Meanwhile, on the price front, CPI inflation fell back into negative territory, and inflation expectations started to slide (Chart 2). With only little room to lower interest rates, it did not take much time for Japan to face the zero lower bound on interest rates again and real interest rates remained elevated.
At the same time, in line with the falling potential growth rate since the 1990s, the natural rate of interest – that is, the interest rate at which the economy neither accelerates nor decelerates – had declined substantially (Chart 4).