Japan's economic crossroads

Summary

Podcast Summary: Business Daily – "Japan's Economic Crossroads"

Date: February 5, 2026
Host: Rahul Tandon, BBC World Service

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Episode Overview

This episode explores a key moment in Japan's economic history as the country navigates rising prices (after decades of stagnation and deflation) and faces a pivotal election. With Japan's first female Prime Minister, Sanae Takeichi, calling a snap election, the discussion focuses on inflation, wage stagnation, business impacts, global pressures, and the cautious optimism in some sectors. The podcast brings in voices of everyday Japanese citizens, business owners, and economic experts to understand the challenges and opportunities at this historic crossroads.

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Key Discussion Points & Insights

1. Deflation’s End: Japan’s Unique Economic Journey

• For decades, Japan was famous for prices that barely moved or even declined — a phenomenon known as deflation.
• Many Japanese citizens had become accustomed to a stagnant economy where the cost of living remained stable or decreased ([04:47]).
• The burst of the asset bubble in the early 1990s led to "decades of stagnation," making the current experience of inflation a cultural and economic shock.

Quote:
"For practically all my life, I never really experienced anything getting more expensive. So prices pretty much stayed the same, and at some point they actually went down. And that's because the economy has been really, really stagnant."
— Mariko Oi, BBC reporter ([04:47])

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2. The Price of Rice: A Symbol of Inflation

• The rising cost of rice—a staple food—serves as a microcosm of the wider inflation problem. Japanese consumers are vocal about the impact ([02:47]–[04:02], [07:08]).
• External shocks, such as the war in Ukraine and global food price surges, led to higher import costs in Japan, exacerbated by the yen’s weakening.

Quote:
"At one point, that's all I could hear about from all my friends, all my family members about rice prices. ... She [my mother] actually brought back Japanese rice that she bought in Singapore because it was actually cheaper here."
— Mariko Oi ([07:08])

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3. Wages Lag Behind Inflation, Stirring Discontent

• Although there’s been some wage growth, it’s been outpaced by rising prices, eroding living standards for many.
• This growing disconnect risks repeating deflationary patterns if consumers curtail their spending out of caution ([08:11]).

Quote:
"Wages have been going up in recent years, but still, because inflation is going up quite suddenly, wages aren't catching up."
— Mariko Oi ([08:22])

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4. Business Squeeze: The Cost of Making a Living

• Restaurants and small businesses face eroded profit margins as the prices of staples (rice, meat, vegetables, fish) soar ([09:24]–[11:02]).
• Many business owners are caught: if they raise prices to cover costs, they risk losing customers; if not, they operate at a loss.
• Heavy reliance on tourism (especially from China) adds another layer of vulnerability.

Quote:
"If we don't raise prices, we won't make a profit. But if we do, customers won't come. ... It's been exactly a year now, but I haven't been in the black even once. I've been in the red the whole time."
— Restaurant owner ([09:24])

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5. A Glimmer of Hope: Market Rally and Optimism

• Not all indicators are negative. The Nikkei stock index is at record highs, and some wages are increasing ([13:42]).
• The IMF predicts 0.6% economic growth—a modest but important reversal of decades of stagnation.

Quote:
"It's no longer deflationary environment, it's an inflationary one. And so if there's more profits, which are record levels, can lead to wage increases that can outpace inflation, then we've got the makings of a virtuous cycle."
— Kathy Matsui, former Goldman Sachs Japan chief strategist ([14:38])

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6. Unlocking Innovation and Investment

• Optimists point to increased entrepreneurial activity and a swelling startup ecosystem—though still small compared to the US and China ([15:11]).
• Debate persists about how to convert Japan’s huge personal savings into productive economic investment.
• Key policy questions: Should the consumption tax be suspended? How can the government foster “animal spirits” and risk-taking among young workers?

