Prices & purchasing power — Japan · Synthesis

Positive inflation, against the current. In 2024, inflation stands at around 2.7% (Statistics Bureau), a high level for Japan but one that mainly reflects the exit from chronic deflation of more than two decades. Unlike in the West, the return of inflation is experienced there as a change of era rather than a crisis.

The weight of the weak yen. The sharp depreciation of the yen has raised the cost of imports (energy, food, raw materials), importing part of the inflation. This is a central factor in Japan's price increases, distinct from the demand-driven dynamics in the West.

A prolonged deflation. For more than twenty years, Japan experienced deflation or near-zero inflation, associated with stagnant wages and consumption ('lost decades'). This legacy shapes behaviour (preference for saving, expectations of stable prices).

Rising wages. The recent rise in wages ('shuntō', see Labour category) is the condition for a durable exit from deflation: the aim is to trigger a virtuous wage-price cycle, the explicit objective of the Bank of Japan.

Purchasing power. As elsewhere, the rise in prices initially weighed on purchasing power before wages followed. The challenge is for real wages to grow durably after decades of stagnation.

Anchoring inflation around 2%. The Bank of Japan's objective is to durably anchor moderate inflation (2%), accompanied by wage increases — the inverse of the Western challenge. Monetary normalisation (see Economy category) accompanies this process.

The wage-price cycle. The durability of positive inflation depends on the spread of wage increases throughout the economy, including to SMEs and non-regular workers (see Labour category).

Yen and energy. The evolution of the yen and imported energy prices remains a key factor for prices, in a country highly dependent on energy imports (see Environment category).

Expectations. Shifting price expectations anchored by decades of deflation is a monetary policy challenge specific to Japan.

The open questions. Three issues will shape the period ahead: (1) anchoring moderate inflation after deflation; (2) spreading wage increases; (3) managing the yen and energy.

In its international context, Japan is on a price trajectory that is the inverse of the West's: it is emerging from deflation, whereas others are emerging from an inflationary peak.

Three lessons. (1) A modest inflation peak. Japan's peak (≈ 2.5% in 2022–2023) was far lower than Germany's (≈ 8.7%) or the euro area's — Japan did not experience a comparable inflationary shock.

(2) 2024 inflation in line with the average. At ≈ 2.7%, Japan's 2024 inflation is close to that of Western countries, but its nature (exit from deflation, weak yen) differs radically.

(3) An inverted challenge. Japan's challenge is not to bring inflation down but to anchor it positively with wages — a unique case among the major economies.