In Tokyo Prices Are Rising And I Can’t Afford To Have Children
I walked past a Yoshinoya branch in Kannai, Yokohama with my mother, where hung in the shop window, was a large advertisement looking for new front-of-house staff to don the famous orange and black uniform. The hourly wage offering was just over ¥1000 - the same offering from my mother’s young adult life, she tells me, some 30 years ago.
Restaurant staff in London average £12.75-£14 an hour. ¥1000 now trades at around the £5.30 mark. Yoshinoya’s offering is low, but considering the recent bargain rate yen, not so surprising a perspective from a Londoner. What I find more interesting is the astonishingly stagnant inflation evidenced. To put it in perspective, nominal UK median hourly rate has increased 136.36% from 1997. Japan? Hovering around the 0% mark.
The same stagnancy is not so evident in price terms elsewhere. Inflation is recent news. The once-familiar ¥100 vending machines seem to be getting rarer, with 120, 140, or even 160 yen drinks now ubiquitous. Sushiro - a legend in the ¥100 conveyer belt sushi scene - increased their cost-per-plate to ¥120, the first price hike since its 1984 conception (Joe and The Juice increased their prices thrice or so in my 12 month tenure there).
As the price of goods rises you can expect wages to be in tandem, at least that’s what the economics textbook says. The textbook teaches two types of inflation: a.) cost push - where prices increase because firms have more costs to pass on to the consumer (labour, materials, transport and so on), and b.) demand pull - where there is too much money (demand) chasing too few goods (supply).
The real world non-textbook decoupling of wage and goods inflation flies in the face of the textbook economist’s explanations (nothing new there). Wage generally accounts for the largest chunk of operating expense for firms - so if wages are stagnant, it’s unlikely to be the cost push option. Equally, if wages are low, I doubt too much cash is the problem - so likely not demand pull.
Tokyo doesn’t feel like a struggling city. City-dwelling Japanese youngsters wear designer head-to-toe, though in an annoyingly more tasteful Tokyo style than you want to think. Tokyo transport is world-leading, food and drinks culture is great, and new construction projects are omnipresent.
That being said and glamour aside, Tokyo’s residents don’t feel rich. Bubble-era designer still floats about, and second-hand clothing stores like Second Street offer clothes at famously bargainous prices. Perhaps the popularity of second-hand stores is the testament to a less cash-in-hand, still image-conscious Japanese mentality.
Two Japanese friends of mine, both approaching child-rearing age, tell me they and many of their friends feel they cannot afford children. The intention is there, but the means are not. The government seems to agree with their diagnosis, offering on average a ¥500,000 bonus per baby, though I don’t think this is nearly enough given Japan’s 15th consecutive year of birth rate decline.
What then, explains the divergence of wage and price in Japan? A big reason I think is work culture, or more specifically where the power lies in the relation between boss and employee. Japan is well known for its old school office methodology - fax machines are still en vogue, workers must still observe strict social convention, addressing superiors in specific tones and language. And then there’s the dreaded nomikai - post-work drinks. If the boss is there, you’re there too, whatever the boss says goes.
Japanese bosses exploit the Japanese tendency to feel guilt for letting the team down. Don’t take a sick day, you’ll let the team down. Don’t leave before the boss, show respect to the boss by staying. Don’t ask for a raise, your colleagues will think you’re selfish.
Younger Japanese are growing tired of the intricacies that tradition dictates. Lawmakers are aware, they also know Japan’s workplace methods curtail efficiency and Japanese global competitiveness. To this end, new laws have been and continue to be implemented by lawmakers to help improve employee satisfaction. Examples include overtime caps and mandatory leave.
Trade unions are not powerful in Japan. Workers can organise, bargain, and strike but unions tend to represent interests within a company, not across the industry. Weak trade unions are a trend stemming back to the post WW2 era. Occupation forces encouraged union formation, only to rescind their encouragement owing to broader communism fears. The proportion of organised workers now sits at around 15%.
Japan’s success with the boss-skewed employment power dynamic during the bubble era, leaves those for sentimentality reminiscing a better time. Japan clings on to its past. Though the laws now provide a healthier environment for employees, culture takes a longer time to shift. Japan gears for its long-awaited inflation, but the textbook coupling with wage inflation will take time.
