People have lunch at a seafood restaurant at Tsukiji Outer Market in Tokyo, Japan, February 15, 2024. REUTERS (File Photo)
TOKYO — 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, 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.
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“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.
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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 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 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.
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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.