Consumer prices are rising fast in Japan, where households are already struggling with low wages and scrambling to stretch their hard-earned yen.

In June, consumer prices rose 2.8% on the year, close to the 3.0% in the United States.

Inflation in Japan has topped U.S. inflation briefly on two occasions since early 2023. It’s getting close to doing that again.

“Inflation is around 2% to 3%, which is very high by our standards,” said Jun Saito, a senior research fellow at the Japan Center for Economic Research, in discussing the inflation figure.

The pace of the price increases has been a surprise.

A year ago, Mizuho Securities was anticipating inflation below 2% by now. And back then, it was looking for inflation below 1% by the end of this year.

For decades, Japan has been fighting deflation, and its success had been sporadic and usually more related to global conditions; the recent high of 4.3% in January 2023 was at least somewhat driven by the aftereffects of COVID-related spending.

Now, price rises in Japan are diverging from the trend by remaining sticky just as inflation elsewhere falls. It has been ticking down in the U.S. in recent months while it has been fairly steady in Japan, rising from a recent low of 2.2% in January and holding at 2.8% for two consecutive months.

June’s inflation report shows extraordinary jumps in the prices of some items favored by households. Rice is up 12.3% year on year; cuttlefish, 8.7%; Niboshi dried small sardines, 34.6%; milk, 8.9%; cabbage, 27.6%; potatoes, 28.5%; and tomatoes, 15.6%.

Balancing this somewhat are the prices of other popular products. Tofu was up only 2.4% on the year, and natto 1.3%. Mayonnaise is down 0.4%.

Prices are becoming an issue for residents of the country as salaries lag.

Wages in Japan have long been low. They have been the lowest in the Group of Seven leading industrialized nations for decades, and according to the OECD, the annual average wage in Japan’s is $42,118, compared with $55,420 on average among member states. In that grouping, Japan was ranked between Poland and Italy in 2023 in terms of average wages.

What has made it tenable is low costs.

Low-to-negative inflation has resulted in Japan being one of the cheapest developed countries. It has also managed to maintain a high quality of life despite the low wages.

Higher inflation changes the equation.

Real earnings have been falling since early 2022, and households are starting to be squeezed as buying power diminishes.

The 5.1% increase agreed upon in the annual shuntō spring offensive wage negotiations is not all that meaningful overall, analysts say, as employees of smaller companies get far less than the headline number.

“This helped, but still the average wage relative to the CPI inflation rate is negative,” Saito said, referring to the consumer price index.

This puts the Bank of Japan in a difficult position, as it is compelled to raise rates to keep inflation down, but it has to be careful not to cause a slowdown in growth and follow-on weakening of wage growth.

The government must also proceed carefully. In annual minimum wage discussions, it must recommend enough of an increase to keep households whole without driving too many small companies out of business.

Japan’s price problems could solve themselves if the U.S. economy cooperates. If signs of slowing continue to emerge in the U.S., rates could fall and the dollar could weaken against the yen, taking the pressure off the central bank and helping temper price rises.

"A narrowing in interest rate differentials between Japan and the United States would support the yen and alleviate the extent of imported inflation," said Asian Development Bank principal economist John Beirne.

In a recent note, DBS senior foreign exchange strategist Philip Wee forecast 150 yen to the dollar by the end of the year and 139 by December 2025 as the U.S. Federal Reserve starts to lower rates.