Haruhiko Kuroda: Monetary policy and firms' behavior - transmission channels of monetary policy and Japanese firms' structural changes

Speech by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the meeting of Councillors of Nippon Keidanren (Japan Business Federation), Tokyo, 23 December 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is a great honor to have this opportunity to address such a distinguished gathering of business leaders in Japan today.

It is almost two years since the outbreak of the novel coronavirus (COVID-19). Looking back at developments in Japan's economy since then, a wide range of economic activities was constrained at first, and the annualized quarter-on-quarter growth rate of real GDP was minus 28.5 percent for the April-June quarter of 2020, registering larger negative growth than immediately after the Global Financial Crisis (GFC) (Chart 1). Thereafter, however, economic activity has been picking up, led by the corporate sector, where profits have recovered to the pre-pandemic level at an early stage and business sentiment has improved steadily. Economic recovery has been relatively fast because accommodative financial conditions have played an important role, not to mention firms' flexible adaptation to the pandemic. That is, despite the significant shock of COVID-19, firms' funding environment has remained accommodative on the whole, and thus large-scale fixed capital and employment adjustments have been avoided in the current phase. In fact, the Bank of Japan's December 2021 Tankan (Short-Term Economic Survey of Enterprises in Japan) released last week shows that excess production capacity has been resolved already and firms' labor shortage has become evidently acute. In this situation, Japanese firms have been addressing the impact of COVID-19 and have started to take actions with an eye on the post-pandemic era. Specifically, firms have accelerated their efforts toward digitalization and decarbonization, and they also have started to restructure the global supply chain in light of the recent experience of supply-side constraint