disclaimer: this post is written from the perspective of a resident of San Francisco working in high tech

My friends are always shocked when I claim that Tokyo is a very affordable city to live in.

How could this be, they ask. Tokyo has, in their minds, always been one of the most expensive cities in the world to live in.

There are a handful of factors at play:

  1. Inflation and Deflation

    The idea of Tokyo as an expensive city was cemented in our minds during the 90's, when it was indeed one of the most expensive cities in the world to live in. But Japan has spent the last 20 years in a deflationary environment where asset prices have largely remained stagnant.

    Contrast that with the West where inflationary policy has lead to a steep increase in prices throughout the economy. This is most acute in San Francisco, where real estate expenses continue to skyrocket, health care costs continue to rise, and college tuition increases know no bounds.

    Yes, Tokyo is still an expensive place to live compared to most of the world. But living expenses in the pockets of the West where we live in as tech workers has dramatically increased to the point where Tokyo is now an attractive option.

  2. Food

    It's easy to eat out and get cheap, healthy, good food in Tokyo for about $10. The equivalent in the Bay Area would cost about $20.

  3. Health Insurance

    Health Insurance is heavily subsidized by the State, and its burden is substantially lighter for Japanese residents compared to the US.

  4. Tip

    There is no tipping culture in Japan, making meals automatically 15% less expensive than in the states, all else being equal.

  5. Public Transit

    The train and bus system in Tokyo is (I believe) the finest in the world. It is on time, frequent, clean, and the riders are extremely courteous (do NOT use them during rush hour though). There is no need to ever own a car living in Tokyo (unless you're a gearhead, of course)

  6. Apartments

    A 1 bedroom in a great neighborhood in Tokyo costs roughly $2500/mo. The equivalent in SF would be about $3100~$3500. There are also options that are less than $1000/mo with great public transit access to the heart of the city.

    Of course, the caveat is that rooms in Tokyo are substantially smaller than the SF counterparts. However, (a) you get used to the smaller sizes, and (b) we often don't even have the option to pay less for a smaller room in SF.

  7. Tax

    Japan has a surprisingly low tax rate for moderate income earners. At a $60k income, the base federal income tax is roughly 15%.

    US federal income tax at the same level would be roughly 20%, with an additional 10% added on for California state income tax.

  8. Currency

    This may perhaps be a temporary phenomenon, but with the exchange rate at 120 Yen to the Dollar (it was as low as 78 Yen to the dollar in 2010), our dollars go much farther than they used to just 5 years ago.

  9. Supply Demand Arbitrage

    Japan's market dynamics are unique in that the supply side must offer much more "value" to the market than anywhere else in the world. This takes the form of quality, service, cleanliness, politeness, and many other forms. While we need to pay a premium to receive such benefits in the States (where the baseline is much lower), the default "value" provided to the consumer by the supplier is much higher in Japan. As a result, on a "per dollar" basis, our money goes much farther in Japan than in the States, provided that you are a consumer who is already paying for such benefits in the States.

    This balances out in the domestic market because each person must assume both the role of the supplier and the consumer under normal circumstances. The ordinary citizen must work comparatively more as the supplier compared to other countries, but once she is on the demand side, receives much more per dollar than her global counterparts.

    This opens up an arbitrage opportunity for people who only participate on the demand side in the Japanese domestic market, and fulfill their supply side role elsewhere (ex: a remote software or design job, or accumulated savings).

As a result, Tokyo becomes a fantastic place to live, as long as you don't have to work there.