Japan's war on deflation faces its toughest battle

5 Petals, I work in Media... I live in Nagoya, so it is a little cheaper.

sangetsu03 -One of the causes of low wages is that many companies are overstaffed. Full-time permanent workers in Japan are almost impossible to fire. In many companies you will find two workers assigned to one position, this is because one of the workers can't, or won't work. So, another worker is hired to do the work. When companies are heavily staffed, and cannot reduce their headcount, they have to pay less, so salaries go down, or simply don't go up. This being the case, many companies have stopped or reduced hiring full-time, permanent staff.

I lived in Tokyo for a year (amazing place) and one of the things I wondered is how can business make money with so many staff, walk into a shop or a bakery and compared to NZ you see so many staff, its amazing! Where I think you need one they have 3, when I visit a small bakery in Oji and I see 5 or so people working in a we shop making cakes I wonder how can such a small business support all these wages.

I think what people don't want to understand is that its over, the world bubble has burst, Japan is not the only country with the same problems, aging populations, declining birth rates. We only know one system, all the good ideas have been used, Abe and any other politician can't do anything to fix it. USA is broken, NZ is broken, Australia is broken, Japan is broken, most of Europe is broken. Global trade has failed the world due to an imbalance in labour rates and standards/cost of living in other countries. Companies have become bigger than what their own country demands due to exports. Once everyone has a car, fridge, TV then you are only operating on the market who upgrades every few years.

The world is not that big, it is not an endless place to sell to, more competition, as my Japanese father in-law said to me over a beer one night "The Glory days are over" He lived through the war, he has seen Japan become powerful and now he is witnessing the decline, he is unlikely to see how this will all unfold and this will go on for years and years, people will look back and always hear stories about the glory days and want back to then. Time is an amazing thing, there is no stop, no rewind or no pause, we are on constant play, we get one chance to get it right and we seldom do.

Be strong Japan you can get through it, the battle is long and the ride will be rough.

Deflation is without doubt the most pressing concern for the economy as prices fall wages slide. Government revenues fall, while the servicing of debt remains unchanged. To put this into presective over 14% of all tax revenue goes to servicing this debt a record $257 billion during the fiscal year April 2014.

For 20 years the Ministry of Finance has been charged with drafting the state budget and issuing government bonds. Unless there is fundamental reform in everything you can wave a stick at Japan public sectors will reach the point of no return, forcing spending in essential services to collapse, the parrot will fall off  it's purch and rigormortis will set in, no amount of funny money will glue it back on. This is the most negative effect of deflation to the Japanese economy.

600000 a month? May I ask, in general terms, what it is you do? I have never seen a company that will pay anybody at the shain level that kind of money. Even bucho level. Your self employed or an expat package? Survive on 200,000 a month? Ive survived on less. Youd be suprised what you can do when you have to.

Ive know foriegners who worked for approx 150 000 a month, and they worked 12 hour days. Not legal? Welcome to the land of situational employment.

I make 600,000 a month and with a young family that is difficult. I do not know how people making 200,000 or 300,000 a month survive unless they are single...

200,000 is fairly normal but that doesn't mean it's good. It's minimal. I've had jobs where I make 300,000 and that doesn't really leave much money for saving and nice vacations either, unless you're just eating ramen for lunch every day and rarely going out to dinner.

Call me a spoiled brat, but I'm not going to work 60 hours a week for 200,000 to 300,000 a month, especially with Tokyo prices and Tokyo rents.

People above me have said it correctly--Japan has created an environment where people work insanely long hours for little pay, all while surrounded by sky-high prices and rents. Some of this is geographic--Japan relies on a lot of imports, and there's not a lot of land to go around with 100 million people. Some of it is also because of weird economic policies--a lack of competition among Japanese firms and international firms, often brought on by non-tariff barriers. And, of course, the Japanese populace's complete inability to complain about anything.

Thanks for clearing that up for me, maybe I hang in different circles. I dont know anybody making 400,000 - 500, 000 a month, not English teachers etc.

