National / Media | BIG IN JAPAN

The sinking yen is a threat to the cost of living

by Mark Schreiber

Special To The Japan Times

If the items you purchase these days seem more expensive, you’re not imagining things.

Electric bills are higher. The price for a liter of gasoline or diesel fuel has gone up, with costs being passed on throughout the distribution chain. The raising of the consumption tax on April 1 boosted prices at the checkout counter. And certainly the past several months of inclement weather has caused the prices of certain vegetables and other food items to soar.

Such developments are poised to play havoc with the average household budget. According to data released by the Tokyo metropolitan government in mid-September, the price for a head of lettuce had already soared year on year by 86.5 percent (as opposed to 38.4 percent for cabbage). Other increases (all figures in percent) included beef, 16.2; shrimp, 17.9; tuna, 11.2; salmon, 18.2; imported cheese, 12.2; chocolate, 13.8; and ginger root, 25.5.

If these weren’t enough, the decline in value of the Japanese yen, which less than two years ago was soaring high at ¥85 to $1, can’t be ignored. Now that rate is approaching ¥110. While certainly making some Japanese exports more competitive, the downside, reports Shukan Economist (Sept. 26), is that it has pushed up the nation’s international balance of payments deficit to nearly ¥1 trillion per month.

The yen’s decline is also causing a chain reaction. Higher interest rates are pushing more investors to shed their yen holdings in favor of the dollar and other currencies.

While most economists’ predictions see the yen staying in the ¥106-¥110 range for the immediate future, a few people have begun talking about the yen being as low as ¥120 by sometime next year. And consumers can expect to feel the pain.

Shizuoka University economics professor emeritus Eiji Doi tells Shukan Asahi (Oct. 17): “The impact from the yen’s decline has been more severe than the increased consumption tax. Combine the two, and that will make for a considerable burden on consumers.”

It’s a burden likely to fall particularly hard on people with lower incomes. In households with annual earnings of ¥3 million, for example, it will mean an additional ¥130,000 in outlays, which translates into a 4.3 percent drop in disposable income. For the nation’s elderly pensioners, that might pare away the equivalent of two months’ income.

Nikkan Gendai (Oct. 11) accuses Bank of Japan Gov. Haruhiko Kuroda of being on a “rampage” through his inflexible determination to pull the Japanese economy out of its deflationary spiral by achieving 2 percent inflation, come hell or high water.

“Using 2013 as an example, a 20 percent decline in the value of the yen pushed up the core consumer price index (which excludes fresh food items) by one half of a percentage point,” Daisuke Uno, chief strategist at the Mitsui Sumitomo Bank, is quoted as saying. “If we apply the government’s targeted CPI rise, 1.3 percent, to 2014, the average value for the yen would have to come to ¥110. For the first half of this year, however, that rate was not achieved, so from October onward, we’d need the average rate to reach ¥117.”

Aside from spending less on frivolities, what else can the average person do to reduce the squeeze on the household budget?

“To safeguard their livelihood, individuals will need to hold foreign currencies,” investment adviser Kazuhisa Okamoto tells readers of Shukan Shincho (Sept. 25).

Price increases, Okamoto suggests, can be offset by astute investments in foreign money markets. He recommends investors sink a portion of their nest egg into money market funds that include a basket of currencies: the dollar, the euro and perhaps the South African rand or Brazilian real, which offer high interest rates that are “unthinkable for the yen.”

Shukan Post (Oct. 17) raises another potentially unhappy side effect of the weakening yen: the prospect of Japanese being bought out of their own housing market by wealthy denizens of mainland China. The magazine warns that deluxe condominiums selling for over ¥100 million — referred to as okushon, an incremental increase from the more plebian manshon — are in danger of getting snatched up, turning choice neighborhoods in central Tokyo into “Chinatowns.”

The article notes a seminar held in Shanghai in mid-September was attended by some 40 individuals looking for real-estate investment opportunities. Thanks to “Anbei jingji-xue” (Chinese for “Abenomics”), China’s yuan currency is expected to continue its appreciation against the yen, making high-quality Tokyo real estate increasingly attractive for growing numbers of affluent Chinese with the means to buy it.

“Chinese are showing a trend toward favoring properties close to the imperial palace, or having a view of the palace,” Yujin Oki, president of Ginza-based realty firm Style Act, tells Shukan Post. Properties in so-called Three A’s (Aoyama, Akasaka and Azabu in Minato Ward) are said to be particularly popular, along with the central Tokyo wards of Chiyoda, Chuo, Shinjuku and Shibuya.

Gradually, the magazine warns, the influx of these upscale Chinatowns brought on by the cheaper yen may push Japanese out of their own city, resulting in workers having once again to endure long commutes from the distant suburbs. Can such a scenario be even remotely possible? Or is this just the usual tabloid scare tactics, pandering to ethnocentric paranoia?

But exchange rates and commodity prices have a way of being dauntingly capricious, which calls for an extra measure of caution.

“The press pick up a theme and run with it, this being the effect of the relatively low yen on the cost of living,” Stan Guy, who was formerly involved in the forex trade, told me. “For dramatic effect, they see only one side, the cheap yen, and forecast the chaos it might cause. They don’t mention, for example, the dramatic drop in crude oil prices, from over $100 a barrel a few weeks ago to around $80 now. Buying cheap crude has an enormous effect on prices, not only of gasoline but all things related to it.”

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