Such price developments are attributable to a protracted negative output gap. Specifically, in addition to cyclical factors such as the decline in overseas demand, structural weakness in domestic demand brought about by demographic developments in Japan has resulted in a protracted shortage of demand relative to supply in the economy as a whole.
Japan’s population is aging faster than that of any other of the advanced countries, and its working-age population (defined as those aged between 15 and 64) has begun to decrease. The pace of population decline is likely to accelerate in the future.