The formation of inflation in Japan can be divided into three stages:
1. Stage One: Yen Depreciation and Import Cost Push (2022-2024)
A weaker yen pushed up the import costs of energy, food, and raw materials, which businesses gradually passed on to consumers. Inflation in this stage was mainly driven by external factors.
2. Stage Two: Food Price Increases and Spread of Corporate Price Hikes (2024-2025)
Prices of food, daily necessities, and services continued to rise, and corporate price increases gradually spread from some goods to more industries. Japan's domestic price adjustment mechanism began to change.
3. Stage Three: Wage Increases and the Formation of Endogenous Inflation (2026-Present)
Labor shortages drove up wages, and companies continued to raise prices to compensate for labor costs; wage increases, in turn, supported consumption and corporate pricing power. The Bank of Japan believes that underlying inflation has reached around 2%.
Four Main Factors Driving Japanese Inflation
1. Yen Depreciation: Pushes up the costs of imported goods and energy, and remains a risk to upward inflation.
2. Crude Oil Prices: Pushes up fuel, transportation, and electricity costs; the situation in the Middle East continues to exert pressure.
3. Rising wages: Drive up service prices and business costs, becoming a significant support for endogenous inflation.
4. AI demand: Increase demand for semiconductors, electronic products, and related investments, adding price pressure to some industries.
