Tokyo, Japan – Tatsuya Yonekura hasn’t raised prices at his Tokyo cafe since it opened three years ago. But as Japan’s inflation picks up and the yen weakens to a 20-year low against the dollar, Yonekura may have no choice.
He told Al Jazeera: “I may have to raise the price of wine because distributors are paying more to import alcohol. “It’s a tough situation, I worry that people will stop coming if they have to pay extra.”
The cafe owner’s dilemma comes as more and more Japanese practice kakeibo, an approach to budgeting that translates as “household financial ledger,” or in other words, cutting back. spending.
Japan’s household spending shrank in March for the first time in three months, down 2.3% year-on-year as rising prices and a weakening currency sent residents known to save their money. This country tightens its belt more.
Japan’s consumer prices rose 2.5% year-on-year in April, boosted by Inflationary pressures including the Ukraine war, surpassing the 2% target that the Bank of Japan (BOJ) has long targeted. While inflation remains low by international standards, Japanese consumers are notoriously sensitive to rising prices following decades of economic stagnation following the collapse of the asset price bubble in the early 1990s. .
Naomi Yakushiji, who recently left a salaried job at a cooking school to pursue a freelance writing career, said she plans to cut spending after she commits to eating foods that are in season and therefore cheaper, a habit known as alienation.
The 29-year-old Tokyo resident told Al Jazeera: “The current economic situation definitely makes it a bit more difficult.
“[Due to Covid-19] I think we all have to learn to tighten our pockets,” she said. “I have also drastically reduced my spending on luxuries, such as clothes, jewelry, beauty salons and entertainment… I won’t spend as much on these things as I used to.”
Yakushiji plans to move to Ireland later this year, adding to her financial worries. The yen fell to nearly 138 against the euro, down from 125 in March.
“I am seriously considering leaving my account in Japan and leaving the money here in the hope that the situation will improve,” she said.
John Beirne, vice president of research at the Asian Development Bank Institute, said the yen’s rapid slide had caused market volatility and negative sentiment.
“While the price drop is positive for exporters, it has the potential to affect consumer demand if import inflation due to higher energy prices reduces spending,” Beirne told Al Jazeera. .
Last month, a survey of 105 major food and beverage companies conducted by Teikoku Databank found that the cost of 6,100 popular foods will increase by an average of 11% this year.
Processed food items, often seen as an expensive substitute for fresh, account for nearly half of the predicted cost increase, with prices for cooking oil, bread, meat, cheese and ham Cotton, spices and toilet paper are also expected to increase. The research team points to Russia’s war in Ukraine as the “main culprit” that drives prices up.
In April, Japan banned the import of 38 products from Russia, although Commerce Ministry officials said the move would have little impact on the Japanese economy given the existence of alternative supply routes. .
Japan has also banned Russian coal imports and pledged to phase out Russian oil, which last year accounted for 4% and 11% of its supply, respectively. Tokyo also supplies 9% of liquefied natural gas (LNG) from Russia.
Energy prices, which have already risen, are rising even faster. Seven of Japan’s 10 major energy suppliers raised the price of household energy last month. Among them, the number one company, TEPCO, has increased its freight rates by 115 yen on average from the previous month.
New home buyers are also being affected. The median house price in the Tokyo metropolitan area in 2021 will reach 43.3 million yen, the highest figure since 2014, according to a survey conducted by Recruit. The average mortgage last year also surpassed 40 million yen ($307,000) for the first time.
Not all economists see Japan’s rising cost pressures as bad news, however.
Jesper Koll, Tokyo-based economist and chief specialist at Monex Group, said he believes Japan has reached an “economic sweet spot” with demand surpassing supply for the first time in a generation.
“The fact that retailers and manufacturers are actually paying higher input costs tells you that they trust that consumers will bear and accept the price increase,” Koll told Al Jazeera. “In my view, it is very likely that the renewed belief in pricing power will indeed be sustained because the transformation of Japanese domestic demand has fundamentally changed for the better.”
While some economists argue that the BOJ is determined to keep interest rates low to boost consumption, especially as central banks around the world tighten policy, Koll believes the Japanese economy can is about to enter a “healthy cycle” where rising prices do not dampen consumption.
“[BOJ Governor] Koll said. “He has nothing to lose by continuing to accelerate for longer until we can be sure that Japan has reached escape velocity; escape the one-generation deflation trap it has been in since the bubble economy collapsed.”
Japan’s relatively low wages are part of a complex dynamic. Japan’s median salary rose to $38,400 in 1997 but has continued to stagnate since then – while the current OECD average, after decades of steady growth, is closer to $50,000.
Since Japan’s asset price bubble burst in the early 1990s, companies have avoided mass hiring and raising wages.
Add to that economic stagnation Japan has one of the fastest aging populations in the world.
The proportion of citizens under the age of 14 falls for 41 consecutive years in 2021, to a record low of 14.65 million. Meanwhile, a third of the population is projected to be over 65 by 2050, with adverse effects on productivity.
Beirne, an economist with the Asian Development Bank Institute, said many Japanese companies may soon have to raise prices for customers if cost pressures continue to mount.
This could also help stimulate aggregate demand, he said. “[Which] would then make a wage increase more viable for Japanese companies. “
For Japanese like Yakushiji, it is hoped that soaring prices mark the beginning of a long-awaited economic revival.
“These times have certainly forced us to cut back on our discretionary spending and it will be interesting to see how the country recovers economically against this backdrop,” she said.