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Japan stimulus payments went to savings, not spending

Money failed to boost consumer spending as planned

A seafood market in Tokyo. Much of the money meant to stimulate consumer spending was saved instead.   © Reuters

TOKYO -- The stimulus payments granted to every eligible Japanese resident last year did not provide a lift to consumer spending, the latest data shows, as much of the money went into savings.

The 100,000-yen ($918) payments lifted disposable income by 4% in real terms in the fiscal year ended in March, the Ministry of Internal Affairs and Communications reported Tuesday.

However, average monthly consumer spending declined 4.7% during the same period, the largest drop since fiscal 2014, when it fell 5.1% after a consumption tax hike.

These spending cutbacks were driven mainly by the sheltering habits and state of emergency declarations tied to the coronavirus pandemic. Average monthly spending on packaged tours plummeted 80%. Monthly restaurant spending dropped by 4,188 yen, to 11,796 yen. Because more people are working from home, monthly spending on clothes tumbled 2,183 yen, to 10,260 yen.

Spending on utilities, appliances and other durables increased due to stay-at-home demand, but was not enough to lift consumer spending as a whole.

The average share of disposable income devoted to spending dropped to 61.3% in fiscal 2020 from 66.9% the prior year, as households displayed a historically low level of spending in data going back to 1970. The average savings rate against total income climbed 3.2 points to 35.2%.

During calendar year 2020, households built up 36 trillion yen in savings, or nearly 7% of gross national product, estimates Naohiko Baba, chief Japan economist at Goldman Sachs. Based on past habits, households are expected to withdraw part of those savings and lift consumption by 3.9 trillion yen over the next two years, according to Baba.

"The elderly in particular hold the biggest potential" to drive spending, Baba said.

But with the vaccine rollout stalled and Japan's latest state of emergency extended to the end of May, the country's economic recovery trails that of the U.S. and other nations.

The public remains thrifty. Individual spending during the first quarter of 2021 retreated 1.9% from the previous quarter, the government reported Tuesday.

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