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The Real Housewives of Japan: Shopping for Bargains … Driving Deflation?

[Editor's Note: Money Morning Chief Investment Strategist Keith Fitz-Gerald has spent portions of each of the last 20 years in different spots in Asia, and has recently spent part of each year living in Japan. In fact, he's there right now and brings us an interesting story about the 'Real Housewives' of Japan - and their potential effect on that country's persistent malaise.]

KYOTO, Japan – Could 70,000 Japanese housewives tip this Asian giant into a deflationary spiral?

As farfetched as that sounds, it's become a major cause for concern in this nation of 128 million, which has been in an economic funk for two decades. These "real housewives" are part of a user-driven, social-networking site called Mainichi Tokubai, which delivers the best prices on specific grocery-store items to the fingertips of Tokyo-region consumers.

To hear frustrated Japanese policymakers and retail executives tell it, these bargain-minded consumers and their equally frugal social-networking site is almost-single-handedly undercutting the Japan's economy.

"We understand consumers want the best deals," Japan Chain Stores Association executive Shoichi Ogasawara groused to CNN's Kyung Lah. "And we understand that the social-networking site is a natural extension of consumer behavior in the Information Age. But supermarket prices have fallen for 13 years in a row in Japan," and sites such as this are making it difficult to reverse that trend.

Don't make the mistake of believing that something similar couldn't happen here in the U.S. market. Given that Japan's consumer technology tends to be anywhere from 18 months to two years ahead of U.S trends, this could be a preview of what's to come for the badly troubled U.S. economy.

Let's Make a Deal

Japan's much-ballyhooded "Lost Decade" is actually now entering its third decade. Mainichi Tokubai, which means "every day best deal," is a social networking site "staffed" by more than 70,000 Japanese housewives who, after nearly 30 years of flat wages and an increasingly dicey Japanese economy, simply want to stretch each yen in their quest to take care of their families.

From our home here in Kyoto, where my family and I live for part of each year, I've had a courtside seat to this economic drama. Even my wife Noriko uses the site: She estimates she can save at least 5,000 yen (roughly $50 a month) using the site. That's a heck of a return on investment (ROI), given that a monthly subscription is about 105 yen (about $1.05).

Here's how it works.

Each day, local housewives – called "regional correspondents" – upload the daily specials from their local newspapers to the site. Then, armed with their "keitai," or smart phones, they go shopping for the best deals in neighborhood markets. If getting those "best deals" means buying a handful of items from three or four different markets, so be it.

It's that resolve to find those "best deals" that's threatening to further drive down prices – which could be deflationary.

It's a great way to do things for a couple of reasons. First, we already receive the daily flyers from neighborhood merchants, so we're able to instantly compare prices with other stores instead of having to plow through a half a dozen flyers a week. Second, we're able to do it on our schedule and when we're ready to go shopping. Third, we don't really worry about getting the short end of the stick any longer from notoriously inflexible Japanese merchants who, for hundreds of years, have held the upper hand here.

The other day, for example, our family bought pork, eggs, pumpkin squash, ice cream and frozen foods – including peas, beans and blueberries – all on sale at our local stores and all at deep discounts that ranged from 10% to 50%.

Those bargains are akin to the "doorbusters" that U.S. retailers offer on weekends and holidays, and the strategy is the same: Japanese retailers offer those deeply discounted goods, figuring that, once in the door, the shoppers will then buy "iro iro," or various things – and not merely the heavily advertised "loss-leaders" that got them into the store.

It doesn't actually work out that way, however – thanks to Mainichi Tokubai. Take consumer Hiroe Ishimoto, who passed – as we did – on goods the Web site told her she could buy for less at other stores.

"I live with the comfort of knowing I never get a bad deal," she told CNN.

At the other end of the spectrum are politicians and businessmen – like the chain store association's Ogasawara – who worry that this small-but-determined army of consumers will tip Japan into a deflationary spiral.

