Japan's inflation is displaying persistent characteristics, with the Consumer Price Index (CPI) rising for 50 consecutive months and over 20,000 food items experiencing price hikes. What are the key factors driving Japan's current severe inflationary environment?
First, imported inflation plays a significant role. As a resource-scarce and export-oriented economy, Japan heavily relies on imports for upstream materials and exports for downstream products. Rising prices of commodities such as energy, food, and raw materials have directly contributed to domestic price increases. The prolonged ultra-low interest rate policy by the Bank of Japan (BOJ), leading to sustained yen depreciation, has further exacerbated the situation.
Second, supply-side gaps remain unresolved. Rice prices hold considerable weight in Japan's inflation metrics. Since the summer of 2024, extreme heat-induced poor harvests have driven rice prices upward, becoming a major driver of this inflationary cycle. Data from Japan's Ministry of Agriculture, Forestry, and Fisheries shows a 217% year-on-year surge in domestic rice wholesale prices in 2024. Despite new government rice reserve release measures, prices remain elevated. Additionally, Japan's aging agricultural workforce and abandoned farmland hinder short-term supply recovery.
Third, monetary policy has lagged. After enduring prolonged deflationary pressures and premature tightening due to "false inflation signals," the BOJ has been hesitant in tackling inflation. Although core inflation has exceeded the central bank's target for three years, Governor Kazuo Ueda previously maintained a "transitory inflation" stance, delaying monetary normalization and inadvertently fueling price surges.
Lastly, new fiscal stimulus measures have backfired. Sanae Takaichi, seen as a political heir to Shinzo Abe, has continued expansionary fiscal policies despite shifting economic conditions. While her administration prioritized addressing inflation in policy speeches and approved a large-scale stimulus package on November 21—including subsidies and gasoline tax cuts—these measures risk worsening long-term inflationary pressures.
These intertwined factors have created stubborn inflation in Japan, with signs of evolving from imported to domestically driven inflation—a trend likely to persist and burden Japanese households.
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