Japan Market Update: Japanese Getting Used to Inflation Again

Posted by Jim Ivanoff
July 17th, 2013

It is hard to imagine that a country that is so famous for its go-go days in the 1980s when the Canadian Embassy in Tokyo was supposedly worth more than all of Western Canada,¬†could turn into a population that expected only price decreases, but that is exactly what happened to Japan after the bubble burst. The primary goal of “Abenomics” is to once and for all break this mindset and that is what seems to be happening. Finally!

This has particularly been a problem for the housing industry. With recovering U.S. housing starts suddenly creating stronger demand for lumber just as the Yen began to weaken, Japanese clients faced a 1-2 punch of increasing import prices. This situation has been complicated by the fact that the housing market is the strongest it has been in at least five years, yet end-users were not accepting increases in prices. However, as consumers are now seeing rising prices for everything from toilet paper to cheesecakes, the taboo of increasing prices to home buyers seems to have been broken. Large domestic building product manufacturers are pushing the price increase on to builders and the strong demand for housing is allowing the builders to pass increases on to their customers.

According to a recent article in the Nikkei Newspaper, this change in mindset is also affecting overall consumption patterns. In the post-war period, consumers were driven by a need to keep up with their neighbours, but this switched to consuming as a way to show-off during the bubble economy. Once the bubble burst, this was replaced by a desire to buy the cheapest products possible. This changed around 2000 to “cost-performance” based purchases that emphasized the best quality possible for the lowest price possible which is what led to Uniqlo’s meteoric rise. And now? A recent study has shown that people have returned to buying luxury items, but as a way to improve the quality of their lives and not to show-off as was the case in the 80’s. This return to quality is being seen and in various retail spaces with products that offer unique functions taking centre stage, rather than the cheapest sale items.

Talking to builders, this change in mindset is also starting to affect home buyers. Better insulation and higher earthquake resistance are common demands after 3/11, but better and more comfortable interiors are also becoming more important to consumers. Even amidst the current rush to build spec housing, you can see houses going up with more distinctive exteriors around Tokyo. Hopefully, this changing mindset will continue to drive the housing markets, even as demand begins to level off. Better quality homes in Japan will mean even more opportunities for Canadian wood products.

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