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Government: Some Price Differences Narrow Between Japan and Other Countries

July 23, 1990

TOKYO (AP) _ Some of the sharp differences between prices in Japan and other countries have vanished, although more competition and deregulation are needed to narrow the gap further, a government report said Monday.

The Economic Planning Agency’s report on prices also offered little hope for change in the amounts Japanese pay for utilities such as gas and electricity.

Those charges were from 10 percent to more than 100 percent higher than the prices paid by consumers in the United States and Western European countries.

The report said the weakening of the yen in foreign exchange during the past year and lower yen prices in Japan had erased the price differential between Japan and its Western trading partners in international air fares, international telephone calls and exported Japanese manufactured goods.

That’s good news for foreign companies that complain about communications prices inflating the cost of doing business in Japan. However, they get no relief in Japanese rents and land prices, which are the world’s highest.

For Japanese consumers, relief is yet to come in the prices of imported goods, many foods, energy and other areas, although they do not have to worry about inflation sending prices even higher. The rise in the consumer price index has been 3 percent or less since 1982.

Prices are lower than overseas in such areas as photo printing, dry cleaning and facial tissues, the report said. Dry cleaning, for example, showed New York at 105 on a price scale where Tokyo equaled 100. Hamburg was at 147, London 138 and Paris 166.

Price differentials were one of many areas covered in the recent U.S.-Japan negotiations on structural barriers to trade. Japan said it would try to reduce price differentials where possible and the Economic Planning Agency report surveyed some of the recent developments in that area.

It attributed some price drops in Japan to market pressures that followed the increase in the yen’s value starting in 1985. That increase made prices in Japan - already high - even higher when quoted in U.S. dollars.

But, the market mechanism ″does not work sufficiently if there are regulations that hinder competition or if there are obstacles in the distribution process,″ the report said.

It said ″regulations should be relaxed and the Antimonopoly Act should be strictly implemented.″ Both measures were important U.S. demands in the trade talks, which ended in June.

Yoshiro Tokunaga, director of the agency’s Price Research Divison, told reporters that high utility prices were due mostly to high infrastructure costs and the need to build more power plants to cover peak electricity demands in the summer.

Regarding air fares, the report said in September 1988 a traveler in the United States, Britain or France buying a ticket to Tokyo paid only 74 percent to 82 percent of the price that a ticket on the same route cost if bought in Tokyo. But early this month the traveler outside Japan was paying 109 percent to 125 percent of the Tokyo-bought fare.

The report attributed the reversal to the gradual lowering of yen-based air fares under market pressure, and to the weakening of the yen, from 134 to the dollar in September 1988 to 153 in early July. The yen recently has strengthened somewhat and closed at 148.50 against the dollar on Monday.

The Japanese consumer suffers from high prices on imported goods, the report said. American goods sell for 30 percent to 40 percent more in Japan than in other countries, and European goods were 30 percent to 50 percent higher than in their countries of origin and 20 percent higher than in the United States.

The report blamed the difference partly on foreign companies’ strategy of charging high prices because Japanese consumers want prestige brand names at almost any cost. Also responsible were costs of adapting foreign products to Japanese standards, high land and labor costs and the practice of sole import agents imposing standard prices, it said.

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