When you stroll through a Tokyo supermarket today, you’ll notice something that would have nearly shocked a Japanese consumer ten years ago: the price tags are constantly changing. They move, but not by much—sometimes just a few yen on a bottle of barley tea or a pack of onigiri. That little shift feels huge after thirty years when declining prices were a kind of national mood.
Economists used Japan as a cautionary tale for the majority of the 1990s and 2000s. Policymakers in the United States and Europe who were worried about their own central banks were warned about deflation. Prices decreased, wages remained stagnant, and a generation of workers grew up thinking that their starting salary would be their lifelong income. Speaking with those who experienced it gives the impression that deflation was more than just an economic phenomenon. It developed into a cultural expectation that tomorrow would resemble today but be marginally less expensive.
| Detail | Information |
|---|---|
| Country | Japan |
| Central Bank | Bank of Japan (BOJ) |
| Years of Deflation | Roughly three decades since the early 1990s |
| Trigger of Reflation | Surging commodity prices and a weaker yen, beginning 2022 |
| 2023 Wage Growth | 3.6% |
| 2024 Wage Growth | 5.1% |
| 2025 Wage Growth | 5.3% — highest in three decades |
| BOJ Inflation Target | 2% |
| Capex Growth (2022–2024 avg) | 9.1% annually |
| Expected Capex Growth (current FY) | 6.7% |
| Key Economist Cited | Junyu Tan, Coface North Asia |
| Original Catalyst | Collapse of the asset price bubble, early 1990s |
| Defining Feature Today | Shift from cost-push to demand-driven inflation |
Since 2022, that world has fallen apart. What was once known as imported inflation—the kind brought on by a declining yen and rising commodity prices—has started acting differently. Service providers began transferring costs to clients after growing weary of bearing margin pressure. Sensing a leverage they hadn’t had in a generation, labor unions increased their efforts during the yearly shuntō, or spring wage negotiations. The figures show that wages increased by 3.6% in 2023, 5.1% in 2024, and 5.3% in 2025—the largest increases in thirty years. It’s difficult not to question whether something more significant has changed as you watch this develop.
In a way, the businesses are also reacting. Capital expenditure has finally begun to rise after years of hoarding cash on their balance sheets, a habit so deep-rooted that activist investors dedicated their entire careers to pressuring Japanese boards into action. Between 2022 and 2024, investment increased by an average of 9.1% annually; this fiscal year, an additional 6.7% increase is anticipated. Automation and labor-saving technologies account for a large portion of it, which makes sense in a nation with a persistent labor shortage and an aging population that isn’t getting any younger.
However, all of this might prove to be less than it first appears. Inflationary headfakes have previously occurred in Japan. Oil shocks, increases in consumption taxes, and the occasional decline in the value of the yen all gave the impression that deflation would finally end. Not one of them did. Prices continued to decline due to corporate caution, weak domestic demand, and the structural pull of an aging society. In a recent article, Habib Al Badawi succinctly described the sentiment: “The embers of inflation in Japan kept getting extinguished as if Japanese capitalism itself had learned to resist warmth.”
Perhaps the wage piece has changed. Job security used to be the most important thing to Japanese workers, and unions reflected this. Today’s wage demands are more akin to those in Detroit or Frankfurt, where employees are requesting—and occasionally demanding—real raises. The cycle becomes self-sustaining if that continues. Japan falls back into the trap if it doesn’t.
All of this is fraught with tension. After years of being the most dovish central bank in the world, the Bank of Japan has at last begun to normalize policy, albeit slowly and almost reluctantly. The moment is truly historic, according to Junyu Tan of Coface, but only if businesses turn today’s profits into tomorrow’s productivity. No one can guarantee that conversion. The lines of completed cars continue to be shipped out as usual from the Toyota plants in Aichi. On the surface, the economy appears to be the same. Something is actually moving underneath.
Tokyo is still unsure about whether it will last.