Now that Japan has lifted its latest state of emergency over the virus, the economy could get a major boost if shoppers splash out with the extra ¥20 trillion ($180 billion) they saved while they were cooped up.
In places like the United States and the United Kingdom, pent-up consumer demand has helped fuel strong recoveries, but whether the floodgates will open quite as wide in Japan is an open question.
Japanese households are known for socking their money away and the country’s older people, in particular, tend to be ultra-careful about spending because they worry about outliving their savings. Still, people like 80-year-old Akira Yamada are itching to get out after more than 18 months in quasi-confinement.
“I’m ready to spend some,” he said by phone from his house in the city of Saga. “I’m really looking forward to finally being able to drink and eat out with people.”
What consumers choose to do as Japan lifts its fourth state of emergency Friday is likely to determine the strength of the recovery that incoming Prime Minister Fumio Kishida inherits, especially given that exports are slowing amid global supply chain problems. Kishida has put increasing family incomes at the center of his economic agenda.
“I expect a fairly big boost from consumer spending,” said economist Tatsushi Shikano at Mitsubishi UFJ Morgan Stanley. “With a new fiscal spending expected from Kishida, there is even an upside risk for Japan’s economy.”
“We’ll probably see a pretty big divergence in spending between the rich and the poor,” said Yuki Masujima, economist at Bloomberg Economics. “In that sense, Kishida’s policy goal of narrowing the gap could play a vital role for a smooth recovery of spending.”
Japan’s households saved up a ton during the pandemic, with their financial assets hitting a record at the end of June. So-called “forced savings,” money that couldn’t be spent because of restrictions on activity, climbed to ¥20 trillion amid the crisis, according to the Bank of Japan.
There are signs that pent-up demand may already be materializing. Sales of BMWs rose 15% through August this year, rebounding from a double-digit decline in the same period a year ago, according to the Japan Automobile Importers Association.
Some 93% of people 50 or older want to take at least one trip within a year of being vaccinated, a survey released in June by marketing company Yuko Yuko Holdings showed.
A fully vaccinated rate of around 60% has helped bring down infection rates and allowed authorities to lift the emergency, although restaurants and bars are still being asked to close by 9 p.m.
A longer-term impediment to a consumer revival, though, is Japan’s track record of weak wage growth, which has made people wary.
“Consumer spending will rise in the short-term, which is good for the economy, but I don’t expect that to continue,” said economist Masamichi Adachi at UBS Securities. “Cautious Japanese consumers won’t keep spending generously.”
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