Sayuri Shirai: Central banks' challenges in a rapidly changing global
economic environment
Speech by Ms Sayuri Shirai, Member of the Policy Board of the Bank of Japan, at the
Monetary Authority of Singapore, Singapore, 7 January 2014 and keynote speech at the
Eurasia Business and Economics Society Conference, Singapore, 9 January 2014.
* * *
Accompanying charts can be found at the end of the speech.
I. Introduction
It is a great honor to visit Singapore and have this opportunity to address you today. I am a
Policy Board member of the Bank of Japan (BOJ), responsible for making decisions on the
conduct of monetary policy with Governor Haruhiko Kuroda and seven other members.
Based on the experience I have gained from being in my current position, I would like to
express my views on recent issues related to monetary policy and central banks' challenges
in the face of a rapidly changing global economic environment.
I will begin my speech by talking about the adjustment process of the global economy. I will
then focus on common features observed under the monetary policy framework in advanced
economies (namely, the United States, the euro area, Japan, and the United Kingdom), as
well as major challenges faced by the central banks in these economies. Next, I will
concentrate on emerging (and developing) economies, especially in the Asian region
(including India, Indonesia, Thailand, South Korea, and China), and introduce the challenges
faced by their central banks in the context of greater linkages with global financial markets.
Lastly, I will provide a review of issues related to the effects of monetary policies adopted by
these central banks on one another and the ongoing debate on measures to cope with them.
II. Three stages of the adjustment process of the global economy
More than five years have passed since Lehman Brothers' collapse in 2008 and the
subsequent global financial crisis, and yet the global economy still faces a negative output
gap (or demand shortage). In general, the global financial crisis has exerted relatively large
negative effects on advanced economies, while emerging economies have weathered the
crisis relatively well. Meanwhile, the global economy has been following the path toward
recovery, which can be divided into three stages.
First stage of the economic adjustment process: 2007-09
First of all, the global economy had been highly synchronized, focusing on the start of an
apparent slowdown in the U.S. economy from 2007 and on the immediate aftermath of the
global financial crisis up until 2009. This is demonstrated by the high level of correlation
among countries, and between advanced and emerging economies, in terms of real GDP
growth rates (Chart 1). This high correlation reflected the result of the global financial crisis
triggered by the largest economy in the world, the United States, from which the contagion
spread to the largest economic region, the euro area, mainly through financial linkages. At
the same time, the synchronization - together with the collective worldwide efforts to inject
monetary and fiscal stimulus - reflects how the global economy overcame a severe
recession by the end of 2009.
Second stage of the economic adjustment process: 2010-12
Subsequently, the global economy entered a second stage in which a divergence emerged
between the growth paths of advanced economies and emerging economies. This is shown
by a sharp drop in the correlation of real GDP growth rates between those economies
(Chart 1). Advanced economies remained relatively weak during this recovery, and the
peripheral economies in the euro area began to face severe fiscal austerity and recession
with the occurrence of the debt crisis from 2010 (Chart 2). Nonetheless, advanced
economies coped with large negative output gaps through unprecedented aggressive
monetary easing, thereby preventing these economies as a whole from falling into a double
dip recession. In contrast, emerging economies posted relatively high growth, and those in
the Asian region in particular gained growth momentum and became the main driving force
for global economic growth. The favorable growth performance in emerging economies
helped advanced economies by encouraging an increase in external demand, mainly through
trade and foreign direct investment (FDI) channels, and this supported activities of
multinational firms in advanced economies.
The strong growth dynamics of emerging economies are partly attributable to steady
improvement in economic fundamentals achieved after the Asian currency crisis of 1997-98.
This is evidenced by, for example, relatively strong fiscal and government debt positions,
reduced external debt positions, an accumulation of foreign reserves as buffers, and a
relatively resilient financial sector with better prudential regulation and surveillance.
Moreover, the emergence of the middle class strengthened these economies' domestic
demand for goods and services, offsetting weak external demand deriving from sluggish
advanced economies. In addition, China's strong growth - mainly driven by the large-scale
fiscal stimulus package implemented in 2009-10 and the accommodative monetary policy -
supported other emerging economies through greater intra-regional trade and production
linkages, as well as FDI activities in the Asian region. The resilient domestic demand and
growing regional economic activities not only allowed many of the Asian emerging
economies to achieve above-trend economic growth, but also caused an overheating in
some of the economies, a heightening of inflationary pressures, and a rise in international
commodity prices.
