From June, the price of watching a film at Japan’s biggest cinema chain, Toho, will rise by ¥100 ($.074): a hike of between 5 to 8 per cent depending on the type of ticket. Not wallet-shredding or even audience-deterring, perhaps, but critical for the new world it symbolises.
For the school of thought that believes Japan is now crossing (or has already crossed) its most important inflection point in decades, that seemingly trivial ¥100 has distinctly non-trivial implications. It may not take many more of these increases before ordinary Japanese start wondering whether cash is no longer king and they should be hedged against inflation.
Ending the price deflation stupor that has gripped Japan for more than two decades — a phenomenon every bit as psychological as it was economic — always required a grand, transformative mind game but was always desperately short of players. For much of it, the central bank’s ultra-loose, experimental monetary policy was alone at the board, unable to convince either industry or the general public to join. That has now changed.
The psychological impact of the cinema price increase is qualitatively strong, and arguably much more so than surges in food, electricity, fuel and other commodity-price related goods for its appearance of irrevocability. The fact that it comfortably exceeds the Bank of Japan’s long-held target of 2 per cent inflation is quantitatively influential. Toho raised its ticket prices by ¥100 in 2019, but on that occasion it was doing so for the first time in 26 years. The decision then was eye catching, certainly, but came with an explanation (purchases of new digital equipment) that suggested it might be a one-off.
This second increase, imposed as soon as corporate decency around the pandemic allowed and with reference to labour costs and the weak yen, implies a crucial, deflation-slaying threat: not only could these increases keep happening every year, but they are a response to pressures that apply to a very great proportion of Japanese businesses.
The question, then, is how far any of this has actually begun to change people’s behaviour. Analysts at JPMorgan believe that it may be starting to, or at least that there is a growing body of anecdotal evidence that points to an attitude shift. In research published last month, the bank noted that the pace of broad property asset inflation was now rising on a trajectory not seen since the bubble era.
Japan’s official nationwide residential property price index, JPMorgan said, has risen by at least six per cent year-on-year in each of the past 18 months. “Neither the pace of post-pandemic property price rises, nor the time over which these gains have been sustained, has been matched since the late 1980s,” wrote Benjamin Shatil, the report’s author.
Buying by foreigners is certainly playing a part in the Japan residential real estate boom: Tokyo and Osaka remain favourite targets of US, Chinese and other Asian buyers, though locals in Kyoto now grumble that the historic capital has also become a target.
But, revealingly, the property price increases have also coincided with a lurch in levels of household leverage. After years without much movement, housing loans as a share of GDP rose in 2022 to their highest level since the 1990s. Foreigners only rarely rely on Japanese bank financing for their purchases, which suggests that domestic buyers have suddenly found a reason to take advantage of low borrowing rates that have been available for years.
In its April Financial System Report, the BoJ made special mention of the fact that the household debt to disposable income ratio was at its highest ever and that real estate loans had risen despite the increase in dwelling vacancy rates across Japan.
Taken in the wider context, argues Shatil, rising asset price inflation may reflect a shift in perceptions about the direction of all prices in Japan. During the long decades of deflation, there was no compelling incentive against holding cash: it would hold its value, resiliently and at low risk, as long as efforts to stoke inflation failed. Suddenly, it seems, that logic may be broken and individuals may be looking for more inflation-proof assets. Property, for many, will feel like the safest place to start.
There is fragility in all this — and victory in the reflationary mind game cannot be declared just yet. Earlier this week Japan’s furniture giant Nitori declared its first full year drop in profits in 24 years after a series of five price increases on its wares since last autumn. When it realised just how quickly customers were fleeing, said the company, it began slashing prices on 500 of its products and will continue to do so. Old habits, and all that.
