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Japan inflation rate: Multi-year price rise highs prompt BOJ to reconsider low-rate stance

By Nicole Willing

Edited by Jekaterina Drozdovica

16:27, 2 November 2022

Japanese flag and wooden cubes with text, concept on the theme of inflation in Japan
Multi-year price rise highs prompt Bank of Japan to reconsider low-rate stance Photo: SergeyCo / Shutterstock

Japanese inflation held at an eight-year high of 3% in September, surpassing the Bank of Japan (BoJ)’s target of 2% for a sixth consecutive month, with import costs increasing as the Japanese yen (JPY) continues to trade at 32-year lows.

Despite the continued rise, inflation in Japan remains well below the levels seen in other developed countries. The 3% rate was well below the 10.1% reported in the UK, 9.9% in the eurozone, 8.2% in the US and 6.9% in Canada.

What influences the inflation rate in Japan and what do forecasts indicate about price growth in the future?

How is inflation measured in Japan?

The rate of inflation refers to the rate at which prices for goods and services in an economy rise over time, eroding purchasing power. A healthy inflation rate in the developed economies is considered to be around 2%. 

Central banks in most countries – including the BoJ – have set 2% as their target to maintain price stability. The BoJ has used a Yield Curve Control (YCC) policy framework since 2016 to manage inflation by buying and selling bonds to control long-term interest rates.

Inflation rises when demand for goods and services from consumers and businesses exceeds supply, driving up the prices that suppliers are able to charge. Rising costs for inputs such as raw materials and components can also cause inflation as suppliers pass on the higher prices to customers to protect their profit margins.

Inflation is measured by comparing the value of a basket of goods and services in a price index with the value of the index in past periods, whether months or years. There are different types of index that can measure inflation, such as a consumer price index (CPI), retail price index (RPI), personal consumption expenditure (PCE), or producer price index (PPI). Headline inflation refers to the overall data, while core inflation typically excludes volatile prices such as food and energy.

Inflation data is compiled by national statistics offices to help inform policy and provide information to the public. Japan inflation rate data is collected and published by the Statistics Bureau of Japan. Japan’s core CPI excludes fresh food but includes energy, while its underlying inflation figure excludes fresh food and fuel costs.

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Energy import costs drive up Japanese inflation

Japan inflation was 0.5% in January 2022. Little changed from 0.8% in December 2021 and 0.6% in November 2021. In fact, the country faced deflation at a rate of 0.23% in 2021 as the Covid-19 pandemic weighed on economic activity. The increase was driven by upward price pressure from raw material costs and the yen’s weakness. 

The Japan inflation chart shows the rate climbed to 1.2% in March. It jumped to 2.5% in April as the Russian invasion of Ukraine drove up energy prices and the US dollar began to rally with investors seeking safe haven from the geopolitical and economic volatility. Inflation stabilised around 2.5% until August, when it climbed to 3%, and held at that level in September. 

Japan’s inflation rate, October 2021 - September 2022

The core Japan inflation rate jumped from 0.2% in January to 2.1% in April, and rose from 2.8% in August to 3% in September.

The producer price index climbed by 9.7% in September, which was reflected in manufacturing data showing that factory output dropped for the first time in four months, as manufacturers struggled with rising raw materials costs and the slowdown in the global economy. The government said that output was likely to fall again in October before turning higher in November.

The rise in inflation above the BoJ’s target presents a challenge for the central bank, which is also seeking to maintain its low interest rate policy to support the economy’s recovery from the Covid-19 pandemic. Most other central banks in the world’s major economies are aggressively raising interest rates in an attempt to slow down inflation, which is increasing interest rate differentials to Japan and driving down the value of the Japanese yen. 


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+0.050% 1D Chg, %
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-0.130% 1D Chg, %
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Short position overnight fee -0.0002%
Overnight fee time 21:00 (UTC)
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0.67 Price
-0.400% 1D Chg, %
Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 21:00 (UTC)
Spread 0.00006

Meanwhile, the yen has fallen to 32-year lows against the US dollar, which is further driving up in inflation by increasing the cost of imported goods. The Japanese government spent a record ¥6.35trn ($43.1bn) to intervene in the foreign exchange market in October to prop up the yen.

USD/JPY exchange rate

On 28 October, the government announced a ¥39trn ($264bn) stimulus package to tackle inflation, including household energy bill subsidies and incentives for companies to raise wages, to be financed from issuing bonds. 

The latest stimulus follows a ¥3.5trn relief package announced in September that included cash payments to low-income households and measures to limit commodity price rises. In addition, the government fully reopened the country’s border to overseas visitors from 11 October, aiming to take advantage of the weak yen to boost the economy.

Why is Japan inflation persistently lower than the world’s other major economies? There are several factors keeping Japanese inflation well below the levels seen in other countries. 

Japan inflation history is tied to Abenomics – the economic policy pursued by the administration of Shinzo Abe – that aimed to bring the country out of a prolonged recession from 1993 until 2013.

Japan’s government price controls, rapidly ageing population affecting consumption, low wage growth limiting demand and low interest rates keeping down borrowing costs are limiting the scope for prices to rise. Additionally, Japan has been slower to emerge from Covid-19 lockdowns than many other countries, limiting the impact of a spike in demand that had built up at the height of the pandemic.

Will the government get prices under control?

The BoJ revised up its inflation forecasts for the next two years in its latest outlook released at the end of October. The central bank now expected core inflation to average 2.9% in 2022, up from its previous forecast of 2.3% made in July. It projected inflation will fall back below its 2% target next year but revised up its 2023 forecast to 1.6% from 1.4% previously and raised its 2024 forecast to 1.6% from 1.3%.

Dutch bank ING expected the current inflation rate in Japan to reduce the pace of household consumption growth, estimating third-quarter gross domestic product (GDP) growth to slow to 0.5% from 0.86% in the second quarter, as of the 31 October note.

Meanwhile, on 10 October ING predicted that the Japan inflation rate will rise further during the fourth quarter to peak at 3.4%, and then soften to 3.1% in the first quarter of 2023. Inflation could drop back to historical levels late in the year, falling to 1.4% in the fourth quarter, and then average 1.2% in 2024. 

Japan inflation forecastQ3 2022Q4 2022Q1 2023Q2 2023Q3 2023Q4 2023202220232024
Trading Economics         

Economic data provider Trading Economics forecast, as of 2 November, that the inflation rate in Japan could fall from 3.4% at the end of this quarter to 1.7% percent in 2023 and 1.4% percent in 2024, based on its econometric models.

Japan inflation rate: Final thoughts

Note that analyst and algorithm-based forecasts can be wrong and should not be used as a substitute for your own research. Always conduct your own due diligence, looking at the latest news, a wide range of analyst commentary, technical and fundamental analysis before taking any financial decision.

Note that past performance does not guarantee future returns, and never trade money you cannot afford to lose.


What is Japan's current inflation rate?

The core inflation rate in Japan rose to 3% in September 2022 from 2.8% in August.

Is Japan's inflation high?

Inflation in Japan rose to its highest level since 2014 in September 2022, although at 3% it remained far lower in other major economies, where rates averaged 8-10%.

Is Japan in inflation or deflation?

The Japanese economy has experienced deflation in 14 of the last 25 years, but is seeing price inflation in 2022.

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