Prolonged Price Inflation... Japanese Government Considers Declaring 'Escape from Deflation'

Consumer Price Inflation Rate 3.1%... Largest Increase in 41 Years
"Kishida Aims to Boost Approval Ratings by Highlighting Economic Achievements"

Kyodo News reported that the Japanese government is considering declaring an end to 'deflation (price decline amid economic stagnation)' for the first time in 23 years, taking into account the rising inflation trend. The media analyzed that Prime Minister Kishida Fumio aims to use this declaration as an economic achievement to boost his approval ratings.

According to Kyodo News on the 2nd, the Japanese government plans to decide whether to declare that the Japanese economy has escaped deflation after observing the results of the spring wage negotiations known as 'Chuntu (春鬪)' and inflation forecasts.

Japanese Prime Minister Fumio Kishida holding a press conference at the Tokyo Prime Minister's Official Residence.
[Photo by Yonhap News]

As for the method of declaration, specific options being discussed include Prime Minister Kishida Fumio and relevant ministers holding a press conference to announce it or explicitly stating it in the monthly economic report, which summarizes the official views on economic trends.

In March 2001, the Japanese government first acknowledged in materials released alongside the monthly regular report that "(the Japanese economy) is in mild deflation." The Japanese economy fell into a vicious cycle characterized by falling prices, deteriorating corporate earnings, stagnant wage growth, and sluggish personal consumption following the end of the so-called 'bubble economy.'

Previously, the Japanese government and the Bank of Japan (Japan's central bank) emphasized that stable inflation exceeding 2% is necessary for Japan to overcome the chronic problem of deflation.

After Russia's invasion of Ukraine in February 2022, global raw material prices rose and the yen depreciated, leading to a 3.1% increase in Japan's consumer prices last year?the largest rise in 41 years since 1982?and a 2.0% increase in January this year compared to the previous year. Additionally, Kyodo News reported that the overall demand shortage in the Japanese economy, which was cited as a cause of deflation, has almost been resolved.

In this context, Ueda Kazuo, Governor of the Bank of Japan, stated at the House of Representatives Budget Committee on the 22nd of last month that he expects "an upward trend to continue" in price movements and that "Japan is in a state of inflation, not deflation."

On the same day, when the Nikkei 225 average stock price, Japan's representative stock index, reached an all-time high for the first time in 34 years and 2 months, Prime Minister Kishida expressed confidence, saying, "The Japanese economy has started to move now."

Kyodo News explained, "The Japanese government sees that the environment allowing it to judge that prices have stopped continuously falling has been established," and "If it declares an escape from deflation, it will be acknowledging that it has broken free from the shackles that have hindered stable growth for 23 years."

It added, "Behind the Kishida administration's intention to declare an escape from deflation is the desire to appeal the achievements of economic policy and raise approval ratings," and "Within the government, there are also considerable voices urging caution about recognizing the escape from deflation too early."