ECONOMY-JAPAN: Uncertain About Future, People Tighten Purses

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Mar 7 2001 (IPS) - The Japanese economy may be sliding further into recession, but finding a seat at the Harumi Sushi restaurant in central Tokyo is almost impossible.

That is because its mouthwatering array of sushi delicacies are priced at just 100 yen (85 U.S. cents) per plate, reports its chef, Tomichi Kashimura.

Customers thus flock to the restaurant because of its reasonable prices. Businesses such as Harumi Sushi are a fitting illustration of the tight economic situation in the world’s second richest economy.

“Dwindling salaries and growing unemployment have dealt a deep psychological fear about where their country is heading. People are spending less,” says Yoshikazu Kano, an economist.

In February, consumer prices in the Tokyo area slid 0.5 percent for a record 18 months straight, which may discourage production and cause lower demand.

Likewise, analysts contend that the decline in personal spending — which accounts for two-thirds of Japan’s Gross Domestic Product — is not helping address the country’s worst economic downturn in years. Government data shows that the average wage-earning household was spending the amount as last year, meaning that efforts to encourage spending are not working.

Japan has been in a decade-long slowdown, but even recent hopes for a turnaround are now unlikely to come true as the economy deteriorates more rapidly than expected.

Indeed, the government last month downgraded its assessment of the economy by pointing to some stumbling blocks on the recovery path that include a slow U.S. growth, a “broadly flat” personal spending trend, and ‘ a “stubbornly high” jobless rate.

The gloom is reflected in statistics that show Japan’s stock market fell 8 percent over the last month to levels as low as the 12000 mark, last seen in 1986.

According to the Prime Minister’s Office, industrial output has stumbled 3.9 percent in January, employee bonuses were recording a 3 percent decline, and unemployment reached an all-time high 4.9 percent the same month.

The lacklustre economic outlook is adding to a tense political situation, characterised by uncertainty over the fate of the Prime Minister Yoshiro Mori, in office since April 2000.

Suppport for Mori has fallen to less than 10 percent amid allegations of personal misconduct, undiplomatic gaffes and inability to stimulate the economy.

Voter backlash is expected to lead to a new Cabinet next week or even a general election within a few months.

Mori survived a second no-confidence vote in Parliament Monday. But many believe that his own Liberal Democratic Party, which holds a majority in the chamber, is looking for a more popular replacement ahead of parliamentary elections in July. The pressure on Mori to resign remains high.

C H Kwan, senior economist at Nomura Research Institute, refers to the current crisis as the second recession, a crash following a slow gain between 1992 and 1994 when Japan reported a 0.5 percent growth rate.

“I would say Japan’s difficulty in getting its economy on the road again lies in the government’s inability to meet the changing environment that is characterised by globalisation, an ageing population and the transition to a post-industrial society,” he explains.

In an article describing Japan’s economy, Kwan blames the government for pouring money into old industries.

Emergency stimulus packages in the past decade totaled almost 100 trillion yen, or 1 trillion dollars, most of it for an array of expensive public works, some in remote areas.

Kwan is also critical of the official policy that put aside 18 trillion yen (152.5 billion dollars) to revitalise banks. “Troubled banks were restored with the national budget. But this propping up was done at a terrible cost for official emergency budgets only resulted in a ballooning fiscal deficit which has turned the heat up even more,” he explains.

Analysts such as Kwan have long argued that Japan should have taken measures to pump up new industries that cover new businesses — including those in the social sector such as boosting services for the aged, and women — towards economic recovery.

“The money should have gone to the next generation which is where the future lies,” he says. “Instead the government clung on to the old remedy– deciding to build roads and dams — that didn’t bring in much needed revitalisation. The result — a renewed crisis.”

The recent tailspin in the equity markets has analysts predicting a an extremely difficult situation for Japan this year. “Investors are turning away and even the hope that exporting to the robust U.S. economy would help, does not look good anymore,” says Kano.

A weak Japan is also expected to have a negative impact on Asia. Kwan sees Asia now being overly dependent on the U.S. market, which may not be able to absorb Japan’s declining clout as a result of its own slowing down.

“The mood, after the financial crisis in Asia, was to wean itself away from American-style capitalism that depends on financial market movements and develop a more Asian approach, following Japan. That, however, cannot happen with a Japan that is stuck in the mud,” Kano argues.

On the domestic front too, economic uncertainty has dampened national confidence and is expected to prod people into tightening their purse strings — thus encouraging a vicious trap of economic slowdown.

“The government should give up hope that consumer spending will revive the economy,” says Hidehiko Sekiguchi, an analyst at Hakuhodo, a private company that watches Japanese lifestyles.

Sekiguchi says that the psychologically shaken Japanese have been saving more in recent years, because they are not sure what to expect in the future. Average savings increased 3 percent for households of salaried workers in 2000, compared to the previous year when 53 percent of individual savings were in deposits.

During the same period debts have grown 10 percent, expanding by 5,000 dollars per household, the seventh year in a row.

Says Sekiguchi: “The only survivors are those with cheap prices such as the sushi restaurant, in this nightmare we are facing right now.”