A return to deflation is a nightmare scenario for Japanese policymakers after years of arduous efforts to prevent prices from falling, but the coronavirus pandemic is raising fears that it may become a reality.
The economy is increasingly facing downside risks following a second state of emergency declared over the novel coronavirus, which is in place until Feb. 7 in Tokyo, Osaka and some other prefectures, hitting demand especially in the services sector.
With annual wage negotiations between management and labor unions getting into full swing in February and March, companies appear reluctant to raise pay after a difficult 2020 and ahead of an uncertain 2021.