Rising prices are forcing Japanese pensioners to reduce spending, undercutting Prime Minister Shinzo Abe’s plan to boost economic growth and pay down the hefty public debt burden in one of the world’s fastest aging nations.
“There is no solution to the structural problem: the government is running a huge budget deficit, but the only way to coax the elderly into spending more is by increasing public spending on them,” said Dai-ichi Life Research Institute (DLRI) chief economist Hideo Kumano.
Japan limped out of a technical recession in the fourth quarter of 2014, but consumers are still struggling. A 3-percentage-point tax hike to 8 percent last April continues to weigh on consumption, while higher import prices have exacerbated the situation due to the yen’s over 40 percent decline against the U.S. dollar since Abe’s return to power.
In January, Japanese household spending fell 5.1 percent on month – its 10th consecutive decline, marking the longest losing streak since the global financial crisis. Meanwhile retail sales fell 2.0 percent – their first decline in 7 months.
The elderly are reducing spending the most.
“The average Japanese is suffering because of a weaker yen,” said Keio Business School associate professor Seki Obata, but “pensioners are suffering the most from the rising prices because there is no prospects of their incomes rising.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.