In a speech today, BoJ Deputy Governor Shinichi Uchida expressed optimism that the end of Japan’s long battle against deflation is “in sight.” However, he emphasized that there remains a “big challenge” in anchoring inflation expectations at 2% target.
Uchida pointed out that it is “not so clear” whether Japan has fully overcome the “deflationary norm.” A critical question is whether companies will maintain their current price-setting behaviors once the global inflationary pressures subside. He highlighted the importance of the labor market in this context.
“If the structural changes in the labor market continue, companies will have to build business models that generate enough profits and wages to keep and attract employees,” Uchida noted. Regarding price-setting strategies, he added that companies need to “rewrite their prices in their menus promptly,” reflecting labor costs while considering the potential impact on product demand.
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