What is really happening with deflation in Japan?

What is really happening with deflation in Japan? Many people think that deflation in Japan has made the country invested. Judging from the opinion promulgated in the major news networks, the global sentiment of the Japanese economy and Japanese stocks could hardly be worse. However, on the other hand, we also know that the moment of greatest sadness is the moment of greatest opportunity. Therefore, many investors are curious about the actual state of deflation in Japan.

The end of deflation in Japan will be a historic moment for that country, as it has been stuck in that condition for about 15 years. Deflation has defined Japan’s economy, with an entire business model that now assumes that prices will continue to fall year after year.

According to the Japanese Ministry of Statistics, general prices in Japan fell 1% between 2007 and 2012. Furthermore, they have increased every month this year. So there has been some movement in the price, with very little net difference.

However, for investors, it is more interesting to look at deflation not for the whole country, but by different categories, such as by industry. According to the same Ministry, in general the things that households buy fell by 15.1% between 2000 and 2009 (the disaggregated statistics for 2010 have not yet been published).

But this decline in the total number masks several undercurrents that are interesting to investors. While nondiscretionary items obviously held up better in price, discretionary prices fell sharply.

For example, alcoholic beverages and tobacco were 6% more expensive in 2009 than nine years earlier, while recreational and cultural products were 57.3% cheaper.

Clearly, the effect of deflation has been uneven, with nondiscretionary elements having suffered the brunt of price declines and some other categories experiencing inflation. An interesting part of the statistics is that while in a normal depression the demand for alcohol increases, alcohol consumption in Japan has fallen over the last decade. Furthermore, contrary to popular belief, healthcare prices have remained relatively stable, increasing by only 4% during that period.

Furthermore, it is commonly believed that the decline in the child population will lead to a collapse in demand for schools. While this is true to some extent, what is actually happening is that schools are closing and merging, while parents are more likely to invest in their children and spend more money per child, and this is causing inflation in the education industry. and creating opportunities for investors.

Therefore, rather than treating the entire Japanese economy as a single deflationary spiral into oblivion, it is worth separating the industries to see which ones are more resilient and checking the valuations on a case-by-case basis. When other investors are not doing this, it is an opportunity to participate in the search for bargains.