NYT on Japan’s deflation: “Japan, Once Dynamic, Is Disheartened by Decline”


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Hi Blog. In yesterday’s blog entry, Doug gave us a comment referencing a NYT article on the effects of a long recession, deflation, and overall economic slippage in world rankings on Japanese society. The bit that resonated with me came at the very end:

Japan, Once Dynamic, Is Disheartened by Decline
Published in the New York Times October 16, 2010

…Deflation has also affected businesspeople by forcing them to invent new ways to survive in an economy where prices and profits only go down, not up.

Yoshinori Kaiami was a real estate agent in Osaka, where, like the rest of Japan, land prices have been falling for most of the past 19 years. Mr. Kaiami said business was tough. There were few buyers in a market that was virtually guaranteed to produce losses, and few sellers, because most homeowners were saddled with loans that were worth more than their homes.

Some years ago, he came up with an idea to break the gridlock. He created a company that guides homeowners through an elaborate legal subterfuge in which they erase the original loan by declaring personal bankruptcy, but continue to live in their home by “selling” it to a relative, who takes out a smaller loan to pay its greatly reduced price.

“If we only had inflation again, this sort of business would not be necessary,” said Mr. Kaiami, referring to the rising prices that are the opposite of deflation. “I feel like I’ve been waiting for 20 years for inflation to come back.”

One of his customers was Masato, the small-business owner, who sold his four-bedroom condo to a relative for about $185,000, 15 years after buying it for a bit more than $500,000. He said he was still deliberating about whether to expunge the $110,000 he still owed his bank by declaring personal bankruptcy.

Economists said one reason deflation became self-perpetuating was that it pushed companies and people like Masato to survive by cutting costs and selling what they already owned, instead of buying new goods or investing.

“Deflation destroys the risk-taking that capitalist economies need in order to grow,” said Shumpei Takemori, an economist at Keio University in Tokyo. “Creative destruction is replaced with what is just destructive destruction.”

Whole article at:

COMMENT:  The homey explanation of complex economics aside (which few can comment on with certainty due to the unusualness of a deflationary economy), the reason why this passage resonated with me:

As a friend of mine’s brother (who works for a major US insurance company) said to me the other night, I am “upside down” in terms of my house loan.

I recently had my house (a 49.5-tsubo structure on 169 tsubo of land), purchased in 1997, appraised. Under current market prices, I was told that I could get 65,000 yen in monthly rent should I ever try to rent it out.

However, I am paying around 115,000 yen PER MONTH in terms of mortgage, plus three months of rent out of my Bonus twice a year. Not to mention property taxes per annum of about 102,000 yen (down slightly from two years ago), and some insurance of about 60,000 yen per year. All told under current exchange rates, I have to make more than USD 25,000 per year just to feed the home front.

And if heaven forfend I were to sell the house, the market for second-hand homes is such that the house itself is basically worthless. Essentially only the land is worth something. The plot was purchased for 12,000,000 yen back in ’97. The next-door plot, of equal size and back then of equal price, is now being signposted as going for 4,500,000 yen. Event then, the plot is still unsold. So I don’t fancy my chances for recouping much of anything should I try to unload my property.  Then I would still be saddled with a vestigial loan balance with nothing to gain from it.

Of course, it was understood back then when I bought the house that it was not an investment in terms of money, but rather a chance for me to carve out a world of my own design within Japan — with a house designed to my family’s specifications with enough space to grow and be comfortable.  A place of our own.  With a lawn to cut.

It was meant to be a “Happily Ever After” scenario.  But then again few of those fairy-tale scenarios withstand the Test of Time.  I didn’t count on my asking for a divorce, on no longer living under that roof,  or on my salary going down by about a quarter as the loan premiums went up.  As frequent readers of Debito.org know, my ex and kids are still living there (I didn’t want to boot my kids out of the house they were growing up in) and I’m covering everything except utilities.  Hence my “Upside Down Mortgage” is going from financial Albatross to increasingly unsustainable.  Something’s gotta give, sooner or later.  I just hope it won’t be personal bankruptcy.

As one of Debito.org’s goals is to cover the life of one person living in Japan as a form of case study (so people can avoid and learn from my mistakes), I’ll keep you advised someday on what happens next.

When I came to Japan I said I wanted to live like other Japanese.  According to the NYT article above, it seems I’m doing just that.  Arudou Debito

14 comments on “NYT on Japan’s deflation: “Japan, Once Dynamic, Is Disheartened by Decline”

  • Mattholomew III, Esquire says:

    Good grief… I was just reading an article about how bad life in France is for a girl with a graduate degree teaching English over there:


    She’s jumping ship. I’m here in the U.S. and struggling to find work after a long bout with unemployment. And you, well, you’re in some deep shinola yourself, what with the racism, house, and Japanese economy all tied around your gaijin neck (which is very different from Japanese necks I’m told).

