Sunday, August 27, 2017

Japan as the Cheap Place to Live?!

Growing up in Japan, I have always had the impression that the island country is one of the most expesive places in the world.  Friends and family members always complained how for the same price as one would pay for something in Japan, one can get much bigger and more of the same thing.  Research data tend to confirm such anecdotal impressions.  The city of Tokyo has consistently ranked as one of the most expensive places in the world, and its high rank on the costliness has changed little in the past decade.  Both professional and personal evidence point to Japan being an expensive place compared to most other parts of the world.

It is with such a prejudice that I continue to seek Japan.  When working in the country a few years ago, the continued outing for drinks and corporate parties quickly drained comparatively meager salaries, only cementing the idea of Japan being an expensive place.  And previous travels in the country, with just-in-time transport options, food, and accommodation, have been associated with the most expensive prices for the most modest of outputs.  While the quality of the outputs remained high compared what can be gotten in other countries, for the prices paid, it was still not the greatest bang for the buck.

Yet, when questioning the boss of the hostel that I am currently on what she likes the best about Japan, she, without hesitation, answered that it is because the country is cheap.  Specifically, she mentioned how the medical care is cheap, the food is cheap, and if not living in the center of the city, buying a house is extremely affordable as well.  I could not have been more surprised by the answer.  It changes the most underlying perception about Japan, a cornerstone of how I see the country and its society.  For me, the country being expensive was almost part of its very identity.

The boss' declaration required a little more on-the-ground research.  And she made sure I knew where to look.  The talks of 2-dollar meals that can fill the biggest of guys, the nearby dollar shops, and frequent discounts in supermarkets ensured that I would not miss any opportunity to stretch my money, a point especially relevant now that I am completely devoid of income.  And almost always, she was right, the high-quality meals that I have had in the country, for instance, have been cheaper than the most junky of fast food options America had to offer.

However, it is also incorrect to assume that Japan has become cheaper over the years.  Instead, it is the rest of the world that has grown more expensive while the lack of inflation in Japan has ensured its prices remained the same for years and years.  When Japan was paying 7 USD for lunch ten years, it was expensive because the rest of the world was only paying 3-4 USD for a good meal.  But the rest of the world might be paying ten dollars for the same thing today while Japan continues to pay 7 USD for lunch.  As the concept of expensive changed in the rest of the world, the stagnant prices in Japan became more reasonable over time.

From a purely economic point of view, for a country like to be suddenly be perceived as cheap, especially by people who live there, is not a good situation at all.  Lack of inflation saps the energy of consumers, who would put off large purchases until prices become lower or their incomes rise relative to prices.  Employers, knowing that prices of goods and services remain unchanged, would see no reason to increase salaries, discouraging employees from working harder for higher pay.  Economic productivity falters as both consumer confidence declines and labor productivity becomes stagnant.

Surely, a cheaper Japan does have its benefits.  Short-term visitors from abroad, who compare prices across a number of candidate destinations before selecting, become more likely to choose Japan due to its affordability.  The renewed enthusiasm for Japan among foreign tourists match up well against Japanese government's goal of reaching 20 million inbound tourists per year.  But the joy of receiving more tourists would be temporary.  Like local residents, foreign tourists look at the long-term, and if Japan has the potential to become even cheaper (relatively to their own increasing incomes), they would hold off vacation in Japan until later.

Japan's renewed perception of being cheap will only make it even cheaper over time.  While outright deflation might be gone, the fact that people put off purchases and companies put off wage increases mean that purchasing power remain stagnant.  For retailers to capture an ever-shrinking market due to population decrease, they have no choice but to continue reducing prices to attract customers.  As other parts of the world become more expensive with more economic growth, population growth, and accompanying shortages of supply, Japan will become more and more of a curious anomaly in terms of its stagnant prices.

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