Refile: ANALYSIS-No lunch in Ginza: Japan's scaled-back spending helps push economy to recession

RYOHIN KEIKAKU

15/02/2024 11:03

(Refiles to add dropped word "trillion" in paragraph 10)
    By Chris Gallagher and Akiko Okamoto
       TOKYO, Feb 15 (Reuters) - To grasp the dynamics that
bumped Japan into recession and off its perch as the world's
third largest economy on Thursday, look no further than Risa
Shinkawa's dining habits.
    Unlike unionised workers at big manufacturers such as Toyota
Motor  7203.T , the 32-year-old aesthetician isn't expecting a
pay rise anytime soon. Rather, her salary has been cut, a
reflection of the squeeze on the services sector, especially at
the smaller companies that employ some 70% of Japan's workforce.
    She's duly cut back on discretionary spending, which on
Thursday meant no buying lunch in Tokyo's upscale Ginza shopping
district.
    "My salary at work has gone down. So I've stopped going to
buy clothes and eating out in order to save money," Shinkawa
said as she stood on a busy Ginza corner on an unseasonably warm
afternoon, carrying a handbag but no telltale shopping bags.
    Shinkawa's frugality, and that of millions of others, is a
stark reminder of the economy's underlying fragility even as
Japan is on the cusp of ending years of central bank stimulus.
    Japanese consumers, used to years of flat prices, have been
punished as the weak yen currency has driven up the cost of
living, and everything from food to fuel.
    Although consumer prices have risen substantially, consumer
spending has not moved in tandem, said Hideo Kumano, chief
economist at Dai-Ichi Life Research Institute.
    "It really reflects how weak the trend in spending is,"
Kumano said of the data.
    Economic output fell 0.4% on an annualised basis in the
three months to December, official data showed, marking the
second straight quarter of contraction and meeting the
definition of a technical recession.
    That put the nominal gross domestic product (GDP) at $4.21
trillion for last year, below Germany's $4.46 trillion.
    Analysts and officials pointed to declining spending on
dining out as one of the reasons for the drop in consumption, as
well as warmer weather hitting sales of winter clothes and a
petering out of the post-COVID boom in demand for services.
    
    HIGHER FUEL - AND STOCK PRICES
    For 55-year-old Miho Ozaki, the pressure was coming from
higher petrol and electricity bills. "We've switched to an oil
fan heater and are trying not to drive too much," she said.
    The economic pain comes as Japan's stock market is enjoying
a surge thanks to improved governance at major corporations and
a weaker yen fattening profits for the likes of Toyota  7203.T  
and other manufacturers.
    But companies themselves are more likely to highlight
concerns about weakening consumption, and the impact of higher
prices on consumers, than crow about the benefits from the yen.
    Last month, retailing giant Aeon  8267.T  said customers
were becoming even more sensitive to prices. The company was
seeing more "fatigue" among shoppers when faced with higher
prices, Chief Strategy Officer Motoyuki Shikata told analysts.
    Warm weather also hit the apparel business, Aeon said.
Still, the company posted a rise in quarterly operating profit.
    For Ryohin Keikaku, which owns the Muji brand of clothing
and household goods stores, price increases have become a
balancing act. Shoppers have accepted increases on some products
but not on others, President Nobuo Domae told an earnings
briefing last month.  
    "We've raised prices in cases where we've had no choice but
to do so. We're doing our best to keep prices reasonable by 
really taking a close look at our manufacturing and production
processes," he said.
    Dai-Ichi Life's Kumano said he expected more pain ahead for
the Japanese economy, including another likely weak reading for
output in January-March, especially after the earthquake in
western Japan at the start of this year.
    But at least one person in Ginza said she wasn't upset about
spending less: Momoka Nakano, 26, said she had recently gone on
maternity leave.
    "I try to eat at home to save money as well as stay
healthy," she said.

 (Reporting by Chris Gallagher and Akiko Okamoto, Additional
reporting by Daniel Leussink and Ritsuko Shimizu; Writing by
David Dolan; editing by Miral Fahmy)
 ((david.dolan@thomsonreuters.com; +81 3 4563 2708;))