December 6, 2009 – Osaka, Japan
Today Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that price drop in service sector such as accommodation and hair dressing is severe in Japan. According to nationwide CPI* (Consumer Price Index), “general service” sector has been minus vs. previous year for 6 consecutive months, and for October the decrease ratio was the biggest in statistic history. With worldwide demand decrease, CPI has been dropping in western countries as well but Japan is the only country whose service price is minus. Ongoing price drop likely leads to stronger pressure for decrease in wages. Economic recovery driven by domestic demand that Hatoyama administration aims at is not easy.
Main Services Whose Price Has Dropped (As of October 2009)
(Source: Nikkei, translated by the author)
Service Name / CPI (vs. October 2008) / Actual Price (In Yen)
Accommodation / -2.0 / 16,032
Beef-on-rice dish / -0.3 / 390
Tatami mat repair / -0.3 / 6,871
Air conditioner installation / -0.4 / 14,043
Cleaning (men’s suit) / -0.2 / 1,108
Package tour (abroad) / -22.8 / 67,080
Monthly fees for English conversation lessons / -0.6 / 20,277
Playing golf / -4.2 / 14,031
Video rental / -12.9 / 317
Esthetic clinic / -0.1 / 13,065
Note: Index is of nationwide. Prices of accommodation, package tour (abroad) are of nationwide. Prices of all the rest is of Tokyo.
Prices of general services have been minus vs. previous year for 6 consecutive months since May this year, and it was -0.6% for October. Overall service including public sector was -0.5%, the biggest drop together with February 2005 since 1971 (statistics are available from 1971). During the 7-year deflation that started in 1998, price drop in service sector such as dining out was prominent but for general service sector, the biggest drop had been 0.3% of February 2001. Looking by industry, culture and entertainment service was -3.1%, accommodation was -2.0%, package tour (abroad) was -22.8%, playing golf was -4.2%, and using karaoke room was -2.6. Among dining out, “symbol of deflation items” of bee-on-rice dish and hamburgers were minus vs. October 2008.
Frequency of using services also is decreasing and expenditure of household is greater than drop in unit price. According to household budget survey executed in October 2009, expenditure for tea and coffee of households with two or more wage-earners was -14.3%. Services related to clothing such as cleaning was -6.6%. Package tour was -8.0% and monthly fee for foreign language lessons was -5.6%.
Price drop for Japan is prominent compared to western countries; service prices was +0.9% for the U.S. and +1.8% for EU. One reason that Japan’s service prices tends to drop easily unlike western countries is difference in employment practice. Large portion of service cost is labour cost. When demand decreases, many western countries immediately cut jobs to align supply capacity with demand decrease and maintain prices. However, Japan still tends to prioritize job preservation. Many Japanese service companies try to preserve jobs in severe competition in their service sector, and therefore they are faced with bigger pressure to lower wages.
Another reason for price drop is the fact that Japan is facing severe demand shortage (over supply). According to estimation of IMF (International Monetary Fund), “demand-capacity gap” between actual demand and potential supply capacity is between -3% and -4% for western countries but is as high as -7% for Japan. In amount, Japan’s demand shortage is as big as 35 trillion yen/year and deflation pressure is large.
Service sector is an important market covering almost 60% of Japan domestic consumption, so price drop in this sector tends to lead to lowering of wages and it cannot be denied that it triggers further deflation. Hatayama administration advocates that it is to stimulate domestic demand by incentives for bringing up children etc. However, if price drop should continue, revenues of companies would not grow and it is quite possible that economy boosting measures as increase in income become ineffective.
* CPI (Consumer Price Index)
(Source: Nikkei, edited and translated by the author)
CPI is an economic indicator used to understand price trend of products and services that consumers pay to purchase. In Japan, MIC (Ministry of Internal Affairs and Communications) announces the index monthly. Index including items whose price fluctuation is large such as fresh foods draws much attention, and this index is an important factor for BOJ (Bank of Japan) in making policies such as interest rate cut. With continuous drop in index, the government also officially announced that Japan is in deflation status in November, as mentioned in the previous article How Japan Can Get Out From 10 Year Deflation?
Some experts point out that actual price fluctuation has not been accurately tracked in recent years. This is because the items used in calculating index are mainly regular items traded and distributed nationwide, when market share of PB (Private Brand) products are increasing in super markets, meaning the actual price drop (actual price that consumers pay) is bigger than that of the index.
2009年11月22日日曜日
How Japan Can Get Out From 10 Year Deflation?
