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The Japan Tax

October 4th, 2009

Stuff you buy in Japan is more expensive than it is in the U.S. I know that’s old news, and what everyone expects, but it’s something which has both changed and stayed the same over the years.

People got the impression of Japan being expensive back in the 80’s, when Japan was flush. Back then, it was simply over-reported. You had all those stories about $50 musk melons: foreign journalists, wanting to show the greatest contrast possible, went to the priciest shops and found the most outstanding un-bargain they could find. As true as it was that Japan was more expensive, it wasn’t that much more expensive. Most people here didn’t go around buying $50 musk melons.

But things were expensive, and one reason was that people could afford it–and Japan had its own market pretty much tied up. I recall back in 1989, when I lived in Tachikawa, I saw something very new at a discount supermarket called “Topos”: Budweiser and Heineken beers went on sale at a price lower than native beers. After a week, the prices were back up. I asked the manager, and he was surprisingly frank: he told me that the domestic distributors had complained, and so he had to jack up prices of foreign beers again. There was a lot of that kind of thing in Japan at the time.

In the 90’s, however, things changed. The bubble burst, people became less able to spend so much money, and trade deals began knocking down more and more of the walls that had insulated Japan. 100-yen shops began popping up; I do not recall having seen these in Japan previously, but they caught on and today there are two or three in almost every city neighborhood. Prices have dropped, and a lot more foreign goods have made it into the Japanese market. Not nearly as many as you see in other countries, perhaps, but a lot more than there were in Japan twenty years ago.

But one thing has remained true: prices are higher in Japan than they are in the U.S., pretty much as a general rule. And that includes products made in Japan.

I became aware of this back in the early 80’s, when I first visited Japan. I was eager to buy a Nikon camera, and had priced them in the U.S. However, I held off buying one, as I expected they’d be cheaper in Japan. Not so: the same camera, made in Japan, cost more in Tokyo than it did Stateside.

And it is still true today. Price the Canon VIXIA HF200 HD video recorder, for example: at Amazon.com in the U.S., it’s $593. Same camera in Japan at Amazon.co.jp: $872. At Yodobashi Camera, a popular discount camera retailer, the equivalent model is $1,150.

People Stateside bemoan movie ticket prices that exceed $10. In Japan, the standard price at the door is $20. But if you are smart, you’ll buy an advanced ticket for the bargain price of $14.50, and if your budget is really tight, you’ll go to a first-day-of-the-month bargain show for just $11.10 (but those shows tend to be very crowded). Ironically, popcorn does cost less in the theater, but it’s a rare exception to the price rule–movie theater concessions in the U.S. are horrifically over-priced.

Another cost for movies which is higher in Japan: DVDs. The 2-Disc DVD for Star Trek (2009) in the U.S. is $23; in Japan, it’s $33. The fourth season of Bones costs $38.50 in the U.S.; in Japan, it’s $163–more than four times as much.

Why did this come up for me? Because I just bought airline tickets home for Christmas. Called the local travel agency, No. 1 Travel (which has eaten up most of its competitors in this town), and was told that my regular airline, United (frequent flier miles do kind of lock you in) did not have any open seats coming back to Japan for the whole last two weeks of December. And even if they did, the ticket price would be ¥75,000 ($833). But they didn’t, because they said that such a low price for tickets on United were a “special” fare and thus were very limited; I could only fly United if I paid more than a thousand dollars per ticket. So instead I asked them to hold for me the next best thing, tickets on Northwest, also priced at ¥75,000, thinking that I would not find a better price.

So then I went on Sidestep.com, a web site recommended by a co-worker, and typed in the same flight I had asked for. The cheapest fare came up: United, for $760–you could buy direct from their site. Hmm. No problem with the return flight, plenty of seats. I called up United in Japan, figuring that I could just buy from them here. They said, sure; again, no problem with seats on the return flight–but the price is ¥75,000. I told them about the price listed on the site, and they said that that was the U.S. dollar price, and they could not charge me that from within Japan. OK. So I went back online and bought the tickets with my U.S.-based credit card. For tickets for me and Sachi, I saved $146. I even saved myself a few trips to the local travel agency shop.

The DVD and airplane tickets are excellent examples of how the prices should be no different: neither represent much difference in actual production costs. The airline tickets should have been exactly the same.

