Japanese govt is contemplating on officially declaring an end to the prolonged battle against deflation

The Japanese government is considering making an official declaration signaling the end of the prolonged struggle against deflation, as reported by Kyodo News, citing sources familiar with the situation.

According to the report, this contemplation arises after nearly two decades of Japan wrestling with slight declines in prices. Despite consistently denying being in a state of deflation, Japan has faced challenges dispelling entrenched public perceptions of stagnant prices and wages.

“The recent increase in inflation, primarily driven by elevated import costs, along with the prospect of sustainable wage growth, is perceived as paving the way for Japan to abandon its battle against deflation,” stated the sources in communication with Kyodo News.

The government is closely monitoring labor-management wage negotiations and the trajectory of inflation to determine whether conditions have matured enough for a definitive departure from deflationary pressures.

For Japan, persistent deflationary pressures have perpetuated a harmful cycle, where declining prices have limited corporate profits and hindered wage growth, subsequently stifling private consumption – a crucial element of the economy. Therefore, an official declaration would signify the removal of a significant impediment to Japan’s economic growth.

Possible avenues for a formal announcement include Prime Minister Fumio Kishida or Cabinet members making a public statement, or the government issuing a declaration in its monthly economic report. However, government officials suggest that any decision will depend on economic performance and ultimately rest with the Prime Minister.

“June will be crucial,” remarked one government official, referring to upcoming policy measures aimed at boosting domestic demand, such as income and residence tax cuts for Japanese households. Nonetheless, there is caution within the government regarding the timing of declaring an end to deflation, given lingering uncertainties in the price outlook and the broader economic landscape.