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Why Has There Been No Inflation in Japan?

In: Inflation and Deflation in East Asia

Author

Listed:
  • Markus Heckel

    (German Institute for Japanese Studies)

  • Franz Waldenberger

    (German Institute for Japanese Studies)

Abstract

This chapter discusses inflation in Japan. It explains why inflation has not built up despite the extreme expansionary monetary policy by the Bank of Japan. Even amidst the recent global increase in inflation, the inflationary pressure has remained comparatively low in Japan. We argue that Japan’s low inflation is caused by two main factors: a declining and ageing population, and a labour market environment that constrains the bargaining position of employees. A new school of thought called Neo-Fisherism adds an interesting argument to the debate on inflation. Pointing theoretical and empirical research, it suggests that a higher inflation rate can be achieved by raising nominal interest rates. The idea is controversial and has yet to be tested by central banks. We also agree that it would be too risky for Japan to apply Neo-Fisherism, not least because the welfare gains from higher inflation remain dubious.

Suggested Citation

  • Markus Heckel & Franz Waldenberger, 2023. "Why Has There Been No Inflation in Japan?," Financial and Monetary Policy Studies, in: Frank Rövekamp & Moritz Bälz & Hanns Günther Hilpert & Wook Sohn (ed.), Inflation and Deflation in East Asia, chapter 0, pages 103-122, Springer.
    • Handle: RePEc:spr:fimchp:978-3-031-27949-2_7
    DOI: 10.1007/978-3-031-27949-2_7
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