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7 - The Great Disconnect

The Decoupling of Wage and Price Inflation in Japan

from Part III - Macroeconomic Policy

Published online by Cambridge University Press:  05 February 2021

Takeo Hoshi
Affiliation:
University of Tokyo
Phillip Y. Lipscy
Affiliation:
University of Toronto
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Summary

This chapter takes some well-known observations about the structure of the Japanese labor market and adds new evidence about how it has evolved to study inflation in Japan. Our key finding is that labor market dynamics shifted after 1998 so that correlations between labor market tightness and wages weakened noticeably. This change was accompanied by a break in the relationship between wages and prices, so wage inflation has become a much less important determinant of price inflation.

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Publisher: Cambridge University Press
Print publication year: 2021

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