How a Culture Changes with the Value of Money

For roughly two decades following the collapse of its late-1980s asset bubble, Japan became the world’s defining example of a low-inflation and periodically deflationary economy. My recent travels through Tokyo, Nagano, and several other regions brought into unusually sharp relief how much of that era still lingers in everyday economic life. From the late 1990s through much of the 2000s and early 2010s, consumer price inflation frequently hovered near zero and often fell below it altogether. Inflation rates of -0.5% to -1% were not unusual, and even outside outright deflationary periods, the country’s broader price environment remained extraordinarily subdued. The phrase “lost decades” entered the economic lexicon precisely because Japan appeared trapped in a persistent equilibrium of weak nominal growth, subdued demand, cautious investment, and chronically low inflation expectations.

That era, at least mechanically, has largely ended. Inflation accelerated sharply after 2021, reaching levels that would once have seemed extraordinary by Japanese standards. Consumer inflation rose to roughly 2.5% in 2022 and exceeded 3% in 2023, reaching the highest levels seen in decades. At points during 2022, inflation briefly approached 4%, a striking development in a country that had spent years struggling merely to push prices modestly upward. Inflation moderated somewhat thereafter, fluctuating closer to the 2% range, roughly in line with the long-sought target of the Bank of Japan. Tokyo core CPI readings were near 2% in early 2026, and national inflation readings modestly below that suggest that Japan has, in statistical terms, exited the deflationary regime that defined much of its modern economic history.

Yet walking through neighborhoods in Tokyo, Nagano, or Yokohama today, one senses almost immediately that something deeper persists beneath the headline inflation figures. The visible legacy of Japan’s deflationary era is not merely statistical; it is behavioral, institutional, and cultural. The country has exited deflation in the data, but not entirely in the expectations and habits formed during twenty years of near-zero inflation.

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