Japan has an aging population which means that social security costs in terms of healthcare provision and state pensions will increase, but be borne by fewer people in work. Japan has a declining birth rate with more people dying than being born (9.38 vs 8.07 per 1000 population, respectively) and currently, nearly one person in four is over 65 years of age. The birth rate per woman is 1.4 children. The nation also has the worst public debt to GDP ratio of any major economy, with debt estimated at 226% of GDP.
Japan has been dogged by deflation for much of the past 20 years. Deflation tend to act as a break on domestic demand since consumers delay making significant purchases in the expectation that goods will be cheaper at a future date when they must replace the item. The government of Shinzo Abe has made reversing deflation a priority and is aiming to introduce inflation of 2% per annum into the economy. In order to address the need for Japan to bolster its revenues to meet (in part) the challenges of its grey demographic time bomb and debt obligations, the government announced that sales tax would rise from 5 to 8% (effective this month) and eventually to 10% in October 2015.
Initial data suggests that the predicted surge in retail spending in March did materialise as consumers rushed to beat the tax increase. March sales saw an 11% year-on-year surge, the biggest growth seen for 17 years. Inflation for April is expected to come in at 2.7% above where it stood 12 months ago; this is the fastest rate of price increases seen in 22 years. Most central banks target an inflation rate of 2% which is seen as a healthy level for an economy (as noted, falling prices hurt domestic demand over the longer term which is why low, stable inflation is deemed to be a good thing from an economic perspective).