Kazuo Ueda: Virtuous cycle between wages and prices and the Bank of Japan's monetary policy

Speech by Mr Kazuo Ueda, Governor of the Bank of Japan, at a meeting by the Yomiuri International Economic Society, Tokyo, 8 May 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Thank you for the opportunity to speak today at this meeting hosted by the Yomiuri International Economic Society. 

At the Monetary Policy Meeting (MPM) held on March 18 and 19, 2024, the Bank of Japan changed its monetary policy framework, judging that it was now within sight that the price stability target would be achieved in a sustainable and stable manner. The Bank considers that the large-scale monetary easing that lasted for 11 years since the introduction of Quantitative and Qualitative Monetary Easing (QQE) in April 2013 had fulfilled its role.

Today, I would like to provide an overview of the Bank's assessment of the developments in economic activity and prices underlying this decision, including the contents of the Outlook for Economic Activity and Prices (Outlook Report) released at the end of April, and then talk about the details of the Bank's new monetary policy framework and its thinking on the future conduct of monetary policy.

I. Economic Activity

Let me begin with developments in economic activity. Japan's economy has recovered moderately, although some weakness has been seen in part. Looking at the corporate sector, production has been flat as a trend, although it has declined recently, partly due to the effects of a suspension of production and shipments at some automakers (Chart 1). The March Tankan (Short-Term Economic Survey of Enterprises in Japan) showed that business sentiment has stayed at a favorable level on the whole, although there were some industries in which sentiment was subdued due to the impact of the aforementioned developments in the automobile industry. Corporate profits have improved as firms have made progress in the pass-through of cost increases to selling prices, and business fixed investment has been on a moderate increasing trend. In the household sector, as regards private consumption, consumption of nondurable goods such as food has been affected by the downward pressure on real income due to price rises seen so far, and automobile sales have declined due to the same factors affecting production. However, indicators of household sentiment have shown a clear improvement recently, mainly due to expectations for wage increases. Therefore, despite some temporary weakness in both the corporate and household sectors, the virtuous cycle from income to spending has been maintained.