Why Does Personal Consumption Remain Stagnant?(Jan 2017)

◆Three short-term factors behind stagnant personal consumption: Personal income continues to decline despite the more than two-and-a-half years which have passed since the 2014 increase in consumption tax. Looking at the short-term factors behind this phenomenon, it is believed that personal consumption has been weighed down by (1) Elimination of the special case pension category, (2) Sluggish growth for disposable income, and (3) Reactionary decline following past economic stimulus measures. Between FY2012 and FY2014, these factors have brought downward pressure on personal consumption as follows: (1) Elimination of the special case pension category -0.4%pt, (2) Sluggish growth for disposable income -0.7%pt, and (3) Reactionary decline following past economic stimulus measures -0.2%pt, or a total of -1.3%pt. (For details see Japan’s Economic Outlook No. 191 , December 16, 2014, by Mitsumaru Kumagai.)

◆Structural problems such as uncertainty regarding the future are a drag on personal consumption in the mid to long-term: Mid to long-term factors influencing personal consumption include increasing budget-mindedness on the part of households, increasing uncertainty regarding the future, and issues surrounding employment for the younger generation. These factors will not be easily resolved, but we believe that it is very likely they will continue to inhibit growth in personal consumption for the mid to long-term.

◆Measures such as the building of a sustainable social security system, and implementing reforms in the labor market are desirable: In order to promote growth in personal consumption in the mid to long-term, it is necessary for the government to promote reforms such as building a sustainable social security system which will remove the feelings of anxiety about the future now held by citizens. Meanwhile, improvements must be made in the employment environment for younger workers. This can be done by correcting the polarization of the labor market and introducing equal pay for equal work.