Japan's prime minister, Sanae Takaichi, said today that the country is experiencing inflation but has not reached a point where the risk of returning to deflation can be considered fully removed.
Speaking at a news briefing, Takaichi said assessing whether Japan will avoid a return to deflation requires a careful look at price movements and the fundamental drivers behind them. She cautioned that, despite positive signs, authorities cannot yet say the country is free from the threat of deflation.
Takaichi described Japan's economy as gradually recovering while stressing that recovery alone does not eliminate deflation risk. She singled out the conflict in the Middle East as a development that needs continued scrutiny because of its potential economic ramifications.
The prime minister noted that Japan's inflation rate stands at 1.7 percent - the lowest among G7 nations - and said wage trends are beginning to show encouraging developments. Those wage moves, she indicated, are a positive sign for household income and demand trajectories, but not a conclusive signal that deflation risk has ended.
On fiscal policy, Takaichi argued for a shift away from what she described as excessively tight measures. Her message emphasized the need to boost domestic investment and to chart a credible growth trajectory for the economy. She warned that postponing future investment would cost the country growth opportunities.
On taxation, the prime minister said the government intends to submit legislation to reduce the 8 percent sales tax on food once lawmakers agree on the specifics. At the same time, she stressed that the government plans to expand tax revenue through GDP growth rather than through large-scale fiscal spending.
To underpin fiscal sustainability, Takaichi said the administration will provide detailed annual plans for government bond issuance. She framed the policy shift as both responsible and proactive fiscal management, aimed at maintaining financial market trust through clear and transparent communication.
Defining the concept of responsible fiscal policy, Takaichi said it involves pursuing economic growth while upholding fiscal discipline. From an economic indicator perspective, she reiterated that consumer prices and the GDP deflator are trending upward, signaling inflationary movement, yet the government has not satisfied the conditions required to formally declare that Japan has exited a state in which a return to deflation is not a risk.