Even so, there does seem to be hints of change. I read recently an article from FT Tokyo Bureau Chief Leo Lewis, on the rise of the proxy resignation phenomenon. The awkwardness of resigning, despite it being the final request, is so great that employees pay ¥20,000 for their proxy to do so on their behalf. It’s no wonder asking for a raise in Japan remains so uncommon - your boss is still your boss the next day.
Resignation proxies’ growing popularity does signal change. The Platonic form of the classic 80s Japanese salaryman would stick to just one company, Hi-lite cigarette mandatory too. If workers no longer take the proverbial hit and stay down, there are signals of gains in the mobility of the labour market - something Japan is not good at, which has been causing efficiency losses. If firms lose workers often, they can be marked as unattractive employers. As employees are made aware of bad apple firms, bad apple firms attract fewer would-be employees, indicating a need for change.
If proxies signal change, it’s a minimal one in economic terms for now, change has not yet translated into wage inflation. Even so, the cultural change signalled may remain significant. Time will tell.
Labour market liquidity takes a hit from Japan’s still sexist hiring patterns too. Japan ranks 24th in HDI rankings, yet 118th for gender equality. During a panel event in London, I heard business veteran and woman-in-business trailblazer Dochi Yoko-san speak about what Japan can do to level the playing field for women.
She first explains there remains a prevailing sentiment in Japan that women must give up their career for children. There is an associated shame with prioritising work over childrearing. Dochi-san interestingly notes that kindergarten provision in Tokyo is excellent, but becomes worse at primary school level. In encouragement for women to work, the government has invested heavily into early childhood care, but at primary school level the hours children are schooled are no longer compatible with full-time work. Mothers of pre-Ks or kindergarteners could drop their kids off, go to work, then pick the kids up after. At the primary school age, however, class starts at 9 and ends at 3.
There is also a remaining expectation for mothers to be closely involved in parent-school activities and volunteering. Japanese shame culture, and other mothers’ tendency to notice, pushes mothers to give up hours or quit work to support their kids. Labour supply is constrained and labour is immobile - Japan needs much work in this area too, to boost efficiency gains.
On the upside though, as foreign investment flows into Japanese firms (think Berkshire Hathaway’s big 2024 Japanese bet), there is pressure from investors as well as exposure to Western work culture (which does better at gender inclusivity) to make positive changes on their women employment front. Hopefully this will translate to a spruced up work culture more in line with the modern day, and in turn also to labour dynamism.
On the price side of the matter, Japan has, despite at times negative interest rates, not experienced sustained inflation since the Bubble era.
Given Tokyoites are feeling squeezed as prices rise and wages don’t, why then does the price continue to do so? Domestic demand remains weak. The free spending days when Japan’s wealth challenged that of the top dog United States are a far cry away from the cautious, save and invest mentality observed among the population today. Even with the Bank of Japan’s (BoJ)quondam negative interest rates, spurring consumer spending for the unresponsive Japanese population remained a challenge not yet overcome.
I spoke with Kawasaki garage owner and friend Sho. He explains the change in mentality among people in Japan since his youth. Though he speaks in terms of cars, I think it is representative. ‘When I was younger, a fast car was a surefire way to get girls, but nowadays the youth are more sensible; they save their money to invest in stocks and adjacent investments.’ Caution is the prevailing mover.
The overwhelming opinion on marriage and children among younger (adult) Tokyoites is positive, but lack of financial means bars them from the kids club.
A sliding yen has seen tourism explode. Young me rarely saw tourists flying to Japan. Nowadays it feels rather different. Tourists occupy most rows, with the odd Japanese family among them.
Here’s another lesson from the textbook - the price of inelastic goods rises more sharply with demand. Let’s consider two examples closely tied with tourism - flights and hotels. Airlines strategise and plan far into the future, they also tend to already operate at near fleet capacity - it takes time to boost flight supply. When demand surges, the volume of flights to Japan cannot respond accordingly in the short term - hence inelastic. Hotels take long to build, it’s a similar idea here.
