1.   Further small cuts in nominal rates would be welcome but are not enough.

2.   However low nominal rates of interest go, they still remain positive in real terms.

3.   Inflation, if still a problem, was much lower than in the previous decade and nominal rates of interest were also lower.

4.   The nominal rate of interest has two components.

5.   As inflation falls, short-term real interest rates rise, unless the ECB cuts nominal rates.

6.   A real interest rate is a nominal rate minus the inflation rate.

7.   Economists expect the bank to lower rates again, raising the possibility of zero or even negative nominal rates.

8.   Once investors finally admit that inflation is under control for the foreseeable future, real interest rates and thus nominal rates will fall.

9.   Putting it another way, deflation has left Japan with a real interest rate considerably higher than the nominal rate.