Nation Of Misers Japan's worried consumers just won't do what the world wants them to: buy.
By Christian Caryl Newsweek International | January 03, 2005 http://msnbc.msn.com/id/6732653/site/newsweek/ A couple of weeks before Christmas you'd expect Yukie Ushijima, 38, to be gearing up for some serious holiday shopping. She's not hurting for cash, after all, since her husband is a successful architect. What's more, she lives in Japan, a country rich in clever strategies for separating people from their money. But Ushijima has taken something akin to a consumer's vow of chastity. "It's become my natural habit not to spend unnecessarily," she says. "I hardly buy things at department stores-just window shopping." When the family has cash to spare, she usually invests it instead to prepare for a secure retirement. Her preferred vehicle: Australian government bonds. Japan has long been legendary for its tightfisted consumers, whose stubborn refusal to get out and spend has plagued the economy like a lingering nightmare. Yet this was the year that was supposed to change all that. The optimists had plenty of weighty arguments on their side. Corporate profits were reaching new highs. Employment was moving steadily upward. And Japan's once astronomical savings rate was showing signs of descending to earthly levels. In May consumer confidence hit its highest level in 13 years. Well-wishers prayed that newly adventurous consumers would lift the world's second largest economy out of the doldrums of deflation. They're still waiting. Consumer spending grew at a mere 0.9 percent in the third quarter, much worse than the government's own projection of 3.7 percent-undoubtedly a major reason third-quarter growth dwindled to an uninspiring 0.2 percent. And a closer look at the figures during the best part of the year reveals that much of the growth in GDP was driven by exports. If the past few months have shown anything, it's that Japanese consumers' reluctance to spend might have deeper roots than some analyses have allowed for. Stingy consumers in Japan are bad news for the rest of the world. Most analysts are now predicting 1.9 percent GDP growth in 2005, down from 2.5 percent in 2004. If they're right, Japan's public debt will remain high and Japan will continue to buy U.S. treasuries to finance its trade surplus with the United States. Without a consumer-driven recovery, Japan won't be able to reduce its dependence on exports, which makes it a less reliable partner on the global stage. To be sure, a variety of domestic and external shocks have conspired in recent months to undermine an incipient recovery. The plummeting dollar has made Japanese exports to the United States less competitive and high oil prices hit especially hard in a country with no reserves of its own. There were also unpredictable problems such as the worst earthquake in a decade and freak typhoons that wreaked havoc on the cabbage harvest, sending prices for this staple vegetable through the roof. (And that, in turn, sparked a miniboom in TV shows and magazines that instruct worried housewives how to squeeze the last yen out of cheap greens.) Optimists, including those in the pay of the Japanese government, argue that the present slowdown is a "temporary adjustment" that will pass once the corporate sector resumes its march toward efficiency. Yet things might not be so simple. Take a closer look at encouraging recent employment figures, for example, and the downside becomes apparent. "Even as unemployment has declined, the wage rate has remained subdued and sluggish," says Masaaki Kanno, chief economist at J.P. Morgan in Tokyo. That's because much of the improvement in employment has come from companies that hire part-time workers in place of permanent ones. There are more jobs to go around but they're not paying as well. "Companies are still not passing their gains along to the workers," notes Takahide Kiuchi, senior economist at Nomura Securities. Needless to say, part-time workers also spend less. Small wonder that sales at traditional department stores are trending steadily downward, while "hundred-yen shops" are booming. And that plays into a larger problem that the government has yet to challenge convincingly. Surveys suggest that consumers remain confident about the short-term, but pessimistic about their long-term prospects. More than a decade of recession, and a pension system that is groaning under the weight of government debt and a graying population, have left people with a deep sense of insecurity about the future. The Japanese, studies show, are increasingly worried about a rising gap between rich and poor. One prominent newspaper, the Yomiuri Shimbun, speculated that the idea of a generally accessible middle class is dying. A recent survey by the Japanese Cabinet Office revealed that 63 percent of Japanese think that "their lives will be worse in 2030 than now," while an additional 76 percent approved the statement "Japan will be less competitive in 2030." It's hard to blame them. Despite a spate of recent figures showing just how ephemeral the hopes for recovery remain, the ruling coalition recently decided to scale back a series of tax cuts-leaving most economists open-mouthed in astonishment. "You don't stimulate consumption by raising income taxes," says Paul Sheard of Lehman Brothers in Tokyo. "Remarkably enough, that seems to be exactly what they're doing." Japan never ceases to amaze. With Hideko Takayama ------------------------ Yahoo! Groups Sponsor --------------------~--> In low income neighborhoods, 84% do not own computers. 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