The recent environment surrounding consumer prices contains various unfavorable factors, such as (1) an expected delay in the improvement in the output gap due to the slow recovery in the real economy, (2) an expected lack of momentum in the pace of year-on-year wage growth following the labor-management negotiations this spring, and (3) the possibility that the yen’s appreciation since the beginning of the year will affect the underlying inflation trend that has been led by rising prices of food products and durable consumer goods.
In addition, the rate cuts into negative territory have acted as expected through the exchange rate channel. Negative policy rates have generally not been associated with the problems that likely were anticipated. Adverse effects on money market functioning have been limited. Cash holdings have not risen significantly in these countries, in part because of nonnegligible costs of insuring, storing, and transporting physical cash.