Why just 2% inflation is enough to eat into real incomes in Japan
Like in other major economies, we expect inflation in Japan to remain elevated in 2022 – we project Japan’s inflation rate will hover around 2% y/y over the year. While relatively low by international standards, it’s the highest rate of inflation Japan has seen since 2008, excluding the short bursts triggered by hikes in the consumption tax.
What you will learn:
- Unlike other advanced economies, though, Japan’s labour market is unlikely to produce strong nominal income growth to counteract the 2% inflation. We think wage growth for both part-time and regular workers will be quite modest.
- Inflation is eroding real incomes globally, and Japan is no exception. We think real incomes in Japan will fall faster than in France, Australia, and other Asian economies, where nominal incomes look likely to grow faster than 2% y/y, while that of Japan will barely improve.
- Persistent slack in the labour market in terms of hours worked will weigh on the hourly wages for part-time workers. For regular workers, the traditional spring negotiations are likely to settle at a level that provides limited monthly wage increases throughout 2022.
Related Posts

Post
BoJ will continue effective zero interest rate policy anyway in Japan
The Bank of Japan (BoJ) maintained the policy rates at its September meeting, following a tweak in its yield curve control policy in July. Although this decision was widely expected, the markets are starting to speculate policy changes within the coming quarters, especially after the BoJ governor's recent interview.
Find Out More
Post
Is China headed for a Japanese-style balance sheet recession?
China's weak economic activity amid a housing correction has led many investors to draw comparisons with Japan's balance sheet recession of the 1990s. Despite the different pathways, there are several similarities between China now and Japan then that may augur a similar future of a period of prolonged stagnation.
Find Out More