By Hideyuki Sano

The price of a McDonald's hamburger in Japan these days is about half what it was a decade ago.
That may be good news for fast food fans, but falling prices in Japan are causing a nasty case of economic cramps, prompting calls for a dramatic monetary loosening by the central bank.
Big Macs aside, prices in Japan remain sky-high by world standards and could to fall for a long time yet, analysts say.
According to a survey by consultants William Mercer Tokyo remained the world's most expensive major city in 2001, with overall prices about 34 percent higher than those in New York.
Analysts say falling prices are not only due to a decade-long economic slump but also a slew of new factors -- including an import surge from China which is posing competition for Japanese products, from TVs to tatami mats.
China, which now produces more TVs, video tape recorders, air-conditioners, microwaves and many other household appliances than Japan, is becoming the manufacturing plant of the world, said Kazuo Mizuno, chief economist at Kokusai Securities.
"In the late 19th century, Britain suffered economic stagnation and deflation because Germany was catching up rapidly, with latest production facilities of that time."
"This is exactly what's happening in Japan and China now," Mizuno said. Imports from China, which rose more than 20 percent last year, now account for 14.5 percent of Japan's total imports, compared to just about six percent a decade ago.
In April, Japan imposed import curbs on Chinese-produced stone leeks, shiitake mushrooms and tatami rushes used for traditional Japanese mats. The imports, far cheaper than Japanese products, ignited angry protests by local farmers.
Talks between Japanese and Chinese trade officials on the lingering dispute resumed in Tokyo on Wednesday.
"In the past, imports from China were negligible. Now they aren't," said Mitsuru Saito, economist at UFJ CM Securities.
Japanese companies are also closing factories at home, and moving production to China to take advantage of cheap labour. They then import the finished product, offering it at low prices.
Fashion retailer Uniqlo, run by Fast Retailing Co <9983.T>, has had huge success producing low-priced, quality casual wear in China and selling it to newly price-conscious Japanese consumers at prices unheard of only a few years ago.

DEMOGRAPHY AND DEREGULATION
While China's emergence as an economic powerhouse is affecting economies other than Japan's, there are some other deflation factors specific to Japan, economists say.
Koichi Haji, chief economist at NLI Research Institute, said one much overlooked factor is population dynamics as Japan's baby-boomers who led a buying splurge in the 1980s begin to focus now on saving money for retirement.
Because of Japan's life-long employment system and wages based on seniority, workers' earnings tend to peak when they are in their 50s and the gap between them and other age groups tends to be larger than in other countries.
"Japanese baby-boomers are now in their 50s, trying to save money before their retirement at 60. As a result, consumption tends to be weak for now," Haji said.
The proportion of workers in their 50s is high in Japan, at about 22.5 percent of the working population, compared with 16.8 percent in the United States, and they tend to save more.
This trend is likely to continue for several years, until those baby-boomers retire, Haji said.
Deregulation is another factor tugging at prices. Local producers are now more exposed to competition from abroad, in part due to deregulation steps that had been promoted as necessary for Japan's economic revival.
"In the past...prices were too high because of regulations and lack of competition," said Saito of UFJ CM Securities.
The $2.30 Big Mac, for example, is not so much the result of a weak economy as an effort by McDonald's to capture market share in one of the world's biggest fast food markets.
Given these dynamics, the fall in the consumer price index of about one percent a year for the past two years can be seen as moderate, and in many ways inevitable, the economists said.
"Now globalisation is underway, one has to think a one percent fall in prices is relatively stable. I wouldn't call it deflation. It should be called disinflation," said Saito. ($1=121.11 Yen)