The Great Disconnect: The Decoupling of Wage and Price Inflation in Japan
We take some well-known observations about the structure of the Japanese labor market and add 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 in a break in the relationship between wages and prices, so wage inflation has become a much less important determinant of price inflation.
The views expressed are those of the authors only and should not be attributed to any of the institutions with which they are affiliated. We are grateful to comments by Joshua Hausman, Yuzo Honda, Daiji Kawaguchi, Sachiko Kuroda, Etsuro Shioji, Shigenori Shiratsuka, Takashi Unayama, Johannes Wieland, and participants of the conferences on Abe administration at Stanford University (February 2018 and March 2019), NBER Japan Project Meeting (July 2019), Japan Economic Association Meeting (October 2019), and seminars at the Financial Services Agency of Japan, Hitotsubashi University, Kobe University, and University of California, Santa Cruz. Kashyap thanks the Initiative on Global Markets at the University of Chicago for financial support. We thank Masahiro Abe, Masayoshi Amamiya, Yoichi Arai, and Jess Diamond for helpful conversations at the early stages of this research. Dongchen Zou and Jun Xu provided expert research assistance. We acknowledge financial support from Center for Advanced Research in Finance (CARF) at the University of Tokyo. All mistakes are ours alone. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Takeo Hoshi: Compensated Professional Activities, 2011-Present
Board of Directors
Japan Investment Corporation, September - December 2018
Tokyo Foundation, June 2016 – June 2018
Union Bank, N.A., July 2009 – June 2014
Industrial Growth Platform, Inc., July 2019-Present
Japan Human Resources, December 2019-June 2020
Federal Reserve Bank of San Francisco, January 2013 – December 2019
Mitsubishi UFJ Financial Group, April – December 2016
Gerson Lehrman Group, August 2010 - June 2015
Elsevier Publishers Encyclopedia of Financial Globalization, 2009-2012.
Japan Finance Corporation, “Evaluation of Policy Finance for Japanese Small and Medium Enterprises”, April 2017 - Present
National Institute for Research Advancement, Japan, “Institutional Foundation for Innovation-Based Economic Growth”, September 2014 – August 2015.
Sasakawa Peace Foundation, Japan, “New Channels Dialogue: Reinvigorating U.S.-Japan Relations”, April 2013 – March 2015.
Nomura Foundation, Japan, “Can Abenomics Restore Japan’s Growth”, April 2013-March 2014.
Prologis. “Outlook for the Logistics Industry in Japan”, June-July 2012.
National Institute for Research Advancement, Japan. “Policy Options for Japan’s Revival”, September 2011 - March 2012.
International Monetary Fund. “Defying Gravity: How Long Will Japanese Government Bond Prices Remain High?”, August 2011.
Speeches and Presentations
Berenberg Capital Markets, October 2017
Chubu Keizai Doyukai, October 2014
Morgan Stanley, June 2014
Bank of Korea, June 2014
Kozo Keikaku Engineering, October 2013
Morgan Stanley, October 2013
Japan Center for Economic Research, June 2012