Even after the recent resumption of base pay increases, the rate is less than 1 percent (Chart 8).8  Fourth, Japan's deflation equilibrium cannot be theoretically explained on the basis of the 1 percent long-term inflation expectations (Chart 9). I will elaborate on the fourth point. Let us assume that there is a zero nominal interest rate bound.
Even if that is the case, as long as long-term inflation expectations are meaningfully positive, the real interest rate will fall below the natural rate of interest, which is around 0 percent, by making the real interest rate negative. In this case, monetary policy should be effective, and Japan's economy should be able to get out of deflation equilibrium.