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, Yamanashi, 28 August 2024.

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

Introduction

Good morning, all. I am happy to be here in Kofu, a city surrounded by high mountains. I was born in Toyama and grew up gazing at the northern chain of the Japan Alps. Arriving here yesterday, I felt somewhat familiar with the sight of the southern chain.

One of the greatest 16th century warlords, Takeda Shingen, who was from this region, had the following poem on his banner:

Swift as the wind,

silent as forests,

ravaging as fire,

and still as mountains.

Does this banner describe the four different approaches to be used at different junctures of war? Perhaps not. Seeing the mountains Shingen himself saw in his days, I was reminded of the awe and respect that the stillness of the mountains evokes, a stillness that hides the swiftness of the wind and the relentlessness of fire within itself. The silence of the forests, it seems, is also filled with vigor.

I. Economic Activity and Prices

Hermeneutics aside, let us begin by looking at the outlook for Japan's growth and inflation.

First, about the growth. The Bank of Japan expects the real GDP to grow at a moderate rate of 0.6 percent this fiscal year, as the recovery process from the pandemic draws near to completion. We, however, expect that the ongoing wage hike will start boosting consumer spending and that the record-high corporate profits will sustain the strong growth of business fixed investment. According to our forecast, these developments will gain traction from the middle of the fiscal year, and the real GDP will grow at around 1 percent in fiscal 2025 and 2026, a level that is slightly above the potential growth rate (Chart 1). We estimate Japan's potential growth rate to be somewhere between 1/2 and 1 percent.