Japan's Lost Decade(s)

Unfortunately, Japanese retailers and politicians don't seem to understand what the real problem is here. Consumers are feeling squeezed and have taken matters into their own hands, because Japan's government won't – or can't – solve the problems they face.

And the pain has been intense.

For three decades – in what was known as the "Japanese post-war economic miracle" – Japan posted stellar growth. In fact, it averaged 10% growth during the 1960s, 5% in the 1970s and 4% in the 1980s – enough to vault right behind the United States and make it the world's second-largest economy.

However, following the September 1985 Plaza Accord, a steep appreciation in the yen really torpedoed Japan's export sector. Japan's economic growth rate skidded from 4.4% in 1985 to 2.9% the next year. In an effort to offset the stronger yen, the Bank of Japan sought to ease monetary policy: Between January 1986 and February 1987, the BOJ slashed the discount rate from 5% to 2.5%. Asset prices – primarily stocks and real estate – skyrocketed, creating one of the biggest speculative bubbles in modern history, and setting Japan up for a classic crash.

The government tightened credit, raising rates five times in 1989 and 1990. By the time rates reached 6%, Japan's stock was poised for a full-blown retreat. From an all-time high of almost 40,000 in 1989, the Nikkei 225 plunged more than 60% by 1992, dropping below the 15,000 level. The real-estate market was also crushed: Prices plunged 80% between 1991 and 1998.

It would have been bad enough had that been the extent of the damage, but it was actually just the start. Japan's government rolled out 10 stimulus programs during the 1990s, and none did the trick. The Nikkei dropped below 12,000 by March 2001, and has continued to decline (it closed Tuesday at 9,338,04 – a full 77% below the all-time high reached in 1989).

Japan's economy has been stagnant ever since: Real GDP rose just 1.5% per annum during the 1990s and 0.8% a year in the 2000s. The extremes experienced during the most-recent decade exacerbated the longstanding pain. After a major global slowdown in 2000-2001 hit Japan particularly hard, a resurgence of global trade and the policies of Prime Minister Junichiro Koizumi sparked a rebound that saw Japan's economy advance at a 2.1% annual clip from 2003 to 2007.

But the global financial crisis brought about another reversal of fortune, causing the Japanese economy to shrink 1.2% in 2008 and a full 5.0% last year.

Fast-forward to 2010 and we find that the outlook hasn't improved a bit. Unemployment is up once again and household spending is down, according to May data – most likely in response to lower Japanese factory production data and industrial output during the same month.

Note to Obama: Beware Mr. President

Japan's got 30 years in this game and its leaders have tried everything from zero-interest-rate policies to cramming more capital into banks and other short-term lenders. The government has also purchased commercial debt and stock outright – all under the assumption that "lending" supports the very foundations of economic growth because it translates into "productive" investments.

Japanese companies are now so weakened by the multi-decade grind that there are literally not enough of them left to take on newly available capital even if they could.

If this all sounds vaguely familiar to you U.S. readers, your mind isn't playing tricks: The Bush and Obama administrations have called some of the same plays – and we've already seen some similar results. Give it time and the parallels will become even more clear.

Washington would be wise to take heed: U.S. consumers aren't going to put up with Washington's malfeasance and mismanagement forever. Eventually, U.S. consumers, too, will take matters into their own hands, much like Japan's housewives have done.

And when that happens in the United States, watch out.

Once consumers get that fed up – or that scared – they will take matters into their own hands … just to survive. Once that happens, consumer actions become the kind of hard-to-factor-in wildcard that transforms any new policymaking push into three parts guess/one part projection.

If you don't believe me, just ask the housewives of Mainichi Tokubai – the "Real Housewives" of Japan.

[Editor's Note: Keith Fitz-Gerald knows Asia. For more than two decades, the noted author, investor and commentator has worked in, traveled throughout and actually lived in the Asian markets that so many others now claim to be "experts" on.

