PSIPOOK | features | the recession in Japan


  Pass the Cheap Ramen and Praise the Recovery
Chris Page

When the Osaka City Air Terminal (OCAT) opened in 1996, it was intimately connected with the new Kansai International Airport, a symbol of the Kansai’s economic confidence and Japan’s technological can-do. OCAT has since become symbolic of the recession plaguing Japan.

OCAT's raison d'etre was the airline check-in hall in the heart of the building. Travellers flying abroad could get their boarding passes and deposit their luggage before they even left the city for KIX. For months and then years, the OCAT check-in hall was occupied only by the people who worked there. Airline and security staff waited with patience for travellers who never came. One by one the airlines shut down their counters in the hall until eventually it was replaced altogether, with almost literary irony, by a symbol of the new economy-in-recession: a hyaku-en, or one hundred yen, shop.

From stationary to garden ornaments, the bankrupted, rejected or remaindered stock of hundred yen shops across the nation attract huge numbers of people in search of good deals. You can pick up items of surprisingly good quality, or pick up something that will fall apart the next day, but at ¥100, people keep picking things up.

One long-term foreign resident of Osaka who arrived at the tail end ot the 1980s boom remarked, "When I came here 12 years ago, people used to boast how expensive their purchases were. Now they boast how cheap they are." Consumers, beset by worries over job security and economic recession, are more inclined to be cautious with their finances than in the past, and everyone these days is on the prowl for a good bargain.

One of the most obvious manifestations of the public's change in attitude can be seen in the fast food market. Fifteen years ago visitors from me US to this country were outraged to be paying more than ten dollars for a meal at McDonalds. Now the same chain is charging only ¥60 a burger. Yoshinoya now offers a bowl of beef and rice for ¥240, and money-conscious diners can find ramen for ¥180, and curry for as little as ¥320.

But is the emergence of these value-orientated businesses a sign that Japan is truly becoming cheaper over all? For years Japan's consumers have put up with prices that many foreign visitors find exorbitant. The average Japanese salary is no higher than in other industrialised nations, meaning the real-term cost of living in Japan is one of the highest in the world.

Recently the World Bank and the IMF have been telling the Japanese government that the biggest problem facing their country is deflation. Deflation must be halted, and sliding prices must be stabilised. But which Japan are they talking about? Aside from fast food deals, property remains priced beyond the reach of most ordinary people, consumer durables inhabit Himalayan price ranges, and a taste for vegetables requires a second mortgage.

Since the mid 90s the retail price index has edged down a few points, enough to worry the men in suits gazing dirough the lens of macro economics, but not enough for real people to notice. Recent trends show that the index is actually increasing once again, though it hasn't yet reached 1995's levels. What this means is that prices are generally as high as ever, despite recent high-profile cost-cutters. Japan remains an expensive country and any consumption-led recovery from the recession looks unlikely.

Deflation may deepen Japan's recession, and if the economy implodes, the global ramifications will be enormous. Japan's inflated consumer prices should be dropping to world norms because of stagnating consumption, yet this will not happen because they are a protected species, preserved by global economic concerns and Japan's own market structures. The cheaper deals in fast food outlets and hyaku-en shops are an exploitation of a business opportunity provided by the recession, more than a result of market deflation.

Part of the problem for Japan's shoppers is that the economic structure of the nation was built on high prices and it would be difficult to adjust, even if the political will was there. Japan's high prices are attributable to business practices and an economic infrastructure that was established in the post-war boom. There is considerable collusion and back scratching within markets and between the commercial and government sectors, as well as heavy hidden taxes on certain items like petroleum and luxury goods.

This is not the uniquely Japanese phenomenon Western commentators make it out to be - as the cosy relationship between the U.S. government and industries like oil, arms, agri chemicals, and tobacco attests. However, in Japan the practice is more visible than in other countries: among the four main breweries in Japan, beer and other alcohol products are priced identically; there is a law forbidding the discounted sale of books, resulting in more uniform pricing: distributors. suppliers and retailers routinely make exclusive arrangements, stifling the effect of competition on prices.

Another practice inhibiting price adjustment is the forming of secret cartels among bidders for public works projects. Privately contractors share out available contracts among themselves, while publicly offering inflated bids against each other to engineer good prices for the company they have already decided should have the work. In addition, employment laws and practices keep many of the larger companies and public bodies over staffed, while more vulnerably positioned companies must shed workers.

All of these systemic mechanisms are cushioning retail prices and acting against market trends, keeping prices falsely high. There are of course anti-monopoly and anti-rigging laws, but these are enforced by under-funded, under-resourced government departments. The result is that the consumer pays through the nose here: flying and mailing abroad can be cheaper than flying or mailing within Japan, a Japanese camera is likely to be cheaper in New York than in Nipponbashi, and the list of pricing quirks goes on.

In this situation, the cautious Japanese consumer sees no reason to spend, and saves against the uncertainties of the future. Where there is no spending there is no stimulation of the economy. It is a Catch 22 situation.

Prime Minister Junichiro Koizumi has pledged to change the way Japan manages itself and help foster a more flexible and responsive economic environment. But in order to do so, he faces formidable opposition in the forms of entrenched vested interests, ossified institutions and structures, and simple conservatism. It is not certain that his reforms will work and there are doubts about whether they will remain viable solutions after going through a lawmaking establishment infamous for its obtuseness.

Commentators have suggested the Prime Minister's measures are equivalent to the tectonic reforms of Margaret Thatcher in Britain in the 80s, where structural change was forced at the cost of massive unemployment and social division, the long-term loss of job security, and reduction of social provisions.

As this is being written, it seems that Koizumi may be deliberately permitting a crisis to develop in the banking sector in order to get his reforms rolling. The end-of-financial-year accounts and the expiry of guarantees on bad loans should make apparent the fragile state of Japan's banks in the spring unless the government acts to support them. We may see savers rushing to take out meir money. For a worst-case scenario, see Argentina.

This crisis, if allowed to develop, would permit Koizumi to take emergency measures and thus begin the first substantial phases of his reforms. Even if he takes decisive action, any positive result will be years away and the immediate suffering will be immense. Of course, he may yet lose his nerve, prop up the banks, and allow the stagnation to continue instead of enacting reform. Recession would deepen and unemployment would rise.

In the meantime we'll have to watch, hope and wait, consoling ourselves with hyaku-en shopping sprees and cheap lunches. If things get worse, will they turn Kansai Airport into one huge hyaku-en shop? Whatever. this consumer is watching prices before splashing out. I'm not going to invest in a burger until the price hits ¥50.

This Article first appeared in the April edtion of Kansai Scene and was written in February of 2002

Back to Features

e-mail Psilocybe P. Pook: