April 26, 2024

Ichiro Fukunaga*1

Yosuke Kido*2

Kotaro Suita*3

Full Text

Abstract

In this paper, with a brief examination of the global inflation synchronization, we analyze the effects of domestic and global factors on Japan's consumer price inflation and related variables (inflation expectations, nominal wages, etc.) since the late 1990s, when Japan fell into deflation, mainly using structural vector autoregression (SVAR) models with short- and long-run zero and sign restrictions. Historical decompositions show that various types of global shocks, including downward cost pressure due to globalization, had continuously pushed down Japan's consumer prices until the late 2010s. Subsequently, their contribution reversed, significantly pushing up prices, especially in the high-inflation phase after the pandemic. In addition, we find that service prices and nominal wages, which had not been much affected by global shocks, have also been pushed up significantly by global shocks in the recent period.

JEL classification

E31, E52, F62

Keywords

inflation, monetary policy, globalization

This paper is a revised and English-translated version of the paper presented at the 10th Joint Conference entitled "Changes in the Global Economic Landscape and Japan's Economy" (in Japanese) held on November 13, 2023, co-hosted by the Center for Advanced Research in Finance at the University of Tokyo and the Research and Statistics Department of the Bank of Japan. We would like to thank our discussant, Toshitaka Sekine, other participants at the conference, and Bank of Japan staff for their helpful comments. We would also like to thank Wakako Kaku and Ayana Shibasaki for assistance in preparing the figures and some estimation work. Any remaining errors are attributable to the authors. The views expressed in this paper are those of the authors and do not represent the official views of the Bank of Japan or the International Monetary Fund (or its Executive Board).

*1Research and Statistics Department, Bank of Japan

E-mail : ichirou.fukunaga@boj.or.jp

*2International Monetary Fund

E-mail : ykido@imf.org

*3International Department, Bank of Japan

E-mail : koutarou.suita@boj.or.jp