Summer holidays without COVID-related curbs, higher bonuses and a travel demand comeback appear to signal consumers are ready to ramp up spending, in a boon to the Japanese economy.
For the Bon holidays in mid-August, bookings for domestic flights offered by major Japanese airlines have returned to some 94 percent of 2019 levels and those for shinkansen bullet trains and other local lines are also near pre-pandemic levels.
The summer holiday season comes after Japan began treating COVID on the same level as seasonal flu in May, which one of the major air carriers says has "removed psychological barriers" to travel.
The relative resilience of private consumption -- a key component of domestic demand -- has been a bright spot for the Japanese economy after the COVID fallout. It grew for the third straight quarter in April-June, economists say, citing increased spending by both consumers and companies and continued export growth.
Still, the sustainability of the domestic demand recovery is increasingly in doubt, with real wages continuously falling and acute labor shortages, particularly in some service sectors that were pounded by the pandemic, casting a shadow over the economic outlook.
"We may see a very strong growth number for the April-June quarter but domestic demand likely lacked vigor," said Yoshiki Shinke, senior executive economist at the Dai-ichi Life Research Institute.
"It's a little bit disappointing, given that the recovery in private consumption was initially expected to accelerate in the quarter, mainly led by services," Shinke said.
He expects the economy grew at an annual real rate of 3.5 percent following a 2.7 percent expansion in January-March.
According to a poll by the Japan Center for Economic Research, private-sector economists put growth in gross domestic product for April-June at an annual rate of 2.41 percent. That growth, however, will slow to 0.93 percent in July-September, they say. The Cabinet Office will release GDP data on Tuesday.
It is a mixed bag for Japan as everyday goods have become much pricier than before but pent-up demand, particularly for services, has aided private consumption, which accounts for more than half of the economy.
Japanese companies have been passing on increased costs to consumers by raising prices, leading core consumer prices, a key gauge of inflation, to remain above the Bank of Japan's 2 percent target for more than a year. It will take a few more months for the recent price hikes to peak while inflation is forecast to remain elevated, economists say.
Go Kurihara, an economist for Japan at UBS Securities, said real wage growth, adjusted for inflation, is unlikely to turn positive this year, adding, "Weak purchasing power leaves a downside risk for our consumption outlook."
Household spending declined for the fourth straight month in June when compared with its year-earlier levels. But consumers spent more on travel and dining out than a year ago, according to government data.
Despite inflation making consumers more frugal and on the lookout for cheaper items, leisure and other service spending may have some room left to grow.
Japanese people plan to spend an average 68,632 yen ($470) for this year's summer holidays, a 1.3-fold increase from 2022 and the first gain in four years, according to the Meiji Yasuda Research Institute, which conducted an online survey targeting around 1,100 people.
About half of the respondents planning to increase spending said they will do so to take trips, while 14.4 percent are spending less largely because their household budgets have been squeezed by inflation.
On the income side, major Japanese companies offered an average bonus of 903,397 yen, up half a percent from a year earlier, according to the Japan Business Federation, known as Keidanren.
For the tourism industry, which has lagged behind manufacturers and others in post-COVID recovery, the return of travelers is a welcome development. On top of that, the sector has received a boost from revived inbound tourism as the easing of strict border control measures has led to a steady increase in foreign visitors.
Increased spending by foreign travelers in Japan, partly driven by a weak yen that strengthens their purchasing power, has aided the world's third-largest economy as a whole.
The flip side is that the very labor needed to support the tourism sector -- and the broader economy -- is in short supply, posing a challenge to Japan's sustained growth.
Some 72.6 percent of companies in the hotel industry said they do not have enough full-time workers, much higher than the 51.4 percent for all sectors. The figure falls to 68.1 percent when asked about part-time workers but remains at a high level, while 83.5 percent in the restaurant industry feel they are understaffed, according to research firm Teikoku Databank.
For its part, the BOJ expects tight labor market conditions, partly because of slowing labor participation of women and elderly people, will put upward pressure on wages. Sustainable pay hikes are essential for achieving its stable inflation goal.
"Spending may increase due to seasonal factors like holiday travel but overall consumption is still below pre-pandemic levels. It's hard to expect a sharp increase in consumption from there, unless wage growth accelerates," said Toru Suehiro, chief economist at Daiwa Securities.
