Decline in the potential growth rate is commonly observed among other advanced countries. Going forward, Japan’s potential growth rate is expected to gradually rise toward about 1 percent, while the actual economic growth will exceed the potential growth rate. The output gap will be expected to improve from summer 2014 through fiscal 2015, and remain in the positive thereafter.
The effectiveness of sterilized intervention most probably arises from portfolio balance effects in the context of imperfect capital mobility. We also attempt to lean against prolonged overvaluation of the real exchange rate, also using sterilized intervention. However, there are constraints on the extent to which this is practically feasible.