I never seen a keiyaku shain get a bonus. Thats the reason for the Keiyaku, so they dont have to pay the bonus or other benefits. The bonus is a reduction in pay, then paid back in a lump sum. Ive been just about every type of shain there is, so save the lecture on your great experiences )

bonus are only for sei shain,

Actually this is not true. Bonuses vary according to the position and contracts as well.

I thought most gaijin made about 160 000 - 250 000 range

This is a poor assumption on your part, sure many may make in that range, however there are PLENTY that make a lot more than that as well.

Complaining about 200 000 yen? I thought most gaijin made about 160 000 - 250 000 range. Am I missing something here?

bonus are only for sei shain, and the priority is for Japanese. Most gaijin I know work in keiyakyu jobs or temp staff. No bonus of course, and some pay their own ninkin and hoken.

I know Japanese who make 230 000 also, it seems common to me.

A great post by sangetsu. One thing not mentioned was the state of employment in Japan. Japan has nearly the lowest minimum wages of the countries surveyed and without doubt has some of the highest prices for goods in the world. Many skilled workers who have lost jobs, now work part time jobs at 800 to 1,000 yen an hour with no benefits just to survive.

One of of the causes of low wages is that many companies are overstaffed. Full-time permanent workers in Japan are almost impossible to fire. In many companies you will find two workers assigned to one position, this is because one of the workers can't, or won't work. So, another worker is hired to do the work. When companies are heavily staffed, and cannot reduce their headcount, they have to pay less, so salaries go dowm, or simply don't go up. This being the case, many companies have stopped or reduced hiring full-time, permanent staff.

For the workers who can't or won't work, it is not entirely their fault. Since Japanese companies promote workers by seniority, and not by performance, there is no incentive to perform. If you are a brilliant young worker who does the work of three other people, you will not be recognized. Someone senior to you will get the credit for your work, and you will be promoted no sooner than another worker who does almost no work.

Because good workers are not recognized, and there is no incentive for workers to perform, and if the workers don't perform, is it any surprise that the companies themselves perform so poorly?

Since the wages of full-time workers are depressed in the current business environment, the wages of part-time workers are pushed down as well.

Simply trying to cause inflation will not address these problems, it will only make them worse.

Soon Tatemichi will be paying more sales tax for his food as well paying more income tax to support the his seniors.......

Yubaru, not everyone knows about this political system. So many news talking about elections, but none clarifying this matter. Thanks to you, now I know.

Fair enough, but then don't you think it behooves the folks making comments to do a little research to understand things HERE before making comments in the first place?

I personally want a very week Yen.

So we call it Zen then instead of Yen

sangetsu03 post------

A great post by sangetsu. One thing not mentioned was the state of employment in Japan. Japan has nearly the lowest minimum wages of the countries surveyed and without doubt has some of the highest prices for goods in the world. Many skilled workers who have lost jobs, now work part time jobs at 800 to 1,000 yen an hour with no benefits just to survive.

One poor guy said that his wages were yen 200,000. He can forget about getting married and having kids on such a wage. It is only enough for him to rent a cheap apartment and survive on Cup Noodles. And what about owning a car and paying 16,000 plus yen a month for parking ? Don't forget the power, gas, water, telephone, health insurance, PENSION etc. You need to earn 300,000 to 350,000 a month to live decently in this country.

As " avigator " said, deflation is not the problem. Low wages, high prices, high taxes, additional tax in the way of pension payments is the problem. Other countries fund the pension payments from the tax take and survive without any problems. In Japan, your pension payments are not for yourself but for someone else. Therefore it is just another tax in disguise which many people are unable to pay due to their low income.

Only number 3 arrow carries responsibility.

The cornerstone is a 2% inflation target designed to reverse price drops that gave consumers an incentive to delay purchases knowing that goods would be cheaper down the road

I often see this statement and it's nonsense. If it's true, why do so many people buy things on credit, paying interest, when they could save up and buy the same thing for cash later? People want things now, not in several years time.

The real reason the LDP don't like deflation is it exposes their incontinent spending policies. The debt just mounts up instead of being inflated away and there is no way to repay it.

