Japanese feel inflation pain as Abenomics kicks in

Non-profit employee Akihiro Takano was already having a hard time making ends meet before recent price hikes in Japan left his pocket feeling even lighter.

“Nobody around me feels better off. We have seen food and electricity charges going up,” complained 58-year-old Takano, who lives in a drab part of Kawaguchi City, an industrial area just outside Tokyo.

Although Prime Minister Shinzo Abe’s economic policies have been praised by world leaders abroad and the media at home, for Japanese like Takano, there’s little to celebrate.

The country’s lawmakers and bureaucrats are “out of touch” with how ordinary people make a living, he said, and Abe’s policies “could make more people struggle.” Consumer prices in Japan rose for the fourth consecutive month in September, going up by 0.7 per cent — a sign “Abenomics” is working, says the Government.

The Prime Minister says the economy is showing signs of beating chronic deflation on the back of aggressive monetary easing, massive fiscal spending and a strategy aimed at economic growth.

The central bank has accepted Abe’s challenge to boost inflation up to 2 per cent within about two years.

The inflation so far may not seem high, but it has hit a market used to decades of flat prices, and produced a spike in the prices of some of Japanese consumers’ most familiar goods.

Yakult Honsha Co will next week raise the price of its ubiquitous bacteria-packed milk drink by more than 10 per cent — the first increase in 22 years.

In January, the price of Hondashi, the popular bonito-based seasoning for miso soup — a staple of Japanese mealtimes — will be raised by between 6 and 7 per cent for the first hike in 23 years.

And with the currency dropping about 13 per cent against the dollar this year, imported goods are correspondingly more expensive in yen, even while exporters can take advantage their products being cheaper overseas.

At the Mahl Zeit bakery in central Tokyo, owner Sachiko Shirai said the increase in the price of imported cheese, among other items on her shelves, was putting her customers off.

“Our sales had been steady for a long time, but in recent months, they started falling,” said Shirai, who started her business more than a decade ago.

The Government wants wages to increase to help consumers pay for pricier goods.

Abe urged corporate executives to raise salaries for their workers, and members of his own Government have recognised that the stakes are high.

“Without a pay raise, Abenomics will fail,” Economic Revitalization Minister Akira Amari told parliament last week.

But there are few signs this is happening. The average monthly income per household stood at 471,411 yen ($ 4,835) in August, down 0.9 per cent from a year earlier according to official statistics.

Japanese companies are increasingly retaining profits instead of funding wage increases or capital spending, said Masaru Kaneko, economics professor at Keio University.

Abenomics is presenting “nothing new,” he said.

Takanori Fujita, a social worker in Saitama city, argued that hourly wages for many temporary and part-time workers are unlikely to change while regular employees still work the customary long hours.

More than 50 per cent of workers in their 20s are temporary or part-time employees and their situations are “especially severe,” Fujita said.

The difficulties facing Japanese workers struggling to cope with the consequences of Abenomics have brought another signature Government policy into question.

Earlier this month, Abe said he would go ahead with a planned consumer tax increase from 5 per cent to 8 per cent in April 2013 to rein in the Government’s debt, which has grown to more than twice the size of the gross domestic product.

The tax hike is “a big mistake,” said Richard Katz, a longtime Japan watcher and the editor of The Oriental Economist. “There is no urgency to do this.” Critics point out that high living costs, low wages and the forthcoming tax increase may together exacerbate the most serious problem facing the Japanese economy, namely the demographic timebomb.

Abenomics is unlikely to encourage young people to get married and have children, they say, at a time when the population is growing older and the number of workers supporting them is becoming relatively smaller.

“Japan’s budget deficit is not the cause of Japan’s problem. It is a symptom of the problem,” Katz said. “Japan’s real problem is that Japan is not growing.”

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