In my experiences with such claims, they take approaches which are not valid. Some of them compare the price of goods in "Japan" (meaning whichever city or town they happen to live in) to the price of goods in their home countries. Others add up their personal tabs for living here and subtract it from their salaries to show an impressive remainder. Both of these approaches are flawed though for rather different reasons.
Cost of living is always relative to location, even within the same country. For instance, an annual salary of around $50,000 for a person living in Silicon Valley in California is buying himself about the same lifestyle as a person making $20,000 in Pittsburgh, Pennsylvania. In Japan, rural life is cheaper than urban life and life in Tokyo isn't the same as life in Kobe when it comes to costs. You can't compare any given country's average costs for food, rent, etc. to Japan's because cost of living is relative to location domestically and doing so internationally has no relevance whatsoever. Saying a liter of milk costs $1.50 in Japan and a quart of milk in America about $1 doesn't say anything about how expensive either country is because it doesn't look at the cost relative to average salaries, rent, etc.
The approach to gauging the expense of Japan by tallying up all of ones living expenses and subtracting it from one's salary is a more reasonable one but is still flawed. One of the biggest reasons for this is that most foreign folks forget, ignore, or don't pay some expenses that long term residents (and Japanese nationals) have to pay. The gaijin intent on proving his point about how Japan isn't expensive commonly includes rent, utilities, and food in his calculations, but ignores things like the need to buy new clothes and replace durable goods through time. This is because most foreign folks come over here with a suitcase or two full of new clothes and shoes and move into furnished apartments. They tend to go home before things wear out, but a real reflection of the cost of living has to include ongoing expenses of normal people, not just temporary costs. If you start factoring in the costs for shoes, clothes, and the odd replacement appliance here and there, things get a bit pricier on average. After all, that is a part of the cost of living everywhere.
What is more, the foreign people who come over here for a year or who move around a lot often never pay regular expenses that people who stay in one place for more than a year start having to pony up the dough for. Since health insurance is assessed at a very low flat rate the first year (around 1000 yen a month) and calculated on income the second year and ward taxes calculated only after one year of residence in the same ward, people who move after one year to a different ward or just go home never factor in these expenses. Each ward calculates such expenses differently, but they are roughly around 5% for taxes and 10% for health insurance in Tokyo wards.
Here is a rough example: On an income of 250,000 yen a month, that's another 37,5000 yen off the top every single month as you go into your second year. That's a pretty healthy chunk of change to be ponying up and it doesn't go away once it starts. What is more, you're also supposed to pay up for the year you're behind before you leave your ward or go back to your home country. That means there's a combined balloon payment of about 450,000 yen waiting for you before you leave unless you decide to skip out on the bill. Things start to look a lot more expensive in Japan when you start factoring in ward taxes and health insurance payments calculated at their real rates rather than just looking at the cost during the one year calculation period.
What is more, most folks who tally up their monthly costs tend to dismiss certain expenses as "unnecessary" in their attempts to prove how cheap it is to live here. If you mention the cost of cable television or high speed Internet, for instance, they personally see no need for such things and won't factor them into their tallies. In fact, any expense which they personally don't have isn't a valid cost in their eyes even though many people back home and in Japan find monthly expenditures on gym memberships for fitness (which is actually more necessary in Japan because small places don't easily accommodate exercise gear), cable, and Internet quite reasonable parts of their budget. Ironically, some of these optional expenses are actually lower in Japan than some other countries and would help support their points but including them ups the total too much and leaves the remaining salary total at a less impressive number. (Note: I'll list a few of these at the end for the sake of comparison.)
Depending on the rules and regulations of your home country, there is also an opportunity cost for living in Japan. People who settle here permanently pay into the pension system, but few foreign folks plan to be around for 20 years so they can collect on it. Also, frankly, the entire system is a pretty bad deal all around where you end up collecting such a puny return on your investment that it'd take a decade to begin to get back anywhere near what you put into it. At any rate, every year you work in Japan is a year you don't pay into your pension system at home and could be undermining your future retirement fund. You should be factoring in some savings every month to build up a pension fund, but most foreign folks (though not all and certainly not the real long timers) just see that they only pay about 6% federal tax on their pay checks and count their blessings. Japanese folks are losing a lot more than you because they live in the "real" Japan where they have the same sort of responsibilities and tax burdens as you did as a real citizen back home.
The more reasonable approach to viewing how expensive life is would be to compare percentages of your income that various fixed expenses (rent, food, etc.) are consuming. Back in the U.S., people pay an average of 21% of their income on housing. Food costs similarly tend to take up a certain percentage of your income. I can't speak for other areas of Japan as I've not lived all over the place, but I can say that Tokyo rent can take up to 25% or more of a person's income (in most cases). Food has actually been getting cheaper since we first moved here though it is still costing us a greater percentage of our income compared to back home. Unfortunately, costs of food in Japan are going to increase in 2008 after decades of stable or falling prices. Milk prices have already gone up about 10 yen per liter and other prices are set to follow.