"We see inflation prolonged and demand growth will inevitably take a pause. So it's a caution sign for consumption," he added.
© KYODO
22 Comments
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Spitfire
Sounds like another LDP puff piece.
Zoroto
Actually sounds like it was written by ChatGPT.
I am not ready to ramp up my spending, but have no choice since the price of essentially everything has gone up.
dagon
The last quote invalidates the whole proposition of the article, as that sure is not going to happen with Japan Inc. pulling the LDP strings.
Tourism is a great example of an industry where the vast proportion of the gains go to the owners of the infrastructure and a tiny bit to workers.
Workers may be played for fools by the Japan Inc./LDP combine but they are not stupid.
piskian
Is this what Japan has come to?
Relying on tourism for their economy?
Hardly worthy of a G7 member.
Blattamexiguus
Why was the comments thread about N. Korean abductions summit closed after only 17 comments?
manipulating gone wrong.
Blattamexiguus
Now I get it 17 abducted so 17 comments?
noticed 4 were from the same dud supporting this nonsense.
nosuke
They already have ramped up their spending say hello to inflation????
piskian
You're right.
Japanese still not prepared to admit past atrocities,whilst the victimhood card still plays strong.
JeffLee
The govt is pushing an industry that is notorious for its low wages and for which there aren't nearly enough workers. Great policy there, folks.
Zoroto
There is no other avenue of growth in Japan. So they are pushing tourism, no matter how unpalatable it is to most of the population. I've never met an ordinary Japanese who wished for more tourists.
Larr Flint
They don't have enough full-time workers? No way, no one wants to work for 150 000 yen anymore? I cant believe it's true.
kurisupisu
Japan is ill equipped to handle millions of bag pushing and carrying tourists.
Stations do not have large elevators capable of tackling platform to street level passenger traffic nor can they accommodate waiting passengers easily.
When the Chinese start coming back en masse then the chaos will just get worse
EFD
With the lifting of all restrictions and the weak yen, there is no universe in which this is not good economic news.
Some people would whine a out some imagined issue if they won the lottery.
koiwaicoffee
You won't go far expending that. It really means that only 1 out of 3 go on holidays.
Yeah, right.
Zoroto
It probably is. But the average is meaningless when some people get 1000x of that.
The "mean" is a much more important number, but since it would probably be 1/10 of the quoted number, it's not surprising they are not using that.
kohakuebisu
Still in recovery from Covid, so this is releasing of pent-up demand.
Every year in Japan, the official working age population of 15-64 shrinks by a lot, I think its close to a million. Many work beyond 60 and beyond 65, but they'll be on reduced salaries. If the working age population of people on decent money is falling, the expectation should be for consumption to fall. It's certainly not going to increase significantly in real terms, unless some Covid-like black swan creating temporary pent up demand happens again.
John
It’s school holiday time.
Shirokuma4812
I watched an interview on TV. It was a Japanese guy with his wife and two children at an airport. They asked him “where are you and your family going for Obon and how much did it cost?”. He replied that they were going to Australia for 5 days and it was costing him ¥350000. He also said that he didn’t have the money for this trip, but his wife insisted they go anyway. Is this the new norm?
Yubaru
Let me guess, you either literally just started reading about the Japanese economy yesterday, or you've had your head in the sand for the past decade or so.
Which is it?
Yubaru
Me thinks you are missing a zero at the end here. I HIGHLY doubt that he is going to Australia for 5 days, and only spending ￥87,500 per person.
JeffLee
@Zoroto
Yep, the world's biggest maker of industrial robots, automobiles, semiconductor machine tools, and so on and so on has so little potential. The only solution to this is expanding a stingy minimum-wage service industry amid a severe labor shortage. Well, that idea certainly deserves the Nobel Prize for Economics.
Agent_Neo
Some people still write nonsense, but Japan's tourism industry accounts for 2% of GDP, compared to 4% on average for other G7 countries.
Are you saying that countries other than Japan that rely on tourism are not fit for the G7?
Should we go back to the US/UK/France/Germany/Japan G5? Japan's economic power is about that scale.
The correct data is properly issued by the Japanese government, so it is better not to write inappropriate things.
Because they do not properly check the data and facts, they are easily deceived by Chinese and Korean propaganda that Japan was cruel.