INcite: Hooters busts myth that deflation is temporary

Japan's newest sensation is one of the world's oldest: scantily clad women serving cheap booze. Yes, Hooters Inc. has made its way to Tokyo. Normally when hundreds of Japanese men huddle in line it's for a new iPhone or video game. These days, it's to be served beer and chicken wings by waitresses in white tank tops and orange short-shorts. The American chain is gaining popularity in Japan. It's also an unlikely sign that deflation will be with Japan for a long, long time. Anyone who still thinks falling prices are a cyclical phenomenon isn't looking closely. It's secular, and the sudden ubiquity of discount outfits shows how Japanese consumption has become a race to the bottom of the pricing spectrum. Japan used to be an automated-teller machine for brands like Prada, Gucci and Louis Vuitton. Women thought little of plopping down $2,000 for the latest fashions from Milan and Paris. Men didn't blink at paying $200 for a tie. That's all fashion-industry history now. Sliding wages and rising job insecurity brought budget-shopping into vogue. No matter how much yen the Bank of Japan pumps into the economy, deflation deepens. It's all about confidence, of which there is virtually none. Companies don't trust that growth will return and so they avoid investing and hiring and trim salaries. Households fret about the future. Sclerotic Politics Japan's sclerotic politics are a key part of the problem. Dealing with a new prime minister every eight months or so doesn't instill hope. Politicians who spend more time debating how to raise taxes than protecting living standards don't help, either. It's telling that the hottest company in Japan is a bargain clothier. In fact, Fast Retailing Co.'s Uniqlo chain was the only Japanese name in Fast Company magazine's 2010 story about the world's most innovative companies. That's quite a comedown for a nation famed for the Walkman and other world-changing technologies. Its headline-grabbing exports these days are bargain-price T-shirts and underwear made in China. The buzz that used to surround Chanel Inc. and Dolce & Gabbana stores has shifted to far less swanky ones: Inditex SA's Zara, Hennes & Mauritz AB's H&M brands, Forever 21 Inc. and Gap Inc. Sweden's Ikea is all the rage. And throughout the nation of 126 million, 100 yen shops, Japan's answer to $1 stores, are doing brisk business. Bubble Years It's all a far cry from the bubble years when fat expense accounts and surging wages supported a thriving entertainment industry. A group of businessmen could easily drop $2,000 at a hostess club in Ginza, Akasaka or Roppongi. The gloom of the 1990s and deflation of the 2000s dented Japan's so-called water trade in a way few could have imagined in the 1980s. Hooters is the latest step of this trend. Getting households to spend more of the roughly $15 trillion of savings sitting under tatami mats is the key to ending deflation. That's not going to happen with workers increasingly referring to themselves as “precariats” -- a word combining precarious and proletariat. “With a growing precariat and a younger generation who are more inclined to save than splurge, second-tier retailers definitely feel they have a niche to fill here,” Jeff Kingston, author of the recently published “Contemporary Japan,” said. “There does seem to be room for the next wave that can cash in on the foreign cache while also appealing to frugality.” Social Changes Hooters's expansion brought it to China, the Philippines, Singapore, South Korea and Taiwan ahead of Japan. Deflation may explain why. It delivered businessmen to a place where 680 yen ($8.40) beers and 780 yen chicken wings at orange counters are preferable to leather sofas and single-malt scotch. Kingston's book brims with insights about how that happened. It explores the social changes that swept Japan since the 1980s, and not always for the better. Quietly, shifts in the underlying dynamics of Japan Inc. undermined households' sense of security and caused greater disparities in a society that once viewed itself as egalitarian. Among the most troubling side effects is a slumping birthrate. Japan's waning stature is manifesting itself geopolitically. China surpassed Japan as the world's second-largest economy in the second quarter. Spats since then show how little time officials in Beijing seem to have for their peers in Tokyo. A dispute over a fishing-boat captain in September drew a tantrum from China. Japan quickly backed down. Dissing Japan Russia got into the dissing-Japan act this week. President Dmitry Medvedev visited disputed islands claimed by both countries, prompting Japan to recall its ambassador to Russia. All we need now is a row with India to complete the Asian-giant trifecta. Yet Japan's main focus has to be shoring up its flat-lining economy. It's easier said than done with public debt at 200 percent of gross domestic product, interest rates at zero and the yen rising. Deflation is deepening because no one believes it will be defeated over the next several years. That mindset has morphed the once free-spending Japanese into yen-pinchers. It also has many a politician, corporate executive and investor needing a drink. Perhaps even at Hooters. (William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)