Inflation in Japan - statistics & facts
A combination of factors, including the global COVID-19 pandemic and Russia’s invasion of Ukraine, led to high inflation rates in many countries from the end of 2021. The Japanese economy showed a delayed response in comparison, with a negative inflation rate in 2021, but from 2022 onwards, inflation took hold, reaching its highest levels in decades.
Japan has struggled with deflation and stagnating prices for most of the time since the burst of the speculative asset price bubble in the early 1990s and the following decade of economic recession. In the past decades, Japan’s central bank, the Bank of Japan (BOJ) has therefore pursued a policy of monetary easing aimed at achieving a price stability target of two percent. An inflation rate of two percent is generally considered a healthy level of inflation, as it is thought to drive consumption and thereby stimulate economic growth.
Wage rises were therefore deemed crucial to achieve a virtuous cycle between prices and wages. At the annual Shunto spring wage offensive in 2024, unions negotiated the highest average pay raise in the past few decades. Following these developments, the Bank of Japan raised its short-term interest rate for the first time in 17 years in March 2024, ending its negative interest rate policy that had been adopted in 2016. Before, it had already abolished its yield-curve control that aimed to keep 10-year government bond yields at around zero percent.
Japan’s struggle with deflation
Japan’s consumer price index rose by 3.2 percent in 2023. The CPI measures the change in prices of a set basket of goods and services purchased by households over time. Annual or monthly changes in the index are referred to as the inflation rate. Indices such as the producer price index (PPI) measure the development of goods and services traded in the corporate sector and can serve as an indicator of price developments before prices are passed on to consumers.Japan has struggled with deflation and stagnating prices for most of the time since the burst of the speculative asset price bubble in the early 1990s and the following decade of economic recession. In the past decades, Japan’s central bank, the Bank of Japan (BOJ) has therefore pursued a policy of monetary easing aimed at achieving a price stability target of two percent. An inflation rate of two percent is generally considered a healthy level of inflation, as it is thought to drive consumption and thereby stimulate economic growth.
Impact of inflation in Japan
Compared to other major economies, Japan’s inflation rate has remained low. Unlike elsewhere, increasing prices sparked hope that the decade-long struggle with deflation might come to an end. Still, households have been hit hard by the moderate price increases. Wage growth in the country, which has stagnated for decades, could not keep up with the rising consumer prices. This consequently resulted in reduced purchasing power of households and lower consumer spending, threatening the central bank’s target of sustained inflation.Wage rises were therefore deemed crucial to achieve a virtuous cycle between prices and wages. At the annual Shunto spring wage offensive in 2024, unions negotiated the highest average pay raise in the past few decades. Following these developments, the Bank of Japan raised its short-term interest rate for the first time in 17 years in March 2024, ending its negative interest rate policy that had been adopted in 2016. Before, it had already abolished its yield-curve control that aimed to keep 10-year government bond yields at around zero percent.
