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Japan’s Missing Inflation Anchor Why It Matters for Prices and the Yen

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  • Tsutomu Watanabe

Abstract

For decades, Japanese inflation expectations were anchored near zero, helping stabilize prices but also making it harder for the Bank of Japan to escape deflation. That zero-percent anchor has now largely disappeared. Yet a new anchor at the BOJs 2 percent target has not taken its place. Japan is therefore caught between inflation anchors, leaving expectations—and potentially prices and the yen—more vulnerable to shocks. Establishing a credible 2 percent anchor is now a key challenge for monetary policy.

Suggested Citation

  • Tsutomu Watanabe, 2026. "Japan’s Missing Inflation Anchor Why It Matters for Prices and the Yen," CIGS Working Paper Series 26-014E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:26-014e
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