Japan has experienced persistently low inflation in recent years due to a complex set of factors that have reduced demand and upward pressure on prices.
Japan has experienced low inflation for several reasons, including:
- Demographics: Japan has an aging population, which has led to a decline in consumer spending and demand for goods and services. This has put downward pressure on prices, as companies face weaker demand for their products.
- Monetary policy: The Bank of Japan has pursued a very accommodative monetary policy, with low-interest rates and large-scale asset purchases, to stimulate the economy. However, this has also reduced inflationary pressures, as low-interest rates reduce the cost of borrowing and increase the supply of money in the economy, which can lead to lower prices.
- Productivity: Japan has faced declining productivity growth, which has limited the ability of companies to increase prices. When productivity growth is weak, it becomes more difficult for companies to raise prices, even in the face of inflationary pressures.
- Global factors: The globalization of the economy has put downward pressure on prices, as goods and services can be sourced from lower-cost countries. This has created greater competition and reduced the ability of companies to raise prices.
These factors have combined to create a persistent shortfall of inflation relative to the Bank of Japan’s target of 2%. While the Bank of Japan has taken steps to increase inflation, such as increasing the money supply and lowering interest rates, the effects have been slow to materialize and inflation remains low.
