Japan's Productivity through the Lens of “Cheap Japan”

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Historically, Japan was recognized as an expensive country, and the issue of the domestic–foreign price gap was subject to extensive discussion. However, in recent years, Japan has earned the reputation of “cheap Japan”, with prices no longer consistently ranking high among developed nations. It is often pointed out that the relative lack of productivity growth and the decline in innovation in Japan may be contributing to this trend. This paper aims to empirically examine higher or lower price levels in Japan relative to foreign countries. Based on this analysis, this work systematically investigates the structural factors behind the “cheap Japan” phenomenon by exploring the relationship between the real exchange rate—reflecting the disparity between domestic and foreign prices—and productivity, utilizing the Balassa–Samuelson hypothesis.


I. Introduction
II. Current Status of “Cheap Japan”
1. Comparison by Big Mac Index
2. Comparison of Total Prices Using OECD Purchasing Power Parity (PPP) Exchange Rates
III. The Relationship Between the Real Exchange Rate and Productivity: The Balassa-Samuelson Hypothesis
1. Balassa-Samuelson Hypothesis
2. Data Verification
3. Implications for Japan
IV. Conclusion
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