Asahi Noguchi: Economic activity, prices, and monetary policy in Japan

Speech by Mr Asahi Noguchi, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Miyazaki, 22 May 2025.

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 Developments at Home and Abroad

I will begin my speech by talking about recent economic developments at home and abroad.

From the collapse of the bubble economy in the early 1990s until around 2021, when recovery from the COVID-19 pandemic began, Japan's economy was in a state of low nominal growth, with prices and wages tending to decline but barely rising. However, having been engulfed by the wave of global inflation, which emerged following the pandemic, Japan's inflation rate has remained above 2 percent since fiscal 2022. This high inflation has placed a heavy burden on households, forcing them to continue curbing consumption; on the other hand, however, it has played a significant role in pushing up wages that had been suppressed until recently. As a consequence, Japan's economy is currently shifting to a new phase where sustainable inflation is realized accompanied by wage increases. The keys to making this shift happen are a lasting momentum for wage increases and an intensified underlying inflation trend resulting from the pass-through of higher wages to prices.

Currently, Japan's economy is growing steadily, with the exception of rather unexpected factors such as the rise in prices of rice and fresh food causing upswings in overall inflation. While there remains weakness in domestic demand due to high prices, the annualized quarter-on-quarter real GDP growth rate has continued to recover moderately, owing in part to the expansion in external demand reflecting the yen's depreciation (Chart 1). On the other hand, downside risks stemming from overseas economies have rapidly heightened as new U.S. tariff policies have been put forward with unexpected intensity by the second Trump administration. Accordingly, forecasts for overseas economic growth have been revised markedly downward (Chart 2).