TOKYO — Noriko Kanbayashi and her husband tried to buy a condominium in the early 1990s only to lose out repeatedly to other buyers. Finally in 1993, a small three-bedroom opened up and they grabbed it, even though its $415,000 price tag severely stretched their budget and locked them into a 30-year mortgage.
Eight years later and a world apart, their investment is worth half what they paid for it, leaving Kanbayashi furious at the banks for allowing her family to get into such trouble and at the government for ignoring the broader debt problem.
"How come we are made to suffer so much?" Kanbayashi said. "In 20 years' time, our house won't be worth anything."
Like a cancer, deflation is eating away at the world's second-largest economy. Japan is the only advanced nation since World War II to experience such serious price declines, leaving policymakers in uncharted economic territory. Japan's deflation has become a drag on global growth at a time when the U.S. economy is down and American exporters could benefit from a more vibrant trade partner.
Wholesale prices in this country have dropped steadily over the last three years, and retail prices excluding fresh food fell by 1.1% last year, their biggest drop since 1945. Land prices have declined for nine straight years and Japanese stock prices are languishing at mid-1980s levels.
This is hitting people where it hurts. The average family in Japan saw its net worth decline by 18.4% to $350,000 from 1994 to 1999 largely because of falling land prices. In the same period, Americans were riding a great wave of wealth, as the U.S. stock market more than tripled. U.S. policies have helped protect Americans from a debilitating deflation.
At first blush, lower prices in the land of the $120 melon would seem like a cause for celebration. And in some areas they have benefited consumers. Those in a position to buy real estate now, for instance, can expect to get more in a better neighborhood for less. Many imported consumer goods have fallen sharply.
"Prices have definitely come down in Japan, especially food and clothing," said Keiko Sato, a 51-year-old Tokyo homemaker, as she emerged from a "100-Yen Store" that sells everything from dinnerware to children's chairs for 80 cents an item. "It's a huge change from 10 years ago."
The problem, however, is that incomes often fall faster than prices as companies reduce bonuses and overtime, leaving consumers further behind. In fact, deflation has eroded Japan's overall standard of living.