    It seems like the whole world has a case of the Mondays.

  • Did you happen to see the 45 predictions by Douglas Coupland? I think these trends are being seen all over the developed world, not just in Japan.

    If you had stayed in the US, all other things being equal, you would likely have found yourself in a similar situation. My job involves a lot of studying the US residential mortgage industry, and these very issues are HUGE problems all over America — with the added pressure of no layoff protections in most states and industries, so many people can’t pay their mortgage at all — and with the added pressure that non-compliance with family court orders can land Americans in jail.

    Your bank should be thanking you profusely. There are many borrowers in your shoes who would cut and run and hope that the bank didn’t miss 50-75% of the funded value of the house. People like you are keeping the financial industry alive, inasmuch as it can be said to be alive at the moment.

    I think there will be many more personal bankruptcies in Japan going forward, and that the social stigma associated with the process will gradually go away. And yes, the suburbs are screwed in the long term. Be grateful that your generation could enjoy them at all.

  • I personally can not fathom why owning a home in Japan is not considered the “best investment” a person could make like it is in many other places in the world. I don’t understand why a plot of land + a home on it ≠ (that’s a “doesn’t equal” sign if it doesn’t display) better value or increasing value for the property. OK, there is the “tear down” mentality of Japan’s real estate business, but perhaps there’s just plain old demand. I don’t hear a lot of my Japanese friends around my age and younger talking about wanting to buy a home. The “my home” dream has become the purchase of a overpriced high rise condo, not a single family home on a plot of land. Perhaps if Japanese put more value into the home on top of the land it’s built on (and this could be the renovated home market which I hear has some legs), then maybe property values would climb instead of decline.
    As it is, however, home ownership in Japan is full of sad stories like the one above and the NYT article and has been so for quite a while.

    — People here (particularly J wives) want a new home, not something second-hand somebody else has designed/used/touched. Hence all the pressure to tear down and rebuild. Look how long it took just to get people to accept a resale value of goods from second-hand or recycle shops. The move to recycle hasn’t reached the housing market as far as I can see, and that’s just fine with the scammy housebuilding companies.

  • If you thought being upside down (or underwater) on your mortgage was bad, look at the mess with not even knowing who is holding the note in the US. With that, even if you could find a buyer and deal with the part that remains to be paid above the proceeds of the sale, perhaps you still cannot do the transaction because the buyer might not be able to get title insurance if you can’t prove the title is clear.

    Japan has just been leading the way… bubble finance. But this new messy business in the US seems to be the first that’s hitting the fan.

  • Jjobseeker:

    There is also the “earthquake” mental block too.

    House in the Edo era famously burning down from earthquakes, these memories still lingers on. The house maker companies are keen to ‘cash in’ on this. So they build and with their local helpful politician (in back pocket) create laws that basically encourages one to knock down the house and start a fresh….thereby making the houses from crap materials with crap workmanship. Feeding on the earthquake mentality… it’ll fall down anyway…why invest in it?

    So vast sums of money are spent on the ‘image’ of inside, yet the real “brick n mortar” and hence foundations are ignored, as can’t be seen too. You must buy the lot from one company…cherry picking ain’t allowed!

    Houses in the most earthquake rock zone in the world, Chile, they build from brick…yes brick, and steel. Their latest round of new houses built on their research of quakes, all survived the latest mega quake earlier this year.

    Does Japan build houses from brick, nope.

    It is banned!…anything over 1.5m as a load bearing structure is not allowed (tis in Kansai). Hence nice cheap crappy houses continues and the mentality of houses falling down and burning continues and so on….

    The only house maker that comes close is Asahi Kasai. But again very limited in what they can do with the “hebel” product. In NZ, another quake zone, they use Hebel successfully everywhere, built like real houses….not allowed in Japan!

    Debito touches on one aspect , but in my experience this is a minor aspect and a result of the aforementioned above. You also have to look at the capital gains tax, shocking!….50%!!!!…for houses. The whole tax structure for land/houses is a mess and corrupt too.

    However, in this gloomy economic client I suspect there will be less house selling/buying, making it even worse. Thus, there is no decent second hand market for buying a bargin and ‘doing it up’ too.

    All this Govt needs to do, is provide grants serious money grants (rather than pissing it away in failed companies like JAL or building their 100th airport) for those in older houses to rebuild into decent life long places…as well as grants for proper heating/insulation etc…all this occurred in Europe in the 60~70s, all this and more helped to stimulate the local economy too. But this of course means competition, real competition and allowing your ‘bloke down the road’ to compete properly and fairly against these large cartel companies. Oh yeah and tearing down existing laws/rules, setting up independent authorities for checking quality and qualifications of those entrusted to do the work and licences for build etc….which all these currently feed the Politicians new holidays and car etc rather than the new independent authorities/companies and inspectors…thus, wont see that over night!

