The Japanese government has begun considering declaring an official end to deflation, sources familiar with the matter said Saturday, some two decades after it acknowledged that prices were falling moderately.

While Japan has maintained that the country is "not in a state of deflation," it has yet to be convinced that deflation is already a thing of the past. It has struggled for years to dispel deeply-rooted public perceptions that prices and wages will not rise.

But the recent bout of inflation, driven mostly by higher import costs, and the prospect of sustainable wage growth is seen as clearing the way for Japan to end its war on deflation.

The government will carefully examine the outcome of labor-management wage negotiations this spring and the outlook for inflation in determining whether conditions have fallen into place for Japan to declare a complete break with deflation, the sources said.

Japan has been stuck in a vicious cycle of falling prices hurting corporate profits and hampering wage growth. Private consumption, which makes up a large part of the economy, has subsequently stagnated.

A formal announcement, while symbolic, will mean one of the major growth bottlenecks for Japan's economy has been removed.

Prime Minister Fumio Kishida or Cabinet members making a public declaration and the government making a statement in its monthly economic report are among the possible options, according to the sources.

Government officials say any decision will depend on how the economy performs. They also acknowledge that it will ultimately be up to the prime minister.

Kishida, who has said Japan is about to seize an opportunity to finally depart from deflation, has seen public support plummeting amid the rising cost of living and a political funds scandal engulfing the ruling Liberal Democratic Party.

The Bank of Japan's unprecedented monetary easing steps implemented over the past decade have been aimed at pulling Japan out of deflation, in line with a 2013 joint agreement with the government that included a pledge to aim for 2 percent inflation.

When the government released its economic assessment for March 2001, it stated that Japan was "in a mild deflationary phase." Decades later, Japan's core inflation has remained above the BOJ's 2 percent target for the 22nd straight month to January.

BOJ chief Kazuo Ueda told parliament recently that Japan is "in a state of inflation," in an apparent nod to market speculation that the Japanese central bank will remove its negative interest rates this spring and pivot away from ultraloose monetary policy.

Among economic indicators deemed critical in gauging the price situation, Japan's output gap has been closing, indicating that demand has been picking up, in a positive development for stable inflation to be achieved.

"June will be important," one of the government officials said, referring to the time when Japanese households will see an income and residence tax cut, a policy step designed to support domestic demand.

Still, there is caution within the government about declaring an end to deflation, as uncertainty remains over the price outlook and the broader Japanese economy, which unexpectedly slipped into a technical recession at the end of 2023.

The BOJ expects the pace of increase in core consumer prices, a key gauge of inflation that strips away volatile fresh food, will slow in the coming months.

Some officials also see it as a matter of formality and say declaring an end is not a priority, because even now the government's official stance is that Japan is not in a state of deflation.

"It will look bad," if economic conditions worsen after the government has declared that deflation is over, one of the government officials said.

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