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Japan's consumers begin to open up their wallets

"It's the real thing."

Stefan Worrall, an economist at Credit Suisse First Boston in Tokyo

Kenshin Nakanishi peruses the wall of flat-screened televisions with price tags reaching ?1.68 million (US$15,000) at a gleaming new nine-story electronics store as big as a city block.

Thanks to this year's pay raise and a juicy 20 percent jump in his summer bonus, the 35-year-old can finally afford a new set and a comfy sofa to watch it from -- to help fill out the pricey apartment he just moved into.

"A lot of people are spending now," Nakanishi said.

Long renowned for their assiduous savings, Japanese consumers like Nakanishi are at long last opening their wallets. And the spending habits are a big reason to be optimistic that Japan's economic rebound from 15 years in the doldrums is not a false dawn like the brief upticks that have sparked hopes every few years.

Domestic consumption is becoming a growth engine for the world's second-largest economy and may even help reduce the ballooning US trade deficit. Coupled with falling unemployment, steady exports and a rallying stock market, Japan's long-maligned economy seems finally poised to turn the corner.

"It's the real thing," said Stefan Worrall, a Tokyo-based economist at Credit Suisse First Boston. "You have the foundations for quite a long, sustainable domestic recovery. It's going be pretty hard to reverse."

When Japan's stock and real estate bubbles burst in the early 1990s, the country slumped from economic role model to cautionary tale on the excesses of protectionism, loose lending and state-championed industries.

Growth flatlined, corporate earnings plunged and banks were swamped by bad debt. Salaries shrank, while unemployment hit historic highs. The quagmire dragged on for more than a decade as Japan opted for gradual reform instead of the "shock therapy" urged by international investors.

But years of corporate belt-tightening, layoffs, bad loan write-offs, deregulation and cuts in pork-barrel spending have helped whip the economy in shape, economists say.

Overall household spending dipped 0.6 percent in August, but the index of consumer sentiment climbed to its highest in a year. Meanwhile, nationwide retail sales rose 1.5 percent for a sixth straight month of gains.

"The major factor is the consumer looks more resilient," said Glenn Maquire, chief economist at Societe Generale in Hong Kong.

Looming risks remain though.

Japan imports nearly all of its oil, and businesses fretted when crude prices peaked at US$70.85 a barrel on Aug. 30. Prices have eased but are still double those of 2003. In addition, a slowdown in the US could cool demand for Japan's major exports -- cars and electronics.
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