Shinichi Uchida: Japan's economy and monetary policy

Speech by Mr Shinichi Uchida, Deputy Governor of the Bank of Japan, at a meeting with local leaders, Hakodate, 7 August 2024. 

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

Introduction

It is my pleasure to have the opportunity today to exchange views with leaders in administrative, economic, and financial areas in southern Hokkaido. I would like to take this chance to express my sincere gratitude for your cooperation with the activities of the Bank of Japan's Hakodate Branch. Before hearing from you, I will explain Japan's economic activity and prices, as well as the Bank's conduct of monetary policy.

I. Economic Developments

Please take a look at Chart 1. I will start by talking about Japan's economic developments. Japan's economy has recovered moderately, although some weakness has been seen in part. Looking back, the economy continued to grow at a relatively high rate through the first half of 2023, reflecting the normalization of economic activity following the COVID-19 pandemic. Subsequently, the growth rate temporarily turned negative, partly due to a suspension of production at some automakers, but the economy has remained on an improving trend. It is expected to keep growing at a pace above its potential growth rate.

Let me move on to Chart 2. In the corporate sector, business sentiment has stayed at a favorable level and corporate profits have been at record-high levels. In this situation, business fixed investment plans in the June 2024 Tankan (Short-Term Economic Survey of Enterprises in Japan) indicate that the year-on-year rate of increase in investment for fiscal 2023 was 9.9 percent and that the rate of increase in planned investment for fiscal 2024 is over 10 percent. Software investment has increased, mainly reflecting a rise in investment to address labor shortages, while moves to further increase research and development (R&D) investment have been noticeable. Business fixed investment is likely to remain at a high level, since projects for future growth, such as the ones I just mentioned, will continue to push up investment, and there has been an accumulation of projects that had to be postponed due to factors such as labor shortages in construction.