By Motoshige Itoh / Special to The Yomiuri Shimbun

11:00 JST, March 7, 2025

Three years will soon have passed since Japan’s consumer price inflation topped 2%. Has the Japanese economy escaped deflation? Is inflation here to stay, and will it gain momentum?

The Bank of Japan’s current “price stability target” is set at 2% year-on-year in the core consumer price index (CPI). The bank apparently wants to keep the inflation rate between 1% and 3%. If the rate falls below 1%, there will be a greater risk of a return to a deflationary economy. If it rises above 3%, the negative impacts of inflation will become more acute. There is also a risk that inflation will further increase, so it is not advisable to leave the situation unaddressed.

Currently, I don’t see any problem as the core CPI has remained more or less within the target range. Still, in 2024 inflation stopped falling and then in December grew to 3% for the first time in a year and four months. In January, inflation further rose to 3.2% on a year-on-year basis.

The core CPI does not include fresh food prices, which have stayed high. When you look at the prices of cabbage and other fresh goods, it is clear that the rise in prices is affecting consumers more severely than the core CPI would suggest. The shape of the Japanese economy going forward will depend largely on whether inflation subsides or remains high.

Japan had for many years been stuck with a deflationary economy. As a result, many people thought that even if prices rose temporarily in the wake of overseas inflation, such an increase would then abate.

This view derives from the fact that Japan’s population continues to shrink due to the low birth rate and an aging population. In this sort of situation, demand for goods and services should continue to drop — and so should prices.

The expectation that even if prices rise they will........

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