The Cabinet Office of Japan has predicted that demand will exceed supply in the fiscal year 2025, potentially putting an end to the country's prolonged period of deflation. This forecast aligns with the government's efforts to stimulate economic growth and combat deflation.
The projected positive supply-demand gap of 0.4 percent would be the first in seven years, indicating that the overall demand for goods and services would outpace the available supply. This shift in the economic landscape could create conditions more conducive to price increases, potentially marking a turning point in Japan's struggle with deflation.
The government has been actively pursuing policies aimed at boosting consumption and investment, including tax cuts and subsidies. These measures are intended to support economic activity and contribute to the elimination of deflation. However, the government has acknowledged that these priorities may need to be reassessed once deflation is successfully addressed.
It is important to note that the Cabinet Office's forecasts have historically been more optimistic than those of private-sector economists and other institutions. For instance, the initial projection for real GDP growth in the current fiscal year was 1.3 percent, but this figure has since been revised downward to 0.4 percent. Additionally, there is uncertainty surrounding the accuracy of the projected improvement in the supply-demand gap.
Despite these caveats, the Cabinet Office's forecast suggests that Japan may be on the cusp of overcoming deflation. The predicted positive supply-demand gap, coupled with the government's ongoing efforts to stimulate the economy, could pave the way for a period of sustained economic growth and price stability.