Japan shifting to wage-driven inflation phase, finance minister says

Japan's economy is experiencing price increases primarily due to higher import costs, placing the country on the brink of a prolonged inflationary phase driven by increasing wages, according to Finance Minister Satsuki Katayama. The government plans to offset the impact of these rising living costs on households through a scheduled reduction in the consumption tax and additional payouts.

Katayama emphasized that the government and the Bank of Japan share views on addressing inflation, with no apparent conflict between their strategies. The Bank of Japan recently increased interest rates to a 31-year high of 1.25% in September, as the Iran war-induced energy shock, strong global demand for artificial intelligence, and higher import costs due to a weak yen intensify the risk of inflation exceeding its 2% target.

Prime Minister Sanae Takaichi's administration intends to delay by two years the 8% consumption tax reduction on food items, slated to take effect in April. While analysts caution that the tax cut and the administration's substantial spending plans may stimulate demand, potentially undermining the Bank of Japan's efforts to control inflation, Katayama affirmed that a well-considered fiscal policy can enhance Japan's supply capacity without fueling inflation.