From June, the price to watch a movie at Japan’s largest cinema chain, Toho, will rise by ¥100 ($0.75), a 5 to 8 percent increase depending on ticket type. It doesn’t destroy the wallet or even discourage the public, perhaps, but it is fundamental to the new world it symbolizes.
For the school of thought that believes Japan is now (or has already passed) through its most important turning point in decades, that seemingly trivial ¥100 has decidedly non-trivial implications. It may not take many more of these hikes before ordinary Japanese start to question whether liquidity is no longer king and they should be hedged against inflation.
Ending the stupor of price deflation that has gripped Japan for more than two decades – a phenomenon as psychological as it is economic – has always required a grand and transformative mind game, but it has always been desperately short of players. For much of it, the the central bank’s experimental ultra-expansionary monetary policy he was alone on the board, unable to get either industry or the general public to join. Now that has changed.
The psychological impact of cinema price increases is qualitatively strong, and probably much more than increases in food, electricity, fuel and other goods linked to the price of raw materials for its appearance of irrevocability. The fact that it vastly exceeds the Bank of Japan’s long-standing target of 2% inflation is quantitatively influential. Toho raised ticket prices by ¥100 in 2019, but did so for the first time in 26 years. So the decision was appealing, certainly, but it came with an explanation (new digital equipment purchases) that suggested it might be a one-off.
This second increase, imposed as soon as corporate modesty around the pandemic allows it and with reference to labor costs and the weak yen, implies a crucial, deflation-Deadly threat: Not only could these increases continue to occur every year, but they are a response to pressures that apply to a very large percentage of Japanese businesses.
The question, then, is to what extent all of this has actually started to change people’s behavior. JPMorgan analysts believe it could begin, or at least that there is a growing body of anecdotal evidence pointing to a change in attitude. In research released last month, the bank noted that the pace of real estate asset inflation in general was now picking up on a trajectory not seen since the bubble era.
Japan’s official nationwide residential property price index, JPMorgan said, has risen at least 6% year-on-year in each of the past 18 months. “Neither the pace of post-pandemic house price increases, nor the time over which these gains have been sustained, has been matched since the late 1980s,” wrote Benjamin Shatil, the report’s author.
Buying by foreigners is certainly playing a role in Japan’s residential real estate boom: Tokyo and Osaka remain favorite targets of US, Chinese and other Asian buyers, although Kyoto locals now complain that even the historic capital has become A goal.
But revealingly, the increases in house prices also coincided with a surge in household leverage levels. After years without much movement, home loans as a percentage of GDP rose in 2022 to their highest level since the 1990s. Foreigners only rarely rely on Japanese bank financing for their purchases, suggesting that domestic buyers have suddenly found a reason to take advantage of the low loan rates that have been available for years.
In his April Report on the financial systemthe BoJ made special mention that the household debt-to-disposable income ratio was at an all-time high and that home lending had increased despite rising vacancy rates across Japan.
Taken in a broader context, Shatil argues, rising asset price inflation could reflect a shift in perceptions about the direction of all prices in Japan. During the long decades of deflation, there was no compelling incentive not to hold cash: it would hold its value, resiliently and with low risk, as long as efforts to stoke inflation failed. Suddenly, it seems, that logic could be broken and individuals could be looking for more inflation-proof assets. Property, to many, will seem like the safest place to start.
There is fragility in all of this and victory in the reflationary mind game cannot yet be declared. Earlier this week, Japanese furniture giant Nitori said its first full-year drop in profits in 24 years after a string of five price hikes on its products since last fall. When it realized how quickly customers were fleeing, the company said, it began slashing prices on 500 of its products and will continue to do so. Old habits and all.
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