The Bank of Japan raised its policy rate to 1% in June 2026, making signs of an end to decades of deflation increasingly clear. At the same time, strains and uncertainty, including the burden of housing loans, have been highlighted, while the government is moving ahead with budget planning on the assumption of inflation.
In June 2026, the Bank of Japan raised its policy rate to 1%, its highest level since 1995. Share prices have doubled since 2024, enabling companies to consider price increases on the assumption that prices will continue to rise. The government has also indicated that it will pursue budget planning based on inflation. Economists have described how Japan is behaving as a country that has escaped the deflation it experienced for many years, while expressing the view that the economy is shifting from one characterized by insufficient demand to one characterized by supply shortages.
However, signs of strain are also emerging among households with housing loans and small and medium-sized companies that have been supported by low interest rates. A correspondent for a British newspaper in Tokyo has reported both the successes and drawbacks of overcoming deflation, conveying the view that developments ahead warrant close attention.