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Japan's Economy and Prices over the Past 25 Years: Past Discussions and Recent Issues

日本語

December 13, 2024
Ichiro Fukunaga*1
Yoshihiko Hogen*2
Yoichi Ueno*3

Abstract

This paper provides an overview of economic activity and prices in Japan since the 1990s, based on discussions mainly in academia as well as the survey of corporate behavior, and then discusses some issues related to the signs of change in recent years. In the 1990s, monetary policy faced a lower bound on nominal interest rates as the economy fell into stagnation and mild deflation due to various factors both on the demand and supply sides. In the 2010s, the economy recovered thanks to the effects of quantitative and qualitative monetary easing and other measures, which brought about a situation of no longer being in deflation. However, the "price stability target" of 2 percent could not be achieved while people's mindset and practices based on the assumption that wages and prices were unlikely to rise remained. After the pandemic in the 2020s, as the economic recovery and the tightening of labor markets as well as the surge in import prices have strengthened the virtuous cycle between wages and prices, it came in sight that the "price stability target" would be achieved in a sustainable and stable manner. Against this background, signs of change have been seen in the global economic landscape, labor markets, and firms' price-setting behavior. The mindset and practices based on the assumption that wages and prices were unlikely to rise, which took root during the deflation period, appear to be dissolving.

JEL classification
E31, E32, E52, F62, J20, O53

Keywords
Japan's economy, prices, labor market, globalization, monetary policy

This paper is based on the content of a presentation at the first session of the Second Workshop on the "Review of Monetary Policy from a Broad Perspective," entitled "Economic Activity, Prices, and Monetary Policy over the Past 25 Years," held on May 21, 2024. We received valuable comments from the discussants, Hiroshi Yoshikawa and Keiko Murata, as well as from participants in the workshop, Bank of Japan officers and staff, and Advisors to the Research and Statistics Department. We also received support from Kakuho Furukawa, Atsuki Hirata, Yojiro Ito, Kenji Kanai, Naoya Kato, Kazuki Otaka, Ayana Shibasaki, Yusuke Takahashi, Satoshi Tsuchida, and Sawako Yoshida in preparing analyses, figures, and English translation. We would like to express our gratitude to all of them. Any remaining errors are attributable to the authors. The views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan
    E-mail : ichirou.fukunaga@boj.or.jp
  2. *2Research and Statistics Department, Bank of Japan
    E-mail : yoshihiko.hougen@boj.or.jp
  3. *3Research and Statistics Department (currently Nagoya Branch), Bank of Japan
    E-mail : youichi.ueno@boj.or.jp

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