Dirt Cheap Japan

A visit to
Tokyo Disneyland is already very revealing. With an entrance fee of only $72 it
is similarly priced to an emerging market, Disneyland Shanghai. And a steel
compared to Disneyland in California ($129). Or take accommodation. A 50 sqm luxury
hotel room with a king-size bed in London cost as much as $1,500 for two adults.
A similar room in Tokyo is available for around $700.

Let’s look
at dining. A Big Mac has a price tag of $3,50 in Japan and $5.74 in the U.S.
That means an American in Tokyo can get 1,6 Big Macs compared to his homeland. Sushiro
is one of Japan’s most popular conveyors- belt sushi restaurant. The main
reason? It is dirt cheap! The only place on planet where you get 2 Pieces of
Sushi for $ 0,90. What about a whole evening meal at a medium-priced restaurant?
Well, it would cost you only $ 9 per person.

The company
Daiso is a neat little method to compare prices of tradeable goods in Japan to
those tagged internationally. Daiso is the Japanese equivalent of Dollar tree, selling
articles for 100 yen ($ 0,9), and runs stores in 24 countries like Korea and
Taiwan, and even the US. It turns out that only in Japan Daiso offers its
products for 100 Yen. Average price in other countries come in at 150 – 200
Yen.

The list
goes on and on. Tokyo prices compared to 5 other cities (London, New York,
Seoul, Shanghai and Singapore) ranked 4^th for a 1.5-liter bottle of
water ($1,1), 5^th for a dozen medium-sized eggs ($2,2); last for a
tall-size cafe latte at Starbucks (at $3,3) and for mid-range priced Nike
running shoes ($70). Tokyo’s highest-ranked item was a second place for a ¥420 basic
taxi fee.

According
to Jesper Koll, Japan expert at Wisdom Tree Investments, Tokyo is the only
major city in the world where you can afford to buy an apartment within a
45-minute commute from downtown Tokyo with an average Starbucks salary. If true
that is quite remarkable indeed! Especially, given the fact that Japanese
workers receive the second-lowest average minimum wage ($ 7,7) after the United
States. Roughly 30% lower than the country with the highest (France).

In general,
Japanese wages have been stagnating for almost three decades. Average (nominal)
wages in Japan have increased by only 0.4% compared to 25.3% in the United
States, 25.5% in Canada, 17.9% in Germany and 43.5% in South Korea.

The annual
income of a Japanese university grad is only $ 21´500, compared to Germany $ 43’000
and US $ 52’000. Japan’s IT professionals in their 30s earn less than half of
their US peers.

The average
income of Tokyo’s richest district ($ 103’000), would be considered low income
in San Francisco.

The
stagnation of nominal wages is reason for a 500 Yen beef bowl and 1000 Yen hair
cut being common in Japan.

Applying
this idea of the Big Mac index to a weighted Japan basket of products and
services the Yen appears to be undervalued by a staggering 30- 40 % against
major currency pairs. Comparing Japanese wages to those paid in other G7
appears to back this hypothesis. The undervaluation of the Yen appears to be
more pronounced in Services/ and Wages than for tradeable goods.

There is no
doubt that without the corona virus Japan would have been on track printing record
number of tourist arrivals year in year out, partially arbitraging away this
incredible international price competitiveness.

In absence
of mass tourism, there are only two possible transmission channels left to
correct cheap Japan:

1.) Yen
appreciation so that the international purchasing power can be restored

2.) Raise
wages. For example: A significant increase of the Japanese minimum wage would
force small and medium-sized companies to change business models that are
dependent on cheap labor

Personally,
I expect wages and the yen rising in tandem. And a future tourism strategy
focusing on quality rather than quantity to overcome Cheap Japan.

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