Third stage of the economic adjustment process: 2013-Present
The third stage of the global economic adjustment process appears to have begun in 2013,
as the economic growth landscape had changed. In other words, emerging economies are
losing momentum to some extent, while advanced economies are improving (Chart 2).
According to the outlook of international organizations, such dynamics will continue and the
pace of economic growth is likely to be faster in advanced economies than that in emerging
economies for the next few years. The recovery in advanced economies is not particularly
robust, however, since their output gaps are likely to remain negative over the next few
years.1 Furthermore, the variance in the pace of growth is likely to become evident among
advanced economies, and differences in the monetary policy stances of central banks are
projected to gradually become evident. This might cause frequent changes in market
participants' views regarding the direction of accommodative monetary policy measures and
the interpretations of forward guidance adopted by the central banks in advanced
economies. The resulting impact of such behavior of investors on global financial markets
and the global economy warrants close attention.
Meanwhile, economic growth in many emerging economies has recently slowed somewhat.
This appears to reflect the moderation of the fiscal and monetary stimulus measures and
surfacing of structural problems in some economies (such as a deterioration in the fiscal and
current account deficits, private-sector debt accumulation, and signs of real estate bubbles)
(Chart 2). Over the past decade, the Asian region has strengthened financial linkages with
global financial markets through the portfolio investment channel, in addition to the existing
FDI channel. This portfolio investment channel has brought new challenges to emerging
economies, distinct from those encountered in the 1990s, when loans extended by foreign
financial institutions had been a major source of external financing, as will be described later.
III. Central banks' challenges in advanced economies
Next, I would like to talk about the common features observed regarding the monetary policy
framework adopted by major central banks in advanced economies, as well as their
challenges.
A. Common features related to monetary policy and the role of central banks
Since the global financial crisis, major central banks in advanced economies have actively
conducted accommodative monetary policy measures. Over the course of time, some
convergences and/or common features have become apparent regarding the conduct of
monetary policy and the role expected of a central bank. These are (1) the adoption of
2 percent, or close to 2 percent, as a target or a numerical definition of price stability; (2) the
growing importance of anchoring medium- to long-term inflation expectations to achieve price
stability; (3) large-scale purchases of financial assets as a nontraditional monetary policy
tool; (4) the adoption of forward guidance over the future monetary policy stance as another
nontraditional monetary policy tool; and (5) the strengthened role of central banks in light of
macroprudential policy. Let me now explain each of these features.
Feature (1): adopting 2 percent as the price stability target
First, the medium- to long-term price stability target for major central banks in advanced
economies has converged to 2 percent, or close to 2 percent, as a part of comprehensive
efforts to improve transparency over the conduct of monetary policy. The European Central
Bank (ECB) and the Bank of England (BOE) were forerunners in this regard, having already
adopted this price stability target prior to the global financial crisis, while the Federal Reserve
and the BOJ did so after the crisis.
• The Federal Reserve specified the longer-run goal for inflation as 2 percent in
January 2012, as measured by the personal consumption expenditure (PCE)
deflator.
• The ECB defined price stability as "below, but close to, 2 percent over the medium
term" in May 2003, as measured by the Harmonized Index of Consumer Prices
(HICP) for the euro area.
• The BOJ adopted the 2 percent price stability target in terms of the consumer price
index (CPI) in January 2013. It also stated that monetary easing will be pursued with
the aim of achieving this target at the earliest possible time.
• In the United Kingdom, the Chancellor adopted the 2 percent target in December
2003 when the reference indicator was changed from the Retail Prices Index
excluding mortgage interest payments to the CPI. The BOE conducts monetary
policy to achieve this target.
As one of the monetary policy decision makers at the BOJ, I would like to emphasize that the
adoption of the 2 percent target signifies a major transition in terms of Japan's historical
conduct of monetary policy. It symbolizes the BOJ's strong determination to overcome mild
deflation that has lasted for the past 15 years. During this time, the economy had been quite
depressed, with low levels of growth expectations, and a deflation-oriented mindset among
households, firms, and financial institutions had been prevalent. In order to avoid a return to
such a situation, the BOJ is currently exerting its full efforts to achieve the target, as I will
describe later.
