Introduction
Recently, I've been hearing a lot of people say, "Prices are high, but salaries aren't increasing." This isn't just simple inflation,Stagflation (stagnant inflation)This could be a harbinger of an economic crisis.
As of October 2026, Japan faces a global energy crisis due to the escalating and prolonged tensions in the Middle East. This article clearly explains why Japan and the world are now at increased risk of stagflation, the weaknesses in Japan's economic structure, and how this is impacting government policy.
If you read to the end, you will understand how to prepare for the future of the Japanese economy, so please take a look.
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Stagflation is looming: Japan's crisis triggered by the situation in the Middle East
Main theme: Why is Japan currently facing the risk of stagflation?
Stagflation is,A state in which inflation (rising prices) and recession (economic stagnation) occur simultaneously.This refers to "[...]. While previously a rare phenomenon, it has recently become a global concern."
Why is this a possibility in Japan right now? The core of the reason lies in the situation in the Middle East.
Three reasons why the risk of stagflation is increasing
- Rising crude oil prices are putting upward pressure on prices.
Japan relies heavily on imports for its energy needs. If the situation in the Middle East worsens, the Strait of Hormuz (a vital route for crude oil transport) could be blocked. This would lead to a significant increase in gasoline and electricity prices, as well as a corresponding rise in the prices of daily necessities and food products. - Impact on businesses' production activities
Domestic chemical manufacturers use naphtha, which is produced from crude oil, as a raw material, but some companies have begun reducing production of ethylene, a basic chemical. This raises concerns that the supply of a wide range of products, including car parts, packaging materials, and detergents, may be reduced. - Market turmoil and slowdown in consumer spending
If the impact spreads to the production and business activities of many industries and small and medium-sized enterprises, it will cause stock prices to fall and market turmoil. As a result, consumer purchasing power will decline, and there is a possibility of falling into stagflation, characterized by "high prices + economic downturn."
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Japan's energy crisis and its impact on government policy
Specific facts: How is this affecting governments and businesses?
The escalating tensions in the Middle East are likely to cast a shadow over the "responsible expansionary fiscal policy" advocated by the hypothetical Sanae Takaichi administration. The key points are summarized below.
Point 1: The issue of increased defense spending and the deployment of warships
At the US-Japan summit on March 19, US President Trump requested Japan's contribution to ensuring the security of the Strait of Hormuz. However, Prime Minister Takaichi explained the "legal constraints in Japan" and other possible countermeasures, and the feared request for the dispatch of warships did not materialize, nor was a numerical target for increasing defense spending demanded.
However, caution is advised.The Trump administration may request the deployment of warships in the future. Furthermore, securing permanent financial resources for Japan and the necessary funds (5 trillion yen annually) for eliminating the food consumption tax remain challenges.
Point 2: Plans and challenges of reducing the consumption tax rate
The Takaichi administration has a plan to "eliminate the consumption tax rate on food products for two years, and then move on to a tax credit system with refunds." If they win the House of Representatives election, it is highly likely that they will implement the elimination of the food consumption tax from April 2027.
However, there are challenges to achieving this:
- A "system for tracking income and assets" is necessary for providing deductions from income tax and grants.
- There is also the issue of how to secure funding.
- There are many dissenting opinions within the Liberal Democratic Party, and it is highly likely that no consensus will be reached.
- The goal should be to implement it within two years, when the consumption tax reduction ends, but the most likely scenario is seen as repeated extensions.
Point 3: Investment in the U.S. and supply chain restructuring
In February of this year, three projects, including a gas-fired power plant, were announced as the first phase of the plan, and at the summit meeting, the construction of small modular reactors (SMRs) for next-generation nuclear power plants was also announced.
The Trump administration is likely to accelerate efforts to strengthen economic security by attracting companies with superior technology, such as those from Japan, to the United States and to rebuild supply chains.
The corporate dilemma:
- There are advantages to expanding business locally and increasing exports.
- However, in the medium term,There is a risk that profits and jobs will flow overseas.
- In Japan, too, government-led initiatives are needed to address structural challenges such as energy, semiconductors, deregulation of labor, and rare earth production.
If soaring crude oil prices and supply concerns persist for an extended period, corporate executives may become more conciliatory, potentially leading to a series of revisions and postponements of domestic capital investment plans.
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Supplementary Information: Implications and Points to Note for the Future of the Japanese Economy
How do important facts change depending on your "work sensibilities"?
The trend of a weaker yen and rising interest rates is likely to continue.
With increased demand for the dollar, the world's reserve currency, and concerns that rising oil prices could lead to Japan's trade deficit and inflation,The trend of a weaker yen and rising interest rates is likely to continue.is.