Quote:
"We have the makings of a really exciting period ahead. ... The key challenge will be can the Japanese government create the sense that, hey, Japan is back, Japan has the ingredients to really enter a new era where incomes can grow."
— Kathy Matsui ([16:09])

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7. Geopolitical Tensions and External Risks

• Japan’s exports and tourism face headwinds from strained relations with both the US (tariffs under President Trump) and China (retaliatory sanctions and reductions in Chinese tourism after controversial comments about Taiwan).
• These tensions have immediate economic repercussions, particularly in tourism and high-tech exports ([18:38], [19:31]).

Quote:
"Beijing did get mad, absolutely furious. ... It basically told a lot of the tour group from China not to go to Japan. So that's affected Japan's tourist numbers."
— Mariko Oi ([19:31])

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Notable Quotes & Memorable Moments

| Timestamp | Speaker | Quote | |-----------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------| | 04:47 | Mariko Oi | "For practically all my life, I never really experienced anything getting more expensive." | | 07:08 | Mariko Oi | "My mother...bought Japanese rice in Singapore because it was actually cheaper here." | | 08:22 | Mariko Oi | "Wages have been going up in recent years, but still, because inflation is going up quite suddenly, wages aren't catching up." | | 09:24 | Restaurant owner | "If we don't raise prices, we won't make a profit. But if we do, customers won't come...It's been exactly a year now, but I haven't been in the black..." | | 14:38 | Kathy Matsui | "It's no longer deflationary ... if profits can lead to wage increases that can outpace inflation, we've got the makings of a virtuous cycle ahead of us." | | 16:09 | Kathy Matsui | "We have the makings of a really exciting period ahead...Can the Japanese government create the sense that, hey, Japan is back?" | | 19:31 | Mariko Oi | "Beijing did get mad, absolutely furious...It basically told a lot of the tour group from China not to go to Japan. So that's affected Japan's tourist numbers."|

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Important Segments & Timestamps

• [01:17]–[02:18]: Introduction — Japan’s first female PM calls snap election; inflation as the key issue.
• [02:47]–[04:19]: Voices from Japanese consumers on the shock of rising prices.
• [04:47]–[08:11]: Mariko Oi explains Japan’s deep history of deflation and sudden shift to inflation.
• [09:24]–[11:02]: Business owners share real-world struggles with rising costs and thin margins.
• [13:34]–[14:38]: Stock market highs and cautious optimism for “Japan is back.”
• [15:11]–[17:21]: Kathy Matsui discusses innovation, savings, and fostering a new growth cycle.
• [18:38]–[20:21]: Geopolitical pressures: US tariffs, China tourism bans, and corresponding economic risks.

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Conclusion

Japan stands at an economic crossroads. After decades of price stagnation, inflation has finally arrived—bringing both pain and possibility. The upcoming election and global uncertainties add urgency to fundamental questions: Can wage growth keep up? Will businesses survive the margin squeeze? Can renewed optimism unlock a cycle of growth and innovation? As Japan’s leaders, citizens, and businesses grapple with these changes, the outcome will shape both national fortunes and the global economic landscape.

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[Podcast presented by Rahul Tandon, BBC World Service, "Business Daily: Japan's economic crossroads" — February 5, 2026]

Transcript

[A]

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[B]

Hello and welcome to Business Daily from the BBC World Service with me, Rahul Tandon. Today we're going to take you to Japan, long known as the country where prices stood still.

[C]

I grew up in Tokyo and for practically all my life, I never really experienced anything getting more expensive.

[B]

But with elections just days away, we're asking what's changed.

[D]

Over roughly the past year. Rice prices have shot up suddenly, and because of that, it's become something that's harder to eat.

[B]

That's all coming up here on Business Daily from the BBC World Service.

[C]

Dear citizens, today I, as the Prime Minister, have decided to dissolve the lower.

[E]

House on January 23.

[C]

Why now? It is now up to you, the sovereign people, to decide whether Sanae Takechi.

[F]

Is fit to be Prime Minister.

[B]

That's Japan's first female Prime Minister, Sanae Takeichi, announcing another general election just three months after taking office. This is a country which has been ruled by her party, the Liberal Democrats, for most of the past 70 years. So what is the key election issue? Like many parts of the world, it's rising prices. Here's the opposition leader, Yoshihiko Noda.

