In addition, elastic labor supply and an enhancement of firms' labor productivity are positive for Japan's economy as a whole but have constrained inflation (Chart 9). As I have mentioned, labor force participation, mainly of women and seniors, has accelerated since the mid-2010s with labor shortage intensifying, and this is desirable for Japan, which faces the problem of a declining population.
Many new workers have entered the labor market without a significant increase in wages, due partly to improvement in their working environment. Moreover, firms have enhanced labor productivity, mainly through labor-saving and efficiency-improving investments. While these efforts are favorable in terms of raising productivity of the overall economy, they have absorbed upward pressure on costs, and thus prices have not increased easily.