Consumers in Japan question their economy

Japan's consumer confidence held steady at a three-year low last quarter as incomes fell and unemployment rose to a record.

The government's quarterly consumer confidence index, which measures expectations for the next six months, was unchanged at 36.9 in December. Confidence in job and income prospects fell to record lows.

As jobs dry up, people like 28-year old Yoshiaki Yamamoto, an out-of-work electrical engineer, say they plan to cut spending in coming months. A slide in consumer spending, which makes up 55 percent of the world's second-largest economy, may deepen a recession that's already in its 15th month.

"I'll get by for a while on part-time jobs," said Yamamoto, who says falling profit at his old employer prompted him to quit earlier this month. "I don't regret my decision, but I'm worried about the future because the field has changed a lot and I no longer have a salary."

Confidence in jobs fell 0.5 points to 19.6, and the outlook for incomes dropped to 36.2, both the lowest since the government began collating the data in its current form in 1982.

Falling consumer prices increased people's spending power, countering those declines. Confidence in prices rose 2.8 points to a record 50.4 in December, keeping the overall index from falling for a second quarter.

Japanese consumer prices fell 0.7 percent last year, the biggest decline in 30 years. While that's bad news for companies, deflating asset values and profits, it helps consumers buy more with their paychecks, allowing them to maintain their standard of living even as wages fall.

An overall confidence index reading below 50 means more respondents were pessimistic than optimistic.

Spending is already flagging. Retail sales fell 3.1 percent in December from November, a separate government survey showed, capping the fifth annual drop.

Meanwhile, Japanese retail sales fell for a record fifth straight year last year as the spending boom that helped fuel the bubble economy of the 1980s crumbled in the face of rising unemployment and the nation's third recession in a decade.

Retail sales fell 2.2 percent last year, Ministry of Economy, Trade and Industry figures showed. Japan's biggest retailers, such as No. 1 department store Takashimaya Co and supermarket operator Daiei Inc. are among the hardest hit, with sales at large retailers falling for the 10th straight year, down 3 percent.

The slide in spending has already driven No. 4 retailer Mycal Corp and 170-year-old department store Sogo Co into bankruptcy and may threaten Daiei's ability to stay in business. Shoppers are shunning pricey department stores in favor of discount retailers.

"Every consumer is feeling poorer, with overtime hours falling and unemployment rising," said Takashi Yanahira, retail analyst at ING Baring Securities.