Ahead of the Bank of Japan's monetary policy meeting, leading price researcher Watanabe Tsutomu (渡辺 努) discussed the background to inflation and the challenges it presents. He said the current inflation is driven mainly by supply-side factors, with rising inflation expectations affecting the behavior of households and companies, and also addressed the possibility of containing inflation through BOJ rate hikes.
Against a backdrop of persistently high crude oil prices amid turmoil in the Middle East, price increases have continued, and the view was expressed that the shift away from deflation began around spring 2022. Import prices rose as a result of the Russia-Ukraine situation, while higher logistics costs added to the pressure.
An earthquake off the coast of Miyazaki Prefecture in August 2024 triggered panic buying, creating a second wave of inflation and a period in which price increases intensified further. In addition, escalating tensions in the Middle East since February this year, driven by moves by the United States and Israel, pushed crude oil prices up again, affecting the prices of food and materials.
Japan's current inflation can be characterized as being driven mainly by supply-side rather than demand-side factors. It was pointed out that consumers' willingness to purchase and their expectations for future prices are also important. As inflation expectations rise, companies' investment and households' consumption behavior may change, potentially driving prices higher as a result.
The view was expressed that, with its price-stability target in mind, the Bank of Japan is seeking to stabilize inflation expectations through interest-rate hikes. It was also agreed that the situation needs to be assessed through around March next year.