Sun, Mar 20, 2022 page12

• Japan’s prices are finally rising, but will it last?

  The country might achieve its 2 percent inflation target, but the feat could be short-lived, as price hikes are mostly caused by external factors, such as the war in Ukraine

  • By Etienne Balmer and Hiroshi Hiyama / AFP, TOKYO
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  From rice balls to nappies, prices are rising in Japan. Unlike inflation seen in many other places, the increases are long-sought, but also unlikely to last, analysts say.

  Since the 1990s, the country has swung between periods of sluggish inflation and deflation, where prices are falling — both considered bad for growth.

  The central bank has tried an array of policies, including pushing interest rates to rock-bottom, to encourage spending and reach a 2 percent inflation target, seen as key to boosting prosperity in the world’s third-largest economy.

  

  Shoppers browse at discount retailer Don Quijote Holdings’ store in Tokyo on June 18, 2018.

  Photo: Reuters

  It has not worked: Last year, the price of goods, not including volatile fresh food, inched down by an average of 0.2 percent.

  However, COVID-19 pandemic recovery demand, as well as a surge in oil and other commodities linked to the Ukraine war, might finally be achieving what the Bank of Japan could not.

  Major Japanese companies have started raising the price of goods in a previously unthinkable, and sometimes controversial, fashion.

  The maker of beloved children’s corn snack Umaibo was even forced to apologize for the “commotion” caused by rumors ahead of a price rise amounting to US$0.02, the first increase since its 1979 debut.

  Other hikes have also made headlines in a country where wages and prices have long been stagnant.

  The increases have been tough to make, Shigeto Nagai of Oxford Economics said.

  The so-called lost decades that followed Japan’s 1980s boom have “cemented a deflationary mindset” among consumers, he told reporters.

  “People believe that wages and prices will not grow,” and so companies fear losing ground to competitors if they price items higher, he said.

  On a narrow, bustling street in eastern Tokyo, shopkeepers said they felt squeezed by a pandemic downturn, and higher costs for essentials such as cooking oil, flour and fuel.

  However, many prefer to absorb extra costs rather than pass them on.

  “We have been in business for over 70 years ... we are extremely close to our customers,” said Satoshi Okubo, whose family shop sells sweets and chewy udon noodles.

  “For now, I am swallowing the increased costs,” he told reporters. “We will only decide to increase our prices when it becomes absolutely necessary.”

  Some companies have instead opted to reduce the size of products while leaving the price unchanged, a move dubbed “shrinkflation.”

  However, this risks irritating customers like Masayuki Iwasa, 45, who since 2020 has documented shrinking goods and price increases on his Web site Neage, which means “price hikes” in Japanese.

  “Some companies clearly say what they are doing, and others don’t. If they announce what they are doing, I think customers would understand,” he told reporters.

  Despite the challenges, prices have been climbing in Japan since the autumn, albeit at nowhere near the blistering pace seen in Europe or the US, where inflation recently hit a 40-year high of 7.9 percent.

  Core consumer prices, excluding fresh food, increased by 0.6 percent on-year last month, according to data released on Friday, and some economists predict Japan could reach its 2 percent inflation target in the coming months.

  However, that level is “not sustainable,” Nagai said, because it is driven by external factors and intensified by a weaker yen.

  One key to achieving longer-lasting price rises is wage increases, which for decades companies have kept low in part to avoid hiking the cost of products for consumers.

  Jobs once for life and laden with benefits have been swapped for cheaper part-time roles, often occupied by women, and even those with lifetime jobs have seen paltry pay rises.

  Japanese Prime Minister Fumio Kishida has made wage increases a central plank of his economic policy, calling for companies to lift salaries by 3 percent in annual spring wage negotiations.

  However, recent years have produced only marginal increases as trade unions prioritize job protection and this year’s first negotiations have been disappointing for Kishida and the unions.

  Nagai also said that unexpected events such as the wave of the Omicron variant of SARS-CoV-2 could impact efforts to hike inflation.

  “We have been hoping for ‘revenge consumption’ by consumers [after pandemic restrictions], but many households have really experienced a sharp deterioration in real disposable income,” he said.

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