Hope fizzles for Japan's 'revenge spending' splurge as inflation looms

Intage Holdings

02/05/2022 24:00

By Kantaro  Komiya and Kentaro Sugiyama
    TOKYO, May 2 (Reuters) - Japanese mother of three Maiko
Takahashi was never one to pinch pennies or accept hand-me-downs
for her children even though circumstances for her single-income
family have always been fairly modest.
    But times have changed. Nowadays, she has no trouble with
used clothes and her pursuit of bargains and scrimping on the
most trifling costs borders on the obsessive.
    "I've started to pay close attention to tips on TV shows,
like minimising the number of times you open the fridge to save
electricity," said Takahashi, whose family of five lives in
suburbs north of Tokyo. 
    "We've started to feel the pinch going about things the
usual way so I've made adjustments."
    Takahashi's behaviour is mirrored by a growing number of
consumers and underlines a worrying trend for Japan.
    After lifting two years of on-and-off coronavirus curbs in
March, the government was counting on what's known as "revenge
spending", pent-up demand triggering a splurge that boosts
consumption and a moribund economy, as has been seen in the
United States, China and some other major economies.
    But with energy, food and other living costs soaring -
exacerbated in recent months by a sharp decline in the yen and
the war in Ukraine - those hopes are fading fast.
    Facing the prospect of struggling with rising prices,
Japan's famously thrifty consumers are tightening their belts
even as they sit on the remains of an estimated 50 trillion yen
($383 billion) - equivalent to 9% of the economy - in "forced
savings", as the Bank of Japan calls it, accrued during the
pandemic.
    Some bigger companies have answered a government call to
raise wages but the gains of some 2% will be swallowed up by
higher prices of everything from flour, to diapers and beer,
economists say. 
    In March, electricity prices in resources-poor Japan jumped
22% from the previous year - the most in more than four decades.
 urn:newsml:reuters.com:*:nL3N2WJ310
    The government recently upgraded its assessment of the
economy for the first time in four months, citing an expected
recovery in spending, but added a caveat that the outlook was
clouded.
    "The chance of a 'revenge spending' burst is becoming
smaller than we had expected," a government official said in
unusually candid remarks, noting that prospects were especially
uncertain beyond the summer.  urn:newsml:reuters.com:*:nL3N2WI1LD
    
    FINAL FEAST
    With more than 90% of consumers saying in the latest
government survey that they expected everyday goods to become
more expensive over the next 12 months, economists say it is no
surprise to see behaviour like Takahashi's.  urn:newsml:reuters.com:*:nL3N2W612L
    In addition to accepting used uniforms for her son entering
kindergarten, and venturing further in search of discounts, the
stay-at-home-mum said she has switched to lower-cost private
brands (PB) for mayonnaise, ketchup and other food.
    She's not alone. The share of so-called PB items for
mayonnaise purchases nationwide rose to 22% in March from 18% a
year earlier, according to market research firm Intage Inc.
Supermarket giant Aeon Co  8267.T  saw PB food sales jump 15% in
the six months to February.
    The "Golden Week" holiday, which began on Friday, is the
first in three years without COVID-19 restrictions, and the
economy should see a dramatic improvement in spending but that
is likely to be the high point for consumption this year, said
Daiwa Securities senior economist Toru Suehiro. 
    "The full-fledged impact of rising costs will emerge in the
July-September quarter and later, so the Golden Week will
probably be the last feast of the year," he said.
    The number of holiday travellers is expected to grow about
70% from last year, but still a third short of pre-pandemic
levels, according to JTB Corp, Japan's biggest travel agency.
    The yen's fall to two-decade lows would normally be a boon
for in-bound travellers, but Japan, fearing COVID, has kept its
borders closed to tourists. In 2019, almost 32 million foreign
tourists contributed to the economy.
    Meanwhile, the weak yen has caused pain for many companies
by increasing input costs, making them just as cautious as
consumers - and reluctant to raise wages.  urn:newsml:reuters.com:*:nL2N2WH01L
    "Prices keep rising and rising for items we can't live
without, while salaries are flat," Takahashi said. 
    "I'm constantly racking my brains over what I can skimp on
next."
($1 = 130.6400 yen)

 (Reporting by Kantaro Komiya, Kentaro Sugiyama; Editing by
Chang-Ran Kim, Robert Birsel)
 ((Kantaro.Komiya@thomsonreuters.com; Twitter: @kantarokomiya))