Recent Economic and Financial Developments and Monetary Policy in Japan Speech at a Meeting with Business Leaders in Kushiro June, 1 Takehiro Sato Bank of Japan Contents Charts Chart 1: Global Economy Chart : U.S. Economy Chart 3: Chinese Economy Chart : "Outlook for Economic Activity and Prices" Chart 5: Japan's Economy: Real GDP Chart : Industrial Production Chart 7: Economy Watchers Survey Chart : Business Fixed Investment in Japan and Overseas Chart 9: Employee Income Chart 1: Consumer Prices Chart 11: Consumer Confidence in Relation to Private Consumption and Prices Chart 1: SRI-Hitotsubashi Unit Value Price Index Chart 13: Correlation between Wages and House Rent Chart 1: Government Bond Yield Curves Chart 15: Bank Lending Rates Chart 1: Economic Activity in Eastern Hokkaido Note: Charts are based on available data as of May 31, 1 ( p.m., Japan Standard Time).
Global Economy Chart 1 (1) IMF Projections (as of April 1) () Real GDP Growth Rate of the World Economy real GDP growth rate, CY 15 1 17 1 projection projection projection World 3.1 3. 3.5 3. (-.) (-.1) Advanced economies 1.9 1.9.. (-.) (-.1) United States...5. (-.) (-.1) Euro area 1. 1.5 1. 1. (-.) (-.1) Japan.5.5 -.1. (-.5) (-.) Emerging market and.1... developing economies (-.) (-.1) Emerging and developing..3.3. Asia (.1) (.1) China.9.5.. (.) (.) ASEAN.7. 5.1 5. (.) (.) Russia -3.7-1.. 1. (-.) (-.) Latin America and the -.5 1.5.1 -.1 Caribbean (-.) (-.1) Notes: 1. Figures are calculated using GDP based on purchasing power parity (PPP) shares of the world total from the International Monetary Fund.. Figures in parentheses are the difference from the January 1 World Economic Outlook projections. Source: International Monetary Fund. 5 3 1-1 Avg. growth rate (19-15): +3.5% Emerging market and developing economies Advanced economies World economy IMF projections - CY 9 9 9 9 9 1 1 1 1 1 Source: International Monetary Fund. U.S. Economy Chart (1) Real GDP () Employment s.a., ann., q/q % chg. Personal consumption Residential investment Fixed investment Inventories Net exports Government consumption and investment Real GDP s.a., chg. from the previous month, thousand units % 11 1 9-7 - - - - Nonfarm payroll employment (left scale) Unemployment rate (right scale) 5 - -1, CY 11 1 13 1 15 1 /Q1 CY 7 9 1 11 1 13 1 15 1 Source: Bureau of Economic Analysis. Source: Bureau of Labor Statistics. 3
Chinese Economy Chart 3 (1) Real GDP () Manufacturing PMI 11 55 DI, % points 1 5 53 National Bureau of Statistics Caixin/Markit 9 5 51 5 7 9 CY 11 1 13 1 15 1 /Q1 7 CY 11 1 13 1 15 1 Note: Figures for the Caixin/Markit is based on Caixin China General Manufacturing PMI. Sources: CEIC Data; Markit ( and database right Markit Economics Ltd 1. All rights reserved). "Outlook for Economic Activity and Prices" (April 1) Forecasts of the Majority of Policy Board Members Chart Real GDP CPI (all items less fresh food) Excluding the effects of the consumption tax hikes Fiscal 15 Forecasts made in January 1 Fiscal 1 Forecasts made in January 1 Fiscal 17 Forecasts made in January 1 Fiscal 1 +.7 to +.7. [+.7] +1. to +1.3 [+1.1] +. to +1. [+1.] +1. to +1.7 [+1.5]. to +. [+.1]. to +. [+.5] +. to +1. [+.]