Aug. 17 (Bloomberg) -- Keiko Awaya wasn’t allowed to major in English at college because her nation was at war with the U.S. at the time. Now 85, her readiness to use savings to fulfill a decades-delayed dream is part of a wave of spending by the elderly that’s aiding the Japanese economy.
“At my age, I thought it was OK to spend that much money because I don’t have many years to go,” said Awaya, who has paid 1.3 million yen ($16,000) each for two month-long study-abroad packages offered by Tokyo-based Ikiiki Co., one to Boston and another to England. To keep herself fit for overseas trips, Awaya goes to a gym twice a week.
Ikiiki is part of an endeavor to unlock an estimated 900 trillion yen in savings held by Japanese over the age of 60, through rekindling the zest for spending that today’s retirees knew in the 1980s bubble years. From gaming arcades with tatami-bench tea areas to fitness gyms with stretching classes, the efforts go beyond nursing care, and may help Japan keep full employment even as manufacturing declines.
“Japanese companies are getting better at providing attractive products for the older generation,” said Nobuhiro Maeda, a gerontology analyst at NLI Research Institute and a visiting fellow for the Institute of Gerontology at Tokyo University. “Winning market share in the expanding senior market is the key for companies to survive at home and that’s critical for the future of Japan’s economy.”
Spending by consumers over the age of 60 amounted to 101.2 trillion yen in 2011, a 26.5 percent surge since 2002, according to data compiled by Dai-Ichi Life Research Institute in Tokyo. By comparison, the nation’s economy shrank by 6.2 percent in the same period, unadjusted for changes in prices.
The outlays are helping elevate the importance of domestic demand. Private consumption reached 60.6 percent of gross domestic product in the fiscal year through March, the biggest such ratio since at least 1994, according to data compiled by Bloomberg.
“For Japanese consumption and the economy, spending by the elderly has become a dominant demand component,” Masamichi Adachi, a JPMorgan Chase & Co. economist in Tokyo, wrote in a note today. “Already-high propensity to consume of the elderly has been rising; baby boomers are spending lavishly.”
With 7 million baby boomers starting to retire this year, and about one-third of citizens forecast by the National Institute of Population to be over 65 by 2030, the opportunities are poised to increase for services companies geared toward retirees. Japan’s older folk also retain memory of a time before the so-called lost decades after the 1990 asset-bubble pop, when wages weren’t compressed by employers cutting costs amid unrelenting deflation.
“After going through the rapid-growth period before the bubble burst, the older generations know the joy of spending -- unlike young ones, whose paychecks have been affected by deflation from the beginning of their careers,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo.
The source of growth may help ease the transition of the world’s third-largest economy away from manufacturing, as yen appreciation spurs companies from Nissan Motor Co. to Panasonic Corp. shift operations abroad. The currency has risen 44 percent against the dollar in the past five years, and at 79.40 at 5:08 p.m. in Tokyo was about 5 percent from a postwar high.
“This sector is what investors can enjoy relief in when uncertainties are high in the global economy,” said Tadao Kimura, senior fund manager for Sumitomo Mitsui Asset Management Co.’s Genki Senior Life Open exchange-traded fund, which climbed 3.1 percent in the six months through Aug. 16, a period when Europe’s crisis contributed to a 3.1 percent decline in the Nikkei 225 Stock Average. “There is much more room to grow in Japan’s aging-related industries.”
Jobs in the medical and welfare industry alone increased by 2.5 million, to 7.1 million, in the past decade as manufacturers cut their payrolls by 1.7 million to 10.5 million, government data show. Services gains helped keep unemployment down even amid economic stagnation. The jobless rate was 4.3 percent in June, compared with an average of 4.6 percent in the past decade.
“The importance of consumer spending by aging generations is increasing and the trend is expected to continue,” the Bank of Japan said in a report released on July 18. “Consumer spending is gradually increasing even though households’ income isn’t rising.”
Services job growth isn’t a panacea, because the pay is typically less than in industry. The average annual male wage in manufacturing was 3.15 million yen last year, while it was 2.75 million yen in the service sector, Labor Ministry data show.