The convergence of major central banks' price stability targets to the level of around
2 percent indicates a rather remarkable achievement in the context of the international
financial architecture. This is because, according to a remark by Mr. Jean-Claude Trichet, the
former President of the ECB, the four key currencies - the U.S. dollar, the euro, the
Japanese yen, and the pound sterling - "have now an affirmed global nominal anchor for the
first time since the dismantling of the Bretton Woods System."2 Currently, the actual level of
inflation in the four economies deviates from 2 percent, partly as the economies are still
recovering from the global financial crisis. Nonetheless, once economic conditions are
normalized, the central banks are expected to ultimately achieve price stability of around
2 percent.
In this circumstance, more stable developments in foreign exchange rates may be promoted
among major currencies in the long term. This may indirectly support the establishment of a
more stable international financial architecture. I believe that establishing a global nominal
anchor has an important implication for Japan as well, because the yen's long-standing
appreciating trend since the 1970s is likely to be closely associated with the consistently low
level of inflation relative to other advanced economies.
You may wonder why major central banks have chosen the numerical value of 2 percent.
This reflects the fact that central banks commonly believe it is important to have a sufficient
buffer with regard to inflation in order to avoid deflation, since deflation is more harmful to the
economy than mild inflation. In addition, central banks find it necessary to achieve inflation to
some extent in order to avoid the zero lower bound on short-term interest rates, in which
there is no room for a further decline in the policy interest rate. In other words, central banks
find it necessary to leave sufficient room for the conduct of flexible monetary policy by
achieving a certain level of inflation in normal periods, especially to cope with recessionary
phases.
Feature (2): anchoring medium- to long-term inflation expectations at around 2 percent
Second, the central banks in advanced economies pay close attention to developments in
medium- to long-term inflation expectations, because stability in such expectations is
essential to achieving long-term price stability. The Federal Reserve, the ECB, and the BOE
have judged that they have successfully anchored medium- to long-term inflation
expectations at around 2 percent. They currently hold the view that these expectations
remain well anchored although there may be some concerns that the inflation expectations
may become unstable. Therefore, one of the main tasks for these central banks is to
continue with monetary easing measures to seek economic improvement, while ensuring that
the anchored inflation expectations are maintained. Anchoring inflation expectations at
around 2 percent implies that actual inflation has a tendency to converge toward 2 percent in
the long term - although actual inflation may move above or below 2 percent on a daily basis
as a result of various effects, including those of business cycles, and of fluctuations in
commodity and food prices.
By contrast, the BOJ has not yet successfully anchored medium- to long-term inflation
expectations at around 2 percent. Thus, achieving the 2 percent price stability target is
particularly challenging relative to other central banks as this implies that the BOJ must aim
at achieving economic recovery and anchoring inflation expectations at a higher level than at
present. Achieving this aim of anchoring inflation expectations requires the BOJ to first help
transform the deflation-oriented mindset and behavior of all economic entities, and then
steadily raise their inflation expectations.
Feature (3): large-scale asset purchases as a nontraditional monetary policy tool
Third, the Federal Reserve, the BOJ, and the BOE have adopted nontraditional monetary
easing policy through asset purchase operations. This practice substantially differs from the
past, when monetary easing was conducted mainly through a reduction in a very short-term
nominal interest rate - namely, the policy interest rate. All three central banks and the ECB
have faced a situation in which very short-term interest rates declined to nearly zero after
Lehman Brothers' collapse in 2008.3 In such a situation, the Federal Reserve, the BOJ, and
the BOE have attempted to create an accommodative monetary environment by exerting
downward pressure on longer-term interest rates, which remain in positive territory despite
the policy rate reaching nearly zero (as pointed out later). For example, yields on government
bonds often function as a benchmark for measuring the long-term interest rates related to
corporate loans, corporate bonds, mortgages, etc. Therefore, downward pressure on
government bond yields is likely to contain funding costs, which may promote firms and
households to increase their economic activities.
• The Federal Reserve purchased longer-term Treasury securities at a pace of
45 billion U.S. dollars per month and agency mortgage-backed securities (MBSs) at
a pace of 40 billion U.S. dollars per month until December 2013. From January
2014, the pace of its asset purchases will be reduced to 40 billion U.S. dollars and
35 billion U.S. dollars, respectively. Meanwhile, the Federal Reserve is maintaining
the existing policy of rolling over maturing Treasury securities at auction and of
reinvesting principal payments from its holdings of agency debt and agency MBSs in
agency MBSs.
