A quarterly survey by the Bank of Japan brought a dose of reality to the glorious hype surrounding Abenomics, whose stated beneficiaries are the big banks and the members of Japan Inc., including the formerly omnipotent nuclear power industry that Abenomics is trying to restore to its glory. But consumers are struggling with reality, and reality isn’t so hot for them apparently.
The BOJ survey – a diffusion index that subtracts the number of consumers who say economic conditions have worsened over the past 12 months from those who say they have improved – is designed to measure the current state of the economy from the point of view of a crucial player without whom nothing will work: the consumer.
In the prior survey, undertaken in June, the index had jumped 17.8 points to a still low -4.8. Consumers at the time were less disillusioned about the promise of Abenomics that something good would trickle down to them, from the trillions of yen that the Bank of Japan was handing to megabanks on a monthly basis. But now consumers have opened their eyes, looked at price tags and glanced at their paychecks, and the index fell to -8.3.
One of the stated policies of Abenomics and the Bank of Japan is to stir up inflation. It has worked wonderfully, with year over year inflation rising. Goods inflation has hit 1.8%. Alas, consumers reported that rising costs of essentials, such as utilities and food, were cutting into what they could spend on other things. At the same time, more people reported that their incomes actually dropped from a year ago.
This isn’t just an idle impression of benighted consumers who don’t get Abenomics: Average household spending adjusted for inflation fell 1.6% year over year in August, more than wiping out the minuscule rise of 0.1% in July. Not a surprise: the average inflation-adjusted income of households of salaried workers, after six months of small improvements, dropped 0.9% year over year in August, and their disposable income dropped 1.4%.
This combination of inflation without wage increases – or worse, with wage declines – amounted to inflation without compensation. And consumers don’t expect it to end anytime soon: 83% of the respondents expected prices to continue to rise over the next twelve months, up from 80.2% in June.
So only a minuscule 16.2% saw the economy improving over the next twelve months, down in a big way from the already low 24.3% in June. Even more people expected their income to fall over that period. And so the outlook index for the next 12 months crashed 17.1 points to -9.6 from its lofty +7.5 in June.
With all the hype in the media about how Abenomics and its crazy monetary policy are going to save Japan, it’s important to remember that consumers will have to become part of the solution. Without them, nothing will work. But currently, they’re paying the price for the benefits handed to the banks and Japan Inc. They’re a cynical bunch. They’ve been through a mega bubble and its implosion. They’ve seen politics before. And now they seem to be catching on to the true promises of Abenomics.
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