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BoJ policy rate will settle at 0% in the long run

The wage-setting behaviour of Japanese firms has changed over the last couple of years and to reflect this we’re revising our long-run inflation forecast from 0.5% to 1.0%. However, that would still mean that inflation will settle well below the BoJ’s 2% target. Accordingly, short-term interest rates will remain close to 0% for the foreseeable future, while real interest rates will become even more negative.

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