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, Mie, 3 July 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, although some weakness has been seen in part, reflecting trade and other policies in each jurisdiction. In the April 2025 World Economic Outlook (WEO), the International Monetary Fund (IMF) projects that the global economy will be heavily affected by U.S. tariff policy, while also highlighting further downside risk (Chart 1). However, looking at hard data, recent economic indicators suggest that the U.S. economy has grown moderately, despite concerns about the impact of tariff policy. While the Federal Reserve has kept its policy interest rate unchanged since the January 2025 Federal Open Market Committee (FOMC) meeting, some market participants expect it to start cutting the policy rate again (Chart 2). As for the outlook, I am of the view that a sharp economic slowdown triggered by credit contraction, which was common during past economic downturns, is unlikely, owing to the sound balance sheets of households, firms, and financial institutions, among other factors. Instead of a serious recession, I have been expecting the U.S. economy to grow only at a slower pace than its potential growth rate, mainly affected by a deterioration in consumer sentiment. Still, it is necessary to bear in mind that such an economic slowdown depends on the policies of the U.S. administration, and hence there are extremely high uncertainties, both upside and downside. Even if the economy remains robust at the moment, the longer concerns about tariffs remain, the greater the downward pressure on economic activity could become, due to heightened uncertainty, and thus it is necessary to carefully examine the situation from a long-term perspective. Meanwhile, as I will elaborate later,since it took office, the new U.S. administration has given priority to policies, such as tariffs, that have a negative impact on economic growth. If it were to pursue policies that have a positive impact on economic growth, such as reducing domestic taxes, the growth rate of the U.S. economy could be higher than expected. With regard to overseas economies, Europe, the United States, and China and other emerging economies have all leaned toward accommodative policies on both the fiscal and monetary fronts. With the same policy direction adopted around the world, attention is also warranted on the possibility that this could, in combination, exert greater-than-expected upward pressure on economic activity and prices.