South Asia and Beyond

Japan to Announce Official End To Deflation

 Japan to Announce Official End To Deflation

Japan has announced that the country’s economy has overcome deflation, Kyodo news agency reported.

The government will consider making the statement after taking into account this year’s wage negotiations to check if pay is increasing in accordance with rising prices, according to the report.

In the days to come, it is expected that Prime Minister Fumio Kishida along with other members of his cabinet will announce that the country has exited deflation at meetings and press conferences, Kyodo reported.

Markets are keeping close watch on the timing of the Bank of Japan’s next interest rate increase, which would be the first since 2007. The central bank governor said the central bank will continue to check “whether the virtuous cycle between wages and price began to turn.”

While Japan has maintained that the country is “not in a state of deflation,” it has yet to confidently declare that deflation is in the rearview mirror. It has struggled for years to dispel deeply rooted public perceptions that prices and wages will not rise.

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Japan’s benchmark inflation exceeded estimates in January, with most consumer prices rising 2%. It was the 22nd straight month in which inflation matched or exceeded the nation’s central bank target.

Recently, Japan’s economy slipped into recession after shrinking for a second quarter due to low domestic demand. It grew 1.9% in 2023 in nominal terms – meaning it is not adjusted for inflation.

Much of Japan’s economy falling has been attributed to the yen’s sharp falls against the dollar over the past two years. A weaker yen eats into profits on exports when earnings are repatriated.

There are also other challenges that Japan faces. A shrinking population along with lower birth rate is expected to worsen worker shortage in Japan. It may lead to further fall in GDP.

During the economic boom of 1970s and 80s, there were predictions that it overtake the US as the world’s biggest economy.