Another question is whether the mechanism for higher inflation, which I just mentioned, would operate as intended. Although both are difficult questions, I would like to offer possible answers to them, while focusing on the relationship among labor market conditions, wages, and prices in Japan.
To begin with, from a theoretical point of view, the fact that there is a correlation between labor market conditions and prices can be found in almost every economic textbook, and also can be confirmed based on historical data in Japan. The following mechanism is assumed to be in place.