Hitoshi Suzuki: Economic activity, prices and monetary policy in Japan

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.

Central bank speech  | 
07 December 2021

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 supply-side 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.