Sou Hu Cai Jing·2026-01-06 02:20Core Insights - The era of low interest rates in Japan is coming to an end as the belief in Japanese government bonds is being challenged due to rising inflation [1][3][5] - The underlying cause of this inflation is structural, stemming from Japan's manufacturing hollowing, declining birth rates, and prolonged low interest rates and currency depreciation [1][4][13] Group 1: End of Low Interest Rates - Japan's low interest rates have been a narrative for nearly 30 years, attributed to the aftermath of the real estate bubble burst [3] - In 2022, Japan experienced inflation exceeding 3%, marking a significant departure from its historical low inflation rates [4][5] - This inflation is sustained in a context where global oil prices have declined, indicating a shift from previous patterns of temporary inflation spikes [4][5] Group 2: Factors Behind the Current Inflation - Japan's inflation is influenced by external factors, particularly high inflation abroad, as Japan is sensitive to imported inflation due to its reliance on imports for basic resources [6][7] - The long-term undervaluation of the yen has amplified imported inflation, with a 10% depreciation of the yen estimated to increase the CPI by approximately 0.8 percentage points over eight quarters [9][10] - The initiation of a wage-price spiral is a key factor in the current inflation, driven by labor market imbalances and increased demand in the service sector [11][12] Group 3: Historical Context and Structural Changes - The reasons for Japan's previous low inflation and interest rates are now contributing to the current inflationary pressures, including the hollowing out of industries and a demographic shift towards an aging population [13][14][19] - Japan's shift towards globalization post-2001 has led to a reliance on imports, exacerbating its sensitivity to input inflation [15][16] - The prolonged low interest rate policies and quantitative easing have created a scenario where the weak yen has become a catalyst for current inflation [17][18]