Japan’s COVID crisis reawakens deflation fears as cash hoarding returns By Reuters

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© Reuters. FILE PHOTO: Shimahara, proprietor of an “izakaya” prepares to shut his store in Tokyo

By Leika Kihara and Kaori Kaneko

TOKYO (Reuters) – A spike in coronavirus infections in Japan is driving native households to do what they’ve at all times carried out in instances of crisis: spend much less and save extra, stoking fears of a deeper retail recession and grinding deflation.

Fifty-year-old Hiromi Suzuki is doing simply that having give up her job at a Tokyo novelty retailer in December after the pandemic hit gross sales.

“I try not to spend money,” she mentioned, strolling her canine within the metropolis. “Since I don’t go out much, I don’t buy cosmetics or clothes any more.”

Suzuki’s case exemplifies the difficulty Japan faces as COVID state of emergency measures have been reinstated in January, hitting spending on companies, which makes up one-third of complete consumption.

High-frequency information reveals consumption started to falter even earlier than January’s state of emergency, catching policymakers off guard and forcing each the federal government and central financial institution to chop their assessments on personal spending.

“Service spending is slumping sharply,” Bank of Japan Governor Haruhiko Kuroda mentioned final week. “We don’t expect Japan to return to deflation. But we need to keep vigilant on price moves given very high uncertainty over the outlook.”

While demand for some items is holding up, analysts warn it will not be sturdy sufficient to offset deflationary pressures brought on by weak service spending.

“The economy will be in bad shape in the first quarter, which would push prices down,” mentioned Hiroshi Ugai, chief Japan economist at JPMorgan (NYSE:) Securities. “Prices will essentially remain weak this year.”

Despite a rebound after preliminary lockdown measures have been lifted in May, consumption later misplaced momentum, falling greater than 4% in November from January’s pre-pandemic ranges, in accordance with a BOJ gauge of spending.

That was principally because of a ten% droop in companies spending, which contrasted with an 8% acquire in sturdy items consumption.

The ache continued in December with consumption falling 11.5% from a 12 months in the past, primarily because of a 20% drop in companies spending, in accordance with analysis agency Nowcast and bank card firm JCB.

Spending on eat-outs fell 36% and whereas eating at “izakaya” bars slumped 47%, each marking the most important declines since May.

(Click right here for an interactive graphic evaluating sturdy items spending and companies spending: https://tmsnrt.rs/3c9ysoM)

For a graphic on Durable items consumption has been comparatively sturdy:

https://graphics.reuters.com/HEALTH-CORONAVIRUS/JAPAN-DEFLATION/qzjvqmoqnvx/chart.png

(Click right here for an interactive graphic of private-sector information displaying drop in companies spending: https://tmsnrt.rs/3pi1wxQ)

For a graphic on Service spending lags total spending amid pandemic:

https://graphics.reuters.com/HEALTH-CORONAVIRUS/JAPAN-DEFLATION/gjnvwrbgnpw/chart.png

SQUEEZED

A authorities request for eating places to shut early means retailers at the moment are feeling the pinch.

Monteroza, which runs a number of standard pub chains, mentioned it was closing 61 of its 337 places in Tokyo.

Meanwhile, beverage large Suntory Holdings CEO Takeshi Niinami predicts that 30% of all bars and eating places may fail within the coming months.

The common variety of clients per restaurant fell 60% in January from a 12 months in the past, information by reserving web site TableCheck confirmed, quicker than a 23% slide in November and a 40% drop in December.

(Click right here for an interactive graphic displaying a decline in restaurant clients: https://tmsnrt.rs/2NAV2fF)

For a graphic on Restaurants dealing with slumping buyer numbers:

https://graphics.reuters.com/HEALTH-CORONAVIRUS/JAPAN-DEFLATION/xegpbeqkmvq/chart.png

And Japanese households aren’t spending a lot on different objects both. A BOJ survey confirmed greater than 70% of households do not plan to vary the quantity spent to take pleasure in time at house.

Instead, they’re hoarding cash in banks, as they’ve carried out via each crisis together with the twenty years of debilitating deflation that haunted Japan till 2013.

Bank deposits surged 9.3% in December from a 12 months earlier to a file 803 trillion yen ($7.74 trillion).

Households are anticipated to have saved 45.8 trillion yen, or 8.5% of gross home product (GDP), final 12 months, up from 14.5 trillion in 2019, estimates by HSBC confirmed.

“Unless fears over the pandemic are wiped out, the money piling up in bank accounts won’t be spent,” mentioned Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

The BOJ has downplayed considerations a couple of return to deflation, arguing that corporations aren’t chopping costs throughout the board as doing so would eat already skinny margins.

Nonetheless, core client costs fell 1.0% in December from a 12 months earlier, marking the most important drop in a decade, an indication weak demand is heightening deflationary pressures.

(Click right here for an interactive graphic of Japan’s core client worth index: https://tmsnrt.rs/3ceI1ma)

For a graphic on Japan’s core costs are falling:

https://graphics.reuters.com/HEALTH-CORONAVIRUS/JAPAN-DEFLATION/qzjvqmoowvx/chart.png

Even vogue group Fast Retailing Co Ltd, seen as resilient because of brisk demand for its informal at-home apparel, plans to decrease costs of low cost model GU’s spring and summer time collections.

While Fast Retailing is cautious of chopping costs at its most important Uniqlo model, reductions are deliberate in coming months to scale back stock, CFO Takeshi Okazaki mentioned earlier this month.

The hope is that extra households will act like Noriko Indo, an 81-year-old pensioner who retains a decent rein on spending however often indulges in luxuries like tuna sashimi, her favorite meals.

“Once the pandemic is over, I’d like to splurge on travel and shop like crazy at a department store,” she mentioned.





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