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The Japanese economy: trying to get a balanced view.

March 1st, 2010 · Greg Atkinson · 12 Comments

Toyota’s current recall woes have generated a range of articles about the Japanese economy as journalists rush to get some Japan flavoured content served up to their masters. But often these articles simply rehash the same tired cliches about Japan and it’s economy and don’t provide people outside Japan with a balanced view of what is really happening.

Let me start off with a classic example of an article about the Japanese economy that fails to provide much balance or insight into deflation in Japan. The article in question is called “Beef Bowl Economics” and was written by the New York Times “Japan business and economics” reporter Hiroko Tabuchi.

The opening paragraph of the aforementioned article is typical of the copy written by many Japanese and non-Japanese journalists for their audience in the English speaking world.

“TOKYO — The broiled meat is tender and the rice is silky-smooth. But as Japan’s economic recovery falters, beef bowls have come to symbolize one of its most pressing woes: deflation.”

Wow..great opening there, the author has managed to get the word “deflation” in right away but the silky smooth rice bit lost me? Rice can be soft, rice can be white, but silky smooth? Put some silk in your mouth and then try some beef bowl rice and you be the judge.

Anyway the general thrust of the story is that according to “many people” the price of a quick meal of beef and rice at some chain stores in Tokyo is a reflection of the deflation forces at play in Japan.

But like many economic and business reporters, the author seems to have a fairly poor understanding of what causes deflation and so the rest of the article fails to provide much balance or look into the reasons why “Beef Bowl Economics” doesn’t make a lot of sense.

Firstly as I have mentioned before in other posts, competition generally drives prices down and it is hard for any food outlet in Japan to rise prices simply because the fast food sector is an extremely competitive area.

But on the flip side costs in many cases have also gone down due the growing use of imported food, better business efficiency and through the use of technology; so good money can still be made selling beef bowls, burgers and fried chicken in Japan.

The article does touch upon the impact increased competition is having on beef bowl prices, but it is hardly given the attention it deserves in order to make the article balanced.

Maybe if the author had some more time to write the story then the article would have been better, and to be fair, I suspect that the reporter in this case was under pressure to push out articles. If this the case then the New York Times is at fault.

In the rush to get stories about the Japanese economy online, pieces like “Beef Bowl Economics” and many other articles about the Japanese economy seem to follow a fairly standard pattern:

First they start with a catchy introduction that should mention either deflation, the bubble economy, the gradual decline in the population or excessive infrastructure spending.

Next the article should relate it’s main theme to a real life example without mentioning any other examples that would contradict what the writer is basing their analysis on. Popular real life examples include wasteful building projects, unemployed people sleeping in parks, closed down shops or factories,  rural towns that are almost empty and the best of all:  some quotes from the “man or woman on the street.

To make sure the article is not balanced the writer will fail to mention such things as how a lot of government spending is directed towards earthquake or flood protection measures, how some areas of Japan are economically vibrant or that Japan has one of the lowest rates of unemployment in the G-20.

Somewhere in the article it is important to drop in a historical reference to the bubble economy (even if it is irrelevant) and just for good measure throw in something about the declining population and Japanese culture. The aim here is to try and make out what is happening in unique to Japan as though the economy operates according to a different set of principals from the rest of the world.

Hiroko Tabuchi for example makes the following comment her article:

“Moreover, the population is shrinking, making demand inherently weak. Economists say Japan’s economy is saddled with a 35 trillion yen, or $388 billion, “demand gap,” or almost 7 percent of the country’s economic output.”

Actually much of the supply/demand gap has been caused by exports demand falling as a result of the global financial crisis over the last few years and to suggest this is largely driven by a shrinking population is pure folly. In fact you can have a declining population and increased domestic demand if people earn more and exports surge.  These factors will also reduce the “demand gap”

In addition there is no mention of areas where prices have risen like taxi fares, beer (for shame!) and milk or how price rises are hidden by making servings smaller.

If people are vanishing from the streets as the population falls then who is drinking all the beer?

