ÿ48ÿ65496ÿ48494ÿ5K 49ÿ4596ÿ96ÿ499459ÿÿ4 ÿ8ÿ96ÿ4ÿ ÿ4ÿ6ÿ;44ÿ<59ÿÿ97ÿ6ÿ9ÿ7ÿ6ÿÿ4596ÿ65496ÿ476ÿ 59ÿÿA44ÿ ÿ L66 ÿ;44ÿ<59ÿÿ8ÿ9ÿ4ÿ 49ÿ6ÿ967ÿ65ÿ58ÿ9 ÿ G68ÿM 94ÿ9ÿ48ÿ74ÿ69ÿ9654ÿ48ÿ594ÿ49ÿÿ494ÿ4854ÿ 48ÿ5954ÿ949ÿ4ÿÿ476ÿ9ÿ9ÿ9ÿ9ÿ4ÿ46ÿ ÿ4ÿ4 ÿ6ÿ6ÿB47ÿ 569596ÿ6ÿ459ÿ949ÿ84ÿ6ÿ9ÿ44ÿ65ÿ5ÿ4ÿBÿ69ÿ949ÿ 8ÿÿ9ÿ9ÿ494ÿ49ÿ48ÿ45567768496ÿ459ÿ949ÿ9!ÿ76949ÿ594ÿ 69ÿÿ9ÿ9496ÿ967ÿ949ÿ6 ÿ6 9ÿ94ÿ54ÿÿB598ÿ96ÿ94ÿ 68ÿÿ9ÿ6ÿC976ÿ;44ÿ<59ÿ4ÿ7 6ÿ98ÿ65ÿ4ÿ 12ÿ ÿ 4567ÿ95 96 ÿ ÿ549ÿ ÿÿ ÿ5ÿÿÿ ÿ5ÿ ÿ 766ÿÿÿ ÿ9ÿ576 ÿ96ÿ6ÿ569ÿ9ÿÿ6ÿ965ÿÿÿ 6 6ÿ 5ÿ66ÿ ÿ 7 96ÿ9ÿÿ59ÿ5ÿÿ69 ÿ96ÿ9ÿ 6ÿ9ÿ95 96ÿ9ÿ5495ÿÿÿ9ÿ6 ÿÿ569ÿ ÿ56 ÿ 5ÿ6 ÿÿ696 ÿ45765ÿ ÿ ! 5ÿ"5495ÿ9ÿÿÿ ÿ465 5ÿ9ÿ69ÿ 99ÿ99ÿ9ÿ6ÿ9ÿ 56#ÿÿ5959ÿ ÿ696ÿ6659 9ÿ96ÿ9ÿ 96ÿ7 ÿ 565ÿ9657ÿ565ÿ ÿ95 96 ÿ549ÿ$9ÿ7ÿ6ÿÿ6445 ÿ7ÿ6ÿ 99ÿ9ÿ667ÿ64ÿ! 5ÿ"5495ÿÿ69ÿ96ÿ465ÿ% ÿ6ÿ5ÿ7ÿ465ÿ 65ÿ9996ÿ 12ÿ *5+5,-ÿ.//0651ÿ2/13536ÿ4/56 67%ÿ'ÿ'ÿ89":ÿ;9%ÿ<7'=ÿ<'>!?ÿ9"ÿ@'!' 01234536ÿ89ÿ !"!ÿ$ÿ%ÿ&'"(ÿ$ÿ)''" 33/143/ A .//0ÿ1B15/+013AC5D1ÿ51ÿ431ÿ3453/ AE1ÿF5G,-ÿ/143ÿ/Hÿ2/13536ÿ4/56 IAÿE43Dÿ4/3ÿH/3ÿ*5+5,-ÿ.//06 IAJ113ÿ51ÿ043431ÿ.//0ÿ3B36ÿÿ K535ÿ431H13431 8ÿ9#ÿ+(!# ÿ%14'ÿ ÿÿ5ÿ*+$ 64ÿ5250ÿ1)3ÿ5!7 0ÿ4 392 ÿÿ ÿ5253 ÿ525042 ÿ5256 45 46 40 43 47 48 49 41 52 54 55 56 50 53 ÿÿ ÿ!"ÿÿÿ#"ÿÿÿ$ÿ%"ÿ##&'ÿ ÿÿ()ÿÿÿ*+$ÿÿ ÿ5256ÿ, "ÿÿ )"ÿ&ÿ#)!-ÿÿ )ÿ-)ÿ ÿ5255ÿ&ÿÿ) (ÿ!."ÿ-,ÿÿÿ ÿ /)ÿ0 &ÿ12ÿ% 3ÿÿ4! 0ÿ5 8ÿ9#ÿ+(!# 0!ÿ/ÿ$ÿ"ÿ%) ÿW"ÿ8(# MTNNHAGÿ^NKL@GJ ÿÿ =-ÿ# /# ÿ"ÿ#")#:>"ÿ# _TJ@AHJJÿ?@`HSÿRAaHJGIHAG 52 <ÿ43 :3 :42 :43 028 21 44 46 43 48 41 54 56 :52 28 21 44 46 43 48 41 54 56 ; ) $"ÿ(#ÿÿ) ÿÿ ÿÿÿ+ ÿ)( ÿ ÿ ÿ4ÿ8ÿÿ:"ÿÿ-)ÿÿ& "ÿÿ?@ABAC@BDÿFGBGHIHAGJÿFGBG@JG@CJÿKLÿMKNOKNBG@KAJÿPQÿRASTJGNQUÿVTBNGHNDQ "ÿW)"ÿXÿ"ÿ)Xÿ-)ÿ#ÿ5221<Y5ÿ , "ÿW)"ÿ!)ÿ"-ÿ#! 5ÿ8ÿÿ-:"ÿÿ-)ÿÿ& "ÿÿÿZBA[BAÿ)"-ÿ, ÿ"ÿ5\+ÿ(#ÿ"ÿW)"-ÿ"ÿ!) -ÿW! ÿ5\+ÿ(#ÿÿÿ)""ÿ&ÿ ÿ] ÿ5248ÿ)(ÿ-)ÿÿÿÿ")ÿ)"-ÿÿ) /)ÿ]ÿÿ2ÿ% 3ÿÿ4! ÿ/%ÿH.'% 0.ÿ/% C7BDÿE4=B=7ÿFB8G7=ÿ;3ÿ1>;3B 12345678ÿ:8;<74ÿ;3ÿ=>7ÿ?3;=7@ÿA=B=74 30 ÿÿ 50 ÿÿ 8 %&%ÿÿ ÿ' 89ÿÿ "10 8!56 8ÿ7 "20 "30 8!5# 5$ (&)ÿ* +,ÿ- .,ÿ8/8 8ÿ2 ÿ/%ÿH.'% - &Nÿ()ÿ/'ÿ%ÿ%Nÿ9.ÿ8 %&'% E6^D2T77ÿ_3<267 3 ÿÿ # "5 "1 "7 I %ÿJ ÿÿÿ%% "2 I&+ÿÿ' /'ÿ% "# Kÿ'ÿ% "3 8!51 57 52 5# 53 5$ 54 56 10 15 11 17 :8;WB=7ÿ123456^=;23 50# Mÿ8!ÿ1056ÿOÿ500 6# 4# $# $0 3# 8!56 L ÿÿ'.ÿ%&'% 0ÿJMÿ. .MÿN%%"&Mÿ 0ÿJMÿ%%N&+ÿ N Nÿ'N&MÿMÿN %Mÿ 15 11 17 I )ÿ5ÿ%ÿÿ"%NÿMÿP5ÿOÿ " MÿP1ÿOÿQ&%"R&&MÿP7ÿOÿ('+"I .+MÿP2ÿOÿH+"S+&ÿ/'ÿ%ÿOÿL ÿÿ%%ÿF23=>DTÿUBV258ÿA58W7Tÿ X I&+ÿÿ'ÿUBV258ÿY28<7ÿA58W7TÿS&ÿÿ1053P5ÿ%J Nÿÿ+Nÿ%ÿ%%&%ÿ+.%ÿJ%ÿÿ'ÿ.%ÿÿÿF23=>DTÿUBV258A58W7Tÿ Lÿÿÿ'ÿ%ÿÿ+Nÿ%ÿÿ&%ÿ&%ÿÿ89ÿÿ'&Nÿ%ÿS&ÿÿ1017P2ÿÿÿÿH+ 1ÿ%ÿÿ"%NÿMÿ&ÿÿÿÿ'.ÿ%&'%ÿÿÿÿ8 %&'%ÿR.ÿ%NZÿ.ÿ+%ÿN[&Nÿ+Nÿ%ÿÿ&%MÿJÿZ&Nÿ%+&%N &ÿ%&'%ÿ%Nÿ%&Nÿ&+&%Nÿ&ÿ%&'%ÿ (&)ÿ%ÿÿ-Mÿ\+&%Nÿ],ÿ%ÿÿ%%ÿRÿ%Nÿ8 &%%,ÿ* %ÿÿQ'% 7%ÿ6 99ÿKÿÿ8)ÿ')%$%) 7ÿ/861ÿ%ÿÿ%ÿ789 6ÿ1315ÿ8$%5ÿ9 #% :;<;=>?@;ABCÿ><;EÿFG@; 6 ÿ " ÿ#$% &ÿ ÿÿ#$% '() 789ÿ ÿÿ 789ÿ ÿÿÿÿ H>E;IJCBC * ÿ1314 1 2! 2! 789ÿ ÿÿ 789ÿ ÿÿÿÿ 72! ÿÿ 6 +%,ÿ9ÿ%ÿ)%0ÿ%-ÿ)$ÿÿ%ÿ. )ÿÿ%ÿ8)ÿ/ÿ. .01ÿ% '$,ÿ2))%ÿÿ9%ÿ3)ÿÿ7..$)%)4ÿ/5ÿÿ6# 7%ÿL 99ÿKÿÿ8)ÿ')%$%) '#)(ÿ.ÿ8)ÿ%ÿK HGE@CVÿS;EI;?BG>Aÿ>UÿWJX>EÿYZ>EBJ[; RSTÿTAU=JBG>A 063 )(%-*9ÿNO)(N0N)$))%N-ÿÿ#)% N9$))%N N"O)(N 3 ÿ)%. 7ÿ1311 16P 7ÿ1314 41P ÿ 3 ÿ)%. ÿÿ 14P 42P Mÿ). '.ÿ). 723 21 25 2L 2 13 11 +%,ÿ9ÿ%ÿ%0ÿ%-ÿ)$ÿÿ%ÿ.#. %ÿ)%)ÿ*9ÿ)ÿ%ÿFJAQJA '$,ÿ/5ÿÿ6#4ÿ2))%ÿÿ9%ÿ3)ÿÿ7..$)%) L 662ÿ< 3ÿ7ÿ=93ÿ32217 30..1;39ÿ911ÿ< 3ÿ21ÿ=93 $ @ÿA*!!Bÿ"!$ÿA*%*ÿC$ ÿ?ÿDB H2I 82ÿ911283ÿ99372ÿ.3;3.ÿQ G2H G2I R2H Mÿ939ÿ83 R2I Hÿ939ÿ83 N2H N2I M2H M2I I2H I2I I2H EPMG MJ MK NI NN E892ÿF >&!$ÿ?$ LI 22Q KH KI FH FI O93ÿ37239093 JH 31 ..ÿ37239093 JI HH HI GH EPMI MN MG MJ MK NI NN 01234ÿ67ÿ283ÿ9 8287ÿ892ÿ 93ÿ93ÿ3ÿ17ÿ283ÿÿÿ!"ÿ#!$%!$!ÿ&'ÿ()*$'+ÿ,*$$' 7ÿ3-.3ÿ/773ÿ7ÿ7973/ÿ7ÿ093ÿ81.7ÿ110732 31934ÿ4 75ÿ1ÿ6077ÿ8 7299ÿ1ÿ:7732 6662ÿW83ÿ4 75ZÿE172ÿ1ÿ8173299ÿ=1.9 W83ÿ4Y6Zÿ8173299ÿ=1.9 S0039ÿ1719ÿMI939ÿ 6T4ÿ93.ÿU9339373V IQ E892ÿK M2IQ 01.9ÿ723932ÿ9234 17ÿI2Mÿ039372 93.ÿ1 2929 F W932ÿ.3;3.ÿ1ÿ283ÿ .17 2391ÿ723932ÿ9234 917X391ÿ039372 MIÿ939 K 125ÿ ÿ4ÿ13ÿ 5ÿÿ0 4512ÿ 012345ÿ7894515 ÿ2ÿ54ÿÿÿ54245ÿ154 +1 3 1) 1. 1# 1, 1+ $1+ # ) +, +- ,. % 5141 54!ÿ4ÿ"24ÿ2ÿ54ÿ92445ÿÿ54ÿ#$% 5ÿ4ÿ&ÿ2154ÿ'"24ÿ2ÿ#(ÿ)(ÿ1ÿÿ% 5ÿ141ÿ124ÿ#$% 5ÿ2*12ÿ2154(ÿ54ÿ2ÿ+,ÿ1ÿ+-ÿ% 5ÿ141ÿ124ÿ)$% 5ÿ2*12ÿ2154(ÿ1ÿ515ÿ 2ÿ,.ÿ% 5ÿ141ÿÿ1ÿ+,$% 5ÿ2*12ÿ2154(ÿ1ÿ1154ÿ2%ÿ54ÿ4ÿ&ÿ2154ÿ4ÿ"24ÿ124ÿ54ÿ1ÿÿ'4/212ÿ0(ÿ,1,. &24!ÿ %/42" ÿ4ÿ13ÿ 5ÿÿ0 4512ÿ 41ÿ54245ÿ154 +0 3 789:ÿ<=>?@AB8?C DE@8?8F@ÿ79@8ÿGHAI89?J +0 3 +1 +1 $10 $10 $+1 $+1 $+0 $,1 % 1ÿ25$542%ÿ54245ÿ2154 15 ÿ4894515 41ÿ25$542%ÿ54245ÿ2154ÿ5+$4126 $,0 4+1 +, +. +) +- ,1 ,, 125ÿ+1 789:ÿK>ELAB8?Cÿ DE@8?8F@ÿ79@8ÿGHMAI89?J $+0 % 1ÿ "$542%ÿ54245ÿ2154 15 ÿ4894515 $,1 41ÿ "$542%ÿ54245ÿ2154ÿ5+1$4126 $,0 4+1 +, +. +) +- ,1 ,, 54!ÿ'"24ÿ2ÿ241ÿ54245ÿ2154ÿ124ÿ1154ÿ/ÿ45"ÿ15 ÿ4894515 ÿ2%ÿNÿ4ÿ2ÿ41ÿ%1525ÿ'"24ÿ2ÿ15 ÿ4894515 ÿ124ÿ/14ÿ ÿ51ÿ115 ÿ "ÿ 54ÿÿO12 ÿ4 % ÿ4554ÿ52%(ÿ4(ÿ1ÿ4894256ÿ/ÿ4"5ÿÿ542%ÿ&94 1(ÿ54ÿ151ÿ4ÿÿ54ÿ115 ÿ124ÿ1ÿ*!ÿ2ÿ2%(ÿ54ÿB9EP9EQÿ2ÿ4(ÿ 54ÿRSTET>Eÿ<U?V8Wÿ>Eÿ@=8ÿX8E8?9:ÿYUZ:T[\Fÿ]T8^Fÿ9E_ÿ̀8=9VT>?Qÿ2ÿ489425(ÿ54ÿabDcdÿ<U?V8W(ÿ54ÿc>EF8EFUFÿe>?8[9F@F(ÿ1ÿ15 ÿ*19ÿ2154 &24!ÿ13ÿÿ191Qÿfgh(ÿifghÿ0 5ÿ012345ÿ&2O4ÿj kiQÿ 4ÿ7 % ÿ (ÿi 4ÿ'2415iQÿ %/42" +1 ÿ66 ///!ÿ0ÿ$ &1ÿÿ(ÿ*ÿ,% )ÿ,ÿÿ9 -ÿÿ!!-ÿ ÿÿÿ. 64 ÿÿ! "#$ %ÿ ÿÿ& '()ÿ* !ÿ1211+ $ % ÿÿ& '()ÿ9%ÿ1211+ ÿ ÿ 23ÿ"ÿ(ÿ9 ÿÿÿ,/ÿ(ÿ%%ÿ)ÿ%ÿ(ÿ(-ÿ4% ÿÿ((ÿ(ÿÿ) ÿ4ÿ&-ÿ5%ÿÿ(ÿÿ ÿÿ ÿÿÿÿÿÿ,/ÿ(ÿ%%ÿ)!ÿ 3ÿ$ &ÿ(ÿ9 6ÿ"%ÿ#7ÿ'"#$+6ÿ ÿ%ÿ$ &ÿ'$+6ÿ*ÿ(ÿ/ %ÿ.((ÿ ÿ))6ÿ8 7! ÿ61 P!ÿ.ÿ0 ÿ,ÿ(ÿ9 1ÿ) 9 1ÿ)ÿÿÿ6772ÿ ÿ1222 <=>?ÿABCÿADEFGHÿ<>G= IJGKJGÿA>Kÿ>LMÿNCO ÿ! 3 5 ÿÿ! " 59 "59 ;ÿ ÿ'%(ÿ%+ ,/ÿ'%ÿ(ÿ(-ÿÿ%+ 23ÿ/ÿÿ0 ÿ-ÿ(ÿ(ÿÿ,/ÿ4%ÿÿ((ÿ(ÿÿ) ÿ4ÿ&-ÿ ÿÿ(ÿÿÿ ÿÿ((ÿ) ! 3ÿ :ÿ;((6ÿ$ &ÿ(ÿ9 6ÿ*ÿ(ÿ/ %ÿ.((ÿ ÿ))! C1ÿDÿE "ÿFÿÿ+,ÿ- +,ÿ- ÿÿ#ÿ0282 ./01/0ÿ341ÿ456ÿ7849ÿ:508;8<0ÿ7408< 4& & 813 ) ÿ" ÿ *ÿ#7 ÿÿ 87ÿ"#ÿ *ÿ"7 ÿÿ 827ÿ"#ÿ '( 82 80 85 86 8 02 00 B#ÿ84 =4>?;ÿ@4;A80 22 #"1ÿ 028ÿ2$ÿ%8ÿÿ#ÿ1ÿÿÿ 11ÿ& 612 ÿÿ ÿ ÿÿ ÿÿ ÿ ÿÿ 622 ! ÿÿ"#ÿ '(82 80 85 86 8 02 00 Gÿ81ÿHÿ#7#Iÿ#ÿ"ÿÿ#ÿÿ"ÿÿÿ1ÿDÿÿ#ÿÿÿÿÿ#ÿÿÿB#ÿ821 01ÿHÿ#ÿ"#7#Iÿ#ÿ"ÿÿ ÿIÿÿÿÿ ÿ"Iÿÿ83ÿIÿ65ÿ#ÿ#ÿÿÿÿÿ ÿ"Iÿ63ÿIÿJ1 KGÿLMÿÿ+Nÿ%!HBOÿP%!HBOÿQ#ÿQMÿKJÿRLISPNÿBÿ- ÿH1ÿPBÿ'PNÿL "NÿQÿÿHÿDÿIÿB 1 B#ÿ85 C1ÿDÿE "ÿFÿÿ+,ÿ- LÿFÿHÿIÿF 3 $ÿ&ÿ#"1 Lÿÿ BFHÿÿ#ÿI B( 3 T2 T3 Gÿ81ÿ'"ÿÿÿÿ ÿ8T3ÿÿ0285ÿÿ#ÿ#Iÿÿ#ÿBÿUÿ*ÿB ÿ#ÿ#ÿ ÿ0283ÿÿ0204ÿÿ"ÿIÿ*"1 01ÿ'"ÿÿ#ÿBFHÿVIÿ#ÿÿÿ#ÿ ÿVÿ#M1 KGÿQÿÿHÿDÿIÿB NÿBÿU*ÿB Nÿ+ÿEIÿ!ÿBIÿ*"1 M&ÿ ÿ%ÿ'99 ÿ, ÿ23ÿÿ8ÿ$ 9 , ÿ23ÿÿ8ÿ$ 9 456789:;5<ÿ9<>ÿ?@5AAÿ4@BCBD:7@98ÿ 4@5>7D:ÿ6B@ÿE96;:9 150 9&ÿ '"2000ÿ(ÿ100 115 $9ÿÿ #5 ÿÿ 9ÿ%9ÿ ÿ ÿ #0 '"#6 #7 00 02 04 06 07 10 12 14 16 17 20 )9*ÿ+ÿÿ, -ÿ.%ÿ%ÿ/%90ÿ!ÿ1& ! ÿ15 F7GHB@ÿ5CÿFBIÿJ9D:5@KÿL5D9:;5<A 40 89 ÿÿÿÿ ÿ ÿ ÿ 9 ÿ 0 00 02 04 06 07 10 12 14 16 17 20 22 50 !"
|
bank of japan
| 2,024 | 2 |
Remarks by Mr Kazuo Ueda, Governor of the Bank of Japan, at the Fintech Summit FIN/SUM 2024, Tokyo, 5 March 2024.
|
Kazuo Ueda: What to know about central bank digital currency Remarks by Mr Kazuo Ueda, Governor of the Bank of Japan, at the Fintech Summit FIN /SUM 2024, Tokyo, 5 March 2024. *** Introduction I am delighted to be given this opportunity to speak to you at the FIN/SUM 2024. Today I will be talking about Central Bank Digital Currency, often abbreviated as CBDC. CBDC is a pivotal topic for central banks. Regardless, the results of the Bank of Japan's Opinion Survey on the General Public's Views and Behavior for September 2023 show that when asked about their familiarity with the term CBDC, less than 20 percent of respondents answered "have read or heard of it, but do not know much about it" while merely 3.1 percent responded "know about it." While I am aware that many of those present today may already have a thorough grasp of this subject, I will walk you through the topic in everyday language. Differences between CBDC and Existing Digital Payment Instruments In Japan, a wide array of cashless payment instruments, including credit cards, emoney, and QR code payment, are in use. How do CBDCs differ from such existing digital payment instruments? Retail CBDC, assuming a wide range of users, which include individuals and firms, has been explored in many countries, including Japan, on the premise that this would align with cash -- in other words, banknotes and coins -- in terms of their roles and functions as a means of payment. The key features of cash would therefore serve as a gateway for considering the differences between CBDC and existing digital payment methods. Broadly speaking, there are three such features. First, cash is a direct liability of the central bank. This is in sharp contrast to existing digital payment methods, for which payment is made with liabilities issued by private entities, including banks and payment service providers. Second, a cash payment becomes final at the point in time where the payee receives the cash from the payer. Put differently, immediately upon receipt of cash the payee can reuse it for other payments. For most digital payment instruments used for consumer-to-business payments, on the other hand, there is a time lag of days before merchants receive the money through a bank transfer or other means. These features bring us to the third point, that is, we use cash on a daily basis and with a sense of confidence. Cash is available for anyone to use, whenever and wherever it is needed. Differences between CBDC and Cash While CBDC is being explored on the assumption that it will possess the features of cash that I have just described, there is, in fact, a stark difference between the two, 1/3 BIS - Central bankers' speeches namely, in terms of tangibility. Specifically, whereas cash is a tangible asset and comes in physical form, such as paper and metal, CBDC is intangible, with information on the amount and holder provided in the form of electronic data. This intangible feature is a crucial point in considering the differences between CBDC and cash. Let me raise three key characteristics of data in this regard. First, the use of data transcends space. While cash requires the payer and payee to physically coexist in the same place, no such restrictions are placed on data usage, allowing for the use of CBDC in a wider variety of settings, such as online shopping. Second, data does not take up any physical space. Storing a large amount of cash requires securing enough storage space; this is never the case when it comes to data. While this may appear convenient in the eyes of the user, it is also important to take into account how digitalization's removal of such inconvenience in handling cash could affect the relationship between money issued by the central bank and money issued by private entities. Money has evolved over the course of history. The modern era has seen the establishment of a two-tiered system with regard to the supply of money. The central bank, underpinned by its confidence, exclusively provides the public with base money -in other words, banknotes and central bank deposits. Commercial banks then provide individuals and firms with deposits through credit creation based on central bank money. As part of this process, developments in the banking supervisory mechanism and the framework of protection provided by deposit insurance, for example, have helped secure a system in which the values of various forms of money, such as bank deposits, and cash are equal - in other words, a situation where "one yen is one yen" is maintained. While such a system serves as an effective means of supplying money widely throughout society, the advantage of commercial banks - skilled in gathering and analyzing information on borrowers-- lending and providing deposits to individuals and firms, is that financial resources are efficiently allocated through private-led initiatives. In many countries, including Japan, the idea prevails that securing a two-tiered system with the kind of advantages that I have just mentioned is also preferable when implementing CBDC. At the same time, because CBDC, unlike cash, does not take up any physical space, there is concern that a sudden and large-scale flow of funds from deposits to CBDC could have an excessive impact on the two-tiered system. As a preemptive measure, many countries have been considering putting in place a safeguard, for example, by imposing a ceiling on users' CBDC holdings. Third, the use of data leaves digital footprints. This feature generates opportunities to leverage data, a characteristic not observed in cash. Such opportunities carry the potential of bringing about enhanced convenience for consumers and growth through creation of new values. This has also shed light on the growing importance of networks that coexist with payment services, such as e-commerce and social networking sites. At the same time, we must be aware of privacy-related concerns that this would give rise to. Of course, being able to effortlessly conduct payment that transcends space -which I touched upon earlier -- means that this could increase room for illicit financing such as money laundering. This calls for the need to consider countermeasures. With this in mind, it is essential to design a framework in which privacy protection is ensured 2/3 BIS - Central bankers' speeches through such measures as minimizing the amount of data accessible to the Bank of Japan. Points Considered in Exploring CBDC Whether to issue a retail CBDC in Japan should be decided by discussions among the public. To facilitate such discussions, the Bank has been proceeding with technical experiments and explorations into institutional arrangements. In doing so, the following three points are borne in mind at all times. The first is to visualize and shape our future. While CBDC continues to be explored by many countries as one of the realistic options being laid out, the goal of these future discussions is to design payment and settlement systems that are suitable for a digital society, taking into account external factors such as the introduction of novel technologies and new forms of money including stablecoins. In doing so, it is necessary to consider, with a well-balanced perspective that takes into account both global and domestic circumstances, potential problems that could eventually arise even if we do not face an immediate problem at the moment. Second, there is a need to respect the various functions that cash and the two-tiered system, which I have mentioned, have provided society with. To give an example, it is vital for CBDC to be designed in such a way that users' privacy would be preserved, showing respect for their lives as people. Similarly, the sharing of roles between central bank money and private money as well as private firms' capacity for resource allocation and innovation should also be valued. Last but not least, the digital features of CBDC carry the potential to create diverse values. How should we utilize CBDC to empower people and firms, and ultimately establish a new ecosystem, which would be brought about by CBDC adoption? Exploring CBDC from such a perspective is equally important. Closing Remarks The main theme of this year's FIN/SUM is "Building a Bright Future: Fintech for Happy Growth." Underlying this is said to be the hope for and determination to build a better future by striking the right balance between (1) stable and sustainable economic growth and (2) people's happiness, while effectively utilizing novel technologies. The Bank of Japan has been proceeding with the pilot program for CBDC - my topic today - since 2023. We continue to engage in various efforts to envision the future of the overall payment system, including a panel discussion on the future landscape of wholesale payments scheduled to take place here tomorrow. For these efforts to serve as channels to "happy growth," it is essential that we continue with our dialogue, as drawing on your experiences and wisdom is key to this bright future. We therefore kindly ask for your support as we pave the way forward. Thank you for your attention. 3/3 BIS - Central bankers' speeches
|
bank of japan
| 2,024 | 3 |
Keynote address by Mr Kazuo Ueda, Governor of the Bank of Japan, at the 18th Asia-Pacific High-Level Meeting on Banking Supervision, Tokyo, 6 March 2024.
