What can inflation expectations and core inflation tell us about monetary policy in Japan? 1

As a primary goal of monetary policy, price stability in Japan is generally considered to include not only stability of current measured inflation rates, but also price stability in the medium to long run. The Bank of Japan has never set a numerical target or monitoring range for a specific price or money index, ² yet the framework has maintained stability in measured inflation rates since the latter half of the 1980s. At the same time, however, the Japanese economy has experienced turbulence owing to the emergence and collapse of the so-called ‘asset price bubble’. Such events provide reasons for the Bank of Japan now to check whether or not its policy approach is appropriate in the pursuit of its ultimate objectives.