Toyoaki Nakamura: Economic activity, prices, and monetary policy in Japan

Speech by Mr Toyoaki Nakamura, Member of the Policy Board of the Bank of Japan, at a meeting with local leaders, Hiroshima, 5 December 2024.

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

I. Economic Developments at Home and Abroad

I will begin my speech by talking about recent developments in and the outlook for overseas economies.

Overseas economies have grown moderately on the whole, although uncertainties surrounding these economies have continued to be high, such as a delay in the recovery of the European and Chinese economies, and the prolonged situation in Ukraine and the Middle East (Chart 1). The U.S. economy, despite the impact of successive policy interest rate hikes, has been firm, mainly due to resilient private consumption, and is increasingly expected to make a soft landing. However, the economy has also shown some signs of deceleration, such as declining trends in the number of job openings and the consumer confidence index, and a significant rise in credit card delinquency rates. Moreover, attention should be paid to the risk of a resurgence of inflation as a result of, for example, future economic developments and policy conduct. European economies have kept slowing moderately due to the continued impact of factors such as successive policy interest rate hikes in the past. There is concern over economic recovery being delayed in Europe due not only to the economic stagnation in Germany - which has seen a decline in industrial strength and an increase in downward pressure on wages - but also to chronic labor issues in European economies. The pace of recovery in the Chinese economy has slowed, reflecting an increase in households' thriftiness. The increase is mainly due to (1) prolonged sluggishness in the real estate market, (2) intensified price competition, (3) the high youth unemployment rate, and (4) people's concerns over future wages and their post-retirement years. I believe that further deterioration in the Chinese economy will be avoided through expansion in fiscal spending and monetary easing. However, as adjustment pressure in the real estate and labor markets remains, there is concern over a lower economic growth rate in the future, due to intensified price competition brought about by higher supply capacity and to growing trade friction.