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EXPERT COMMENT

Although low relative to other G7 economies, Japan’s positive inflation is likely to be sustained and could lead to long-term structural shifts in its economy.

The Japanese economy stands out among G7 economies for its historically low inflation. Between 1992 and 2021, prices increased only six per cent in Japan compared to almost 80 per cent in the UK and more than 90 per cent in the US.

So far, this picture has not changed in the face of the latest global inflation surge. Many countries have recently recorded year-on-year inflation rates approaching 10 per cent, but Japanese inflation has risen by much less – from 0.1 per cent per annum in October 2021 to 2.6 per cent per annum in July 2022.

Japan has faced the same external inflationary pressures as other major economies – notably the food and energy crisis that has followed Russia’s invasion of Ukraine, and the impact of supply chain bottlenecks as the global economy recovered from the COVID-19 pandemic. However, there are two reasons why the impact on Japan’s inflation has so far been lower than elsewhere.

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