Meeting minutes released on Tuesday show that at the Japanese government's Supreme Economic Council meeting held on December 25, member Wakatabe Masazumi said that as cost drivers dissipate, real wages will turn positive in 2026, and inflation may ease. If all goes well, Japan's output gap will improve, and the economy will begin to show some bright signs. But Japan also faces risks unique to the era of inflation, such as rising interest rates. The Bank of Japan should develop policies to anchor long-term inflation expectations at around 2%. As a proponent of loose fiscal and monetary policies, Wakata's remarks highlight the risk that even Takata's re-inflation adviser is increasingly concerned about triggering fears among bond speculators and driving up the costs of financing Japan's huge public debt.

Meeting minutes released on Tuesday show that at the Japanese government's Supreme Economic Council meeting held on December 25, member Wakatabe Masazumi said that as cost drivers dissipate, real wages will turn positive in 2026, and inflation may ease. If all goes well, Japan's output gap will improve, and the economy will begin to show some bright signs. But Japan also faces risks unique to the era of inflation, such as rising interest rates. The Bank of Japan should develop policies to anchor long-term inflation expectations at around 2%. As a proponent of loose fiscal and monetary policies, Wakata's remarks highlight the risk that even Takata's re-inflation adviser is increasingly concerned about triggering fears among bond speculators and driving up the costs of financing Japan's huge public debt.