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Business Insight


Business Insight

Japan's GDP Turns Negative

Officials say the Japanese economy shrank between October and December, for the first time in two quarters. Preliminary figures from the Cabinet Office show a contraction of 0.4 percent from the previous quarter. That works out to an annualized figure of minus 1.4 percent.

Officials say private consumption was one of the biggest factors behind the drop. It shrank by 0.8 percent. Doubts over the economic outlook dampened sentiment, and unusually warm weather slowed sales.

Housing investment also slipped to minus 1.2 percent. Public investment was down 2.7 percent.

For 2015 as a whole, Japan's GDP managed to stay in positive territory, growing by 0.4 percent in real terms.

Personal spending accounts for about half of GDP. A closer look at the figures reveals a disturbing trend -- disposable income is declining and young households are hurting the most.

Retailers across Japan are reporting a slowdown in business. The manager of one hardware store in Yaizu, Shizuoka Prefecture, says sales are at the worst level in 10 years.

"Sales are about 10 percent lower than a year ago. Spending by young people is plummeting," says Akira Tanaka, the store manager. "We are counting on elderly customers, or those in their 40s or older, who can afford to spend."

Among those cutting spending are Yasushi and Junko Sato. They're in their 30s, both work, and they have two children.

They say their disposable income is shrinking year by year. One reason is the increase in social insurance costs.

"(Monthly) health insurance premiums rose from ¥12,000 to ¥13,000," Yasushi says.

Income tax and pension premiums have also climbed. These payments are withheld from Yasushi's monthly salary. The deduction last month was up ¥5,000 from a year earlier. That's nearly $45.

"The heaviest burden is probably the pension premium," Yasushi says.

"Although salaries have hardly changed, taxes and pension premiums are rising, so we have to lower our standard of living," Junko adds.

A look in the garage reveals one change. They've replaced a car with a smaller model to reduce running costs.

"The smaller car should help reduce taxes and insurance premiums by about $260 a year," Sato Yasushi says.

The Satos aren't alone, according to a government survey of working households. Data for November shows that income declined slightly from a year earlier.

At the same time, deductions from wages -- that's social insurance costs and taxes -- rose. That pushed down disposable income and caused people to tighten their purse strings. The result is a decline in consumer spending.

At the supermarket, the Satos are working hard to reduce their food bill. They're eliminating all unnecessary items.

"It's so expensive today," Junko says.

Junko looks for discounts, and plans a weekly menu around the cheaper ingredients.

"I often end up preparing dishes with inexpensive ingredients. Now I wouldn't think of buying this or that to cook a special dish," she says. "Our tight budget doesn't allow it."

What concerns them the most is that the hard times show no sign of ending.

A research institute compiled data on household budgets from 2011 to 2015. It shows a rise of around 2 percent in the incomes of working households over those four years.

But the deductions rose much faster. Taxes jumped more than 7 percent. And pension and health insurance premiums posted a double-digit increase.

Hitoshi Suzuki, chief economist at Daiwa Institute of Research, says Japan's social security system places too much importance on benefits to elderly people. He says that's weighing on the nation's economy.

"I believe Japan needs policy reforms to distribute more resources to working people, child-rearing families and younger people," Suzuki says.

"Foreign investors may not be attracted by the course Japan is taking, with the social insurance and tax burden increasing, people spending only the minimum, and vitality being lost," he adds.

"We need to think very hard about ways to prevent our country from becoming such a gloomy, aged society."

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