Naoki Tamura: Economic activity, prices and monetary policy in Japan

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.

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

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.