[C]

We're in a period of high prices.

[B]

I do want to talk about the.

[C]

Soaring prices now, but precisely because we're in this period of high prices, we.

[B]

Have lawmakers who want to work, work, work, work, work, work even more for ordinary people. For the past few weeks, politicians like the one we just heard have been on the campaign trail in Japan. And as they knock on doors, they're hearing lots about the price of Japan's staple food, which of course is rice. That is similar to many elections that we've looked at here on Business Daily recently, where the cost of living has been that key issue for voters. But Japan is different because for years, prices never went up. In fact, they often went down in what's known in economics as deflation. Let's get the thoughts of voters on the price of rice. Prices are definitely rising, but it also.

[C]

Feels like people are just generally more depressed.

[B]

Things don't feel very hopeful lately. I still end up buying rice because.

[C]

I need it, but the price has.

[B]

Gone up and it's become really tough. I can see how some people might not be able to get by anymore. It's not something that only affects others. It's hitting me, too.

[D]

Over roughly the past year, rice prices have shot up suddenly. And because of that, it's something that's harder to eat. I mean, not impossible, but it's definitely become harder to eat in large amounts. I feel like that's the situation we're in now.

[B]

Now, many of you who are listening to this, I'm sure, have grown up living with inflation. That's rising prices. When you go to the shops, you're finding that your monthly bills are continually increasing. But for many people in Japan, and remember it has an aging population, it's an alien concept, and we wanted to give you a sense of that. So I spoke to the BBC's Mariko Oi, who grew up in Japan and still has family and friends there.

[C]

Basically, I grew up in Tokyo, and for practically all my life, I never really experienced anything getting more expensive. So prices pretty much stayed the same, and at some point they actually went down. And that's because the economy has been really, really stagnant. It was growing really, really rapidly after the Second World War, but then it hit that point when a lot of assets were overvalued. And basically, you know, I'm not going to complicate it too much, but asset prices, especially property prices, burst. So they fell so sharply, and it pushed the economy into decades of stagnation as a result. So that's why people just aren't used to things getting more expensive. Except for the fact that ever since the war in Ukraine started because of external. Because Japan imports a lot of things like oil and a lot of food and stuff. As a result, things started to get more expensive and it's actually not calmed down. And especially things like rice prices, which is staple. You eat rice every single day. And that price just kept going up. And that's why people are really starting to feel the pinch.

[B]

And just going back through the history here, Whilst most other economies were trying to bring prices down, down to get a grip on inflation, Japan for a long time has been trying to see prices go up, hasn't it? That's why they've had such low interest rates.

[C]

That's right. I mean, Japan was a pioneer in cutting interest rate to zero, and then they even went negative. And it stayed there for a while. It started to climb up bit by bit, but still it's very, very low compared to other economies of the world. And the whole point of that was basically so that people borrow more money, businesses bor. More money, trying to, I guess, make the economy, economic activity more active so that things start to get more expensive. But it just didn't happen until all the external reasons combined together started to push up prices.

[B]

Okay, so prices have begun to go up in Japan. Let's talk about rice, because it's such an important commodity. And often in these moments, there's one product that sums up how a nation's feeling. And that's happened in Japan with the increase in price of rice, hasn't it? What have people said to you about that?

[C]

At one point, that's all I could hear about from all my friends, all my family members about rice prices. Rice prices. And in fact, actually when my mother came to visit me and my family here in Singapore, she actually brought back Japanese rice that she bought in Singapore because it was actually cheaper here. You know, many factors are contributing to high rice prices, but basically because it's such an important commodity for the Japanese government and the public, there was a bit of controlling the prices, you know, hoping that the prices don't fall too much by farmers producing too much. But then it kind of backfired because of other external factors. And as a result, we saw rice prices surge. And you know, the last time I checked, they haven't calmed down. I mean, you know, I have stopped hearing all the complaints every single day. But still, every now and then, people complain about when you go to supermarket, when you try to just make a bit of a nicer meal because, you know, your family is visiting and stuff, they're really feeling that pinch, that it's gotten a lot more expensive just to try and make something slightly nicer. These Days.

