Boon anticipated if shoppers splash out
Now that Japan has lifted its latest state of emergency over the virus, the economy could get a major boost if shoppers splash out with the extra US$180 billion they saved while they were cooped up.
In place like the US and the UK, pent-up consumer demand has helped fuel strong recoveries, but whether the flood gates will open quite as wide in Japan is an open question.
Japanese households are known for socking their money away and the country’s seniors, in particular, tend to be ultra-careful about spending because they worry about outliving their savings. Still, people like 80-year-old Akira Yamada are itching to get out after more than 18 months in quasi-confinement.
“I’m ready to spend some,” he said by phone from his house in Saga city, southwestern Japan. “I’m really looking forward to finally being able to drink and eat out with people.”
What consumers choose to do as Japan lifts its fourth state of emergency Friday is likely to determine the strength of the recovery that incoming Prime Minister Fumio Kishida inherits, especially given that exports are slowing amid global supply chain problems.
Mr Kishida has put increasing family incomes at the centre of his economic agenda.
“I expect a fairly big boost from consumer spending,” said economist Tatsushi Shikano at Mitsubishi UFJ Morgan Stanley. “With a new fiscal spending expected from Mr Kishida, there is even an upside risk for Japan’s economy.”
“We’ll probably see a pretty big divergence in spending between the rich and the poor. In that sense, Kishida’s policy goal of narrowing the gap could play a vital role for a smooth recovery of spending,” said Yuki Masujima, an economist at Bloomberg Economics.
Japan’s households socked away a ton during the pandemic, with their financial assets hitting a record at the end of June. So-called “forced savings” money that couldn’t be spent because of restrictions on activity, climbed to 20 trillion yen, or $180 billion, amid the crisis, according to the Bank of Japan.
There are signs that pent-up demand may already be materialising. Sales of BMWs rose 15% through August this year, rebounding from a double-digit decline in the same period a year ago, according to Japan Automobile Importers Association.
Some 93% of people 50 or older want
to take at least one trip within a year of being vaccinated, a survey released in June by marketing company Yuko Yuko Holdings showed.
The BOJ’s quarterly Tankan report on Friday showed hotels and restaurants see the outlook improving in coming months from rock-bottom levels.
An inoculation rate of around 60% has helped bring down infection rates and allowed authorities to lift the emergency, although bars and eateries are still being asked to close by 9pm.
A longer-term impediment to a consumer revival, though, is Japan’s track record of weak wage growth, which has
made people wary.
“Consumer spending will rise in the short-term, which is good for the economy, but I don’t expect that to continue,” said economist Masamichi Adachi at UBS Securities. “Cautious Japanese consumers won’t keep spending generously.”