• The BOJ currently purchases Japanese government bonds (JGBs) at an annual
pace of about 50 trillion yen (on an outstanding basis) each year to double the
amount outstanding in two years (2013-14). It also purchases treasury discount bills
(T-Bills), exchange-traded funds (ETFs), Japan real estate investment trusts
(J-REITs), and other assets. While the amounts purchased are specified only for two
years at this stage, this does not mean that the purchases will end after two years,
as specified in forward guidance, which I will describe later in my speech.
• The BOE is maintaining the stock of past asset purchases, mostly consisting of gilts,
at 375 billion pounds.
In a statement issued by the Federal Reserve in December 2012, the economic conditions
for maintaining these asset purchases were described as "until such [substantial]
improvement [in the labor market] is achieved in a context of price stability."In June 2013,
Chairman Ben Bernanke provided more comprehensive guidance about the criteria related to
the decision to reduce the pace of asset purchases at the press conference. These included
(1) continued improvements in the labor market, (2) a moderate pick-up in economic growth,
and (3) the outlook that inflation would move back toward 2 percent over time. He also
stressed that, if incoming data were consistent with these outlooks, the reduction might begin
later in 2013 and the asset purchases might end by mid-2014. In December 2013, the
Federal Reserve decided to modestly reduce the pace of its asset purchases beginning in
January 2014, in light of the cumulative progress toward maximum employment and the
improvement in the outlook for labor market conditions. Also, it was indicated that the pace of
asset purchases will likely be reduced in further measured steps at future meetings (the
general consensus is that this will be a reduction of 10 billion U.S. dollars per meeting) if
incoming information broadly supports the expectation for ongoing improvement in labor
market conditions and for inflation moving back toward its longer-run objective of 2 percent.
The ECB's practices differ from those of the three central banks, since its major
nontraditional monetary policy tool is the "fixed-rate full allotment liquidity provision," for
which the duration is longer than normal open market operations with a wider range of
collateral accepted. The three-year longer-term refinancing operations (LTROs) were
conducted in 2011 and 2012, in addition to the three-month LTROs. Moreover, the Outright
Monetary Transactions (OMTs) were introduced in September 2012 in order to potentially
purchase an unlimited amount of sovereign bonds with a remaining maturity of one to three
years with a conditionality attached on the basis of a full or precautionary macroeconomic
adjustment program.4 Since the liquidity injected into the markets will be fully sterilized, this
measure is not regarded as a quantitative easing policy. Since 2013, some European banks
have started to make early repayments of the three-year LTROs.
Feature (4): forward guidance as a nontraditional monetary policy tool
Fourth, all four central banks have adopted forward guidance, which refers to a
communication strategy undertaken by central banks to provide information to the markets
and the public (households and firms) on its future monetary policy stance. In general, a
central bank uses forward guidance for two main purposes. One is as a communication
strategy to inform the markets and the public about the "normal" policy reaction function of
monetary policy (such as the Taylor rule). The other is to inform the markets and the public
that a central bank at the zero lower bound will pursue further monetary easing than would
have been expected under the normal policy reaction function by the markets and the public.
• The Federal Reserve indicated in December 2012 that it anticipated that a target
range of the federal funds rate of 0 to 0.25 percent would be appropriate at least as
long as "(1) the unemployment rate remains above 6.5 percent, (2) inflation between
one and two years ahead is projected to be no more than a half percentage point
above the [Federal Open Market] Committee's 2 percent longer-run goal, and
(3) longer-term inflation expectations continue to be well anchored." This guidance
was further strengthened in December 2013 with the addition of "it likely will be
appropriate to maintain the current target range for the federal funds rate well past
the time that the unemployment rate declines below 6.5 percent, especially if
projected inflation continues to run below the Committee's 2 percent longer-run
goal."
• The ECB stated in its introductory statement at a press conference in July 2013 "[it]
expects the key ECB interest rates to remain at present or lower levels for an
extended period of time. This expectation is based on the overall subdued outlook
for inflation extending into the medium term, given the broad-based weakness in the
real economy and subdued monetary dynamics."