Finally we get to the last area that needs to be included in the standard article about the Japanese economy and that is to finish off with something that is both catchy and gives the article the “in the streets” feel.  Tabuchi-san finishes her article off with a very good example of this with:

“I don’t think there’s anything around here cheaper than this. That’s why I started to come,” said Yasunori Miura, a manufacturing company employee and a recent regular. “This here,” he said, pointing to his fish sausage, “is deflation.”

Perhaps this closing paragraph from the article is simply the human touch element and maybe according to the reporter’s textbook,  it needs to be included. But if you are going to write a human interest story about life in the beef bowl industry then don’t try and pass it off as business and economics content, or try and convey that it somehow gives readers a good view of the overall economy – because it doesn’t.

What the price of a beef bowl is in Japan tells us little more than what the market price is for that meal, just as the price of a Big Mac is not a very good way to judge the overall health of the U.S economy.

Yes the Japanese economy is dealing with deflation at the moment but as I have written before in Is deflation rally such a bad thing? why do people quickly panic and assume deflation is a bad thing?

I would suggest that as an exporting nation, deflation is probably a better problem to have while exports are weak than inflation. As the global economy recovers, deflation in Japan will become less of a problem.

Will beef bowl prices be affected when that happens? Maybe,  but I would imagine beef and rice prices are more likely to determine how much I pay for a quick lunch at Yoshinoya. Also in regards to beef,  this has very little to do with the Japanese domestic economy as the beef is mainly imported.

I don’t have a catchy real life example to finish off my article today because I have not been educated in fish sausage economics. All I know is beer prices have gone up in the last few years in Japan and I am not happy about it. But I won’t be writing anything linking beer prices to inflation any time soon.

12 responses so far ↓

  • 1 Kei // Mar 1, 2010 at 4:54 pm

    >> who is drinking all the beer?

    Japanese beer sales slump to record low in January

  • 2 Greg Atkinson // Mar 1, 2010 at 6:23 pm

    Hi Kei, well there you go, consumption is falling but prices for some beers have increased.

    The consumption rate of many products changes over time and these changes can often have more to do with consumer preferences rather than being a reflection of how the wider economy is performing. The article you posted mentions that younger people are drinking less beer so thankfully they have not blamed this drop on the bubble economy or deflation 🙂

    I wonder how sales of imported wine are doing?

    Anyway I am ready to help Asahi if they are willing to help me and cut their beer prices!

  • 3 Senator13 // Mar 4, 2010 at 5:01 pm

    I hear Japan is hosting APEC 2010 – you will have to make sure you give us an on the ground account of how it plays out, Greg.

  • 4 Greg Atkinson // Mar 5, 2010 at 3:22 pm

    Ah APEC, the problem with these types of gatherings is that they are so scripted and stage managed. I doubt anything exciting will happen and the press will just regurgitate the press releases as usual.

    But I guess since it is in Japan I will see if I can get the inside scoop as they say 😉

  • 5 Ned S // Mar 8, 2010 at 11:12 pm

    It’s nice to know that ciao enjoyed his stint in Okinawa. At least enough to be miffed about leaving I’d guess?

  • 6 Greg Atkinson // Mar 23, 2010 at 8:47 pm

    Ned, Okinawa is a quite a nice place for a holiday and some of the oldest people on the planet live down there. (or up there in your case) But the mood is getting a bit heated amongst the locals over the U.S military bases and another hit and run a few days ago involving a U.S military vehicle is not helping matters.

    As for the Japanese economy, talked about a mixed bag! There are certainly some serious economic issues to be dealt with by the new DPJ government but there are still plenty of swanky new office building going up around the place and the country is still an exporting powerhouse. The demise of Japan Inc has been predicted by the “experts” now for about a decade, but it is still here and chugging along, albeit not at a hectic pace.

  • 7 Ned S // Mar 23, 2010 at 10:36 pm

    I’ve read a little bit about the Okinawa issues Greg. I’m not sure if Oz will get to host any troops as result of it – We read different reports over time.

    The concern that I hear on Japan that I find difficult to argue against is the one regarding the aging population. Oz’s “solution” is to bring in migrants to effectively kick that can down the road. I’m not going to argue against that – Because a) I don’t have an alternative that I think Aussies would like and b) I don’t believe we could hang out a “We’re Full!” banner and expect to be taken seriously anyway.

