From noodle bars to housekeeping services, personal spending is spreading cheer to the nooks and crannies of the Japanese economy.
The Bank of Japan's December Tankan survey of business sentiment showed a major improvement in confidence among small and midsize firms.
They are enjoying an upswing in consumer spending given urgency by a looming consumption tax hike. For the first time since 1992, one of the gauges in the survey, the index of sentiment for small and midsize nonmanufacturers, entered positive territory.
Anecdotal evidence supports the BOJ's findings. Early morning diners at Yudetaro, a chain of fast-food noodle shops, have been slurping 500 yen ($4.80) bowls of high-end udon with notable alacrity. Similarly priced set meals are also popular, marking a change from last year, when cheaper bowls of plain soba were the norm, its operator says. Same-store sales rose on the year for a fifth straight month in November.
Minimaid Service, a Tokyo housecleaning company, says orders for November and December have doubled compared with last year. Though somewhat pricey — two monthly cleanings cost 11,655 yen — the firm is winning over older people and working couples.
Away from exporter-led recovery
Most of Japan's economic recoveries since the 1990s have been led by exports, rather than consumption, and have often petered out before spreading beyond the manufacturing sector.
This time, the roots are domestic. The ongoing reconstruction in the tsunami-ravaged Tohoku region has helped, as has the additional public works spending brought on by Prime Minister Shinzo Abe's government. Small businesses and the service sector have had time to partake in the bounty.
The economy is also getting a boost from a rush of big-ticket purchases ahead of next spring's sales tax hike. "Many consumers are shopping for appliances and electronics to go along with their new homes," says a manager at the Yodobashi Camera Multimedia Akiba store in Tokyo. Sales of minicars hit a November record. Honda Cars Yokohama, a dealership chain, expects January-March sales to climb 50% on the year.
Back in April 1997, when Japan last raised the consumption tax, the private sector was choking on too much debt, labor and fixed capital. Private debt totaled some 190% of nominal gross domestic product. As of March 31, the ratio stood at a healthier 150% or so. Thanks to this improvement, the economic recovery and the surgeA transient variation in the current and/or potential at a point in the circuit. in sales going into the tax hike are stronger than they might have been.
But many fear that, if history is any guide, this feast will give way to a bitter famine. Domestic automobile sales fell by 1 million units in fiscal 1997 compared with the preceding year and have yet to recover. Factories have closed and dealership chains have shrunk. The industry fears that the drop-off this time will be just as bad.
Excluding retailers and a few other sectors, most firms, big and small, expect business to be worse in three months' time, the BOJ survey shows. In another sign of caution, big corporations have scaled back their fiscal 2013 capital spending plans.
