Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Japan's COVID crisis reawakens deflation fears as cash hoarding returns

Economy Jan 27, 2021 01:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Shimahara, owner of an "izakaya" prepares to close his shop in Tokyo

By Leika Kihara and Kaori Kaneko

TOKYO (Reuters) - A spike in coronavirus infections in Japan is driving local households to do what they have always done in times of crisis: spend less and save more, stoking fears of a deeper retail recession and grinding deflation.

Fifty-year-old Hiromi Suzuki is doing just that having quit her job at a Tokyo novelty store in December after the pandemic hit sales.

"I try not to spend money," she said, walking her dog in the city. "Since I don't go out much, I don't buy cosmetics or clothes any more."

Suzuki's case exemplifies the trouble Japan faces as COVID state of emergency measures were reinstated in January, hitting spending on services, which makes up one-third of total consumption.

High-frequency data shows consumption began to falter even before January's state of emergency, catching policymakers off guard and forcing both the government and central bank to cut their assessments on private spending.

"Service spending is slumping sharply," Bank of Japan Governor Haruhiko Kuroda said last week. "We don't expect Japan to return to deflation. But we need to keep vigilant on price moves given very high uncertainty over the outlook."

While demand for some goods is holding up, analysts warn it won't be strong enough to offset deflationary pressures caused by weak service spending.

"The economy will be in bad shape in the first quarter, which would push prices down," said Hiroshi Ugai, chief Japan economist at JPMorgan (NYSE:JPM) Securities. "Prices will essentially remain weak this year."

Despite a rebound after initial lockdown measures were lifted in May, consumption later lost momentum, falling more than 4% in November from January's pre-pandemic levels, according to a BOJ gauge of spending.

That was mostly due to a 10% slump in services spending, which contrasted with an 8% gain in durable goods consumption.

The pain continued in December with consumption falling 11.5% from a year ago, mainly due to a 20% drop in services spending, according to research firm Nowcast and credit card company JCB.

Spending on eat-outs fell 36% and while dining at "izakaya" bars slumped 47%, both marking the biggest declines since May.

(Click here for an interactive graphic comparing durable goods spending and services spending:

For a graphic on Durable goods consumption has been relatively strong:

(Click here for an interactive graphic of private-sector data showing drop in services spending:

For a graphic on Service spending lags overall spending amid pandemic:


A government request for restaurants to close early means retailers are now feeling the pinch.

Monteroza, which runs several popular pub chains, said it was closing 61 of its 337 locations in Tokyo.

Meanwhile, beverage giant Suntory Holdings CEO Takeshi Niinami predicts that 30% of all bars and restaurants might fail in the coming months.

The average number of customers per restaurant fell 60% in January from a year ago, data by booking site TableCheck showed, faster than a 23% slide in November and a 40% drop in December.

(Click here for an interactive graphic showing a decline in restaurant customers:

For a graphic on Restaurants facing slumping customer numbers:

And Japanese households aren't spending much on other items either. A BOJ survey showed more than 70% of households don't plan to change the amount spent to enjoy time at home.

Instead, they are hoarding cash in banks, as they have done through every crisis including the two decades of debilitating deflation that haunted Japan until 2013.

Bank deposits surged 9.3% in December from a year earlier to a record 803 trillion yen ($7.74 trillion).

Households are expected to have saved 45.8 trillion yen, or 8.5% of gross domestic product (GDP), last year, up from 14.5 trillion in 2019, estimates by HSBC showed.

"Unless fears over the pandemic are wiped out, the money piling up in bank accounts won't be spent," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

The BOJ has downplayed concerns about a return to deflation, arguing that companies aren't cutting prices across the board as doing so would eat already thin margins.

Nonetheless, core consumer prices fell 1.0% in December from a year earlier, marking the biggest drop in a decade, a sign weak demand is heightening deflationary pressures.

(Click here for an interactive graphic of Japan's core consumer price index:

For a graphic on Japan's core prices are falling:

Even fashion group Fast Retailing Co Ltd, seen as resilient due to brisk demand for its casual at-home attire, plans to lower prices of discount brand GU's spring and summer collections.

While Fast Retailing is wary of cutting prices at its main Uniqlo brand, discounts are planned in coming months to reduce inventory, CFO Takeshi Okazaki said earlier this month.

The hope is that more households will act like Noriko Indo, an 81-year-old pensioner who keeps a tight rein on spending but occasionally indulges in luxuries like tuna sashimi, her favourite food.

"Once the pandemic is over, I'd like to splurge on travel and shop like crazy at a department store," she said.

Japan's COVID crisis reawakens deflation fears as cash hoarding returns

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Art Fire
Art Fire Jan 27, 2021 1:28AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
At some point china will need to answer why viruses keep originating from their region and are worsening. This one cost trillions and caused huge problems around the world.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email