Furthermore, considering the series of projects that will lead to further fiscal expansion, the Takaichi administration will face a difficult challenge in managing its finances and economy going forward.
We need to be prepared for energy security.
In Japan,The government is prepared to respond to rising crude oil prices by releasing stockpiles and resuming fuel subsidies.However, if crude oil imports are halted for several months, it will lead to widespread price increases.
- Individual level: Review of homeowner's insurance and strengthening of energy-saving measures are being considered.
- Company level: Diversification of supply chains, review of inventory management
- Investor: Portfolio adjustments are needed for energy-related stocks, defense-related stocks, etc.
Technical supplement: Characteristics of stagflation
In past economic history, there have been instances where stagflation occurred under the following conditions:
- The oil crises of the 1970s (first and second): OPEC's surge in oil prices, inflation, and economic downturn, particularly in the United States.
- Current concerns: Geopolitical risks are rising. This could not be merely a supply shock, but a military conflict.
Just a quick note to avoid getting too technical:"Energy efficiency and digitalization are effective measures to combat stagflation."It is said that creating cost-reduction mechanisms is important, whether it's saving on electricity bills for individuals or adopting cloud computing for businesses.
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Summary: Prepare for the simultaneous onset of rising prices and economic downturn.
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[Today's realization]
We Japanese have long lived our economic lives based on the premise of "prosperity." However, the reality of the escalating tensions in the Middle East is changing.Japan's Energy Security VulnerabilitiesThis highlights the issue once again.
What is stagflation?
This is a state where inflation and recession occur simultaneously. Prices rise, wages stagnate, and employment deteriorates. It's an economic environment where you can't have both.
What is Japan's position on this matter?
As a country that relies heavily on imports for energy, it is directly affected by the situation in the Middle East. The possibility of the Strait of Hormuz, a vital point for crude oil transport, being blockaded is...It's not just an "unexpected" event, but a "realistic risk."is.
What will be the impact on government policy?
The concept of "responsible and proactive fiscal policy" faces practical challenges such as increasing defense spending and energy investment. A reduction in the consumption tax rate also faces the hurdle of securing funding. This is because,"The balance between ideal and reality"It's a political issue of how to interpret it.
What are the implications for corporate management?
Investment in the U.S. can also become a barrier to domestic investment. The risk of corporate profits and jobs flowing overseas includes:"Energy efficiency and diversification of supply chains"This needs to be addressed.
What is the message for individuals?
With prices continuing to rise, a "re-evaluation of spending" is necessary. Review fixed costs such as housing, medical, and education expenses. Also, consider energy-saving measures and a shift towards an environmentally conscious lifestyle.Self-help efforts against soaring energy pricesThis is the result.
What are the implications for investors?
You should pay attention to sectors such as energy-related companies with stable supply chains, defense-related stocks, and renewable energy. However,Buying everything at once is dangerous. A balanced portfolio is necessary.。
[Today's realization]
The economy is not just numbers and statistics. It is a complex reality intertwined with geopolitics, energy security, and international relations. The risk of stagflation is..."Not an individual problem," but a "system-wide issue."It needs to be understood in this way.
Application to work:
In business, a balance between "idealism" and "reality" is crucial. How to reflect changes in the external environment, such as the situation in the Middle East, in business strategy is critical.Flexible thinking and risk management skillsThis is the question.
Conclusion:
The risk of stagflation cannot be avoided. However,"Don't neglect preparation."It is possible to minimize the impact.That's right. Energy efficiency, diversified supply chains, and a focus on domestic investment—these specific measures are what we need to do.The key to strengthening the resilience of the Japanese economyThis is the result.
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Points to watch for in future developments:
- Results of the US midterm elections on November 4th
- Actual developments in the Strait of Hormuz
- The pace of crude oil price increases and government measures
- Timing and details of the introduction of the consumption tax rate reduction.
- Substantive numerical targets for increasing defense spending
By paying close attention to this information, you will be able to gain a more accurate understanding of Japan's economic trends.
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【lastly】
The risk of stagflation is real. However, it is not an "unexpected" event, but a "predictable challenge." By taking concrete measures such as energy efficiency, diversified supply chains, and a focus on domestic investment,This will strengthen the resilience of the Japanese economy.This is the result.
The government has adopted the ideal of "responsible expansionary fiscal policy," but this only makes sense if it is accompanied by the ability to address real-world challenges. Businesses need to re-evaluate the balance between investment in the U.S. and domestic investment. For individuals, energy conservation measures and a review of spending are crucial.
Final Message:
Economic policy has both "ideal" and "realistic" aspects. Regarding the risk of stagflation,"Never neglecting preparation" is the most important measure.Therefore, energy efficiency, diversified supply chains, and a focus on domestic investment—these concrete actions are key to strengthening Japan's resilience.
