COVID-19 Fiscal Expansion and Inflation Expectations in Japan

Christensen, Jens H. E.; Spiegel, Mark M.

Journal Article

COVID-19 Fiscal Expansion and Inflation Expectations in Japan

Abstract: The Japanese government’s strong response to the economic fallout from COVID-19 presents an opportunity to examine whether expansionary fiscal policies raise long-term inflation expectations. Analyzing market-based estimates of long-term inflation expectations in Japan shows that announcements of government fiscal stimulus under COVID-19 had no meaningful impact on investors’ long-term inflation expectations. This illustrates the challenge of moving long-term expectations after they become anchored below a central bank’s inflation target, as they have been in Japan.

Keywords: covid19; inflation expectations; fiscal expansion; Japan;