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Gift certificates, gas coupons, expensive school lunches and reduced houshold spending

A few stories concerning consumer spending and behavior caught my eye today. First, the Japan Times tells us that an increasing number of shoppers are buying discount gift certificates for themselves, in order to cut down on food and clothing costs. According to the paper, gift certificates can be usually be bought for as much as a 2% discount on their face value, though department store gift certificates are selling at shops in Shimbashi for as much as a 5% discount.

Then, we hear from the Nikkei that supermarket giant Ito Yokado plans to hand out gasoline coupons starting tomorrow. The campaign will last until next Monday, and each shopper who spends over 5,000 yen will receive a coupon good for 10 yen off per liter of gas, up to 50 liters. Each customer is limited to two coupons. Read more

March consumer price index up 1.2% - is a pull out of deflation coming at the wrong time for the wrong reasons?

On Friday, the Statistics Bureau announced that Japan’s core consumer prices had risen 1.2% in March compared to a year earlier. This follows a1.0% rise in February and successive 0.8% rises in December and January. March was sixth consecutive month that core consumer prices showed an increase, and the 1.2% increase was the largest seen since a 1.8% jump back in March 1998.

What was different about March figures, however, was that when fresh food and energy costs were stripped from the index, consumer prices saw a rise of 0.1% - the first rise in this figure seen since 1998. Before we go any further, let’s take a look at all four consumer price measurement yardsticks and how they each fared in March:

• March general nationwide consumer price index: +1.2%
• March general nationwide consumer price index (excluding rent): +1.3%
• March January nationwide core CPI (excluding fresh food): +1.2%
• March January nationwide consumer price index (excluding fresh food and energy): +0.1%

Immediately after the numbers were released, Economic and Fiscal Policy Minister Hiroko Ota told reporters: Read more

Which Japanese firms are most at risk in a US downturn?

Earlier this week, Nikkei Veritas published it’s list of the 20 Japanese firms that depend most heavily on the North American market for their operating profit. Of course, high dependence on the US market is not necessarily connected with suffering negative effects due to a US downturn, though it is certainly one risk factor.

Upon seeing the headline, the name Honda jumped into my mind. I thought too soon: Honda ranked #5 on the list, with 42.9% of it’s operating profit and 41.2% of sales being dependent on North America (Honda does lead in the sales category). The real #1 was a bit of a surprise. Read more

Hillary Clinton’s Wall Street Journal Interview: Does she Really Fear a “Japan-Style Malaise” in the US?

Hillary Clinton undoubtedly raised some eyebrows with comments that appeared in Thursday’s Wall Street Journal (in the Friday edition of the Wall Street Journal Asia). During an interview last Wednesday with the paper, Clinton asserted that the US government should be prepared to assume sour mortgages from the balance sheets of investors and lenders, in an effort to spur economic recovery.

What caught my attention was the Senator/Candidate’s fleeting use of Japan’s “lost decade” as a warning for the US financial system, which was mentioned in only the first and third paragraphs of a 19 paragraph article entitled, “Clinton Fears Japan-Style Malaise.” After the third paragraph, however, it became obvious that Clinton was not making any serious comparison to the situation faced by Japan in the years after the bubble burst.

At any rate, here’s the actual quote:

We might be drifting into a Japanese-like situation. I don’t think we can work our way out of the problems we’re in in the broad-based economy with monetary policy alone. I think the Japanese tried that and tried and tried that.

Is Clinton implying that Japan attempted to deal with it’s troubles solely with adjustments to its monetary policy? Is she simply forgetting about Japan’s pump-priming spending on public works, the lowering of Japan’s top income tax rates, and the fact that overly strict laws regarding the capital necessary to start a business - and thus drive emergent entrepreneurship - were left in place until one Mr Koizumi came along?

Clinton might respond by saying Japan’s monetary policy was worth mentioning due to the blunders made in the early years and the extreme nature of the zero interest rate policy which ended not even two years ago. She might point to the fact that banking reform in Japan was very slow to come, and that this was behind a fair portion of the lingering malaise.

All would be fair points, but we doubt that Senator Clinton is willing to go much further on the spurious link between Japan fifteen years ago and the US today. A few weeks ago we laid out our position as to why attempts in the media to link the two events were simply untenable, constituting lazy journalism at best, and scaremongering at worst.

