The Bank raises inflation expectations through a strong and clear commitment to achieving the price stability target of 2 percent and large-scale monetary easing to underpin the commitment (Chart 6). At the same time, the Bank exerts downward pressure on nominal interest rates across the entire yield curve through massive purchases of Japanese government bonds (JGBs). As a result, long-term real interest rates decline.
The key factors at play here are the strong world demand and prices for energy and non-energy commodities, and the decline in the prices of many manufactured goods, but especially consumer goods, because of strong global competition. These developments and the differing economic circumstances across regions are the reason why some people argue for a monetary policy that is differentiated by region.