In Japan, the 20 years old’s young adults have lived their entire life in an economy of falling prices. They do not dream like what their parents used to. They experience lower job security, they are unable to leave home, have luxury purchases and take any risk.
They believe that they need to save as much as they can and not to risk. One of the effect caused by the long term deflation was the non-regular employment, there is no expectations of any kind of security and saving money is a part of the defence mechanism (The Straits Times, 2016).
The key challenges faced by the country includes slow growth of the wage in the country, taxes and value of the Japanese Yen. (Investopedia, 2015). It was mentioned that household consumption is weak due to the slow wage growth for the regular workers (refer to Image 1 – Japan Wage Growth), who takes up to 60 percent of the total workforce in Japan (The Japan Times, 2017). The numbers lingers around 0 percent and there are times when it is below 0.
Image 1 – Japan Wage Growth
To reduce the government debt and help in the economy, the Japan government increases the Value-added Tax (VAT) from 5 percent to 8 percent in year 2014, and planned to increase again from 8 percent to 10 percent in year 2017 (The Tax Foundation, 2015). This has impacted the spending behaviour of the citizens too. Value of the Japanese Yen has been low (refer to image 2 – USD v HPY) as one of the results of the long term deflation.
Image 2 – USD v HPY. Source: Trading Economics
Unemployment was one of the biggest impact cause by the deflation. After the deflation start, the number of people unemployed has increased, refer to image 3 – Japan Unemployment Rate. Job availability also fell. The average monthly household income has fell while spending has increase a little, due to the higher mandatory expenses such as transport and healthcare cost (the guardian, 2009).
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