Deflation: Shop Like It’s 1992
If you’ve been putting off getting that new futon or carpet, hesitate no more: They’ve never been cheaper. With creeping deflation, Japan’s consumer prices in 2009 rolled back to 1992 levels, with many household items and apparel goods sinking to 1970s and 1980s prices, and some even plummeting to new lows, according to data from the Ministry of Internal Affairs.
Since the credit crisis, which hit in the autumn of 2008, there have been more goods chasing consumer dollars than the other way around, dragging the consumer price index (excluding food and energy) down 0.7 percent to 98.6 (2005 = 100) in 2009. This is the lowest since 1992, when the index hit 97.9, and 5 percent lower than the 1998 peak.
The cost of men’s suits trimmed 20 percent off its 1998 peak, nearly mirroring 1988 prices, not to mention one yen garment deals at Notoya Fashion Bazaar, a fashion retailer based in Itabashi-ku.
Thankfully, pained clothing retailers could seek relief from their headaches more cheaply as fever and pain relief drugs fell nearly 10 percent from their peak in 1990. Annual supply of goods is now estimated to exceed demand by about 35 trillion yen, leading economists to predict another three years of sagging prices.
Lending credence to this notion is furniture and interior goods retailer Nitori Co. The company slashed prices on over 400 items from between 15-40 percent—including sofas and cooking utensils—last month, marking its eighth round of cuts since May 2008.
For example, a three-seat sofa now sells for 39,900 yen, and a saucepan sells for 590 yen, marking a discount of between 20-26 percent. The cuts are made possible by foreign exchange gains on overseas-made products, which account for roughly three-quarters of the discounted items, as well as reduced costs resulting from streamlined distribution channels.
However, driving the deflationary spiral is a worrying rise in unemployment, further hindering consumer spending. According to a government survey, 800,000 regular employees lost their jobs in 2009—220,000 more than in 2008, the biggest rise since comparable records were first kept in 2002.
The ranks of unemployed increased 710,000 to 3.36 million, the highest since the figure hit 3.5 million in 2003. The number of people who left their job because they were laid off or asked to retire increased from 280,000 to 490,000.
The number of employees dispatched through staffing agencies came to 1.08 million last year, down 320,000 from 2008, as businesses slashed personnel costs, according to preliminary data released in February by the Ministry of Internal Affairs.
This marked the first drop since 2003, when the ministry began compiling comparable data. Total employment in Japan for 2009 fell by 570,000 to 51.02 million.
Permanent employees numbered 33.8 million, down 190,000, while nonpermanent workers—including part-timers and those employed through staffing agencies—came to 17.21 million, down 390,000.
And this isn’t a problem that can be swept under a record-cheap carpet.
Private Equity, Public Scrutiny
It wasn’t quite the exit strategy that Washington D.C.-based Carlyle Group had in mind for its $330 million investment in Japanese mobile-phone company, Willcom Inc.: bankruptcy.
After all, the carefully cultivated deal took two years to come to fruition and was—at the time of acquisition in 2004—deemed a coup by a foreign private equity firm in the typically foreign fund-adverse Japanese market. But the business, formerly the mobile-phone unit of KDDI Corp., was losing market share in the wireless industry and failed to receive a lifeline of credit to finance its $2.3 billion in debt.
In a bid to stem a potential decline down the same slippery slope of mismanagement, U.S. hedge fund Steel Partners—which also became the largest shareholder in brewer Sapporo Holdings with 18 percent in 2004—has asked shareholders to support its proposal to vote for six new directors that it planned to present at a shareholders’ meeting at the end of March. The move is aimed at putting pressure on Sapporo’s management to revamp its strategy for the group, which has struggled to remain competitive in Japan’s declining beer market. In December 2009, Sapporo suffered a 6 percent drop in sales and a 5 percent operating profit decline in its alcohol business compared to a year ago.