Mon, Apr 17, 2017 - Page 15 News List

ANALYSIS: Frugal Japanese offer no respite for BOJ, retailers

Reuters, TOKYO

A woman looks at clothes at a Uniqlo store, operated by Fast Retailing Co, in Tokyo’s Ginza District on Tuesday.

Photo: Bloomberg

Naruhito Nogami, a 37-year-old systems engineer in Tokyo, drives to discount stores on weekends to bulk buy cheap groceries, even though he earns enough to make ends meet and the prospects for Japan’s economic recovery are brighter.

“I do have money, but I’m frugal anyway. Everyone is like that. That’s just the way it is,” he said.

Kazuko Sato, a 50-year-old animation artist, also frequents discount chain Daiso, where most items ranging from groceries and bath towels to kitchenware sell for just ¥100 (US$0.92).

“I look for things here first and if they aren’t here then I go to the supermarket,” she says, cradling a basket in the stationery aisle. “My job and salary are unstable, so I need to be careful about my spending.”

People like them have prompted some companies to embark on sweeping price cuts, showing how tough it will be to eradicate Japan’s deflationary malaise despite the improving economy.

It also highlights a new paradox facing the Bank of Japan (BOJ): A disparity between solid growth and stubbornly weak inflation.

Top retailer Aeon Co is cutting prices for more than 250 grocery items this month to lure cost-savvy shoppers and Seiyu, operated by Wal-Mart Stores Inc, cut prices on more than 200 products from February.

“It’s unthinkable for us to raise prices at this stage,” Fast Retailing Co chief executive officer Tadashi Yanai said after the owner of clothing brand Uniqlo reported flat revenue on Thursday.

To be sure, many retailers say they are protecting their bottom line by offering not just discounts, but high-end products.

“It’s not just prices consumers are looking at. They are just being selective,” supermarket chain operator Life Corp president Takaharu Iwasaki said.

However, central bank policymakers are struggling to explain why inflation and wages remain so low even as Japan’s economy enjoys its third-longest recovery since World War II.

“It’s a new conundrum for us,” one official said. “It just shows how sticky Japan’s deflationary mindset is.”

Japan’s economy has sustained a modest recovery cycle that started when Japanese Prime Minister Shinzo Abe took power in late 2012 and launched his “Abenomics” package of aggressive monetary and fiscal stimulus measures, and structural reforms.

A rebound in overseas demand has helped boost exports and output, pushing up business confidence to its highest in a year-and-a-half, with companies upbeat on their spending plans.

Encouraged by the positive data, the BOJ is expected to offer a more upbeat view of the economy at this month’s rate review than it did last month, people familiar with the matter said.

The benefits of the recovery have yet to reach households, though, despite four years of heavy money printing by the central bank and fiscal spending packages.

Real wages have been largely flat, despite job losses hitting a 22-year low, as firms remain wary of raising wages.

Core consumer inflation remained stuck at 0.2 percent in February, well below the BOJ’s ambitious 2 percent target, as companies hold back on price rises for fear of scaring away cost-sensitive households.

Japan’s demographics are a key factor working against consumption.

Nearly 30 percent of the population will be aged 65 or above in 2020, according to a government estimate.

Living off pensions, elderly households are unaffected by any wage hikes and tend to withhold spending, analysts say.

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