Junko Nakagawa: Economic activity, prices, and monetary policy in Japan
Speech by Ms Junko Nakagawa, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Yamaguchi, 28 August 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
I. Current Situation of Economic Activity and Prices
A. Current Economic Developments Abroad
I will first briefly touch on the current situation of overseas economies (Chart 1). Although tariff negotiations between the Japanese and U.S. governments have resulted in an agreement recently, and progress has been made in negotiations and agreements on trade and other policies in each jurisdiction, there remain many uncertainties in this regard. With respect to global business sentiment, as of July 2025, the Purchasing Managers' Index (PMI) for the services industry has been clearly above 50 -- the break-even point between improvement and deterioration -- while the PMI for the manufacturing industry has been at around 50. Let me outline the projected growth rate of the global economy in terms of the weighted averages, which are calculated using countries' share in Japan's exports as weights and the growth rate in the World Economic Outlook (WEO) compiled by the International Monetary Fund (IMF). Specifically, it is projected that the growth rate for 2025 and 2026 will decelerate to the range of 2.5-3.0 percent, and the rate for 2027 will return to around 3 percent, which is broadly in line with the average growth rate since 1980. These projections for 2025 and 2026, released in July, have been revised slightly upward from those in April.
B. Current Economic Developments in Japan
The Bank of Japan judges that Japan's economy has recovered moderately, although some weakness has been seen in part. In what follows, I would like to explain current developments in Japan's economy from two aspects: the corporate sector and the household sector.