In a notable press conference held at the Bank of Japan's headquarters in Chiyoda, Tokyo, a different kind of urgency permeated the airNewly appointed central bank governor Kazuo Ueda stood resolutely at the microphone, his black suit crisp and a serious demeanor adorning his faceAfter a succinct opening statement, his voice seized attention as he remarked, "I want to emphasize, the persistent rise in food prices has become a hidden concern for the Japanese economy."

Ueda’s warning was not merely alarmistData released by Japan’s Ministry of Internal Affairs showed a 3.1% year-on-year increase in the food CPI for February 2025, with fresh vegetable prices skyrocketing by 18.7%, milk by 9.2%, and egg prices hitting their highest monthly increase in 42 yearsAt a supermarket in Tokyo's Shinjuku district, housewife Misaki Sato sighed while inspecting her shopping basket: "Last month I paid 280 yen for a dozen eggs, now it's 350 yen." Adapting to the new reality, her original plan to purchase steak had shifted to chicken breasts and organic vegetables replaced by their conventional counterparts

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Such scenes have become a rather familiar occurrence throughout supermarkets across Japan.

The factors behind skyrocketing food prices are multifacetedClimate change has engendered extreme weather events, resulting in Thailand's rice production plummeting by 23% and Brazil's coffee bean harvest decreasing by 15%. According to the International Shipping Association, container freight rates from Asia to Europe have surged by a staggering 220% year-on-year, directly escalating the costs of food imports to JapanCompounding this crisis is a significant shift in Japan's agricultural demographics: a startling 68% of farmers are now aged 65 and older, while the younger generation shies away from farmingConsequently, the self-sufficiency rate of Japan's agricultural products has plummeted from 79% in 1960 to a mere 38% by 2024.

Consumer expectations are gradually reshaping spending habits across Japanese societyResearch from Mitsubishi UFJ reveals that the household savings rate hit 5.8% in January 2025, the highest since 2021. In a Nagoya electronics retailer, sales associate Kentaro Sato noted, "Customers used to purchase the latest model TVs without hesitation; now they are more concerned about energy-efficient models." This trend of spending downscale is also infiltrating the service industry, as Japan's tourism bureau reported a 7% year-on-year decline in domestic tourism, with hot spring inns experiencing occupancy rates plunging to 62%, the lowest for this time period in nearly a decade.

The Bank of Japan's monetary policy is facing unprecedented challenges

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Since initiating its first interest rate hike in December 2024, the benchmark rate has climbed from -0.1% to 0.5%. Nonetheless, the structural rise in food prices keeps real interest rates anchored in negative territoryEconomists inside the central bank's ensemble are debating whether to implement a "tiered interest rate" policy—offering low rates for loans extended to small and medium-sized enterprises while applying stricter credit policies in the real estate marketThis idea of "precisely targeted regulation" draws from the experience of the German central bank during the 1980s; however, key differences in implementation still need resolution.

The volatility in the international commodity markets only exacerbates Japan's predicamentIn the past three months alone, wheat futures at the Chicago Commodity Exchange have surged by 45%. Officials at Japan's Ministry of Agriculture, Forestry and Fisheries have disclosed that the government is contemplating tapping into strategic grain reserves, which unfortunately are sufficient for only 45 daysThis vulnerability was blatantly exposed during the "soybean crisis" of 2024, when a shortfall in South American soybean production caused astronomical increases in edible oil prices, leading to nationwide panic buying.

Japan's challenges have drawn global central banks' attentionFederal Reserve Chairman Jerome Powell remarked at the March G7 finance ministers' meeting, "Japan's food inflation serves as a reminder that inflation in an era of de-globalization might be stickier." European Central Bank President Christine Lagarde cautioned that, "If the food price shocks endure, it may necessitate a reassessment of the monetary policy framework." Such cross-national concerns reflect a reality: under the dual pressures of supply chain restructuring and climate change, traditional inflation theories are failing.

During a recent think tank conference in Tokyo, economists initiated a discussion regarding the characteristics of this "new inflation era." Professor Takumi Ito from Keio University noted, "We are witnessing a structural inflation intertwined with an aging population, energy transition, and technological transformation." This perspective has been corroborated by the International Monetary Fund, which recently revised its inflation projection for Japan from 2.5% to 3.2%, advocating for a policy that combines both "supply-side reforms and demand management."

The Bank of Japan's policy adjustments may unveil on March 19 during the monetary policy meeting

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