However, just as the prospects gradually began to look good for Japan’s economy to overcome the problems caused by the disaster, the sovereign debt crisis in Europe triggered new problems – a slowdown in overseas economies and the appreciation of the yen. As a result, after a sharp rebound, the pick-up in Japan’s economic activity has gradually slowed and is currently at a pause.
Since the mid-1980s, movements in both realized inflation and measures of longer-term inflation expectations have been somewhat muted, complicating the task of extracting the precise role of inflation expectations as a determinant of realized inflation. Faust and Wright (2013) review the literature on inflation forecasting and present evidence in support of the conclusion that measures of inflation expectations help predict the trend in inflation.