After a year of historic interest rate hikes in Japan, the profits of the country's largest bank have soared to record levels, while rising prices are forcing consumers to cut spending and rising borrowing costs are intensifying a political struggle over how the government can control spending.

One year ago, Bank of Japan Governor Kazuo Ueda cancelled the latest global negative interest rate and large-scale stimulus plan, inspired by record growth in annual wage agreements. These salary increases indicate that consumers can help drive prices and economic growth, thereby supporting inflationary trends.

The Bank of Japan has raised interest rates for the first time in 17 years, followed by two more in the following months, marking the fastest rate of interest rate hikes since 1989. In 1989, Japan was at the peak of the "foam economy", and the foam soon burst. Economists predict that the Bank of Japan will remain inactive this week and is most likely to raise interest rates again in July.

The Bank of Japan has long believed that creating a sustained cycle of rising wages, consumption, and economic growth is worth the pain of adapting to rising prices. Economists and policy makers believe that there are increasing signs that this cycle is taking shape, but consumers are struggling with rising food bills and are less convinced.

Masashi Fujii, a 50 year old office worker, is married with two children. He said, "The rate of price increase is still much faster than my salary, and the impact of interest rate hikes on my savings is completely non-existent

The sustained inflation has accelerated the changes in Japan. Enterprises are more willing to pass on the rising costs to consumers. The expectation of rising living costs in the future is encouraging more and more retail investors to find new ways to provide funds for retirement, rather than relying on increasingly meager pensions. Corporate governance that is more friendly to shareholders also makes the economy, which is more accustomed to stagnation, pay more attention to profits.

At present, the biggest winners are banks, and loan interest rates will help these three large banks achieve record profits in the fiscal year ending in March, after cutting costs during the economic downturn.

Sumitomo Mitsui Financial Group estimates that the Bank of Japan's interest rate hike will generate an additional 90 billion yen ($605 million) in revenue for the year ending this month. The bank stated that for every 0.25 percentage point increase, an additional 100 billion yen in revenue will be generated annually. At the same time, it still only pays 0.2% interest to depositors.