|
Kazuo Ueda: Progress and challenges in the Asia-Pacific financial system Keynote address by Mr Kazuo Ueda, Governor of the Bank of Japan, at the 18th AsiaPacific High-Level Meeting on Banking Supervision, Tokyo, 6 March 2024. *** Introduction Good morning. Thank you for participating in the 18th Asia-Pacific High-Level Meeting on Banking Supervision today. It is a great honor to host the first in-person meeting in five years since 2019, here at the Bank of Japan. In recent years, we have witnessed significant shifts in the economic and financial landscape. These shifts began with the slowdown in economic activity due to the COVID-19 pandemic, followed by subsequent recoveries, heightened geopolitical tensions, and a surge in inflation. Despite these challenges, the impact on the financial system in the Asia-Pacific (APAC) region has been relatively contained. Reflecting on the past quarter century from the year 2000 to the present, even amid the Global Financial Crisis and the European debt crisis, the financial system in the APAC region has exhibited overall stability, contributing to considerable growth in the APAC economies. I would first like to touch on the characteristics and background of the stability of the financial system in the APAC region during the past quarter century. Following the agenda of this meeting, I will then talk about the changes in the environment that are crucial for promoting financial stability and the challenges we currently face. I. Asian Currency Crisis and Subsequent Responses The Asian currency crisis, which occurred just before the year 2000, stands out as the pivotal event that influenced the stability of the financial system in the APAC region over the past quarter century. The crisis served as a turning point, encouraging jurisdictions affected by it to implement structural reforms with a focus on managing external debt and capital flows. These reforms included improving current account balances, accumulating foreign reserves, increasing net foreign assets, and shifting to more flexible foreign exchange systems. Moreover, the lessons learned were widely shared, even among jurisdictions that did not directly experience the Asian currency crisis. APAC jurisdictions have enhanced the institutional frameworks of the financial system, strengthened financial supervision, and advanced major restructuring among financial institutions. There has also been notable progress in developing frameworks for financial coordination and cooperation within the APAC region. With a view to ensuring stability in foreign exchange and financial markets, the Chiang Mai Initiative Multilateralisation (CMIM) was established, a currency swap network that covers a wide area in the region. In addition, the Asian Bond Markets Initiative (ABMI) and the Asian Bond Fund were launched with the aim of promoting efficient and highly liquid bond markets. 1/5 BIS - Central bankers' speeches These reforms and initiatives have formed the foundation for financial stability in the APAC region since the year 2000. As a result, despite temporary rises in market volatility in the face of the Global Financial Crisis, the European debt crisis, and the turmoil in the banking sector in March 2023, the financial system in the APAC region has remained resilient. II. APAC Financial System amid Changes in the Environment The past stability of the APAC financial system, however, does not guarantee future resilience. The evolving environment surrounding the financial system necessitates adaptability. I would like to point out three fundamental changes that are key to promoting the stability of the financial system: first, the global shift to a high-interest rate environment; second, progress in the digitalization of finance; and third, the growing need to address climate change on the financial front. A. Global Shift to a High-Interest Rate Environment The first change is the global shift to a high-interest rate environment. Over the past two years, there has been a surge in inflation globally, reflecting economic recoveries and supply constraints after the pandemic, and also geopolitical factors. As a result, interest rates were raised rapidly in the United States and Europe. Interest rates were also raised in many APAC jurisdictions, though inflation rates and interest rates vary across countries and regions, depending on their respective economic conditions. The low-forlong interest rate environment was the so-called new normal after the Global Financial Crisis. It, however, has shifted to a high-interest rate environment in a short period of time. While uncertainty persists regarding future developments, focus has shifted toward the possibility of interest rates remaining elevated for an extended period. Interest rates are a source of income for financial institutions. At the same time, they are used to measure the present value of future cash flows. On the one hand, a rise in interest rates contributes to improving financial institutions' profits through a rise in yields. On the other hand, rising interest rates increase borrowers' interest payment burden and reduce the fair value of financial institutions' securities holdings in the short run. These changes in the interest rate environment have once again highlighted the importance of managing interest rate risk and credit risk at financial institutions. The APAC region has notably remained resilient during phases of rising interest rates. One contributing factor to this stability is the strategic focus of many APAC banks on retail business since the Asian currency crisis. Particularly in emerging economies, these banks have responded to surging demand for consumer loans, including housing, auto, and installment loans. This surge is propelled by robust economic growth and a substantial demographic of younger individuals. As a result, a significant portion of retail deposits amassed by these banks is deemed small and relatively sticky. The banking sector turmoil in March 2023 brought to light a range of both longstanding and emerging challenges. Among the failed banks, conventional management issues such as fundamental shortcomings in basic risk management and governance, alongside their unique business models, were identified as significant contributors. Additionally, the upheaval underscored the accelerated impact of deposit outflows, 2/5 BIS - Central bankers' speeches largely propelled by the proliferation of social media and the prevalence of online banking platforms. Identifying these underlying issues and swiftly addressing them present paramount practical challenges for financial authorities. The turmoil experienced in March 2023 also spotlighted the critical issue of resolving global systemically important banks (G-SIBs). Given the time discrepancy in financial market openings between the APAC region and the United States and Europe, APAC authorities could find themselves with a limited window to address potential resolutions, particularly if events unfold over the weekend. Consequently, it becomes paramount for financial authorities to maintain close communication channels, both within the region and with counterparts in other regions. I believe that the reason why we are here today is to learn from the way other jurisdictions have addressed these practical challenges and from the trials and errors they have experienced. B. Progress in the Digitalization of Finance The second change that is key to promoting financial stability is the progress in the digitalization of finance. In the APAC region, digital financial services have spread dramatically, especially among emerging economies. With just a smartphone, people can now manage their everyday personal payments, as well as make investments and take out loans. Some emerging economies have been conducting experiments with Central Bank Digital Currency (CBDC), as have Japan, the United States, and Europe. Why are we seeing such a leap in progress in the digitalization of finance, notably in emerging economies? One of the main reasons for the change is "leapfrogging." In other words, digital financial services have been advancing rapidly in those regions where many people still do not have access to face-to-face financial services. This has been made possible by the spread of smartphones, which function as a platform for providing financial services, skipping the stage of face-to-face financial services. This leapfrogging has the advantage of providing immediate access to the fruits of financial innovation without the switching costs of shifting from existing information technology systems. Moreover, it also brings substantial benefits in the context of financial inclusion. Notably, the evolution of digital technologies is not limited to traditional banks; non-bank financial intermediaries (NBFIs) increasingly leverage digital platforms to offer innovative services, such as cross-border funds transfers. On the other hand, it should be noted that the digitalization of finance could pose new risks to the stability of the financial system. It is becoming ever more important to ensure operational resilience, for example, by managing cyber and third-party risks, and to introduce anti-money laundering and combating the financing of terrorism (AML/CFT) measures. Crypto assets, tokenization, artificial intelligence (AI), and other new technologies may bring opportunities, but they could also pose risks to the financial system. A critical challenge for financial authorities lies in harnessing the advantages of the digitalization of finance while effectively managing risks to ensure the stability of the financial system. As financial services and providers continue to diversify, adopting the 3/5 BIS - Central bankers' speeches principle "same activity, same risk, same regulation" has become increasingly important. However, a practical challenge persists in determining which activities and risks should be classified as "the same" under this principle. Given the significant progress in digitalization witnessed in the APAC region, it is imperative for financial authorities to collaborate and engage in comprehensive discussions on this topic. C. Growing Need to Address Climate Change on the Financial Front The third change is the growing need to address climate change on the financial front. The APAC region accounts for a large share of the world's carbon dioxide emissions, and the region is susceptible to the adverse effects of climate change, with massive flood damage increasing in recent years, for example. This is why financial authorities in this region are particularly interested in addressing climate change. Climate change represents a global challenge necessitating active participation of diverse entities acrosssociety and the economy. On the financial front, efforts are being pursued based on two overarching perspectives. The first is initiatives by financial institutions to address climate-related financial risks. Proper assessment and management of physical and transition risks through scenario analysis are becoming a more important challenge for financial institutions. It is necessary for them to understand both climate-related risks and opportunities appropriately and to conduct their business and risk management on that basis. The second perspective is financial intermediation and capital market development when addressing climate change. New investment and finance for the transition are essential in pushing ahead with decarbonization realistically without compromising social welfare. There is therefore likely to be substantial demand for funds in the corporate sector. To meet such demand efficiently, financial institutions and investors should be able to assess appropriately the risks and returns of their investments, taking the effects of measures to address climate change into account. As a basis for this, it is very important to work on information disclosure. I hope that discussions at this meeting will contribute to improving the effectiveness of financial practices in addressing climate change. Concluding Remarks In conclusion, I am confident that this meeting will facilitate vibrant discussions and valuable insights, allowing us to deepen our understanding of the challenges confronting the APAC financial system. Reflecting on history, we recognize the numerous financial crisis episodes that have occurred. The current stability of the APAC financial system results from continuous efforts by relevant stakeholders, drawing from the lessons and experiences of past crises. Now, our pivotal mission is to pass on these invaluable lessons and experiences from the present to future generations. I am certain that the APAC financial system will remain a cornerstone of the region's economy, characterized by its significant growth potential. The Bank of Japan remains 4/5 BIS - Central bankers' speeches committed to strengthening coordination and collaboration with all stakeholders to ensure the stability and resilience of the financial system for the future. Thank you for your attention. 5/5 BIS - Central bankers' speeches
|
bank of japan
| 2,024 | 3 |
Speech by Ms Junko Nakagawa, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Shimane, 7 March 2024.
|
ÿ &'()ÿ*+ÿ,-,. !ÿ"#ÿ$% :;9<=;ÿ2;>=?=>@AÿBC=;DEAÿ F9GÿH 9D>FC@ÿB I=;@ÿ=9ÿ7FJF9ÿ ÿ KL ÿÿÿ MNÿOÿPÿPQÿMÿKMÿ 12324252ÿ789 ÿ ÿÿÿÿÿ /0 1234)ÿ5'4253"ÿ6478ÿ"ÿ5)7ÿ$%747ÿ"'31329ÿ ÿ ÿ 45ÿ7899 ÿ8ÿÿÿÿÿ9ÿ 5ÿ7899 ÿÿ ÿ9ÿ ÿ!"#$ÿ#%&'ÿ(!ÿ)'*%+ÿ,-ÿ./''01ÿ)-ÿ(2#&%+*ÿ2)!"(ÿ(1'ÿ0"33'+(ÿ.%("2(%!+ÿ!4ÿ!5'3.'2.ÿ'0!+!,%'.6ÿ ÿ 71'ÿ/20'ÿ!4ÿ3'0!5'3-ÿ%+ÿ!5'3.'2.ÿ'0!+!,%'.ÿ12.ÿ.#! '$ÿ!+ÿ(1'ÿ 1!#'6ÿ8#(1!"*1ÿ)".%+'..ÿ .'+(%,'+(ÿ4!3ÿ(1'ÿ.'35%0'.ÿ%+$".(3-ÿ12.ÿ)''+ÿ2)!5'ÿ(1'ÿ)3'2&9'5'+ÿ/!%+(ÿ)'(''+ÿ %,/3!5','+(ÿ2+$ÿ$'('3%!32(%!+:ÿ%(ÿ12.ÿ)'0!,'ÿ#! '3ÿ2.ÿ(1'ÿ,!,'+(",ÿ43!,ÿ(1'ÿ3'!/'+%+*ÿ!4ÿ (1'ÿ'0!+!,-ÿ4!##! %+*ÿ(1'ÿ;<=>92?ÿ/2+$',%0ÿ12.ÿ$%..%/2('$ÿ@;123(ÿ2A6ÿB".%+'..ÿ.'+(%,'+(ÿ 4!3ÿ(1'ÿ,2+"420("3%+*ÿ%+$".(3-ÿ12.ÿ)''+ÿ23!"+$ÿ(1'ÿ)3'2&9'5'+ÿ/!%+(ÿ)'(''+ÿ%,/3!5','+(ÿ 2+$ÿ$'('3%!32(%!+6ÿ>'./%('ÿ)'%+*ÿ244'0('$ÿ)-ÿ(1'ÿ.#! $! +ÿ%+ÿ(1'ÿ/20'ÿ!4ÿ3'0!5'3-ÿ%+ÿ(1'ÿ *#!)2#ÿ'0!+!,-:ÿ!3#$ÿ(32$'ÿ5!#",'ÿ12.ÿ.1! +ÿ.%*+.ÿ!4ÿ)!((!,%+*ÿ!"(ÿ)'02".'ÿ!4ÿ/3!*3'..ÿ %+ÿ%+5'+(!3-ÿ2$C".(,'+(.ÿ4!3ÿ%+('3,'$%2('ÿ2+$ÿ793'#2('$ÿ*!!$.6ÿ ÿ D'(ÿ,'ÿ)3%'4#-ÿ'E/#2%+ÿ$'5'#!/,'+(.ÿ%+ÿ,2C!3ÿ!5'3.'2.ÿ'0!+!,%'.6ÿ+ÿ(1'ÿF+%('$ÿG(2('.:ÿ1%#'ÿ ,!+'(23-ÿ(%*1('+%+*ÿ12.ÿ)''+ÿ244'0(%+*ÿ(1'ÿ3'2#ÿ'.(2('ÿ2+$ÿ1!".%+*ÿ,23&'(.:ÿ(1'ÿ'0!+!,-ÿ12.ÿ )''+ÿ4%3,:ÿ,2%+#-ÿ#'$ÿ)-ÿ/3%52('ÿ0!+.",/(%!+ÿ2+$ÿ(1'ÿ425!32)#'ÿ',/#!-,'+(ÿ2+$ÿ%+0!,'ÿ .%("2(%!+6ÿ8#(1!"*1ÿ%(ÿ12.ÿ)''+ÿ %$'#-ÿ3'/!3('$ÿ(12(ÿ;1%+2H.ÿI>Jÿ*3! (1ÿ32('ÿ4!3ÿKLKMÿ ."3/2..'$ÿNÿ/'30'+(:ÿ(1'ÿ0!"+(3-H.ÿ'0!+!,-ÿ12.ÿ3',2%+'$ÿ!+ÿ2ÿ,!$'32('ÿ.#! %+*ÿ(3'+$:ÿ%(1ÿ '2&+'..ÿ)'%+*ÿ.''+ÿ%+ÿ(1'ÿ3'2#ÿ'.(2('ÿ,23&'(ÿ2+$ÿ%+ÿ(1!.'ÿ.'0(!3.ÿ%+5!#5%+*ÿ'E('3+2#ÿ$',2+$6ÿ O"3!/'2+ÿ'0!+!,%'.ÿ125'ÿ2#.!ÿ0!+(%+"'$ÿ(!ÿ.#! ÿ,!$'32('#-:ÿ/23(#-ÿ244'0('$ÿ)-ÿ $'5'#!/,'+(.ÿ%+ÿ(1'ÿ;1%+'.'ÿ'0!+!,-6ÿ ÿ P5ÿ7899 ÿÿ ÿÿQÿ ÿ%##ÿ+! ÿ("3+ÿ(!ÿ(1'ÿ0"33'+(ÿ.%("2(%!+ÿ!4ÿR2/2+H.ÿ'0!+!,-6ÿOE/!3(.ÿ125'ÿ)''+ÿ,!3'ÿ!3ÿ#'..ÿ 4#2(:ÿ%+ÿ#%+'ÿ%(1ÿ(1'ÿ'2&+'..ÿ%+ÿ(1'ÿ*#!)2#ÿ,2+"420("3%+*ÿ.'0(!36ÿ+$".(3%2#ÿ/3!$"0(%!+ÿ12.ÿ )''+ÿ3'#2(%5'#-ÿ '2&ÿ3'0'+(#-:ÿ/23(#-ÿ244'0('$ÿ)-ÿ.!,'ÿ2"(!,2&'3.ÿ125%+*ÿ."./'+$'$ÿ(1'%3ÿ 420(!3%'.Hÿ!/'32(%!+.6ÿ>'./%('ÿ)'%+*ÿ244'0('$ÿ)-ÿ(1'ÿ.#! $! +ÿ%+ÿ(1'ÿ/20'ÿ!4ÿ3'0!5'3-ÿ%+ÿ !5'3.'2.ÿ'0!+!,%'.:ÿ1%*1ÿ#'5'#.ÿ!4ÿ0!3/!32('ÿ/3!4%(.ÿ125'ÿ."//!3('$ÿ2ÿ,!$'32('ÿ%+03'2.%+*ÿ (3'+$ÿ%+ÿ)".%+'..ÿ4%E'$ÿ%+5'.(,'+(ÿ2+$ÿ2+ÿ%,/3!5%+*ÿ(3'+$ÿ%+ÿ(1'ÿ',/#!-,'+(ÿ2+$ÿ%+0!,'ÿ .%("2(%!+6ÿJ3%52('ÿ0!+.",/(%!+ÿ12.ÿ)''+ÿ%+03'2.%+*ÿ,!$'32('#-6ÿO5'+ÿ(1!"*1ÿ.!,'ÿ%+$%02(!3.ÿ !4ÿ/3%52('ÿ0!+.",/(%!+ÿ125'ÿ)''+ÿ3'#2(%5'#-ÿ '2&ÿ3'0'+(#-:ÿ(1'3'ÿ 2.ÿ+!ÿ.%*+%4%02+(ÿ(3'+$ÿ 012+*'6ÿ+ÿ420(:ÿ(1'ÿ#'5'#ÿ!4ÿ0!+.",'3ÿ.'+(%,'+(ÿ12.ÿ)''+ÿ,2%+(2%+'$ÿ(1".ÿ423:ÿ,2%+#-ÿ$"'ÿ(!ÿ ÿ 2ÿ 23456785ÿ2 635258ÿÿ85ÿ52 3258ÿ74ÿ325ÿ8783ÿ45 85ÿ85ÿ558ÿ3ÿ65ÿ 65ÿ58ÿÿ34ÿ5ÿ83ÿ 5ÿ7ÿ2365ÿ458754ÿ57783ÿ3ÿ4553258ÿ ÿ77ÿ 5332ÿ632ÿ83ÿ758ÿ85ÿ3636785ÿ5836ÿ74ÿ85ÿ3534ÿ5836ÿ ÿ ÿ!3636785ÿ5836ÿ "58ÿ25ÿ8768ÿ8ÿ85ÿ3636785ÿ5836ÿ!3636785ÿ638ÿ75ÿ#55ÿ8654 ÿ764ÿ $364 ÿ83ÿ85ÿ%&'(')&(*ÿ,-(-./.'-0ÿ,-(-&0-&)0ÿ12ÿ314514(-&1'0ÿ67ÿ8'9:0-47;ÿ<:(4-.4*7ÿ 6658ÿ638ÿ#754ÿ3ÿ7ÿ4865ÿ74ÿ585665ÿ75ÿ65754ÿ85ÿ58ÿ55ÿ 5ÿ85ÿ $ 6=5ÿ>76856ÿ3ÿ?@Aÿ632ÿ5ÿ32 767#5ÿ4787ÿ765ÿ777#5ÿBÿ3636785ÿ638ÿ 7ÿ7ÿ35ÿ75ÿ#55ÿ7367#5ÿCÿ62ÿD5ÿ6658ÿ638ÿ3ÿ765ÿ62ÿ75ÿ#55ÿ 36854ÿ#ÿ7ÿ65356ÿÿ5332ÿ78 8ÿ74ÿ5ÿÿ5ÿ65ÿE!768ÿ1FÿG 8ÿ85ÿ 5ÿ456578ÿ765ÿ62ÿ6658ÿ638ÿ75ÿ73ÿ#55ÿ54ÿÿ#ÿ365ÿ575ÿ 7 ÿ74ÿ7ÿ 6575ÿ ÿ4 454ÿ 325ÿ632ÿ35657ÿ#4765ÿG5ÿ85ÿ8654ÿ ÿ 638ÿ7ÿ#55ÿ54ÿ65785ÿ57 ÿ#ÿ765ÿ62ÿ85ÿ638ÿ5 63258ÿ3ÿ27ÿ74ÿ 2542=D54ÿ62ÿ7ÿ#55ÿ3ÿ7ÿ2 63 ÿ8654ÿ7ÿ5ÿ ÿ C 5ÿ58258ÿ7ÿ2 6354ÿE!768ÿ1Fÿ$83ÿ8ÿ7ÿ#55ÿ7ÿ5ÿ 5ÿ8ÿ65575ÿ 7364 ÿ83ÿ85ÿC7ÿ3ÿ77ÿH552#56ÿ1I1JÿK('L('ÿEM368=B562ÿN332ÿM65ÿ3ÿ N 85665ÿÿ77Fÿ85ÿ43ÿ455ÿEHFÿ36ÿ# 5ÿ3483ÿ75ÿ2 6354ÿ632ÿ 85ÿ65 3ÿ65ÿ36ÿ7ÿ62ÿD5ÿ785365ÿÿ#38ÿ27786 ÿ74ÿ327786 ÿ Cÿ486ÿ85ÿHÿ36ÿ27786 ÿ7ÿ2 6354ÿ76876ÿ36ÿ27ÿ62ÿ45ÿ83ÿ85ÿ 6365ÿ ÿ65ÿ65 3ÿ74ÿ85ÿ65356ÿ ÿ78323#5ÿ63483ÿG 8ÿ65764ÿ83ÿ 327786 ÿ85ÿHÿ75ÿ2 6354ÿ36ÿ7ÿ45ÿ675ÿ3ÿ 4865ÿ76876ÿ835ÿ 657854ÿ83ÿ6 785ÿ32 83ÿBÿÿ45ÿ83ÿ85ÿ65356ÿÿ5332ÿ78 8ÿ74ÿ7ÿÿ85ÿ 75ÿ36ÿ27786 ÿ83ÿ85ÿ6365ÿ ÿ65ÿ65 3ÿB5ÿ2 635258ÿ ÿ# 5ÿ 58258ÿ7ÿ#55ÿ 36854ÿ#ÿ #34ÿ8362ÿ45274ÿ8ÿ85ÿ2#56ÿ3ÿ #34ÿ 836ÿÿ4565754ÿ76ÿ46 ÿ85ÿ7452ÿ7 ÿ6535654ÿ83ÿ85ÿ65=7452ÿ 55ÿ ÿ C 5ÿ54ÿ 58258ÿ7ÿ3854ÿ3ÿ7ÿ23456785ÿ657 ÿ8654ÿ54ÿ#ÿ 58258ÿ 7254ÿ78ÿ865ÿ638ÿ 4 ÿ835ÿ657854ÿ83ÿ487D783ÿ74ÿ7#36ÿ7 ÿE!768ÿJFÿ $ÿ ÿ7ÿ1I11ÿ# 5ÿ54ÿ 58258ÿ36ÿ7ÿ1I1Jÿÿ55854ÿ83ÿ3ÿ65785ÿ ÿ ÿ 234567ÿ74593ÿ 357ÿ25ÿ42ÿÿ6ÿ5235667ÿ34ÿÿ62363ÿ62ÿÿ 35ÿ7ÿ34ÿ42ÿ34ÿÿ6ÿ52ÿ35ÿ42ÿ62363ÿ62ÿ2ÿ553ÿ 42ÿÿ6ÿ23ÿ463ÿ ÿ 5432ÿÿ6ÿ54ÿ54ÿ22ÿ3ÿÿ6ÿ43ÿ35ÿ3ÿ32ÿ5ÿ3ÿ259596ÿ6ÿ3ÿÿ5ÿ 454ÿ6ÿ5422ÿ5652ÿ6ÿ6234ÿ45356ÿ2ÿ6ÿ43ÿ9ÿ463ÿ 43ÿ3ÿÿ25ÿ3542ÿ67ÿ226ÿ34ÿ3542ÿ543562ÿ 43ÿ!"ÿ 2ÿ54ÿ4ÿ5432ÿÿ4756ÿ352ÿ35ÿ3ÿ#63ÿ$332ÿ6ÿ45ÿÿ6ÿ3ÿ7ÿ2ÿ 6ÿÿÿ355%43ÿ7552ÿ 43ÿ&"ÿ'6ÿ3ÿ534ÿ6ÿ357ÿ4ÿ5432ÿ 35ÿ 6ÿ6ÿ35ÿ3ÿ()2ÿ6ÿ3ÿ$ (ÿ5652ÿÿ6ÿ3ÿ4ÿ2ÿ3ÿÿ 5335ÿ53ÿ93ÿ457422ÿ6ÿ75ÿ66354ÿ*23632ÿ54ÿ)+%43ÿ7552ÿ,ÿ7552ÿ 5432ÿ5ÿ355%43ÿ7552ÿÿ6ÿ56ÿ6ÿ346ÿ5ÿÿÿ9667ÿ5ÿ2% 2ÿ56234632ÿ54ÿ2563542ÿ2ÿ6ÿ3552ÿ5432ÿ5ÿ3ÿ7552ÿ6ÿ)+% 43ÿ7552ÿ%%ÿ6ÿ256354ÿ45356ÿ-63ÿ2563542ÿ6ÿ534ÿ 3456ÿ432ÿ%%ÿÿ5335ÿ53ÿ93ÿ457422ÿ6ÿ66354ÿ*23632ÿ54ÿ)+%43ÿ 7552ÿ5432ÿ5ÿ6343ÿ7552ÿ667ÿ2ÿÿ6ÿ3ÿ4ÿ2ÿ 4367ÿ9622ÿ6ÿ3ÿ 62ÿ4ÿ233ÿ43ÿ ÿ .ÿ/525ÿ2354ÿ )ÿ659ÿ346ÿ35ÿ3ÿ525ÿ2354ÿ5267ÿ56ÿ43ÿ562356ÿ6ÿ3ÿ563ÿ6ÿ 65ÿ23356ÿÿ ÿ 043ÿ562356ÿ2ÿ6ÿ64267ÿ5431ÿ594ÿ3ÿ32ÿ5ÿ74ÿ42ÿ 6ÿ934ÿ563562ÿ ÿ6ÿ26ÿ6ÿ43ÿ 43ÿ2"ÿ$ÿ2ÿ54ÿ7552ÿ 562356ÿÿ42ÿ6ÿ5252ÿ343622ÿ6ÿ42562ÿ35ÿ4ÿ422ÿ2ÿÿ35ÿÿ594ÿ 5ÿ5ÿ422ÿ6ÿ54ÿ6564ÿ7552ÿ2ÿ2ÿ472ÿ55ÿ6ÿ532ÿ)3ÿ 42ÿ33ÿ3ÿ9622ÿ6ÿ562356ÿ5ÿ6564ÿ7552ÿ2ÿ25ÿ6ÿ3ÿÿÿ 3544ÿ354ÿ5ÿ2772ÿ22ÿ5ÿ36ÿ6ÿ9634ÿ532ÿÿ35ÿ4ÿ9634ÿ934ÿ 36ÿ2ÿ369 ÿ3ÿÿ5ÿ5624ÿ26363ÿ2ÿ6ÿ636ÿ6ÿÿ4ÿ 422ÿ+ 2ÿ2ÿ2543ÿÿ754663ÿ242ÿ2ÿ2ÿ352ÿ35ÿ422ÿ4267ÿ42ÿÿ 543ÿ4563ÿ6ÿ3ÿ563ÿ6ÿ65ÿ23356ÿ6ÿ43454ÿÿ43ÿ 42ÿ452ÿ242ÿ35ÿ4553ÿ22ÿ'6ÿ3ÿ534ÿ6ÿ562356ÿ5ÿ4ÿ7552ÿ ÿ ÿ 234ÿ6778ÿ39ÿ3ÿ7397ÿ22ÿ77ÿÿ737ÿ927ÿ867ÿÿ87ÿ34ÿ4ÿ234ÿ6778ÿ8ÿ38ÿ 87348ÿ978ÿ92ÿ447ÿ8493894ÿ33ÿ44398ÿ77ÿ3997898ÿ4ÿ 3 3897ÿ8ÿ927ÿ446 9ÿ9239ÿ447ÿ7794ÿ3ÿ777ÿÿ927ÿ447848ÿÿ 73984ÿ39ÿ47ÿ3937ÿ39 74ÿ27ÿ77ÿ8ÿ47 74ÿ8498ÿ8ÿ927ÿ 7344398ÿÿ !"#$%&ÿ87ÿ927ÿ#8794ÿ$47347ÿ 89ÿ'3ÿ234ÿ8987ÿ 7397ÿÿ ÿ 27ÿ7789ÿ38ÿ87ÿ49398ÿ234ÿ8987ÿ9ÿ7ÿ7397ÿ(239ÿ)*ÿ27ÿ 867ÿÿ77ÿ7484ÿ234ÿ6778ÿ8ÿ3ÿ7397ÿ978ÿ27ÿ92ÿ8ÿ73ÿ 7774ÿ4ÿ7ÿ6ÿ927ÿ73ÿ2739237ÿ38ÿ737ÿ47 74ÿ849ÿ38ÿ6ÿ927ÿ 8398ÿ38ÿ83984ÿ849ÿ692ÿÿ22ÿ237ÿ37ÿ4777ÿ36ÿ429374ÿ 27ÿ9239ÿ8ÿ8873ÿ7774ÿ4ÿ7ÿ6ÿ84974ÿ42ÿ34ÿ793ÿ937ÿ38ÿ37937ÿ 47 74ÿ+83ÿ374ÿ7ÿ777ÿ237ÿ428ÿ7397ÿ22ÿ92ÿ3922ÿ927ÿ37ÿ ÿ92ÿ4ÿ38ÿ6728ÿ9239ÿÿ8398ÿ,277ÿ342ÿ73884ÿ237ÿ34ÿ6778ÿ8ÿ927ÿ 47ÿ24ÿ4ÿ67347ÿ927ÿ374ÿÿ97ÿ7774ÿ237ÿ7797ÿ927ÿ7494ÿÿ3883ÿ 4 8ÿ363837789ÿ37ÿ8793984ÿ8ÿ-.