Prices in Japan are skyrocketing while the economy shrinks, leaving the government struggling to respond. Inflation is surging, and growth has stalled. According to analysts at Bloomberg, Japan has officially entered a stagflationary environment – a combination of rising costs and slowing output that hasn’t been seen for decades. 2025 saw prices surge in April, with rice prices jumping 98.4% year-over-year – the highest jump since 1971, following a 92.1% increase just before. Energy costs also rose sharply, increasing 9.3%, as government subsidies for gas and electricity were phased out in March. Inflation continues to climb while the economy shrinks. Japan’s GDP fell 0.7% in the first quarter of 2025, marking the first drop since early 2024. This decline indicates a downward trend in economic growth and is further exacerbated by the lackluster consumer spending that prevents recovery. Economists warn of a bleak outlook as inflation continues to erode purchasing power. 2025 witnessed this slowdown in economic activity. The impact is being felt politically, with Prime Minister Shigeru Ishiba experiencing a significant decline in his approval ratings as he faces upcoming upper house elections. This economic stagnation has also impacted the political landscape and will likely influence policy decisions. Trade talks are proving challenging. President Donald Trump’s tariffs have exacerbated the situation for Japan, adding pressure on businesses and hindering recovery efforts. While the US-Japan trade relations remain complex, with a significant volume of tariffs that need to be addressed, there is an acknowledgement that a comprehensive solution will take time. Economists emphasize the complexity of negotiating new deals, highlighting the substantial amount of work needed to achieve meaningful change. This adds to the pressure on the Japanese government to navigate the challenging economic landscape and seek solutions. The impact of these economic challenges has been felt beyond Japan’s borders, raising concerns about a potential global stagflation cycle, where rising prices and sluggish growth could trigger a recessionary trend in multiple countries. As a leading example, Japan is experiencing a dramatic downturn in its economy, with several contractions since 2021. The US experienced only two similar contractions during the same period, highlighting the severity of the situation for Japan. Despite the challenging economic landscape, there are glimpses of hope. However, experts warn that it’s crucial to tread carefully and avoid making rash decisions, as any major economic shift could significantly alter the course of the Japanese economy.