Mobile war threatens Japanese economy

TORU YAMANAKA/AFP/Getty Images In most cases, price cuts on consumer products are a good thing—a sign of healthy competition in the market or innovation creating bargains on more dated products. Not so in Japan. The Financial Times reports that a “price war” in Japan between mobile phone service providers furiously competing to undercut each others’ ...

598840_JapaneseCellPhones5.jpg
598840_JapaneseCellPhones5.jpg

TORU YAMANAKA/AFP/Getty Images

In most cases, price cuts on consumer products are a good thing—a sign of healthy competition in the market or innovation creating bargains on more dated products. Not so in Japan. The Financial Times reports that a "price war" in Japan between mobile phone service providers furiously competing to undercut each others' prices, and aimed at the country's 100 million cellphone users, could have a major impact on the country's general economic well-being, possibly contracting the economy. A key indicator of the country's economic health, the core consumer price index (CPI), could be slashed by as much as 0.6 percentage points as a direct result of the mobile phone war, extending the country's 7-month stretch of deflation. To put that in perspective, compare that 0.6 drop to the 0.1 drop in the United States' CPI in August (that included all goods) when the subprime mortgage market collapsed. 

Just a week ago, economy minister Hiroko Ota made assurances that Japan's economic recovery was on track, declaring that "Although the consumer price index remain[s] in negative territory, there is not much change in price conditions and an exit from deflation is in sight." But if the effect of mobile phone rates really does meet these dire predictions, I'm not convinced. In what could be Japan's eighth straight month of falling prices, Japanese consumers may soon be wishing for a little less cutthroat competition and a return to a normal, healthy economy. Although they may be getting some killer cuts to their phone bills, it's hardly something to be excited about if it ultimately means that the rest of the economy might go under.

TORU YAMANAKA/AFP/Getty Images

In most cases, price cuts on consumer products are a good thing—a sign of healthy competition in the market or innovation creating bargains on more dated products. Not so in Japan. The Financial Times reports that a “price war” in Japan between mobile phone service providers furiously competing to undercut each others’ prices, and aimed at the country’s 100 million cellphone users, could have a major impact on the country’s general economic well-being, possibly contracting the economy. A key indicator of the country’s economic health, the core consumer price index (CPI), could be slashed by as much as 0.6 percentage points as a direct result of the mobile phone war, extending the country’s 7-month stretch of deflation. To put that in perspective, compare that 0.6 drop to the 0.1 drop in the United States’ CPI in August (that included all goods) when the subprime mortgage market collapsed. 

Just a week ago, economy minister Hiroko Ota made assurances that Japan’s economic recovery was on track, declaring that “Although the consumer price index remain[s] in negative territory, there is not much change in price conditions and an exit from deflation is in sight.” But if the effect of mobile phone rates really does meet these dire predictions, I’m not convinced. In what could be Japan’s eighth straight month of falling prices, Japanese consumers may soon be wishing for a little less cutthroat competition and a return to a normal, healthy economy. Although they may be getting some killer cuts to their phone bills, it’s hardly something to be excited about if it ultimately means that the rest of the economy might go under.

Prerna Mankad is a researcher at Foreign Policy.

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