-/ÿ22ÿ787ÿÿ92ÿ927ÿ22749ÿ37ÿ 92ÿ397ÿ487ÿ%&&/ÿ38ÿ34ÿ67347ÿ8ÿ374ÿÿ3997ÿ7774ÿ237ÿ6778ÿ 347ÿ3ÿ929ÿ36ÿ379ÿ8984ÿ,73ÿ342ÿ73884ÿ237ÿ87347ÿ34ÿ7ÿ34ÿ 7789ÿ8ÿ397ÿ73884ÿ234ÿ629ÿ369ÿ37ÿ68474ÿ04ÿ3ÿ749ÿ993ÿ 777ÿ87ÿ22ÿ4ÿ927ÿ9ÿÿ927ÿ867ÿÿ7774ÿ38ÿ883ÿ374ÿ7ÿ 777ÿ234ÿ34ÿ8987ÿ9ÿ47ÿÿ ÿ 04ÿÿ7789ÿ38ÿ374ÿ#ÿ7817ÿ9239ÿ778ÿ7ÿ9238ÿ349ÿ73ÿ397ÿ 77974ÿ237ÿ6778ÿ87348ÿ8ÿ927ÿ878ÿ7ÿ36ÿ429374ÿ38ÿ927 ÿ 497ÿ74ÿ93ÿ37ÿ274ÿ#8ÿ39ÿ927ÿ7789ÿ8984ÿ$#ÿ8ÿ927ÿ234534ÿ424ÿ 9239ÿ927ÿ77ÿÿ9298744ÿ8ÿ36ÿ379ÿ8984ÿ234ÿ677ÿ48389ÿ227ÿ9238ÿ8ÿ 927ÿ349ÿ38ÿ8ÿ883839 8ÿ34ÿ927ÿ78ÿ234ÿ8987ÿ9ÿ77ÿ7397ÿ (239ÿ6*ÿ#9ÿ38ÿ67ÿ43ÿ9239ÿ927ÿ397ÿÿ3883ÿ37ÿ7 74ÿ6347ÿ8ÿ927ÿ78ÿ38ÿ 7ÿ49398ÿ234ÿ7ÿÿ744ÿ6778ÿ7497ÿ38ÿ39ÿ37ÿ4ÿ9277ÿ8397ÿ 49ÿÿ692ÿ927ÿ6ÿ38ÿ 397ÿ4794ÿ234ÿ87348ÿ3397ÿ927ÿ877ÿÿ 43ÿ38ÿ7417ÿ4ÿ9ÿ879397ÿ 7ÿ7 484ÿ7 92ÿ397ÿ94ÿ678ÿ8ÿ 38ÿ 8ÿ978ÿ34ÿ78987ÿ73 7ÿ36ÿ4237ÿÿ22ÿ424ÿ927ÿ4237ÿ8ÿ22ÿ4ÿ ÿ ÿ 2345637859ÿ6 354ÿ5ÿ9 994ÿ3ÿ59ÿ 6ÿ ÿ94ÿÿ4ÿ799ÿÿÿ2933ÿ5692ÿÿ 8649ÿ534ÿ34ÿÿÿ96ÿ5692ÿ2ÿÿ8296452ÿ55ÿ364ÿ69ÿ92ÿ35ÿ239695ÿ 3684594ÿ785ÿ7492ÿÿ5949ÿ299 954ÿ5969ÿ34ÿÿ63ÿ 4437335ÿ55ÿ9ÿ 693434ÿ 6ÿ534ÿ463ÿ3ÿ79ÿ5ÿ69539ÿ396ÿ994ÿ5ÿ3ÿ59ÿ45ÿÿ ÿ ÿ !!"#$ÿ%!&'"ÿ(")"*+,-"#$.ÿ&#ÿ/0,0#ÿ 1925ÿÿ 82ÿ339ÿ5ÿ53ÿ785ÿ6394ÿ3ÿ4ÿ5933ÿÿ3ÿ58ÿ8 ÿ299 954ÿ 3ÿ62896ÿ2ÿ4896ÿ6394ÿ ÿ 6ÿ762896ÿ6394ÿ ÿ5964ÿ ÿ62896ÿ6394ÿ95ÿ9ÿ3645ÿ923ÿ299 954ÿ3ÿ3 65ÿ6394ÿ89ÿ96 96ÿ659ÿ ÿ9ÿ3ÿ59ÿ3 65ÿ639ÿ3292ÿ4ÿ69392ÿ9539ÿ69953ÿ59ÿ993ÿ ÿÿ59ÿ353ÿ 958ÿ499ÿ3ÿÿ 235ÿ6394ÿ3823ÿ6829ÿ3ÿ9:65ÿ;<ÿ ÿ534ÿ5925ÿ59ÿ9696ÿ659ÿ ÿ36949ÿ3ÿ59ÿ62896ÿ639ÿ3292ÿ977<ÿ3ÿ34ÿ 7492ÿÿ59ÿ639ÿ ÿ 24ÿ56292ÿ353ÿ59ÿ29453ÿ6 659ÿ4956ÿ4ÿ53892ÿ5ÿ 2999659ÿ2ÿ4ÿ799ÿ5ÿ682ÿ=ÿ9695ÿ6995ÿÿ59ÿ596ÿ2ÿ59ÿ9696ÿ659ÿ ÿ36949ÿ3ÿ59ÿ 96ÿ496394ÿ 62896ÿ 639ÿ3292ÿ9577<ÿ4ÿ69392ÿ ÿÿ 99653ÿ5692ÿ69953ÿ396ÿ 6394ÿ644ÿÿ329ÿ69ÿ ÿ694ÿ3823ÿ 2534ÿ4 569ÿ299 95ÿ2ÿ943ÿ2ÿ695ÿ496394ÿ345ÿ59ÿ 7326 ÿ ÿÿ6996ÿ3ÿ569ÿ292ÿÿ3823ÿ3782ÿ58634ÿ292ÿÿ2ÿ63494ÿ3ÿ 9649ÿ929494ÿ2ÿ 24ÿ6394ÿ ÿ >ÿ: 4896ÿ6394ÿ 89ÿ9ÿ ÿ36949ÿ3ÿ4896ÿ6394ÿ4ÿ4ÿ492ÿ 692ÿ35ÿ59ÿ3ÿ6594ÿ ÿ 36949ÿ499ÿ96396ÿ834ÿ34ÿ79849ÿ9956335ÿ2ÿ4ÿ694ÿ2ÿ596ÿ996ÿ6394ÿ9ÿ 56378592ÿ5ÿ59ÿ42ÿ35ÿ59ÿ9695?4ÿ93ÿ948694ÿ843ÿ2ÿ48ÿ 6394ÿ5ÿ34ÿ4ÿ79849ÿ4ÿÿ95392ÿ62896ÿ6394ÿ9ÿ9992ÿ ÿ89ÿ9696ÿ 659ÿ ÿ36949ÿ3ÿ59ÿ4896ÿ639ÿ3292ÿ9:7<ÿ 6ÿÿ3594ÿ92823ÿ694ÿ 2ÿ4ÿ>=ÿ 9695ÿ 6ÿ486ÿ>=>@ÿ9:65ÿ6=<ÿ89ÿ659ÿ ÿ36949ÿ3ÿ59ÿ:7ÿ 6ÿÿ3594ÿ92823ÿ 694ÿ 2ÿ2ÿ996ÿ4ÿ4ÿ798ÿ5ÿ2999659ÿ785ÿ35ÿ4ÿ53892ÿ5ÿ4ÿ69539ÿ 3ÿ65ÿÿ682ÿA1ÿ9695ÿ834ÿ34ÿ79849ÿ59ÿ9 95ÿÿ69384ÿ63494ÿ3ÿ6ÿ5963ÿ 454ÿ34ÿ793ÿ699592ÿ3ÿ59ÿ:7ÿ65ÿ659ÿ96ÿ539ÿ35ÿÿÿ58ÿ 2ÿ6394ÿ69ÿ ÿ ÿ 234566564ÿ89ÿ3883ÿ9 6ÿ83ÿ564ÿ968563ÿ89ÿ53ÿ8ÿ3ÿ8ÿ83ÿ838ÿ83ÿ563ÿ83ÿ 95ÿ9ÿÿ83ÿÿ49 8ÿ83ÿ5ÿ53ÿ253ÿ4ÿ ÿ ÿ!"#$$%ÿ&$'ÿ()*ÿ+,-%-ÿ"$ÿ./$)$0,/ÿ1/",2,"3ÿ()*ÿ4',/5-ÿ 1ÿ!"#$$%ÿ 6378ÿÿ9 ÿ53ÿ89ÿ86ÿ89ÿ83ÿ9899ÿ9ÿ896:ÿ3969;5ÿ8558ÿ6ÿ953ÿ ÿ 3ÿ3969;ÿ5ÿ53ÿ89ÿ968563ÿ393564ÿ;9383ÿ;56ÿ99983ÿ2ÿ83ÿ ;8355<8596ÿ9ÿ9368=9ÿ3;6ÿ6ÿ83ÿ4936;368:ÿ3969;5ÿ;33ÿ894ÿ58ÿ5ÿ 379383ÿ89ÿ23ÿ63ÿ9 6 ÿ93 3ÿ83;;564ÿ9;ÿÿ9 9 6ÿ56ÿ83ÿ93ÿ9ÿ393ÿ 56ÿ933ÿ3969;53ÿ3383ÿ833ÿ83;99ÿ2998564ÿ338ÿ3ÿ99>383ÿ89ÿ4ÿ 63ÿ28ÿ83ÿ3969;ÿ5ÿ379383ÿ89ÿ968563ÿ49 564ÿ8ÿÿ93ÿ293ÿ58ÿ9983685ÿ49 8ÿ 83ÿÿÿ589ÿ3ÿ9;ÿ569;3ÿ89ÿ936564ÿ4ÿ56836553ÿ56ÿ83ÿ93ÿ3969;ÿ ? ÿ933683ÿ56ÿ83ÿ@ABCDDEÿGDHÿIJDKDLMJÿNJBMOMBPÿQKRÿSHMJTUÿVW899ÿX3998Yÿ353ÿ2ÿ 83ÿZ6ÿ8ÿ83ÿ86ÿ[\[]ÿ^9638ÿ95ÿ^338564ÿ83ÿ3ÿ_`ÿ49 8ÿ83ÿ5ÿ99>383ÿ 89ÿ23ÿabÿ93368ÿ9ÿ5ÿ[\[cÿa[ÿ93368ÿ9ÿ5ÿ[\[]ÿ6ÿa\ÿ93368ÿ9ÿ5ÿ[\[dÿ 56ÿ83; ÿ9ÿ83ÿ;356ÿ9ÿ83ÿ95ÿZ9ÿ;3;23:ÿ938ÿV8ÿaaYÿ ÿ 6564ÿ89ÿ96;3ÿ953ÿ83ÿ338ÿ9ÿ568596ÿ83;;564ÿ9;ÿ83ÿ98ÿ53ÿ56ÿ5;998ÿ 953ÿ3ÿ379383ÿ89ÿ968563ÿ6564ÿ^36 53ÿ568596ÿ379388596ÿ3ÿ53ÿ89ÿ53ÿ 4ÿ89 ÿÿ33ÿ9658368ÿ 58ÿ83ÿ953ÿ82558ÿ8438ÿÿ83ÿ9898ÿ49ÿ86ÿ 995853ÿ964ÿ58ÿ3969;5ÿ393ÿ6ÿÿ379388596ÿ9ÿ43ÿ5633ÿ 9ÿ53ÿ_536ÿ 85ÿ968378ÿ56ÿ83; ÿ9ÿ83ÿ;356ÿ9ÿ83ÿ95ÿZ9ÿ;3;23:ÿ938ÿ56ÿ83ÿ86ÿ [\[]ÿW899ÿX3998ÿ83ÿ3=96=3ÿ83ÿ9ÿ643ÿ56ÿ83ÿÿVÿ583; ÿ3 ÿ3ÿ99Yÿ5ÿ 99>383ÿ89ÿ23ÿ[bÿ93368ÿ9ÿ5ÿ[\[cÿ[]ÿ93368ÿ9ÿ5ÿ[\[]ÿ6ÿabÿ93368ÿ9ÿ 5ÿ[\[dÿV8ÿaaYÿe53 53ÿ83ÿ3=96=3ÿ83ÿ9ÿ643ÿ56ÿ83ÿÿVÿ583; ÿ3 ÿ 3ÿ99ÿ6ÿ3634Yÿ5ÿÿ968563ÿ89ÿ5;2ÿ8ÿ3853ÿ54ÿ83ÿ685ÿ86ÿ5ÿ 99>383ÿ89ÿ23ÿcbÿ93368ÿ9ÿ5ÿ[\[cÿ6ÿafÿ93368ÿ9ÿ298ÿ5ÿ[\[]ÿ6ÿ5ÿ[\[dÿ ÿ gÿ+,-%-ÿ ? ÿÿ3ÿ>8ÿ98563ÿÿ23533ÿ88ÿ896:ÿ3969;ÿ5ÿ53ÿ89ÿ533ÿÿ589ÿ3ÿ 238336ÿ 43ÿ6ÿ953ÿ99983ÿ2ÿ54ÿ33 ÿ9ÿ99983ÿ9958ÿWÿ93ÿ83ÿ ÿ ÿ 2345226ÿ829ÿ 22 ÿ44ÿÿ9 ÿ44ÿÿ 42 ÿ 45ÿÿ9ÿ28ÿ3 944ÿÿ 4ÿ82552ÿÿ55ÿ9ÿ49 ÿ96ÿ8429ÿ42ÿ4ÿ2345226ÿ44ÿÿ ÿÿ94359ÿ 44 42ÿ42ÿ ÿ ÿ894ÿÿ52 4ÿÿ29ÿ 22 ÿ44ÿÿ9 ÿÿÿ525ÿ8 5ÿÿ 45ÿ 964ÿ8542ÿ94ÿÿ4ÿ 4ÿ44ÿÿ392ÿÿ 9ÿ4ÿÿ55ÿ ÿ ÿ45ÿ 5ÿ9 45ÿÿÿÿ44934ÿ42ÿ4ÿ9ÿ25ÿ494ÿ94ÿ 6ÿ5 4ÿÿ29ÿ 495ÿ6ÿ 2 9ÿ49ÿÿÿ96ÿ28ÿ8542ÿ94ÿ 4ÿ54ÿ4923ÿÿ 9ÿ 5ÿÿ ÿ 22 ÿÿ28ÿ44 ÿ 2 49ÿ25ÿ243ÿ529ÿ4ÿ! 4ÿ9ÿÿ52ÿÿ96ÿ44ÿ4ÿ25ÿ494ÿ 94ÿ6ÿÿ29ÿ 495ÿ6ÿ42ÿ4ÿ55ÿ88 4ÿ49ÿ95ÿ 22 ÿÿ8 5ÿ 964ÿ29ÿ4 ÿÿ44ÿ4ÿ55ÿ55ÿ29ÿ42ÿ"#ÿ 22 ÿÿ 55ÿ ÿ 2ÿÿ22545ÿ96ÿÿ52 4ÿÿ4ÿ9 ÿ28ÿ2 24ÿ 53ÿ9ÿ ÿ9 ÿ28ÿ9ÿÿ249ÿ2 24ÿÿ 5 ÿ2ÿ4ÿ25ÿ849ÿ9ÿÿ6ÿ 923ÿ4ÿ5ÿ28ÿ$%$$ÿ&2 45ÿ4ÿ9 ÿ28ÿ9ÿÿ249ÿ2 24ÿ ÿ9ÿ ÿÿ49ÿ9 ÿ55ÿ43955ÿÿ88 4ÿÿ525ÿ 22 ÿ52 4ÿÿ54ÿ 242ÿÿ55ÿ52ÿ ÿ2ÿ22545ÿ52 4ÿ3ÿÿ42ÿ2 9ÿ 69 ÿÿ4ÿ'5ÿ4ÿÿ235ÿ2ÿ4ÿ96ÿ28ÿ344ÿ2 9ÿ939ÿ2ÿ 22 ÿ44ÿÿ"ÿ ÿ ÿ49ÿ96ÿ2 9ÿ52 4ÿÿ23 9ÿ 4 4ÿÿ46ÿ4ÿ6ÿÿ42ÿ2ÿ4ÿ 254ÿ28ÿÿ492942ÿÿ23 9ÿ 4 4ÿÿ"#ÿ 22 ÿ9439ÿ42ÿ 8542ÿ2ÿ89ÿ2325ÿÿ ÿ8 ÿ234ÿ ÿ5ÿ 3ÿ4ÿ94ÿ28ÿ 9ÿÿ4ÿ9 ÿ28ÿ9ÿ22ÿ3ÿÿ822ÿÿ5ÿ 4ÿÿ ÿ9545ÿ ÿÿÿ4ÿÿ4ÿ(234ÿÿ 2 242ÿ)4ÿ4ÿ24ÿ2 9ÿ4ÿ55ÿ28ÿ 23 9ÿ 4 4ÿÿ ÿ 4 ÿ4923ÿ29 4ÿ 39ÿ3ÿÿ42ÿ42ÿ 9ÿ9ÿ9 ÿÿ 55ÿÿ4923ÿ92 4ÿÿ4ÿ 52 4ÿÿ 2 ÿ 4342ÿÿ89 #ÿ88294ÿ42ÿ92 24ÿ5ÿÿ*6#ÿ5 ÿ 92ÿÿ44ÿ23 9ÿ 4 4ÿ55ÿÿ3294ÿ829ÿ4ÿ4 ÿÿÿ! 442ÿ829ÿÿ 9ÿ & 945ÿ8ÿ95ÿ 2 ÿ2ÿ24ÿ92ÿ34ÿ949ÿ439ÿ234ÿ42ÿÿ52 9ÿ4ÿ! 4ÿ ÿ ÿ 23454ÿ78ÿ9ÿ578ÿ2392ÿ4 9 ÿ7ÿ94ÿ2353ÿ424575927ÿ7ÿ8 45ÿ842742ÿ23454ÿ 44527ÿ 95ÿ548854ÿÿ4 7ÿ92772ÿ9 ÿ5748ÿ ÿ ÿÿ!"#$%&ÿ'(#)"*+ÿ,(-./+ÿ0(#12/)ÿ 342ÿ4ÿÿ74ÿ2ÿ29ÿ92ÿ234ÿ59 68ÿ4295ÿ7ÿ9 ÿ83954ÿÿ748ÿ54957ÿ728ÿ 2ÿ ÿ 734ÿ59 ÿ78ÿ5542ÿ587ÿ4295ÿ4987ÿ723ÿ234ÿ97ÿ8ÿ93747ÿ234ÿ574ÿ829772ÿ 29542ÿ8ÿ9ÿ4542ÿ7ÿ9ÿ8829794ÿ9 ÿ8294ÿ9 45ÿ:8ÿ84787ÿ4987ÿ498548ÿ234ÿ59 ÿ 28ÿ74ÿ54ÿ25ÿ373ÿ748ÿ234ÿ53984ÿ8ÿ;245 ÿ<99484ÿ45 42ÿ 8ÿ=<>58?ÿ9 ÿ98ÿ539848ÿ988428ÿ77ÿ55924ÿ 8ÿ@Aÿ4394;2594ÿ 8 8ÿ=B7C8?ÿ9 ÿ<99ÿ549ÿ482924ÿ748242ÿ25828ÿ=<;DB478?ÿ734ÿ59 ÿ7254ÿ9 ÿ398ÿ 884E42ÿ54784ÿ23484ÿ7ÿ28ÿ2ÿ494ÿ8829794ÿ 4295ÿ4987ÿ374ÿ297ÿ 72ÿ92ÿ23475ÿ792ÿÿ87979ÿ95428ÿ ÿ F 45ÿ234ÿ5542ÿ859 45ÿ8ÿ74ÿ54ÿ25ÿ234ÿ8352;245 ÿ7ÿ7245482ÿ5924ÿ78ÿ842ÿ 92ÿ9ÿ49274ÿ7245482ÿ5924ÿ8ÿ78ÿGHÿ4542ÿ9 ÿ234ÿ29542ÿ44ÿ8ÿHG;495ÿ<>5ÿ748ÿ78ÿ 95 ÿGÿ4542ÿ723ÿ234ÿ45ÿ ÿ8ÿHGÿ4542ÿ85ÿ234ÿ748ÿ54954ÿ98ÿ9ÿ5484544ÿ 4ÿI44 45ÿ9G99ÿ234ÿ59 ÿ49 4ÿ234ÿ594ÿ8ÿHG;495ÿ<>5ÿ74ÿ829278ÿ85 ÿ234ÿ 29542ÿ44ÿ85 ÿ4244ÿ95 ÿ8ÿ9 ÿ78ÿG9Jÿ454294ÿ728ÿ2ÿ4244ÿ95 ÿ 8ÿ9 ÿ 78ÿGJÿ454294ÿ728ÿ4ÿ<ÿ9G9Kÿ234ÿ59 ÿ474ÿ2ÿ274ÿ97ÿ HG;495ÿ<>5ÿ748ÿ2ÿ82924ÿ7ÿ234ÿ594ÿ8ÿ95 ÿ8ÿ9 ÿ78ÿGJÿ454294ÿ728ÿ 85 ÿ234ÿ29542ÿ44ÿ9 ÿ92ÿ234ÿ89 4ÿ274ÿ2ÿ 2ÿ74ÿ54ÿ25ÿ847ÿ54957ÿ 234ÿ45ÿ9 ÿ45ÿ 8ÿ8ÿ234ÿ594ÿ98ÿ54845448ÿ5ÿ;577ÿ7728ÿ:57ÿ72ÿ 94ÿ234ÿ748ÿ2ÿ4ÿ4 ÿ234ÿ594ÿ44 7ÿÿ9542ÿ 7278ÿL445ÿHG; 495ÿ748ÿ454ÿ2974ÿ2ÿ4ÿ4ÿHGÿ4542ÿ2ÿ4854ÿ234ÿ4884274488ÿ8ÿ 4295ÿ 4987ÿ4ÿM245ÿ9G9Kÿ723ÿ4254 4ÿ373ÿ452972748ÿ855 7ÿ4 748ÿ9 ÿ 87979ÿ 95428ÿ92ÿ3 4ÿ9 ÿ959ÿ234ÿ59 ÿ87454ÿ2392ÿ82572ÿ97ÿ234ÿ45ÿ ÿ85ÿHG;495ÿ<>5ÿ748ÿ92ÿHGÿ4542ÿÿ394ÿ825ÿ87274ÿ488428ÿ2ÿÿ98ÿ 4297ÿ954ÿ874ÿ488428ÿ>74ÿ2378ÿ72ÿ474ÿ2ÿ 2ÿ74ÿ54ÿ25ÿ97ÿ2353ÿ 954;894ÿ<>5ÿ539848ÿ9 ÿ74ÿ 9542ÿ459278ÿ73484ÿ547878ÿ394ÿ544ÿ 7825278ÿÿ234ÿ74ÿ54ÿ9 ÿ;245 ÿ7245482ÿ59248ÿ394ÿ98ÿ4 4ÿ54ÿ9224ÿ2ÿ ÿ ÿ 234567ÿ9 7 ÿ347ÿÿ6ÿ643ÿ97 ÿÿ76ÿ ÿ234567ÿ3ÿ67642 6ÿÿ 234567ÿ347937ÿ3ÿ66ÿ24 ÿ42ÿ76ÿ ÿ66ÿ66ÿ63464ÿ ÿ 6ÿ!35ÿ3ÿ466 6ÿ7ÿ4936ÿÿ45ÿ367ÿ326ÿ"#ÿ3 ÿ$%&"'ÿ ÿ(349ÿ )*ÿ ÿ7ÿÿ76ÿ+6976ÿÿ9ÿ4936ÿ7ÿ69 6ÿ7ÿ4936ÿ9ÿ367ÿ ÿ 4 ÿ726ÿÿ6766ÿ234567ÿ737ÿÿ3ÿ7ÿ9 97ÿ76ÿ4936ÿ2 46ÿ6,ÿÿ 3ÿ4 47-6ÿ23 64ÿ ÿ 'ÿ3 7 ÿ7ÿ766ÿ9ÿ26346ÿ76ÿ!35ÿ3ÿ466 6ÿ764ÿ26346ÿ3ÿ69634ÿ7ÿ 646ÿ76ÿ2 7ÿ2626737 ÿÿ2 6734ÿ63 ÿ 9 ÿ46 ÿ7ÿ73 34ÿ4ÿ 66ÿ937643ÿ2776ÿÿ 393ÿ777 ÿ4ÿ76ÿ!35.ÿ4 ÿÿ946 7ÿ3ÿ6ÿ 3ÿ463, ÿ76ÿ7642ÿ3 ÿ9 7 ÿ4ÿ76ÿ/69476ÿ06 ÿ#397ÿ/0#ÿ76ÿ!35.ÿ 397ÿ4ÿ6 ÿ64267ÿ ÿ7ÿ66ÿ 393ÿ 777 ÿ 9ÿ9 7776ÿ 234567ÿ347937ÿ ÿ 'ÿ7ÿ3ÿ6ÿ735 ÿ34 ÿ34396ÿ76ÿ!35ÿ3ÿ23 73 6ÿ3ÿ39922 376ÿ 2 6734ÿ9ÿ1 64ÿ766ÿ94927396ÿ'ÿ666ÿ737ÿ69 29ÿ3977ÿ3 ÿ496ÿ ÿ $33ÿ346ÿ235 ÿ763ÿ63 3ÿ7 34ÿ396 ÿ76ÿÿ64967ÿ496ÿ737ÿ73467ÿ3ÿ 66ÿ4ÿ6,326ÿ 7ÿ76ÿ9634ÿÿÿ936ÿÿ42.ÿ36%677ÿ63 4ÿ2ÿ946ÿ ÿ3 7 ÿ7ÿ76ÿ45ÿ'ÿ267 6ÿ63464ÿ7646ÿÿ33ÿ3ÿ264ÿÿ96473 76ÿ4ÿ $33.ÿ69 2ÿ 9 ÿ76ÿ7ÿÿ3ÿ3743ÿ 3764ÿÿ6ÿ36ÿ7ÿ9 97ÿ 344376ÿ9ÿ37ÿ639ÿ 7ÿ ÿ726ÿ76ÿ!35ÿ ÿ9 76ÿ3764 ÿ 4237 ÿ 77ÿ3ÿ469 967 ÿ646ÿ4639 ÿ3ÿ69 ÿ37ÿ26ÿ726ÿÿ76ÿ746ÿ6ÿ76ÿ !35ÿ662ÿ737ÿ3966267ÿÿ76ÿÿ64967ÿ496ÿ737ÿ73467ÿ3ÿ926ÿ ÿ7ÿ3 ÿ 2 6734ÿ9ÿ46 ÿÿ6ÿ9 646ÿ7ÿ ÿ467ÿ76ÿ9ÿ26346ÿ74 96ÿ 7ÿ376ÿ9 ÿ6ÿ946ÿ9 74ÿ3 ÿ76ÿ4936ÿÿ45ÿ367ÿ566 ÿÿ2 ÿ764ÿ 2397ÿ ÿ 393ÿ234567ÿ3ÿ6ÿ3ÿ764ÿ9 67 3ÿ3746ÿ3 ÿ76ÿ69 6ÿ6764ÿ 4ÿ 7ÿ3ÿ46 ÿÿ69634ÿ ÿ 35ÿÿ ÿ ÿ 01232451ÿ7185958ÿ 51ÿ 3ÿ238 ÿ251ÿ53ÿ3 ÿÿÿ!ÿ"ÿ#$%ÿ#&'(ÿ) *+,-.ÿ01ÿ2324 56768696ÿ:;<=> *?@A?,ÿ>BÿC.?ÿD>EF-GÿH>+,I H+<=ÿ>Bÿ:+J+< K9ÿ0123245 L2MÿN S.+,CÿT O2ÿPÿQ2R4 X3 YZ+Z1ÿef T43 YZ+Z1ÿS[ÿ23T3\T33 dd TW3 d3 T23 4d TT3 Wd T33 *+<;B+-C;,F<_ W3 b?,aF-?Y V3 2d U3 S[3U T3 T2 T4 TX TU 23 22 24 S[3U T3 T2 T4 TX TU 23 22 5>C?]ÿ^F_;,?YÿB>,ÿ@+<;B+-C;,F<_+,?ÿC.?ÿ:ZDZ*>,_+<8E>A+Eÿ*+<;B+-C;,F<_ÿD*fZÿ ^F_;,?YÿB>,ÿY?,aF-?Yÿ+,?ÿC.?ÿ:ZDZ*>,_+<8E>A+Eÿb?,aF-?YÿH;YF<?YYÿ6-CFaFCGÿ f<I?gZ b>;,-?]ÿS>JG,F_.Cÿhÿ2324ÿAGÿbiDÿ8E>A+Eÿ*+,=?Cÿf<C?EEF_?<-?1ÿ+ÿIFaFYF><ÿ>BÿbiDÿ 8E>A+Eÿf<-Zÿ6EEÿ,F_.CYÿ,?Y?,a?IZ 5>C?]ÿ^F_;,?YÿB>,ÿC.?ÿ̀>,EIÿC,+I?ÿa>E;@?ÿ+,?ÿC.>Y?ÿB>,ÿ̀>,EIÿ,?+EÿF@J>,CYZ b>;,-?]ÿSDHÿ5?C.?,E+<IYÿH;,?+;ÿB>,ÿc-><>@F-ÿD>EF-Gÿ6<+EGYFYZ ÿ 0828253ÿ3582ÿ4ÿ4 0122345ÿ72895 1 43 084 584 '11Fÿ#"1ÿ9($ K L,(ÿ*#/' @/""ÿ$%ÿ/(%#&/'#M(%ÿ*#/' JK K -.('0ÿ1ÿ2'(%ÿ.$ÿ(ÿNO545PO4QÿST4TUVU5TWÿST4TOWTOPWÿXYÿZX[\X[4TOX5Wÿ]^ÿ_5`aWT[^bÿ ca4[TU[Q^1ÿde+"&%#$,ÿD*#$$+(ÿ$%ÿ#$'&$+(1D 1ÿH#,&('ÿ*./ÿfgÿ.$>%ÿ(e+"&%(ÿ7&(ÿ."%#$,ÿ+./7$#('1 <1ÿ@%(%ÿ('ÿ%($.(ÿ(+(''#.$ÿ7(#.%'1 @.&+(0ÿ)#$#'9ÿ.*ÿH#$$+(1 :BÿCD*=.;"(DÿD&$*=.;"(DEFÿGÿ7.#$' !""ÿ#$%&'#(' )$&*+&#$, -.$/$&*+&#$, DH=.;"(D J '11Fÿ$$1Fÿ#"1ÿ9($ '11FÿJÿu < K K o # = ( ÿ $ . $ ( ' # % ( $ # " ÿ # $ = ( ' /( $ r C@-!Fÿ("Fÿ"(*ÿ'+"(E K :./('#+ÿ'#7/($'ÿ$%ÿ#/7.'ÿ.* +7#"ÿ,..%'ÿC#,ÿ'+"(E r r o#=(ÿ+.$'&+#.$ÿ+./7"((% C$.$('#%($#"Fÿ("Fÿ#,ÿ'+"(E J K K -.(0ÿH#,&('ÿ*.ÿ("ÿ7#=(ÿ+.$'&+#.$ÿ+./7"((%ÿ(ÿ;'(%ÿ.$ÿ2$?ÿ'**ÿ +"+&"#.$'ÿ&'#$,ÿ(ÿ+.$'&+#.$ÿ+.'ÿ%(*".'1 @.&+('0ÿ;#$(ÿs**#+(tÿ)#$#'9ÿ.*ÿd+.$./9Fÿ8%(ÿ$%ÿB$%&'9tÿ)#$#'9ÿ .*ÿL$%FÿB$*'&+&(Fÿ8$'7.ÿ$%ÿ8.&#'/1 -.('0ÿ1ÿ2'(%ÿ.$ÿ(ÿ3456451ÿ!""ÿ($(7#'('1ÿ8((ÿ#'ÿÿ%#'+.$#$	ÿ#$ÿ(ÿ%ÿ *.ÿ:(+(/;(ÿ<ÿ%&(ÿ.ÿÿ+$,(ÿ#$ÿ(ÿ'&=(9ÿ*/(>.?1 1ÿ@%(%ÿ('ÿ%($.(ÿ(+(''#.$ÿ7(#.%'1 @.&+(0ÿ2$?ÿ.*ÿA7$1 0828253ÿ3582ÿ4ÿ4 084 345ÿh4 582ÿ89 1 43 ÿij3ÿh4k35l345 DI$*=.;"(D ÿ< 7m443ÿ4 ÿn51m 1 43 ÿij3ÿh4k35l345 9f9ÿGÿ+,1 o#=(ÿ$.$('#%($#" #$=('/($ÿC@-!Fÿ$./#$"E 8$?$ÿC+&"E 8$?$ÿC7"$$(%ÿ#$=('/($ÿ#$ÿ+&($ *#'+"ÿ9(ÿ'ÿ.*ÿ(ÿ:(+(/;(ÿ'&=(9 .*ÿ(+ÿ9(E HJ K K -.('0ÿ1ÿ8(ÿ345645*#,&('ÿ#$+"&%(ÿ#$=('/($'ÿ#$ÿ'.*>(ÿ$%ÿ('(+ÿ$%ÿ %(=(".7/($ÿCpq:Eÿ;&ÿ(e+"&%(ÿ"$%ÿ7&+'#$,ÿ(e7($'('1ÿpq:ÿ #$=('/($ÿ#'ÿ$.ÿ#$+"&%(%ÿ;(*.(ÿ(ÿ)+ÿrÿ'&=(91ÿ8(ÿ*#,&('ÿ (ÿ*.ÿ""ÿ#$%&'#('ÿ#$+"&%#$,ÿ*#$$+#"ÿ#$'#&#.$'1 1ÿ8(ÿ*#,&(ÿ*.ÿ7#=(ÿ$.$('#%($#"ÿ#$=('/($ÿ*.ÿ*#'+"ÿ<ÿ#'ÿ(ÿ <fggÿ=(,(1 @.&+('0ÿ;#$(ÿs**#+(tÿ2$?ÿ.*ÿA7$1 ÿ 6685ÿ56ÿ71ÿ881 0123456789ÿ623571 % 0778ÿ9ÿ:% % 0778ÿ9ÿ:% %K 89ÿ654812ÿ0654ÿ J4)?,.4+ %% &'(ÿ)'ÿ*(+,'ÿ-./ÿ0,('1 &'(ÿ'2340ÿ-('5ÿ0,('1 &'(ÿ.6340ÿ-('5ÿ0,('1 0778ÿGÿ45ÿ'(ÿHIJ " ! % % %% $ % " $ # " 9 " % % % %! %" ! 9 " % % % %! %" ;4'0<ÿ%7ÿ@)')ÿ'0ÿ)'+4'ÿ','00.4+ÿ3'.4)07ÿ 7ÿL'ÿ5./?'ÿ54ÿMN%ÿ.0ÿÿ54ÿF+?D7ÿÿ @4?,'<ÿC.+.0Dÿ45ÿO,4+46D8ÿL)'ÿ+)ÿP+)?0D7 ;4'<ÿ=0')ÿ4+ÿ=+>ÿ055ÿ,(,?(.4+07 @4?,'0<ÿ*.+'ÿA55.,'BÿC.+.0Dÿ45ÿE.++,'Bÿ=+>ÿ45ÿF3+7 6685ÿ56ÿ71ÿ881 89ÿ654ÿQRÿS71 %K 0778ÿ%"MN%:% % %% % $ " # ! W 9%" %$ X+.')ÿ@'0ÿY7%Z OXÿY%7KZ .+ÿY%#7!Z ;PO08ÿ[@O[;8ÿ',7ÿYK7Z % K ;4'0<ÿ%7ÿ=0')ÿ4+ÿ=+>ÿ055ÿ,(,?(.4+07ÿE./?'0ÿ.+ÿ+/('ÿ*,>'0ÿ04\ÿ'ÿ0'ÿ45ÿ ',ÿ,4?+Dÿ4ÿ'/.4+ÿ.+ÿF3+]0ÿ4(ÿ'2340ÿ.+ÿK7ÿ 7ÿE./?'0ÿ54ÿ'ÿOXÿ'2,(?)'ÿ40'ÿ54ÿ'ÿX+.')ÿ^.+/)46ÿ54ÿ'ÿ'+.'ÿ3'.4)7 @4?,'0<ÿC.+.0Dÿ45ÿE.++,'Bÿ=+>ÿ45ÿF3+7 ÿW 89ÿ654ÿQRÿTRÿUÿV 24 %"MN%:% %K 0778ÿC4 4ÿ_'.,('0ÿ+)ÿ'(')ÿ/44)0ÿY7Z PL'(')ÿ/44)0ÿY%$7Z % P+'6').'ÿ/44)0ÿY7%Z 3.(ÿ/44)0ÿY%!7"Z %% % $ " # ! W 9%" %$ % K ;4'<ÿ=0')ÿ4+ÿ=+>ÿ055ÿ,(,?(.4+07ÿE./?'0ÿ.+ÿ+/('ÿ*,>'0ÿ04\ÿ'ÿ0'ÿ45ÿ ',ÿD3'ÿ45ÿ/44)0ÿ.+ÿF3+]0ÿ4(ÿ'2340ÿ.+ÿK7 @4?,'0<ÿC.+.0Dÿ45ÿE.++,'Bÿ=+>ÿ45ÿF3+7 789 ÿ9ÿ9ÿ ÿ789 ÿ9ÿ ÿ9ÿ9 8 01234ÿ6 9ÿ99ÿÿ!ÿ " 3525Iÿ)$(&JK(L($$ ((% 3525 %$ ((% 3525Iÿ)$(&JK(L($$ ()$ 3525Iÿ0Mÿ)$(%L($$ (($ (($ ((% F / N ? > / ÿ % $ # 9$ ($% ($% (($ ($$ ($$ ($% *$ '% '% ($$ '$ )$ '$ '% &% &% 0183,DH4?18ÿB>4?N?4OÿC82/P +, . / ÿ '$ Q432N/.ÿ-2.28>/ÿ22R,34/2Iÿ./=4ÿ3>2./S &$ 4&5'6 ($ &$ , D/ ÿ = ? / > / ÿ C / P , . / ÿ &% Q3?014ÿ3>2./S #% #% 49$5%6 &$ $ #$ #$ 0M (& (' )$ )( )) )* (& (' )$ )( )) )* 0M(* (9 (% (6 (# (& (' )$ )( )) )* )9 714/:ÿ@?0,3/3ÿ=13ÿ41/ÿ0183,DH4?18ÿB>4?N?4OÿC82/PÿQ0BCSÿ23/ÿ-23/2ÿ18ÿ;28<ÿ342==ÿ >2.>,.24?1835ÿT1/ÿ0BCÿ=?0,3/3ÿQ432N/.ÿ-2.28>/ÿ22R,34/2Sÿ/P>.,2/ÿ?8-1,82ÿ 41,3?3Dÿ>183,DH4?18ÿ282ÿ?8>.,2/ÿ1,4-1,82ÿ41,3?3Dÿ>183,DH4?185 F1,3>/3:ÿ02-?8/4ÿU==?>/Vÿ;28<ÿ1=ÿG2H28Iÿ/4>5 714/3:ÿ(5ÿ;23/2ÿ18ÿ;28<ÿ342==ÿ>2.>,.24?1835ÿ@?0,3/3ÿ?8ÿ280./ÿ-32></43311Aÿ41/ÿ A/?0143ÿ?8ÿ41/ÿ0BC5 )5ÿ7182,32-./ÿ01123ÿ?8>.,2/ÿ01123ÿ>.233?=?/2ÿ23ÿ3/D?E2,32-./ÿ01123ÿ?8ÿ41/ÿ F7B5 F1,3>/3:ÿ;28<ÿ1=ÿG2H28Iÿ/4>5 01234ÿ# W ÿÿ ÿX9 9ÿ9ÿ YZ8ÿÿWÿ78 Y9ÿ[ \ÿ8ÿW 6& 3525ID?.5ÿH/33183 * OJOÿ]ÿ>105FH/>?2.ÿ>231ÿ/238?803ÿQ-18,3/3Iÿ/4>5S 6# ) ( 6% $ 6* 718E3>1/2,./2ÿ>231ÿ/238?803 F>1/2,./2ÿ>231ÿ/238?803 T142.ÿ>231ÿ/238?803 bDH.1O/2ÿH/33183 6) 0M$& ($ () (9 (6 (& )$ )) F1,3>/:ÿ^?8?343Oÿ1=ÿC84/382.ÿB==2?33ÿ282ÿ01DD,8?>24?1835 E( E) (*JK( (%JK( (#JK( ('JK( )(JK( )*JK( 714/3:ÿ(5ÿK(ÿLÿ^23>1E^2OIÿK)ÿLÿG,8/EB,0,34IÿK*ÿLÿF/H4/D-/3E71N/D-/3Iÿ K9ÿLÿ+/>/D-/3E@/-3,23O5ÿ@?0,3/3=13ÿ)$)*JK9ÿ23/ÿ4113/ÿ=13ÿ+/>/D-/35 )5ÿ@?0,3/3ÿ=31Dÿ)$(6JK(ÿ18A232ÿ23/ÿ-23/2ÿ18ÿ>184?8,?80ÿ1-3/3N24?183ÿ =1..1A?8041/ÿ32DH./ÿ3/N?3?1835 F1,3>/:ÿ^?8?343Oÿ1=ÿ_/2.41Iÿ̀2-1,3282ÿa/.=23/5 01234ÿ6 789 8 ÿÿ8 ÿÿÿ9 789 8 ÿ ÿ ÿ !" /*C23426HÿAIÿJK2L.255/C2KÿK/*5,--/./2*4KMHÿNÿ>)/*45 P2B)3ÿ51)34202 #" $" ()*+2*,-2.4,3/*0 %" 12*,-2.4,3/*0 &" " &" %" $" #" 0O6" 6! '" '! "" "! &" &! %" ()423ÿ42526ÿ)*ÿ412ÿ789:89;ÿ<==ÿ2*423>3/525;ÿ?1232ÿ/5ÿ2ÿ6/5.)*4/*,/4@ÿ/*ÿ412ÿ 6242ÿ-)3ÿA2.2+B23ÿ%""$ÿ6,2ÿ4)ÿ2ÿ.12*02ÿ/*ÿ412ÿ5,3C2@ÿ-32+2D)3E; F),3.23ÿ42*Eÿ)-ÿG2>2*; 89ÿm Q" @k@ÿNÿ.10; !" I+>)34ÿ>3/.2ÿ/*62LÿJ@2*ÿB25/5M #" $" %" &" " &" %" 0O&6 &' %" %& %% F),3.23ÿ42*E)-ÿG2>2*; 6" 5;2;HÿN <==ÿ2*423>3/525 R! R" Q! Q" 0O'! "" "! &" &! %" ()4253ÿ&;ÿ42526ÿ)*ÿ412ÿST989UT8VÿXY8YZ[Z9Y\ÿXY8YT\YTU\ÿ]^ÿ_]`a]`8YT]9\ÿbcÿ d9ef\Ỳcgÿhf8`YZ`Vc;ÿiL.=,6/*0ÿK-/*2*.2ÿ2*6ÿ/*5,32*.2;K %;ÿj/0,325ÿ-3)+ÿ%""'kl%ÿ)*D236ÿ2L.=,62ÿ>,32ÿ1)=6/*0ÿ.)+>2*/25; $;ÿF12626ÿ23225ÿ62*)42ÿ32.255/)*ÿ>23/)65; F),3.23ÿ1/*/543@ÿ)-ÿj/*2*.2; mÿm 01234ÿ' n ÿÿoÿm %$ %# &% @k@ÿNÿ.10; &" ppI FppI Q # % " % # Q 0O&! &Q &R &6 &' %" %& %% %$ %# ()423ÿj/0,325ÿ2L.=,62ÿ412ÿ2--2.45ÿ)-ÿ412ÿ.)*5,+>4/)*ÿ42Lÿ1/E2; F),3.23ÿ42*Eÿ)-ÿG2>2*; ÿ"# 05 6ÿ16 012ÿ456ÿ788ÿ29 ÿÿ056ÿ012 012ÿ8ÿ 566ÿ 956 9:9ÿ;ÿ<8% )%& )%# (%& (%# '%& '%# "%& "%# #%& #%# $#%& $"%# $"%& B"* +,ÿ-..ÿ/0123 +,ÿ-.022ÿ402ÿ45563 +,ÿ-.022ÿ402ÿ4556ÿ76ÿ070893 '# '" '' =5><0?ÿ@/7/29ÿ54ÿ,707.ÿA44/2ÿ76ÿ511>7/</572% '( ') 8% )%& 9:9ÿ;ÿ<A6 1/7/2006ÿC/<02 )%# D070.ÿ20E/<02 D5562ÿ-.022ÿ45563 (%& F556 (%# +,ÿ-.022ÿ402ÿ4556ÿ76ÿ070893 '%& '%# "%& "%# #%& #%# $#%& B'# '" '' ÿ54ÿo6ÿUVUg Q 8RS1 F50<22ÿ160ÿ/7ÿa<5M0ÿ'#'( 8ÿUVUg F50<22ÿ160ÿ/7ÿa<5M0ÿ'#'( 8ÿUVUh F50<22ÿ160ÿ/7ÿa<5M0ÿ'#'( ') G502?ÿ"%ÿHF556Hÿ0I<.>602ÿ402ÿ4556ÿ76ÿ<572/22ÿ54ÿH8/<>.>.JÿK>/<Jÿ76ÿ./E025<Lÿ C56><2Hÿ76ÿH4556ÿC56><2%Hÿ '%ÿHA61/7/2006ÿC/<02Hÿ0I<.>602ÿ07089ÿC/<02ÿ76ÿ<572/22ÿ54ÿC>M./<ÿ20E/<02ÿ76ÿ N0ÿ<802% (%ÿO0ÿ+,ÿ4/8>02ÿ0ÿP7Lÿ244ÿ02/102ÿ76ÿ0I<.>60ÿ0ÿ0440<2ÿ54ÿ0ÿ<572>1C/57ÿ Iÿ/L0Jÿ400ÿ06></57ÿC5./</02JÿE0.ÿ2>M2/69ÿC5812Jÿ76ÿ15M/.0ÿC570ÿ<802% =5><0?ÿ@/7/29ÿ54ÿ,707.ÿA44/2ÿ76ÿ511>7/</572% l9855mÿ456ÿ55 ÿ79n9ÿÿ16 8ÿUVUW '( ÿ"" 9:9ÿ;ÿ<8% 012889 ÿ8 ÿ Q 46012 889 ÿ8 ÿ46 Tÿ 46 Tÿ455 455 ÿ6 XUZ^ÿ95ÿXUZ\ ]XUZ^_ XWZ̀ÿ95ÿXWZ\ ]XWZ^_ XYZVÿ95ÿXYZU ]XYZU_ XUZUÿ95ÿXUZh ]XUZg_ XYZ[ÿ95ÿXUZY ]XYZ\_ XYZVÿ95ÿXYZU ]XYZV_ XYZ[ÿ95ÿXYZ\ ]XYZ^_ XYZ^ÿ95ÿXUZV ]XYZ\_ XYZ[ÿ95XYZ\ ]XYZ^_ b"%cÿ5ÿb'%# db'%#e b#%*ÿ5ÿb"%) db"%#e b#%cÿ5ÿb"%' db"%#e G50?ÿF/8>02ÿ/7ÿM<L02ÿ/76/<0ÿ0ÿ106/72ÿ54ÿ0ÿ+5./<9ÿP56ÿ101M02jÿ450<22ÿ-C5/7ÿ02/1023% =5><0?ÿP7Lÿ54ÿkC7% b'%fÿ5ÿb(%# db'%ce b'%fÿ5ÿb(%" db'%ce b"%iÿ5ÿb'%# db"%fe b(%&ÿ5ÿb(%* db(%ce b"%iÿ5ÿb'%" db"%*e b"%cÿ5ÿb'%' db"%*e 66769ÿ5ÿ6ÿ2 8ÿ 6 012ÿ456789 RSTUVWXYVÿY[ÿ\]^_`^UX̀YVÿaUVbcÿfgcUc̀gÿ\]cSXhX]X̀iÿXVÿ̀jcÿ\^gj̀cgÿnV_gcUWXVbÿ\]cSXhX]X̀iÿ .401d#C%?ÿ@8 XVÿ̀jcÿkYVl^_ÿ̀Y[ÿmkkÿ kYVl^_ÿ̀Y[ÿmkkÿ e .401ÿd#C%?ÿ@8 C% ? C## #C"% #!F)ÿKLIÿF6)<18 #C%# #C% #C## !#C% !#C%# Q$ " G + # ' & P.45)BÿK@0ÿI.01ÿD160-C ÿ 2 8ÿ 6ÿ6 # ,:ÿ7;6-;ÿ!;<.=;9>ÿ?ÿ@.608 # !# ,)-))ÿ./ÿ*.01ÿ23)ÿ/4056.060754)0ÿ8646.09 !# !'# !&# !%# !$# !"# ()*!% ()*!" ()*!+ ()*! ()*!' A.)8BÿCÿD)ÿ84E)Fÿ/.2ÿ()*4Fÿ#Gÿ.0=1ÿ605<41)8ÿ)[email protected])8ÿ/.2ÿ2H.ÿ608405)ÿ 5.2@06)8>ÿ88)ÿ20-)2)0ÿ5.2@06)8>ÿ)5C>ÿ60ÿ1166.0ÿ.ÿ.8)ÿ/.2ÿ608646.08ÿ )<6-6*<)ÿ/.ÿ)ÿI03J8ÿ.46-ÿ@458)8ÿ01ÿ8<)8ÿ./ÿKLI8CM)-160-ÿ)ÿ/6-4)8ÿ /.ÿ()*4Fÿ#G>ÿ)ÿ)/))05)ÿ1>ÿ=65ÿ)ÿ*8)1ÿ.0ÿ)[email protected])8ÿ.0<Fÿ/.2ÿ 608646.08ÿ)<6-6*<)ÿ/.ÿ)ÿI03J8ÿ.46-ÿ@458)8ÿ01ÿ8<)8ÿ./ÿKLI8>ÿ)ÿ<8.ÿ 60165)1C CÿD)ÿ84E)Fÿ68ÿ5.0145)1ÿ60ÿ()*4F>ÿNF>ÿO4-48>ÿ01ÿA.E)2*)ÿ)5ÿF)C P.45)BÿI03ÿ./ÿK@0C
|
bank of japan
| 2,024 | 3 |
Speech by Mr Naoki Tamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Aomori, 27 March 2024.
|
March 27, 2024 Bank of Japan Economic Activity, Prices, and Monetary Policy in Japan Speech at a Meeting with Local Leaders in Aomori TAMURA Naoki Member of the Policy Board (English translation based on the Japanese original) I. Economic Activity and Prices A. Economic Activity I will begin my speech by talking about recent developments in economic activity in Japan. The Bank of Japan assesses that the economy has recovered moderately, although some weakness has been seen in part. I would like to raise two points that I am concerned about recently. The first is about developments in private consumption. Despite high prices, private consumption has continued to increase at a moderate pace, due in part to pent-up demand from the COVID-19 pandemic (Chart 1). However, consumption of nondurable goods, such as food and clothes, has followed a decreasing trend in real terms after excluding price rises, reflecting a recent shift toward inexpensive products. My understanding is that consumption has started to show signs of waning, owing to high prices, as an increase in wages has not been catching up with price rises. The second concern is about business fixed investment. On the back of corporate profits having been at high levels on the whole, the business fixed investment plans for fiscal 2023 in the Tankan (Short-Term Economic Survey of Enterprises in Japan) indicate that investment is likely to increase clearly (Chart 2). Meanwhile, the actual data for fixed investment in the GDP statistics up to December 2023 somewhat lack strength, even taking into account that the normal assumption is that actual data decline from the projection. On the other hand, the remaining orders for machinery and construction have Chart 1: Private Consumption Consumption Activity Index Nominal Wages 110 s.a., CY 2019 = 100 6 y/y % chg. Nominal wages CPI (less imputed rent) CY 19 Total real private consumption Services Nondurable goods -2 -4 CY19 Notes: 1. In the left panel, figures for "total real private consumption" are for the real Consumption Activity Index and are based on Bank staff calculations. The figures exclude inbound tourism consumption and include outbound tourism consumption. 2. In the right panel, figures for "nominal wages" are based on continuing observations following the sample revisions. Sources: Ministry of Health, Labour and Welfare; Ministry of Internal Affairs and Communications; Bank of Japan. Chart 2: Business Fixed Investment Planned and Actual Investment Remaining Orders y/y % chg. 40 tril. yen tril. yen 30 Machinery (excluding orders for ships, left scale) Construction (right scale) -20 FY07 Tankan (planned investment in current fiscal year as of the December survey of each year) Private nonresidential investment (SNA, nominal) -10 CY19 Notes: 1. In the left panel, the Tankan figures include software and R&D investments and exclude land purchasing expenses. Figures are for all industries including financial institutions. 2. In the left panel, the figure for private nonresidential investment for fiscal 2023 is the 2023/Q2-Q4 average. 