Japan household inflation expectations ease slightly but remain elevated, BOJ survey shows
Summary:
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One-year inflation expectations ease but remain very high
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Households expect prices to rise 11.6% on average over next year
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Long-term inflation expectations remain elevated
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Slight softening offers limited reassurance for BOJ
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Inflation psychology still deeply entrenched
Japanese households continue to expect prices to rise sharply over both the short and long term, even as inflation expectations edged slightly lower in the latest Bank of Japan quarterly survey, highlighting the persistence of inflation psychology despite recent moderation.
The BOJ’s December survey showed that 86.0% of households expect prices to rise one year from now, down modestly from 88.0% in the previous poll. While the proportion eased, it remains historically elevated, underscoring how deeply inflation expectations have become embedded after several years of rising living costs.
Households’ price forecasts remain strikingly high. Respondents expect prices to increase by an average of 11.6% over the next year, with a median expectation of 10.0%, pointing to continued anxiety around food, energy and everyday expenses. Such elevated expectations contrast sharply with official inflation measures but are closely watched by policymakers as a gauge of underlying price sentiment.
Longer-term expectations also softened slightly but stayed firm. 83.0% of households expect prices to be higher five years from now, compared with 84.8% in the prior survey. On average, respondents expect prices to rise 9.8% over the next five years, while the median expectation stands at 5.0%, suggesting households see inflation moderating over time but remaining structurally higher than in the pre-pandemic era.
The persistence of elevated inflation expectations is significant for the BOJ as it continues to normalise monetary policy after years of ultra-loose settings. Policymakers have repeatedly stressed the importance of stable, well-anchored inflation expectations around the 2% target, supported by sustained wage growth.
With inflation having exceeded the BOJ’s target for several years, driven largely by food and import costs, households appear unconvinced that price pressures will fade quickly. That dynamic risks reinforcing wage demands and price-setting behaviour, complicating the central bank’s efforts to balance policy normalisation with economic stability.
