Using the Phillips curve, this study estimates the long-term expected inflation and the degree of the anchoring of inflation to long-term expectations. The analysis finds that there have been drastic changes in the dynamics of inflation expectations since 2012. Long-term expectations fell to around 1%, hovering below the target. Moreover, inflation expectations are strongly anchored to long-term expectations, implying that the low inflation trend may persist for an extended time. This means that even if inflation rises temporarily, it can fall back to a low level that is short of the target.

Accordingly, support must be provided to stable economic activities while monetary policies are managed in a manner that helps the expected inflation settle within the target range. The monetary authorities need to rigorously analyze the structural changes that may be lying in wait underneath the surface of inflation dynamics, and reexamine the problems within the management system that could impede inflation stability. It is also worth considering a preemptive position when presenting policy directions, which can serve as a reminder of the authority’s strong commitment to inflation stability. Indeed, long-term inflation expectations could close in on the target while inflation settles within the target range when economic agents have a strong belief in this commitment.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Literature Review

Chapter 3 Survey on Inflation Expectations

Chapter 4 Estimation of Inflation Expectations
　Section 1 Phillips Curve Model
　Section 2 Kalman Filter Model
　Section 3 Data for Analysis
　Section 4 Linear Regression Analysis Results
　Section 5 Kalman Filter Analysis Results

Chapter 5 Discussion and Policy Implications

Chapter 6 Conclusion

References
Appendix
ABSTRACT