The Bank’s strong policy commitment, which has “borrowed” the effects of low future interest rates and kept long-term interest rates stable at low levels, can be said to have succeeded in keeping real interest rates low enough to prevent the economy, which has been suffering from deflation, from falling into a deflationary spiral.
However, the potential growth rate of the economy and the marginal productivity of capital have declined, causing firms to revise downward their forecasts for the GDP growth rate and remain cautious in investing.