Sunday, April 23, 2006

Consumerism inflates economy

In Japan, retail resurges as a long spell of deflation ends.

Washington Post News Service

TOKYO - If happiness is a $150 pair of designer sneakers, Nishiki Tada bought himself a bundle of joy last week.

Flush with a new raise, the 27-year-old carpenter joined the mobs of shoppers in Tokyo's Omotesando neighborhood, the hip epicenter of Japan's retail renaissance. Inside urban clothier A Bathing Ape, where multicolored sneakers revolve on conveyor belts like pieces of tempting sushi, Tada dropped nearly $300 in 15 minutes on a long-coveted pair of tennis shoes and other pricey accessories. ''I love shopping,'' Tada said. ``And now my life is great because I have money to spend!''

He had his shopping companion and boss, Kazuhiro Takeshima, to thank for that. With Tokyo real estate prices rising in 2005 for first time in 15 years, Takeshima's home-construction business has rebounded too, allowing him to reward his staff with raises.

''There is a sense that we're back in business, that things are good in Japan again,'' said Takeshima, 35. ``It makes us all feel a little more confident about opening our wallets to spend.''

That chain reaction of spending -- from houses to cars to sneakers -- heralds what economists call the long-awaited return of Japanese consumers. Their comeback, analysts say, is the strongest sign yet that Japan is overcoming a protracted cycle of economic downturns by finally licking its most daunting financial plague: deflation.

Unlike most nations, where prices rise with inflation each year, Japan has been locked in seven years of price declines, or deflation, as gloomy consumers and skeptical businesses put off purchasing, expecting that prices would continue to fall. The drag on the economy forced some companies to cut payrolls, creating what many feared would be a cycle of constantly falling prices.

That is changing during a strong economic recovery that has lifted Japan's consumer price index for four straight months. That the world's second-largest economy is getting out its checkbook again is good news for the global economy.

Before Japan's economic bubble burst in 1991 as real estate and stock prices crashed, Japan was criticized in many corners for trade protectionism and corporate hurdles that made it difficult for foreign companies to tap the lucrative Japanese market.

Although barriers still exist, overseas retailers such as Starbucks and Gap have proliferated, globalizing the insular Japanese retail market. Last year, the value of imports was projected to have reached 13.8 percent of gross domestic product, the largest in more than a decade. While higher oil prices were a factor, so was strong demand for European wines, Chinese textiles and American leather goods.

''With Japanese consumers spending again, we could be looking at the start of the longest period of economic expansion in Japan since World War II,'' said Takahide Kiuchi, senior economist at Nomura Securities. ``This is something that is going to be felt around the world.''

Japan is entering its fourth year of economic growth and has an unemployment rate of 4.1 percent, the lowest since 1998.

Unlike previous, short-lived recoveries fueled by government spending, the upward trend now is based largely on slimmed-down companies posting record profit and returning to a cycle of hiring. Major banks have cleaned up their bad loans. This month, the Tokyo Stock Exchange's Nikkei index soared near a seven-year high. The Bank of Japan last month scrapped its ultra-loose monetary policy, which had kept its key interest rate near zero percent for the past five years.

Analysts expect Prime Minister Junichiro Koizumi's government to declare the death of deflation this summer.

Takuya Wakizawa, 30, a Tokyo television programmer, recently took the plunge into homeownership. ''I started seeing mortgage rates going up, and I realized I couldn't wait any longer,'' said Wakizawa, who locked in a 35-year fixed mortgage for a two-bedroom Tokyo apartment at 2.62 percent last summer. Rates for similar loans have since risen above 2.8 percent.

''My generation never used to think that prices would get higher,'' said Wakizawa. ``But prices are going up, and it makes you feel like you can't afford not to buy now.''

Special correspondent Akiko Yamamoto contributed to this report.

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