In 2008, as the global financial crisis unfolded, Richard Koo—now chief economist at Nomura Research Institute—published The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession. Yet, thanks to massive stimulus efforts, China rebounded swiftly with little lasting impact. Optimism prevailed, and for years, few in China took notice of Koo’s name—until now.
Over a decade later, Koo’s work is gaining traction in China, just as the once-obscure concept of a “balance sheet recession” enters mainstream economic discourse. According to Chinese economist Xu Xiaonian, more than half of PhD students in economics are now choosing it as their dissertation topic. Even he, someone who typically avoids trending ideas, has received a surge of inquiries about Koo’s theories.
Japan’s past, too, carries newfound significance. China shares many similarities with its neighbor, but also stark differences.
The most striking contrast? Japan has already endured its painful deleveraging process. Its so-called three “lost decades” seem to be drawing to a close. The stock market is surging, Warren Buffett has made heavy bets on Japanese trading houses, and youth unemployment is declining—signs of renewed optimism.
Yet, the scars of stagnation remain deeply embedded in Japanese society. Few young people can imagine the 1980s, when cash-flush customers scrambled to hail taxis. Today, they are accustomed to affordable Uniqlo clothing, cost-effective home furnishings, and a culture that favors restraint over individualism.
Still, even in this subdued market, opportunities emerge.
Liu Sanyong, the founder of Kagu E-commerce, understands Japan’s economic landscape well. Before launching his own company, he led Shein’s Japan operations.
Having spent 12 years studying and working in Japan, Liu earned a computer science degree from the University of Tokyo, later becoming a strategy consultant at PwC’s Strategy& unit. He has also founded two startups. Now, he is leveraging this experience to position Kagu E-commerce as the Shein of Japan’s home goods sector.
His background offers a rare perspective—both as an e-commerce expert and a Chinese entrepreneur navigating Japan’s evolving business environment.
In an interview with 36Kr, Liu shed light on Japan’s shifting consumer trends, the opportunities and challenges Chinese brands face in the Japanese market, and how the evolution of local consumer behavior is shaping new strategies for Chinese businesses expanding into Japan.
The following transcript has been edited and consolidated for brevity and clarity.
36Kr: What’s your take on Japan’s three “lost decades?”
Liu Sanyong (LS): The three “lost decades” essentially refers to Japan’s transition from a highly prosperous economy to a prolonged period of slow growth. This has intensified market competition—many companies and brands have been forced out, leaving only those with true competitive strength.
Brands like Uniqlo and Muji have not only survived but thrived in this environment. Their success comes from the competitive advantages they have built over time in areas such as business models, operational strategies, market positioning, and supply chain efficiency. By continuously investing in and expanding these advantages, they have developed highly competitive products and services that consumers find broadly appealing.
From a consumer standpoint, slow economic growth has also changed spending habits. In the past, people spent more freely. But with wage stagnation and increasing financial pressures, consumers have become more cautious, prioritizing value-for-money purchases. This shift forces brands to refine their strategies and optimize operations to better align with evolving consumer behavior.
36Kr: Some believe Japan’s economy has begun to recover, with solid growth and a strong stock market. Have you observed any shifts in consumer behavior as a result?
LS: I find the impact of economic recovery on consumer behavior to be quite slow. Typically, improvements in the economy first show up in investment and corporate earnings, but it takes time for that to translate into higher household incomes. If consumers don’t see a tangible increase in their earnings, they won’t strongly feel the effects of an economic rebound, and their spending habits won’t change significantly.
Additionally, the Japanese yen has remained weak in recent years, affecting the cost of purchasing imported goods and traveling abroad. Japan still heavily relies on imports for many everyday consumer goods. So, while the economy may be improving, I haven’t observed any substantial changes in consumer behavior—at least not yet.
36Kr: Japan’s e-commerce penetration is relatively high, but shopping habits still seem quite conservative. How would you describe Japan’s e-commerce landscape compared to China’s?
LS: It’s difficult to say for certain, but I think Japan has yet to fully embrace some of the newer e-commerce trends seen in China.
For example, while TikTok has a sizable user base in Japan, its e-commerce feature, TikTok Shop, has yet to launch in the country. That means the potential of live commerce remains uncertain. Platforms like Rakuten have experimented with live streaming, but publicly available data suggests it hasn’t gained significant traction yet.
36Kr: Temu wasn’t the first foreign e-commerce player to enter Japan, but its recent growth there has been astonishing. Do you think such platforms can rapidly scale in Japan?
LS: Both Temu and Shein have gained a competitive edge by offering an extensive selection of low-cost products. Japanese consumers are typically quality-conscious, but extreme affordability can be a strong selling point. If a product feels only 10% lower in quality but costs 50–90% less, many consumers will make the switch.
Shein and Temu cater to different audiences. Shein focuses on fashion items—clothing, shoes, and accessories—targeting young consumers who have limited budgets but want variety. Temu, on the other hand, specializes in household goods and electronics, attracting price-sensitive shoppers. Both platforms leverage a D2C model from Chinese manufacturers, bypassing intermediaries to maintain competitive pricing while ensuring product quality. This approach is relatively new in Japan’s e-commerce sector and can seem attractive to local consumers.
36Kr: How do Japan’s discount stores, like 100-yen shops and small supermarkets, compare to online platforms?
LS: The key difference is product variety. Physical 100-yen shops typically stock a few hundred to a thousand SKUs. In contrast, platforms like Shein and Temu offer millions.
While discount stores have a strong presence offline, they face challenges in the e-commerce space. Despite brand recognition, Japan’s high logistics costs make it unprofitable to ship low-priced items unless customers bundle multiple purchases. Shein and Temu solve this issue by selling a mix of products, including clothing and electronics, which naturally increases order value.
