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, Saga, 18 April 2024.

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.

For long periods after the bursting of the bubble economy in the 1990s, Japan's economy was confronted with a situation in which neither prices nor wages rose. Nevertheless, in the wake of global inflation that started in spring 2021, the year-on-year rate of increase in Japan's consumer price index (CPI) for all items excluding fresh food has continued to exceed 2 percent since spring 2022. Furthermore, the economy is starting to revert to a state where nominal wages increase steadily every year, as was the case before the bursting of the bubble economy. This is evidenced by wage growth following the 2023 annual spring labormanagement wage negotiations becoming the highest in 30 years, and by an increasing possibility that the growth this year will be even higher. Under these circumstances, nominal GDP, which continued to fluctuate at the 550 trillion yen level or below for more than 30 years, has almost reached 600 trillion yen (Chart 1). That is, it can be said that Japan is now finally about to exit from the deflationary economy with marginal nominal growth, which has long continued since the bursting of the bubble economy. 

Turning to overseas economies, many countries and regions gradually have been increasingly shifting their focus to maintaining economic growth, as the high inflation caused by the postpandemic reopening of the economies has begun to subdue. From spring 2022, major central banks in the United States and Europe rapidly raised their policy interest rates in order to contain high inflation. This phase almost ended in summer 2023, and they are currently in the phase of keeping interest rates higher for longer (Chart 2). That said, central banks are likely to enter a phase of gradually reducing their policy interest rates - presumably, once they are confident that inflation can be contained - in order to avoid economic overkill due to high interest rates.