• The BOJ used two descriptions regarding the time span of monetary
accommodation when quantitative and qualitative monetary easing (QQE) was
introduced in April 2013. The first was a statement of its intention to achieve the
2 percent price stability target at the earliest possible time, with a time horizon of
about two years. To fulfill this objective, the main operating target for money market
operations was switched from the uncollateralized overnight call rate to the
monetary base; it was then decided that the size of the monetary base would rise at
an annual pace of about 60-70 trillion yen, to be doubled in two years (2013-14).
The second description was a commitment to continuing with QQE as long as it was
necessary for maintaining the 2 percent target in a stable manner. This description
also added a condition that both upside and downside risks to economic activity and
prices would be examined, and that adjustments would be made as appropriate.5
• The BOE expressed in August 2013 "[it] intends not to raise Bank Rate from its
current level of 0.5 percent at least until . . . the unemployment rate has fallen to a
threshold of 7 percent, subject to the [given] conditions.6 [It also] stands ready to
undertake further asset purchases while the unemployment rate remains above
7 percent if it judges that additional monetary stimulus is warranted. But until the
unemployment threshold is reached, and subject to the [given] conditions, [it]
intends not to reduce the stock of asset purchases."
Here, I would like to highlight three differences regarding the structure of forward guidance.
On the first difference, the forward guidance adopted by the Federal Reserve, the ECB,
and the BOJ is used deliberately as an accommodative monetary policy tool aimed at
generating downward pressure on long-term interest rates, whereas this is not necessarily
the case with regard to the BOE. The BOE's intention is to clarify its policy reaction function
or to provide greater clarity about the Monetary Policy Committee's (MPC's) views on the
existing trade-off between inflation and unemployment and the associated monetary policy
stance. Charlie Bean, Deputy Governor of the BOE, explained in August 2013 that the
release of the guidance was to clarify the MPC's existing monetary policy stance rather than
to provide additional monetary accommodation.7 By reducing uncertainty, it aimed at
lowering term premiums and preventing upward movements in market interest rates.
Regarding the second difference, forward guidance is applied to the policy interest rate in
the case of the Federal Reserve and the ECB. The BOE appears to apply forward guidance
mainly to the policy interest rate. However, it is also linked to the possibility of further asset
purchases as well as maintaining the stock of past asset purchases. Recently, these three
central banks have been increasingly emphasizing forward guidance as the key monetary
policy tool. The BOJ, meanwhile, applies forward guidance to QQE as a package, not
specifically to the policy interest rate. Under QQE, the main operating target for money
market operations is the monetary base, and various assets (with JGB purchases being the
main operational tool) are purchased under the target.
As the third difference, while forward guidance in the Federal Reserve, the BOJ, and the
BOE is commonly regarded as "state-contingent" or "threshold-based," both the Federal
Reserve and the BOE include employment-related thresholds, unlike Japan. The Federal
Reserve has a dual mandate of promoting price stability and maximum employment, so the
reason for this is clear. The BOE places price stability as its primary mandate; however, the
inclusion of employment-related conditions may reflect the need to clarify the MPC's views
5
These two descriptions are mutually non-exclusive. The first description (which is a combination of
"statecontingent" and "calendar-based" forward guidance) could be regarded as a necessary condition to the
second description (which is a combination of "state-contingent" forward guidance and "conditional
commitment"). For more details, see Sayuri Shirai, "Monetary Policy and Forward Guidance in Japan,"
Speeches at the International Monetary Fund (September 19) and the Board of Governors of the Federal
Reserve System (September 20) Held in Washington, D.C., Bank of Japan, 2013.
6
The conditions are then defined in the form of the following three "knockouts": (1) the CPI inflation 18 to
24 months ahead will be 2.5 percent or above; (2) medium-term inflation expectations do not remain well
anchored; and (3) the Financial Policy Committee (FPC) judges that the stance of monetary policy poses a
significant threat to financial stability that cannot be contained by the substantial range of mitigating policy
actions available to the FPC. If any of these knockouts are breached, the above-mentioned guidance will be
ceased.
7
Charlie Bean, "Global Aspects of Unconventional Monetary Policies," Speech at the 2013 Economic Policy
Symposium, Federal Reserve Bank of Kansas City, 2013.
with regard to the trade-off between inflation and unemployment, in the face of high inflation
that is concurrent with a high unemployment rate.
