Insight: Japanese shoppers open their wallets, raising hopes for sustained revival

SKYLARK HOLDINGS

14/08/2017 13:27

* Tight labour market starting to lift consumption 
    * Spending trends offer hope for PM Abe's reflation drive 
    * Outlook starting to brighten after several false dawns 
 
    By Stanley White and Chehui Peh 
    TOKYO, Aug 14 (Reuters) - Japan's cautious consumers are 
starting to loosen up, spending more on cars and home appliances 
and offering hope that domestic demand - and not just exports - 
will be strong enough to reflate an economy that has been 
sluggish for many years. 
    The tightest labour market since the 1970s seems to be a 
playing a role. Temporary and part-time workers are getting paid 
more to help fill shifts, and that is helping lift sales.  
    Consumption was the main driver behind Japan's 
second-quarter economic growth, which expanded at an annualized 
4 percent, gross domestic product data released on Monday 
showed, the strongest in more than two years and much higher 
than the growth achieved by the United States and the European 
Union. 
    "I ended a big project today, and I wanted to give a present 
to my girlfriend who has always been supportive, so I bought her 
a Tiffany necklace," said Yusuke Kawashima, a 29-year-old 
freelance software programmer in Tokyo. 
    "Quite a few of my friends have said they either had a pay 
raise or received a large bonus, so I think they'll be spending 
as well." 
    Wage hikes for part-time workers in Japan have accelerated, 
rising to 2.3 percent year-on-year in May from 0.7 percent in 
August 2016. Salaries for full-time workers, though, have been 
little changed. 
    Susumu Ikeda, 70, says shoppers are buying more at his 
musical instrument shop in Tokyo's tony Ginza shopping district, 
and senses the economy is taking a turn for the better. 
    "Some may be cynical about our growth, but compared to our 
worst we are getting much better," he said. 
    Furniture maker Nitori Holdings Ltd  9843.T , convenience 
store leader Seven & i Holdings Co  3382.T  and coffee shop 
chain Doutor Nichires Holdings  3087.T  all reported rising 
domestic sales in their recent earnings reports.  
    Sales of new cars accelerated in April-June from the 
previous quarter, and GDP data showed higher purchases of 
appliances, such as air conditioners. 
    Private consumption - which accounts for almost 60 percent 
of GDP - rose in the second quarter at the fastest pace in more 
than three years, offering the most definitive sign yet that 
consumers have shaken off the impact of a sales tax hike in 
2014. 
    For some, like 31-year-old Tokyo office worker Natsuki Abe, 
the economy just feels healthier. 
    "I do think the economy is doing better than it was before, 
but it's just a feeling," she said. "My company is doing well, 
and I think I do have the money to spend on things that I like 
and want. I mainly spend on clothes, as I want to look good." 
            
    COMPETING FOR WORKERS 
    There have been previous such advances that have turned out 
to be temporary during Japan's many years of economic weakness 
since the early 1990s, with consumer spending often a culprit as 
it loses momentum. 
    This time may be different, though, some economists argue. 
That is because the unemployment rate is now low enough - 2.8 
percent - to lift wages. 
    Many economists say Japan reaches full employment, the 
lowest level of joblessness before upward wage pressures arise,  
when the jobless rate falls to 3 percent.     
    Japan's aging population, and the resulting big drop in the 
size of its workforce, is a major reason for this. 
    "Wage growth will accelerate going forward, because 
companies have to raise wages to compete for new workers and to 
retain workers," said Takuji Adia, chief economist at Societe 
Generale. "This happens when the unemployment rate falls below 3 
percent." 
    When Prime Minister Shinzo Abe took office in late 2012, the 
jobless rate was at 4.3 percent. Consumer spending boomed as a 
stock-market rally fuelled optimism about the new government but 
then lost momentum because wages were not rising that much.  
    Some of Abe's structural reforms, such as narrowing the wage 
gap between contractors and full-time employees doing the same 
work, raising the minimum wage, and encouraging people to move 
to better-paying jobs, are also starting to pay off.     
        
    DEFLATIONARY MINDSET 
    One major concern is that Japan's consumer spending revival 
has yet to translate into faster inflation; core consumer prices 
rose a meager 0.4 percent in the year to June and inflation 
expectations remain weak. 
    The United States and Europe are also struggling to generate 
inflation despite improving growth, but Japan's case is peculiar 
because of the decades of deflation and stagnation following the 
collapse of the bubble economy in the early 1990s. 
    That's produced a deflationary mindset among many people 
that cannot easily be changed. 
    And as the country's population shrinks and ages, saving for 
the future has become a top priority for many. 
    "My husband's parents and my parents are getting old, and 
their pensions will not be enough for them to sustain 
themselves," said Chisa Tsubuki, a 28-year-old childcare worker. 
"So in anticipation for the future where nursing and healthcare 
costs will rise for us, we need to save." 
    Still, the economy looks like it is at long last starting to 
move in the direction the Bank of Japan predicted. 
    The BOJ's tankan survey shows more service-sector companies 
want to raise prices in the future. One example is family 
restaurant operator Skylark Co  3197.T , whose president said 
earlier this month that it will hike prices from October. 
    "Consumers' perception of retail prices are changing, and 
people no longer buy something simply because it's cheap," a 
spokesman at the Takashimaya department store chain said.  
    "During our summer sale, the items that were not discounted 
actually sold better than the discounted items." 
 
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Japan's wages and consumption    http://reut.rs/2fE11PD 
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 (Additional reporting by Ritsuko Shimizu; Editing by Martin 
Howell) 
 ((stanley.white@thomsonreuters.com; +81 3 6441 1984 
twitter.com/stanleywhite1; Reuters Messaging: 
stanley.white.reuters.com@reuters.net)) 
 
Keywords: JAPAN ECONOMY/CONSUMPTION