Tokyo, Japan – Tatsuya Yonekura hasn’t raised prices at his Tokyo cafe since it opened three years ago. But with inflation in Japan rising and the yen languishing at a 20-year low against the dollar, Yonekura may have no other choice.
“I may have to raise the price of alcohol because distributors are paying more money to import it,” he told Al Jazeera. “It’s a difficult situation, I’m afraid people will stop coming if they have to pay more.”
The cafe owner’s dilemma comes as more Japanese people practice kakeibo, an approach to budgeting that translates to “household financial ledger,” or otherwise cutting expenses.
Japanese household spending fell in March for the first time in three months, down 2.3% from a year earlier, as rising prices and a weaker currency prompted reputedly frugal citizens to countries to tighten their belts more.
Consumer prices in Japan rose 2.5% year-on-year in April, fueled by inflationary pressures including the war in Ukraine, exceeding the 2% target long targeted by the Bank of Japan (BOJ) . While inflation remains low by international standards, Japanese consumers are notoriously sensitive to rising prices after decades of economic stagnation following the collapse of an asset price bubble in the early 1990s.
Naomi Yakushiji, who recently quit her salaried job at a cooking school to pursue freelance writing, said she plans to cut spending after already committing to eating seasonal and therefore cheaper foods. , a practice known as shun.
“The current economic climate definitely makes it a bit more daunting,” the 29-year-old Tokyo resident told Al Jazeera.
“[Due to Covid-19] I think we all had to learn to tighten our purse strings,” she said. “I’ve also drastically reduced my spending on luxuries, such as clothing, jewelry, salons and recreational activities…I won’t be spending as much money on these things as I used to.”
Yakushiji intends to move to Ireland at the end of the year, adding to his financial worries. The yen fell to nearly 138 to the euro, from 125 in March.
“I’m definitely considering leaving my account open in Japan and leaving some money here in the hope that things get better,” she said.
John Beirne, vice president of research at the Asian Development Bank Institute, said the yen’s rapid fall had fueled market uncertainty and negative sentiment.
“Although the depreciation is positive for exporters, it could potentially weigh on consumer demand if imported inflation via higher energy prices reduces spending,” Beirne told Al Jazeera.
Last month, a survey by Teikoku Databank of 105 major food and beverage companies found that the cost of 6,100 popular foodstuffs would rise by an average of 11% this year.
Processed food products, often seen as an economical alternative to fresh produce, accounted for nearly half of projected cost increases, prices for cooking oil, bread, meat, cheese, ham and spices and toilet paper also having to climb. The research group singled out Russia’s war in Ukraine as the “main culprit” for the price hike.
In April, Japan banned imports of 38 products from Russia, although Commerce Ministry officials said the move would have little effect on the Japanese economy due to the existence of trade routes. alternative supplies.
Japan has also banned Russian coal imports and pledged to phase out Russian oil, which last year accounted for 4% and 11%, respectively, of the country’s supplies. Tokyo also sources 9% of its liquefied natural gas (LNG) from Russia.
Energy prices, which were already on the rise, are now rising even faster. Seven of Japan’s top 10 energy providers raised household energy prices last month. Among them, the number one, TEPCO, increased its tariffs by an average of 115 yen from the previous month.
New home buyers are also affected. The average house price in the Tokyo metropolitan area in 2021 reached 43.3 million yen, the highest figure since 2014, according to a survey by Recruit. Last year, the average mortgage also exceeded 40 million yen ($307,000) for the first time.
However, not all economists see rising cost pressures in Japan as bad news.
Jesper Koll, a Tokyo-based economist and expert director of the Monex Group, said he believed Japan had reached an “economic sweet spot” with demand exceeding supply for the first time in a generation.
“The fact that retailers and growers are actually passing on higher input costs tells you that they are confident that consumers will bear and accept the price increases,” Koll told Al Jazeera. “In my view, there is a good chance that the newfound confidence in pricing power will persist, as Japan’s domestic demand metabolism has fundamentally improved.”
While some economists back the BOJ’s insistence on keeping interest rates low to spur consumption, especially as central banks around the world tighten policy, Koll thinks the Japanese economy could be on the edge. point of entering a “virtuous cycle” where rising prices do not reduce consumption.
“[BOJ Governor] Kuroda’s reputation and legacy are at stake,” Koll said. “There is nothing to lose by staying on the accelerator any longer until we are sure that Japan has reached its escape velocity; escaping the generational deflationary trap it has been in since collapse of the economic bubble.
Japan’s relatively low wages are part of the complex dynamic. The average salary in Japan rose to $38,400 in 1997, but has effectively remained flat since then – while the current OECD average, after decades of steady growth, is close to $50,000.
Since the bursting of Japan’s asset price bubble in the early 1990s, companies have avoided massive hiring and wage increases.
Japan’s economic stagnation has been compounded by one of the fastest graying populations in the world.
The proportion of citizens under the age of 14 fell for the 41st consecutive year in 2021, reaching a record high of 14.65 million. Meanwhile, a third of the population is expected to be over 65 by 2050, with deleterious effects on productivity.
Beirne, the economist at the Asian Development Bank Institute, said more Japanese companies may soon have to pass on price increases to customers if cost pressures continue to mount.
“It can also help boost aggregate demand,” he said. “[Which] would then make wage increases more feasible for Japanese companies.
For Japanese people like Yakushiji, the hope is that rising prices will mark the start of a long-awaited economic recovery.
“These times have definitely forced us to reduce our discretionary spending and it will be interesting to see how the country recovers economically in light of this,” she said.