Consumer Prices in Japan Are Determined by Costs

Reflationists have argued that if the Bank of Japan (BOJ) sets a Japanese-style inflation targetJapanese-style inflation target and supplies a large monetary base, inflation expectations will rise, thereby allowing deflation to end. We show that these reflationist claims are false and that, using Kalecki’s[aut]Kalecki, Michał cost-determined price theory, what drives consumer prices (CPI) in Japan are costs, especially import prices. Hence, the 2% CPI inflation rate, which the BOJ under Kuroda could not achieve even after ten years, was easily achieved when imported inflationImported inflation occurred after 2022. However, imported price inflation has caused consumption to stagnate through declines in real wages and real disposable income of the households. There is no basis for reflationists’ claim that overcoming deflation will revive the Japanese economy. The BOJ under Kuroda and reflationists have claimed that AbenomicsAbenomics and the monetary policy by the BOJ have revived the Japanese economy, citing rising stock prices, surging corporate profits, and an increase in the number of employed persons. We show that this is also a mistake and that the stagnationStagnation of the Japanese economy has advanced further.