Mon, Jan 12, 2015 page15

• Japanese embrace economic ‘Stockholm syndrome’

  • The Guardian
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  Europeans wondering what life might be like under sustained deflation need look no further than a bowl of gyudon — the Japanese comfort food of rice topped with beef and onions.

  The price of gyudon has become an unofficial bellwether for the health of the world’s third-biggest economy, which has been beleaguered by more than two “lost decades” of stagnation as consumers have resolutely refused to start spending and lift their economy out of trouble.

  Which is why last month’s decision by Yoshinoya, Japan’s largest chain of gyudon restaurants, to raise the price of a standard-size dish by 27 percent is not all it seems. Far from heralding a new era of inflation, the price rise, to a still very affordable ￥380 (US$3.20), simply highlights the deflationary depths into which Japan has sunk: This, after all, was the first gyudon price increase in almost a quarter of a century.

  If Japan’s experience is any indication, living in a deflationary spiral can be complicated. Conventional wisdom tells us deflation is bad for jobs and growth, and that it causes the debt burden to weigh more heavily on households, companies and governments.

  However, for the average Japanese person, life under two decades of falling prices has had its compensations. Having seen so many false dawns, consumers have reached their own accommodation, of sorts, with the scourge that is now threatening the eurozone.

  First, it has shattered Tokyo’s undeserved reputation as a prohibitively expensive city. It wasn’t so long ago that McDonald’s there was selling a ￥100 hamburger, and clothing retailer Uniqlo has built a global empire on selling cheap, no-fuss garments.

  Expensive hostess clubs, harking back to Japan’s 1980s bubble era, still exist, but they share premises with izakayas (bars) where a glass of beer costs a paltry ￥180. Visitors from London and Sydney can barely believe how little they pay, comparatively, for a decent meal and a few drinks in Tokyo.

  Yet it would be wrong to overlook the damage done to the Japanese psyche in the immediate aftermath of the bursting of the bubble in the early 1990s. The rows of black taxis waiting for businessmen on generous expense accounts to pour out of the exclusive restaurants did not go away, but their story became a very different one — of corporate restructuring or, in ordinary language, cost-cutting.

  The boom gave way to rising unemployment and the emergence of a new generation that flitted between poorly paid contract jobs, resentful that the postwar dividend of savings and generous pensions appeared to have ended with their parents’ generation.

  Now, as Japanese Prime Minister Shinzo Abe enters the third year of his deflation-busting mission, anger and insecurity in the country have given way to resignation.

  His campaign to devalue the yen has proved double-edged. A weaker currency may have improved the bottom line for exporters, but the dividends have not been passed on in wage increases. For the time being, Japan’s companies, like the people they employ, prefer to sit on their cash rather than spend it.

  This has given rise to growing doubts about the Bank of Japan’s inflation target of 2 percent. Abe, meanwhile, is hedging his bets on delaying a second planned rise in the consumption tax to 10 percent, in an attempt to encourage spending and lift the country out of yet another recession.

  However, Japan is facing problems that the eurozone does not necessarily share — yet. Its population is aging more rapidly than almost anywhere else in the world, and that leaves a shrinking, cautious consumer base that is learning to live with deflation while the central bank embarks on periodic binges of quantitative easing.

  Spending habits honed over 20 years die hard, and if Japan’s experience can teach Europe anything, it is that government attempts to haul consumers out of the deflationary abyss are fraught with difficulty.

  An entire generation has come to embrace the deflationary devil they know. For the population at large, what started life as a reluctant thrift habit borne of necessity has quietly become the economic version of the Stockholm syndrome.

  And even at its new, elevated price, a steaming bowl of tasty gyudon is still an absolute steal.
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