Inflation, a phenomenon that Japan is no longer used to

Everything seems to indicate that inflation will be sharply accentuated in Japan, driven by the explosion in energy prices. But for companies in the country, marked by a deflationary mentality, raising prices is no easy task.

The cost of numerous everyday items has increased in recent months, a fact that was echoed by local media, which published advertisements to this effect broadcast by agri-food giant Meiji, the Lawson supermarket chain or the cosmetics and cleaning products group Kao, among others.

The future rise in the price of “Umaibo”, puffed corn bars very popular among Japanese children, caused a stir at the end of January, as the price of this candy had remained stable since it was released... in 1979.

Since the 1990s, the Japanese economy has been globally stagnant and alternates periods of price decline (deflation) with, at most, some phases of timid inflation.

Those “lost decades,” as economists dubbed them, “truly forged a deflationary attitude” in which consumers “expect neither wages nor prices to rise,” Shigeto Nagai, from Oxford Economics, reminds AFP.

In addition, companies have “lost their pricing power: they fear losing parts of the market if they start selling more expensive,” adds the economist.

- Cut profits and “reduflation” -

Many local companies prefer to absorb their additional costs rather than download them over their sales prices.

And the smaller they are and the closer their ties with customers, the harder it is for them to take the plunge.

“For now, I can bear the rising costs,” Satoshi Okubo, who runs a family restaurant in Tokyo specializing in udon noodles (made from common wheat flour), explains to AFP.

“We have had this business for 70 years, I can't just make those costs fall on our customers, to whom we feel very close,” he argues, even if that means a reduction in his profits.

In order not to cut their profitability too much, many Japanese food brands resort to “reduflation”: not touching the price of a product but slightly reducing its quantity.

A practice that irritates some consumers, such as Masayuki Iwasa, 45, who has been collecting such cases since the beginning of 2020 on its website, called “Neage” (“price increases”).

“There are companies that honestly say what they do and others that don't. If they were transparent [their price increases], I think consumers would understand,” says Iwasa, interviewed by AFP.

- Vicious circle -

Another classic antidote for Japanese companies to avoid raising prices: to contain salaries.

In the 2000s, large Japanese groups “converted many of their permanent contracts into temporary contracts that cost them much cheaper.” And, with the “lifelong employees” they had left, “raising their salary is the last thing bosses want to do,” according to Nagai.

The “spring struggle” (“shunto”), as the annual wage negotiations in Japan are known for a long time, has only been combative than the name, as workers' unions give greater priority to employment protection than to the revaluation of wages.

However, this strategy - wages that have been practically stagnant for two decades - ends up slowing household consumption, so that the country has not yet emerged from the trap of deflation. A vicious circle.

While a strong wind of inflation has been blowing in the United States and Europe since last year, Japan remains an exception: consumer prices (without fees) fell by 0.2% on average in 2021.

However, in the last six months they have been in mild wing and in February they recorded their strongest growth in two years (+0.6% year-on-year), according to statistics released this Friday.

Inflation could reach 2% in the coming months, analysts say. The Bank of Japan (BoJ), which has been behind this goal for almost ten years, should not be happy about it either.

This imported inflation, aggravated by the depreciation of the yen, “will not last,” because household consumption remains low, explains Nagai. “Rather, we should worry about a new deflationary shock,” he says.

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