Going through this process, demand will increase and prices will start to rise in reality toward the price stability target of 2 percent. This in turn will reinforce the public’s expectations that prices will rise stably in the future, thus contributing to low and stable expected real interest rates.
As I have explained, Japan’s economy, which had fallen into the vicious cycle of deflation and shrinking demand, is indeed on the verge of entering the virtuous cycle of moderate and stable inflation as well as increasing demand.