has recovered moderately with the progress in overcoming the pandemic, as evidenced by the fact that the gdp for the january - march quarter of 2023 increased by 3. 2 percent, and that for the april - june quarter also rose by 4. 8 percent, both on an annualized quarter - on - quarter basis ( chart 5 ). a breakdown by gdp component shows that, while the rise in the january - march quarter can mostly be explained by an increase in domestic demand, the rise in the april - june quarter was due mainly to a surge in net exports offsetting the negative contribution from domestic demand components such as private consumption. it seems that the surge in net exports was brought about by ( 1 ) a recovery in production and exports of automobiles on the back of abating of supply - side constraints, an expansion in inbound tourism demand reflecting the easing of covid - 19 border controls as well as the yen's depreciation, ( 3 ) a shift from imported goods to domestic goods due to the yen's depreciation, and ( 4 ) robustness in overseas economies. as i have explained, overseas economies, albeit slowing, have remained robust. against this background, attention has suddenly been drawn to the risk of the chinese economy falling into deflation, or so - called japanification. in japan's case, after the bursting of the asset bubble, the economy fell into prolonged deflation with deterioration in the balance sheets of firms, financial institutions, and households, which made them restrain private - sector investment and consumption. it is still uncertain whether the chinese economy is actually on the verge of being trapped in such a situation. nonetheless, it is true that ( 1 ) the real estate industry, which has been the backbone of the country's economic growth, has faced difficulties ; ( 2 ) the unemployment rate has risen, mainly among the younger generation ; and ( 3 ) the country's inflation has been low recently. therefore, close monitoring is warranted of future developments in the chinese economy, including fiscal and monetary policy measures taken by the country's authorities. b. price developments turning to japan's price developments, the year - on - year rate of increase in the cpi for all items less fresh food exceeded 2 percent for april 2022 and reached around 4 percent for december and january. since then, it has fallen to around 3 percent, due partly to a decline in energy prices owing to the government's support measures ( chart 6 )

, k., hogen, y., and takatomi, k., " price markups and wage setting behavior of japanese firms, " bank of japan working paper series, no. 23 - e - 5 ( april 2023 ). the degree of concentration is low, and the overall dispersion of price changes is significant. currently, the overall distribution of price changes for both japan and the united states has shifted to the right, reflecting higher inflation. a market economy essentially brings about the efficient use of production resources, including labor force, by the appropriate adjustment of prices of goods and services in response to various changes or shocks that occur on both the supply and demand sides. therefore, the presence of the strong price rigidity seen in japan suggests that there may be structural inefficiencies in the allocation of resources through quantity rationing, such as in order quantity adjustments. moreover, the upward rigidity of prices and nominal wages implied by the zero price and wage norm also suggests a structural distortion in income distribution. if the rates of increase in prices and nominal wages are 0 percent despite an increase in labor productivity, the rate of increase in real wages will also be 0 percent. this means that workers will receive none of the benefits of increased productivity. in fact, during the pre - pandemic period of the 2010s in japan, even though labor productivity per hour rose by about 1 percent on average and corporate profits trended upward, increases in real wages did not readily follow suit. furthermore, deflation or excessively low inflation can negatively affect the potential growth rate of an economy, in terms of its long - term growth potential. the theory of high - pressure economics argues that, in order to improve productivity in an economy as a whole through aggressive labor - saving investment by firms, a sufficient degree of labor market tightening and an accompanying sufficient rise in inflation are necessary. the theory also argues that, on the other hand, a deflationary or low - inflation environment is more likely to induce a sluggish potential growth rate via contraction in investment and a delay in productivity improvement. in fact, from the 1990s in japan, amid deflation and low inflation, privatesector investment was sluggish and the savings - investment balance in the private sector - which is normally in the red, indicating inadequate funds - - was constantly in the black, indicating a surplus of funds ( chart 14 ). during this period, the potential growth rate continued to trend downward more than the