By contrast, the need for the unemployment threshold to be used in the BOJ's guidance is
relatively small, owing to the fact that (1) the BOJ's primary mandate is to achieve price
stability and that (2) the current unemployment issue is more likely to be structural, rather
than cyclical. The unemployment figure for November 2013 was as low as 4 percent, close to
the lowest point in recent years of 3.6 percent in July 2007. The reason for the relatively low
unemployment rate level is that firms tend to flexibly adjust wages along the business cycle,
through bonuses and overtime hours for full-time regular workers and an adjustment of
working hours and days for part-time, non-regular workers. There are issues such as
differential treatment of regular and non-regular workers, and greater flexibility over labor
market regulations demanded by firms. However, these are structural issues that are beyond
the scope of monetary policy in Japan.
Regarding the ECB, no specific threshold is provided, unlike the three central banks. The
guidance seems to be based on the medium-term inflation outlook (while also paying close
attention to the economy as well as monetary aggregates and credit flows). At a press
conference held in August 2013, Mario Draghi, President of the ECB, explained that the
ECB's policy reaction function is linked to the outlook for price stability in the medium term in
a timely manner.
Feature (5): the strengthened role of central banks in light of macroprudential policy
Fifth, the global financial crisis has placed macroprudential policy as an increasingly
important policy. This reflects the view that stability in the financial system as a whole may
not be achieved solely with the existing "microprudential policy" (which monitors the
soundness of individual financial institutions). This arises from the shared view that the
"Great Moderation" period - which continued until the mid-2000s - successfully achieved
general price stability but failed to prevent a global financial crisis. Macroprudential policy
pays greater attention to major financial institutions and markets (and their relationship) as
major constituents of the financial system, as well as the relationship between economic
activity and the financial system. In this light, central banks closely monitor macroeconomic
and financial market developments, collect information regarding financial transactions, and
function as the lenders of last resort to individual financial institutions with the aim of
achieving financial stability. Thus, the use of these specific skills, knowledge, and functions is
considered effective as a means of optimizing the effects of macroprudential policy. In this
manner, central banks in some advanced economies have strengthened their role with
regard to enhancing macroprudential policy.
For example, in the case of the United Kingdom, the function of supervising financial
institutions was transferred from the Financial Services Authority (FSA) to the BOE with the
establishment of the Prudential Regulation Authority (PRA) in 2013. Also, the Financial
Policy Committee (FPC) was officially established at the BOE in 2013 as an entity to engage
in macroprudential policy. The FPC will introduce "countercyclical capital buffers" reflecting
the Basel III agreement, and is also expected to utilize "sector-based capital buffers" as
major policy tools. Furthermore, the FPC is currently seeking specific means by which to
encourage coordination with the Monetary Policy Committee (MPC) - which is in charge of
monetary policy conduct. With regard to the European Union (EU), moreover, the European
Systemic Risk Board (ESRB) - including the ECB president and vice presidents, as well as
the presidents of national central banks - was established in 2010 as a regional entity
responsible for macroprudential policy. The ESRB is responsible for identifying various risks
associated with the regional financial system, sending warning signals over the fragility
inherent in the financial system, and providing recommendations for corrective measures.
In the United States, the Financial Stability Oversight Council (FSOC) - where the Secretary
of the Treasury chairs the council and members include Chairman of the Federal Reserve
and other regulatory agencies - was established in 2010. The FSOC is responsible for
monitoring potential risks related to financial stability and to make recommendations to the
Federal Reserve on prudential regulations and supervision. Meanwhile, in Japan, the BOJ,
as the central bank, and the Financial Services Agency, as the primary financial regulatory
authority, are making coordinated efforts to promote financial system stability by making
contributions in their respective fields of responsibility. In this regard, the BOJ conducts
onsite examinations and off-site monitoring of individual financial institutions, and thereby
carries out various analyses on financial system stability and related risks from
macroprudential perspectives.
B. The major challenges faced by central banks in advanced economies
The nontraditional monetary policy measures are expected to generate positive effects on
the economies through various channels. Although they are interconnected, the main
channels can be summarized as (1) downward pressure on long-term interest rates; (2) the
portfolio-rebalancing effect; (3) wealth effects; (4) foreign exchange rates; and (5) credit
easing effects. Downward pressure on long-term real interest rates could be exerted either
through downward pressure on nominal interest rates by lowering term premiums or through
downward pressure on real interest rates by increasing medium- to long-term inflation
expectations. While downward pressure on the term premiums has been somewhat
expected by the four central banks, an increase in inflation exp