Japan’s economy revs up, but analysts sceptical whether robust spending will last

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                                                             (World Today Friday 18 August 2017)

      Japan’s economy revs up, but analysts sceptical whether robust spending will last

A busy street in Tokyo. While the sales of durable goods in Japan have been picking up,

experts are unsure if this trend will persist. Photo: Reuters

Updated 11:50 PM, August 18, 2017 

TOKYO — Economists are busy trying to find the right answer to a tricky question of late: Are Japanese consumers finally beginning to loosen their purse strings?

The answer may be yes, at least for now. Private consumption, accounting for nearly 60 per cent of Japan’s economy, rose 0.9 per cent in the April-June period in real terms following five quarters of modest growth between 0.1 per cent and 0.4 per cent, an encouraging sign of strengthening domestic demand.

Sales of durable goods, ranging from cars to electronic appliances, have been picking up, while stabilising prices of fresh food has helped consumer sentiment.

It appears that consumption has been given a boost this northern summer as some Japanese retailers have reaped the benefits of the scorching heat.

Higher temperatures and longer hours of sunshine than in an average year are also thought to have helped stimulate demand for a wide range of products as well.

“It’s extremely hot this summer and we’ve seen strong sales of air-conditioners, with revenue doubling from a year ago,” a home appliance retailer said in a recent government survey.

The uptick in demand for durable goods also prompted many consumers to trade in old items nearing their replacement cycles and purchase new ones, according to some economists.

Still, many economists have yet to conclude whether this means increasing domestic demand in which both consumers and companies step up spending.

Mr Toru Suehiro, a senior market economist at Mizuho Securities, said that he cannot think of “good reasons” why the pace should continue to keep up.

Sluggish consumption has been a headache for policymakers and economists, complicating efforts by Prime Minister Shinzo Abe and the Bank of Japan to lift the economy out of years of deflation.

Whether consumers will continue to spend money in the coming quarters is critical as the Japanese economy, now in its third-longest expansion phase in the postwar era, looks on course to exceed the 57 months of growth in the Izanagi boom between 1965 and 1970.

According to the Bank of Japan, the seasonally adjusted consumption activity index for the April-June period marked the highest growth rate on quarter since the first three months of 2014. That was before the consumption tax rate was raised to the current 8 per cent from 5 per cent.

Mr Abe, urging companies to raise pay, has boasted that employment conditions and income have been improving under his policy mix, known as Abenomics.

This year, summer bonuses at major Japanese companies fell for the first time in five years. They averaged ¥878,172 (S$8,000), down nearly 3 per cent from a year earlier, data compiled by the Japan Business Federation showed.

But economists generally agree that wage growth needs to accelerate further to boost consumption as uncertainty about the future, such as swelling social security costs, remains.

“Real wages have been more or less flat in recent months, which wasn’t much of a headwind or a tailwind,” said Mr Yuichiro Nagai, an economist at Barclays Securities Japan. Mr Nagai expects the nation’s consumption to slow in the July-September quarter after strong growth and as real wages will likely fall.

Policymakers and economists say such tightness in the labour market should lead to higher wages as companies are in an increasingly intense hunt for workers.

Also, the number of people aged between 15 and 64 who prefer not to work has been on a downtrend, a sign that labour participation has been increasing.

In addition to higher wages, there is optimism that the country’s labour shortage could also encourage companies, hoarding cash amid worries about business prospects, to step up investment in automation and equipment to streamline operations to save labour.

But Mizuho Securities’ Mr Suehiro is sceptical of the scenario, saying such spending would have only a “limited, one-time” effect on the overall economy because it is designed to “keep, rather than increase, output level”.

The government, for its part, has warned that the labour shortage could become a bottleneck to economic growth at a time when the country’s population is rapidly ageing.

Laying the solid foundation for longer-term growth driven by vigorous private consumption and capital expenditure remains an ongoing process.

“We are at a juncture where we need to see whether the economy can get a sustainable boost from domestic demand,” a senior government official said. What is needed is an additional push in helping reduce uncertainty over the future outlook, the official added. KYODO NEWS