Japan's taxi drivers join the fight against deflation

Posted by: Ian Rowley on December 3, 2007

Spare a thought for Tokyo’s taxi drivers. Today, they got a raise for the first time in a decade. As of this morning, the minimum fare to take a taxi in Tokyo went up from 660 yen (about $6) to 710 yen. Include additional increases in distance-related charges after the flag fare, and the rise averages out at about 7%.

The old fares might not sound cheap to foreign visitors, but it’s long overdue for Tokyo’s white-gloved cabbies. The last rise, from 650 yen to 660 yen was in April 1997 and that was passing on a rise in consumption tax. Making matters worse, following deregulation in 2002 the number of drivers rose sharply as thousands of “restructured” salarymen took to driving to make ends meet. While that made it easier for Tokyoites to get a taxi late at night, increased competition for customers also pushed down average driver earnings.

But what, if anything, does today’s rise mean for Japan’s long-running battle with deflation? The stated rationale for the fare rises, approved by the Ministry of Land, Infrastructure and Transport last month, is to improve working conditions for hard-pressed taxi drivers. Yet the rise could make life a bit easier for the Bank of Japan, which is keen to raise base interest rates as soon as conditions permit. (At 0.5%, Japan’s interest rate is the lowest in the developed world.)

Even without the fare increase, there are some signs that mild inflation is returning. On Friday, the Internal Affairs Ministry said that the consumer price index for October rose 0.1% on the year. Hardly spectacular, but it was first positive number in 10 months. Next month, as higher food and oil prices feed through, some economists expect the cpi to rise to 0.3%-0.4% and possibly 0.7% by next March. And while the taxi fares rises alone are unlikely to move the cpi (they account for just 0.2% of the basket of goods) it could have an indirect impact in the shape of people’s expectations of inflation—particularly as cost of other key items such as noodles and gasoline are also on the rise. On the other hand, so far, there are few signs of rising wages. In the year to September, salaried workers saw average pay dip 0.6%, despite low unemployment.

Still, after ten years without a rise, who’d begrudge the taxi drivers a little extra?

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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