3. In the right panel, figures for "construction" are based on the survey of 50 major construction companies. Sources: Cabinet Office; Ministry of Land, Infrastructure, Transport and Tourism; Bank of Japan. stayed on an increasing trend, and thus I consider that firms are faced with a lack of supply capacity, in that they receive orders but cannot manufacture, mainly due to labor shortages, although there is demand for business fixed investment. In terms of the median of the Bank of Japan Policy Board members' forecasts -- as presented in the January 2024 Outlook for Economic Activity and Prices (Outlook Report) -- Japan's real GDP growth rate is expected to be at 1.8 percent for fiscal 2023, 1.2 percent for fiscal 2024, and 1.0 percent for fiscal 2025; the economy is projected to grow at a pace above its potential (Chart 3). Despite the recent concerns that I described earlier, when looking a little further ahead of Japan's economic development, private consumption is likely to be underpinned by an increase in wage growth coupled with the government's economic measures as inflation subsides. Business fixed investment is likely to follow its long-term uptrend despite some supply-side constraints. This is due to firm demand for fixed investment, such as investment to address labor shortages and digital-related investment, as well as investments associated with the green transformation and with strengthening supply chains. In addition, inbound tourism demand is expected to keep rising. Thus, there is little concern that the medium- to long-term outlook for Japan's economy will be undermined. Chart 3: The Bank's Forecasts for Real GDP 580 s.a., ann., tril. yen FY 2025 +1.0% FY 2024 +1.2% FY 2023 +1.8% FY13 Note: The forecasts presented are the medians of the Policy Board members' forecasts in the January 2024 Outlook Report. The values of real GDP for fiscal 2023 onward are calculated by multiplying the actual figure for fiscal 2022 by all successive projected growth rates for each year. Sources: Cabinet Office; Bank of Japan. B. Price Developments Turning to Japan's price developments, the year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food has been in the range of 2.5-3.0 percent, albeit lower than before, and that for all items excluding fresh food and energy, for which prices fluctuate significantly, has been at around 3 percent (Chart 4). The contribution of goods prices to the rate of increase in the CPI has been declining due to the waning effects of the pass-through to consumer prices of cost increases led by the past rise in import prices. On the other hand, increases in services prices have been pushing up the CPI. At the beginning of the current inflationary phase, most firms reported that, although they were able to pass on raw material cost increases to selling prices, they could not go further to pass on a rise in personnel expenses. Thereafter, however, firms' moves to pass on the rise in personnel expenses to prices have been spreading gradually, and these have been reflected in the increases in services prices, for which personnel expenses account for a large proportion of costs. In my view, such developments indicate that firms' price-setting behavior has changed clearly in Japan. Chart 4: Consumer Prices 5 y/y % chg. Energy Food Goods (less food) Services CPI (less fresh food) CPI (less fresh food and energy) -1 -2 CY19 Source: Ministry of Internal Affairs and Communications. In terms of the median of the Policy Board members' forecasts, the CPI (all items less fresh food) is projected to see a year-on-year rate of increase of 2.8 percent for fiscal 2023, 2.4 percent for fiscal 2024, and 1.8 percent for fiscal 2025 (Chart 5). In order to realize this outlook, it is important that a virtuous cycle between wages and prices be achieved, and that such cycle continue to operate. Chart 5: The Bank's Forecasts for the CPI y/y % chg. FY 2023 +2.8% FY 2024 +2.4% FY 2025 +1.8% -1 FY13 Notes: 1. Figures are the CPI for all items less fresh food, excluding the effects of the consumption tax hikes. 2. The locations of , △, and ▼ in the chart indicate the figures for each Policy Board member's forecasts. The risk balance assessed by each Policy Board member is shown by the following shapes: indicates that a member assesses "upside and downside risks as being generally balanced," △ indicates that a member assesses "risks are skewed to the upside," and ▼ indicates that a member assesses "risks are skewed to the downside." The dotted lines show the medians of the Policy Board members' forecasts presented in the January 2024 Outlook Report. Sources: Ministry of Internal Affairs and Communications; Bank of Japan. I think that this year's wage growth is highly likely to surpass the previous year's substantial growth. The provisional aggregate results of the annual spring labor-management wage negotiations this year, which were released in late March, reveal that the wage growth rate is significantly higher than the results for the previous year, including among small and medium-sized firms (Chart 6). Likewise, a survey targeting small and medium-sized firms shows that the number of firms that are positive about raising wages has been increasing further. In addition, anecdotal information from firms -- which is gathered through the Bank's Head Office and branches -- suggests that a wider range of firms have actually been raising wages. I think that this is mainly because firms are feeling the need to retain and recruit human resources in response to labor shortages. Of course, it is also true that some firms claim that they do not have the resources for wage hikes or that it is difficult to pass on wage hikes to prices. However, taking into account recent data and anecdotal information, as well as the change in firms' price- and wage-setting behavior and ongoing labor shortages that I talked about earlier, I believe that there is a good chance of the virtuous cycle between wages and prices continuing to operate. Chart 6: Developments in Wage Revisions Results of the Annual Spring Labor-Management Wage Negotiations Survey on Plans for Wage Increases for Next Fiscal Year (Small and Medium-Sized Firms) 6 y/y % chg. Actual regular wage increase Actual base pay increase CPI inflation Feb. Rengo's second set of aggregate results Feb. Jan. -1 -2 CY 91 percentage of respondents Have plans for wage increases Undecided or no answer Have no plans for wage increases Notes: 1. In the left panel, figures for CPI inflation are for all items less fresh food, excluding the effects of the consumption tax hikes. 2. In the left panel, figures for "actual base pay increase" and "actual regular wage increase" from 1991 to 2014 are those published by the Central Labour Relations Commission, while those from 2015 to 2024 are figures released by the Japanese Trade Union Confederation (Rengo). Figures are based on the wage negotiation results of labor unions for which the base pay increase is clear. The figure for 2024 is from Rengo's second set of aggregate results. 3. In the right panel, figures are based on the survey by the Japan Chamber of Commerce and Industry and the Tokyo Chamber of Commerce and Industry. The time period indicated by the bars represents when the survey was conducted. In Japan, the fiscal year starts in April and ends in March of the following year. Sources: Central Labour Relations Commission; Japan Chamber of Commerce and Industry; Ministry of Internal Affairs and Communications; Rengo. II. Conduct of Monetary Policy A. Changes in the Monetary Policy Framework Now, I would like to turn to the Bank's conduct of monetary policy. The Bank continued with large-scale monetary easing, aiming to achieve the price stability target of 2 percent in a sustainable and stable manner. At the Monetary Policy Meeting held on March 18 and 19, 2024, the Bank changed its monetary policy framework that had been in effect to date, given the confirmation that the virtuous cycle between wages and prices has become more solid, as I noted earlier, and also because it can be judged that it is now within sight that the price stability target of 2 percent will be achieved in a sustainable and stable manner toward the end of the projection period of the January 2024 Outlook Report, which covers from fiscal 2023 through fiscal 2025 (Chart 7). Chart 7: Changes in the Monetary Policy Framework (March 2024) As recent data and anecdotal information have gradually shown that the virtuous cycle between wages and prices has become more solid, the Bank judged it came in sight that the price stability target of 2 percent would be achieved in a sustainable and stable manner toward the end of the projection period of the January 2024 Outlook Report. It considers that its large-scale monetary easing measures have fulfilled their roles, including the negative interest rate policy and the yield curve control. With the price stability target, the Bank will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool, in response to developments in economic activity and prices as well as financial conditions from the perspective of sustainable and stable achievement of the target. Given the current outlook for economic activity and prices, it anticipates that accommodative financial conditions will be maintained for the time being. Short-term interest rate (uncollateralized overnight call rate) 0.3 % Long-term interest rates <After> <Before> 0.2 0.1 (Guideline for market operations) -0.1 -0.2 -0.3 Rate on the Policy-Rate Balances (-0.1%) Upper bound for 10-year JGB yields as a reference 1.0 Around 0.1% increase 0.0 <After> <Before> % Rate on the current account balances (+0.1%) In the case of a rapid rise in long-term interest rates, the Bank will make nimble responses, such as increasing the amount of JGB purchases The Bank will continue its JGB purchases with broadly the same amount as before 0.0 The Bank will encourage the rate to remain at around 0 to 0.1% Target level of 10-year JGB yields (around 0 percent) March MPM March MPM (The rate had been in the range of -0.1 to 0%) ETFs and J-REITs The Bank will discontinue purchases Specifically, the Bank has set the uncollateralized overnight call rate as the policy interest rate and will encourage that rate to remain at around 0 to 0.1 percent by applying an interest rate of 0.1 percent to current account balances held by financial institutions at the Bank. This means that the interest rate level will increase by around 0.1 percentage point, given that the rate was in the range of minus 0.1 to 0 percent before the policy change. The Bank has removed the target level of long-term yields and the upper bound for these yields as a reference on Japanese government bonds (JGBs), both of which were set to control interest rates. The Bank will continue its JGB purchases with broadly the same amount as before, and in the case of a rapid rise in long-term interest rates, it will nimbly respond by, for example, increasing the amount of JGB purchases. Such JGB purchases will be regarded as ways to avoid bringing about discontinuous changes, instead of as an active monetary policy tool. Furthermore, the Bank has discontinued purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs), which had been rarely made following the improvement in market environment. With these changes in the monetary policy framework, I believe that the Bank has exited from the so-called new phase of monetary policy implemented to date, which included the negative interest rate policy and yield curve control, and has taken its first step toward the normalization of monetary policy. It will continue to conduct monetary policy as appropriate in response to developments in economic activity and prices as well as financial conditions, from the perspective of sustainable and stable achievement of the 2 percent price stability target. Given the current outlook for economic activity and prices, the Bank anticipates that accommodative financial conditions will be maintained for the time being. B. A Look Back at the Past 25 Years: A State without Meaningful Interest Rates As the Bank has taken its first step toward the normalization of monetary policy, let me briefly look back at the Bank's monetary easing, which it has been carrying out over a long period, since the late 1990s, when Japan's economy fell into deflation. I would also like to consider the functions of interest rates -- the main vehicle of monetary policy -- while sharing what I perceived as a financial practitioner before becoming a member of the Bank's Policy Board. Let me note developments in short-term interest rates, the conventional monetary policy tool. The uncollateralized overnight call rate hovered in the range of around 4-8 percent from the late 1980s to the early 1990s, a period before the collapse of the bubble economy (Chart 8). In the late 1990s, however, it fell to around 0.5 percent, ushering Japan into a state without meaningful interest rates. Subsequently, with the start of the Bank's zero interest rate policy and its introduction of the negative interest rate policy, the rate declined to 0 percent and then into negative territory. Meanwhile, the Bank also has kept long-term interest rates at low levels through unconventional measures, including its commitment aimed at generating policy duration effects, quantitative easing, and yield curve control. Chart 8: Market Interest Rates and Consumer Prices 10 % Short-term interest rate (uncollateralized overnight call rate) Long-term interest rate (10-year JGB yields) CPI (less fresh food), y/y chg. -2 -4 CY85 Note: Figures for the CPI (less fresh food) exclude the effects of the consumption tax hikes. Sources: Ministry of Finance; Ministry of Internal Affairs and Communications; Bank of Japan. Amid sluggish economic growth and mounting financial instability in the wake of the bubble's collapse, I think that monetary easing was effective to some extent in supporting the economy in the course of moving into the state without meaningful interest rates. Regarding the effects of further monetary easing once Japan reached that state, it is true that borrowing firms experienced a certain advantage in terms of lower funding costs, and that there were positive effects in terms of higher stock and real estate prices and a correction of the excessive appreciation of the yen. However, looking back, I had little sense that a marginal, few tenths of a percentage point decline in interest rates stimulated business fixed investment or otherwise invigorated corporate activity. My understanding is that the function of interest rates -- in terms of raising or lowering interest rates to adjust demand and affect prices -- was limited in the state without meaningful interest rates. Various side effects have also been caused by unprecedented monetary easing carried out over such a long period of time. Side effects themselves are unavoidable, and policy decisions should be made based on the balance of positive effects against side effects. Having said that, I would like to note two side effects relating to interest rate functions that I find concerning (Chart 9). Chart 9: Side Effects Relating to Interest Rate Functions in a State without Meaningful Interest Rates (1) Weakening of the hurdle rate function of interest rates (2) Weakening of the signaling effects of interest rates The hurdle rate function acts to urge firms to concentrate their business resources to businesses with high added value that generate profitability that is higher than borrowing interest rates, thereby stimulating business metabolism. ⇒ In a state without meaningful interest rates, it is likely that the channeling of funds into businesses with relatively low productivity has impeded advances in business metabolism. The level of long-term yields on JGBs and how it changes provide a signal for how the market sees factors such as the future state of economic activity and prices and the government's fiscal condition. ⇒ The signaling effects have not been fully exerted. The first side effect is a weakening of the hurdle rate function of interest rates, which acts to stimulate business metabolism. If the borrowing interest rate for a firm is high, the firm, in order to survive, is pressured to concentrate its business resources in areas that earn enough profits to cover that interest cost; in other words, businesses with high added value. However, if the borrowing interest rate is low, the firm has the option of continuing with businesses with relatively low added value. In sum, in an environment where an interest rate functions effectively as a hurdle rate, funds will gravitate toward highly productive businesses, consequently stimulating business metabolism. This will make resource allocation more efficient from a macroeconomic perspective. Conversely, in an environment of the government's support measures and continued low interest rates, it is likely that the channeling of funds into businesses with relatively low productivity has impeded advances in business metabolism. In fact, entry and exit rates of firms in Japan have remained low compared to other major countries, and labor productivity growth also has remained lackluster (Chart 10). Chart 10: Entry-Exit Rates and Productivity in Major Economies Entry and Exit Rates <Entry Rate> <Exit Rate> 16 % Labor Productivity 14 10 thous. USD, 2015 PPPs Japan United States United Kingdom Germany Japan United States United Kingdom Germany CY 08 11 14 17 20 08 11 14 17 20 CY 90 Notes: 1. In the left panel, figures for Japan are on a fiscal-year basis. There is a discontinuity between the figures for Germany up to 2020 and those of 2021 due to changes to the definition. 2. In the right panel, figures represent GDP per person employed at constant prices. Sources: Eurostat; OECD; Small and Medium Enterprise Agency; U.K. Office for National Statistics; U.S. Census Bureau. The second side effect relating to interest rate functions is a weakening of the signaling effects of interest rates freely determined by the market. The level of long-term yields on JGBs and how it changes provide a signal for how the market sees factors such as the future state of economic activity and prices and the government's fiscal condition. However, with the Bank's large-scale JGB purchases, the signaling effects have not been fully exerted. Of course, even if the hurdle rate function of interest rates is weakened, firms can nonetheless take action in pursuit of higher productivity. Likewise, even if the signaling effects are weakened, it is possible to make appropriate judgments on such factors as the future state of economic activity and prices and the government's fiscal condition, based on various information other than developments in long-term yields. Finance only plays a behind-thescenes role in the economy, providing funds like a flow of blood -- firms, the government, and other economic entities are the economy's principle drivers. In a state without meaningful interest rates or no positive interest rates, however, the functions interest rates ought to fulfill have been weakened, and this should be fully recognized. C. Toward the Normalization of Monetary Policy I have said that the Bank has taken its first step toward the normalization of monetary policy. So, what does the normalization look like? In my view, the ultimate goal is, with the price stability target of 2 percent, to return interest rates to a level where they can perform their functions -- that is, where raising or lowering interest rates can act to adjust demand and affect prices -- and at the same time to recover the hurdle rate function and signaling effects I mentioned earlier. Although the Bank has changed its monetary policy framework, the state without meaningful short-term interest rates I spoke about earlier has not changed, and long-term interest rates have not reached the point where they are entirely determined by market. Consequently, even though the Bank has taken its first step and the situation will be better than it has been, the kind of side effects I mentioned earlier seems to remain. I believe that it is crucial for the Bank to steer future policy conduct in order to proceed deliberately but steadily with monetary policy normalization and thereby successfully unwind the unprecedented large-scale monetary easing, with the fundamental premise that the Bank will do so in response to developments in economic activity and prices as well as financial conditions. Thank you.
