Video #6 - Consumer Spending in Japan

Monday, January 09, 2006

sources | lesson plan

BACKGROUND INFORMATION

Japanese household spending rose for the first time in three months in December, suggesting that consumers may start contributing to growth. Spending by households of at least two people rose 1.6 percent in December, 2.1 percent over the level of the same month last year. In the three months ending December 31, spending rose 0.2 percent from the previous quarter.

However, consumer spending, which accounts for about 60 percent of the economy, hasn't grown fast enough to spur a full-scale economic recovery. The government reported that the economy shrank 0.6 percent in the third quarter from the second quarter, continuing a decade of stop-start growth. “It’s not easy to say spending will show a dramatic recovery at one point anytime soon,” said Minako Iida, an economist at Deutsche Securities Ltd. “It’ll have fluctuations for a while. Still, these figures suggest that it’s gradually and slowly improving

For retailers, 2000 was another bad year. Spending fell 0.9 percent from 1999, the eighth straight year of decline. Still, it was the smallest decline in three years. (December is the busiest month of the year for retailers, as people buy year-end gifts. The Japanese also spend more on household goods, transportation, telecommunications and entertainment in December).

There is some doubt about the accuracy of those figures, as they were based on a poll of only 7,799 homes in December, in a country with 126 million people. It also did not include one-person households, which make up some 30 percent of the total.

To further confuse the forecast, the Japanese government recently released figures indicating that deflation is becoming the norm. Wholesale prices fell in Japan for the fourth straight month in January, declining 0.3% from a year ago. That outpaced consensus estimates for a 0.1% decline and was the biggest drop in a year. Nevertheless, Bank of Japan Governor Masary Hayami has said that Japan’s falling prices are “good” because they reflect the positive effect of restructuring and productivity increases.

Additionally, wholesale inflation figures for January confirmed the downward pressure on prices. They fell 0.2 percent from December and were down 0.3 percent from a year earlier. Deflation deters consumers from buying because they anticipate even lower prices in the future. (Japan’s Gross Domestic Product (GDP) report showed consumption was flat in the July-September period). It also means companies must earn more profits to service their heavy debts. Furthermore, worries about a wobbly stock market and wave of corporate restructuring continue to discourage consumers from spending.

Peter Morgan, an economist with HSBC Securities, was pessimistic about the prospects of radical policy measures, either by the central bank or the government, to revive the economy and break the grip of deflation. “I don’t think there is a lot they can do about it and even if there were, they don’t seem willing to, either on the fiscal or monetary side. The Bank of Japan is stubborn, and the Ministry of Finance and the politicians are less inclined to resort to large fiscal stimulus packages, because they are less politically popular,” he said.

All these facts notwithstanding, Japan’s standard of living has barely taken a hit despite the lingering economic slump. Infrastructure remains world-class, demand for luxury goods is booming, and -even at a near record-high- unemployment is still low compared to other industrialized countries.

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SOURCES:

“Japan Spending Rises 1.6% in Dec, 0.2% in 4th-Qtr.” Bloomberg News, February 8, 2001. America Online.

“Japan’s Economy Contracted in 3Q.” Associated Press, February 7, 2001. http://biz.yahoo.com/apf/010207/japan_econ_2.html

Jatras, Todd, “Japan’s Sinking Fortunes.” Forbes, February 8, 2001 http://biz.yahoo.com/fo/010208/0208global.html

Nishikawa, Yoko, “Japan crosses fingers on growth after GDP shrinks.” Reuters, February 7, 2001. http://biz.yahoo.com/rf/010207/t84812.html

Sakurai, Joji, “Japan Glad US Won’t Push on Economy.” Associated Press http://dailynews.yahoo.com/htx/ap/20010208/bs/japan_pressure_off_1.html

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LESSON PLAN

GRADE LEVEL/SUBJECT: 10-12/Economics, International Relations, World History,

International Bachelaurate Programs (IB), Current Events.

PURPOSE: To present activities to be used at a variety of classroom situations in order to enhance student understanding of the Japanese economy and its significance globally.

OBJECTIVES:

Students will be able to:

1. Define deflation.
2. Define inflation.
3. List the indicators for deflation.
4. List the indicators for inflation.
5. Analyze the effects of consumer spending in a nation’s economy.

MATERIALS:

1. Background information provided.
2. Resources on Japan available at your school’s Media Center and the Public Library System in your area.
3. Background information available through Internet “search engines”.

ACTIVITIES: May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.

1. Use charts and graphs to show the effect of consumer spending on the economy.
2. Create a scenario depicting the future of the Japanese economy if inflation were possible.
3. Create a scenario depicting the future of the Japanese economy under continued deflation.
4. Draw conclusions from the findings presented above.
5. Make recommendations based on the above conclusions.
6. Role play a seminar including the governor of the Bank of Japan, the CEO of a major corporation, an employee five years away from retirement, the head of a family with teenage children, and a government official from the Treasury Department in Japan. Have each present their positions on the economy and have the rest of the class participate by asking questions. Use a student as moderator for the event.

EVALUATION:

Individual assignments should be graded by the teacher using established criteria.

Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale:

Content Creativity Clarity

1= Superior (A) 2=Excellent (B) 3=Good (C) 4=Fair (D) 5=Poor (F)

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