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Mar. 10, 2015 - Updated 04:16 UTC



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Japan GDP Turns Positive

Yuko Fukushima

May 18, 2016

The Japanese economy is rebounding, albeit slightly. Government officials have released GDP figures for the January to March period, and they're back in positive territory for the first time in 2 quarters.

In a preliminary report, officials at the Cabinet Office say real GDP grew by an annualized 1.7 percent from the previous quarter.

Consumer spending increased by 0.5 percent. External demand also helped boost GDP, with more exports to the US and Europe.

But capital investment shrank 1.4 percent on the back of the slowdown in China and other emerging economies. Housing investment also declined by 0.8 percent.

Government officials stress that GDP numbers show Japan is on a moderate recovery path.

"We have been able to confirm that Japan's economy is heading toward exiting deflation," said Economic Revitalization Minister Nobuteru Ishihara.

Consumer spending did push GDP up. But some analysts say the figures simply got a boost from this year's extra day in February. And they say consumer sentiment remains gloomy.

Newsroom Tokyo's Yuko Fukushima joined anchors Sho Beppu and Aki Shibuya in the studio.

Beppu: You reported recently that the rise of social security costs is hitting budgets. What other reasons do you see for people tightening up their wallets?

Fukushima: Families are spending more on food. This graph shows the share of food-related bills in the average household's monthly budget, and it has surged about 2 percentage points since 2014.

That's not because people are going after higher-end delicacies. It's because the price of food is rising, while wages aren't catching up. And that's having a direct impact on people's everyday lives.

Consumder Spending Conundrum

It’s 5:30 in the evening in Tokyo's district of Ota. A special kind of diner welcomes local mothers and their children.

Every Thursday, a group of volunteers caters to families that have trouble making ends meet. They serve about 30 meals per week.

The vegetables and rice are donated by farmers. And the charge per meal is far below restaurant standards -- $1 per child, and about $5 for an adult.

"It's extremely affordable, the portions are large, and the food is varied. It helps a lot," says one mother at the diner.

"It's like a special treat we have once a week. We’ve been coming regularly, and we're very grateful," says another.

The organizer, Hiroko Kondo, set up the weekly diner in 2012, after she learned that an increasing number of children weren't eating enough due to their parents' financial difficulties.

"I hope it helps families living on a tight budget," Kondo says. "I'll continue doing this as long as it serves other people and makes them happy."

More than 100 similar initiatives have been launched across Japan.

Another place that reveals people's interest in low-priced goods is the supermarket.

Every Sunday, shoppers hunt for special bargains at a 20 percent discount. Similar scenes can be witnessed across Japan.

"I feel that our customers are increasingly dependent on bargain days, and they pay a lot more attention to prices," says Hiromichi Akiba, president of grocery retailer Akidai. "Especially since the sales tax increase 2 years ago, the line in the morning is twice as long as it used to be."

"Frankly, it’s tough. But you can’t really cut back on food," says one customer at the grocery store.

The latest household survey shows families spent 5.3 percent less in March compared with one year earlier.

People are now spending less on other goods and services. It's natural consumer behavior -- and so is the response from Japanese companies.

Skylark operates several restaurant chains known in Japan as "family restaurants." Profits went down last quarter after the price of menus went up, so managers decided to change their strategy.

One of the chains is lowering the price of hamburger steaks by about $1. The higher-end deep fried oyster menu is also $2 cheaper.

"Customers are still looking for high quality, but I feel that now they're also extremely sensitive to the price of our menus," says Daisuke Kobayashi, who is with the marketing group at Skylark.

Another company that backtracked this year is Japan's iconic casualwear brand, Uniqlo. It raised prices twice, in 2014 and 2015. Some analysts saw it as a sign that Japan was getting out of deflation.

But top executives admitted last month that their strategy had failed. The number of customers declined, and so did profits.

"We will drastically review our prices in step with our customers' needs," at Fast Retailing president and CEO Tadashi Yanai said at a news conference. "We want to make sure Uniqlo products remain affordable for everyone."

Uniqlo is now preparing to lower the price of some items by about $5 to $10.

Shibuya: How about the price of other products? Are they also going down?

Fukushima: It seems to be the case. Take a look at this graph. This index tracks daily price variations at supermarkets and drug stores. Prices started rising in April last year.

Companies were eager to readjust their margins after 20 years of deflation, and they wanted to factor in the higher cost of imports caused by a cheaper yen.

Prices peaked around November, and they've been falling since. The inflation rate is now about 0.6 percent.

For more insight, I spoke with the man who created this index, Tsutomu Watanabe, who teaches economics at the University of Tokyo. And he says the real problem lies less with prices than with how much people earn.

Interview with an expert:

Watanabe: Over last 3 years, what happen was the yen depreciated then also prices went up. However, nominal wages didn’t go up that much. And as a result, real wage decline significantly. And in the future what we will need is that we will have higher nominal wages, which is comparable to increases in prices.

Fukushima: What should the government do to get wages to increase?

Watanabe: Bank of Japan should adopt wage-growth target, and then Bank of Japan say that “we will continue monetary easing until nominal wage growth reaches something like 4 percent.” Then people are much more confident about their nominal wage increase in the future, and then they are more happy to spend more.

Beppu: Government officials say Prime Minister Shinzo Abe's policies have put Japan to the recovery track. Some also say that no, things are not as ideal as that. So where does the Abenomics stand now?

Fukushima: There are a lot of opinions, as you say, and many economists are wondering where to go from here. Some say the government should implement more stimulus and they believe Prime Minister Abe should delay the new sales tax hike scheduled for April next year. That's because stimulus measures and tax increases have contradicting effects on the economy.

Others want the government to accelerate structural reforms, because they believe more stimulus would only have a limited impact. It looks like the government is at a crossroads, and whatever it does next could determine the success or failure of Abenomics.