    I could rant about houses for ever…but I wont, it’ll take over the thread. But I’ve learnt a lot here (things no one will tell you…not even the Japanese buyers know this), and the hard way, loosing a small fortune and going to court, but with Pyrrhic victories.

  • jobseeker also has to realize the structural problems with the Japanese housing market and the catch 22 situation of “resale value”
    1. can you get a mortgage to buy a home older than 20 years old yes or no. or is the mortgage only on the land. without ‘financing’ little of a resale value can develop and without ‘resale value’ banks really do not want to lend.
    2. At least in Hokkaido there is a sort of ‘improvement tax’ that is in place for maybe 20 years on the life of a building. That is the municipal gov’t can no longer collect after the house or so is older than 20 years….why would they want to facilitate property resale if the tax base would continue to shrink. They would like us all to rebuild every 20 years..
    3. It appears to be mendokusai to actively identify the bottom 5-10 % of the housing stock. and encourage those properties to go on the market so they can be torn down for new housing. As it is, it is more convenient for someone to tear down their own 25 year old house and rebuild on that same lot rather than somehow purchase the 50 year old derelict house and land 100 meters away to tear down and rebuild. Somehow it is too much trouble to sell or rent their 25 year old house. In the cities there is enough demand to rebuild most ‘derelict buildings’ in the countryside they just sit until they fall down. For those of us in rural Japan this makes our communities look more decrepit than they need be: imo further discouraging investment here.
    4. Debito from my experience the blame for the housing problem lies mainly in the civil service: they are to blame for the regulatory costs, (list the wattage of the lights you are installing in each room, the overly complex building code, the fact that building inspectors rarely if ever leave their offices, the codes that favor not safety or quality but the building materials of a single company, for the fossilization of design, the organization of subtrades into ‘kumiais’ that set the prices for the subtrades work, and disallow the amateur(d-i-yourselfer)…and for the tax structure that discriminates against basements and well designed foundations.
    5. In my opinion there are a lot of people in Japan who know they will never be able to afford a new home but would be willing to purchase up if the financing and regulatory procedures were less cumbersome. Also there are older people living in close to ‘condemnable’ housing that again would be better off if somehow they could move into marginally better, and more energy efficient houses.

  • Mattholomew III, Esquire says:

    John K, do you have a website or some place where you have shared your knowledge on housing in Japan? Your post is pretty interesting, and although I have no interest in moving there and buying a house, I think a lot of people might appreciate any wisdom you’d be willing to share.

  • James
    ref: #1.
    Simple answer, no.
    The banks only value the land, not the house, for all the aforementioned reasons. I bought my land with cash, had some left, but needed a big mortgage to build the house, as it was bare land. I was not allowed to borrow more than the value of the land, unless we could show some other source of capital or alter part of the payments etc.

    Mattholomew III:
    I have thought of setting up a website, but hasn’t gone beyond the thought. I keep meaning to write an article for several magazines here locally too, to explain the pit falls and con’s one comes across. And the court proceedings I had to go through in order to get my money bank from blatantly lying and cheating estate agents. (My court case has no apparently become very well known in legal circles in Japan).

    So, in the absence of that i offer advice when requested either via this or my own personal email (which Debito can and has provided in the past), on buying/selling houses in Japan.

    Here is one very simple example of that i’ve noted above is this:

    I am a professional qualified engineer in my specialised field. With one housing company we approached I wanted to increase the thermal value of the insulation material they install in the house. The density (which is the quick measure of its applicability) that they sue here is 10kg/m3. This is shocklingly low. It should be around 40kg/m3 as a minimum. I told the house company I wanted to increase to 40kg/m3. ..the reply, can’t do….er…why not….reply, there isn’t any. (I use insulation varying from 40~120kg/m3 in field of work). I also enquired about using a different product, from another company which was better….reply, I can’t do.

    The housing regulations are built, quiet literally, around one supplier and one product. Anything which is not supplied by the insulation company and at the rated value is not acceptable, unless you wish to pay for all the approvals to be used, if indeed it is ever acceptable. I saw the housing law, it was stated very clearly the name of product and insulation value to be used.

    This is just the tip of the iceberg in terms of the “back hand deals” that are done to ensure said politicians guarantee of being re-elected owing to “helping” said company being written into the rule book!

    I could cite more, but again, I wont as it’ll take over the thread. But no one will give you the hard core facts that you need here in Japan, only bitter experience.

    — If you would like to kickstart a brand new thread on housebuilding chicanery, please write something up (under whatever authorship you prefer) and I’ll put it up as a separate blog entry.

