|Japan’s household spending declined by 3.9% in January as warm weather stunted the sales of winter goods, equipment, and winter-related activities, like skiing. / Photo by: Photografeus via Shutterstock|
Japan’s household spending declined by 3.9% in January as warm weather stunted the sales of winter goods, equipment, and winter-related activities, like skiing. This is according to the Japan Times, citing government data. The monthly drop of household spending was already the fourth in a row.
Household spending is the amount of final consumption expenditure made by resident households to meet their everyday needs, including food, housing (rent), clothing, health costs, miscellaneous services, leisure, transport, and durable goods (cars). It is an important variable for economic analysis of demand in a country and it accounts for more than half of the country’s gross domestic product.
Household spending comprising about two or more people is worth ¥287,173 in real terms, said Japan’s Ministry of Internal Affairs and Communications. In October, the country also raised its sales tax rate from 8% to 10% and it weighted on people’s consumption. Such a rate applies to nearly all services and goods in the country although most foods are exempt. The increase of sales tax hit spending but in a bid to offset the effect, the government introduced measures, like rebates for electronic purchases or using e-money.
The ministry official added that although the January decline was smaller compared to the 5.1% drop in October and a 4.8% fall in December 2019, the pace of the decline worsened from 2.0% in November. Then, there was the coronavirus pandemic. The official added that while the impact of the pandemic was “not clearly seen” in the reporting months, it will likely show for the coming months.
Certain sectors in the country that are taking a hit from the pandemic are leisure and dining. This means people are no longer spending on these sectors because they are staying at home to avoid virus exposure. The purchase of daily goods caused by panic buying also rose, which is the reason it has become difficult to forecast how overall consumption in the country is affected.
The amount of money spent on communication and transportation also fell by 7.9% and, in recreation and education, dropped by 6.1%. The only category that shows an increase in the reporting month is for healthcare expenditures with a 3.1% increase, partly because of the increase of purchases of face masks and hand sanitizers. After adjusting the household spending for inflation, the average monthly earnings of salaried households in Japan with at least two people increased by 2.1% from ¥484,697 a year prior.
Intergovernmental economic organization founded to stimulate economic progress and world trade Organisation for Economic Co-operation and Development’s data showed the household spending of the following countries corresponding the latest available year: United States 2018 (US$13,555,702), China 2018 ($9,809,086), Japan 2018 ($2,839,100). Germany 2019 ($2,346, 664), Indonesia 2019 ($2,112,477), Brazil 2017 ($2,063,193), and Russia 2018 ($2,052,598).
Household spending is believed by analysts to have fallen due to warm weather in Japan. Brokerage SMBC Nikko Securities’ senior economist Koya Miyamae said via Reuters that consumers in Japan did not only refrain from spending after the sales tax hike but also due to warm weather. Then, this was followed by the coronavirus outbreak in February. With the pandemic disrupting businesses and curtailing travel across the country, room bookings in hotels are also down to a third of what they were in 2019.
The leading factors that consumers take into account when making spending decisions in Japan as of September 2019 are the increase or decrease in their household’s income (57.8%), future development in prices (48.1%), an increase in leisure time and holidays (25.7%), whether there are appealing goods and services (20.1%), an increase or decrease in the value of my household’s assets - savings, stocks, real estate (16.4%), progress in loan repayments (14.6%), other (6.5%). These statistics were provided by database company Statista.
Tokyo 2020 Olympics postponed
The Tokyo Olympics will also be postponed until 2021 after talks between the country’s Prime Minister Shinzo Abe and the International Olympic Committee president Thomas Bach. The talks led to an inevitable decision because of the coronavirus pandemic. PM Abe said that the cancellation of the Olympics was out of the question and Bach agreed “100%.” The PM told the reporters that it would be the best way to make sure that athletes are in their peak condition when they compete and this will also guarantee the safety of the audience.
Japan Fencing Federation’s vice president Yuji Ota thanked everyone involved in the preparations: “What you have done means a lot. But first, we have to get through coronavirus.” He added, “health must come first.”
|The Tokyo Olympics will also be postponed until 2021 after talks between the country’s Prime Minister Shinzo Abe and the International Olympic Committee president Thomas Bach. / Photo by: kovop58 via Shutterstock|
Economic impact on Olympic-host cities
In a 2017 study from the Grand Valley State University, author Michael P. Overmyer explained that when a city decides to undertake an Olympic Games, they do so with the belief that hosting the international sporting event will direct financial benefits. It also brings economic benefits, such as broadcast revenue, increased tourism, sponsorships, employment, licensing, and ticket sales. However, it also involves costs, such as building infrastructure and operational costs.
The estimated loss from the Olympics being delayed until 2021 was not expected by the government two months ago nor was the coronavirus that affected their tourism. The 2020 festivity was supposed to be the crowning glory of PM Shinzo Abe but is somehow darkening now. Rating agency Fitch Ratings’ economists also think that the pandemic will cut 1.1% off the country’s gross domestic product in 2020. Of course, it’s not the fault of Japan but the existential threat of Covid-19 that started in Wuhan, China.
What must Japan do?
Financial columnist William Pesek, who authored the book “Japanization: What the World Can Learn from Japan's Lost Decades,” said that a combined monetary and fiscal operation is needed. For instance, the country should reverse its sales tax hike even if it is just temporary. Another plan is for the government to consider adding a zero to its stimulus package. It means a package of tax rebates and incentives used by governments of various countries to stimulate the economy and save their country from a financial crisis. Providing tax rebates leads to a boost in spending. This cycle will help the economy recover from its collapse. The government should likewise devise a plan that will pump cash into small and mid-sized businesses as well as households.
The delay of the Tokyo Olympic Games may be a blow to Japan’s economy but is only secondary to the fallout caused by the pandemic.