Why Has There Been No Inflation in Japan?

Markus Heckel () and Franz Waldenberger ()
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Markus Heckel: German Institute for Japanese Studies
Franz Waldenberger: German Institute for Japanese Studies

Chapter Chapter 7 in Inflation and Deflation in East Asia, 2023, pp 103-122 from Springer

Abstract: 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.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:fimchp:978-3-031-27949-2_7

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DOI: 10.1007/978-3-031-27949-2_7

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