Inflation in Japan

A short history of inflation in Japan

The Oil Shock (1973 to 1974)

Japanese inflation reached 25.0% in the year to February 1974. The cause was the oil embargo of October 1973 striking the industrial economy least able to absorb one, importing as it did very nearly every barrel it burned. Panic buying spread from toilet paper to detergent, soy sauce and kerosene, the episode acquired a name, kyoran bukka or crazy prices, and in 1974 the economy shrank for the first time since the war.

The Bubble and the Long Deflation (1990 to 2012)

Nothing since has come close, and the problem inverted. Share and land prices climbed through the 1980s on the assumption that they would carry on climbing; the Nikkei peaked on 29 December 1989 and did not reach that level again for thirty-four years. What followed was a long settling rather than a crash. From the mid-1990s prices were as likely to fall as to rise in any given month, and the annual rate reached minus 2.6% in October 2009.

Ending Deflation (2013 to 2024)

Deflation is the harder of the two problems to escape, because a central bank that has cut its rate to zero has spent its ordinary tool, and because buyers who expect next month to be cheaper are content to wait, which is itself a reason for prices to keep falling. The Bank of Japan, independent of the Ministry of Finance since 1998, built the instruments the rest of the world later borrowed: a zero policy rate in 1999, quantitative easing in 2001, a 2% target in January 2013, negative rates in 2016. It did not raise its rate above zero again until March 2024.

Post-Covid Inflation (2021 to 2023)

In Japan, prices rose fastest in January 2023, at 4.4%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.