November 22, 2009 – Osaka, Japan
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
Yesterday Nikkei, Japan’s leading newspaper specialized in economy/business and politics, reported that in November’s Monthly Economy White Paper issued on November 20, the Japanese economy is “in the moderate deflation status”. It is first time in 3 years and 5 months since June 2006 that the Japanese government officially identified deflation in the monthly white paper. Although the domestic economy has started to improve, with decrease in prices, there is a risk that company revenues deteriorate and unemployment increases. Therefore, the government is to speed up to drafting revised budget plan focusing on employment measures etc. The Japanese Economy will be much hobbled by deflation, and Mr. Kan Naoto, the Deputy Prime Minister, requested BOJ (Bank of Japan) also to cooperate to lead out from deflation in the press conference held on November 20. However, financial measure that BOJ can take is extremely.
According to Nikkei, Mr. Shirakawa, the Bank of Japan Governor, refrained from explicitly stating that the Japanese economy is in the deflation status in the press conference held on November 20 after Monetary Policy Meeting, but Mr. Kan judged as deflation for the following three reasons.
1. CPI (Consumer Price Index) is continuously decreasing. (This is conspicuous compared with western countries).
2. Respective index growth rate has been below actual for two consecutive quarters,
3. “Demand-Supply gap”, which is subtracting potential supply capacity from demand, has been minus and the degree of minus has expanded to 40 billion yen/year. This is a huge demand deficit.
The Actual Deflation is Much More Severe than the Statistics
(Source: Nikkei, translated by the author)
Item / Actual Purchasing Price vs. Previous Year / Actual Purchasing Price (yen) / CPI vs. Previous Year / CPI Sales Price (yen)
Men’s Suits / -40.4 / 23,604 / -1.7 / 37,092
TV Sets / -26.6 / 119,900 / -33.6 / 90,914
Skirts / -25.4 / 5,153 / -2.5 / 8,728
Umbrella / -23.3 / 801 / -0.8 / 2,505
Handbag / -19.0 / 7,399 / 0.2 / 15,905
Children’s Shirts / -13.9 / 952 / -2.9 / 637
Blouse / -12.0 / 3,647 / 1.2 / 5,742
Boy’s Socks / -7.8 / 298 / -0.9 / 679
Notes: Actual purchasing price is from purchasing price from family budget survey. Sales price is September’s price of Tokyo retail price statistics survey, which is the original statistics of CPI.
The reason for the government’s judgment is September’s CPI (excluding fresh food) was -2.3 from a year ago, and until August CPI has been dropping for four consecutive months and the degree of the minus for September was the biggest ever. Many private research institutes estimate that for three years the price drop trend continues. In fact, it is quite possible that the deflation has been going on for the past 10 years of so since September 1998.
Actual price drop might well be much more severe than the statistics, because CPI includes only basic items and excludes knockout price PB (Private Brand) and bargain products. For example, for men’s suits, the drop of CPI is 1.7% by statistics but when the government analyzed including knockout price products the actual average price was minus as much as 40%.
With continues drop in price, company revenues would not increase (or rather decrease), meaning household income would not increase. GDP for July-Sep was plus for two consecutive quarters, but respective GDP (assumed to reflect more accurately actual sense of economy) has been minus for six consecutive quarters. Respective item GDP is 479 billion yen/year and income is 254 billion yen/year, both of which are the level of 1992.
Without increase in company revenues and income, solid sense of economy recovery cannot be achieved. This means that government would not be able to gain their revenue from corporate tax, individual income tax and consumption tax, leading to further deterioration in financial situation.
Among major countries, Japan is the only country going through severe deflation. As for “Demand-Supply gap”, Japan is approximately -7%, whereas western countries are 3-4%. This is because market of automobile and consumer electronics, Japan’s primary export products, shrunk drastically, leading to severe over supply. In addition, chronic domestic demand decrease attributing to low birthrate with longevity is also a negative factor.
Outlook of deflation spiral in which price drop is linked with deterioration in economy cannot be denied. Retail giants have jeans with price less than 1,000 yen but sales of super markets have been decline from the previous year’s results for 10 consecutive months. Companies are going through war of attrition in which they cut margin to lower the price. The outlook of bonus for this winter for major companies is minus by 2 digits from a year ago, and downward pressure of employment and income environment is expected to become stronger and stronger.
Demand insufficiency of 40 billion yen needs to be resolved to get out of deflation. Although the government is insisting that this can be achieved by stimulating domestic demand with incentive to households with children, such stimulation is insufficient. Many experts believe that the possible solution is aggressively taking in external demand such as of China and other emerging countries.
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