|
bank of japan
| 2,024 | 4 |
Statement by Mr Kazuo Ueda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Representatives, Tokyo, 10 April 2024.
|
Kazuo Ueda: The Bank's Semiannual Report on Currency and Monetary Control Statement by Mr Kazuo Ueda, Governor of the Bank of Japan, before the Committee on Financial Affairs, House of Representatives, Tokyo, 10 April 2024. *** Introduction The Bank of Japan submits to the Diet its Semiannual Report on Currency and Monetary Control every June and December. I am pleased to have this opportunity today to talk about recent economic and financial developments and about the Bank's conduct of monetary policy. I. Economic and Financial Developments I will first explain recent economic and financial developments. Japan's economy has recovered moderately, although some weakness has been seen in part. Exports have been more or less flat. With corporate profits improving, business fixed investment has been on a moderate increasing trend. The employment and income situation has improved moderately. It is becoming increasingly likely that wages will continue to increase steadily this year, following the firm wage increase last year, reflecting this year's annual spring labor-management wage negotiations. Private consumption has been resilient, although the impact of price rises and developments such as a decline in automobile sales due to a suspension of shipment at some automakers have been observed. With regard to the outlook, Japan's economy is likely to continue recovering moderately, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies. The year-on-year rate of increase in the consumer price index (CPI) for all items excluding fresh food has been in the range of 2.5-3.0 percent recently, mainly on the back of the fact that, despite waning, the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have remained, and services prices have increased moderately. Regarding the outlook, it is likely to be above 2 percent in fiscal 2024 and decelerate thereafter. Meanwhile, toward the end of the projection period of the January 2024 Outlook Report (Outlook for Economic Activity and Prices), the Bank projects that underlying CPI inflation will increase gradually toward achieving the price stability target of 2 percent. Concerning risks to the outlook, there are extremely high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior. Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. Meanwhile, Japan's financial system has maintained stability on the whole. Even in the case of an adjustment in the real economy at home 1/2 BIS - Central bankers' speeches and abroad and in global financial markets, the financial system is likely to remain highly robust on the whole, mainly because Japanese financial institutions have sufficient capital bases. Regarding financial risks from a longer-term perspective, while there is a possibility that prolonged downward pressure on financial institutions' profits may lead to a gradual pullback in financial intermediation, the vulnerability of the financial system could increase, mainly due to the search for yield behavior. Although these risks are judged as not significant at this point, it is necessary to pay close attention to future developments. II. Conduct of Monetary Policy Next, I will explain the Bank's conduct of monetary policy. At the Monetary Policy Meeting held last month, the Bank judged it was now within sight that the price stability target of 2 percent would be achieved in a sustainable and stable manner toward the end of the projection period of the January 2024 Outlook Report, as various data and anecdotal information from firms had gradually shown that the virtuous cycle between wages and prices had become more solid. On this basis, the Bank considered that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date had fulfilled their roles, and it therefore changed the monetary policy framework. Specifically, the Bank decided, among other measures, to set the uncollateralized overnight call rate as the policy interest rate and encourage that rate to remain at around 0 to 0.1 percent. With the price stability target of 2 percent, the Bank will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool, in response to developments in economic activity and prices as well as financial conditions from the perspective of sustainable and stable achievement of the target. Given the current outlook for economic activity and prices, it anticipates that accommodative financial conditions will be maintained for the time being. Thank you. 2/2 BIS - Central bankers' speeches
|
bank of japan
| 2,024 | 4 |
Speech by Mr Asahi Noguchi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Saga, 18 April 2024.
|
(')*+ÿ,-.ÿ/0/1ÿ !"ÿ$%ÿ& ' !ÿ <=>?>@ =ÿ8=ABACDÿEF=G9Dÿ ?HÿI>?GAFCÿE>J=Cÿ?ÿKL?ÿ MNÿÿÿ OPÿQÿRÿRSÿOÿMPÿ 0123456ÿ89 ÿ ÿÿÿÿÿ 23!4+*56ÿ7)!5+7*$!ÿ859:ÿ$!ÿ769ÿ&'!959ÿ$)*4*!+;ÿ 23ÿ567879 6ÿ6 ÿ8ÿ6ÿ 3ÿ567879 6ÿ798ÿÿ79ÿ8ÿ7ÿ ÿÿ!ÿ"#ÿ$%&'ÿ#ÿ()*!ÿ)+,(ÿ-&!(ÿ&+!+"&ÿ./+%"!($ÿ)(ÿ'+"ÿ)!.ÿ)-+).0ÿ ÿ 1+-ÿ+!ÿ%-+.$ÿ)2(-ÿ('ÿ,-$(!ÿ+2ÿ('ÿ,ÿ&+!+"#ÿ!ÿ('ÿ0334$5ÿ6)%)!7$ÿ&+!+"#ÿ)$ÿ &+!2-+!(.ÿ('ÿ)ÿ$(,)(+!ÿ!ÿ'&'ÿ!('-ÿ%-&$ÿ!+-ÿ)$ÿ-+$0ÿ8/-('$$5ÿ!ÿ('ÿ)*ÿ +2ÿ+)ÿ!2)(+!ÿ(')(ÿ$()-(.ÿ!ÿ$%-!ÿ94905ÿ('ÿ#)-:+!:#)-ÿ-)(ÿ+2ÿ!&-)$ÿ!ÿ6)%)!7$ÿ &+!$,"-ÿ%-&ÿ!.;ÿ<=>?ÿ2+-ÿ)ÿ("$ÿ;&,.!ÿ2-$'ÿ2++.ÿ')$ÿ&+!(!,.ÿ(+ÿ;&.ÿ9ÿ %-&!(ÿ$!&ÿ$%-!ÿ94990ÿ1,-('-"+-5ÿ('ÿ&+!+"#ÿ$ÿ$()-(!ÿ(+ÿ-/-(ÿ(+ÿ)ÿ$()(ÿ'-ÿ !+"!)ÿ)$ÿ!&-)$ÿ$().#ÿ/-#ÿ#)-5ÿ)$ÿ)$ÿ('ÿ&)$ÿ2+-ÿ('ÿ,-$(!ÿ+2ÿ('ÿ,ÿ &+!+"#0ÿ@'$ÿ$ÿ/.!&.ÿ#ÿ)ÿ-+('ÿ2++!ÿ('ÿ949Aÿ)!!,)ÿ$%-!ÿ)+-: ")!)"!(ÿ)ÿ!+()(+!$ÿ&+"!ÿ('ÿ''$(ÿ!ÿA4ÿ#)-$5ÿ)!.ÿ#ÿ)!ÿ!&-)$!ÿ %+$$(#ÿ(')(ÿ('ÿ-+('ÿ('$ÿ#)-ÿÿÿ/!ÿ''-0ÿB!.-ÿ('$ÿ&-&,"$()!&$5ÿ!+"!)ÿ CD>5ÿ'&'ÿ&+!(!,.ÿ(+ÿ2,&(,)(ÿ)(ÿ('ÿEE4ÿ(-+!ÿ#!ÿ/ÿ+-ÿ+ÿ2+-ÿ"+-ÿ(')!ÿA4ÿ #)-$5ÿ')$ÿ)"+$(ÿ-)&'.ÿF44ÿ(-+!ÿ#!ÿ<=')-(ÿ0?0ÿ@')(ÿ$5ÿ(ÿ&)!ÿÿ$).ÿ(')(ÿ6)%)!ÿ$ÿ!+ÿ 2!)#ÿ)+,(ÿ(+ÿ;(ÿ2-+"ÿ('ÿ.2)(+!)-#ÿ&+!+"#ÿ('ÿ")-!)ÿ!+"!)ÿ-+('5ÿ'&'ÿ')$ÿ +!ÿ&+!(!,.ÿ$!&ÿ('ÿ,-$(!ÿ+2ÿ('ÿ,ÿ&+!+"#0ÿ ÿ @,-!!ÿ(+ÿ+/-$)$ÿ&+!+"$5ÿ")!#ÿ&+,!(-$ÿ)!.ÿ-+!$ÿ-).,)#ÿ')/ÿ!ÿ!&-)$!#ÿ $'2(!ÿ('-ÿ2+&,$ÿ(+ÿ")!()!!ÿ&+!+"&ÿ-+('5ÿ)$ÿ('ÿ''ÿ!2)(+!ÿ&),$.ÿ#ÿ('ÿ%+$(: %)!."&ÿ-+%!!ÿ+2ÿ('ÿ&+!+"$ÿ')$ÿ,!ÿ(+ÿ$,.,0ÿ1-+"ÿ$%-!ÿ94995ÿ")G+-ÿ&!(-)ÿ )!*$ÿ!ÿ('ÿB!(.ÿH()($ÿ)!.ÿI,-+%ÿ-)%.#ÿ-)$.ÿ('-ÿ%+&#ÿ!(-$(ÿ-)($ÿ!ÿ+-.-ÿ(+ÿ &+!()!ÿ''ÿ!2)(+!0ÿ@'$ÿ%')$ÿ)"+$(ÿ!..ÿ!ÿ$,""-ÿ949A5ÿ)!.ÿ('#ÿ)-ÿ&,--!(#ÿ!ÿ('ÿ %')$ÿ+2ÿ*%!ÿ!(-$(ÿ-)($ÿ''-ÿ2+-ÿ+!-ÿ<=')-(ÿ9?0ÿ@')(ÿ$).5ÿ&!(-)ÿ)!*$ÿ)-ÿ*#ÿ (+ÿ!(-ÿ)ÿ%')$ÿ+2ÿ-).,)#ÿ-.,&!ÿ('-ÿ%+&#ÿ!(-$(ÿ-)($ÿ::ÿ%-$,")#5ÿ+!&ÿ('#ÿ)-ÿ &+!2.!(ÿ(')(ÿ!2)(+!ÿ&)!ÿÿ&+!()!.ÿ::ÿ!ÿ+-.-ÿ(+ÿ)/+.ÿ&+!+"&ÿ+/-*ÿ.,ÿ(+ÿ''ÿ !(-$(ÿ-)($0ÿ ÿ J('+,'ÿ('$ÿ+/-)ÿ.-&(+!ÿ+2ÿ('ÿ+)ÿ&+!+"#ÿ$ÿ&)-5ÿ&+!+"&ÿ&+!.(+!$ÿ/)-#ÿ ")-*.#ÿ)&-+$$ÿ&+,!(-$ÿ)!.ÿ-+!$0ÿ@'ÿB0H0ÿ&+!+"#ÿ')$ÿ!ÿ!+()#ÿ2-"ÿ-)(/ÿ(+ÿ +('-ÿ&+!+"$0ÿ(ÿ$ÿ")*!ÿ%-+-$$ÿ+!ÿ-!!ÿ!2)(+!ÿ.+!ÿ'ÿ")!()!!ÿ)ÿ+ÿ ,!"%+#"!(ÿ-)(ÿ)!.ÿ)ÿ''ÿ&+!+"&ÿ-+('ÿ-)(Kÿ('ÿ-$*ÿ+2ÿ)ÿ')-.ÿ)!.!5ÿ'&'ÿ)$ÿ)ÿ 0ÿ 234456ÿ78ÿ97956 ÿ3ÿ55ÿ3274ÿ8ÿ55ÿÿ675ÿ527254ÿ3ÿ55ÿ6554ÿ 4ÿ45ÿ597729ÿ674ÿ6345ÿ35ÿ55ÿ ÿ725ÿ597725ÿ55ÿ3536ÿ47ÿ5ÿÿ3ÿ 6595 736ÿ4347ÿ 5ÿ 55ÿ59772ÿ3ÿ65235ÿÿ3ÿÿ5ÿÿ364ÿ47ÿ79ÿ 764ÿ7556ÿ4ÿ3ÿ74ÿ88954ÿ565ÿ8672ÿ45ÿ5834736ÿ465ÿ674ÿ374ÿ ÿ45ÿ653ÿ54345ÿ6595 7ÿÿ2ÿ347ÿ45ÿ73ÿ59772ÿ3ÿ3ÿ 75ÿÿ5ÿ47ÿ55ÿ 7ÿ2756345ÿ876ÿ45ÿ425ÿ5ÿ4ÿÿ55945ÿ47ÿ633ÿ6546ÿ47ÿ4ÿ74543ÿ674ÿ 34ÿ8672ÿ0!0"ÿ4ÿ8347ÿ6345ÿ3ÿ45654ÿ6345ÿ59ÿ# 364ÿ$%ÿ ÿ &33'ÿ59772ÿ3ÿ55ÿ7ÿ3ÿ2756345ÿ659756ÿ465ÿ4ÿ4ÿ674ÿ3ÿ65235ÿ ÿ (59893ÿ45ÿ)*+ÿ876ÿ45ÿ&,(545256ÿ-36456ÿ78ÿ0!0$ÿ596535ÿÿ$0ÿ56954ÿ3ÿ 434ÿ876ÿ45ÿ.94756,*595256ÿ-36456ÿ675ÿÿ!/ÿ56954ÿ74ÿ7ÿ3ÿ3 305ÿ-36456,7, -36456ÿ3ÿ# 364ÿ/%ÿ+6345ÿ97 247ÿ3ÿ55ÿ74953ÿ53ÿ4ÿÿ5ÿ5935ÿ 756ÿ653ÿ35ÿ5ÿ47ÿ8347ÿ35ÿ 5ÿ7 ÿ653ÿ97 247 ÿ4ÿ74,3529ÿ 54,ÿ523ÿ2 ÿ# 364ÿ"%ÿ7ÿ275ÿ74ÿ78ÿ4ÿ465ÿ653ÿ35ÿ55ÿ47ÿ4364ÿ 6ÿ176ÿ4ÿ47ÿ35 ÿ4ÿÿ276434ÿ434ÿ45ÿ536,7,536ÿ6345ÿ78ÿ96535ÿÿ45ÿ+ÿ 6523ÿ435ÿ34ÿ367ÿ0ÿ56954ÿ3ÿ434ÿ723ÿ35ÿ674ÿ65ÿ47ÿ375ÿ0ÿ56954ÿ ÿ 23ÿ56789ÿ:9;9<=>?9@ABÿ 6ÿ47ÿ&33'ÿ695ÿ557254ÿ45ÿ536,7,536ÿ6345ÿ78ÿ96535ÿÿ45ÿ+ÿ876ÿ3ÿ 452 ÿ59ÿ865 ÿ877ÿ59555ÿ0ÿ56954ÿ876ÿC6ÿ0!00ÿ3ÿ65395ÿ/ÿ56954ÿ876ÿ *595256ÿ78ÿ434ÿ536ÿ4ÿ45ÿ85ÿ47ÿ0ÿ56954ÿ5ÿ364ÿ47ÿ3ÿ595ÿÿ556ÿ695ÿ7ÿ 47ÿ756254ÿ764ÿ25365 ÿ3ÿ45ÿ3454ÿ865ÿÿÿ45ÿ635ÿ78ÿ0",$!ÿ56954ÿ 7556ÿ3ÿ9345ÿÿ45ÿ9745ÿÿ974647ÿ78ÿ877ÿ6794ÿ695ÿ47ÿ45ÿ65ÿÿ 45ÿ+ÿ834736ÿ65 65ÿ434ÿ658594ÿ45ÿ588594ÿ78ÿ56ÿ2764ÿ695ÿ564ÿ# 364ÿ D%ÿ. ÿ45ÿ7456ÿ3ÿ 5ÿ97236ÿ45ÿ974647 ÿ78ÿ77ÿ695ÿ3ÿ5695ÿ695ÿ 47ÿ+ÿ8347 ÿ434ÿ78ÿ5695ÿ695ÿ3ÿ65235ÿ34ÿ3ÿÿ55ÿ 5ÿ434ÿ78ÿ77ÿ695ÿ 3ÿ535ÿ74ÿ# 364ÿE%ÿ ÿ23ÿ54ÿ434ÿ45ÿ839476ÿ ÿÿ695ÿÿ633ÿ 84ÿ8672ÿ834736ÿ65 65ÿ654ÿ8672ÿ3ÿ3 ,467ÿ78ÿ45ÿ65ÿÿ2764ÿ695ÿ 47ÿ97 256ÿ695 ÿ76ÿ 34ÿ5ÿ93ÿF45ÿ864ÿ87695Fÿ47ÿ834736ÿ65 65ÿ4522ÿ8672ÿ 35ÿ96535 ÿ76ÿ 34ÿ5ÿ93ÿF45ÿ597ÿ87695FGÿ ÿGÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿI536ÿ45ÿ864ÿ3ÿ597ÿ87695ÿ78ÿ695ÿ65 ÿ55ÿJ53ÿKÿF&33'ÿ9772ÿ3ÿL75436ÿ +79Fÿ559ÿ34ÿ3ÿ2554ÿ4ÿ5 ÿ5356ÿÿ. 33ÿ(545256ÿ0"ÿ0!0$ÿ 0ÿ 23ÿ4ÿ5677ÿ879 98ÿÿ798ÿ ÿ9688ÿ8ÿ68ÿ39676ÿ98ÿÿÿ88ÿ6ÿ9ÿ3396978ÿ 9ÿ3978ÿ98ÿ38683ÿ683ÿ3ÿ68ÿ636ÿ6ÿ9ÿ3696ÿ588ÿ697ÿ598ÿ 5ÿ9ÿ7897ÿ8883ÿÿ88ÿ983ÿ7ÿ93ÿ9ÿ8ÿ63ÿ63ÿ8938ÿ58ÿ697ÿ 5983ÿ638ÿ 83ÿ ÿ933ÿÿ8ÿ638ÿ ÿ683ÿ5677ÿ8ÿ 3ÿ 978ÿ ÿ8ÿ38683ÿ38 ÿ 588ÿ5983ÿ9ÿ ÿ9ÿ798ÿ398ÿÿ33ÿ 588ÿ8ÿ 8ÿ638ÿ6ÿ38683ÿ683ÿ63ÿ 967ÿ8ÿ ÿ9ÿ68938ÿ6ÿ38ÿ ÿ66 ÿÿ8ÿ9ÿÿ9ÿ638ÿ6ÿ8ÿ3ÿÿ ÿ 68683ÿ9ÿ6ÿ63ÿ ÿ897ÿ ÿ39ÿ9ÿ8ÿ96ÿ9 ÿ63ÿ598ÿ689383ÿ4ÿ63ÿ3838ÿ6ÿ 9ÿ8ÿ396ÿ9ÿ8ÿ38ÿ 8ÿÿ68ÿ6383ÿ93ÿ7ÿ!3ÿ8ÿÿ98ÿ88ÿ ÿ ""#ÿ%&'()*+,ÿ-&./0,ÿ 1#ÿ-&./0,ÿ2&&.3ÿ&4ÿ5*+6(780*.