Monetary developments in the euro area: October 2025

Ms Schnabel started her presentation by noting that since the Governing Council’s previous monetary policy meeting on 10-11 September 2025, financial markets had once again shown resilience to shocks. The risk appetite of investors in the euro area stood close to its highest level since the onset of the global financial crisis, amid persistently low volatility across asset classes. The prevailing positive risk sentiment had been underpinned by the macroeconomic outlook in both the euro area and the United States, with both economies continuing to show greater than expected resilience to the ongoing trade conflict and geopolitical headwinds. Market indicators of expectations for euro area growth continued to suggest a robust economic expansion. Growth expectations for 2025 had been revised up and stood well above their level prior to the initial announcement of higher US tariffs. Growth expectations for 2026 and 2027 were close to pre-tariff expectations and were near to the level of potential growth. Market indicators of medium-term inflation expectations were close to 2%. The one-year inflation-linked swap (ILS) rate two years ahead in the euro area had hovered around 1.85% since August, corresponding to around 1.95% when including tobacco, despite a decline in crude oil prices. US inflation compensation, as measured by the one-year ILS rate two years ahead, had fallen below 2.4%, down from 2.5% in late August. This had reinforced investor confidence that the US Federal Reserve System would continue to lower interest rates, which had been another key factor supporting global risk appetite. ECB ACCOUNTS: THERE CONTINUED TO BE A HIGH OPTION VALUE TO WAITING FOR MORE INFORMATION ECB ACCOUNTS: THE GOVERNING COUNCIL’S ASSESSMENT OF THE INFLATION OUTLOOK WAS BROADLY UNCHANGED

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Please allow me first to express my deepest sympathy for the loss of life in the large-scale fire that occurred in Saganoseki, Oita City and to offer my sincere condolences to all those affected. I will begin my speech by talking about recent economic developments at home and abroad. It can be said that Japan's economy is currently in a transitional period, where the economy is shifting from a deflationary or zero-inflation economy that lasted for several decades from the collapse of the bubble economy in the early 1990s until the onset of the COVID-19 pandemic, to an economy that grows while both prices and wages continue to rise. In this context, new developments that have not been seen before are starting to emerge in the economy,such as progress in wage hikes on the back of labor shortages owing to an expansion in employment, rising stock prices based on an increase in corporate profits, and growth in new businesses fueled by diversified business opportunities. On the other hand, high prices stemming from cost-push factors that emerged with the end of the pandemic have placed a heavy burden on households, thereby pushing down private consumption. Therefore, for Japan's economy to genuinely return to a growth path, it is essential that people's wages and income continue to grow in a way that exceeds price increases. The pandemic that first broke out in 2020, and subsequent global inflation, posed a significant challenge for Japan. At the same time, they ultimately played a role in strongly pushing the country to exit from a zero-inflation economy. The greatest challenge Japan currently faces is the tariff policy of the second Trump administration in the United States. While the impact of that policy is not yet fully clear, it is first necessary for Japan's economy to w boj's noguchi: if price target achieved in 2nd half of projected period of outlook report, boj should adjust rate at appropriate pace to align with that timeline BOJ Noguchi: Yen depreciation exerts upward force on economic activity and prices through exports and imports BOJ’s Noguchi Warns That Moving Policy Too Slowly Could Destabilize Economic Activity and Prices Bank of Japan Noguchi: Bank of Japan must take measured, step-by-step approach in adjusting policy