Pandemic Raises Fears of Deflation in Japan

Amid the second state of emergency in Japan’s capital and neighboring prefectures, the country now faces the fears of falling prices. 

Bank of Japan Governor Haruhiko Kuroda earlier said that service spending is on a slump.

“We don’t expect Japan to return to deflation. But we need to keep vigilant on price moves given very high uncertainty over the outlook.”

Economists have expressed concern over the downward trend of prices, especially in the services sector. 

New measures which urge bars and restaurants to shorten operating hours, threaten to impact the economy. 

Despite the slump of the core consumer prices by 1% in December, the sharpest decline in over 10 years, the Bank of Japan predicts the core CPI to grow by 0.5% in the coming year. 

Kuroda also said that decreasing demand under normal circumstances is different from the situation during the pandemic where consumers intentionally avoid using “face-to-face services.”

Citizens and policymakers are also on the lookout for current wage negotiations, which will greatly impact consumption behavior.  

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