Taxi Driver Online

'Number of taxis increased, as customers fell'

Though the bursting of the stock and property bubble almost 20 years ago marked its dramatic opening, the growth-sapping villain of the piece in Japan's "lost decade" was far more insipid: deflation.

For about eight years from the late 1990s, Japan was trapped in a deflationary spiral. For consumers the logic was simple: why buy today something you can pick up cheaper tomorrow?

Japan clawed its way out of its recurring cycle of recession, but stagflation persists, consumer spending remains weak, and the trauma of near meltdown is still fresh in the national psyche.

Not every one suffered, though: deflation ushered in an era of cheap malt-based alcohol, compact cars and 100-yen shops. Retirees found the real value of their savings rise although they sat in accounts with ultra-low interest rates. The Bank of Japan's governor at the time, Masaru Hayami, talked enthusiastically about "good deflation" spurred by competition to provide goods and services on the cheap. But for most Japanese, eight years of deflationary ensnarement was anything but good.

Workers accustomed to pay rises and twice-yearly bonuses worried about the size of their wage packets, and whether they would soon have jobs to go to at all. Consumers squirreled away cash for fear of what the future had in store. By the late 1990s they were trapped, and they would remain so until the then finance minister, Koji Omi, declared deflation at an end in October 2006.

Perhaps the most worrying aspect of Japan's deflationary era was that it continued even after interest rates dropped to near zero in 2001 as the Bank of Japan flooded banks with excess liquidity.

By the turn of the millennium, what had recently been a nation of investors and copious consumers was now one of spendthrifts. Among the most visible victims were the nation's taxi drivers.

"The number of taxis increased dramatically, but the number of customers was falling," says Katsumi Sugihara, a taxi driver in the Tokyo suburbs.

She says the warning signs have returned. "Companies have stopped handing out books of taxi tickets to their employees because they're cutting down on corporate entertainment. That means we have to rely on private fares, and one of the first luxuries people dispense with in hard times is a taxi ride home from work."

Yesterday the OECD forecast deflation would return to Japan next year. Wholesale inflation dropped to 4.8% in October from 6.8% a month earlier, through a combination of a strong yen, falling commodity prices and lower shipping costs. The economy shrank at its fastest pace in seven years in the three months to June, and the figures for the latest quarter, due on Monday, are expected to show only minuscule growth - an ominous sign for domestic consumption, which accounts for 90% of Japan's GDP.

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George Carlin