Another challenge is matching employment demand with job seekers unaccustomed to targeting the services sector and lacking the training needed to pass qualification tests for positions such as at nursing homes. The unemployment rate for 15-to-24 year olds was around 2 percent when the retiring generation entered the labor market. It was 7.4 percent in June.
“Nursing and health care are growing industries, but they’re still in the pre-dawn period,” said Takashi Unayama, an associate professor at Kobe University’s graduate school of economics who has analyzed Japan’s aging and the economy. “Their growth from here depends a lot on how the government can implement market mechanisms, rather than on just relying on public spending.”
Prime Minister Yoshihiko Noda’s government has recognized the rising importance of services, setting a target to create 2.8 million jobs in medical, health and nursing care by 2020, according to a draft of its growth strategy released on July 11.
Any success Japanese companies have at home unlocking the savings of older generations -- those over 60 hold about 60 percent of 1,500 trillion yen in household assets, the NLI Research Institute estimates -- may give them an edge abroad, as other nations follow Japan’s aging path.
“Japanese companies should be better positioned because they are exposed longer” to the aging phenomenon, said Xavier Mesnard, a partner at Chicago-based A.T. Kearney who co-wrote a report on generational marketing strategies published last year. “I would expect them to export their skills to overseas markets.”
SMS Co., founded by Shuhei Morofuji -- who at 25 was concerned about Japan’s fading from the center stage of the world economy -- is one new aspiring global champion. The company provides human-resource services for elderly care givers, such as job networking. The Tokyo-based company’s share price has more than doubled since it listed on the first section of the Tokyo Stock Exchange in December, and is expanding its business to China, South Korea and Vietnam.
“We see business opportunities to establish a social fabric for the elderly,” said Masato Sugizaki, director of corporate planning at SMS. “This market has potential to grow as big as Japan’s car industry.”
The impact of aging is spreading across the economy. At Hoosiers Corp., the second-best performer in Japan’s Topix index in the past three years, executives began to tap into the expanding senior market last year by offering the Tokyo-based company’s first nursing-care condo.
“We are going to intensify our efforts to expand business in the senior market,” said Tetsuya Hirooka, 49, president of Hoosiers, which he named after the moniker for Indiana’s residents, following a homestay in the U.S. state. “It’s not so much our choice as it is the trend of the time.”
Ikiiki, which sold Awaya, the octogenarian traveler, on study-abroad trips, was a publisher of magazines for older readers before branching into travel packages.
“I have great memories of everything I did” on last year’s trip, said Awaya, who highlighted a stroll through an English garden so big and replete with flowers it seemed like a botanic exhibit.
JTB Corp., Japan’s biggest travel agency, is aiming to increase the ratio of sales of overseas trips to those aged 60 or older to 15 percent of the total this fiscal year, from 10 percent last year. Among lessons the Tokyo-based company learned so far: ask hotels to cut the amount of salt in meals, and bus operators to assign two seats per traveler for added comfort.
Not everything goes smoothly. When a chef in Italy prepared a Japanese dressing for a salad on one JTB tour, the group demanded an Italian offering. JTB switched to Italian dressing the following week.
“It’s not very easy to give what they really want,” said Ryuta Iida, JTB’s assistant manager for tour planning.
Meantime, at Central Sports Co., Japan’s No. 2 fitness-club chain, there are expanding courses targeting older people. Those over 50 made up more than a half of its 390,000 members for the first time in the year through March. At some clubs, elderly members queue up before opening hours, said Kosuke Fugami, a spokesman for the Tokyo-based company.
At a game parlor in Tokyo’s Katsushika ward where hot green tea is served, as much as 70 percent of customers are older people, said Ayako Ikuta, spokeswoman for Taito Corp., which operates the facility.
“This place is awesome,” said Michiko Kobayakawa, 77, her finger-tips blackened after playing a coin game for two hours. “At home, I would end up talking about the same old things like the weather, and watching TV. But this place keeps me healthy because it’s easy to make friends here.”
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