Opinion & Analysis

Japan's 2023 Tourism Boom

Japan is enjoying a tourism and investment boom, but ordinary Japanese face a squeeze of wages not keeping pace with inflation. Philip Turner has more from Tokyo. 

Getting that perfect picture of Kiyomizudera temple against glowing red and yellow maples has never been more difficult.  This month Kyoto`s famous autumn colours have attracted so many foreign tourists that authorities are starting to consider Venice-style restrictions on numbers.   Queues at airports are overwhelming even Japan`s excellent infrastructure and organization.  Some 20,000 tourists are entering Japan from South Korea alone every day. 

At the height of Japan`s economic rise in 1989, its cities were among the most expensive in the world.  But over the last year the fall in the yen has made Japan one of the world`s most affordable tourist destinations.

While it is still possible to spend ridiculous amounts of money in high-end bars and restaurants in Tokyo`s Ginza or Osaka`s Shinsaibashi, tourists on a more modest budget can enjoy a bowl of rice and chicken for NZ$5, a Big Mac for $6.60, and a fresh cup of coffee from a convenience store for $2.

Investors are as excited as tourists.  The Tokyo stock market is up 31% in 2023. 

Housing prices in the main cities are also surging after three decades of stagnation, rising 20% since the end of 2020.

The low yen is boosting exporters.  Toyota, still the world`s largest car manufacturer, announced a record profit of US$17 billion in the six months to September this year.

All this would suggest a booming economy.  This month the Economist welcomed signs of Japan`s “long awaited opportunity to rise again”.

But the average Japanese does not share in that excitement.

While the rest of the world has had to hike interest rates in response to post-COVID inflation, Japan remains in the shadow of the deflation or low inflation which has bedevilled the economy since the 1990s.

There are signs that inflation may be back to stay – it has been above 2% for 18 months now – but the Bank of Japan is not yet confident enough to unwind its ultra-low interest rates. The short-term BOJ lending rate remains negative and ten-year bonds are at zero.  Housing mortgage rates average 1.3%.

Years of stagnation have left wages well below levels of comparable economies.  Nominal average salaries in New Zealand are now 50% higher than Japan (NZ$94,000 compared with just over $60,000).

The minimum wage in Tokyo is just over Y1000 (NZ$11.20), exactly half of that in NZ ($22.7).

Economists and officials are hopeful the return of moderate inflation will enable Japan to break into a new virtuous cycle of price and wage growth. 

But for now Japanese consumers find themselves squeezed by a rising cost of living and surging housing prices, while incomes lag behind.

Ayako Saito is a housemaker in Ibaraki outside Tokyo, living a typical Japanese lifestyle with a working husband and a teenage son at home.

 “Looking at the amount of housing construction going on around us [in Ibaraki] you might think that the economy is growing”, she says, “but personally I don’t feel it”. 

Her husband`s wage increases have not kept up with rising petrol, electricity and grocery prices.

With two children and her own retirement to think of, she worries that government pensions will go down in future.  “I worry about whether our kids will be OK”, she says.

As if echoing her concerns, this month the government reduced the amount by which pensions will rise compared with inflation.

Kikumi Suda is a 50-something professional woman living in Kanagawa with her partner, on the other side of Tokyo. 

She notes that the government says that wages are up 2% this year “but where we do we see that?”

While her partner works in a major corporate, she has chosen to step back to part-time contract work,  largely from home.  She enjoys the flexibility, but notes that contractors lack the protection of full-time staff - and their real wages have declined over the last decade. 

Not owning a car, Suda and her partner don’t need to buy petrol (Tokyo has the lowest car use of any major city in the world – just 12 percent of journeys are completed by private car.).  So Suda considers herself better off than many.

But she feels sorry for young people.  While more young Japanese are attending university than ever, most now graduate with substantial student debt and confront a labour market where jobs are plentiful but salaries are low. 

She worries that young people are having fewer kids and marrying later – mostly in her view because of economic uncertainty.  “Young people say they can’t marry because have no money, and believe it`s just too hard to bring up kids”.

These issues are common to most developed countries around the world.  Yet they are felt particularly sharply in Japan, given how far the country has fallen from its peak only 30 years ago. 

When Suda graduated at that time she recalls a woman with a university degree was still uncommon.  Yet she believes society has failed to deliver on the opportunities it promised people like her.

Today Japan`s average real incomes rank below the OECD midpoint.  Even adjusting for low prices,  they are lower than New Zealand (US$52,000 vs $53,800 on a PPP basis).

For the first time in decades, housing affordability is looming as an issue. Japan experienced one of history`s greatest real estate bubbles in the 1980s, but then went into a 3-decade decline in property values. 

In the last 3 years housing prices in the large cities have boomed again. 

Suda and her partner are fortunate to own their own home and are building a new house in the countryside, to be closer to her parents .  But the estimates for building their new house have doubled in the last two years, as prices of wood, cement and raw material skyrocket.

Undervalued and now rising prices have made Japanese assets highly attractive to foreigners.  Investors have poured money into the Tokyo stock market this year. 

Chinese, American and Singaporean investors see Tokyo apartments or commercial real estate as highly affordable by international standards.

Part of Japan`s attraction is that it is not China: US and other investors looking to diversify out of China find Japan a close, attractive and more stable alternative.

But so far this is not helping ordinary folk like Mrs Saito and Ms Suda.  The government of Prime Minister Kishida is coming under severe pressure to do more to help with the cost of living.  Some 60% of voters believe their economic situation has worsened in the last two years under Kishida.

His response has been to recommend an odd mixture of long-term tax raises (to improve the fiscal balance) and short-term one-off tax cuts.

To offset inflation and stimulate consumption he is offering all taxpayers a one-off lump-sum payment next year of NZ$450, with more for low-income families.

More significantly, he is encouraging business to share the benefits of the low yen with workers by raising wages in next year`s pay round.  Rengo, Japan`s largest trade union confederation, has promised to push for an increase of at least 5% next year. 

They may be pushing at an open door.  Driven by the worsening shortage of labour, most large companies are offering even more.  Electronics retail chain Big Camera is offering increases of up to 16% to its 4,600 full-time staff.

Whether this promise of real wage growth spreads, particularly to the small and medium size companies that make up 70% of Japan’s economy, will be crucial to the direction of the economy, and to Kishida`s efforts to rescue his popularity.    

Opinion polls this month show support for Kishida falling to 24%, the lowest level for a Japanese Prime Minister since 2012.

Like Mrs Saito and Ms Suda, voters seem dubious that the wage increases and tax changes will really provide the material improvement in their daily lives that the government and economists hope for.  But they are keen to find out.


- Asia Media Centre