In a country where it will cost US$15 for a ticket to the new Harry Potter movie, consumers reckon prices have plenty of room to fall.
That's at odds with the declaration of war on deflation by Prime Minister Junichiro Koizumi and Japan's central bankers. They claim two years of falling prices threaten to spark a cycle of lower profits and wages.
Japanese shoppers, who have to contend with living in one of the world's most expensive countries, are forcing prices down by changing their spending habits. They've flocked to stores such as discount electronics retailer Bic Camera and Fast Retailing Ltd's Uniqlo shops, where low-cost clothes have won over cost-conscious consumers.
``I know a shirt from L.L. Bean would look better, but I'll buy the ?1,000 version from Uniqlo because it's so much cheaper,'' says 28-year old Hazuki Sasajima, who has just landed a job as a graphic designer after an eight-month search.
Then she was heading to the new Bic Camera store in Sapporo to buy a boom-box. Bic Camera is attracting shoppers with low prices and no-frills service, dispensing with the large sales forces and ornate packaging that drive up prices at big department stores.
Bic Camera opened its store in Sapporo, on Japan's northernmost island of Hokkaido, in July, just months after moving into the former site of failed department store Sogo Co in Tokyo's premier Ginza shopping district.
Such "good" deflation from competition and deregulation is a "net benefit to consumers," said Peter Morgan, chief economist at HSBC Securities (Japan) Ltd. "There is a tendency to put too much emphasis on fighting deflation, instead of promoting growth." Consumer prices in Tokyo, excluding fresh food, fell 1 percent this month from a year ago, the government said yesterday, extending a two-year bout of deflation.
Prices have room to fall further. In Tokyo, goods and services cost about 20 percent more than in New York City, Japanese government figures show. A grande-sized coffee at Starbucks in Tokyo costs about US$3, twice what you'd pay in Seattle.
Prices are high because of a lack of competition from imports, a byzantine distribution system that makes it more expensive to transport goods 500km from Japan's Yokohama port than it does to ship them 5000km from overseas, and regulations that favor established businesses over new ones.
With Japan mired in what the government says may be the worst recession in 20 years, falling prices are the only thing propping up consumer confidence, a survey last month showed.
While confidence tumbled to a three-year low in the third quarter, the price component has risen steadily the past year, as consumers bet prices will keep falling, giving them more purchasing power.
Sony, the largest video-game maker, yesterday lowered the price of its PlayStation2 video game console by about 15 percent to boost sales before the introduction of rival Microsoft Corp's Xbox console next year in Japan.
Palm Computing KK, the Japanese unit of Palm Inc, will reduce the price of its least expensive handheld computer in Japan by more than half to lure shoppers from rival brands.
Policymakers are more concerned the decline in prices will erode companies' revenue, forcing them to cut costs, by spending less on new equipment, dumping workers and trimming wages, giving people less to spend and sparking another drop in consumer spending.
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