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What Drives Trend Inflation in Japan? :
A Trend-Cycle BVAR Decomposition Approach

日本語

January 30, 2026
Ryuichiro Hirano*1
Yutaro Takano*2
Kosuke Takatomi*3

Abstract

This paper estimates Japan's trend inflation and its determinants using a trend-cycle BVAR decomposition. The estimation results indicate that trend inflation in Japan remained subdued as the public had gradually lowered their medium- to long-term inflation expectations following the collapse of the asset price bubble in the early 1990s. The analysis further reveals that subdued real income growth, relative to the labor productivity and labor supply growth, also exerted downward pressure on trend inflation during the period from the 2000s to the early 2010s, when trend inflation was particularly restrained. These findings suggest that monitoring medium- to long-term inflation expectations and trends in structural factors of the economy is important for assessing its long-run inflation trend.

JEL classification
C22, E24, E31, E52, E58

Keywords
Trend Inflation, Trend-Cycle BVAR Decomposition

The authors would like to express appreciation to Yuichiro Ito, Sohei Kaihatsu, Yoshiyuki Kurachi, Takushi Kurozumi, Yuji Maruo, Toshitaka Maruyama, Takahiro Minami, Teppei Nagano, Jouchi Nakajima, Koji Nakamura, Akio Okuno, and the staff at the Bank of Japan for their valuable comments and suggestions. The authors also received insightful comments from Ippei Fujiwara (Keio University and the University of Tokyo), Hans Genberg (Asia School of Business), Mikael Juselius (Bank for International Settlements), Kyu Ho Kang (Korea University), as well as other participants of the BIS-ACC Research Network on Inflation Expectations and Central Bank Policy. Any remaining errors are attributable to the authors. The paper does not necessarily reflect the views of the Bank of Japan.

  1. *1Monetary Affairs Department, Bank of Japan
    E-mail : ryuuichirou.hirano@boj.or.jp
  2. *2Monetary Affairs Department (currently Personnel and Corporate Affairs Department), Bank of Japan
    E-mail : yuutarou.takano@boj.or.jp
  3. *3Monetary Affairs Department, Bank of Japan
    E-mail : kousuke.takatomi@boj.or.jp

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