Now that Abenomics has devalued the Yen the price of fuel has gone up. Yet the other day Abe was talking about the need to soften the impact of higher fuel prices. His own policies have resulted in the price rises he wants and now he seems to be saying he doesn't want the price rise after all. Abe clearly has no idea what he is doing and lacks any understanding of economics. He is utterly useless as a prime minister, yet the Japanese people will vote him back in to lead them to penury.

You can still ease the cent out of the dollar but how about the yen.

Yamiko Otokawa,

He could have raised the taxes on the rich people and big corporations for revenue.

That sort of policy (notably proposed by the Japan Communist Party) would result in a Total Disaster, as the rich people would flee overseas, as would big corporations, laying off even more middle class workers in the process.

So you'd have no tax revenue from the rich who desert, less tax from the corporations who move operations overseas, and no tax from the workers those corporations used to employ.

How is that supposed to be an alternative to increasing consumption tax, which the rich people pay too, meaning that that consumption tax revenue can be redistributed to those less well off in society?

So you're right. No LDP. No Komeito. But No Japan Communist Party either. I beg for that much.

I am wondering whether this debacle will put off people coming from the USA, England and other English speaking countries to teach English???

sangetsu03 wrote: 'When they spend too much, then they borrow more. When they borrow too much, they push down interest rates so they can borrow more...' Interesting perspective and typical of reactionary values.

An old worldview the Thatcher/Reagan modeled version of austerity works and is a viable a solution to economic stagnation.

Austerity was part of the cherry picked Milton Friedman ideas that government spending needs to be cut. An outcome used to support those at the economic apex. The cuts are to the weakest and least powerful who actually pay for the elite executives erroneous management of financiers and corporate accounting practices.

Austerity policies as government strategies have failed to provide economic relief and restart any economies in Europe or North America. That fact is in bold written in recent history. Not only that, but austerity has never worked as a stimulus in all of recorded human history.

Austerity is a nothing more than a story or meme to placate the unaware. As Reckless put it: 'the emporer has no clothes...a common story...' Illustrating how few are willing to contradict the austerity story.

However international finance is nothing like the simplicity of personal banking, only the naive and certain think it is.

One of Japan's great economic builders was genuine innovation. Nothing humans have ever innovated has been achieved without risk.

It is over twenty years since Japanese industries became risk averse. What is interesting is it coincides with the graphs of economic decline.

There is little investing in real innovation and taking the risk of failure. Opting instead for the certainty of a guaranteed yearly capital return to the executive, shareholder and stakeholders.

CFOs have focused on parts of the innovation cycle only. The parts are the efficiencies of production, accountancy and the mantra of a guaranteed return of profit. Where is the truly new innovations? The ever present LED was a late 1950s innovation which is now near the peak of innovation efficiency. Which is an innovation cycle of over fifty years.

Cutting into or short circuiting the natural innovation cycle has been purely for a guaranteed return.

The creation of truly innovative products consumers benefit from is not getting capital investment. This is due to CFO, executive, stakeholder and financiers aversion for risk.

But Japan is not alone using this CFO mantra of risk aversion and reinvestment of profit into what has become a a global spiral into efficiencies. It now has entered all forms of machine code and is replacing people as we read here.

Innovation creates, wealth, generates job and motivates people to take further risk innovating. Certainty or guarantees leads to stagnation.

Who would deny stagnation is hanging over this generation of highly educated people who are more capable than any in human history?

Framing everyones life conditions based on economic guarantees for those at the economic apex is just not clever.

There needs to be a greater understanding of global economics by us all to reverse the trend of voter ignorance. Nothing good comes from believing 3-5 second political statements and listening to our favourite political 'teams' version of economics. ..

"disgustingly low salary at a mere 200,000 a month."

That's because he works in IT in a job that can easily be offshored to India. This is the price we workers pay for corporate globalization.

Please, who are the other candidates running for Prime Minister?

