How Japan Is Learning to Live With Years of Rising Prices

Japan continues to grapple with persistent rising prices, impacting both consumers and businesses. The weak yen, higher raw material costs, and rising wages are among the key factors driving the inflation. At a supermarket in Osaka, employees are regularly updating price tags as prices increase, with September marking the largest wave of price hikes this year. Over 20,000 products will see price increases over the full year, surpassing last year's total.

Consumers are noticing the price increases, even if they are small, such as 10 yen or 20 yen increments. For example, a bottle of soy sauce that cost 278 yen in 2015 now costs 462 yen, a nearly 200 yen increase. Milk prices have also risen significantly, from 142 yen in 2014 to 246 yen in 2024. These gradual price hikes across various products highlight the ongoing inflationary trend.

The depreciation of the yen against the US dollar has exacerbated the impact on imported goods, particularly food. A loaf of bread that once cost 78 yen now sells for 181 yen. Japan relies heavily on imported wheat, making bread and udon particularly vulnerable to rising procurement costs.

Consumers have responded by becoming more selective with their spending, prioritizing necessities over non-essential purchases. The weak yen also affects the entertainment industry, with the cost of hiring international artists for annual music festival Summer Sonic soaring due to fees being paid in dollars. As a result, the share of overseas performers at the festival has dropped from about 80% to less than 50%.

To maintain the festival's international appeal, organizers may need to raise ticket prices, potentially making it less accessible for customers.

Businesses adopt different strategies to cope with the pressure. An air freshener manufacturer in Nara Prefecture has increased prices by about 7% from next month, as plastic costs for containers and caps have risen significantly. Another confectionery maker has maintained the price of its ramune candy at 30 yen since 1978, despite a 30% increase in plastic costs for containers.

To manage costs without raising prices, the company has opted to make individual pieces larger, improving manufacturing efficiency and reducing the quantity in each package.

The government has responded to the prolonged inflation by approving a reduction in the consumption tax on food and drink, from 8% to 1%, for two years starting next April. This measure is expected to boost demand for takeout meals. However, businesses caution that the tax cut may not lead to lower prices, as they continue to face higher costs for ingredients, labor, and other expenses.

Farmers, too, are concerned about the tax reduction, as it could reduce their income due to the exemption from paying consumption tax. Despite government-provided payments to affected farmers, concerns remain about the timing of support.