By: Dr. Mike Campbell
Japan is still struggling with deflation where prices for some goods decline with time.
This means that consumers delay making larger purchases for as long as possible
in the knowledge that the goods will be cheaper when they eventually buy them.
Whilst from a consumer’s perspective this may sound good, it dampens demand in the
domestic economy, threatening growth and employment prospects.
Data just released has shown that Japanese consumer sentiment is improving. The
most recent reading of the consumer sentiment index shows that it has risen by 1
point to 41.1 in January. The index measures the proportion of consumers who are
optimistic about the future economic outlook compared to those who are pessimistic
about it. A value of 50 indicates a neutral outcome. So whilst the data shows that
sentiment is improving, it underlines the fact that most Japanese are still pessimistic
about the country’s economic outlook currently.
Steps Towards Help
The government has tried to stimulate consumer spending by producing incentives for
consumers to buy certain goods such as cars, household appliances and electronics on
the basis of their environmental qualities. Some of these subsidies have already ended,
but others will remain in place until the end of the quarter.
The Bank of Japan (BOJ) has adopted a bullish stance about the country’s prospects.
According to Hidetoshi Kamezaki, a policymaker with the BOJ, the economy is
expected to "escape from a lull towards spring". Whilst manufacturing output and
demand from China and the States seems to be strengthening, Toyota recently
announced a 39% fall in quarterly profits. The slump has been blamed on weak
domestic demand and the fact that the high Yen is hurting exports, so it remains to be
seen if the Bank’s optimism is merited.