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Are Household Inflation Expectations Anchored in Japan?

Author

Listed:
  • Koichiro Kamada

    (Bank of Japan)

  • Jouchi Nakajima

    (Bank of Japan)

  • Shusaku Nishiguchi

    (Bank of Japan)

Abstract

This paper investigates household inflation expectations and discusses the central bank's ability to anchor them. We use micro-data from a household survey on inflation expectations and fit a normal inverse Gaussian distribution to the data to remove the distortions included in them. The underlying distribution thus obtained is examined to characterize household inflation expectations, particularly from the term-structure point of view. The analysis indicates that long-term expectations are immune to actual price developments, while short-term expectations are easily affected by actual inflation. The paper also investigates to what extent household inflation expectations have been influenced by the Bank of Japan's policy stance. The analysis shows that the price stability target and the quantitative and qualitative monetary easing, introduced by the Bank in 2013, contributed to strengthening the anchor of inflation expectations. Nonetheless, the anchor still needs to be improved so that household expectations are invulnerable to any disturbances in actual inflation rates.

Suggested Citation

  • Koichiro Kamada & Jouchi Nakajima & Shusaku Nishiguchi, 2015. "Are Household Inflation Expectations Anchored in Japan?," Bank of Japan Working Paper Series 15-E-8, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp15e08
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    References listed on IDEAS

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    6. Bharat Trehan & Oskar Zorrilla, 2012. "The financial crisis and inflation expectations," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep24.
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    Cited by:

    1. Coibion, Olivier & Gorodnichenko, Yuriy & Kumar, Saten & Pedemonte, Mathieu, 2020. "Inflation expectations as a policy tool?," Journal of International Economics, Elsevier, vol. 124(C).
    2. Hattori, Masazumi & Yetman, James, 2017. "The evolution of inflation expectations in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 46(C), pages 53-68.
    3. Fructuoso Borrallo Egea & Pedro del Río López, 2021. "Monetary policy strategy and inflation in Japan," Occasional Papers 2116, Banco de España.
    4. Mr. Gee Hee Hong & Rahul Anand & Yaroslav Hul, 2019. "Achieving the Bank of Japan’s Inflation Target," IMF Working Papers 2019/229, International Monetary Fund.
    5. Mototsugu Shintani & Naoto Soma, 2020. "The Effects of QQE on Long-run Inflation Expectations in Japan," CARF F-Series CARF-F-494, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    6. Siklos, Pierre, 2017. "What Has Publishing Inflation Forecasts Accomplished? Central Banks And Their Competitors," LCERPA Working Papers 0098, Laurier Centre for Economic Research and Policy Analysis, revised 01 Apr 2017.
    7. Sohei Kaihatsu & Noriyuki Shiraki, 2016. "Firms' Inflation Expectations and Wage-setting Behaviors," Bank of Japan Working Paper Series 16-E-10, Bank of Japan.
    8. Fructuoso Borrallo Egea & Pedro del Río López, 2021. "Estrategia de política monetaria e inflación en Japón," Occasional Papers 2116, Banco de España.
    9. Takatoshi Ito, 2021. "An Assessment of Abenomics: Evolution and Achievements," Asian Economic Policy Review, Japan Center for Economic Research, vol. 16(2), pages 190-219, July.
    10. Tomiyuki Kitamura & Masaki Tanaka, 2019. "Firms' Inflation Expectations under Rational Inattention and Sticky Information: An Analysis with a Small-Scale Macroeconomic Model," Bank of Japan Working Paper Series 19-E-16, Bank of Japan.
    11. Yasutomo Murasawa, 2020. "Measuring public inflation perceptions and expectations in the UK," Empirical Economics, Springer, vol. 59(1), pages 315-344, July.
    12. Gunji, Hiroshi, 2024. "Impact of the Kuroda Bazooka on Japanese households’ borrowing intentions," Japan and the World Economy, Elsevier, vol. 69(C).
    13. James Yetman, 2022. "What's Up with Inflation Expectations?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 55(1), pages 136-140, March.
    14. Murasawa, Yasutomo, 2017. "Measuring the Distributions of Public Inflation Perceptions and Expectations in the UK," MPRA Paper 76244, University Library of Munich, Germany.
    15. Yusuke Takahashi & Yoichiro Tamanyu, 2022. "Households' Perceived Inflation and CPI Inflation: the Case of Japan," Bank of Japan Working Paper Series 22-E-1, Bank of Japan.
    16. Nam, Minho & Go, Minji, 2018. "Nexus between Inflation, Inflation Perceptions and Expectations," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 40(3), pages 45-68.
    17. Evelyne Dourille-Feer, 2015. "Can the magic of Abenomics succeed?," Working Papers 2015-24, CEPII research center.
    18. Yuichiro Ito & Sohei Kaihatsu, 2016. "Effects of Inflation and Wage Expectations on Consumer Spending: Evidence from Micro Data," Bank of Japan Working Paper Series 16-E-7, Bank of Japan.

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    More about this item

    Keywords

    inflation expectations; term structure; expectations dispersion; inflation target; inflation anchor; quantitative and qualitative monetary easing;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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