While many parts of Asia have prospered over you over the past three decades, Japan’s prosperity has stagnated
As a kid growing up in Japan, things rarely seem more expensive.
My favorite lunch was always available for 500 yen coins ($3.90; £3.10) and it will remain that way until 2021. Same for shoes or clothes, little changed.
I was taught to save, save and save, and repeatedly warned that the value of our family home had fallen in the 1990s, when the property market crashed.
This painful financial loss meant that my parents, and many others like them, were not able to resell their home or upgrade it.
But when the prices of everyday items don’t go up, people don’t spend money actively.
Companies, in turn, respond by not increasing wages, which further lowers consumer demand and prices. When you can’t get a pay raise, you don’t often go out to shop.
Overall, this slows down the economic growth of the country as a whole – Japan has been mired in a vicious cycle for decades.
While many parts of Asia prospered, Japan’s wealth stagnated. Japan’s per capita GDP – the country’s economic output per capita – has remained stuck at the same level since the 1990s. By 2010, China had overtaken it as the world’s second largest economy.
Productivity rates remain relatively stable
For decades, with little success, the country’s central bank has tried to stimulate growth by getting the Japanese to “spend more, invest more, raise wages and marginally increase the price”, said Nobuko, a partner with EY. Kobayashi explains. Parthenon.
In April, the benchmark measure for consumer prices rose 2.1%, with inflation expected to hit the Bank of Japan’s 2% target at the end of this year, after three decades of essentially no growth at all. Afterwards.
However, the boom has nothing to do with domestic economic policy. This is driven largely by higher import costs, a global rise in raw material and energy prices – pushed over by the pandemic and war in Ukraine.
Ms Kobayashi even warned that it could mark the “beginning of bad inflation”, as wages have not yet risen. In fact, the average salary has barely risen in three decades, so things are about to get painful for shoppers.
Take-home pay for Japanese workers has improved little since the 1990s
While many governments are grappling with rising prices and high cost of living after Covid, it comes as a big blow to Japan, where people have been used to stagnant prices for decades.
When the price of Japan’s everyday breakfast – umaibo – which has always cost 10 yen ($0.075; £0.06) since its creation 43 years ago – soared by 20%, it sent a shockwave across the country.
In a society that believes in sharing the social burden, rising prices has become a cultural taboo.
So much so that the popular snack maker Yaoqin had to launch an advertising campaign explaining why it had to raise the price.
But it was inevitable and one after the other, everything from mayonnaise and bottled drinks to beer has become expensive. According to the Teikoku databank, the prices of more than 10,000 food items are expected to increase by an average of 13% this year. Snack maker Yaoqin launched an advertising campaign to explain the price hike.
Central Bank Dilema.
And here, Japan has a really tricky problem: Central banks in the rest of the world have responded to rising prices by raising interest rates to help keep inflation under control. The Bank of Japan has kept rates at rock bottom for years.
If there is a significant difference in interest rates between Japan and other major economies such as the US, the Japanese currency weakens rapidly. The yen recently fell to a 20-year low against the dollar.
A weaker yen means that imported goods – crucially oil and gas – are priced even higher.
“Consumers are not accustomed to accepting inflation,” says Takeshi Ninami, chief executive officer of Suntory Holdings, known for its beer and non-alcoholic beverages such as Japanese whiskeys Yamazaki, Hibiki and Hakushu, as well as bottled water and coffee.
The company has recently announced price hikes across most of its product range from October, to give itself time to discuss these hikes with its distributors. Mr Ninami put it in a global supply chain crisis caused by the pandemic and China’s recent lockdown.
“Overall, it has been accepted. But there is still a challenge from the big retailers,” he says. Suntory CEO Takeshi Ninami says the company raised prices of its products due to supply chain issues. Part of the rationale behind the government’s efforts to fuel inflation in the Japanese economy has been to try to push wages higher.
“There is enormous pressure from society and government to increase wages, but we need to increase productivity,” says Mr. Ninami.
“But suddenly it’s hard to increase productivity. We have a lot of partners in one industry, so we have to consolidate.”
Mr Ninami says Japan needs to invest in green innovation or new sectors such as healthcare to stimulate the economy and create new jobs to boost average wages. He also expects the government to do more to attract foreign investors.
But it will take time and job creation is one of the many issues Japan has been grappling with for decades.
The only silver lining to the weakening yen in the short term could be an influx of international tourists willing to spend their money in Japan, although borders are only beginning to reopen post-Covid.