Instead, it appears that people in Japan still pay a tax for being in Japan; the practice of over-pricing persists. Why is a different question. I’m no economist, so I can only guess. Japan has suffered from a bad economy for a long time, so affluence can’t be the reason. Taxes are a possibility, but if it were, then the over-pricing should be consistent. This is not so: some cameras cost only 10 or 20% more than the U.S. price, while some cost much, much more than American counterparts. Macs, for instance, are usually 10 ~ 20% more expensive here, on a consistent basis, while other electronic items, like video cameras, cost a great deal more. Because the over-pricing is neither universal nor consistent, it seems unlikely that taxes alone account for all of the differential.

If I had to guess, I would say that in some cases, the products are overpriced simply because they can be–the sellers simply believe that people here will pay a higher price. It may also be that the practice of subsidizing cheaper prices overseas by over-charging in Japan continues in some places.

If anyone out there has a clearer understanding of this, I’d love to hear about it.

As a side note, I remember when my airline ticket purchase would have been a no-go: back in the 80’s, you were required to buy airline tickets from within Japan, where they were more than just $70 more expensive at the time. The common end-run around that was a ticket called yobiyose (Japanese for “to summon”), where you bought a ticket which went from, say, Hong Kong to Tokyo to S.F. and then back to Tokyo. Because the ticket started outside Japan, you could avoid the massive Japan tax, and you just discarded the first leg. That was, of course, frowned upon by the airlines. At some point the market relaxed and this is no longer a problem.

One more side note: I bought most of my DVDs from the U.S. because of the significant price difference, but now have a problem: Sachi is not as satisfied watching them without Japanese subtitles. Oops. And I have to have a region-free DVD player to watch them to boot.

Interestingly, Blu-ray regions are arranged so that U.S. and Japan are in the same region–but, of course, the Blu-rays sold in the U.S. never have Japanese subtitles. Spanish, French, even Arabic are common, but never Japanese. Gee, I wonder why.

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  1. Tim Kane
    October 4th, 2009 at 12:30 | #1

    A tip for flying United to the States:
    I used sidestep and kayak to buy my ticket home from Korea last summer. My round trip ended up being $771 on United.

    I’m not sure whether it was Sidestep or Kayak – though I think it was Sidestep, (though kayak provides graphs showing what days of the month the fares are cheapest!!! which helps when selecting days on other sites) but it directed me over to travelocity. I puttered around with it a few times, perhaps changing dates and never getting the same price everytime!!! When $771 came up for United, I bought it on the spot.

    Here’s a big fat tip for flying on United.

    If the plane is a 777 – buck up the $100 (or if you have frequent flyer miles use those) to get Economy Plus.

    On the 777 Economy Plus is a wider seat as well as more leg room, but more importantly, the seat lays back farther.

    I found out on my way back from America, it doesn’t work on all planes.

    I usually fly to Korea from San Francisco on a 777 when flying on United, but this time I came through LAX which put me in a 747 – and all that Economy-Plus gave me was an inch or so more leg room. The seat didn’t go back any farther or was any wider so I felt about as uncomfortable as if I had a regular economy seat.

    My embarkation point is always Phoenix: for short flights, domestic flights, indeed, most flights, it doesn’t pay to up grade to economy-plus because it just buys you more leg room. A chair that leans back farther and is fatter is more important because United leaves reasonable leg room in most flights.

    United allows for you to upgrade on their website for each leg of the trip. So if you are flying on a 777 for part of a trip, I highly recommend you try it. If you don’t like it, you don’t have to try it again. The nice thing is you don’t have to commit to it when you first buy your ticket. You shop around for the best fare, then you up grade where and when you like cafeteria style.

    So, if you can figure out the plane you are flying on, you can go to their website and buy the upgrade for $100 bucks (roughly) – and I think it is well worth it. I can’t describe how much better that little bit of space, and that slighlty steeper angle means to comfort, especially after 12 hours.

    I found this out because I’m left handed. While getting ready to board the plan one time in San Fran, I told the check in lady I was left handed and would prefer to not have someone on my left while eating on the plane – it’s discomfort to both of us. I was angling for an isle seat. She moved me up to economy plus, where no one was sitting on my left and a 4 year old was sitting on my right. It was the best flight I had ever had. It means the world on a 12 hour or so flight.

