Japan’s pandemic raises deflationary fears as liquidity hoarding returns

TOKYO: The sharp rise in coronavirus infections in Japan has pushed local families to do what they have always done in times of crisis: spend less and save more, sparking fears of a deeper retail recession and grinding deflation.

50-year-old Hiromi Suzuki does so after she quit her job at a creative store in Tokyo in December after the pandemic hit sales.

“I’m trying not to spend the money,” she said while walking her dog through town.

“Since I don’t go out often, I don’t buy cosmetics or clothes anymore.”

Suzuki is an example of the problems Japan faces as it reinstated the Covid emergency in January, hurting spending on services, which accounts for a third of total consumption.

High-frequency data shows that consumption began to falter even before the emergency in January, leaving policymakers by surprise, forcing both the government and the central bank to lower their private spending assessments.

Bank of Japan Governor Haruhiko Kuroda said last week, “Service spending is falling sharply.”

We do not expect Japan to return to deflation. But we need to be cautious about price movements given the high degree of uncertainty about the outlook. “

As demand for some commodities consolidates, analysts warn that they will not be strong enough to offset deflationary pressures from weak spending on services.

“The economy will be in bad shape in the first quarter, which will push prices down,” said Hiroshi Ojai, chief Japanese economist at JPMorgan Securities.

“Prices will remain mainly weak this year.”

Despite the rebound after the initial lockdown measures lifted in May, consumption lost momentum later, dropping more than 4% in November from pre-epidemic levels in January, according to the Bank of Japan’s spending gauge.

This is mostly due to a 10% decline in spending on services, which contrasts with an 8% increase in the consumption of durable goods.

The pain persisted in December with consumption down 11.5% from a year ago, mainly due to a 20% drop in spending on services, according to research firm Nowcast and credit card company JCB.

Spending on restaurants decreased by 36% while dining at izakaya bars decreased by 47%, both of which represented the largest decline since May.


A government request to close restaurants early means retailers are now feeling restless.

Monterosa, which runs several popular chains of bars, said it would close 61 of Tokyo’s 337 locations.

Meanwhile, Takeshi Ninami, CEO of the beverage giant at Suntory Holdings, predicts that 30% of all bars and restaurants may fail in the coming months.

The average number of customers per restaurant dropped 60% in January from a year ago, data showed by booking site TableCheck, faster than a 23% drop in November and a 40% drop in December.

Also, Japanese families do not spend much on other items.

A survey conducted by the Bank of Japan shows that more than 70% of households do not plan to change the amount they spend enjoying time at home.

Instead, they are amassing cash in banks, as they have done during every crisis including two decades of debilitating deflation that haunted Japan until 2013.

Bank deposits increased by 9.3% in December compared to the previous year, reaching a record high of 803 trillion yen.

HSBC estimates show that households are expected to save 45.8 trillion yen, or 8.5% of GDP, last year, up from 14.5 trillion yen in 2019.

“Unless concerns about the epidemic are eliminated, the money accumulated in bank accounts will not be spent,” said Toshihiro Nagahama, chief economist at the Dai Ichi Institute of Life Research.

The Bank of Japan played down concerns about a return to deflation, arguing that companies are not cutting rates across the board because doing so would eat up already slim profit margins.

However, core consumer prices fell 1.0% in December compared to the previous year, marking the largest drop in a decade, in a sign of weak demand for increased deflationary pressures.

Even fashion group Fast Retailing Co Ltd, seen as flexible due to the growing demand for its casual home wear, is planning to lower prices for the GU brand’s spring and summer collections.

While Fast Retailing is wary of price cuts in its flagship brand, Uniqlo, cuts are due in the coming months to reduce inventory, CFO Takeshi Okazaki said earlier this month.

The hope is that more families act like Noriko Endo, an 81-year-old retiree who controls spending but sometimes indulges in luxuries like tuna sashimi, their favorite food.

“Once the epidemic is over, I would like to go crazy traveling and shopping in a department store,” she said.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button