When customers spend more per order, the cost of shipping is spread out, making the e-commerce model more viable.
36Kr: Japanese consumers seem to favor affordable goods, but do they shop the same way as consumers in other countries?
LS: There are some key differences. Japanese consumers, particularly those aged 25–40, place a higher emphasis on quality, brand reputation, and product reviews.
In contrast, consumers in China or the US tend to have more diverse preferences across different price ranges. Japan’s market leans toward uniformity—Uniqlo and 100-yen shops dominate because they offer affordable, standardized products that appeal to a broad audience.
36Kr: What challenges do new brands face when entering the Japanese market?
LS: Japan is a difficult market for newcomers because it relies heavily on offline retail and personal networks. To succeed, foreign brands must gain a deep understanding of local consumer behavior and establish strong, well-resourced teams on the ground. While some exceptional products can succeed without localization—OpenAI’s ChatGPT, for example—most brands need to adapt to Japan’s unique market dynamics.
Beyond just speaking Japanese, business success often depends on understanding cultural nuances and building relationships. In Japan, strong communication skills and cultural fluency can make the difference between thriving and being overlooked.
36Kr: Did Japan’s consumer preference for uniformity emerge after the economic bubble burst, or has it always been this way?
LS: I haven’t conducted in-depth research on this, but I feel that consumer habits became more uniform after the economy stagnated. When times are good, people pursue variety. But when the economy slows down, they tend to prioritize value-for-money products. In Japan, purchasing habits for certain product categories are quite similar across different regions and age groups—this is different from other countries.
36Kr: Japan’s Gini coefficient is low, meaning income inequality is relatively small. Does that mean lower- and middle-class consumers shop in similar ways? This seems quite different from China.
LS: Yes. For example, in Japan, high school and college students commonly take part-time jobs, and in many cases, their earnings can cover their daily expenses—or even allow them to save up for luxury goods. This reflects a key characteristic of the Japanese market: even people doing gig work can earn enough to meet their daily needs, and their purchasing behavior is often similar to that of the middle class.
36Kr: Kagu E-commerce focuses on home furnishings. What are Japanese consumers’ preferences when it comes to home decor? How have their tastes changed over the past three decades?
LS: We can look at this from two angles.
First, while Japanese-style home decor is eminent, this is largely due to the influence of major brands rather than an intrinsic preference among consumers. These brands—like Muji and Nitori—offer good quality at affordable prices, so they’ve become the mainstream choice. But that doesn’t mean consumers wouldn’t be open to other styles. Take Italian-style furniture, for instance. It’s popular, but it’s also several times more expensive than Japanese brands, making it inaccessible to the average consumer.
Second, fashion is cyclical. Once a particular style becomes mainstream, there will always be people looking for something different. If alternative styles gain brand support and become mass market products, they could very well become the next mainstream trend. But in Japan today, if you want to try something different, your choices are limited—and expensive. This restricts the diversity of home decor styles. Our goal is to bring a wider variety of home decor products to market at reasonable prices, so that more consumers can explore different styles.
36Kr: Japan’s market seems stable in terms of spending power. However, we hear that it’s difficult for new brands to break in, as Japanese consumers are reluctant to adopt new products. The market also relies heavily on offline sales and personal networks. What’s your take on this?
LS: I agree. For companies entering Japan, understanding the local culture is essential. The best approach is to build a team on the ground and develop a deep grasp of the market before making major moves. While some succeed with minimal localization, it remains the exception rather than the norm.
Take OpenAI, for example. It hasn’t aggressively promoted its products in Japan, yet it has still gained users because its technology is excellent. If your product or service is truly outstanding, localization may not be as crucial. But if you’re only moderately competitive, then understanding the market and adapting to consumer needs becomes essential.
Another key point is language. Japan is different from Southeast Asia or Western markets—most business is conducted in Japanese rather than English. If a company operates only in English, it could miss out on many opportunities. In contrast, in regions like Southeast Asia, English is widely used because international business is a necessity. In Japan, local companies have enough domestic opportunities that they don’t need to rely on English for business.
36Kr: You’ve emphasized the importance of understanding local culture when entering Japan, but this concept can feel abstract. Based on your experience, how deep does this understanding need to be? What specific aspects should companies focus on?
LS: You don’t need to understand every tiny cultural detail, but you do need to communicate effectively in Japanese. If communication is difficult, Japanese businesspeople may quickly lose interest. The first priority is ensuring smooth communication. If someone can engage in business discussions with Japanese professionals without barriers, they likely already have a grasp of the necessary cultural and business norms.
However, language alone isn’t enough. Understanding non-verbal cues and implied meanings is equally important. For instance, in Japanese business culture, people often avoid direct refusals. If a potential partner says, “We’ll consider it,” it might actually mean “no.” Without cultural awareness, a foreign company might misinterpret such responses and waste time pursuing deals that will never materialize.
36Kr: You mentioned the importance of communication with Japanese professionals. However, some people say that Japan has a strong business culture of closed circles, where Chinese and Japanese professionals rarely interact. What’s your view?
LS: This phenomenon does exist, but it depends on the individual and the company. If a business only operates within the Chinese community in Japan, it can still reach a certain scale—but it will also face many limitations.
In any market, scaling up requires a deep understanding of local consumers and business practices. Japan is no exception. Companies that integrate into the local ecosystem, build relationships with Japanese partners, and fully grasp the local business culture will find it much easier to break into the market.
Japan’s business culture does emphasize established networks, but these barriers aren’t insurmountable. As long as a company invests time in building relationships, demonstrating value, and communicating effectively, it can gradually integrate into the local business landscape.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Lin Qingqing for 36Kr.