Negative Interest Rates and Inflation Expectations in Japan

Jens Christensen and Mark Spiegel

FRBSF Economic Letter, 2019

Abstract: After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan?s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.

Date: 2019
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