Under the QQE, the Bank puts strong downward pressure on nominal long-term interest rates through the massive purchases of JGBs. It also tries to raise people’s inflation expectations via the accumulation of the monetary base. The combination of the two will lower real long-term interest rates. That is an unprecedented challenge.
There are different views on the extent to which the massive supply of the monetary base can have a real impact on people’s inflation expectations. Nevertheless, lifting inflation expectations is one of just a few remaining policy options under these circumstances.