Ep. 366: Mikihiro Matsuoka on Japan's Inflation, BOJ Policy Shifts, and the Weak Yen Challenge

Mikihiro Matsuoka, chief economist at SBI Securities and a veteran Japan watcher, argues that Japan’s inflation is not as healthy as headline numbers suggest. The Bank of Japan’s 2% target, he says, may be an inappropriate goal for an economy with such low potential growth, and the country’s recent wage gains are fragile and uneven. In a wide-ranging conversation, Matsuoka also explains why the yen remains mysteriously weak, why working from home might do more for birth rates than government subsidies, and why he worries about a brewing conflict between fiscal and monetary policy.

Inflation’s Uncomfortable Composition

Japan’s headline CPI inflation sits around 2%, but Matsuoka breaks that number down into demand-side and supply-side components. In the first wave of price increases, most of the contribution came from supply factors—items where prices rose but quantities fell. Since 2024, demand-side contributions (where both prices and quantities move up together) began to appear. But over the last twelve months, that demand contribution has been declining while supply-side contributions have reversed. The result, Matsuoka says, is “a very inconvenient mix of composition” that is not good for economic health.