A very low inflation rate increases the risk that an adverse shock to the economy would be more difficult to counter effectively. Indeed, there is an especially pernicious, albeit remote, scenario in which inflation turns negative against a backdrop of weak aggregate demand, engendering a corrosive deflationary spiral. Until recently, this topic was often regarded as an academic curiosity.
Moreover, from a viewpoint of strengthening the foundations for economic growth, and to support voluntary efforts by firms and financial institutions toward raising Japan’s productivity, the Bank prepared a framework for providing funds up to four years at a low interest rate equivalent to the policy interest rate, and has already been implementing it.