    But I do think it is an issue that every nation will get to address at some time or other. When I was a schoolboy the concept of ZPG was the go. And I suspect that still has to eventually become the solution unless we are intending to just wander along aimlessly until a Malthusian solution presents itself? 🙂 It’ll be interesting to watch Japan and see how it unfolds there.

  • 8 Greg Atkinson // Mar 23, 2010 at 11:03 pm

    Ned I reckon it is possible to deal with aging population if that population is relatively healthy for a good period of the time. In Japan they are looking at ways to get older workers back into the workplace and I reckon this is the logical and smart thing to do. Plenty of older people would be quite happy to work past 65 even if it was just a few days a week. I do think we have to value our senior citizens a lot more,

    Robots also have a role to play, it might not be that obvious in Australia but in Japan there are many thousands of robots at work in factories and there is a lot of research being undertake in Japan into robotics.

    I am not a big fan of major population growth anywhere really and think that we should be looking at ways to live in a more sustainable (but comfortable) manner as opposed to just trying to populate so there are more consumers. I reckon if Japan can stabilize it’s population without having to resort to a large scale immigration program then they will be doing the right thing.

    In any case, if we want to seriously tackle CO2 emissions, food shortages, and pollution etc then we need to think about keeping a lid on the planets population. Maybe Japan is actually the model other countries should be aiming for rather than trying to avoid following the same path?

  • 9 Ned S // Mar 23, 2010 at 11:26 pm

    Thanks Greg – REAL interesting to read your thoughts. At least Japan is obviously thinking about it. In Oz it seems to be something that no-one is brave enough to mention – Except rarely. And in the most general of terms. (We’ll have to try to be more productive being the general answer.) Because they know Aussies aren’t going to like hearing the specific answers at all I think?

    “I am not a big fan of major population growth anywhere really” and “Maybe Japan is actually the model other countries should be aiming for rather than trying to avoid following the same path?” – Agreed.

  • 10 Greg Atkinson // Mar 24, 2010 at 10:02 am

    Ned here is a good example of where economists and I differ. See: Can doggy bags save the world? Economists don’t really care about waste as long as consumers consume, whereas I reckon it is better to reduce waste even if it means the domestic economy does not grow as strongly.

    In Australia the focus seems to be on growing the population but for what purpose exactly? Will a larger population result in a higher quality of life for people? If we are worried about a shortage of workers then why not look at ways of using technology to free up labour?

    If I was running Oz I would focus on making the population more healthy and growing the nation in a manageable way, rather than just simply trying to grow for growths sake.

  • 11 Senator13 // Apr 16, 2010 at 10:13 pm

    Hi Greg, it would be great to get your views/comments on this recent article in the Economist:

    By the looks of it – Japan may not look all that good on paper – but does have excellent foundations such has exceptional infrastructure, strong manufacturing sector, exports and high level of household savings. Contrast that to Australia that may look better on paper but defiantly lags in terms of having a sustainable base for future growth. Let’s face it, Australia has the mining boom at the moment and that is about it. The diversity of the Japanese economy does look appealing.

    I note that in recent weeks China and Europe are getting a little sick of paying for inflated iron ore prices from Australia and their concerns just being dismissed. Can we really afford to be treating our customers with such disregard?

  • 12 Greg Atkinson // Apr 17, 2010 at 3:40 pm

    Senator the demise of Japan Inc has been imminent according to many economists and financial journalists for more than 10 years..but it is still a major economic power and one of the biggest exporters in the world.

    Yes the Japanese government owe a lot of money, but they basically owe it to the people of Japan and have plenty of foreign reserves, so it is not like the nation is bankrupt. Japan is not in the same situation as Greece or Ireland or Iceland.

    Companies in Japan have also invested heavily over many years in R&D and are poised to make healthy returns from such things as hybrid cars, new nuclear power technology and eco-friendly ships.

    The big challenge for Japan is to cut back on government spending gradually and stop the decline in population. Small steps have been taken to address both of these issues and so I would not write off Japan just yet.

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