This is because of the Balassa-Samuelson effect, named for the two economists who first explained it.

ECONOMIST: China��s economy could overtake America��s within a decade

This reflects the so-called Balassa-Samuelson effect: the prices of services in Japan have risen relative to those of goods.

ECONOMIST: Wading in the yen trap

This is the basis of the Balassa-Samuelson theory which holds that average prices will be higher in countries with higher productivity (ie, high GDP per head), because higher wages will push up prices in labour-intensive goods and services.

ECONOMIST: Economics focus: Burger-thy-neighbour policies | The