. to +.3 +1. to +3. +. to +. [+.1] [+.7] [+1.7] +.1 to +.5 +. to +3.1 +1. to +.1 [+.3] [+.] [+1.] +. to +1. [+1.] +1. to +.1 [+1.9] Notes: 1. Figures in brackets indicate the median of the Policy Board members' forecasts (point estimates).. Dubai crude oil prices are expected to rise moderately from the recent 35 U.S. dollars per barrel to the range of 5-5 dollars per barrel toward the end of the projection period; that is, fiscal 1. Under this assumption, the contribution of energy items to the year-on-year rate of change in the CPI (all items less fresh food) is estimated to be around minus. percentage point for fiscal 1. More specifically, the contribution is expected to start to lessen in the second half of fiscal 1 and reach around percentage point around the middle of 17. Source: Bank of Japan. 5
Chart 5 Japan's Economy: Real GDP 3 1 s.a., q/q % chg. s.a., q/q % chg. 1 15 1 Q Q3 Q Q1 Q Q3 Q Q1 Real GDP a -.1 -.7.5 1.3 -.. -.. Inventories b 1.3 -. -...3 -.1 -.1 -. Imports c.9 -. -. -.3.5 -.3..1 Final demand d = a - b - c -.3.1.9 1. -1.. -.5.3 Real GDP e -.1 -.7.5 1.3 -.. -.. -1 - -3 Private demand Public demand - Net exports Real GDP -5 CY 7 9 1 11 1 13 1 15 1 Source: Cabinet Office. Trading gains/losses f. -.1..7....5 Real GDI g = e + f -1.7 -...1 -.1. -. 1. Income from/to the rest of the world h.1.5. -.. -.1.3 -. Real GNI i = g + h -1. -. 1. 1..3..1.3 Real GDP -.3-1.5-1. -1..7 1..7 -. Real GDI -. -.1-1.1.3. 3.. 1.3 Real GNI -1.3-1.5. 1. 3. 3.. 1.3 Industrial Production Chart 1 s.a., CY 1 = 1 115 11 15 1 95 9 5 75 7 CY 1 3 5 7 9 1 11 1 13 1 15 1 Source: Ministry of Economy, Trade and Industry. 7
Economy Watchers Survey Chart 7 7 s.a., DI Current conditions Future conditions Current conditons (level) 5 3 1 CY 7 9 1 11 1 13 1 15 1 Source: Cabinet Office. Business Fixed Investment in Japan and Overseas Chart 5 3 1-1 - Japan Overseas -3 - -5 FY 3 5 7 9 1 11 1 13 1 Source: Development Bank of Japan. 9
Employee Income Chart 9 3 Number of regular employees Total cash earnings Employee income 1-1 - -3 CY 11 1 13 1 15 1 Notes: 1. Q1 = March-May, Q = June-August, Q3 = September-November, Q = December-February.. Employee income is calculated as the "number of regular employees" times "total cash earnings." Figures are those for establishments with at least five employees. Source: Ministry of Health, Labour and Welfare. 1 Consumer Prices Chart 1-1. 1.5 1..5 All items All items less fresh food All items less fresh food and energy All items less food and energy. -.5-1. -1.5 -. CY 11 1 13 1 15 1 Note: Figures from April 1 onward are estimated by adjusting the direct effects of the consumption tax hike. Source: Ministry of Internal Affairs and Communications. 11
Consumer Prices (Continued) Chart 1 -. 1.5 1..5. -.5-1. -1.5 CY Items other than energy Energy CPI (all items less fresh food) 13 1 15 1 Note: Figures from April 1 onward are estimated by adjusting the direct effects of the consumption tax hike. Source: Ministry of Internal Affairs and Communications. 1 Consumer Confidence in Relation to Private Consumption and Prices (1) Consumer Confidence and Private Consumption 11 s.a., CY 1 = 1 DI 7 () Consumer Confidence and Prices. s.a., DI Chart 11 1 5 1.5 1 1 55 1. 1 5.5 1 9 9 9 Real consumption expenditures excluding 9 housing, etc. (left scale) Economy Watchers Survey (household activity) (right scale) 9 CY 11 1 13 1 15 1 Sources: Ministry of Internal Affairs and Communications; Cabinet Office. 5 35 3 5. -.5-1. -1.5 CY CPI (all items less fresh food) (left scale) CPI (all items less fresh food and energy) (left scale) Consumer Confidence Index (right scale) 11 1 13 1 15 1 Note: Figures from April 1 onward are estimated by adjusting the direct effects of the consumption tax hike. Sources: Ministry of Internal Affairs and Communications; Cabinet Office. 3 3 3 3 3 13