    I had been flying Singapore Airlines from Seoul to San Francisco, and then switching over to United. Singapore is a great airlines, and I’ve been able to pick them up at reasonable prices through a friend who buys the ticket on a Korean website. They have great food and great entertainment, but their seats are small and for me, I have a very long torso (I’m 6’2” with only a 31″ inseam, and I weigh over 225 lbsl) , somewhate uncomfortable for me (I’m told by my brother they have special seats for longer bodies).

    I’d much rather fly United, with all their problems, including the way they bang up my luggage), charging for bags, lousy food (compared to Singapore), and marginal entertainment, for the right to fly economy-plus on a 777 between East Asia and the United States.

    I would be very interested in seeing other peoples comments on flying United Economy plus. Again, it makes a difference as to the plane. Seems like it only works on 777s.

    In regard to price differences with the United States:
    The difference in cost for things in Japan versus the United States, for manufactured goods, can be chalked up to tax policies, I believe. I’ve noticed the same thing you talk about here in Korea.

    My income tax here is a fraction of what it was in the States (30% or more, but then I made a lot of money when I could get a job in the states).

    Korea doesn’t have all the obligations that America’s govenment has. They have a big military, and they are busy building up the infrastructure of the place. Still the income tax seems very low.

    I think they make it up with taxes on sales of goods. I think that’s a very regressive tax, but I can see their point. They don’t tax work that much. They still want people to save. So they tax consumption. Unlike the United States, the taxes are built into the prices. I have no idea what sales tax I am paying when I buy something.

    Other things to consider are cost of real estate (rent) in a high density country. Like Japan, Korea is 70% mountainous, and even more densly packed than Japan (50 million people in the area the size of Indiana, of which only 30% is not mountainous) and land use laws are meant to keep the cities even more dense than the circumstances would dictate to prevent sprawl and preserve green zones. That means retail space is artificially dear, and so expensive and the prices of real estate end up in the prices of good bought.

    Also like Japan, Korea provides massive protection and price supports for farmers. The price of rice is four times greater here than the price in the United States.

    Again, I think I see the reasons for that. Especially after last years run on Rice in the international market. It’s wise for every society to be as self reliant as they can be for core staple food items, in the event of a supreme disruption to the international trading system (something more likely than people want to admit, given the changing times we live in).

    However, manufactured goods shouldn’t be subject to the same parameters as food. Again, I think the bulk of the price difference is probably tied up rent and most especially tax policies.

    Having said that, this is all, merely speculation on my point.

  2. Troy
    October 4th, 2009 at 13:22 | #2

    I think it’s because you’re looking at prices in dollars and not yen.

    How much do your students make working a decent part time job? Y1500 or more, right? McD’s pays at least Y1000. Taxes are low — let’s not forget that everyone in the US pays 16% FICA & Medicare off the top — so everybody has more take-home pay in Tokyo, too. The P/T wage baseline here is $8 or so — Y720.

    Sellers will sell at what the market will bear and Japanese consumers have been willing to pay a lot. 30% or so of Japan is fantastically wealthy and was even more so 20 years at the end of the export-driven economy rocket ascent that had occurred ~1960-1990. Even now Japan’s household wealth is tops in the world.

    The key factor you’re missing is the yen rate is not reality, or rather it is an immense reality driven by massive — elemental even — forces of global economics of the first magnitude. [Did I emphasize that enough?] The foreign exchange market is also hairy and technical and I don’t have the first clue about it other than being an occasional spectator and leaf-level participant in it.

    The Plaza Accord of 1985 cut the yen from 250 to ~125 in the late 80s. Did importers pass all their increased margins onto retailers and consumers? Hell no.

    When I was FOB Tokyo in 1992 I cashed my first travellers checks at the TTB rate of 128 and prices in terms of dollars were AFAICT all still based on the Y150-200 exchange rate.

    Part of Japan’s “deflation” of the 90s was just the slow yet inexorable transition to the new exchange rate regime.

    Japan’s wages imply a true exchange rate of 200 to the dollar but its trade flows and tectonic interactions with the euro and yuan have presently pushed it to 90. This makes things look more expensive in terms of USD.

  3. Troy
    October 4th, 2009 at 13:35 | #3

    @Tim Kane

    I can’t describe how much better that little bit of space, and that slighlty steeper angle means to comfort, especially after 12 hours.

    I was flown business class NRT SFO back in 2000 and it wasn’t that big a diff. The airport club was nice, though, but for $1250 extra each way I can find other ways to entertain myself in the airport.

    That means retail space is artificially dear, and so expensive and the prices of real estate end up in the prices of good bought.