  • Debito, [I wonder] who will be the first person to coin “jingle mail” in katakana (ジングル メール). In America, this is the term given to when people just return the keys to the house.

    It sounds like there is no concept of mortgage lien in Japan, if the borrower can just sell the house to the relative and remain unsecured on the mortgage debt. That is what people are trying to do when they fight the foreclosures back in the States, but it’s very hard to get away with.

  • Giant Panda says:

    It seems that it is only in the U.S. that you can hand the house keys to the bank and walk away from your mortgage. In Japan, you can never escape the debt. Even if the bank takes possession and sells the property, you will still be on the hook for any shortfall. I don’t know how anyone (except the big construction companies) makes any money out of real estate in Japan, as it seems everyone involved in the transaction is lining up to gouge the buyer (and the seller) for everything they can. I thought I would get a break tax-wise by claiming a deduction on my mortgage payments, only to have the ward office send me a note advising me that because I was claiming this deduction, I was not paying enough residence tax, and they had instituted a “special” tax on top of all my other taxes, just to make sure that I wouldn’t get any advantage whatsoever.

  • Sorry to go off topic here but I think it is necessary to correct some technical information mentioned above. While John K probably has some good points (His experience in the Japanese housing industry is different to mine and admittedly sounds deeper) his comments on brick / hebel are misleading.

    “Does Japan build houses from brick, nope.

    It is banned!…anything over 1.5m as a load bearing structure is not allowed (tis in Kansai).”

    I am glad of this. It should not be a load bearing structure as it is brittle and weak in tension or with respect to bending moments (both of which you will get with earthquakes). For this reason brick walls should not be load bearing walls and I don’t personally know of anywhere where they are.

    In Australia and New Zealand, brick houses are the most common form of construction. Inside the brick wall is a wooden or steel frame which is the load bearing structure. The brick wall is tied back to this in numerous places to ensure its stability. The brick is essentially a shell on the outside (in the US and Japan they have a similar internal frame but normally use siding or other panelized products to provide the shell – this is both an issue of preference and cost). In Asia it is common to use brick as well but this is normally done with a reinforced concrete frame and then filling in the open sections of the frame with bricks i.e. they are fill but the frame is the load bearing structure.

    “Chile, they build from brick…yes brick, and steel. ” I admit I don’t know construction methods in Chile but almost certainly the steel (very good for earthquake resistance) is used for the structural components and the bricks for the shell.

    “But again very limited in what they can do with the “hebel” product. In NZ, another quake zone, they use Hebel successfully everywhere, built like real houses….not allowed in Japan!” I don’t know what “built like real houses” means but having built with hebel in Australia it is not allowed as a structural item there either. “Hebel” is a brand name for blown concrete, where the concrete is filled with small bubbles to reduce the weight and also improves the insulation. It has no reinforcing in it and again is not strong in tension or for bending moments. It is typically installed on the outside of a wooden or steel frame, the method also used for hebel in Japan.

  • David B

    I don’t want to digress, nor get overly technical (I don’t wish to hijack the thread), as such my phrasing was perhaps too “loose”, not thinking before I wrote too quickly. If misleading, my apologies for writing in haste, i had other work on my mind at the time.

    By this I meant if the appearance is even of a load bearing wall, ie it is just ‘cladding’. I can clad with plasterboard, why not brink…not allowed, whether the brick wall is designed to be pure cladding or not.

    Agreed small bricks are not ideal. But can be done under the right methods.

    Built like real houses. That means a standard 2 leaf system. There is an outer wall, then an air gap or cavity, then an inner wall. All houses in Japan have single leaf, that is the inner and outer walls are one and the same, when built in brick. Sometimes called cavity walls system:

    In Australia, seems to be called “full brick”

    When building in wood, this is called triple leaf:

    In Chile, they use steel and also steel reinforced concrete. The reason why steel reinforced concrete is not used widely in Japan, so I have been told, is that it is too expensive, thus only large office blocks etc are built this way. This method of build has been proven to be excellent at earth quake resistance. Even Japanese reaecah have proven this to be the case, hence Asahi Kasai use this method. My house is made with steel reinforced concrete for the foundations, but nowhere else…too expensive I’m told. (If all houses were made with this as a minimum standard it wouldn’t be expensive!!) The rest is just cladding over a steel frame. The cladding is Hebel, but could just as easily be brick…but not allowed.

    As for Hebel, correct is just aerated concrete. It comes in brick form too…this brick form is also not allowed in Japan, only the large cladding type.

    I asked if I could have double leaf, ie a cavity, nope, not allowed! The outer wall being even more “cladding”, but nope their method of approvals does not allow for anything other than what is written in black and white…thus stuffing any competition and innovation. Thus could not have “built like a real house”. My garden shed in the UK was built much better than many of the houses here, I’m not exaggerating either!


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