Average hotel prices skyrocketed to 172$ a night in 2022, and have since continued to rise. Property price continues to rise in Tokyo too, partly driven by increases in Airbnb (et al) listings there. Echoing similar trends across European cities, like Barcelona, Venice, and Amsterdam, residents of which rallied against short-term BandBs and the rental price hikes they cause. If you were in Barcelona last summer, I’m sure you could feel it.
Tourist demand outstrips domestic supply, so the price can only go up. We’re back to demand pull inflation, albeit under a foreign influenced guise. Flights and hotels are considered in the ‘basket of goods' for calculation of inflation indexes, but they are not all that is included. Tourists spend in Japan’s shopping districts, restaurants, transport, etc, too. Where domestic demand lacks, tourists subsidise.
There are cultural implications as well as economic. The traveller's taste for convenience store food has made the Konbini (Japan has a knack for borrowing foreign words and manipulating them to fit their own phonetics) dinner into a must-do on the Japan bucket list, encouraged I’m sure by the convenience store’s newfound Tiktok fame. Konbini offerings have changed, however, catering better to foreign tastebuds.
Let’s also consider ramen shops, like the one pictured above, the greasy and blissful escape of the stressed daiku-san (carpenter), builder or salaryman’s week. A cornerstone of Japanese culture. To keep up with inflation, they can raise their prices, but if they do so, they may lose their regular clientele. There is something sad about the gentrification of an establishment so purely Japanese, but with chains now dominating the food and drink landscape, the classic ramen-ya may have no choice.
Haruyoshi-san serves just yakisoba and chāhan, along with kakigori and anmitsu in a classic kissa setting. He’s been at this spot since the time my grandparents were kids.
My hometown, among many others, has seen the decline of independent, small businesses. Often founded sometime between post-war recovery and the Bubble era, where consumer confidence was high, small business owners now range from old to very old. Their children are more interested in the corporate lifestyle of the big city, so their businesses are abandoned.
A high street once busy with family-owned establishments, is now reduced to the usual suspects of Mos Burger, HAC Pharmacy, Hama Zushi, etc. Don’t think the faltering of the high street is a uniquely British phenomenon.
In 2023, tourists accounted for 20% of consumer spending in Japan. The government wants to double tourist numbers by 2030, with an emphasis on proliferating countryside tourism.
If wages don’t get in line with price inflation, Japan seems bound for a two-tier society with locals priced out due to strong foreign currencies (domestic yen consumers would be cheap yen agnostic), spelling bad news for birthrate goals among others.
There seem to be two paths, and Japan is at a crossroads. Inflation could lead to real inflation, leading to the BoJ raising interest rates, causing a yen rally. As the yen becomes expensive again, tourist demand may falter, weakening their role in demand pull inflation. Wage may fall back in line with price, and Japan returns to its usual economic stagnancy.
Alternatively, the economy may continue as is, the workplace culture stays the same, the worker still acquiescing to each of the boss’ demands, the Japanese workforce remains illiquid, and as the economy caters more to foreign tastes, the tourists’ wallet becomes the mover.
Japan may sell its soul for their long desired inflation, but who really wins? Not the average Japanese, at least not yet.
Bibliography
https://japanpropertycentral.com/2021/08/tokyo-apartment-prices-between-1992-and-2020/
https://en.wikipedia.org/wiki/Labor_unions_in_Japan#:~:text=In%201940%2C%20the%20government%20dissolved,and%20as%20a%20means%20of
https://www.timeout.com/tokyo/news/no-more-100-sushi-conveyor-belt-sushi-restaurant-sushiro-to-raise-prices-051622
https://amro-asia.org/wage-impact-on-prices-in-japan-is-this-time-different
https://english.kyodonews.net/news/2024/05/60c038b7a449-japan-weighs-incentivizing-childbirth-by-fully-covering-expenses.html
https://mainichi.jp/english/articles/20240823/p2a/00m/0li/026000c
https://wttc.org/news-article/japans-travel-and-tourism-sector-to-surpass-previous-records-in-2024
https://www.straitstimes.com/asia/east-asia/travel-recovery-sends-japan-hotel-room-prices-soaring