Today, let’s talk about the consumer sector. Recently, food prices in Japan have risen sharply. For example, according to data released by Japan’s Ministry of Internal Affairs and Communications at the end of October, rice prices in Tokyo’s 23 wards have increased by 62.3% year-on-year, the largest increase since 1971. This round of food price hikes has also triggered a chain reaction in the consumer industry. According to reports from the China Review News, a ramen shop in Tokyo that has been open for a year and a half has already raised its prices three times, with its signature ramen increasing by 47%, now priced at 1,250 yen, which is about 60 RMB.
However, the main point we want to discuss today is not the rise in food prices in Japan, but an interesting insight I recently heard: Japan has entered an era of low-cost consumption.
Some might say, “Wait, you just mentioned that things in Japan are expensive, a bowl of ramen costs 60 yuan, so how can you say Japan has entered an era of low-cost consumption?”
This brings us to a very peculiar phenomenon in Japan’s consumer market, where prices are in a state of dual extremes. Some things are outrageously expensive, but some are truly cheap. For example, Japan’s Daiso 100-yen stores, based on the exchange rate of 20:1 from yen to RMB, are like China’s 5-yuan stores. Around 70% to 80% of their products, such as kitchenware, are sold for just 5 yuan. Interestingly, Daiso has stores in other countries like Thailand and the Philippines, whose consumption power is lower than Japan’s. One would think Daiso’s local stores would be cheaper, but the opposite is true – their stores in these countries are actually slightly more expensive than those in Japan. It’s important to note that Daiso is a chain store, not a street-side 2-yuan shop. China’s Miniso tried to imitate Daiso in the beginning but could never maintain a 5-yuan average price; their products generally cost 10 yuan or more, and prices have now increased to 30 or 50 yuan.
Take Starbucks, for example. In Japan, Starbucks is 20-30% cheaper than in China. Or consider the entertainment industry: Tokyo Disneyland’s ticket price, converted to RMB, is around 350 yuan – half the price of Hong Kong Disneyland. The cheapest standard ticket at Shanghai Disneyland is 475 yuan. Tokyo Disneyland has the cheapest tickets among all Disney parks worldwide.
Now, let’s talk about the expensive side. For example, taxis are expensive in Japan because of high driver costs, leading to a starting fare equivalent to 35 yuan in RMB. Beauty treatments and haircuts are also expensive.
Notice anything? The cheap items in Japan share a common characteristic: they are products that can be optimized through the supply chain. These industries have been in fierce competition for a long time, allowing for continuous cost reductions. On the other hand, the expensive items are all services that depend on specific resources. For example, food is expensive partly because Japan heavily relies on imported food, and this can’t be solved through local supply chain optimization. Similarly, labor costs are high because labor is a specific resource that can’t be optimized by the supply chain. In other words, we can divide industries into products and services. For industries related to products, Japan’s prices tend to be lower. For services, prices are higher. Product prices can be reduced by optimizing supply chains, but service prices are largely linked to GDP per capita. Keep in mind, the “low” prices here are not absolute; they’re just lower compared to other countries with similar economic levels. This idea has almost become a consensus among Japanese consumers. Many industries in Japan have tried to raise prices, but most of them failed, except for those that heavily depend on services, such as hair salons, and those reliant on external resources, like food.
Based on this observation of the “low-cost consumption era,” we can draw a few insights.
First, why has Japan entered the low-cost consumption era? Many people used to think it was because of the low exchange rate. However, in reality, the yen depreciation mainly occurred after 2021. But for the previous 20 years, Japan’s inflation rate was almost zero, and goods rarely increased in price. Meanwhile, in the same 20 years, the inflation rate in the U.S. was about 50%. By this calculation, if an American visited Japan in 2000 and again in 2020, they would find that goods in Japan are actually 50% cheaper than 20 years ago.
In other words, Japan’s lack of price increases is not due to exchange rate issues. This is mainly because Japan’s economy has not grown, and wages have not risen. After all, one person’s consumption is another person’s income. If wages don’t increase, consumption won’t grow, which in turn makes it hard for wages to grow. This creates a vicious cycle.
The Japanese government has tried to change this situation. They have attempted several times to drive wage increases through price hikes, and in turn, stimulate consumption. But all attempts have failed.
Why is this cycle so hard to break? Because the underlying causes are too complex.
First, Japan’s economy went through what is known as the “lost three decades.” During this time, people’s consumption mindset shifted dramatically, and pursuing value for money became a nationwide consensus. For instance, Japanese brands that emerged during this period all focused on low prices. Uniqlo, for example, markets itself on low prices. Similarly, Saliya’s slogan is, “Let dads who are not so rich feel safe ordering for their kids.”
In other words, after a long period of competition based on value for money, it has become a core element of competition in Japan’s business culture. Businesses see value for money as their main selling point, and consumers focus on saving money. In the pursuit of higher profits, Japanese companies either continue to compete on price or expand overseas. The rise in Japan’s stock market has not been due to higher domestic profits, but because of profits made in Western markets, which are driving up stock prices.
Second, the wealthiest generation in Japan, the post-war baby boomer generation, is now retiring. This generation was Japan’s wealthiest but is also the least willing to spend. Partly because they are accustomed to frugality, and partly because the media constantly reports on issues like “lonely deaths,” which makes them feel insecure and leads them to want to save more money.
You may know that the famous scholar Kenichi Ohmae wrote a book called The Low-Desire Society, but he also wrote another book called The Low-IQ Society. In this book, Ohmae spends a lot of time discussing how “lonely death” isn’t as common as the media makes it out to be. He argues that this generation of elderly people is generally safe and should be spending more, but they are simply not listening. He criticized Japanese society for its low collective intelligence, which led to a situation where even the most basic facts were not being accepted. This is one of the reasons for the book’s title.
Finally, young people don’t have money to spend, and older people are afraid to spend. Meanwhile, businesses keep pushing value for money. This has led to Japan entering a state where people can live reasonably well without spending too much, which we call the “low-cost consumption era.” However, this is only part of the reason. The actual situation is far more complicated.
At this point, you might think: “Isn’t high value for money a good thing?” In fact, not entirely. Japan’s low-cost consumption has put the entire economy into a stagnant state, which, as Professor Huang Hai says, is a situation where the lower limit isn’t low, but the upper limit isn’t high either.
For young people, meeting basic living needs is easy, but achieving upward social mobility is very difficult. In a survey of new employees in Japan, less than 10% of them hope to become general managers in the future, and only 20% want to become directors. The rest are not interested in promotions. Some men are polite and well-mannered but lack ambition.
From a national wealth perspective, there is an indicator called the Gini coefficient. The lower the Gini coefficient, the smaller the wealth gap. Japan’s Gini coefficient is 0.32, which is very low compared to other developed countries. This suggests that the wealth distribution in Japan is relatively concentrated, with many people in the middle-income range.
Additionally, many Japanese companies emphasize craftsmanship, which has its benefits, but it also means that the barriers to entry for many businesses are high. However, once they start a business, achieving exponential growth and finding the second or third growth curve becomes more difficult. The culture of craftsmanship leads many businesses to maintain a small and beautiful state, focusing on just one thing, like individual entrepreneurs, and lacking the ambition for expansion. This craftsmanship spirit also heavily relies on the personal influence of the founders, and once the leadership changes, continuity becomes a problem.
That’s all for today.