It’s worth pointing out, however, that on the day after Clinton’s interview appeared in the Wall Street Journal, James Pethokoukis of US News and World Report finished his commentary with a very interesting parallel between Clinton and deflationary-era Japan:

Let’s be clear: An economic downturn caused by a banking and real estate crisis in Japan was exacerbated by higher taxes, higher regulation, and protectionism. And keep in mind that Clinton has been calling for higher taxes, more regulation, and a timeout from trade. Something to ponder.

This is well put, and thrusts some of the potential risks for the US into focus. However, there is much grey area left unsaid and we feel that there is still no real connection between the two events; the context behind both and the cocoons from which both emerged were too different for one to serve as a blueprint for the other.

Besides, Senator Clinton won’t become President.

February Consumer Confidence down to nearly five year lows

On Wednesday, the Cabinet Office released it’s Consumer Confidence Index data for February 2008, and we continue to see a downward trend in the figures. After January’s score tumbled to 37.5, February’s index showed a further fall to 36.1 points.

The Consumer Confidence Index generates five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for February’s figures, with the change from last month:

• Consumer Confidence Index: 36.1 (-1.4)
• Overall Livelihood: 33.7 (-1.4)
• Income Growth: 38.9 (–0.5)
• Employment: 37.0 (-1.6)
• Willingness to buy durable goods: 34.8 (-1.9)

The first thing to note is that all five scores dropped in February. This last happened in December of 2007, as January 2008 had seen a rise in the “Overall Livelihood” category. In February, the “Overall Livelihood” score fell to its lowest level ever. Ever.

We think it’s worth taking a look at February 2008 data when compared to February 2007: Read more

Business Conditions, Capital Spending, Industrial Output all Down, Yet Consumer Spending Holding Up

The Cabinet Office published its monthly Index of Business Conditions for January earlier today, and we have seen a decline in all three indexes for the first time since September of last year. This report generates three scores, which are referred to as diffusion indexes. The three categories reported are the leading index, the coincident index, and the lagging index. The leading index is meant to evaluate business sentiment for the future, the coincident index measures sentiment in the current period, and the lagging in the period previous to the report. For each index, a score below 50 indicates pessimism, while a score above 50 indicates an optimistic result.

January results showed the Leading Index falling from 50.0 in December to 30.0 in January, while the Coincident Index dropped from 63.6 to 22.2 and the Lagging Index fell from 66.7 to 62.5 (incidentally, we have not seen all three indexes below 50 since February 2007).

The fall in the Leading Index is what tends to worry economy watchers the most. Although it stood exactly on the fence at 50 in December (a figure which has since been revised down to 45.5), the score had seen an encouraging rise from the previous four months, when it checked in at 25.0, nil, 16.7 and 16.7.

Just last week we noted that industrial output had slid 2.0% in January, and that figure seemed to have been caused by nervousness over the course of the US economy. The Leading Index supports that supposition, though fears may be even reach beyond worries over the US economy.

To make matters worse, on Wednesday the Ministry of Finance announced that capital spending fell at its steepest pace in five years during the October-December quarter. According to the Ministry’s data, capital spending declined 7.3% during the fourth quarter, greatly exceeding the expectations of most Japan watchers. Read more

Consumer price index up 0.8% in January on higher gasoline, kerosene, food prices

Earlier today, the Statistics Bureau announced that Japan’s core consumer prices had risen 0.8% in January compared to the same month last year. This matches the figure seen from December, and is the fourth straight month in which we’ve seen a rise in the nation’s core CPI. Before we go any further, let’s take a look at all four consumer price measurement yardsticks and how they each fared in January:

• January general nationwide consumer price index: +0.7%
• January general nationwide consumer price index (excluding rent): +0.9%
• January nationwide core CPI (excluding fresh food): +0.8%
• January nationwide consumer price index (excluding fresh food and energy): -0.1%

Those year-on-year comparison figures are actually no different from what we saw in December, in all four categories. However, the nationwide consumer price index excluding fresh food and energy was 0.6% lower than in December.

Nonetheless, consumer prices are now on an upward trend, though they are clearly being driven by energy and food prices. The ministry’s report tells us that gasoline prices have risen 16.1% from a year ago, and kerosene prices have leaped 24.9%. At the same time, spaghetti prices have shot up over ten percent, owning to the rise in wheat prices.

So what’s getting cheaper? Laptop and digital camera prices both fell over 30%, while cellular phone fees were down about 4%. We seem to remember the government saying that it was going to strip discounted cellular phone package prices from CPI due to the fact that they did not reflect ‘reality’. Right.

