Saturday, September 6, 2008

Tokyo Yuki: Why Japan's Economy Doesn't Expand

Tokyo Yuki: Why Japan's Economy Doesn't Expand

TOKYO - It made headline news in Japan. On Sept. 1, Prime Minister Yasuo Fukuda resigned after less than a year in office. One big issue: His government failed to fix the economy and rein in inflation.

But for many ordinary Japanese, Fukuda's economic ideas are far less interesting than Yuki Wada's. The 35-year-old homemaker and blogger is what the Japanese call a setsuyaku no tatsujin, or master penny-pincher. She recycles bathwater to do her laundry and clean the toilets, tracks how much electricity each appliance uses, and keeps her energy bill low by cutting power to most of her Tokyo home when she goes out. She even saves tangerine peels to polish her shoes.

As inflation in Japan surges, Wada and others like her have become minor stars. With gas running $7.15 a gallon and prices of everything from instant noodles to beer to soy sauce climbing, legions of ordinary Japanese have turned to Wada's blog for advice about tightening their purse strings. Inflation will add $70 a month to average household spending this year, estimates the Japan Research Institute, a private think tank—painful for families getting by on wages that haven't budged much recently. "For many housewives, trying to offset rising prices is like squeezing a dry cloth," says Wada.

The bout of inflation has been a shock for a country that has spent the past decade grappling with deflation. In July core consumer prices were up 2.4% from a year earlier, the biggest jump since 1997, and many Japanese have clamped down on spending. Economists had been counting on inflation to lift corporate profits and property values—and get consumers to open their wallets. That's vital to growth, since private consumption accounts for more than half of gross domestic product. But the opposite has happened as shoppers must shell out more for the basics. "I drive less and ride my bike to supermarkets that are far away if they have lower prices," says Mari Yamaguchi, a 30-year-old homemaker in Tokyo.

While Fukuda didn't say he was stepping down specifically because of Japan's sluggish economy, his government hasn't managed to kick-start growth. "Fukuda failed to send any message about reform," says Masaaki Kanno, chief economist at J.P. Morgan (JPM) in Tokyo. Some experts say Japan has already slipped into recession, and no one is predicting growth above 1% this year. To keep the economy afloat, Fukuda on Aug. 29 unveiled a $106 billion stimulus package of tax cuts for low-income households and loans for small and midsize businesses. But because of the massive deficit, only a fraction of the money is likely to materialize, and Fukuda's still-unnamed successor may be forced to revise the plan.

Consumers, meanwhile, remain anxious about inflation—to the benefit of the likes of Wada. She has become a staple of TV talk shows, and she has lectured government staffers on eliminating wasteful spending. Her Web site attracted 180,000 unique visitors in June, up about 50% in the past year. It offers hundreds of tips such as cleaning the fridge to improve performance, putting a brick in the toilet tank to reduce the water used per flush, and polishing the floors with sour milk. "I tell people you shouldn't be thrifty just in response to rising prices," she says. "It should become a daily habit."

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