The Evolution of Inflation Expectations in Japan

ABSTRACT The purpose of this study is to examine how inflation expectations evolved on a sustained basis in Japan. In the analysis, we define the “anchor of inflation expectations” as inflation expectations excluding the expected effects of the GDP gap and supply shocks. We examine the extent to which the “anchor of inflation expectations” has changed using Japanese forecaster‐level data. The estimated anchors increased significantly after the Bank of Japan launched unprecedented monetary easing in 2013. However, the increases were not only modest but also temporary. In contrast, the estimated anchors continued to rise after the global supply shocks became noticeable in 2022. However, the increased anchors of medium‐term inflation expectations are still about the same as in 2014–2015. The Japanese economy may not be able to achieve the 2% target on a sustainable basis without additional changes, such as an improvement in consumer sentiment through real wage increases.