Hajime Takata: Economic activity, prices and monetary policy in Japan

Speech by Mr Hajime Takata, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Miyagi, 19 February 2025.

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

I. Economic Activity and Prices

I will begin by talking about developments in economic activity and prices. Overseas economies have grown moderately on the whole (Chart 1). Having faced concerns of an economic slowdown around summer 2024, the U.S. economy has since grown firmly, mainly led by private consumption. The projected growth in the U.S. economy for 2025 was revised upward to 2.7 percent in the January 2025 World Economic Outlook (WEO) Update released by the International Monetary Fund (IMF). Recent economic indicators suggest a solid U.S. economy, especially the possibility that the labor market, which triggered the concerns of an economic slowdown, has bottomed out. The Federal Reserve kept its policy interest rate unchanged at the January 2025 Federal Open Market Committee (FOMC) meeting, following three consecutive rate cuts at the previous meetings in the latter half of 2024 (Chart 2). The Summary of Economic Projections of the December 2024 FOMC meeting indicates future rate cuts. Some market participants, however, anticipate a pause in the reductions, partly because of firmness of the U.S. economy and speculation over the new administration. Based on the resilience of the economy, I believe it is more likely that the economy will accelerate again in the near future, making a "touch-and-go landing," so to speak, rather than a soft landing, although attention continues to be warranted on uncertainties surrounding policy conduct under the new administration. What is more, the U.S. economy has continued to grow for four years at a pace close to 3 percent, a pace above its potential growth rate of around 2 percent, and a relatively high growth rate is also projected for 2025. In this situation, it is necessary to bear in mind the possibility that growth in employment and inflation in the country will accelerate further and to consider how such developments will affect global financial markets. 

Japan's economy has recovered moderately, although some weakness has been seen in part (Chart 3). With regard to the outlook, the economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions. Furthermore, I think that momentum for economic recovery could strengthen if overseas economies, particularly the U.S. economy, turn out better than expected.