You really need a class in Japanese civics if you have to ask this question. No one is running for PM, they are running for a seat in the lower house of the Diet. The leader of the party that "wins" the election typically is voted in as PM when the Diet reconvenes after the election, they are voted in by a majority vote.

In the not all too distant past the LDP was forced to form a coalition government and the coalition partner (minor) was selected as PM. (Murayama)

Deflation is not the problem, but the cause of high taxes and low wages. So, do not try to fix the symptoms but the root cause of the malady.

Do not waste your time complaining and protesting about the policies of PM Abe and his party Liberal Democratic Party of Japan and ally Komeito. They will be in charge for the next 4 years after they are elected. There is little you can do after election. Go out there and vote for the candidates of the other party, not LDP, not Komeito.

(1) PM Abe has abused his powers. He wants to force passage of the "state secrets laws" to hide information like military adventures, actual estimates of damages caused by disasters like Fukushima, bad news, etc. from the public and the press. The problem lies in the definition of "state secrets".

(2) He has violated the laws by "revising" or "amending" the Constitution without at least two-third of the votes in both houses as required by the Constitution. He calls it "reinterpreting" the Constitution.

(3) He wants the Japanese military to fight outside Japan in conflicts, wars, etc. which do not affect the national security of Japan, in violation of the Constitution.

(4) He wants to restart many of the nuclear power plants despite the risks of catastrophic damages that can result from major earthquakes like the one which caused Fukushima nuclear meltdown. Areas around the reactor meltdown are evacuated and too dangerous for people to live for thousands of years due to radiation, just like Chernobyl. newscientist(.)com/special/fukushima-crisis naturalsociety(.)com/ca-fukushima-fission-products-release-1000x-times-worse-originally-projected-can/

(5) He wants to revise past apologies to neighboring countries and reopen old wounds caused by World War 2, worsening Japan's relations with its neighbors. The issues related to World War 2 like comfort women, atrocities, etc. are best left alone just like Germany has done. Part of Japan's economic problems is caused by its biggest customer, China, buying a lot less from Japan.

(6) He raised the consumption tax from 5% to 8%. This lowers the standard of living for many poor and middle class Japanese. If you make 100 000 yen a month, you end up with 92000 yen after tax to spend. He could have raised the taxes on the rich people and big corporations for revenue.

Do not complain and protest. Go out there and vote for the other party. Not LDP. Not Komeito.

sangetsu03Nov. 26, 2014 - 06:11PM JST Deflation is occurring because Japanese people are consuming less. They are consuming less for two reasons, first, things in Japan are overpriced, and second, with the population falling significantly every year, there are less Japanese consumers.

No. Main reason is that half of the young people don't have the money because of lack of full time jobs. By the year 2020, half of the working Japanese will be on part-time employment, an increase of 10 percent from today. How can you get a loan for a house, or get married and support even one child? Japan is a stressful society.

Joking aside, Tatemichi san is probably still living with his parents commuting perhaps. Respect to him for getting his head down and grafting his heart out. For Tatemichi Abe’s grand economic experiment must feel like a knee in the dingle dangles.

Yeah disgustingly low salary at a mere 200,000 a month. Amazing that people put up with it. How can you be motivated at all when you are paid such a piss poor salary?? 500,000 plus would be a reasonable salary to start with.

War on deflation = Hyper-inflation

Can anyone survive on 200,000 a month? He must live in a park and eat garbage from a dumpster to save anything on that salary. Or he works another 40 hours of overtime.

OK, I work in business here, so I have some money. But not much of it is in Japan. I sent all the yen I had overseas before Abe and Kuroda got going, as did most people I know. Since the yen I earn is only worth 2/3 its value 2 years ago, I have to save even harder now. Net result: I am not spending as a direct result of Abe's policies. I know plenty of wealthier Japanese. A lot of them have sent their money overseas too. They generally aren't spending here unless they are putting money into the stock market. No one with half a brain would leave their money in a Japanese bank or Post Office gaining no interest at all (or maybe 0.07%) knowing that the government has embarked on the biggest QQE program in history in a deliberate attempt to devalue the currency and create false inflation. Prices have gone up by a lot more than 3% as others point out. Who would buy a bond with an interest rate of less than 1% if inflation was 2%?