(ÿ%&'()*+,ÿ9*3/'6ÿ*':ÿ2;(/+ÿ2+*'3/)/&'ÿ <8ÿ8ÿ5ÿÿÿ8ÿ=9ÿÿ>99?3ÿ76ÿÿ@6ÿ8ÿ96ÿÿ9686ÿ8ÿ68ÿ 39676ÿ98ÿÿÿ88ÿ8ÿ=9ÿ6 8ÿA96968ÿ9ÿA976968ÿ 89ÿ8936ÿ BCCDEÿ6ÿ267ÿFG0ÿ8898ÿ6ÿ 8ÿ ÿ898ÿ 89ÿ8936ÿ5678ÿ836ÿ ÿ 88783ÿ6ÿ86ÿ966ÿ9ÿ683ÿ6ÿ67888ÿCCDÿ56ÿ9ÿH8968ÿ4883ÿ I98ÿ6ÿ>99ÿFGJÿK 8 8ÿ8ÿ=9ÿ6 8ÿCCDÿ56ÿL687ÿM8ÿM 7ÿ6ÿ N88 8ÿ9ÿ89ÿO8ÿ63ÿ3 9778ÿ687ÿ8ÿ 7ÿ985 ÿ6ÿ38ÿ8ÿ98ÿ7887ÿ ÿGF89ÿ>99838ÿ88ÿ ÿB>P=Eÿ6873ÿ9ÿ9 ÿQ8 ÿ88ÿ23ÿ888ÿ6ÿ 668ÿ8ÿÿÿ687ÿ8ÿ 7ÿÿ96ÿ6 ÿ9ÿ9ÿ9798ÿ8588ÿ8ÿ 3668ÿ9ÿ368ÿ883ÿ ÿ 8ÿ=9ÿ6 8ÿ838ÿ89383ÿ ÿFG0ÿ93ÿ 73ÿÿ7983978ÿ 89ÿ8936ÿ8ÿ 588ÿ968ÿ9ÿ86ÿ8ÿ87969ÿ86ÿ663ÿ9ÿ>99ÿ9ÿ388ÿ8ÿ 9ÿ7ÿ86ÿ4ÿ63ÿ88 8ÿ997ÿ ÿ8ÿ=9ÿÿ3978ÿ9ÿÿ8698ÿ8ÿ89383ÿ8ÿ 8ÿ63ÿ78ÿ8588ÿ5983ÿ9ÿ683ÿ 83383ÿ9ÿ96888ÿÿ8ÿ68ÿ39676ÿ 98ÿÿÿ88ÿ83ÿ6ÿ36ÿ@678ÿ4ÿ96977ÿ63388ÿ963ÿ86363ÿ588ÿ98ÿ 9ÿ8ÿ863ÿR 89ÿS76ÿR886ÿBRSREÿ87ÿ6ÿR9ÿFTÿ676ÿ8ÿ 7756Uÿ8ÿ8 97ÿÿ8ÿ687ÿ8ÿ 7ÿ985 Vÿ8ÿ8696ÿÿ8ÿ8968ÿ 6883ÿ98ÿ76Vÿ8ÿ9 7638ÿÿ8ÿ6796 83 6ÿ68ÿ896ÿ9ÿ 8936ÿÿ8ÿ 89ÿ938Vÿ9ÿ8ÿ98ÿ6ÿ8ÿ687683ÿ ÿ9338ÿ9383ÿBM9ÿ WEÿ838ÿ86363ÿ588ÿ938ÿÿ8ÿ9338338ÿ9ÿ8ÿ76876 ÿÿ9686ÿ8ÿ68ÿ 39676ÿ98ÿ9ÿ638ÿ36687ÿ4ÿ368ÿ9ÿ8ÿ=9ÿ5677ÿ98ÿ89383ÿ3ÿ93ÿ 0ÿ 234564778ÿ34992ÿ9ÿ798ÿ93 ÿ34ÿ45ÿ492ÿ456 ÿÿ9ÿ474ÿÿ8ÿ 59892ÿÿ634ÿ46 ÿÿ ÿ97ÿ436778ÿ4992ÿ93ÿ4 3394 ÿÿ 4ÿ77 ÿÿ675ÿ79ÿÿ3ÿ8ÿ4ÿÿÿ96ÿÿ4ÿ9ÿ3ÿÿ4ÿ438ÿ 492ÿÿ977ÿÿ 953ÿÿ9 7949 ÿÿÿ599 ÿ45ÿ4ÿÿ396ÿ!"!ÿ45ÿ ÿ663ÿ5939ÿÿ438ÿ798ÿ ÿ #$ÿ&'()*)+ÿ,-ÿ()ÿ./*0ÿ-1,2ÿ3)4,)5')0*,)(6ÿ&,)'0(17ÿ8,6*47ÿ 9ÿ798ÿ7ÿ93565ÿ8ÿÿ4ÿ3ÿ:;<=ÿ43ÿ3335ÿÿ4ÿ6 947ÿ 438ÿ798ÿ99ÿ33 ÿ4ÿ 34 ÿ3ÿ 947ÿ438ÿ798ÿ3ÿ9ÿ4ÿ 49ÿ7ÿ9ÿ269592ÿ8ÿ43ÿ34ÿ4ÿ798ÿ93 ÿ34ÿ9ÿ4379 ÿ4 7ÿÿ 6 947ÿ438ÿ798ÿ9ÿÿ4ÿ>64 949ÿ492ÿ?@ABÿ798ÿ9 7 5ÿ 3ÿ!43ÿ:;;<ÿÿ!43ÿ:;;Cÿ99ÿ798ÿ4ÿ495ÿ4ÿ392ÿ5749ÿ9ÿ4ÿ 92ÿ3ÿ9ÿ44ÿ4ÿ4ÿ9ÿD6>6 78ÿ9ÿÿ4ÿÿÿ747ÿE94947ÿ F399ÿ?EFBÿ4ÿ24ÿ9ÿ466 ÿ:;;Gÿ45ÿÿFHIJK<Lÿ459ÿ4ÿ3ÿ6ÿ9ÿ 392ÿ :;:;ÿ ÿÿÿ43ÿ 347ÿ4ÿ95ÿ3ÿ 947ÿÿ6 947ÿ438ÿ 798ÿ ÿ 9ÿ ÿÿ7ÿÿ6 947ÿ438ÿ798ÿ9ÿ7432K47ÿ4 ÿ634ÿ8ÿ 4ÿ 347ÿ4ÿ664778ÿ3335ÿÿ4ÿ@Aÿ!48ÿ43ÿ 347ÿ4ÿ9 7 5ÿ9ÿ46ÿ ÿEFÿ45ÿÿ459ÿ 775ÿÿÿ349578ÿ356ÿ3K3ÿ93 ÿ34ÿ >6 78ÿ7492ÿ797ÿ3ÿ3ÿ633ÿ3569 ÿ9ÿ 347ÿ4ÿÿ95ÿÿ4ÿ 4 ÿ634ÿ798ÿ9ÿ75ÿÿ59 966ÿ4 9 ÿÿ93ÿ474ÿ ÿ?F43ÿ LBÿ ÿ 9ÿ39438ÿ9ÿÿ9ÿ@Aÿ4ÿÿ634ÿ3ÿ4 ÿ45ÿ38ÿ4 78ÿ4ÿ492ÿ ÿÿ3477ÿ94947ÿ599 ÿ976592ÿ347ÿ72K3ÿ93 ÿ34ÿE6333ÿ ÿ 347ÿ4ÿ976592ÿÿ4ÿÿ44ÿ93565ÿ4ÿ249ÿ93 ÿ34ÿ798ÿ 653ÿ9ÿ4ÿ249ÿ93 ÿ34ÿ9ÿ4 795ÿÿ633 ÿ46 ÿ474ÿ75ÿ8ÿ94947ÿ 9 969 ÿ4ÿ4ÿ 347ÿ4ÿDÿ9 7 5ÿ8975ÿ63ÿ 37ÿ9ÿ9ÿ8ÿ 3775ÿ ÿ78ÿ3K3ÿ6ÿ47ÿ723K3ÿ93 ÿ34ÿÿ4ÿÿ495ÿ4ÿ99743ÿÿÿ@Aÿ ÿ798ÿ463ÿ3ÿ495ÿ4ÿ4ÿ45ÿ492ÿÿ3477ÿ94947ÿ599 ÿÿ 9ÿ32435ÿ6 947ÿ438ÿ798ÿ593ÿ3ÿ 947ÿ438ÿ798ÿ 0ÿ 2345673ÿ893ÿ5883ÿ 46737ÿÿ893ÿ3 3487ÿ33583ÿ89 69ÿ893ÿ85777ÿ ÿ83378ÿ583ÿ 49537ÿÿ893ÿ 3ÿ538ÿ8ÿ893ÿ545ÿ5387ÿ ÿ 9373ÿ64385ÿ 385ÿ 4ÿ357637ÿ953ÿ233ÿ3 3483ÿÿ585ÿ 544 583ÿ545ÿ487ÿ58465ÿ89 69ÿ893ÿ3ÿ ÿ83ÿ367ÿÿ 83ÿ83378ÿ5837ÿ ÿ893ÿ !"#$ÿ534ÿ3437ÿ5 6ÿ893ÿ ÿ 54933ÿ5ÿ343ÿ97ÿ7ÿ3ÿ8ÿ23ÿ893ÿ3768ÿ ÿ89373ÿ39543387ÿ ÿ 64385ÿ 385ÿ 4ÿ2ÿ4385ÿ257ÿ83893ÿ89ÿ338ÿ745ÿ76 8ÿ 357637ÿ ÿ %7345ÿ ÿ&ÿ933ÿ8ÿÿÿ4385ÿ257ÿ74863ÿ ÿ6ÿ893ÿ'%ÿ 437ÿ268ÿ893ÿ57ÿ573ÿ 3ÿ538ÿ5837ÿÿ3ÿ 4ÿ83378ÿ5837ÿ(958ÿ)ÿ93ÿ ÿ7ÿÿ3773ÿ8ÿ99ÿ 58ÿ949ÿ45ÿ23ÿ4733ÿ893ÿ73ÿ3 3487ÿ ÿ3ÿ5ÿ 344ÿ343ÿ9373ÿ 4ÿ5487ÿ35ÿ8958ÿ4385ÿ257ÿ3863ÿ8ÿ5ÿ4385ÿ 53 ÿÿ837ÿ ÿ 4ÿ8 7ÿ93ÿ585ÿ53ÿ3733ÿ255437ÿ8958ÿ33ÿ 33583ÿ57ÿ5ÿ3768ÿ ÿ893ÿ'%ÿ893ÿ3383ÿ68ÿ893ÿ ÿ *+ÿ-./012341567ÿ58ÿ*936:;7ÿ16ÿ49;ÿ<56;43=>ÿ?5012>ÿ@=3.;A5=BÿC;21D;Dÿ34ÿ49;ÿ<3=29ÿ <?<ÿ E7ÿ3F53ÿ5ÿ3F8ÿ ÿ64385ÿ 385ÿ 4ÿ335ÿ357ÿ338ÿ893ÿ 467ÿ ÿ 385ÿ 4ÿ ÿ5ÿG6588583ÿ5H678387ÿ8958ÿ5ÿ58ÿ544 583ÿ 545ÿ487ÿ8ÿ5ÿ5H678387ÿ8ÿ 3ÿ538ÿ5837ÿ8958ÿ53ÿ353ÿ57ÿ 4ÿ 83378ÿ5837ÿ!ÿ897ÿ35ÿ893ÿI5ÿ3383ÿ893ÿ3583ÿ83378ÿ583ÿ 4ÿ5ÿ3ÿ 463ÿ48 ÿ583ÿ8ÿ8 643ÿ''%ÿ89ÿ893ÿ5ÿ ÿ 3ÿ3 6ÿ485ÿ83ÿ 3ÿ6486587ÿ933 3ÿ57ÿ5ÿ783ÿ85ÿ7649ÿ5ÿ3F8ÿ8ÿ333ÿ8ÿ473ÿ745ÿ254ÿ ÿ8358ÿ89373ÿ 4ÿ357637ÿ ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ 3ÿ335ÿK3733ÿ95ÿI3ÿLÿI353ÿ957ÿ83ÿ68ÿ8958ÿ893ÿ3 3487ÿ ÿ42ÿ'%ÿ 5ÿ 5ÿ6543ÿ8ÿ33ÿ83378ÿ5837ÿÿ53ÿ3G6538ÿ8ÿ893ÿ5F6ÿ ÿ5268ÿMÿ343853ÿ 87ÿ ÿ5ÿ 4ÿ83378ÿ583ÿ3648ÿ ÿ3857ÿ733ÿI353ÿIÿLÿNOPQÿSTUQVWXÿYZUTQ[WXÿ \Z]^_X`ÿabTÿcTdTW[]ÿeTPTWfTÿgWZhÿQbTÿiWT[QÿjUg][Q^ZUÿQZÿSkljmnOoÿ(p3ÿq rÿssÿp 8ÿtÿ 5ÿ&)ÿÿM#uÿs89ÿ37348ÿ8ÿv55ÿ8ÿ957ÿ233ÿ83ÿ68ÿ8958ÿ893ÿ3F838ÿ8ÿ949ÿ83ÿ 367ÿ33ÿ33ÿ3F53ÿ58465ÿ583ÿ383ÿ893ÿ3ÿÿ''%ÿ ÿ3857ÿ733ÿL6ÿ pÿ5ÿ555ÿwÿx'658ÿL84ÿ5ÿ ÿ% 3487ÿ ÿ'%xÿyZVWU[]ÿZgÿYZUTXzÿSWTd^Qÿ[Udÿ {[U|^U}ÿ0Mÿÿ~ÿ(&#)ÿ 0ÿ 23ÿ345ÿ67894ÿ6 6 ÿ345ÿ 7ÿ595ÿ3ÿ53ÿ7ÿ5ÿ55ÿ8ÿ7853ÿ5873ÿ3ÿ 358735ÿ345ÿ5735ÿ35853ÿ8735ÿ9ÿ7ÿ595ÿ3ÿ59875ÿ345ÿ9735875ÿ 5843ÿ97ÿ8735ÿ3ÿ857ÿ73ÿ78ÿÿ3ÿÿ58953ÿ8578ÿ3ÿ7ÿ345ÿ9ÿ35853ÿ8735ÿ !3ÿ7ÿ7"45ÿ345ÿ5ÿ985ÿ938ÿ8758ÿ494ÿ95ÿ533ÿ345ÿ37853ÿ55ÿÿ 7ÿ58ÿ"ÿÿ#578ÿ$% ÿ5ÿ23ÿ345ÿ75ÿ35ÿ3ÿ595ÿ3ÿ935ÿ3ÿ$% ÿ 89475ÿ73ÿ"87ÿ345ÿ75ÿ73ÿ7ÿ"585ÿ73ÿ7"3ÿ0ÿ38ÿ5ÿ58ÿ34ÿ!ÿÿ5ÿ 3455ÿ59ÿ57ÿ3473ÿ345ÿ7ÿ73ÿ34ÿ3ÿ47ÿ435ÿ3ÿ7ÿ8758ÿÿ93ÿ$% ÿ 89475ÿ58ÿ345ÿ9ÿ35853ÿ8735ÿÿ78ÿÿ58953ÿ ÿ &578ÿ345ÿ59ÿ75ÿ73ÿ345ÿ67894ÿ6 6 ÿ!ÿ35ÿ8ÿ345ÿ7"453ÿÿ345ÿ5ÿ 985ÿ938ÿ8758ÿ7ÿ345ÿ9373ÿÿ$% ÿ89475ÿ' ÿ345ÿ3458ÿ47ÿ!ÿ35ÿ 773ÿ345ÿ35873ÿÿ345ÿ5735ÿ35853ÿ8735ÿ9ÿ95ÿ!ÿ9585ÿ3ÿ85ÿ 788735ÿ73ÿ34ÿ375ÿ3ÿ935ÿ$% ÿ89475ÿ58ÿ345ÿ5735ÿ35853ÿ8735ÿ9ÿ (4ÿÿ"5975ÿ!ÿ555ÿ3473ÿÿ858ÿ3ÿ98ÿ453458ÿ345ÿ83ÿ995ÿ"5355ÿ75ÿ 7ÿ895ÿ47ÿ"595ÿ85ÿÿ345ÿ7ÿ555ÿ3ÿ85ÿ9785ÿ75ÿ345ÿ85ÿÿ 5895ÿ895ÿ7ÿ345ÿ885ÿÿ345ÿ7#3484ÿÿ93ÿ98575ÿ3ÿ5ÿ895ÿ"ÿ7ÿ 7ÿ5#5ÿ8ÿ!ÿÿ8538ÿ3ÿ34ÿ39ÿ7358ÿ!ÿ7ÿ9585ÿ3473ÿ35873ÿ345ÿ 5ÿ985ÿ938ÿ8758ÿ7ÿ345ÿ5735ÿ35853ÿ8735ÿ9ÿ375ÿ5375ÿ7ÿ 8ÿÿ"8ÿ7"3ÿ93ÿ9475ÿÿ797ÿ93ÿ9ÿ#358ÿ 35853ÿ8735ÿ!ÿ3458ÿ8ÿÿ5ÿ7ÿ3473ÿ95ÿ345ÿ5)3ÿ373ÿ535ÿ345ÿ 55ÿ3ÿ4ÿ ÿ#358ÿ35853ÿ8735ÿ55ÿ8593ÿ3484ÿ$% ÿ89475ÿ3ÿ7ÿ 587"5ÿ3ÿ55ÿ345ÿ5735ÿ35853ÿ8735ÿ9ÿ7ÿ34ÿÿ55935ÿ3ÿ5ÿ5)353ÿÿ4ÿ ÿ#358ÿ35853ÿ8735ÿ ÿ *+ÿ-./01/2ÿ34567ÿ48ÿ9:24;<ÿ=8>6.67>ÿ?/>6ÿ/80ÿ@/2/8;6ABC66>ÿD0E17>F68>7ÿ G8ÿ345ÿ585935ÿÿ377"5ÿ7ÿ37"5ÿ7945553ÿÿ345ÿ895ÿ37"3ÿ37853ÿ345ÿ 7ÿÿ75ÿ7ÿ#55ÿ3873ÿ3ÿ7ÿ8758ÿÿ9ÿ35853ÿ8735ÿ7H353ÿ 79975ÿ"ÿ75ÿ85585ÿ"7795Iÿ58ÿ34ÿ8758ÿ3ÿÿ5ÿ345ÿ483#358ÿ 35853ÿ8735ÿÿ855ÿ3ÿ5553ÿÿ599ÿ7933ÿ7ÿ895ÿ7ÿ5ÿ7ÿ797ÿ 93ÿ(45ÿ9ÿ345ÿÿ"5ÿÿ345ÿ795ÿ73ÿ494ÿ345ÿ9ÿ35853ÿ8735ÿÿ7H35ÿ7ÿ 345ÿ55ÿ73ÿ494ÿ3ÿ5537ÿ5335ÿ ÿ 0ÿ 23453678ÿ963ÿ3 ÿ4 ÿÿ6ÿ67353ÿ543ÿ43 73ÿ36ÿ6ÿ 3ÿ3ÿÿ45ÿ9 5ÿ 347ÿ43 73ÿÿ3 5ÿ45ÿ 7354ÿ47ÿ67ÿ5 73ÿ45ÿ ÿ53ÿ547ÿ6ÿ343ÿ3 ÿ 5ÿ75ÿ963ÿ5845ÿ3ÿ56 ÿ47ÿ948ÿÿ9 6 ÿÿ96ÿ56ÿ435ÿÿ 563ÿ63ÿ 7678ÿ 9 43ÿ47ÿ343ÿ63ÿ96ÿ6ÿ34ÿ7654ÿ36 ÿ3ÿ54 ÿ4ÿ634367ÿ9 5ÿ 47ÿ75678ÿ357ÿÿ457ÿ!ÿ 5 73ÿ674367ÿ34ÿÿ ÿ "5#5ÿ3 ÿ7835ÿ7354ÿ67353ÿ543ÿÿ3 ÿ35674ÿ#ÿÿ3 ÿ6ÿ67353ÿ 543ÿÿ6ÿ6ÿ3ÿÿ9 5ÿ6734ÿÿ68 5ÿ347ÿ67ÿ3 5ÿ 76ÿ 6ÿ7835ÿ7354ÿ 67353ÿ543ÿ6ÿ67ÿ8754ÿ56#ÿ4ÿ3 ÿÿÿ3 ÿ7835ÿ$6656ÿ54ÿ67353ÿ543ÿÿ 8754ÿ555ÿ3ÿ4ÿ3 ÿ74354ÿ543ÿÿ67353ÿ5ÿ5%ÿ&5345'ÿÿ47ÿ3 ÿ34583ÿ674367ÿ543ÿ 3ÿ6ÿ3 55ÿ37ÿ4 ÿ343ÿ6ÿ3 ÿ674367ÿ34583ÿ6ÿ!ÿ 5 73ÿ3 ÿ7835ÿ7354ÿ 67353ÿ543ÿ96ÿ74354ÿ ÿ!ÿ 5 73ÿ(9 #5ÿ63ÿ6ÿ$63ÿ6ÿ343ÿ3 ÿ7835ÿ $6656ÿ54ÿ67353ÿ543ÿ67ÿ)447ÿ6ÿ78436#ÿ86#7ÿ343ÿ3 ÿ735ÿ4ÿ73473ÿ4ÿ ÿ4#678ÿ963ÿ63ÿ5573ÿ4 73ÿ447 ÿ5467678ÿ67ÿ4ÿ5ÿ#5ÿ3 ÿ43ÿ9ÿ 4ÿ7ÿ47ÿ4ÿ63ÿÿÿ45ÿ57ÿ67ÿ67ÿ343ÿ3 ÿ7835ÿ7354ÿ67353ÿ 543ÿ6ÿ4 3ÿÿ4ÿ#4563ÿÿ435ÿ47ÿ3ÿ63ÿÿÿ673553ÿ963ÿ7654ÿ 4363ÿ47ÿ3 ÿ*47ÿ67ÿ5436 ÿ7 ÿ3ÿ ÿ45 678ÿ5ÿ4ÿ94ÿ3ÿ4 5643ÿ36ÿ543ÿ ÿ + 43ÿ6ÿ6ÿ3ÿ4 7ÿ67ÿ454ÿ963ÿ3 ÿ6ÿ67353ÿ543ÿ43 73ÿ6ÿ43 73ÿ 3ÿ3 ÿ*47,ÿ447 ÿ 3ÿ358ÿ3 ÿ7967678ÿÿ-.ÿ7ÿ555ÿ3ÿ4ÿ34 5678ÿ 5ÿ$47363436#ÿ36837678ÿ+ 6ÿ36ÿ5 573ÿ4ÿ5357ÿ3ÿ3 ÿ7#73674ÿ54 95ÿ63ÿ6ÿ 6 53473ÿ3ÿ73ÿ343ÿ3 ÿ634367ÿ34ÿ65ÿ5ÿ343ÿ5678ÿ3 ÿ 56ÿÿ45 ÿ55#ÿ 447 ÿ565ÿ3ÿ3 ÿ/01ÿ9 7ÿ7ÿ453ÿ543ÿ9 5ÿ86ÿ47ÿ4673467ÿ6#ÿ 358ÿ7ÿ453ÿ 54367ÿ29ÿ3 ÿ6ÿ67353ÿ543ÿ6ÿ3567ÿ47ÿ86ÿ 467ÿ358ÿ3 ÿ67353ÿ543ÿ4 6ÿ3ÿ5573ÿ4 73ÿ447 ÿ ÿÿ674764ÿ 67363367ÿ43ÿ3 ÿ*47ÿ 6ÿ 47ÿ343ÿ75ÿ3 ÿ5573ÿ6ÿ586 ÿÿ9 6 ÿ6ÿ4ÿ 7ÿ4 ÿ55#ÿ447 ÿ4 43ÿ358ÿ-.ÿÿ5335ÿ67353ÿ543ÿ735ÿ47ÿ 447 3ÿ43 73ÿ45ÿ 3ÿ777 3ÿ47ÿ3ÿ3 ÿ*47ÿ6ÿ4ÿ3ÿ546ÿ63ÿ 6ÿ67353ÿ543ÿ9633ÿ5678ÿ3 ÿ6ÿÿ63ÿ447 ÿ 3ÿ ÿ (9 #5ÿ#7ÿ6ÿ36ÿ6ÿ3 ÿ4ÿ63ÿ6ÿ654ÿ3ÿ3453ÿ5678ÿ3 ÿ447 ÿ 3ÿ6ÿ43ÿ ÿ 348ÿ67ÿ3 ÿ35ÿ 64ÿ3ÿ6 5#ÿ453ÿ7367678ÿ33ÿ3 ÿ"45 ÿ"4"ÿ3 ÿ*47ÿ 0ÿ 2345232ÿ67ÿ2584796593ÿ 4838ÿ7ÿ34936232ÿ928ÿ8ÿ92ÿ9ÿ3ÿ38663ÿ 59386396ÿ6 868ÿ8ÿ92ÿ67ÿ2ÿ3243ÿ63ÿ796ÿ7ÿ 4838ÿ7ÿ!ÿ92ÿ 47 763ÿ"7928#ÿ6ÿ87ÿ"75832ÿ63ÿ59657973877659ÿ4756396ÿ3259ÿ9ÿ 398579ÿ7ÿ63ÿ7936ÿ"83#ÿ 383ÿ234585798ÿ49ÿ"3ÿ3232ÿ8ÿ793ÿ863ÿ67$2ÿ32459ÿ 63ÿ"943ÿ8336ÿ85%3#ÿ ÿ &&&'ÿ)*+,ÿ+-.*/0ÿ12,345367ÿ+,4ÿ)/324ÿ8+*93:3+;ÿ<*/74+ÿ122-=>*6340ÿ9;ÿ?*74ÿ&62/4*@4@ÿ 1'ÿ?*74ÿ&62/4*@4@ÿ*@ÿ*ÿA424@@*/;ÿB-603+3-6ÿC-/ÿ12,345367ÿ+,4ÿ)/324ÿ8+*93:3+;ÿ<*/74+ÿ 3ÿD9Eÿ8ÿ79ÿ8638832ÿ66ÿ67ÿ4533ÿ63ÿ 543ÿ86"556ÿ636ÿ7ÿFÿ34396ÿ59ÿÿ 88659"3ÿ92ÿ86"3ÿ993ÿ 543ÿ5943838ÿ 86ÿ"3ÿ447 9532ÿ"ÿ$3ÿ5943838#ÿ 3ÿ 3879ÿ58ÿ66ÿ$38ÿÿ63ÿ 543ÿ7ÿ"7ÿÿ3ÿ9ÿ3883965ÿ467ÿ7ÿ 7246579ÿ7ÿÿ7728ÿ 92ÿ835438ÿ92ÿ6 8ÿ 5438ÿ3ÿ95E3ÿ67ÿ4796593ÿ5859ÿ59ÿÿ86"3ÿ993ÿ9388ÿ$38ÿ E33ÿ5943859ÿ8ÿÿ6392#ÿ9ÿ46ÿ596579ÿ7639ÿ87$8ÿÿ8679ÿ47 36579ÿ$56ÿ$3ÿ7$6ÿ 6ÿGH#ÿ ÿ 58ÿ8679ÿ59Eÿ"36$339ÿ$38ÿ92ÿ 5438ÿ3598ÿ$ ÿ9ÿ4396ÿ"9E8ÿ672ÿ4796593ÿ 67ÿÿ654ÿ4783ÿ66396579ÿ67ÿ"7ÿE36ÿ4792565798#ÿI393ÿ59ÿÿ8566579ÿ$ 33ÿ 543ÿ86"556ÿ58ÿ45332ÿ596579ÿ334665798ÿ872ÿ"3ÿ94732ÿ67ÿ63ÿ596579ÿ636ÿ8ÿ 7936ÿ754ÿ2J868ÿ363ÿ2392ÿ92ÿ633"ÿ596598ÿ9ÿ 7 563ÿ8 2392ÿ"943#ÿ9ÿ658ÿ8566579ÿ9759ÿ$3ÿ7$6ÿ58ÿ5E3ÿ67ÿ"3ÿ86"3ÿ6ÿ63ÿ3ÿ 23532ÿ8ÿ63ÿ8ÿ7ÿ63ÿ636ÿ596579ÿ63ÿ92ÿ63ÿ"7ÿ 7246556ÿ7$6ÿ63#ÿ ÿ 9ÿ658ÿ32ÿK#L#ÿ92ÿ 739ÿ4396ÿ"9E8ÿ3ÿ47965932ÿ$56ÿ8659396ÿ7936ÿ 6563959ÿ7ÿ63ÿ77$59ÿ3879Mÿ8 8523ÿ479865968ÿ92ÿ656ÿ"7ÿE36ÿ4792565798ÿ 66ÿ38632ÿ7ÿ63ÿNOPGQÿ92354ÿ3ÿ32ÿ67ÿ 8$598ÿ59ÿ596579ÿ92ÿ9759ÿ $3ÿ7$6ÿ92ÿ7ÿ6383ÿ9759ÿ$3ÿ7$6ÿ8ÿ35932ÿ43ÿ"73ÿ63ÿ33ÿ 4798586396ÿ$56ÿ63ÿ596579ÿ636ÿ 6ÿGG#ÿ 3ÿD9Eÿ7ÿ9ÿ79ÿ63ÿ763ÿ92ÿ47965938ÿ 67ÿ 83ÿ7936ÿ3859ÿ"3483ÿ56ÿJ238ÿ66ÿ67ÿ9759ÿ$3ÿ7$6ÿ8ÿ59ÿ 86632ÿ67ÿ583ÿ63ÿ834792ÿ743ÿ7ÿ 543ÿ5838ÿÿ93ÿ63ÿ886 7ÿ7ÿ$38ÿ67ÿ 5438ÿÿ58ÿ976ÿ8545396ÿ7"86ÿ36ÿ92ÿ6 8ÿ92359ÿ596579ÿ8ÿ976ÿ3432ÿFÿ34396#ÿ ÿ 0ÿ 23ÿ567ÿ897 ÿ 8ÿ56ÿÿ777ÿ7ÿÿ7ÿ ÿÿ ÿ!"#$%&ÿ'#$()*ÿ+!",*ÿ(!!*ÿ(--$,ÿ!(.)ÿ'()/$ÿ,#%""#ÿ0)10ÿ"ÿ$--$,ÿ#ÿ (11)$1($ÿ%$'(#%&ÿ20",0ÿ"#ÿ)#ÿ"#-!$#,$ÿ2(1$ÿ(#%ÿ+)",$3ÿ,,)%"#1ÿÿ$,#'",ÿ0$)*&ÿ #'"#(!ÿ2(1$ÿ0!%ÿ$#%ÿÿ)"$ÿ"-ÿ4.ÿ+$#"#1ÿ$5+(#%ÿ6"7876"ÿ4.ÿ$$/$)&ÿ,("#1ÿ(#ÿ "#,)$($ÿ"#ÿ0$ÿ4.ÿ+$#"#177(++!",(#ÿ)("&ÿ20",0ÿ"ÿ0$ÿ)("ÿ-ÿ!(.)ÿ%$'(#%ÿÿ!(.)ÿ ++!*3ÿ9#ÿ0$ÿ:#"$%ÿ;($&ÿ(ÿ,!$()ÿ,))$!("#ÿ.$2$$#ÿ0$ÿ)("ÿ-ÿ4.ÿ+$#"#1ÿÿ #$'+!*'$#ÿ(#%ÿ#'"#(!ÿ2(1$ÿ1)20ÿ,(#ÿ"#%$$%ÿ.$ÿ.$)6$%&ÿ20$)$(ÿ"#ÿ<(+(#&ÿ#ÿ,!$()ÿ ,))$!("#ÿ.$2$$#ÿ0$ÿ(,"6$ÿ4.ÿ+$#"#177(++!",(#ÿ)("ÿ(#%ÿ#'"#(!ÿ2(1$ÿ1)20ÿ0(ÿ .$$#ÿ.$)6$%ÿ"#,$ÿ%$-!("#ÿ/ÿ0!%ÿ=>0()ÿ?@A3ÿB)ÿ$5('+!$&ÿ$6$#ÿ(-$)ÿ0$ÿC(#/ÿ.$1(#ÿ 2"0ÿ!()1$7,(!$ÿ'#$()*ÿ$("#1&ÿ1)20ÿ"#ÿ#'"#(!ÿ2(1$ÿ2(ÿ$5)$'$!*ÿ!"'"$%&ÿ%$+"$ÿ 0$ÿ-(,ÿ0(ÿ0$ÿ(,"6$ÿ4.ÿ+$#"#177(++!",(#ÿ)("ÿ,#"#$%ÿÿ)"$ÿ')$ÿ)ÿ!$ÿ.*ÿ"$!-ÿ +ÿ#"!ÿ"''$%"($!*ÿ.$-)$ÿ0$ÿ.)$(/ÿ-ÿ0$ÿ+(#%$'",3ÿD#$ÿ)$(#ÿ-)ÿ0"ÿ"ÿ0(&ÿ(-$)ÿ $#$)"#1ÿ0$ÿ%$-!("#()*ÿ+$)"%&ÿ'(#*ÿ-")'ÿ"#ÿ<(+(#ÿ"#,)$("#1!*ÿ$#%$%ÿÿ(6"%ÿ)(""#1ÿ 2(1$ÿ(ÿ',0ÿ(ÿ0$*ÿ,!%&ÿ(#%ÿ0"ÿ$#%$#,*ÿ)$'("#$%ÿ%$$+!*ÿ$#)$#,0$%ÿ#"!ÿ6$)*ÿ )$,$#!*3ÿE0"ÿ+).(.!*ÿ"ÿ20*ÿ0$ÿ+)",$ÿ(."!"*ÿ()1$ÿ2(ÿ#ÿ(,0"$6$%ÿ%$+"$ÿ"'+)6$'$#ÿ "#ÿ!(.)ÿ'()/$ÿ,#%""#3ÿ ÿ C$-)$ÿ0$ÿ.)"#1ÿ-ÿ0$ÿ...!$ÿ$,#'*&ÿ#'"#(!ÿ2(1$ÿ1)20ÿ"#ÿ<(+(#ÿ$5,$$%$%ÿ"#-!("#ÿ (#%ÿ)$(!ÿ2(1$ÿ)$ÿ$(%"!*Fÿ02$6$)&ÿ(-$)ÿ0$ÿ.)&ÿ.0ÿ#'"#(!ÿ2(1$ÿ1)20ÿ(#%ÿ"#-!("#ÿ .$1(#ÿÿ%$,!"#$3ÿB)0$)')$&ÿ(-$)ÿ$#$)"#1ÿ0$ÿ!($ÿ?00G&ÿ20$#ÿ+)",$ÿ.$1(#ÿÿ-(!!&ÿ #'"#(!ÿ2(1$ÿ%$,!"#$%ÿ')$ÿ0(#ÿ+)",$ÿ%"%ÿ(#%ÿ)$(!ÿ2(1$ÿ-$!!ÿ77ÿ(ÿ"("#ÿ0(ÿ,#"#$%ÿ =>0()ÿ?HA3ÿE0$$ÿ%$6$!