[B]

And when we're talking about prices going up, the key thing to look at is wages. And what we've seen in Japan is that wages have not gone up as quickly as prices, have they?

[C]

No. So wages have been going up in recent years, but still, because inflation is going up quite suddenly, wages aren't catching up. And as a result, if your take home salary has gone up slightly, but inflation is higher, then effectively you're just not actually getting the wage increase. And that's when it becomes really, really frustrating for consumers. And it's kind of a negative spiral once again, you know, because people are concerned about their everyday spending, they might not spend as much. And that's what the authorities, the politicians and the bank of Japan, the central bank, they're all concerned about that because once consumers stop spending, that goes back to the issue of deflation when prices are were falling decades ago.

[B]

So as Mariko outlined there, that is the situation for consumers. But what about businesses? How has inflation and a decline in the value of the Japanese currency, the yen, affected them?

[G]

It's not just rice that's going up, everything is rice. Prices have certainly gone up, but meat, vegetables and fish prices have all gone up by one and a half to nearly two times. So the impact is that if we don't raise prices, we won't make a profit. But if we do, customers won't come so we can't raise them. My food cost percentage is about 60%. Normally you're supposed to keep it at around 30%, but right now it's costing me double that. Still, I keep going like that to earn customers, trust me. But it means I'm basically not making any profit at all. It's been exactly a year now, but I haven't been in the black even once. I've been in the red the whole time.

[E]

I don't think economic climate will get any better in the future.

[F]

Especially now with the weakened yen.

[E]

We've become so dependent on tourists. So I'm really worried about what will happen when the number of tourists decreases and we're left with only Japanese people. Every day I'm thinking, what will tomorrow be like? Will there be a lot of tourists? Will there be a few?

[B]

I worry every day.

[A]

Prices go up every year. So we have to raise the prices of what we offer too. Otherwise it gets pretty tough for the shop.

[B]

So when rice gets expensive and cooking oil is expensive and flour is expensive.

[A]

Basically everything is going up in price.

[B]

It really makes things hard.

[A]

When ingredients go up, we feel it. We raise the price of our dishes wishes too, and I think that's probably putting more pressure on customers wallets.

[B]

Clearly, as we heard there, it's been a challenging time for businesses and we're going to pick up on some of those points. You're listening to Business Daily from the BBC World Service.

[D]

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[F]

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[B]

I'm Rahul Tandon and today we're looking at how Japan became the Land of rising prices.

[E]

The Tokyo stock market surged to new highs last year.

[B]

Definitely worth noting, the Nikkei, the Japanese two to five fresh all time highs.

[C]

The equity market this year enjoyed a strong rally.

[B]

So as you heard that it's not all bad economic news. The stock market is at a record high, wages are rising and the so called lost decade seem like a thing of the past as the economy slowly, and it is slowly, is starting to grow. The IMF has predicted 0.6% growth for this year. So there is some positivity around and you're starting to hear the phrase Japan is back being used by quite a few people. Amongst the optimists is Cathy Matsui, former chief strategist at Goldman Sachs in Japan and now general partner at mpower Partners, a venture capital firm in Tokyo.

[E]

I think we're definitely in a better position than we were during most of the last three decades. It's no longer deflationary environment, it's an inflationary one. And so if there's more profits, which are record levels, can lead to wage increases that can outpace inflation, then we've got the makings of a virtuous cycle and a demand driven growth cycle ahead of us. So I'm not too concerned.

[B]

As Japan moves now into full election mode, what do you want to see from the next government? What do they need to do to keep that growth going?

[E]

I'd like to see just more focus from the policy, regulatory, tax perspectives to really help unlock and unleash what I call hidden value that's deep within Japan's private companies or startup ecosystem. You know, the amount of investments into that space have actually grown dramatically over the last decade, like more than tenfold. Yet in absolute size terms it's still a fraction of what you see in other markets like the US and China. Yet Japan has globally excellent talent, cutting edge technology and frankly a lot of private savings that can be deployed into unleashing these opportunities.