I really don't think there are enough idiots in the country for Abe's plans to work. sangetsu03 is spot on when he says deflation is a symptom, not the main illness. The population is declining, people have less money, they have fewer children and the national debt is out of control. Japan is the top creditor nation too though, and the companies are sitting on 3 trillion yen, so it's not all doom and gloom. There is income coming in from overseas, but not enough to balance any books. Abe can tax us more, but the Japanese have a defensive trigger due to uncertainty about the future and a naturally conservative outlook. Whoever told Abe that Japanese people will rush out and spend if inflation hits 2% has never been here. The families will just save even harder so that their only kid can have a childhood spent in juku before achieving the ultimate Japanese goal, which is sei-shaiin employment in a dinosaur company that will treat everyone like a slave.

If they banned juku and restructured the education system so that all kids went to free schools and had a good chance of university entrance, some of the wallets might open. But Japan spends less of its GDP on education (state education) than any other country in the G20 at around 1%. It also has the lowest level of workplace efficiency in the G20 and the domestic economy is in dire need of an overhaul. Meetings, projects and paperwork do not create a growth pattern in business that allows Japanese companies to compete directly with non-Japanese companies, so the domestic economy is protected by staggering levels of mainly non-tariff barriers. The result is terrible inefficiency, which ends up as high prices. Additionally, if people really believed they would receive a proper pension at 65, some of the wallets would open, but if the only plan is to create phoney inflation and increase taxes, the wallets will stay firmly shut.

I hate it for those that don't benefit, but my business gets paid in dollars, so profits are soaring! We are moving back to Tokyo and I will be one of the one's spending trying to turn this ship around. Will also be hiring about 4-6 people to start out.

"war on deflation"

Heck, I'm battling the 3% price increases on EVERYTHING since April.

shrug off fears about the future and start spending.

Spending? Which money you moron? I have nothing to spend. Please, who are the other candidates running for Prime Minister? I hope some bimbo can get there, someone who understands about being poor in Japan, not this bon-bon.

As far as I can see from the shops in my area, he has succeeded in achieving more than 2% inflation. He has achieved this, if it is an achievement, by printing money and wasting on expanding the military and constructions projects such as those described as roads to nowhere.

When you compare that 2% with what one receives in interest from the banks, you wonder how old people feel about their savings and why anyone with savings in Japan would vote for Abe and the LDP.

I think the sensible thing for people with savings to do is not leave it in a Japanese bank at virtually 0% interest but to invest overseas or at least move their money out of Japan before it is further devalued. I would be grateful if anyone can explain how this will benefit the economy here. 0% interest may have acceptable when the yen was increasing in value, but it is not acceptable when the yen is losing value.

The problem with the Japanese economy is not going to be solved by devaluing the yen. Japan is going through the problems Britain went through in the 1970s. At that time British manufacturers were confident in the superiority of their products over cheap badly-designed not-lasting Japanese imports. However, consumers soon realised that the imports were not only cheaper, but better, more reliable products. Japan put many British businesses out of business. Harold Wilson's infamous devaluation, which would "not effect the pound in your pocket", did not help. In fact it resulted in rampant deflation and was a disaster. Is that where Abe's policies are leading?

@sangetsu03: Exactly.

There has never been sustained economic growth in a capitalist country without population growth. Japan needs to get ready for a rough several decades until the population steadies. During this time, a shift to a post-growth worldview and away from mindless consumption seems more prudent, especially for a country so heavily dependent on imports of food, clothing and energy.

Paying a proportion of my income to the treasury in Japan, here goes putting hand on heart, a few suggestion or alternatives for debate.

Abort this unnecessary and costly election, implement full structural reforms to the agriculture and labour markets, reverse the consumer tax from 8% back to 5%, a debilitating capture all financial blunt instrument that turns everyone into losers, Full and open debate on taxation that will 'ring fenced' revenue to reduce the burden of sovereign debt. Legislate a programme that 'locks in' measures to reduce government spending.

