Tamura sees Japan's inflation shifting to sticky state
Bank of Japan Policy Board member Naoki Tamura stated that Japan's economy is moderately recovering, with inflation shifting to an endogenous and sticky state. He believes the 2 percent price stability target could be achieved as early as this spring if wage growth is confirmed.
Japan's economy recovers despite tariff shocks
Japan's economic activity has recovered moderately, despite some initial weakness.
The Bank of Japan (BoJ) had to revise its real GDP growth forecasts downward in April 2025 due to uncertainty from a new U.S. tariff policy, with projections falling to 0.5 percent for fiscal 2025 and 0.7 percent for fiscal 2026.
However, uncertainty decreased markedly after trade agreements were reached.
Business sentiment has remained proactive, with the Tankan DI for business conditions staying favorable.
Global economic growth forecasts, as per the IMF's World Economic Outlook, also saw upward revisions, returning to pre-tariff policy levels by January 2026.
Consequently, the BoJ revised its Japan real GDP growth forecasts for fiscal 2025 and 2026 back to levels broadly consistent with January 2025 projections, indicating continued moderate growth supported by overseas economies and domestic factors.
Inflation's persistent climb
Japan's consumer price index (CPI) for all items excluding fresh food has recently been around 2.5 percent year-on-year, driven by wage increases passed on to selling prices and rising food costs.
Similar to GDP, CPI forecasts were initially revised downward in April 2025 due to U.S. tariff policy concerns, with the fiscal 2026 forecast falling to 1.7 percent.
However, firms' proactive stance and solid wage increases last year are expected to continue in fiscal 2026.
The BoJ's January 2026 Outlook Report revised the fiscal 2026 CPI forecast back to pre-tariff policy levels.
The baseline scenario projects CPI inflation to decelerate below 2 percent in the first half of 2026 due to waning food price effects and government measures, but underlying inflation is expected to rise moderately, reaching the 2 percent target from the second half of fiscal 2026 through fiscal 2027.
Inflation's new sticky reality
Tamura believes inflation has recently shifted into an endogenous and sticky state, maintaining the desired interaction between wages and prices.
With underlying CPI inflation near 2 percent, he suggests the 2 percent price stability target could be achieved as early as this spring if consistent wage growth is confirmed.
The Bank will then need to carefully assess if underlying inflation aligns sustainably with the target without further upward deviation.
This perspective highlights a crucial juncture for Japan's monetary policy, moving beyond temporary factors to a more ingrained inflationary environment.