    Not really. Prices of real estate end up the pockets of landlords. Rents are driven by retail profits at a given location, not the other way around.

  4. Leszek Cyfer
    October 4th, 2009 at 20:02 | #4

    Troy :
    @Tim Kane
    That means retail space is artificially dear, and so expensive and the prices of real estate end up in the prices of good bought.
    Not really. Prices of real estate end up the pockets of landlords. Rents are driven by retail profits at a given location, not the other way around.

    Retail profits at a given location are revenue from selling retail products minus price the shop seller bought the products for, minus cost of running the shop (of which renting of the place is by far the largest part). So to get profits the shop seller must insert cost of renting the place into the prices of retail products.

  5. Tim Kane
    October 4th, 2009 at 20:46 | #5


    Not sure about the whole retail price versus real estate value thing, so I readily concede on the point, though, again, I’m not sure. I suppose it has something to do with what you can sell in a given location.

    In regard to the United Economy Plus – I stand by what I said. On my last trip to Korea I flew from LAX to Narita in a 747 using economy plus. Then I switched planes in Japan to a 777, this time they ‘gave’ me an economy plus ticket. That’s when I felt the difference.

    For my money, meager as it is, (and my size, I suppose, more importantly) it’s a BIG difference. I can play games, asking for an isle seat for a lefty and hope they drop me in one of those seats at the last minute, which they often do, or I can cough up $100 to guarantee it. If I have the money, I’m going to do it every time, provided the plane is a 777 and not a 747 (all of this on United).

    The comfort level is a big deal.

    One other thing, that makes a big difference: Noise reduction headphones. I never slept on a plane before I got these. Now I’m able to nod off some.

    Perhaps the big dif is in the ability to sleep. More space, steeper angle, quieter ride all equate to getting more sleep on the flight and more come fort overall.

    As I said, I’d rather have the comfort then good food and good entertainment.

    Anyway, United is typically the low cost airline – usually by a pretty big margin. So coughing up an extra $100 is okay in my book.

  6. Troy
    October 5th, 2009 at 03:38 | #6

    @Leszek Cyfer

    So to get profits the shop seller must insert cost of renting the place into the prices of retail products.

    You’re looking at this backwards I think. The retailer theoretically sells at the maximum price the market will bear.

    In turn, the landlord will jack up the rent to the maximum the retailer will bear.

    These are independent actions, but of course at the end of the day the retailer has to keep a profit or it will eventually go out of business.

    Lack of available retail space gives the LL pricing power over the retailer, taking more of his profits since the retailers must bid up their rents to stay in business in the area. Additionally, with lack of retail space marginal activities are priced out and only high-margin activities like cafes and fashion can survive

    Land has no cost of production so these high rents are simply wealth transfer from retailer to landlord. Show me a poor area and I’ll show you low rents. Show me a wealthy area and I’m guaranteed to see high rents. LLs can’t get blood from a stone.

    Land economics are subtle. It is no accident that McD’s Inc is a land management company that sells hamburgers on the side.

  7. Troy
    October 5th, 2009 at 03:58 | #7

    @Leszek Cyfer

    hmm, backing off from my dogmatism I do now see the feedback mechanism between high land value and higher consumer prices, in that retail stores have to bid against the most profitable use of the space to be able to acquire the lease to it. Having secured the lease this way, if they are the first retailer in the area then they have monopoly pricing power to some extent — if it costs end consumers $20 in time and effort to shop at the nearest competitor then that margin is available to be captured by the retailer and then yielded in turn to the LL as rent. Additional retailers in the same area will generally keep their prices at this elevated level.

    So in the end what you’ll have is a bunch of rich landlords and a whole mass of actually productive people wondering where all there money went :)

  8. Troy
    October 6th, 2009 at 05:31 | #8

    Speaking to your DVD side-note, coming from my 英会話 roots I think there’s a market for synced subtitles in English for English-capable foreign watchers. I know at my intermediate-advanced Japanese level that all I generally need is the freaking Japanese text to understand (ie watching Hey Hey Hey my understanding of what they’re saying doubles when the subtitle their Osaka-ben).

    Even though I’m a beginner Mandarin student, Chinese movies’ typical 字幕 thanks to my Japanese I can understand a bit here & there.

    There’s copyright protections preventing this I guess, but late this century I’m sure somebody will have machine transcription figured out and the software will do the subtitles automatically.

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