At the same time, another possible channel for raising prices is that, when wages increase, employee income would increase and consumption activity would rise accordingly, leading to a raising of prices in reflection of an increase in demand. As this shows, the tightening of labor market conditions essentially would push up prices through increases in wages and demand.
In other words, such a theoretical mechanism is not operating sufficiently in Japan’s economy today. In what follows, I would like to consider this point from two aspects, first touching on the relationship between labor market conditions and wages, and then that between wages and prices.