All that being said, a lot of the comparisons between life in Japan and life in other western countries that you read about in newspapers or from authoritative sources on economic situations tend to be rather unrealistic as well because they ignore cross-cultural lifestyle issues and attempt to shoehorn western notions of comfort into the Japanese cost of living picture. They look at the costs of a place with a larger footprint than is average, a car, gasoline, etc., but one doesn't really need these things in urban areas in Japan (where life is the most expensive). Life can be (relatively) comfortable here taking public transportation because the system is so much better implemented than in countries where the population density is sparser. However, it's still a huge pain cramming onto crowded trains and schlepping back and forth to stations, especially if you're carrying heavy or bulky items you have shopped for and having to always use public transport does have an element of degrading your quality of life.
Even if you ignore the quality of life issues which tend to inflate comparisons, living in Japan is expensive though what one tends to find is that you get used to scaling back your lifestyle to fit into the economic picture and eventually feel like it isn't so expensive or so much of a problem. Also, since many people come here with notions of outrageous prices, anything less than that seems downright cheap by comparison. It isn't so much that Japan is actually inexpensive to live in but rather that most foreigners learn to adapt to a lifestyle which allows them to live with the higher expense comfortably.
Here are some figures for comparison (note the salaries at the end to consider percentages):
Monthly fixed expenses (in Tokyo in my ward):
ADSL (50 Mbps) Internet access: 400 yen for modem rental, 1250 yen for ISP server space, 2600 yen for service = 4250 yen (~$39)
Cable television: 2600 yen (~$24)
Water = (a bill of about 8100 yen comes every two months) 4050 yen (~$37)
Gym membership: (depends on the plan-early morning plans are cheap, evening and all day plans are expensive) 5,000-10,000 yen (~$46-$92)
Health insurance: 10% of income with a cap of around 530,000 yen ($4700) annually
Ward taxes: 5% of income
(Note: Health insurance premiums were raised on low income folks last year and lowered on higher income folks in our ward so health insurance is 6% if you make around 500,000 yen a month or more and higher (10%) if you make 200,000 yen or less.)
Monthly variable expenses (in Tokyo in my ward) averaged out for comparison:
Electricity: (higher in summer, lower in winter) 7,500 yen (~$69)
Gas: (lower in summer, higher in winter) 6,000 (~$55)
Rent: (higher in my area because of its proximity to major train and subway lines and to central downtown Tokyo) 80,000 - 130,000 yen ($736-$1200)
Eikaiwa (English conversation schools): 250,000-350,000 yen ($2300-$3221)
*Office Ladies: 200,000-250,000 yen
*Contract employees: 250,000-400,000 yen (depends greatly on the type of work and skills of the worker)
*Salaried workers: 300,000 yen-600,000 yen (depends greatly on seniority, industry, and experience)
University teachers: 450,000-600,000 yen ($3680-$5522)
*These are not jobs foreign folks tend to do (unless their Japanese is good enough to function in a capacity similar to Japanese workers) but are included for reference. These figures include twice yearly bonus payments which tend to increase the average monthly salaries by about 30% in most cases and about 50% in a few cases.
You may note that there is much more variability in the salaries of positions for Japanese staff than the typical work for foreign workers doing work which requires a university education and that I don't include unskilled labor in this list. In the case of the latter, I don't include it because foreign workers who do unskilled labor generally don't shoulder the burden of their costs of living alone (nor do unskilled Japanese workers, for that matter). Also, I frankly have very little experience with such workers. I can only say that the minimum wage in Tokyo tends to be about 1000 yen an hour but only college and high school kids are expected to take jobs in that pay range. I cannot say for sure, but I believe unskilled (legal) foreign laborers tend to make about 150,000 yen a month in Tokyo. Illegal foreign workers make about 10,000 yen a day.
However, research on the Internet shows that skilled "blue collar" laborers are not so badly paid:
Structural iron/steel workers
Rates reported in Japanese yen per 8 hour day.
Source: Japan Society of Cost and Project Engineers, November 2004.
In fact, if these figures are correct, they are paid more than I was when I worked in a Japanese office (I used to make about 14,000 yen a day).
The main difference between teachers and regular Japanese employees is that teachers and some foreign employees salaries tend to remain flat (or at least be capped at a relatively lower salary) regardless of seniority whereas Japanese staff tend to see consistent upward movement in their salaries. That being said, teachers and foreign employees tend to start at a somewhat higher salary to begin with than a freshman Japanese employee.
And finally, before I get a ton of comments from people saying they know a thousand Japanese people who are making much less than teachers, keep in mind that the average complaining Japanese staff person will indicate their salary to you sans bonus figures (and you don't get the bonuses they do). The vast majority of Japanese staff members get a summer and winter bonus of about 2 months salary (sometimes more, and on rare occasions less). That means that for every 12 paychecks you get, they are actually getting 16 paychecks. They just aren't getting all of their salary on a monthly basis so a person who claims they are poor because they receive 200,000 yen a month actually makes 266,666 yen a month once her bonus is factored in as monthly pay.