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Japan: Consumers Just Won't Open Their Wallets

Business Outlook: Japan

Japan: Consumers Just Won't Open Their Wallets

Just as a slowdown in the U.S. will depend on consumers, so too a true recovery in Japan must rely on the household sector. Unless consumers increase their spending, any upturn in Japan will stay fragile.

That's why the most recent news on the consumer sector was disheartening. Household spending among salaried workers fell 4% in March from February. For the entire first quarter, spending dropped 1.2% from a year ago, the fifth quarter in a row that outlays fell on a year-to-year basis before price adjustments (chart).

Real gross domestic product barely grew in 1999. Government spending and the extra shopping day from leap year likely boosted first-quarter gross domestic product, but for all of 2000, the economy is expected to grow less than 2%. Weak demand and the past rise in the yen mean that Japan is still experiencing deflation. Consumer prices fell 0.5% in the year ended in March. And prices just in Tokyo--a harbinger of national inflation--fell 0.9% in April.

Households are holding back because of the dismal state of the labor markets. In March, the unemployment rate remained at a record high 4.9%, and 320,000 jobs were lost. Job seekers continued to outnumber available positions. In March, the ratio was 53 offers for every 100 applicants. Companies are concentrating on adding equipment to increase output through productivity gains, not payroll increases.

As a result, output and investment in Japan look good; consumer spending and income do not. Household income fell 3.1% in March. So not surprisingly, a survey found that Japanese consumers' satisfaction with their financial state is the worst since 1958. In order to help job growth, the government may subsidize the hiring of new graduates.

One hopeful sign is the gradual upturn in consumer confidence. After a low of 35.2 in 1998's third quarter, the confidence index in the first quarter of 2000 edged up to 42.2. But that's still below the levels of 45 or above hit in the early 1990s, before Japan's worst recession in the postwar era.By James C. Cooper & Kathleen MadiganReturn to top

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