Because of its unique characteristics (extremely large but largely domestic debt per capita, persistent deflation etc), the Japanese economy may benefit from the global inflation
Japan is potentially entering a significant phase in its 25-year struggle against deflation, as both price and wage increases indicate a broader shift, according to a government statement on Tuesday, August 29th. This positive perspective aligns with the Bank of Japan’s (BOJ) viewpoint that corporate pricing and wage – setting behavior are evolving, possibly allowing the nation to reduce its extensive fiscal and monetary support. The government’s annual economic white paper acknowledged that since spring 2022, Japan has experienced more widespread price and wage growth. This suggests a turning point in the battle against deflation, with the possibility of emerging from it, supported by increasing inflation and changing perceptions of consistent price declines.
While progress is noted, the report does not declare deflation fully eliminated, emphasizing the importance of monitoring services prices to gauge domestic demand and wages accurately. Despite these advances, the report underscores the need to address the entrenched deflationary mindset and collaborate with the BOJ for sustainable wage growth. The Japanese government’s priorities are shifting due to rising commodity costs, a tightening job market, and concerns over higher living expenses.
