Working Paper（26-014E）Japan’s Missing Inflation Anchor Why It Matters for Prices and the Yen

For decades, Japanese inflation expectations were anchored near zero, helping stabilize prices but also making it harder for the Bank of Japan to escape deflation. That zero-percent anchor has now largely disappeared. Yet a new anchor at the BOJ’s 2 percent target has not taken its place. Japan is therefore caught between inflation anchors, leaving expectations—and potentially prices and the yen—more vulnerable to shocks. Establishing a credible 2 percent anchor is now a key challenge for monetary policy.