SRI-Hitotsubashi Unit Value Price Index (Comparison of the Unit Value Price Index Including New Goods and the CPI) Chart 1 5 SRI-Hitotsubashi Unit Value Price Index (including new goods) CPI 3 1-1 - -3 - CY 7 9 1 11 1 13 1 15 1 Note: The CPI is calculated based on the same items covered by the SRI-Hitotsubashi Unit Value Price Index. For details, see Naohito Abe, "Saikin no Kakaku Shisuu no Doukou to Shin Shohin no Eikyo ni tsuite (Recent Developments in Price Indexes and Effects of New Goods)," Newsletter No. 3, the Research Center for Economic and Social Risks (RCESR), Institute of Economic Research, Hitotsubashi University, March 15 (available only in Japanese), and Naohito Abe et al., "Effects of New Goods and Product Turnover on Price Indexes," RCESR Discussion Paper Series No. DP15-, March 15. Sources: Hitotsubashi University; New Supermarket Association of Japan; Intage Inc. 1 Chart 13 Correlation between Wages and House Rent (1) Wages per Employee and House Rent () Time-Lag Correlation 1 House rent Wages per employee (-quarter lead).5. correlation coefficient Wages per employee and house rent CPI (all items less fresh food) and house rent CPI (all items less fresh food) (-quarter lead).75.7.5 -. -.55 lagging behind house rent leading house rent - CY 1 3 5 7 9 91 93 95 97 99 1 3 5 7 9 11 13 15.5 quaters -1-1 - - - - 1 1 Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. Note: Figures are calculated using data between 191/1Q to 1/1Q. Sources: Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare. 15.
1. Government Bond Yield Curves (1) JGB Yield Curve () Government Bond Yield Curves in Japan and Euro Area % 1. % Chart 1 Jan., 1 Japan 1. May 31, 1 1. Germany France...... -. -. -. year 5 1 15 5 3 35 -. year 5 1 15 5 3 Source: Bloomberg. Note: Figures are as of May 31, 1. Source: Bloomberg. 1 Bank Lending Rates Chart 15 (1) Japan () Euro Area.5 %.5 %.. 3.5 3.5 3. 3..5.5.. 1.5 1. 1.5 1. Loans to nonfinancial corporations 1-5Y Loans to housholds for house purchase 5-1Y.5.5. CY 11 1 13 1 15 1 Note: Figures are domestically licensed banks' average contract interest rates on new loans and discounts (long-term). Source: Bank of Japan.. CY 11 1 13 1 15 1 Note: Figures are interest rates on new loans. Sources: HAVER; ECB. 17
Chart 1-1 Economic Activity in Eastern Hokkaido (1) Business Conditions DI (Tankan) () Current Profits (Tankan) 3 % points "favorable" - "unfavorable" 3 All industries Manufacturing Nonmanufacturing 5 1 15 1-1 5 - -5-3 -1 - CY 9 1 11 1 13 1 15 1 Note: Figures are those for enterprises of all business sizes within the region covered by the Bank of Japan Kushiro Branch. Source: Bank of Japan. -15 FY 9 1 11 1 13 1 15 Note: Figures are those for enterprises of all business sizes and industries within the region covered by the Bank of Japan Kushiro Branch. 1 Source: Bank of Japan. Economic Activity in Eastern Hokkaido (Continued) Chart 1- (3) Active Job Openings-to-Applicants Ratio () Sales at Major Retail Stores 1. times 1.... - -. -. CY 9 1 11 1 13 1 15 1 Sources: Public Employment Security Offices in Kushiro, Nemuro, and Obihiro. - CY 9 1 11 1 13 1 15 1 Note: Figures are those for retail stores of 17 firms within the region covered by the Bank of Japan Kushiro Branch. Source: Bank of Japan. 19