Why Has Personal Consumption Remained Stagnant?(Jun 2016)

◆Downside risk remains for the Japanese economy due to global economic factors:In light of the 2nd preliminary Jan-Mar 2016 GDP release (Cabinet Office) we have revised our economic growth outlook. We now forecast real GDP growth of +0.7% in comparison with the previous year for FY16 (+0.8% in the previous forecast), and +0.7% in comparison with the previous year for FY17 (-0.1% in the previous forecast). Japan’s economy remains in a lull, but we expect it to recover gradually due to the following domestic factors: (1) growth in real wages, (2) low price of crude oil and improvement in terms of trade, and (3) the supplementary budget. However, caution is needed regarding downside risk in the global economy, especially that of China. Furthermore, it should be noted that in our previous outlook we assumed that the increase in consumption tax planned for April 2017 would ultimately take place. However, Prime Minister Abe announced on June 1st that the increase in consumption tax would be postponed, hence our current outlook assumes that the tax hike will be postponed. (More detail on this subject can be found in Japan’s Economic Outlook No. 189, Update (Summary), June 17, 2016, by Mitsumaru Kumagai.)

◆Why Has Personal Consumption Remained Stagnant?:It would not be an exaggeration to claim that the most important challenge currently facing Japan’s economy is to get personal consumption back on the road to recovery from its recently stagnant condition. In this report we consider possible prescriptions for the revitalization of personal consumption, looking at consumers by age group and income after first examining trends in personal consumption since the introduction of Abenomics. Quantitative results provide fundamental support for the implementation of income support policies directed toward the young and persons with low-income, who did not contribute to the upsurge in personal consumption after the introduction of Abenomics. However, in order to encourage consumer spending amongst younger people in the mid to long-term, it is essential that improvements be made in the employment and income environment through various means, including a reform of the labor market.