Seiji Adachi: Economic activity, prices, and monetary policy in Japan

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.

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

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.