Prices rise, the yen falls, and the frugal Japanese tighten their belts | DayDayNews

Tokyo, Japan – Tatsuya Yonekura’s Tokyo cafe hasn’t raised prices since it opened three years ago. But with inflation rising in Japan and the yen falling to a 20-year low against the dollar, Yonekura may have no choice.

“I may have to raise the price of wine because distributors are paying more to import wine,” he told Al Jazeera. “It’s a difficult situation and I’m worried if people have to pay more, they’ll stop coming.”

As more Japanese people practice kakeibo (a method of budgeting that translates to “household financial ledger”, or otherwise cutting expenses), the dilemma for cafe owners has followed.

Japan’s household spending fell for the first time in three months in March, down 2.3 percent from a year earlier, as rising prices and a weaker currency prompted Japan’s famously frugal citizens to tighten their belts.

Consumer prices in Japan rose 2.5% in April Inflationary pressures including the Ukraine war, exceeding the long-standing 2% target set by the Bank of Japan (BOJ). While inflation remains low by international standards, Japanese consumers are sensitive to rising prices after decades of economic stagnation after the asset price bubble burst in the early 1990s.

Naomi Yakushiji, who recently quit her paid job at culinary school to start a freelance job, said she plans to cut back after already pledging to make it cheaper to eat seasonal food, a practice known as shun.

“The current economic environment has definitely made it more daunting,” the 29-year-old Tokyo resident told Al Jazeera.

“[Due to Covid-19] I think we all have to learn to tighten our wallets,” she said. “I’ve also drastically cut back on luxury items like clothes, jewelry, salons and entertainment…I don’t spend on those things like I used to. spend so much money. “

Adding to her financial worries, Yakushiji plans to move to Ireland at the end of the year. The yen fell to nearly 138 against the euro from 125 in March.

“I’m very much thinking about keeping my account in Japan and leaving the money here in the hope that things will improve,” she said.

negative emotion

The rapid decline in the yen has sparked uncertainty and negative sentiment in the market, said John Bern, vice chairman of research at the Asian Development Bank Institute.

“While devaluation is positive for exporters, it could weigh on consumer demand if spending is cut through imported inflation caused by higher energy prices,” Beirne told Al Jazeera.

Last month, a survey of 105 major food and beverage companies by Empire Database found that the cost of 6,100 popular food items will rise an average of 11 percent this year.

Processed foods, often seen as a cheap alternative to fresh produce, account for nearly half of the projected cost increase, while prices for cooking oil, bread, meat, cheese, ham and spices and toilet paper are also expected to climb. The research team pointed to Russia’s war in Ukraine as the “culprit” for the price increase.

In April, Japan banned imports of 38 products from Russia, though trade ministry officials said the move would have little impact on Japan’s economy due to the existence of alternative supply routes.

Japan has also banned imports of Russian coal and pledged to phase out Russian oil, which last year accounted for 4% and 11% of the country’s supply, respectively. Tokyo also buys 9% of liquefied natural gas (LNG) from Russia.

Energy prices, which were already rising, are now rising faster. Seven of Japan’s 10 major energy suppliers raised household energy prices last month. Among them, Tepco ranked first, with an average price increase of 115 yen compared with the previous month.

New home buyers have also been hit. According to a survey conducted by Recruit, the average price of a house in the Tokyo metropolitan area reached 43.3 million yen in 2021, the highest figure since 2014. Last year’s average mortgage also surpassed 40 million yen ($307,000) for the first time.

However, not all economists see rising cost pressures in Japan as bad news.

Jesper Koll, an economist in Tokyo and expert director at Monex Group, said he believed Japan had reached an “economic sweet spot” where demand outstripped supply for the first time in a generation.

“The fact that retailers and producers are actually passing on higher input costs tells you that they trust consumers to take and accept the price increases,” Cole told Al Jazeera. “In my view, the newfound confidence in pricing power is actually likely to persist as the metabolism of domestic demand in Japan has gotten fundamentally better.”

The Bank of Japan bucks the trend and raises interest rates [File: Toru Hanai/Bloomberg]

While some economists see the BOJ insisting on keeping interest rates low to stimulate consumption, especially as central banks around the world tighten policy, Cole believes the Japanese economy may be about to enter a “virtuous circle” where higher prices won’t reduce consumption.

“[BOJ Governor] Kuroda’s reputation and legacy are at stake,” Cole said. “Staying on the accelerator longer before we can be sure that Japan has reached escape velocity, he has nothing to lose; escape the deflationary trap of a generation caught since the collapse of the bubble economy. “

Japan’s relatively low wages are part of a complex dynamic. Average wages in Japan rose to $38,400 in 1997, but have practically stagnated since then—while the average OECD salary is now approaching $50,000 after decades of steady growth.

Since Japan’s asset-price bubble burst in the early 1990s, companies have avoided mass hiring and wage increases.

Adding to Japan’s economic stagnation is one of the fastest-aging populations in the world.

In 2021, the proportion of citizens under the age of 14 will decline for 41 consecutive years, reaching a record low of 14.65 million. At the same time, by 2050, one third of the population is expected to be over the age of 65, which will adversely affect productivity.

If cost pressures continue to mount, more Japanese companies may soon have to pass on price increases to customers, said Berne, an economist at the Asian Development Bank Institute.

“It may also help stimulate aggregate demand,” he said. “[Which] It would then make wage hikes more viable for Japanese companies. “

For Japanese like Yakushiji, it is hoped that rising prices will mark the start of a long-awaited economic recovery.

“These times are definitely forcing us to cut discretionary spending and it will be interesting to see how the country recovers under these circumstances,” she said.

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