[B]

How do you get that money to move into that sector? I know there's been a lot of talk, hasn't there, about consumption tax? That's a big issue in the campaign. You know, whether it's abolished, whether it's put on hold for a couple of years, but getting that money out of savings and into the areas that you work, how do you do that?

[E]

I think it's much more to do with something else other than taxation, frankly. I think for the average person or consumer in this country, what they are going to be focused on is am I going to be better off tomorrow than I AM today. Is it worth spending or investing my savings into something that I think will grow? And so I think this overall confidence level, which frankly is at a record high compared to any time in the last three decades plus that I've lived here, that I think those animal spirits are really coming to the surface. Now you're seeing young people leave comfortable positions at blue chip companies to work at a risky startup. You know, that's unheard of in this country. So I think we have the makings of a really exciting period ahead. But I think the key challenge will be can the Japanese government create the sense that, hey, Japan is back, Japan has the ingredients to really enter a new era where incomes can grow and that with the new kind of risk appetite levels that we're seeing, particularly amongst the young people, that that will lead to more innovation, more creativity, and hopefully, you know, more globally scaled companies that can compete against peers elsewhere.

[B]

That sense of Japan is back. I was just watching a debate that took place at Davos and that was very much the sort of tone of that debate there. Where is that sense coming from?

[E]

I think it's rooted in frankly, this shift or frankly flip of the price environment from one that was prolonged deflation and stagnation to one that is now growth and inflation when prices are falling. You know, as a consumer you don't want to spend because it will always get cheaper. Same for corporates and investment policies. So I think the reversal of that environment is a huge catalyst for people to think, hey, if I wait, it won't be cheaper, it actually become more expensive. So I better buy now, I better buy my condo now, I better invest in my factory now. So I think that is a transformational difference from what we've lived through for much of the last several decades. And I think this expansionary period and frankly, with this geopolitically uncertain environment that Japan finds itself in, there's also this natural desire to, hey, you know, we may have to fend for ourselves when it comes to energy security, food security, you know, cybersecurity. And that frankly means tremendous opportunities for startups who can provide solutions in the space.

[B]

So as we heard from Kathy there, it is an extremely difficult geoeconomic environment. Japan has two large trading partners, the US And China, and it's fair to say relations with both are pretty tense. President Trump has put tariffs of 15% on Japan and as he said recently, he wants to cut down on imports from the country. First time read almost 30 years, but I guess it's what, 26, 27 years that we are now producing more steel than Japan. Japan being a big steel producer. Japan and other countries really took our steel production away from us. Whilst China, Japan's largest trading partner, is currently angry at the recent comments on Taiwan that were made by the current prime minister, Sanae Takeichi. And as Miriko Oi explains, once again, that's having economic repercussions.

[C]

Beijing did get mad, absolutely furious. You know, some of the language from diplomats. One of the consulate general even said something like this dirty head should be chopped off. It was really, really robust reaction from Beijing. And ever since then, Beijing has been imposing some sanctions. It basically told a lot of the tour group from China not to go to Japan. So that's affected Japan's tourist numbers. There have been other talks of, you know, maybe limiting exports of rare earth material, you know, seafood imports. So there have been economic consequences as a result of it. But it was partly because she was seen as this conservative, very conservative politician, as her mentor Shinzo Abe was. And China reacted very robustly because of that.

[B]

As we've been trying to explain to you in this program, whoever forms the next government in Japan, and we'll find out who that is pretty soon, they're going to have plenty of economic challenges facing them both at home and abroad. You've been listening to Business Daily, presented by me, Rahul Tandon. The producer was David Kahn. Why not subscribe to our podcast? You'll find lots more episodes, including one on the rise of the Japanese superfan culture, Oshikatsu, and how that's proving to be a boost to the economy. Just search for Business Daily.

[E]

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