Kazuo Ueda: Japan's economy and monetary policy

Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at a meeting with business leaders, Nagoya, 18 November 2024.

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

Introduction

It is my great pleasure to have the opportunity today to exchange views with a distinguished gathering of business leaders in the Tokai region. I would like to take this chance to express my sincerest gratitude for your cooperation with the various activities of the Bank of Japan's Nagoya Branch.

The Bank makes a projection for Japan's economic activity and prices every quarter, which is released in the Outlook for Economic Activity and Prices (Outlook Report). Today, I would like to talk about the Bank's view on Japan's economic activity and prices and explain its thinking behind the recent conduct of monetary policy, with reference to the latest Outlook Report decided at the Monetary Policy Meeting (MPM) held in October.

I. Economic Activity and Prices

Current Situation of and Outlook for Economic Activity

Let me start by talking about economic developments. Japan's economy has recovered moderately, although some weakness has been seen in part.

Looking at the corporate sector, the positive developments of an improvement in corporate profits leading to an increase in business fixed investment have continued. As shown in Chart 1, business sentiment in the September Tankan (Short-Term Economic Survey of Enterprises in Japan) improved slightly overall for both large and small firms, although sentiment in some industries was negatively affected by the typhoon seen at the end of August. Corporate profits have been on an increasing trend, including for small and medium-sized firms. Business fixed investment plans for fiscal 2024 show that firms have maintained an active investment stance. Looking at a breakdown of business fixed investment, a key feature of the current phase is that, in addition to investment induced by the increase in domestic and external demand, investment for future growth -- such as research and development (R&D) investment and investment related to digitalization and decarbonization -- has increased. Long-term investment projects are likely to be less susceptible to short-term demand fluctuations, and thus it is highly likely that business fixed investment will continue on an increasing trend.