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'Abenomics' fails to revive consumer spending in Japan

More Japanese are saying they are worse off than a year ago, according to an opinion poll conducted by the Bank of Japan.

By
Elizabeth Shim
Despite Tokyo's aggressive to stimulate domestic consumption, the weaker yen and a consumption tax hike in April 2014 have resulted in driving up the cost of living for ordinary Japanese. File photo chrupka/Shutterstock
Despite Tokyo's aggressive to stimulate domestic consumption, the weaker yen and a consumption tax hike in April 2014 have resulted in driving up the cost of living for ordinary Japanese. File photo chrupka/Shutterstock

TOKYO, April 7 (UPI) -- Consumer spending in Japan has not recovered with monetary easing that is part of Tokyo's "Abenomics" policy toward stimulating the domestic economy.

Instead, the weaker yen and a consumption tax hike in April 2014 have resulted in driving up the cost of living for ordinary Japanese while lowering their real wages, reported The Japan Times on Tuesday.

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The latest development is impeding a full-scale economic recovery that was the original mission of Prime Minister Shinzo Abe's policy, said Taro Saito, economic research director at NLI Research Institute.

Japan's labor ministry reported in January nominal wages rose for the 11th straight month, but when adjusted for inflation, dropped for the 19th straight month.

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Average household spending dropped 2.9 percent in February, year on year.

Domestic private consumption makes up 60 percent of the GDP of Japan, the world's third-largest economy. In 2014, in real terms Japan sank into recession, with its economic activity shrinking 6.4 percent.

A Bank of Japan opinion poll showed economic conditions have deteriorated for more Japanese -- with 39 percent of respondents saying they are worse off in January, compared to 20 percent in March 2014. A three percentage point hike in Japan's consumption tax was to blame, said Saito.

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Pay hikes, however, are expected.

In February, CNN reported Prime Minister Abe urged Japanese corporations to raise wages for workers. Mizuho Research Institute has forecasted real wages will rise 1.2 percent in 2015.

Critics of Abenomics have pointed out Tokyo's fiscal and monetary policies are benefiting the rich but are leaving the middle class behind.

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The Japan Times reported the increasing pool of temp workers creates financial instability that prevents consumer spending from fully recovering.

Changyong Rhee of the International Monetary Fund pointed out structural setbacks in Japan are impeding Abenomics, which consists of monetary easing, flexible fiscal policy and structural reforms.

It will take time, Rhee wrote, for the effects of economic policy to translate into higher basic wages, given inflation expectations and tight labor market conditions in Japan.

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