Here’s a breakdown of the categories and their price changes in January 2008:

• Fuel, light and water charges +3.7%
• Transportation and communication +2.6%
• Clothes and footwear +0.8%
• Education +0.7%
• Miscellaneous +0.6%
• Food +0.5%
• Housing 0.0
• Reading and recreation -0.5%
• Furniture and household utensils -1.6%

This certainly looks like a trend we’re going to continue seeing, at least for the rest of the first half of 2008, as oil and gas prices will no doubt remain above their 2007 levels and thus force up shipping, transportation, food, and other related costs. We’ll be looking at the household spending data next, wondering how these higher prices will have affected spending on food and utilities.

Economy Watchers Index dropped 4.8 points in January, at lowest point since December 2001

Each month, the Cabinet Office releases its Economy Watchers Index, a survey measuring sentiment among workers who are particularly sensitive to economic trends. This group includes taxi drivers, hotel staff and restaurant workers. January’s data was released late last week, and the results showed a decline in confidence amongst such workers for the tenth consecutive month.

The Economy Watchers survey is measured as an index with a score above 50 indicating a positive view of the economy and a score below 50 representing a pessimistic overall view. In December, the index stood at 36.6, after having been at 38.8 in November. Although those months saw worryingly large falls of 2.7 and 2.2 points, January’s score dove 4.8 points to 31.8.

As can be seen from the chart, the current downtrend is quite strong. Although January’s results are the lowest seen since December 2001, they remain above the lowest score seen since the survey has been done in its current form, which was the 27.2 that was registered in October 2001 (actually, September-November 2001 were the only three months in which the index dropped below 30).

The Cabinet Office lays things out starkly in its assessment, simply stating that the prices of many daily products are increasing and income is not, and thus consumers are more reluctant to spend in the current environment. Of course, the report mentions higher fuel and energy costs.

Now the question is whether February’s data will show a drop under the 30 point line. I doubt that anyone in Vegas is putting odds on it, but it would be hard to bet against it, especially as the Outlook Index fell yet again, from 37.0 to 35.8 points. On top of that, wages fell an average of 2.7% in December 2007, for their largest fall in three years.

What could this mean in terms of policy? As Edward Hugh points out at Japan Economy Watch:

In the face of the evidence people are now beginning to adjust their positions. Bank of Japan Governor Toshihiko Fukui said today the cycle of profits feeding into wages and consumption that he had consistently argued had supported what has been on some measures Japan’s longest postwar expansion is now “temporarily weakening”, of course we are about to see how long “temporarily” actually means, since on many measures earnings and consumption have never been strong during the expansion phase, so what they will look like during the contraction one is anyone’s guess.

Hopefully any weakening is indeed temporary. As Edward points out, many measures on earnings and consumption never looked like a strong recovery on paper. We have to start wondering how badly such conditions could hurt profits at Japanese firms in 2008, and how that might affect those firms looking for capital to fund overseas expansion.

Fukui, Muto sound glum on economy; BOJ to revise GDP projections downward?

Speaking at a meeting of business leaders in Sapporo on Thursday, Bank of Japan Deputy Governor Toshiro Muto opened his remarks with the following comment on the state of Japan’s economy:

The pace of growth in Japan’s economy is currently slowing, mainly due to the drop in housing investment. The economy, for the time being, is expected to continue slowing, but is likely to resume moderate expansion thereafter.

We think the first sentence is an obvious oversimplification of what’s causing the current slowdown of the Japanese economy, although the drop in new construction is certainly significant, and something that will eventually bounce back.

Towards the end of his talk, Muto took a slightly broader stance, touching on a few factors that have been putting negative pressure on the economy: Read more

Weekend articles: Downward pressure on the Nikkei in 2008

Market watchers are already aware that Friday was Japan’s first trading day of 2008, and that the Nikkei closed down 616.37 points, finishing at 14,691.41. This was the largest fall ever for an opening day of trading and sent the Nikkei index to its lowest level since July 2006.

While there are certainly going to be arguments put forth (including here) that Japanese equities are currently undervalued and that some industries have solid investment promise, it’s time to look just a bit at the downside risks for Japan’s stock markets in 2008. I should stress the phase “just a bit” since we’re primarily going to be look at a set of articles that were published over the past few days. Read more

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