+'$#ÿ11$ÿ0(&ÿ(ÿ-")'ÿ-#%ÿ"ÿ%"--",!ÿÿ)("$ÿ+)",$ÿ%$ÿÿ $,#'",ÿ(1#("#&ÿ(#%ÿ"#ÿ'$ÿ,($ÿ2$)$ÿ-),$%ÿÿ,ÿ+)",$ÿÿ'("#("#ÿ(!$&ÿ'(#*ÿ-ÿ 0$'ÿ)$+#%$%ÿÿ0$ÿ%$,!"#$ÿ"#ÿ$!!"#1ÿ+)",$ÿ'!*ÿ0)10ÿ2(1$ÿ'()/%2#&ÿ"3$3&ÿ.*ÿ ++)$"#1ÿ2(1$ÿ,3ÿ9ÿ$$'ÿ!"/$!*ÿ0(ÿ#%$)!*"#1ÿ0"ÿ(,ÿ-ÿ0!%"#1ÿ%2#ÿ2(1$ÿ"ÿ0$ÿ <(+(#$$ÿ!(.)7'(#(1$'$#ÿ+)(,",$ÿ-ÿ+!(,"#1ÿ')$ÿ$'+0("ÿ#ÿ'("#("#"#1ÿ$'+!*'$#ÿ 0(#ÿ#ÿ2(1$3ÿ ÿ -$)ÿ0$ÿC(#/ÿ"'+!$'$#$%ÿ!()1$7,(!$ÿ'#$()*ÿ$("#1ÿ"#ÿ@G?H&ÿ#'"#(!ÿ2(1$ÿ(ÿ!$(ÿ ++$%ÿ%$,!"#"#1ÿ%$ÿÿ0$ÿ)(+"%ÿ"'+)6$'$#ÿ"#ÿ!(.)ÿ'()/$ÿ,#%""#&ÿ.ÿ0$*ÿ%"%ÿ#ÿ )"$ÿ#",$(.!*&ÿ(ÿ'$#"#$%ÿ$()!"$)3ÿE0"ÿ"ÿ.$,($&ÿ"#ÿ(ÿ!27"#-!("#ÿ$#6")#'$#ÿ20$)$ÿ -")'Iÿ"#-!("#ÿ$5+$,("#ÿ()$ÿ6$)*ÿ!2&ÿ-")'ÿ$#%ÿÿ(6"%ÿ+("#1ÿ#ÿ0"10$)ÿ,ÿÿ+)",$ÿ 0ÿ 34ÿ5678ÿ34ÿ944 ÿ84ÿ534ÿ83ÿ54ÿÿ8ÿ65 4ÿÿ3 ÿ34ÿ34ÿÿ3ÿ 3ÿ5ÿ8ÿÿ4ÿ76ÿÿ85ÿÿ9344ÿÿ88ÿ744ÿÿ974ÿ3ÿ864ÿ 974ÿ3ÿÿÿ53ÿÿ8ÿ37ÿ83ÿ84ÿ463ÿ944ÿ454ÿÿ83ÿ7364ÿ 8ÿÿ5ÿ8ÿ3ÿÿ974ÿ3ÿ34ÿÿ8ÿ3ÿ3779ÿ3ÿ83ÿ974ÿ3ÿ 34ÿÿÿ4ÿÿÿ3ÿ ÿ35 ÿ54ÿ3ÿ8648 4ÿ ÿ 8ÿ5 4ÿ943ÿ359ÿÿ8ÿ48ÿÿ84ÿÿ5ÿ985ÿ4ÿ 954ÿÿ474ÿ974ÿ47ÿ8ÿ33ÿ9 ÿÿ8ÿ474ÿ47!ÿ34ÿ 3ÿ3776ÿÿ3ÿ3ÿ483ÿÿ744!ÿ3ÿ8ÿ4ÿÿ 5ÿÿ967ÿ8ÿ 8ÿ78 ÿÿ433ÿ8!ÿÿ3ÿ75ÿ8ÿ53ÿ34ÿ 76ÿÿ4ÿ34ÿ3ÿ!ÿ474ÿ974ÿ34ÿÿÿ9ÿ734ÿ34ÿ3ÿÿ"#83ÿ0$%ÿ ÿ&393'4ÿ474ÿ47!ÿ8!ÿ8ÿ483ÿÿ54ÿÿ878ÿ974ÿÿ6783ÿ 735ÿ66463ÿ88ÿ3ÿ8ÿ(67ÿÿ97ÿ4 4ÿ735ÿ353ÿ ÿ3ÿ ÿ8ÿ3ÿ0))14ÿ"#83ÿ0*%ÿÿ34ÿÿ3ÿ&393ÿ43ÿÿ5ÿ5ÿ8ÿ9357ÿ 83ÿ84ÿ463ÿ3ÿ3ÿÿ43993ÿ84ÿ4644ÿ83ÿ8ÿÿ5ÿ985ÿ 8ÿ3ÿÿ974ÿ3ÿ34ÿ34ÿ5ÿ944ÿ6ÿ7ÿ34!ÿ3ÿ83ÿ8ÿ 463ÿ4ÿÿ3ÿ43ÿÿ783ÿ ÿ +,ÿ./0ÿ1232345676837ÿ902ÿ:ÿ;6285057ÿ+<=>3ÿ?38/33@ÿA:B37ÿ:@Cÿ126=37ÿ D44ÿÿ43!ÿ83ÿ534ÿ8ÿ5 4ÿÿ&393'4ÿ75ÿ3ÿ84ÿ9 ÿ4ÿÿ49ÿ8ÿÿ 5ÿ8ÿ3ÿÿ974ÿ3ÿ34ÿ3ÿ8ÿ378ÿ3ÿ664ÿ77ÿÿ34ÿ 3ÿ974ÿ34ÿ4 ÿ34ÿ944 ÿÿ84ÿ!ÿ3ÿ34ÿ8ÿ ÿ ÿ74ÿ3ÿ7443ÿ 8ÿ4ÿ4ÿÿ6ÿÿ3ÿ463ÿÿ878ÿ474ÿ974ÿ76ÿÿ4ÿ43ÿ8ÿ47ÿ 4ÿÿÿÿ3ÿ463ÿ8ÿ54ÿÿ8ÿ536376ÿ64!ÿ4973ÿ453ÿ3ÿ 5654ÿ54!ÿ73ÿ45 8ÿ9344ÿÿ3ÿ84ÿÿ4 ÿ974ÿ ÿ E4ÿ5!ÿ474ÿ3ÿ3ÿ88ÿ3 4ÿ3ÿ8ÿ967ÿ8ÿ4ÿ 5 4!ÿ3ÿ864ÿ8ÿ9344868ÿÿ3ÿ7344ÿÿ974ÿ4ÿ4ÿ83ÿÿ8ÿ734ÿÿ ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿG5ÿHÿI73ÿÿ8ÿHIÿ346ÿ&8ÿJÿ3 !ÿÿÿ84ÿ3 ÿ6ÿÿ9 7ÿ 4ÿ34!ÿ834ÿ48ÿ873ÿ3ÿ5973ÿ83ÿ8ÿ 3ÿ5ÿ83ÿ ÿ 937ÿÿ53ÿ764ÿÿÿ3ÿ7ÿÿ54'ÿ9344868ÿÿ74ÿ7344ÿÿ974ÿÿÿ8ÿ 97ÿ9ÿGÿ34!ÿ4ÿ3 !ÿ&ÿJ!ÿK ÿ3!ÿL344868!ÿ3ÿ8ÿL7ÿLÿÿ G54!ÿMNOPQRSTÿMVPTPWXVÿYRZXR[ÿ$$ÿ"\111%ÿ 01ÿ 233456ÿ7898ÿ ÿ 9ÿ55ÿ39596ÿ4ÿ3ÿ7898ÿ35ÿ9 55ÿ4ÿ3ÿÿ 534ÿÿ3499ÿ2378ÿÿ 6ÿ9ÿÿ2 ÿ23792ÿ 336ÿ5 9 5ÿ9 5ÿ 4ÿ3ÿ95ÿ5ÿ8ÿ23345ÿ9 5ÿ8 ÿ0ÿÿ6ÿ837 6ÿ7 25ÿ494ÿ3ÿ95ÿ ÿ 92ÿ8ÿÿ0 !56ÿ4ÿ895ÿ 54ÿ9ÿÿ5993ÿ78 ÿ5 9 5ÿ9 56ÿ7898ÿ5834ÿ 3 ÿ956ÿ ÿ9 54ÿÿÿÿ8ÿ5 34ÿ3 6ÿ96ÿ993 ÿ 55 ÿ592ÿ 3ÿ7 2ÿ9 556ÿ5285ÿ9ÿ"5ÿ 336ÿ895ÿ5834ÿ 95ÿ95ÿ3ÿÿ9ÿ 8ÿ3ÿ3ÿ8928 ÿ5 9 5ÿ9 5ÿÿ 6ÿ58ÿÿ4ÿ ÿÿ ÿ5 ÿ9ÿ ÿ 43 5ÿ9ÿ5 9 5ÿ34 ÿ9 5ÿ8 ÿ0#ÿ ÿ ÿ356ÿ9 5ÿ3ÿ23345ÿ3 ÿ4ÿ3ÿ4 9ÿ9ÿ 9ÿ5ÿ 5ÿ3499ÿ 2378ÿ45ÿ3ÿÿ8928 ÿ8ÿ3ÿ5 9 5ÿ$37 6ÿ23345ÿ ÿ9ÿ5ÿ3ÿ89ÿ3493ÿ 8 9595ÿ%3ÿ&6ÿ54 49'4ÿ 5ÿ4ÿ9 49ÿ23345ÿ8ÿ ÿ9ÿ35ÿ 55ÿ 34 4ÿÿ5 ÿ4ÿ 4959'4ÿ95ÿ ÿ8928ÿ39596ÿ4ÿ ÿ3ÿ85ÿ 5ÿ4ÿ23345ÿ ÿ8ÿ 9ÿ9ÿ33ÿ3ÿ3499ÿ93 ÿ(8 3 6ÿ9ÿ 5ÿ9ÿ85ÿ94595ÿ43ÿ3ÿ37ÿ595ÿ3ÿ55ÿ3ÿ7 2ÿ9 55ÿ3ÿ9 56ÿ9592ÿ 7 25ÿ 3 5ÿ& ÿ499ÿ ÿ ÿ895ÿ 2 46ÿ53 ÿ 9 5ÿ9ÿ"5ÿ 92ÿ945ÿ8ÿ ÿ394ÿ3ÿ%3ÿ &6ÿ2ÿ95ÿ 2ÿ4 4ÿ9 ÿ 4935ÿÿ5 ÿ4ÿ 4959'4ÿ95ÿ 3ÿ7898ÿ8ÿ 85ÿ 56ÿ3ÿ5ÿ8ÿ ÿ9 ÿ89)5ÿ4ÿ3ÿ8928 ÿ 7ÿ 9ÿ 9 5ÿÿ * ÿ9 ÿ89)5ÿ54ÿ3ÿ7 2ÿ9 556ÿ992ÿ8ÿ595ÿ5834ÿ53ÿ 85ÿ9 55ÿÿ9392ÿ89ÿ3499ÿ95 4ÿÿ 85ÿ9 5ÿ ÿ 4 4ÿ3ÿ 9&46ÿ8ÿ35ÿ8ÿ39ÿ7 25ÿ3ÿ3 5ÿÿ5 ÿ4ÿ 4959'4ÿ95ÿ34ÿ95ÿ 95ÿ9ÿ9ÿ798ÿ3499ÿ2378ÿ(85ÿ 9 5ÿ8 3 ÿ5225ÿ8ÿ8ÿ' 3ÿ3ÿ798ÿ 2 4ÿ3ÿ9 5ÿ4ÿ7 25ÿ85ÿ94 4ÿ 3 ÿÿ59584ÿ53ÿ9ÿ5 935ÿ7 ÿ 2ÿ95ÿ4ÿ5 ÿ4ÿ 4959'4ÿ95ÿ3 56ÿ9ÿ5 ÿ4ÿ 4959'4ÿ95ÿ 79ÿ5 49ÿ55ÿ3ÿ7 2ÿ89)5ÿ3ÿ9 56ÿ895ÿ559ÿ 5ÿ8ÿ8ÿ' 3ÿ3ÿ95ÿ592ÿ 3ÿÿ4954ÿ ÿ +,ÿ./0123456ÿ789:;124<5ÿ:=ÿ>:4134/34?ÿ@31AÿB<<:88:6213C5ÿD:4512;EÿF:G3<Eÿ ÿ6ÿ8ÿ' 3ÿ3ÿÿ8ÿ2 ÿ 4ÿ94 ÿ8ÿ9 5ÿ4ÿ7 25ÿ43ÿ3ÿ95ÿÿ 33)ÿ834ÿÿ92ÿ8ÿ493 ÿ 934ÿ4ÿ 94ÿ4 ÿ84ÿ32ÿ95ÿ 00ÿ 345ÿ67896759ÿ3ÿ389ÿ7ÿ69ÿ4743ÿ39ÿ55ÿ47ÿ9ÿ984ÿ59ÿ6ÿ 989343ÿ7 4ÿ4ÿ37ÿ3ÿ745749ÿ365ÿ6786ÿ393 ÿ743ÿ 394ÿ345ÿ7ÿ69ÿ3974ÿ6ÿ4374ÿ3ÿ55ÿ47ÿ93ÿ3ÿ37845ÿ1ÿ4ÿ7 ÿ 6ÿ11ÿ34483ÿ94ÿ37343 4ÿ3ÿ473749ÿ5ÿ3ÿ3ÿ7ÿ3ÿ69ÿ 63ÿ9ÿ84545ÿ4ÿ4ÿ 9ÿ!69ÿ9899ÿ63ÿ6ÿ7ÿ47ÿ6ÿ35ÿ7ÿ9ÿ 345ÿ39ÿ66ÿ635ÿ379ÿ7 ÿ4ÿ4ÿ974ÿ639ÿ43ÿ935ÿ7ÿ8 ÿ ÿ " 3ÿÿ39ÿ6ÿ9ÿ7ÿÿ ÿ6ÿ#43ÿ967ÿ7ÿ73ÿ4374ÿ774ÿ6ÿ 345ÿÿ63ÿ935ÿ7ÿ59 ÿ69ÿ7ÿ47ÿ7 ÿÿ96785ÿÿ6395ÿ63ÿ 8454ÿ6ÿ96ÿ7ÿ6ÿ9745ÿ7ÿ ÿ6ÿ3ÿ7ÿ735395ÿ3ÿ69ÿ9ÿ6ÿ 78457ÿ35ÿÿ6ÿ7 4ÿ4ÿ37ÿ3ÿ745749ÿ365ÿ6786ÿ34ÿ 393 ÿ743ÿ394ÿ63ÿ635ÿ 4ÿ4ÿÿ84ÿ4ÿ!69ÿ9ÿ545ÿÿ 453749ÿ7ÿ3789ÿ989ÿ63ÿ84ÿ345ÿ344ÿ7 9ÿ9ÿ6ÿ3ÿ3974ÿ 4ÿÿ34ÿ9ÿ7ÿ394ÿ39ÿ$4ÿ69ÿ949ÿÿ9ÿ9943ÿ7ÿ6ÿ%34ÿ7ÿ3434ÿ 6ÿ373ÿ334ÿ 4ÿ37ÿ98ÿ345ÿ5345ÿ6786ÿ6ÿ7448374ÿ7ÿ9ÿ 37753ÿ743ÿ7ÿ4ÿ75ÿ7ÿ36ÿ6ÿÿ93ÿ3ÿ7ÿ1ÿ4ÿ ÿ !634ÿ78ÿ 01ÿ 01232451ÿ7185958ÿ 51ÿ 3ÿ238 ÿ251ÿ53ÿ3 '())*+ÿ-.ÿ-ÿ/)).012ÿ30.+ÿ45*-6ÿ4)-7)89ÿ01ÿ'-275ÿÿ !ÿ7"5 4#ÿ2$ÿ8"ÿ251ÿ%2 %3&ÿ2$ÿ3 "8ÿ 2453ÿ: B 85>ÿ3 J Kÿ1"F> @ @ 2D8"ÿ8ÿE5F"8ÿ1G H9ÿE$8ÿ1G A I @ ;2<1=ÿ#538ÿ$$51> C C@ ?@ @ @ ? !9ÿ" 012345ÿ789 9ÿ9 ÿ38ÿ9ÿ839ÿ99 ÿ8ÿ1 )( ' 839ÿ99 1ÿ 839ÿ,381 & " $ % #$ !.$* $+ "% "$ "" "& "' 19ÿ3 ÿ1ÿ9ÿ839ÿ99 ÿ ÿ9ÿ 38ÿ1ÿ9ÿ99ÿ8 ÿ1ÿ9ÿ 2ÿ8ÿ9ÿ1 ÿ1ÿ9ÿ1ÿ ÿ 9ÿ9 ÿ18ÿ9ÿ 139ÿ432395 14 ÿ7ÿ ÿ!ÿ !9ÿ& 7/ÿ1 49ÿ1ÿ02112ÿ0129 02112ÿ0129ÿ9 6 575ÿ-ÿ4 7/ÿ1 49 ) ( ' & " $++%#"%$+ÿ $ 8 ÿ9&)% #$ #" #& #' #( #) !.%%%"%'%)%*$%$"$'$)$*"%"""' 19ÿ3 ÿ ÿÿ1ÿ385ÿ"%"' 14ÿ7/ /41ÿ41813 5ÿ0129ÿ9 575-ÿ4 <12 =884 839ÿ99 1ÿ 839ÿ,381 38ÿ>9ÿ8 82138ÿ41813 !38 ==#( "%"& !.ÿ"%"' !.ÿ"%"( !.ÿ"%"" :!.ÿ 939;:1 49;:1 49; ?@A ") $+ &' '& $% '$ &% 6" (( ?@B $) "( %( %( $+ '$ (" )6 '" ?@B $( "$ %+ %) %+ '$ ') )( '6 ?@C $* $6 $6 $) %* '" '$ )( '' 0123ÿ567 231ÿ 213ÿ59ÿ021 #"! &2'ÿ2'ÿ31 #! #! #$! #!! "! ! ( !" %! %$ % % 2ÿ %" $! $$ $# &2'ÿ2'ÿ/0/ÿ1ÿ2 $! %# %! # ! )# )%! )%# )$! )$# )*! )*# $% ( $! 69+1&ÿ1+2 ,1ÿ1-.9& 0123ÿ567 $$ $* 89 121ÿ1 2ÿ# 0123721ÿ9&+.9 9&+.9ÿ ÿ31- 721ÿ9&+.9ÿ8.1 %%! &2'72ÿ$!%";%!!ÿ %%! &2'72ÿ$!%";%!!ÿ %!! %!! :! :! "! "! 9! (%" 0123ÿ9&+.9ÿ ÿ31,9+23ÿ9&+.9ÿ ÿ31%: $! $% $$ $* $ ,9) 231ÿ299& 811& 9! ! (%" ,91&ÿ%ÿ3ÿ1ÿ31ÿ.213'ÿ2 1&ÿ21ÿ213ÿ2321)24&1ÿ $ÿ3ÿ1ÿ2ÿ.213'ÿ2 1&ÿ21ÿ2&1ÿ9ÿ1ÿ123ÿ9&+.9ÿ ÿ31- 89 1526ÿ9ÿ72.2 %: $! $% $$ $* $ 01234567ÿ9763 ! ÿÿ ! !"247#6$747 ÿ09ÿ17ÿÿ653 ÿ&' ÿ! ÿ' ÿ' ÿ ÿ ÿ ÿ' ÿ ÿ( ÿÿ)633ÿ763ÿ11 ÿ& ÿ ÿ* ÿ* ÿ+ ÿ ÿ& ÿ+ ÿ& ÿ( ÿÿÿ)633ÿ763ÿ11ÿ2ÿ6267 -&' ÿ&' ÿ+ ÿ( ÿ+ ÿ! ÿ! ÿ( ÿ+ ÿ ÿ! ÿ& - ÿ ÿ&+ -& ÿ ÿ&* ÿ& ÿ ÿ ÿ&! ÿ& ÿ ÿ& -& ÿ+ ÿ&* -&' ÿ ÿ&' -&' ÿ ÿ ÿ ÿ -& ÿ& ÿ ÿÿ.667626ÿ127$412ÿ1ÿ6ÿ09ÿ/ÿ653ÿ633ÿ763ÿ110 ÿÿÿÿ1267 ÿÿÿÿ#11ÿ27143 ÿÿÿÿ36267ÿ3674 63 1476ÿ 237ÿ1ÿ2672ÿ73ÿ2ÿ015542 123 09ÿ17ÿ3113ÿ2ÿ674 63 07ÿ* 3113ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ36267ÿ674 63ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ /)633ÿ9671645ÿ971430 /)633ÿ1$6ÿ9126ÿ07630 412ÿ1ÿÿÿ2ÿ1234567ÿ27 639ÿÿ2123 + 127$: ÿ26633639ÿ6 & 2 :47$6ÿ113 + #117ÿ42714749ÿ3;49ÿ2ÿ46317ÿ27143 & 09ÿ17ÿ113ÿ/633ÿ2671645ÿ271430 + & &+ && -&+ & 0<' ! + 127$412ÿ1ÿÿÿ2ÿ1234567ÿ27639ÿÿ2123 =67 & >1432ÿ762 12ÿ14 + 04476ÿ2ÿ767612 & 674 63ÿ766ÿ1ÿ1563ÿ463 09ÿ17ÿ6267ÿ3674 63ÿ/633ÿ51$6ÿ2126ÿ7630 + & &+ && -&+ & ! 0<' 5163ÿÿ#4763ÿ76ÿ6ÿ127$412ÿ1ÿ67-12-67ÿ263ÿ2ÿ6ÿ09ÿ/633ÿ763ÿ11ÿ2ÿ62670ÿ#4763ÿ76ÿ627ÿ3ÿ63563ÿ2ÿ6846ÿ6ÿ 663ÿ1ÿ6ÿ12345212ÿ8ÿ769ÿ21 63ÿ126722ÿ6ÿ2714312ÿ1ÿ766ÿ64129ÿ746ÿ34$3ÿ2717539ÿ2ÿ6ÿ76412ÿ2ÿ51$6ÿ 2126ÿ763 ÿ2ÿ6ÿ7ÿ2269ÿ4763ÿ17ÿ3674 63ÿ766ÿ1ÿ1563ÿ463ÿ246ÿ3674 63ÿ766ÿ1ÿ1432ÿ76273ÿ2ÿ526226 1476 237ÿ1ÿ2672ÿ73ÿ2ÿ015542 123 5ÿ# 0123456ÿ859 ÿ54ÿÿ34ÿÿ43 ÿ5 ÿ54ÿ554 43 ÿ5 ÿ 0 5ÿ6ÿ9 7# 5ÿ6ÿ9 0123456ÿ59 1ÿ # 0123456ÿ59 1ÿ !0 !# # # # /0 41# 2# 3# ## # !# /0 41# 2# 3# ## # 01 ÿ4ÿÿ6ÿ546ÿ39 ÿ1ÿ4123456ÿ59 ÿ5ÿ1ÿ559ÿ16ÿ54349ÿ1ÿ1314ÿ54ÿ41431ÿ261 !ÿ4ÿÿ39ÿ546ÿ39 ÿ1ÿ4123456ÿ59 ÿ5ÿ1ÿ156ÿ5ÿ54349ÿ"1 ÿ12ÿ!#$ÿ145ÿ5ÿ%5 ÿ14ÿ1434349ÿ1% 5314ÿ 1661349ÿÿ526ÿ3314ÿ&39 ÿ1ÿÿÿ54ÿÿ1ÿÿ'6 ÿÿ ÿ1ÿ142314ÿ5'ÿ3( 1 )*+ÿ,343ÿ1ÿ- 56ÿ*5%1ÿ54ÿ8 65+ÿ,343ÿ1ÿ4456ÿ.53ÿ54ÿ122435314 0123456ÿ859 ÿ34ÿÿ43 ÿ5 ÿ54ÿ81 43 ÿ5 # 56ÿ9 -16ÿ59 5ÿ6 9 5ÿ 81ÿ.5 43 ÿ934912 # !# # 8 (6ÿ59 56ÿ9 0 9135 ÿ59 # # # /0 40 $ 1 2 3 !# ! !! !7 !; /0 40 $ 1 2 3 !# ! !! !7 !; /0 40 $ 1 2 3 !# ! !! !7 !; 01ÿ&39 ÿ34ÿÿ23 6ÿ546ÿ5ÿ7/214ÿ%5(5ÿ21349ÿ559 1 ÿ)*+ÿ8 )+ÿ:0 01234ÿ614789ÿ3 93ÿ1 ÿ18ÿ439 ÿ98ÿ 98ÿ9198ÿ1 ÿ11 149ÿ) 98ÿ9198ÿ.$!8418ÿ,34"ÿ/14 0 11ÿ.'391ÿ1ÿ/14 0 61!8418ÿ34"ÿ814 ÿ"2"ÿ(ÿ43#39ÿ21(714ÿ#3! ÿ1!ÿ9 + )*)12%82 ) * 7ÿ)**ÿ93ÿ7ÿ)*8 % 3#ÿ7ÿ)*)*ÿ314 3) *4*193ÿ3ÿ:32ÿ38*5ÿ93ÿ 8#3"#8 *943#39ÿ21(71 54ÿ#3! ÿ1!)* 6 9391ÿ(1814 ÿ"2"ÿ(ÿ43#39ÿ21(714ÿ#3! ÿ1!9 + 7ÿ)**ÿ93ÿ7ÿ)*8 %43#ÿ7ÿ)*)*ÿ314 )*)12%82 ) * 3) **1(9!8ÿ:32ÿ38 *539331(19ÿ419*3ÿ43#39ÿ21(71 54 #3! ÿ1!)* 398ÿÿ98ÿ89ÿ18ÿ48ÿ34ÿ1!8418ÿ34"ÿ814 ÿ148ÿ43#ÿ98ÿ$9191ÿ%8&ÿ18ÿ439ÿ'41(784 )ÿÿ98ÿ49ÿ18ÿ48ÿ34ÿ9391ÿ(1ÿ814 ÿ148ÿ34ÿ1ÿ8#3"88ÿ%48ÿ43#ÿ)*+ÿ314ÿ148ÿ218ÿ3ÿ(39 ÿ3284!193ÿ 33 ÿ98ÿ1#8ÿ48!3 34(8ÿ,1!84ÿ$ 1"9(-ÿ6 94"ÿ3ÿ,819ÿ01234ÿ1 ÿ8148 149ÿ4 18ÿ1 ÿ; = "2"ÿ9ÿ( 3# 1ÿ18 + >81ÿ18 ;ÿ.8ÿ48ÿ330 ) * 3) 3+ 7=5 8* ** *5 * )* 398ÿ%48ÿ34ÿ98ÿ;ÿ.8ÿ48ÿ330ÿ8<( 8ÿ98ÿ88(9ÿ3ÿ(3#93ÿ91<ÿ78ÿ%48ÿ34ÿ3# 1ÿ18ÿ1 ÿ481ÿ18ÿ43#ÿ)*+ÿ314 148ÿ218ÿ3ÿ(39 ÿ3284!193ÿ33 ÿ98ÿ1#8ÿ48!3ÿ 34(86 94"ÿ3ÿ,819ÿ01234ÿ1 ÿ8148-ÿ6 94"ÿ3ÿ9841ÿ$14ÿ1 ÿ3## (193 0123456ÿ859 ÿ 3 ÿ3 ÿ54ÿ11ÿ3 5ÿ ÿ ÿ ÿ ÿ ÿ 1ÿ5 43ÿ5 43ÿ34912 * !-!.ÿ9" * #ÿ1ÿ 3 #ÿ1ÿ911 0123456ÿ59 + !-!.ÿ9" * #ÿ 3 #ÿ1ÿ911 0123456ÿ59 + * * + + + +* + * ,+ )* /++ +* + * (#ÿ 3 (#ÿ1ÿ911 0123456ÿ59 + * )* /++ !-!.ÿ9" )* /++ ,+ +* + * ,+ 010123456ÿ59 ÿ5ÿ559ÿ16!ÿ54349"ÿ#4ÿÿ6$ÿ546ÿ$39 ÿ$1ÿ""ÿ4123456ÿ59 ÿ5ÿ$1ÿ1314ÿ54ÿ41431!ÿ261! " 1 ÿ%& 'ÿ(5ÿ456!3" 5ÿ* 3ÿ0 3314 5ÿ1$ÿ#2 ÿ$1ÿ83ÿ 3 ÿ8 ÿ4549 21ÿ1$ÿ32 ÿ. *+ 5ÿ1$ÿÿ44 9! * 11ÿ26 ÿ$ ÿ$11ÿ54ÿ49!4 + 66ÿ32 ÿ26 ÿ$ ÿ$114 >* >+ ,* ,+ * + * + 9/= =* == +> +? * 9:4!ÿ1$ÿ3ÿ0 3314 ; .ÿÿ214 , + < ; , = ,> + /= =* == +> +? * = ,> 01 "ÿ#4ÿÿ6$ÿ546ÿ$39 ÿ5ÿÿ5ÿ1$ÿ32 ÿ$1ÿ3ÿ!5)14)!5ÿ3ÿ549 ÿ ÿ334ÿ6ÿ1ÿ234ÿ+"*ÿ4" ,"ÿ#4ÿÿ39ÿ546ÿ$39 ÿ5ÿ5665ÿ15 ÿ14ÿÿ11314ÿ1$ÿ33 ÿÿÿ559ÿ3ÿ1$ÿ34335632 ÿ549ÿ$12ÿÿ31 214ÿ2,)214ÿ153 5ÿ21349ÿ559 4"ÿ555ÿ66ÿ$ ÿ$11ÿ633!ÿ254$5ÿ54ÿ3ÿ95 ÿ5ÿ59 ÿ54ÿ1349ÿ4" 7215!ÿ3ÿ549 ÿÿ1ÿ$1ÿ6526ÿ142314ÿ56ÿ33 ÿ54ÿ356ÿ56 ÿ5ÿ41ÿ34115" 1ÿ8343!ÿ1$ÿ#4456ÿ$$53ÿ54ÿ122435314" "1 01234516ÿ829 512ÿ824516 - +#$-4$$ /ÿ416 $ 01234516ÿ04ÿÿ4ÿ92ÿ596ÿ249 01234516ÿ04ÿÿ90ÿ92ÿ596ÿ249 $ $$$ 33$ +#$$ $$ $ +2ÿ, #12*9*#12ÿ+1 - %1%ÿ2ÿ5 /ÿ416 & 01234516ÿ04ÿÿ4ÿ92ÿ596ÿ249 . 01234516ÿ04ÿÿ90ÿ92ÿ596ÿ249 $ * * *. *& *+#$$ $$ $ 916ÿ4216ÿ15 1ÿ1ÿ1156ÿ9ÿ59649ÿÿ416ÿ ÿ4216ÿ92ÿ61234516ÿ21ÿ1641ÿ61ÿ9ÿ1ÿ56644549ÿ4ÿ1ÿ6ÿ216125ÿ12ÿ4ÿ2ÿ9ÿ1ÿ!164ÿ9ÿ1ÿ01234516ÿ829 512 82451ÿ"1ÿ9ÿ1ÿ61ÿ#12ÿ$$ÿ21161ÿ4ÿ122%ÿ$&ÿ'341ÿ9%ÿ4ÿ 09251ÿÿ9ÿ(
|
bank of japan
| 2,024 | 4 |
Remarks by Mr Kazuo Ueda, Governor of the Bank of Japan, at the Peterson Institute for International Economics, Washington DC, 19 April 2024.
