Why are prices so high in Japan?

Perhaps their distribution system is partly to blame.

The Bulky, Rigged Distribution System
(Or: Do you really need 3 people to
wrap your hamburger?)

For a business to succeed in Japan, it needs at least 2 essential things. One of course is capital. The other, however, is control of the distribution channels, and this is where many foreign firms fall short.

Japan's distribution system is a complex maze and their are thousands of regulations to follow. This system is currently strangling the domestic economy. After WWII, Japan had millions of people who needed work fast. So a system was made that employed lots of workers, though many of the jobs were (and still are)redundant. Also there are often several wholesalers sitting between the producer and retailer, each taking their cut. This is one of the principal reasons why just sending the value of the dollar through the floorboards didn't work. From Sept. '85 the value of the dollar vs. the yen fell by more than half. Yet products in Japan made from imported parts/ingredients didn't budge. The real reason was that the middlemen were eating up nearly all the savings. When the dollar hit 100 yen, the Japanese booksellers still used the old 175 yen/dollar rate, and didn't pass any savings on to the consumers. (You'd be wise to buy whatever books you want in Japan before you come, since the very same books in Japan will cost 2 or 3 times more). In 2000 Merill Lynch economist Jesper Koll noted that Japan has 392,000 wholesalers -- a staggering number. Yet two-thirds of them just sold things to eachother and not retailers or producers, and four-fifths of Japanese wholesalers have less than 10 employees each.

Distribution channels in Japan are extremely exclusive -- usually an arrangement to carry your goods also means only your goods and no competitors. Then they have to fight it out with eachother for the store owners to carry their products on the best shelves; space being extremely limited. For decades Japanese people were told (and they accepted) the notion that higher prices were necessary to keep the whole nation employed--and Japan has had the lowest unemployment rates in the industrialized world. Also with land prices so high storage costs are also wildly expensive, and with Japan's narrow, poky streets large and cheaper distribution is impossible. Docking fees for ships and planes is also insanely high, and it can cost more to ship something across Tokyo than to ship it across the world. High gasoline taxes and expensive electricity also make transport more expensive. In many ways Japan's distribution system makes up the largest Non-Tariff Barrier (NTB).

So it looks like we could cure deflation and increase employment by creating a hugely ineffective distribution system.