Most of all deal openly and honestly with structural reform of the energy market. If nuclear power stations are to remain off line, what is the cost to consumer? If necessary have a referendum, ask the people directly.

Wish I had some money to save in the first place, let alone being talked into spending it instead.

Well it seems like AbeLOGICS would have young people spending their hard earned money with no worries about a possible tax hike and an uncertain economic future,guess it makes perfect sense!!

@sangetsu:

I agree with most of what you said, but the part of the Japanese gaman because of a broke system, I dont. I think if you flooded the market tommorow with global products, the Japanese would be critiquing every single one. They are more content with their danty little cafes and bread specialty shops, with the Euro decor like they are in Paris or Rome. They dont want a free and open market like you see elsewhere. They would rather pay big money for some small dish or product, as its made in japan. They are the ones who suffer in the end, but its their choice. I have heard the economy meat you find in the supermarkets in Japan are actually old Holstein cows, no longer producing. Its made in Japan, so its safe.

isn’t welcomed by seniors such as 69-year-old Eiji Shimojima, who worry that higher prices will erode their retirement income.

and then there are those of "retirement age" who don't even have any "retirement income"...

Amazing that the government of a developed country, and the world's third-largest economy is so utterly incompetent and clueless when it comes to economic matters (not that other governments are much better). I have to stand back and say "WTF do they think they doing!?"

Deflation is not the illness which is ailing Japan, it is a symptom of the illness. Bleeding is caused by a cut, you don't stop bleeding by mopping the blood off the floor, you stop it by closing the cut.

Deflation is occurring because Japanese people are consuming less. They are consuming less for two reasons, first, things in Japan are overpriced, and second, with the population falling significantly every year, there are less Japanese consumers.

Things in Japan are overpriced because Japanese companies have long depended on the domestic Japanese market to be the largest consumer of their goods. In order to keep control of this market, they have gone to great lengths to keep out competition. They have used tariffs, non-tariff barriers, price fixing, and other practices to keep foreigners out of their market, and to keep their prices and profits high.

The Japanese, being as they are, have never complained about the situation, but they have adapted to it. First, they have adapted by simply buying less. Second, they have adapted by having fewer children, because raising children is expensive, and with it being hard enough for a married couple living in the city of feed themselves, the financial sacrifice of raising a family is just too much.

So how has the government responded to the problem? The same way governments always respond, by borrowing and spending more of the taxpayer's money. When they spend too much, then they borrow more. When they borrow too much, they push down interest rates so they can borrow more. When they once again hit a borrowing limit, they print more money. When printing money still isn't enough, they raise taxes.

But when they push up inflation by simply diluting the money supply, and raising taxes, the people have less money to spend, and the value of the money they do have is reduced. As a result, the people spend less money. As they spend less money, consumption decreases, inflation falters, revenues shrink. and the government finds itself carrying more debt that it did before, with less revenue to pay it down.

I hope Tatemichi is putting his monthly savings into foreign currencies as soon as he gets it. Financial suicide and plain idiotic to leave any savings in the weak pathetic yen nowadays.

Only up to 30years old you can go out of the country for a meaningful period.

The youth of Japan have very good reason to fear the future of Japan's economy and their own financial future. The pension system has failed and there is currently nearly two-thirds of the money paid in as premiums being paid it as benefits. There will be no pension in twenty years. Encouraging people to spend their cash is one thing, but gicing them an incentive to do so is a completely different kettle of fish.

Hard to be positive when slipping down a spiral, of course being a well connected family member might cause frustrations at the lack of happiness of the helpless.

But the battle to end deflation isn’t welcomed by seniors such as 69-year-old Eiji Shimojima, who worry that higher prices will erode their retirement income.

Yes it will, and yes it has already with increased prices at the pumps and registers.

“Deflation might not be good for the economy overall, but from an ordinary citizen’s perspective it’s actually not so bad because you can afford more things,” Shimojima sai

Not forever really there comes a time when it starts affecting businesses ability to make any profits which ends up devastating the economy in the long run.