Analysis: Japan's frugal households offer no respite for BOJ, retailers
14/04/2017 09:22
* Top retailers cut prices to attract shoppers
* Demographics among factors working against consumption
* BOJ puzzled at disparity between economy, prices
* Households spend most on food in 29 years
By Leika Kihara and Kaori Kaneko
TOKYO, April 14 (Reuters) - Naruhito Nogami, a 37-year-old
systems engineer in Tokyo, drives to discount stores on weekends
to bulk buy cheap groceries, even though he earns enough to make
ends meet and the prospects for Japan's economic recovery are
brighter.
"I do have money, but I'm frugal anyway. Everyone is like
that. That's just the way it is," he says.
Kazuko Sato, a 50-year-old animation artist, also frequents
discount chain Daiso, where most items ranging from groceries
and bath towels to kitchenware sell for just 100 yen ($0.91).
"I look for things here first, and if they aren't here then
I go to the supermarket," she says, cradling a basket in the
stationery aisle. "My job and salary are unstable so I need to
be careful about my spending."
People like them have prompted some companies to embark on
sweeping price cuts, showing how tough it will be to eradicate
Japan's deflationary malaise despite the improving economy.
It also highlights a new paradox facing the Bank of Japan: a
disparity between solid growth and stubbornly weak inflation.
Top retailer Aeon Co 8267.T is cutting prices for over 250
grocery items this month to lure cost-savvy shoppers, and Seiyu,
operated by Wal-Mart Stores WMT.N , cut prices on more than 200
products from February.
"It's unthinkable for us to raise prices at this stage,"
Fast Retailing Co 9983.T CEO Tadashi Yanai said after the
owner of clothing brand Uniqlo reported flat revenue on
Thursday.
To be sure, many retailers say they are protecting their
bottom line by offering not just discounts but high-end
products.
"It's not just prices consumers are looking at. They are
just being selective," said Takaharu Iwasaki, president of
supermarket chain operator Life Corp 8194.T .
But central bank policymakers are struggling to explain why
inflation and wages remain so low even as Japan's economy enjoys
its third-longest recovery since World War Two.
"It's a new conundrum for us," one official said. "It just
shows how sticky Japan's deflationary mindset is."
DEMOGRAPHICS DRAG
Japan's economy has sustained a modest recovery cycle that
kicked off when Prime Minister Shinzo Abe took power in late
2012 and launched his "Abenomics" package of aggressive
monetary, fiscal stimulus measures and structural reforms.
A recent rebound in overseas demand has helped boost exports
and output, pushing up business confidence to its highest in a
year and a half, with companies upbeat on their spending plans.
Encouraged by recent positive data, the BOJ is expected to
offer a more upbeat view of the economy at this month's rate
review than it did last month, people familiar with the matter
said. urn:newsml:reuters.com:*:nL3N1HM26G
The benefits of the recovery have yet to reach households,
though, despite four years of heavy money printing by the
central bank and fiscal spending packages.
Real wages have been largely flat despite job losses hitting
a 22-year low, as firms remain wary of raising wages.
Core consumer inflation remained stuck at 0.2 percent in
February, well below the BOJ's ambitious 2 percent target, as
companies hold back on price rises for fear of scaring away
cost-sensitive households.
Japan's demographics are a key factor working against
consumption. Nearly 30 percent of the population will be aged 65
or above in 2020, according to a government estimate. Living off
pensions, elderly households are unaffected by any wage hikes
and tend to withhold spending, analysts say.
Miyako Minamizawa, a 65-year-old pensioner in Tokyo, says
the recovery hasn't changed her life. "I don't feel like the
economy is doing well," she said, adding she is dipping into her
savings because her pension isn't enough to get by on.
In the capital's upmarket Ginza shopping district,
72-year-old Shimako Naito said: "I used to often impulse buy, on
quite expensive clothes and jewellery, but now I take my time
and try and buy when things are cheaper."
Inefficiencies in Japan's highly-protected farm sector have
kept fresh food prices high and volatile. A weak-yen trend also
hurt households by pushing up the price of imported goods.
Food prices rose 1.7 percent in 2016 from a year earlier,
even though overall consumer prices fell 0.1 percent.
Households used 26 percent of their income to buy food last
year, the highest level in almost three decades, leaving them
with little left to spend on non-necessities.
Food products topped the list of items that households spent
more on, a quarterly BOJ survey showed this month, while
households cut spending most on eating out, clothing and travel.
Roughly 80 percent of households who replied to the BOJ's
survey said they feel price rises are a bad thing, a sign the
central bank has failed to convince the public of the benefits
of putting a sustained end to growth-sapping deflation.
Masayuki Yamamuro, 51, who works at a real estate firm, says
he eats out less and is cutting down on spending because grocery
shopping is becoming more expensive.
"My salary hasn't risen. I want to buy a car, own a house or
go travelling. But I'm not able to do that."
($1 = 109.1600 yen)
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Japan inflation and BOJ's battle with deflation http://tmsnrt.rs/28KmQnX
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(Additional reporting by Sam Nussey, Malcolm Foster, Minami
Funakoshi and Ritsuko Shimizu; Editing by Ian Geoghegan)
((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters
Messaging: leika.kihara.reuters.com@reuters.net))
Keywords: JAPAN ECONOMY/PRICES