Toyoaki Nakamura: Economic activity, prices, and monetary policy in Japan

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.

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

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).