Japan Nears Wage-Driven Inflation Phase, Finance Minister Says

Japan's economy is on the cusp of shifting from import-cost-driven price rises to sustained inflation fueled by rising wages, Finance Minister Satsuki Katayama said Wednesday. She told parliament the government sees no gap between its views and those of the Bank of Japan on the inflation outlook. The BOJ raised interest rates to a 31-year high of 1.25% in September, as an Iran war-induced energy shock, strong global AI demand and higher import costs from a weak yen heighten the risk of underlying inflation overshooting its 2% target. Prime Minister Sanae Takaichi's administration plans to cut, by two years, the 8% consumption tax rate on food items starting next April. Katayama said tax cuts generally push up inflation by stimulating demand, but pledged that "responsible and proactive" fiscal policy will expand supply capacity without accelerating inflation. Analysts have warned the tax cut and heavy spending plans could conflict with the BOJ's efforts to rein in inflation.