Other things being equal, population ageing should boost price pressures. But that hasn’t happened in Japan because there has been an offsetting increase in the share of adults willing to work. Instead, perhaps the key channel through which population ageing is affecting the inflation outlook is by adding to pressure on the government to raise taxes or cut spending elsewhere to create room for greater outlays on healthcare and pensions. This in turn puts the onus on the Bank of Japan to keep monetary policy loose.
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