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This reflects their concern about declining potential economic growth (and the natural rate of interest) as well as weaker-than-expected inflation performance.Currently, economic growth is picking up in these economies.

The natural rate of interest refers to the real interest rate that equalises savings and investment in the steady state, or the equilibrium interest rate that neither accelerates nor decelerates economic activities and inflation.Many market participants, therefore, take a positive view of the current stronger growth momentum and optimistically call it ‘synchronised global growth’ that helps to maintain relatively high stock prices.By contrast, these central banks and academics are not necessarily enthusiastic about the current economic performance.The determinants of the natural rate of interest can be divided into structural factors and cyclical factors (Figure 3).Structural factors tend to be persistent, while cyclical factors – often called ‘headwinds' by the Federal Reserve – eventually dissipate. The structural factors contributing to the declining natural rate of interest in Japan reflect mainly declining potential economic growth, global factors, and Japan-specific factors leading to an increase in domestic saving over investment.

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