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This article is from the American misconceptions about Japan FAQ, by Tanaka Tomoyuki ez074520@dilbert.ucdavis.edu with numerous contributions by others.

cost of living in Japanese cities is the highest in the world

THE TRUTH: Tokyo prices are high, but not as high as advertised in the USA. according to a survey conducted by Japanese government in Nov 1994, Tokyo is about 40-50% more expensive than New York, London, Paris, Berlin.

since housing is especially expensive in Japan, I'll present an
international comparison of housing prices.

in the same book "Book of World City Rankings", Table 74
Average Monthly Rental Cost (Page 592) compares "average gross monthly rent (US$)" for 67 major cities in the world for
1981-83.

                1. Jidda         (800)      6. Los Angeles (450)

                2. Hong Kong     (750)      6. San Diego (450)

                3. New York      (617)      6. Sydney (450)

                4. Tokyo         (552)      9. Houston (449)

                5. San Francisco (480)     10. London (430)

                        (Jidda is in Saudi Arabia.)

        other Japanese cities in the table:

                11. Yokohama (429)         40. Osaka (268)

                20. Kobe (339)             50. Nagoya (236)

                30. Sapporo (308)          55. Kyoto (193)

Tables 44-51, 55, 56 compare prices of eggs, milk, bread, meat,
household appliances, men's clothing, women's clothing,
automobiles, public transportation in the 50 or so cities.
Japanese cities dominate the top ranks only in the prices for
milk and meat.

some people told me that prices cited above are too old (1981-83).
I agree, but I haven't been able to find reliable data that's
more up-to-date.

from: Wen-Kai Tang < wt16@cornell.edu> 

I will have to disagree with you on the point of prices in
Tokyo vs. other cities. I've been to Tokyo for about 2 weeks,
and I must say that EVERYTHING costs much more then in the US.
Of course, the cause of this is the strong Yen. While the
exchange rate is about 100 yen to 1 dollar, most economists
agree that in purchasing power terms, it should be about
160-180 to 1. In the 50s and 60s, when the exchange rate was
360:1, the dollar was overvalued and to most US residents,
Japanese prices must have seemed very low. So this whole issue is really a function of overvaluing or undervaluing of a
currency and should not really reflect poorly or favorably on a
country. Americans should be reminded that despite the high
Tokyo prices, most Tokyo residents MAKE a lot too, in fact more then Americans do in dollar terms. The result is that in
purchasing power, the average material standard of living is
about 85% of the US. Many Americans often just look at just
the high prices or the high wages (in $ terms) of Japan without
taking the other into account and yield many false conclusions
about the standard of living in Japan. I think you should
emphasize that point instead of just tackling the myth of
Japanese high prices. I agree that the people in the US
exaggerate the high prices in Tokyo. Having been in Europe for
the last 4 weeks, I admit that European prices, especially
Paris, are almost as high as in Japan. Of course, most
European currencies are overvalued against the dollar as well.
I think the rule is that prices in the US are among the lowest
in the advanced world and everywhere else must look very
expensive for a US resident, Japan included.