Japan Deflation

Bank of Japan Working Paper Series

Chronic Deflation in Japan

Kenji Nishizaki* [e-mail] Toshitaka Sekine** [e-mail] Yoichi Ueno*** [e-mail] No.12-E-6 July 2012

Bank of Japan 2-1-1 Nihonbashi-Hongokucho, Chuo-ku, Tokyo 103-0021, Japan
***Research and Statistics Department (currently Financial Markets Department) ***Research and Statistics Department (currently Takamatsu Branch) ***Research and Statistics Department (currently Monetary Affairs Department)

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Chronic Deflation in Japan*
Kenji Nishizaki † Toshitaka Sekine‡ and Yoichi Ueno § July 2012
Abstract
Japan has suffered from 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 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

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