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Chronic deflation in Japan

In: Globalisation and inflation dynamics in Asia and the Pacific

Listed author(s):
  • Kenji Nishizaki

    (Bank of Japan)

  • Toshitaka Sekine

    (Bank of Japan)

  • Yuichi Ueno

    (Bank of Japan)

  • Yuko Kawai

    (Bank of Japan)

type="main"> Japan has suffered from a long-lasting but mild deflation since the latter half of the 1990s. Estimates of a standard Phillips curve indicate that a decline in inflation expectations, the negative output gap, and other factors such as a decline in import prices and a higher exchange rate all account for some of this development. These factors, in turn, reflect various underlying structural features of the Japanese economy. This paper examines a long list of these structural features that may explain Japan's chronic deflation, including the zero lower bound on the nominal interest rate, public attitudes toward the price level, central bank communication, weaker growth expectations coupled with declining potential growth or the lower natural rate of interest, risk-averse banking behavior, deregulation, and the rise of emerging economies.

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This chapter was published in:
  • Bank for International Settlements, 2013. "Globalisation and inflation dynamics in Asia and the Pacific," BIS Papers, Bank for International Settlements, number 70, September.
  • This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 70-03.
    Handle: RePEc:bis:bisbpc:70-03
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    1. Ronald McKinnon & Kenichi Ohno, 2001. "The Foreign Exchange Origins of Japan's Economic Slump and Low Interest Liquidity Trap," The World Economy, Wiley Blackwell, vol. 24(3), pages 279-315, 03.
    2. Auer, Raphael A. & Degen, Kathrin & Fischer, Andreas M., 2013. "Low-wage import competition, inflationary pressure, and industry dynamics in Europe," European Economic Review, Elsevier, vol. 59(C), pages 141-166.
    3. Nao Sudo, 2011. "Accounting for the Decline in the Velocity of Money in the Japanese Economy," IMES Discussion Paper Series 11-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
    4. Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
    5. Rochelle M. Edge & Michael T. Kiley & Jean-Philippe Laforte, 2007. "Documentation of the Research and Statistics Division’s estimated DSGE model of the U.S. economy: 2006 version," Finance and Economics Discussion Series 2007-53, Board of Governors of the Federal Reserve System (U.S.).
    6. Otani, Akira & Shiratsuka, Shigenori & Shirota, Toyoichiro, 2003. "The Decline in the Exchange Rate Pass-Through: Evidence from Japanese Import Prices," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 53-81, October.
    7. Ikeda, Daisuke & Saito, Masashi, 2014. "The effects of demographic changes on the real interest rate in Japan," Japan and the World Economy, Elsevier, vol. 32(C), pages 37-48.
    8. Naoko Hara & Naohisa Hirakata & Yusuke Inomata & Satoshi Ito & Takuji Kawamoto & Takushi Kurozumi & Makoto Minegishi & Izumi Takagawa, 2006. "The New Estimates of Output Gap and Potential Growth Rate," Bank of Japan Review Series 06-E-3, Bank of Japan.
    9. Hess Chung & Michael T. Kiley & Jean-Philippe Laforte, 2010. "Documentation of the Estimated, Dynamic, Optimization-based (EDO) model of the U.S. economy: 2010 version," Finance and Economics Discussion Series 2010-29, Board of Governors of the Federal Reserve System (U.S.).
    10. Mitsuru Katagiri, 2012. "Economic Consequences of Population Aging in Japan: Effects through Changes in Demand Structure," IMES Discussion Paper Series 12-E-03, Institute for Monetary and Economic Studies, Bank of Japan.
    11. Takuji Fueki & Ichiro Fukunaga & Hibiki Ichiue & Toyoichiro Shirota, 2016. "Measuring Potential Growth with an Estimated DSGE Model of Japan’s Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 1-32, March.
    12. Kosuke Aoki & Nao Sudo, 2012. "Asset Portfolio Choice of Banks and Inflation Dynamics," Bank of Japan Working Paper Series 12-E-5, Bank of Japan.
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