Osaka's ¥1 sales energize shoppers but not good for BOJ's inflation quest

Osaka is famed for it’s cheap prices, with ¥1 supermarket sales, ¥10 drinks and discount train tickets sold right next to the station. That attracts thrifty consumers and tourists, but may be undercutting the central bank’s efforts to generate sustained price rises.

“If it’s not cheap, our customers won’t be happy. We started the ¥1 sales as that’s the smallest denomination,” said Takuji Maeda, who now runs 47 supermarkets across the city. “Osaka’s kept its merchant traditions, and it’s a town of price competition, so it’s really hard for prices to rise.”

Within Japan, the people of Osaka and its surrounding region are famed for their hard-bargaining at shops. “There’s nothing wrong with low prices. If it’s cheap and delicious, what’s wrong with that?” said Masahisa Maeda, the head of a shopkeepers association in the main shopping district in Shinsaibashi. The shops in Shinsaibashi don’t discount, but it’s normal in Osaka for customers to ask for a discount, he said.

“Instead of throwing away something that didn’t sell, it’s better to stick a price on it and sell it. That’s the Osaka merchant culture,” according to Kimihiro Etoh, who runs the Bank of Japan’s branch in the city. It’s very ecologically sound, selling stuff instead of paying to throw it away, he noted. “It isn’t just a liking for cheap prices, which is a route to deflation.”

However, although these kinds of discounts and sales are welcomed by shoppers, one problem is that they’re excluded from official inflation data, so there could be a difference between what the central bank thinks is happening with prices, and what consumers actually feel. That matters because one of the main factors the BOJ hopes will push up prices is people expecting prices to rise.

Prices in Japan’s second city were already lower than in Tokyo, and if they aren’t rising as much as everyone thinks, then there may be less pressure for inflation. And that’s a problem for the Bank of Japan.