JAPAN: Tokyo Mulls Novel Approaches to Spur Consumer Spending

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Oct 16 1998 (IPS) - Increasingly desperate Japanese officials have come up with several ideas to help the country out of its longest postwar recession yet, but their latest proposal may give them the success story they have been waiting for, say some analysts.

Tokyo suggests handing out a 30,000 yen (260 dollars) gift voucher to each Japanese national to stimulate consumer spending. While that sounds a bit bizarre, some analysts say the idea has considerable merit.

“If the government is trying to get people to spend more, then I think the gift voucher will do exactly that,” says Hideko Sekizawa of the private think-tank Lifestyle Research Centre here, “though of course in expensive Japan there are limits (to how long that would go).”

He adds: “The fact that money is being handed down directly to the consumer will be much more effective in stimulating spending than building new roads or bridges as the government stimulus packages have tried to do.”

During past recessions, Tokyo had usually tried to boost public spending by extending trillions of yen into expensive public works projects. The manoeuvre used to have some impact, but that seems no longer true these days.

Indeed, household spending fell five percent last December alone, and has been slackening further – an overall two percent this year – mostly because of declining salaries and worries over jobs, according to the government.

Consumer spending accounts for 60 percent of Japan’s gross domestic product. The Management and Coordination Agency says average wages, adjusted for inflation, fell 1.3 percent and overall spending has slid six percent the first six months of this year.

Sales at major department stores and supermarkets attest to the 15 per cent slide-down from last year. “People are tightening their purse strings because of the recession,” says Tetsuro Sasaki of the Takashimaya Department Store, one of Japan’s leading retailers.

Small-time businessmen say they are hurting more — but are hanging on. “I see about an overall 30 percent drop in the number of customers,” admits Hiroshi Kunii, who runs a restaurant that has fried pork as specialty. “But I can still manage by inventing less expensive menus or serving cheap lunches.”

Sekizawa says the Japanese still have money despite the economic downturn, unlike people in the rest of Asia and even Europe and the United States.

So where is all the unspent yen going? Already conscientious savers to begin with, the Japanese are apparently tucking away more and more of their money in bank accounts and other financial instruments in the last several months.

Figures compiled by the Bank of Japan, for instance, show consumers financial assets have grown between January and March as they cut spending at home.

Official statistics released in July, meanwhile, reveal that Japanese individuals held as much as 1,238.538 trillion yen (around 7.5 trillion dollars) in bank deposits, insurance investment, mutual funds and other financial assets at the end of the first quarter of this year.

This is the largest year-on-year rise since the July-September period in 1996.

Such a trend is what the government is anxious to slow down, if not put the brakes on. With more people saving, corporate growth is beginning to be hit badly, explains economist Yoshiaki Kano. This in turn is pulling down hopes of a recovery, he adds.

Kano also points out that gloomy spending habits of the Japanese mean a decline in imports, which will be bad news to struggling Asian economies that are counting on Japan’s continued patronage of their products.

To be sure, government officials hope that the general response to the voucher proposal would echo that of Kazuko Nakayama, a 55- year-old housewife and grandmother who welcomes the idea.

“The money is too little to save,” muses the elegantly dressed Nakayama, who spends her days taking English lessons or going out with friends or with her newly retired executive-husband. “I would spend the money immediately on a nice dinner with my family.”

Analyst Sekizawa, for his part, also supports ‘Happy Monday’, another proposal by the Prime Minister’s Office that talks of a proclaiming a day off so the Japanese — particularly the men — could go shopping.

Observes Sekizawa: “Older Japanese males are the worse spenders in the world. They work all the time and have no time to go shopping or purchase goods for themselves. A day off could help in turning this habit around.”

Japanese retailers have traditionally targetted women as their primary clients, since women are the decision-makers in the family when it comes to purchasing daily supplies.

But some observers caution against making quick assumptions about the effectiveness of consumer spending stimulus strategies during tough times like the present.

According to the Japan Consumer Organisation, both women and men are thinking twice about buying new products mainly because of the uncertain future.

“They may still have jobs but their bonus and pay raises are being cut,” says Hiroko Mizuhara, who is a spokesperson for the private group. “The voucher is not going to stimulate spending.”

If the government is really serious about boosting public spending, she says, then what it should be formulating is a more long-term vision that would address the causes of the people’s jitteriness.

“The Japanese are worried because there is no stability, in terms of social security offered by the government,” says Mizuhara. “They have to rely on their savings and their miserable pensions to see them through old age.”

She asks, “Why doesn’t the government allocate a budget to improve this side of the economy as a means of boosting spending and economic growth?”

Even Sekizawa allows that Mizuhara is raising a valid point. “The voucher…is a good idea to stimulate and excite people about buying more,” he says. “But I agree with the view that unless the government manages to allay fears among the public about the future, Japan’s spending habits will not improve as fast as they should.”