Japan’s Deflation Mindset Could Be Contagious
Consumers that won’t spend, companies that won’t raise salaries. It’s an ugly scenario that could be coming soon to an economy near you.
The price of this brand of popsicle went up in 2016—for the first time in a quarter-century.
Photographer: Ko Sasaki/The New York Times/Redux
When the maker of a popular Japanese popsicle decided to raise prices for the first time in 25 years, executives of Akagi Nyugyo Co.—which introduced the treat in 1981—felt a need to apologize to their customers. On the day of the hike, in April 2016, they ran a 60-second commercial showing the company’s gray-haired chairman, backed by a phalanx of dark-suited workers, all bowing in deep contrition. Three years later, the Akagi Nyugyo manager who came up with the idea for the ad is still feeling contrite. “It’s not like people have any extra spending money,” Fumio Hagiwara says.
Japan is the only developed economy where wages have dropped year after year. Since 1996 inflation-adjusted pay has fallen about 13 percentage points—a big reason businesses are loath to raise prices or invest in a shrinking market. The downward spiral has led to a “deflationary mindset” that Bank of Japan Governor Haruhiko Kuroda blames for thwarting his efforts to revive the economy, using every trick in the central bankers’ playbook.