|
ÿ 234ÿ56ÿ5758ÿ NOPQÿSTÿUOVOPÿ ÿ 9 ÿ ÿ ÿ ÿÿ ÿÿÿÿ ÿ!ÿ"#$ÿ ÿ %&'()*+ÿ(-ÿ-.&ÿ/&-&)+01ÿ21+-3-4-&ÿ50)ÿ21-&)1(-301(6ÿ78010'38+ÿ 9:;)36ÿ<=>ÿ?@?ABÿ CDEFÿGHIÿ J0K&)10)ÿ05ÿ-.&ÿL(1*ÿ05ÿM(;(1ÿ ÿ ÿ ÿ 23ÿ567ÿ89 6ÿ 3759ÿÿ 7753ÿ593ÿ35ÿ 37953ÿ567ÿ 3ÿ3953ÿ 5 ÿ567ÿ93ÿÿ993ÿÿ57ÿ5ÿ 3537ÿ567ÿÿ9 7 ÿ33ÿ9ÿ 9355957ÿ93ÿ 95957ÿ8 3759ÿ!93ÿ !ÿ56ÿ"7ÿ#7ÿ# 35 ÿ"##ÿ 66ÿ69ÿ$773ÿ3ÿ775ÿ37ÿ%&'(ÿ56ÿ73ÿ 97ÿ957ÿ%&')*ÿ23ÿ5ÿ97ÿ7ÿ 35 7ÿ9ÿ37ÿ9 7 *ÿ+5ÿ2ÿÿ7ÿ9ÿ$7ÿ537ÿÿ567ÿ6937ÿ97ÿ7ÿ $ÿ93ÿ7,93953ÿÿ567ÿ$9 3ÿ$763ÿ5677ÿ9-5735*ÿ ÿ .793ÿ35775ÿ957ÿ37ÿ"##ÿ7ÿ 35 7ÿ$56ÿ6 5/ÿ93ÿ3/57 ÿ35775ÿ957*ÿ 067ÿ6 5/57 ÿÿ957ÿ//ÿ567ÿ35775ÿ957ÿ567ÿÿ9ÿ3ÿ567ÿÿ 3735ÿÿ 7,7ÿ777ÿ//ÿ5 ÿ95ÿ/&*'1ÿ9ÿÿ79ÿ89 6ÿ56ÿ79*ÿ879367ÿ567ÿ5975ÿ ÿ567ÿ '&/79ÿ2ÿ957ÿ9ÿ75ÿ95ÿ9 3ÿ&1ÿ56ÿ9ÿ7 557ÿ5953ÿ937ÿ9 3ÿ567ÿ5975ÿ 97ÿ95ÿ'*&1*ÿ ÿ 3ÿ89 6ÿ'3ÿ7ÿ77ÿ5ÿ759$6ÿ9ÿ37ÿ6 5/57 ÿ35775ÿ957ÿ5975ÿ3ÿ737ÿ9ÿ 567ÿ3 957947ÿ7365ÿ9ÿ957ÿ75ÿ$75773ÿ&ÿ93ÿ&*'1*ÿ067ÿ5975ÿ ÿ567ÿ'&/79ÿ 2ÿ957ÿ69ÿ$773ÿ7 7*ÿ ÿ 5ÿ ÿ975ÿ 697ÿ7ÿÿ93593ÿÿ9653ÿÿ2ÿ95ÿ9ÿ97ÿ9ÿ5ÿ$7 7ÿ 5677$ÿ773ÿ567ÿ9 35ÿÿ2ÿ67ÿ$ÿ567ÿÿ7957ÿ59$7ÿ ÿ567ÿ57ÿ$73*ÿ 7 77ÿ7ÿ7 93ÿ797ÿ5ÿ73ÿ5ÿ5ÿ93ÿ9ÿ3 797ÿ3ÿ3/57 ÿ35775ÿ 957ÿ$ÿ3 793ÿÿ 697ÿÿ2*ÿ567ÿ5693ÿ5677ÿ567ÿ757 3953ÿÿ3/57 ÿ 35775ÿ957ÿÿ75ÿ5ÿ567ÿ975*ÿ ÿ 87ÿ697ÿ737ÿ567ÿ9653ÿÿ765/37ÿ!0+ÿ93ÿ/.!20ÿ99ÿ73ÿ 697ÿÿ#9ÿ93ÿ 957ÿ$3ÿ5ÿ47 ÿ563ÿ9 ,957ÿ37ÿ79*ÿ ÿ 87ÿÿ$73ÿ5ÿ77ÿ2ÿ 697ÿ95ÿ93ÿ377ÿ35ÿ3ÿ567ÿ57*ÿ7 77ÿ567ÿ 7,5735ÿÿ56ÿ753ÿ7 93ÿ3757 37*ÿ87ÿÿ377ÿ5ÿ597ÿ57ÿ5ÿ 37ÿ695ÿ 5ÿÿ56ÿ567ÿ!0+ÿ7ÿ6*ÿÿ ÿ 273ÿ5677ÿ6937ÿ567ÿ 9ÿ5 ÿÿÿ 3759ÿÿ69ÿ$7 7ÿ 35 ÿÿ567ÿ 6 5/57 ÿ35775ÿ957ÿ56ÿ567ÿÿ5975ÿ 3533ÿ5ÿ$7ÿ567ÿ95593 735ÿÿ%1ÿ 0ÿ 234567283ÿ23ÿ6ÿ 762365ÿ633ÿ6 ÿ83ÿ8ÿ37ÿ8382ÿ63ÿ234567283ÿ87588ÿ ÿ 6372267ÿ688672ÿ42363265ÿ8327283ÿ78ÿ625ÿ48ÿ7ÿ72 ÿ 23ÿ ÿ 323ÿ78ÿ7ÿ683ÿ48ÿ72ÿ852ÿ63ÿ57ÿ ÿ2 ÿ8ÿ7ÿ234567283ÿ87588ÿ 6ÿ28ÿ ÿ28 ÿ8376ÿ852ÿ46 8ÿ2385ÿ7ÿ827 37ÿ78ÿ 6237623ÿÿ3725ÿ6ÿ 762365ÿ!ÿ234567283ÿ767ÿ6ÿ2723ÿ6ÿ"3ÿ87ÿ8ÿ ÿ 82 ÿ78ÿ27ÿ27ÿÿ3725ÿ ÿ ÿ 4422375ÿ834237ÿ767ÿ234567283ÿ85ÿ883ÿ 6ÿ!ÿ83ÿ6ÿ 7623ÿ62ÿ ÿ #2ÿ$ÿ82 ÿ6ÿ25ÿ255 767283ÿ84ÿ%663&ÿ234567283ÿ362ÿ' 37ÿ234567283ÿ 2ÿ6ÿ( ÿ!ÿ48ÿ365ÿ78ÿ6ÿ8327ÿ84ÿ78ÿ623ÿ88337)ÿ7ÿ27ÿ *427+83,ÿ447ÿ84ÿ5865ÿ234567283ÿ23ÿ-$+.ÿ63ÿ 83+83ÿ447ÿ2ÿ 37ÿ7ÿ2558ÿ78ÿ6 ÿ63ÿ / 375ÿ78ÿ2 ÿÿ5677ÿ88337ÿ6ÿ 3ÿ 68632ÿÿ223ÿ234567283ÿ(767283ÿÿ427ÿ88337ÿ ÿ763278ÿ6ÿ 3ÿ223223ÿ23ÿ567ÿ567ÿ6ÿÿ 83ÿ88337ÿ8473ÿ4ÿ78ÿ6ÿ3523ÿ 234567283ÿ2ÿ8ÿ323ÿ ÿ 2ÿ86ÿ234567283ÿ27ÿ28ÿ767ÿ84ÿ63ÿ87ÿ8372 ÿ0ÿ38765ÿ27237283ÿ 7 3ÿ%663ÿ63ÿ87ÿ52 ÿ23ÿ%663ÿ3723ÿ7ÿ632ÿ6ÿ27ÿ365ÿ18ÿ234567283ÿ 25ÿ87ÿ ÿ656ÿ67ÿ683ÿ!ÿ83 / 375ÿ7ÿ%ÿ6ÿ368ÿ78ÿ57267ÿ 7ÿ 83ÿ88337ÿÿ623762323ÿ63ÿ576+6ÿ8376ÿ852ÿ8376723ÿ27ÿ7ÿ 4487ÿ84ÿ87ÿ3765ÿ63ÿ78ÿ837623ÿ27ÿ ÿ 2726723ÿ3523ÿ234567283ÿ6675ÿ2ÿ672565ÿ655323ÿ 6 ÿ84ÿ7ÿ62ÿ 48 ÿ786ÿ234567283ÿ63 ÿ63ÿ6 ÿ ÿ63 ÿ6ÿ6324 7ÿ6ÿ65767283ÿ 23ÿ3ÿ63ÿ4 ÿ488ÿ2 ÿ8ÿ6ÿ(73ÿ78ÿ267ÿ83ÿ7638767283ÿ87ÿ63ÿ 2323+87ÿ(3 ÿ#2ÿÿ8 ÿ8 ÿ625ÿ662565ÿ234567283ÿ6265 ÿ767ÿ6ÿ 8 ÿ 623ÿ83ÿ3523ÿ234567283ÿ3ÿ2ÿ7ÿ234567283ÿ84ÿ78 ÿ27 ÿ8 ÿ2 ÿ8ÿ 387ÿ63ÿ4/ 375ÿ0387ÿ2ÿ63ÿ 7267ÿ73ÿ88337ÿ84ÿ234567283ÿ84ÿ 2ÿ 2 ÿ87ÿ6ÿ 3ÿ223ÿ375ÿ 7ÿ3 ÿ78ÿ2 ÿ5275ÿ8ÿ78ÿ7ÿ78ÿ!ÿ3 ÿ ÿ 8ÿ827267ÿ76727265ÿ732/ ÿ78ÿ 7267ÿ3523ÿ234567283ÿ23ÿ6ÿ627ÿ84ÿ 6ÿ2523ÿ832737ÿ835 283ÿÿ42ÿ658ÿ235 ÿ7ÿ67ÿ84ÿ63ÿ23ÿ56ÿ 6 ÿ84ÿ455+72 ÿ8ÿÿ86ÿ27ÿ2ÿ7ÿ6 ÿ456 ÿ387ÿ767ÿ6 ÿ3 ÿ78ÿ 0ÿ 2345ÿ784952ÿ98ÿ ÿ9ÿ5ÿ434959ÿ39ÿ2354ÿ2343ÿ89ÿ ÿ3ÿ95ÿ25455ÿ7ÿ43935ÿ 29339ÿ834ÿ ÿ 53ÿ9ÿ952ÿ37893ÿ5598934ÿ45ÿ928ÿ523ÿ37893ÿ9254ÿ 325ÿÿ44ÿ95ÿ5395ÿ85285ÿ7ÿ4ÿ5598934!ÿ33893ÿ8ÿ2343ÿ925ÿ9ÿ 25833ÿ5ÿ ÿ ÿ "59ÿ5ÿ92ÿ9ÿ8ÿ45ÿ2ÿ9ÿ934ÿ935ÿ459ÿ#55ÿ795ÿ84ÿ ÿ37893ÿ3ÿ$88ÿ 9ÿ49ÿ89ÿ82ÿ%52ÿ54395ÿ95ÿ 58ÿ45ÿ7ÿ5938ÿ5982ÿ3ÿ 584254ÿ52ÿ9255ÿ5854ÿ& 5ÿ4435ÿ8452ÿ34ÿ989ÿ37893ÿ5598934ÿ585ÿ4ÿ 59255ÿ89ÿ82ÿ%52ÿ989ÿ53ÿ8594ÿ85ÿ9532ÿ5832ÿ9ÿ85ÿ%52ÿ 37893ÿ25ÿ523ÿ ÿ ' 525938!ÿ584ÿ5ÿÿ85ÿ25ÿ352ÿ37893(ÿ3ÿ25839!ÿ39ÿ3ÿ9ÿ' 34ÿ 8ÿ5ÿ8ÿ935ÿ5)3323ÿ95ÿ439893ÿ 525ÿ584ÿ5ÿ34ÿ434959ÿ39ÿ53952ÿ %52ÿ2ÿ352ÿ37893ÿ' 5ÿ2352ÿ7ÿ5)3323ÿ93339ÿ4554ÿ9ÿ85ÿ55ÿ95ÿ 4928953ÿ233ÿ5832ÿ7ÿ7324ÿ3ÿ95ÿ5ÿ* 5ÿ7324ÿ5355ÿ9532ÿ5524ÿ3ÿ9ÿ 28345ÿ2354!ÿ95ÿ93ÿ39ÿ34ÿ549ÿ9ÿ55ÿ9532ÿ ÿ2354ÿ8ÿ854ÿ85!ÿ55ÿ3ÿ95ÿ 785ÿ7ÿ48ÿ854ÿ3ÿ494ÿ2ÿ58!ÿ83ÿ528ÿ37893ÿ2ÿ37893ÿ5598934ÿ 25ÿ59255ÿ89ÿ82ÿ%52ÿ+ ÿ5ÿ3ÿ934ÿ439893ÿ554ÿ8ÿ825ÿ4ÿ9ÿ5ÿ 72ÿ5ÿ5)3323ÿ9ÿ95ÿ952ÿ ÿ 325ÿ,ÿ44ÿ$88545ÿ7324-ÿ5598934ÿ7ÿ95ÿ235ÿ55ÿ7ÿ9532ÿ294.452354!ÿ9ÿ 95ÿ5528ÿ235ÿ55!ÿ89ÿ9ÿ5ÿ8ÿ735582ÿ23%4ÿ425ÿ72ÿ2ÿ'88ÿ425ÿ ' 545ÿ2548ÿ25759ÿ7324-ÿ5598934ÿ89ÿ 89ÿ9532ÿ593924ÿ3ÿ95ÿ485ÿ 3492ÿ825ÿ35ÿ9ÿÿ39ÿ9532ÿ2354ÿ* 35ÿ5582ÿ5598934ÿ585ÿ3ÿ895ÿ/ ÿ 5725ÿ533!ÿ735582ÿ5598934ÿ85ÿ935ÿ9ÿ2345ÿ+8259!ÿ95ÿ8ÿ 37893ÿ552355ÿ23ÿ/0 ÿ84ÿ25895ÿ8ÿ8493ÿ85ÿ3ÿ7324-ÿ233ÿ5832!ÿ 0ÿ 2345627ÿ249 ÿ6ÿ667ÿ94ÿ933ÿ49ÿ53ÿ349ÿ9ÿ6ÿ2973ÿ 69ÿ 34ÿ ÿ 34 ÿ9ÿ53ÿ32669ÿ9ÿ53ÿ433ÿÿ29ÿ563ÿ697 3ÿ5373ÿ9734697ÿ 9ÿ 34 ÿ 69ÿ6 ÿ 69ÿ323697ÿ497ÿ 6ÿ!63ÿ73337ÿ49ÿ 724 ÿ!63ÿ39697ÿ563ÿ3343ÿ7 3ÿ "#645ÿ$43ÿ%ÿ759!7ÿ5373ÿ73337ÿ 9ÿ3ÿ6ÿ534ÿ5537ÿ33ÿ ÿ5433ÿ3637ÿ!53ÿ3 33ÿ9ÿ6ÿ93463ÿ2!64ÿ43 ÿ ÿ 937ÿ36 ÿ94ÿ997ÿ6 ÿ734 37ÿ567ÿ4534ÿ97343ÿ94ÿ9 33ÿ673ÿ9ÿ 5373ÿ6947ÿ!3ÿ93ÿ ÿ53ÿ#645ÿ#9364ÿ&9ÿ#33ÿ56ÿ53ÿ2496ÿ9ÿ 653 ÿ6ÿ763ÿ'(ÿ 69ÿ463ÿ567ÿ 43673ÿ395ÿ9ÿ)7ÿ53ÿ93ÿ29ÿ 94669ÿ ÿ *56ÿ37ÿ6536+ÿ, 3ÿ56ÿ 34 ÿ 69ÿ7ÿ7ÿ793!56ÿ39!ÿ'( ÿ!3ÿ33ÿ6ÿ 367ÿ 66ÿ3 493ÿ$437ÿ'"-ÿ737ÿ56ÿ9"34ÿ 69ÿ323697ÿ643ÿ 693ÿ.( ÿ2345627ÿ9734ÿ9ÿ.%(ÿ/7637ÿ9ÿ53ÿ346ÿ 3437ÿ463ÿ64ÿ! 3ÿ 09!334ÿ377ÿ53ÿ436ÿ346ÿ463ÿ7ÿ332ÿ363ÿ53ÿ9 6ÿ29ÿ463ÿ9ÿ1.(ÿ 237ÿ6ÿ64ÿ69963ÿ 66ÿ3 493ÿ*3ÿ!ÿ24933ÿ697ÿ 6ÿ 677377 ÿ53ÿ26ÿ9ÿ53ÿ433ÿ29ÿ5637ÿ9ÿ53ÿ399ÿ6 ÿ 69 ÿ6 ÿ53ÿ 97 34 ÿ4534ÿ6)737ÿ67ÿ333ÿ622492463ÿ2345627ÿ346ÿ 757ÿ9ÿ53ÿ 346ÿ463ÿ69ÿ53ÿ!6ÿ ÿ 23435367389ÿ ;6643ÿ<5473ÿ='1'>?ÿ@&9ÿ6A ÿÿ6ÿ63ÿ9ÿ757ÿ6 ÿ436A7@ÿ B2335ÿ6ÿ53ÿ6 6ÿ/99ÿB297ÿ@B446ÿB57ÿÿ53ÿ,96ÿ/99@ÿ 946 3ÿÿ$3346ÿ37343ÿ6Aÿ9ÿC6767ÿ<ÿÿ6A79ÿ093ÿ'%ÿD7ÿ E694ÿ95ÿÿ='111?ÿ@;9!ÿ 69 ÿ2677"5495ÿ6 ÿ53ÿ24 ÿ29!34ÿ9ÿ47@ÿ /49236ÿ/99ÿ3 3!ÿ--ÿ.>FG".-1Fÿ ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿIJKJL MNÿOPQPRSÿJLKTNUÿVWJVÿVWNÿLNXNYVÿKZ[\JZÿ]Y^ZJV][YÿJXVNMÿJUÿJÿX[[LM]YJV]YKÿMN_]XNÿV[ÿKNYNLJVNÿ XWJYKNUÿ]Yÿ^]L`UaÿbL]XNÿUNVV]YKÿ\NWJ_][LcÿdJeZ[LÿOPQQQSÿM]UXTUUNUfÿ]YÿVWNÿgchcÿX[YVNiVfÿVWNÿ]YVNLJXV][Yÿ \NVjNNYÿVWNÿbNLU]UVNYXNÿ[^ÿ]Y^ZJV][YÿJYMÿ^]L`UaÿbL]XNÿUNVV]YKÿ\NWJ_][LcÿINVÿ`NÿY[VNÿVWJVfÿK]_NYÿVW]Uÿ b[UU]\]Z]VefÿVWNÿMNX[`b[U]V][Yÿ[^ÿ]Y^ZJV][Yÿ]YV[ÿVWNÿVj[ÿX[`b[YNYVUÿ]Yÿk]KTLNÿÿ]UÿY[VÿUVLJ]KWV^[LjJLMcÿ lUÿ^]L`UÿJMmTUVNMÿVWNÿNibNXVJV][YUÿ[^ÿX[`bNV]V[LUaÿbL]X]YKÿ\NWJ_][LfÿVWNÿbJUU"VWL[TKWÿ[^ÿ]`b[LVÿ bL]XNUÿV[ÿM[`NUV]XÿbL]XNUÿ\NXJ`NÿZJLKNLfÿLJ]U]YKÿVWNÿU]nNÿ[^ÿVWNÿ^]LUVÿX[`b[YNYVcÿlVÿVWNÿUJ`NÿV]`NfÿVWNÿ ]YXLNJUNMÿbNLXNbV][Yÿ[^ÿJÿ`[LNÿ]Y^ZJV][YJLeÿNY_]L[Y`NYVÿZ]oNZeÿZNMÿV[ÿW]KWNLÿjJKNÿUNVVZN`NYVUfÿ ZNJM]YKÿV[ÿTbjJLMÿJMmTUV̀NYVÿ]YÿVWNÿUNX[YMÿX[`b[YNYVcÿ 0ÿ 01ÿ345ÿ657513ÿ84915ÿ1ÿ345ÿ91ÿÿ991 1539ÿ7ÿ95 8,94-5:ÿ41ÿ12,ÿ;,1,-:*.ÿ<.:1=1>1,ÿ0*-ÿ<.1,-.41=*.4?ÿ@A*.*9=A: ÿ!" #$%ÿ&9'( )*+,-.*-ÿ*0ÿ12,ÿ34.5ÿ*0ÿ6474. 8493ÿ 991657513ÿB1931ÿ%197Cÿ1ÿB(3931 [X\]^VWRXÿQ^VT PQRSTUVWRX `ab ÿdefghÿijkljmbmhn P^oopVqQRrsqÿVRÿURXorZTQÿtQWUToÿR\ÿURoVÿ WXUQT^oToÿ]TuÿvwÿVqTÿt^oVÿQWoTÿWXÿWZtRQVÿtQWUTo }~ DEFGHIJKLMNO `ab ÿ xb y jmzÿ ijkljmb mh n [XVTXoW\wWXsÿ{WQVrRroÿUwU]TÿvTV|TTXÿ|^sToÿ^XuÿtQWUTo YWZT 094ÿ 012ÿ456ÿ7896 6ÿ049ÿ455 ( 012ÿ74ÿ 8 +56ÿ8 55ÿÿ9ÿ012ÿÿ 8 7896 6ÿ849ÿ455ÿÿ ÿ * 0:53 ' '4 '' *3 *6 ' ÿÿ4ÿ9ÿ"ÿ#ÿ4 %4 ÿ601 2ÿ5ÿÿ4456ÿ489ÿ6ÿ4565ÿ8449&ÿ46ÿ5#54ÿÿ5#4ÿÿ854ÿ4ÿ89ÿ454ÿ54ÿÿ8ÿ58946ÿ89645ÿ849!ÿÿ9 ÿ$4ÿ48) ÿ 455ÿ9ÿÿÿÿ9ÿÿ56ÿ8 ÿ5$5ÿÿÿ9''ÿ01 (ÿ42ÿÿ9ÿÿ8ÿÿ ÿ ! ÿ ÿ ÿ * " ÿ ÿ ÿ $ ÿ ÿ ÿ $ ÿ ÿ ÿ ÿ ÿ4ÿ4 ÿÿ9ÿ568ÿ4855ÿÿÿ9ÿ01 2ÿÿ 586ÿ5ÿ46ÿ9ÿ8ÿ896ÿÿ96ÿ8ÿ489ÿ45588ÿ8ÿ56ÿÿ 8 ÿ456ÿ9ÿ85ÿ56ÿ5ÿ 8 ÿ8 ÿ456ÿ4 ÿ+9ÿ ÿ 78 ÿ) 5ÿÿ265ÿ554ÿÿ, 4ÿ456ÿ0 8584ÿ85-ÿÿ4) 5ÿÿ. 49!ÿ/4$456ÿ0 4-ÿ145%ÿÿ2445 /5+ÿ2545ÿ; 845 4 9 * 094ÿ3 0 ÿ5684ÿÿ5ÿ545ÿ; 845ÿ7*4ÿ4946d 7$56;ÿÿ9 96ÿb36"9c 7$56;ÿÿ ÿb3669c 7$56;ÿÿ85ÿ456ÿ4%ÿ4845ÿb(69c * *4 ** 0:*6 *5 *' * 3 ( 4 " 6 5 ' * 3 ( ÿ14 6ÿ5ÿ9ÿÿ584ÿ8 55ÿ;486ÿÿ9ÿ5ÿ;ÿ5684ÿÿ5684ÿÿ9 96ÿÿ9 <=>?>@?ÿBCDEFGÿ@?ÿHIFÿJF?FDKLÿMCNL>OPQÿR>FSQÿK?TÿUFIKE>@D!ÿ5ÿ %9ÿVÿK5?6WK8?4!ÿ4ÿ5964ÿ9ÿÿÿ546898ÿ4$ÿ56ÿ;ÿ855ÿ9 ÿ4456ÿ8ÿ4 %ÿ4ÿ5688445ÿÿ9ÿXYZ[\ÿBCDEFG!ÿ9ÿ[@?QF?QCQÿ]@DFOKQHQ!ÿ456ÿ644ÿ$4 6ÿ5ÿ545ÿ4ÿ4 ÿ 56$ 84ÿÿ5ÿ4ÿ54ÿÿ$ÿ ÿ 78 ÿ145%ÿÿ2445-ÿ05 5 ÿ858ÿ258!ÿ^05 5 ÿ84^-ÿ_`20a!ÿ^_`20aÿ)59ÿ)4%ÿ7ÿb156c^-ÿ1$
|
bank of japan
| 2,024 | 5 |
Keynote speech by Mr Shinichi Uchida, Deputy Governor of the Bank of Japan, at the 2024 BOJ-IMES Conference, hosted by the Institute for Monetary and Economic Studies, Tokyo, 27 May 2024.
| null |
bank of japan
| 2,024 | 5 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.