But as the preceding essay underscores, having immersed himself in the Asian investing and business venues that he now writes about and invests in for more than 20 years, Fitz-Gerald not only has insights that few others possess, he has the kind of contacts that few others can rival.

Investors can benefit from these insights. In his advisory service, The New China Trader, Fitz-Gerald makes those years of insights and global contacts available to his readers. For more information, please click here.]

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Sandy Fleischmann | July 8, 2010

    Keith, how do the prices of basic groceries in Japan compare to a similar US 'basket' of groceries? I've read that Japanese grocery prices are VERY high to begin with. In the US, groceries probably aren't as relatively expensive… and in the US trips to various stores would involve driving more distances? Your point is well-taken though, Internet, ads, smart phones allow consumers to compare prices and shop accordingly.

  2. Vincent F.Celli | July 8, 2010

    If you have constant perfect competition, eventually nobody benefits. It is the "race to the bottom" that labor unions have been talking about for years.

  3. Richard Schwartz | July 8, 2010

    Nice insight into and financial history of Japan! Thanks.

  4. Alvin Young | July 8, 2010

    The diiference with Japan is that it's population is shrinking and getting progressively older. Japan needs immigration and more young people to have children. Seniors buy very little as they have most of the things that they need and furthermore they live on a fixed income. Being xenophobic, immigration is out of the question and unless this changes, Japan will continue to shrink and stagnate. Exports will only partially alleviate this problem.

  5. Dan Spicer | July 8, 2010

    Whether this is a good trend or not depends on which side of the issue you are on. When the 'good ol boys' can make a killing playing cut throat, life is good…for them. When the 'consumer' puts a tourniquet around their hemoraging finances THEY are blamed for KILLING the economy!

  6. fred stork | July 9, 2010

    First thing that stands out is the louder and louder squacks of extreme right, who blame completely innocent sector for doing what they have right to do according to "free enterprise" gospel. Not that i ever half-believed in that nonsense. But according to free enterprise dogma the ones who underprice will have to perish, which will squeeze the supply and leave in the business those who do not squeeze the prices dry, so price index should automatically balance itself (right?) But Japan has a long history of right extremism, and their sense of belonging and sense of duty to their land has never completely died out. This is a perfect time for extreme right opportunists to start screaming " see, ever since the 'evil ones' took over, things have been getting worse" (remember Weimar republic?)
    And as Alvin said above, the shrinking and rapidly aging population seems more scary in the long run than bunch of shrewed housewives.

    • jr n japan | July 11, 2010

      In reply to fred stork comment:

      Fred, your bias against "free enterprise" is showing, I think. The Japanese sense of belonging and duty to their land does not automatically translate into right wing extremism. That is a ridiculous assertion.
      Also, your statement "…according to free enterprise dogma the ones who underprice will have to perish…" is wrong. The supplier who provides the highest quality, best service, and best price (which may be the lowest or may not be), will capture the business and thrive. You need further education in free enterprise economics.
      Japan is not perfect and faces many problems, but other country citizens would do well to learn some things from the Japanese culture that survives today.

  7. Jim Robinson | July 11, 2010

    Huh? Blame the consumer for deflation and depression? I call "red herring" on you.

    From my study of micro-economics the assumption is one of perfect information, which of course the consumer never has, although the smart Japanese women seem to be getting closer. But in the end it is the merchants who make the price decision, not the shopper. As soon as the hidebound, paternalistic Japanese merchants realize the game has changed and adapt, the situation will stabilize.

  8. jr n hokkaido | July 11, 2010

    Keith, I am a retired american living in Hokkaido. I enjoy your blogs. Are you affiliated with the Oxford Club? I am a member of same. I am an average retiree, not particularly rich, but I have become a news junkie – with a lot of time on my hands, so I surf the internet constantly and read a variety of newletters. I have an engineering degree and an MBA, so I benefit from some higher education. If you ever want a gaijin perspective from someone in outlying Japan, let me know. I enjoy engaging in such discourse.

    Regards,
    Jim Ricks

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