Unlike firms in the United States and other countries, Japanese firms continued to hoard their regular workers in particular even during the pandemic, while making use of such programs as employment adjustment subsidies. This suggests that they have the capacity to swiftly expand supply of products and services in response to a recovery in demand.
In addition, a mindset and behavior based on the assumption that prices will not increase easily have remained deeply entrenched among firms and households in Japan due to their experience of deflation in the past. Nevertheless, the underlying inflationary pressure has been increasing in Japan, albeit gradually (Chart 7).