Ryozo Himino: Japan's economy and monetary policy
Speech by Mr Ryozo Himino, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Wakayama, 2 March 2026.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Introduction
Good morning, everyone. Thank you for joining us today.
Macro Economy: A Diagram
Today, I would like to share my thoughts on Japan's economic activity, prices, and monetary policy. Given that these subjects involve a multitude of topics, I have prepared an overview diagram to indicate the interrelationships among the topics and how each topic fits into the overall story (Chart 1).
The diagram might appear a bit like a mandala at first glance. Mandalas were first brought to Japan by the high priest Kukai, who opened his head temple 50 kilometers east of here. According to Kukai, some things are too intricate to explain merely in words, but once visualized in an illustration, they instantly become clear.1 I could not resist the temptation to pay a small homage to Kukai while here in Wakayama.
The diagram is a visual representation of the five key equations that form the backbone of the standard macroeconomic model known as the dynamic aggregate demand-aggregate supply, or AD-AS, model.2 In the diagram, endogenous variables are arranged in a circular manner, with relatively stable exogenous variables placed toward the center and more short-lived variables positioned on the outer edge. Additionally, I've included a number of arrows: solid black arrows indicate additive relationships in the equations while double-lined arrows indicate subtractive relationships.
I'll proceed clockwise from economic activity in the upper-left quadrant, to prices in the upper-right, and then to money and finance at the bottom.