What Drives Trend Inflation in Japan?: A Trend-Cycle BVAR Decomposition Approach

Ryuichiro Hirano, Yutaro Takano and Kosuke Takatomi
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Ryuichiro Hirano: Bank of Japan
Yutaro Takano: Bank of Japan
Kosuke Takatomi: Bank of Japan

No 26-E-1, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper estimates Japan's trend inflation and its determinants using a trend-cycle BVAR decomposition. The estimation results indicate that trend inflation in Japan remained subdued as the public had gradually lowered their medium- to long-term inflation expectations following the collapse of the asset price bubble in the early 1990s. The analysis further reveals that subdued real income growth, relative to the labor productivity and labor supply growth, also exerted downward pressure on trend inflation during the period from the 2000s to the early 2010s, when trend inflation was particularly restrained. These findings suggest that monitoring medium- to long-term inflation expectations and trends in structural factors of the economy is important for assessing its long-run inflation trend.

Keywords: Trend Inflation; Trend-Cycle BVAR Decomposition (search for similar items in EconPapers)
JEL-codes: C22 E24 E31 E52 E58 (search for similar items in EconPapers)
Date: 2026-01-30
New Economics Papers: this item is included in nep-lma, nep-mon and nep-sea
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