Rising Prices in Japan: Anxiety and Determination Reflected in Households' "12.8% Inflation Forecast"

1 Shocking "+12.8%"—Data Reveals the True Sentiments of Households

In the BOJ survey published on July 14, 85.1% of households expect prices to rise in a year. The average forecast is 12.8%, the highest since September 2006, with the median also reaching double digits at 10%. Even five years from now, 83.1% anticipate an increase, with an average of 9.9%.

On the other hand, the Ministry of Internal Affairs and Communications' CPI (May) is +3.2%, and real wages are down 1.5%, widening the gap. Households estimate "perceived inflation" to be about four times the official indicator.

2 The Collapse of "Deflation Acclimation"

The nearly 30-year environment of low inflation and zero interest rates has abruptly shifted due to high resource prices and yen depreciation. Since fiscal 2022, the cumulative number of food price increases has exceeded 40,000 items, and with the end of electricity and gas subsidies and the logistics 2024 problem, opportunistic price hikes are suspected. Companies are steering towards price pass-through, and according to Keidanren's aggregation, the wage increase rate including regular raises for the 2025 spring labor negotiations is 5.2%, the highest in 31 years, but it does not catch up with price expectations.

3 "Price Increase Fatigue" Floods SNS

Immediately after the survey announcement, cries of distress filled X (formerly Twitter) and Hatena Bookmark.

• "Kuroda-senpai, you did it. Thanks for the inflation expectations. But if it's 12%, will cars go up in price a year later? No way" (wildhog)Hatena Bookmark

• "They're just answering with perceived inflation numbers. Talk about wages" (qpci32siekqd)Hatena Bookmark

• "Everything from electricity bills to rice is going up, yet the government only talks about tax increases instead of cuts" (summary of multiple users)
  At the same time, there was an increase in sharing self-defense strategies like "surviving with point activities" and "doubling the hometown tax deduction." Comment sections are filled with details of life defense, such as "the child-rearing period of the junior baby boomers is hit hard" and "price increases are tolerable, but quantity reductions are not."

4 The Mismatch Between Price Pass-Through and Consumer Behavior

If companies continue the two-stage rocket of "price → pass-through, wage increase → limited," the ideal of mild inflation + wage increase will collapse, accelerating the household's saving-oriented mindset due to the real decline in purchasing power. In a J-CAST survey of housewives, 65% reported "no leeway," and even among those with an annual income of over 5 million yen, 35% said they were "struggling."J-CAST News. The stagnation in consumer spending has been evident since March, except for department stores and dining out.

5 The BOJ's Difficult Steering

After the policy normalization in March (short-term interest rate 0.5%), there is a view that the next rate hike could be "as early as October," but the market is wary of US trade friction risks and China's economic slowdown, with long-term interest rates stagnating at around 0.9%. As of April, 86.7% of households' rising expectations were the basis for economic support, butReuters, the "slight decline" to 85.1% this time is likely to be used by committee members advocating for prolonged monetary easing as evidence of "no overheating."

6 The Government and Ruling Party's "Election Mode" and Competition for Measures

With the possibility of a House of Representatives dissolution in the fall, the ruling party is considering extending gasoline subsidies and reducing resident taxes. The opposition party advocates for a "temporary reduction of the consumption tax to 5%." The Ministry of Finance is cautious about increasing government bond issuance due to expectations of fiscal stimulus, but the public's sense of burden is directly linked to election results, forcing concessions.

7 Will the "Prophecy" of 12.8% Self-Fulfill?

In economics, the entrenchment of inflation expectations accelerates price increases. If households advance purchases thinking "it will rise anyway," companies find it easier to raise prices, and wages are more likely to follow. However, in Japan, "saving and avoiding investment" outweighs advance consumption, differing from the West. On SNS, voices of consumption restraint like "If it gets expensive, I won't buy" and "I'll settle for used" are dominant.

8 The Corporate Perspective: Limits of Price Pass-Through

In a hearing with 110 food companies, 60% said "a 10% increase is necessary next term just for raw materials and logistics." Meanwhile, fearing customer attrition, a 5% reduction in content volume while keeping prices unchanged is rampant. Even if household inflation expectations rise, actual demand is sluggish, leading to a "chicken game" state where price increases result in decreased sales.

9 Medium to Long-Term Scenarios—Wages and Productivity Are Key

The 12.8% inflation expectation completely overturns past deflationary psychology, but if wages and productivity do not catch up, it will become "bad inflation." The tightening of labor supply and demand and the introduction of generative AI are tailwinds for productivity improvement, but it depends on the speed of reskilling.

10 Conclusion: The "Trilemma" of Households, Companies, and Policy

① How households optimize saving and investment behavior, ② How companies choose the allocation of price increases, wage increases, and investment, ③ How the government and BOJ align the economy, prices, and fiscal policy—.

The vast voices on SNS reflect this tug-of-war in real-time. The era of 12% inflation expectations clarifies the structure of "prices = policy." In ten years, will we look back and say "the cries of households led to reform," or lament "wages were left behind, leading to stagflation"? The turning point is near.