An old friend of mine, visiting Tokyo for the first time in 5 years, mentioned something interesting a few days ago that stirred dormant thoughts in my head about inflation in Japan. He mused:

“Sitting on the Narita Express, coming in to town, I started remembering the old Tokyo of five years ago and wondering how much prices had gone up since I was last in town. How much would a metro ticket cost? What would be the price of a beef bowl at Yoshinoya? But what surprised me was that everything was the same – as if Japan had been frozen in time for the last five years. How Strange. Back home, in Sydney, it’s taken for granted that the price of everything goes up at least once a year.”

But that’s what 12 consecutive years of deflation does to you. Prices in Japan have been not only flat, but falling for over a decade now. And I’m not just talking about Chicken Ramen (that costs the same today as when it was first released straight after WWII.) But are those peaceful days of deflation over?

With wages flat to down and only corporates benefiting from the recent upturn, it isn’t obvious to many people that the economy really has turned the corner. Although prices may not be rising like an Unagi, anecdotal evidence seems to be slowly piling up for a return to normal (whatever that is):

• Japan Tobacco introduced their first real price rise (ie. Not including rises in the Tobacco Tax) to the Mild Seven brand since it was released back in 1977 (3%)
• Last month Starbucks followed suit with a 7.7% price rise
• Even McDonalds Japan – famous for the 100 yen inflation destroying hamburger – raised prices by 6%
• And perhaps the most symbolic of all… today’s Nikkei was hinting at a rise in prices for taxis in Tokyo and Nagano.

Despite the increase in message boards like the one pictured here (Translation: “Fill up your tank now to avoid imminent petrol price rises!”), Toshihiko Fukui (governor of the Japanese central bank) is remaining calm, announcing last Sunday at the conclusion of a meeting of policy makers of the world’s 20 biggest economies. He spoke a few days ago at a press conference in Melbourne after the Group of 20 meeting recently held there:

“Japan’s prices are very stable, and we think they will gradually mount as long as the economy achieves a long – lasting expansion, That doesn’t mean that we see any threat of inflation in the near future.”

What of the status of Japanese taxi drivers? In any other country the majority of taxi drivers are immigrants for a reason, it is a low value added job. How is it that the Japanese taxi driver came to be so well treated? Apparently, the primary reason for asking for government permission to raise prices is to increase wages for taxi drivers who were upset at the widening gap between their salaries and the Japanese average. The average Japanese tax driver is said to receive a salary of about 5 million yen per year. At only 2-3% lower than the national average (for men), that sounds like a pretty decent salary to me. I guess the premium goes to paying for those cute white gloves.

Taxi prices in Japan were “liberalized” in the last decade so that owners are free to decide their price within a 10% band. Before the government will consider raising the price band, a total of 70% of all taxi operators in a particular region must apply to the authorities for a price rise. What a peculiar rule! Keep in mind that collusion is so widespread in Japan that even children’s songs are turned into parodies of price rigging scandals (remember dango sankyodai（談合三兄弟)) Surely such a rule only encourages taxi drivers to raise prices together! Good news for frequent taxi riders is that the government has given special permission for companies to continue pricing below the 10% price band if they want to – how nice! Even though the most gaijin friendly taxi company, MK Taxi, has made it clear that they won’t raise prices, I think I’ll still opt for the Metro.