Part II
Trends in Household Expenditurefor
FY1994 in Recent Context
and the New Diversity in Consumption

Chapter 1: Recent Trends in Household Expenditure

(Trends in Household Income and Expenditure)

In FY1994, the Japanese economy grew by 0.6%. Prices continued to stabilize, with domestic wholesale prices falling a further 1.3% from the previous year and the rise in consumer prices slowing to 0.4%. Japan’s severe employment situation persisted, and the unemployment rate, for example, reached its highest level since records began.

(Income Trends and the Employment Situation by Employee Age Group)

Nominal wages (including annual bonuses, etc.) for ordinary male workers (excluding part-time workers) grew more slowly for all age groups in 1993, with the wages of those in their 40s showing the smallest increase. (See Figure II-1-12.) For 1994, although only data on take-home wages exclusive of bonuses is available at writing, the trend toward slower wage growth continued, again with Japanese in their 40s suffering the slowest growth rate.

The unemployment rate amongst men in all age groups has increased since 1992. However, unemployment in the under-25 and over-55 age groups is rising, whilst that in other age groups, especially those in their 40s is both lower and increasing more slowly than in other age groups.

Despite the increasing severity of the employment situation in Japan, the adjustment process seems to be underway for ordinary male workers in the form of rising unemployment amongst those in their 20s and late 50s, and in the form of declining wage increases for those in the ir 40s.

(The New Feasibility of Apartment Acquisition in the Tokyo Area)

New housing starts rose 3.4% in FY 1994 to 1.56 million units, boosted by the strong performance of owner-occupier housing starts (both houses and apartments).
However, quarterly figures show that owner-occupier housing starts slowed from the second half of FY1994, and, whilst still at high levels, appear to be peaking out.

Average floor space per new housing unit has been increasing gradually, from 79.3m3 per unit in FY1987 to 93.9m3 in FY1994.

The house price / earnings multiple (housing unit price / average annual income of a working household) in the Tokyo region is a convenient measure of how easy or difficult it is to acquire one’s own home. By 1994, this multiple had fallen to 6.7 times for an independent (e.g. detached, semi-detached, etc.) housing unit and to 5.6 times for a 70m3-equivalent unit of appartment housing. (See Figure II-1-18.)
Although based on estimates of earnings figures, the appartment multiple fell to 5.1 times at the end of the first half of 1995, and even achieved a multiple of 5.0 times for the individual months of March and May. Thus, the stated objective of the "Five Year Plan for the Japanese Lifestyle" (FY1992 - FY1997) - "to bring the cost of purchasing housing in the Tokyo area down to five times the average annual earnings of a working household," - has already been achieved if only briefly.

Chapter 2: "Price Collapse" and the Recent Downward Trend in Prices

This chapter will consider whether the "price collapse" phenomenon is a temporary effect of economic recession or whether it represents a longer term structural shift in the economy.

Section 1: The "Price Collapse" Phenomenon in Practice

Constituent elements of the Consumer Price Index which have suffered price declines include Domestic Durables, Air-Conditioning Units, Men’s Clothing, Televisions and Stereos. These product categories have also been at the centre of the debate about " price collapse."

Section 2: "Price Collapse" and Structural Change in Household and Corporate Behaviour

1. Structural Change in Household Behaviour

The price consciousness of Japanese consumers has increased since the bursting of the economic bubble, and they now tend to prefer cheaper products. If we look at the relationship between price and quantity purchased for those products whose prices have declined, it is apparent that the greater the price decline, the greater the quantity consumed. (See Figure II-2-3.) This recent increase in consumer price consciousness is stronger than in past recessionary periods, and may well constitute structural change on this occasion.

2. Structural Change in Corporate Behaviour

(Reforming the Distribution System)

The rapid growth of discount stores, which have been able to offer low prices by eliminating much of the traditional distribution network, has brought a new intensity to competition in the retail sector. A breakdown of sales by type of retail outlet reveals that the sales of department stores and supermarkets have stagnated whilst those of the discount stores have achieved healthy growth. (See Figure II-2-10.)

(The Benefit of Imported Goods)

An analysis of the relationship between the domestic Japanese market share held by foreign products such as TV sets, Video tape recorders, Microwave ovens and men’s suits (the import penetration ratio) and the consumer price index or the "average unit price" derived from the Family Income and Expenditure Survey, confirms that prices fall as the import penetration ratio rises. (See Figure II-2-8.)

(The Growth in Reverse Imports)

The strength of the yen has also stimulated the import of goods produced in cheap overseas locations by the local subsidiaries of Japanese corporations (reverse imports). Between FY1990 and FY1993 the yen value of exports to Japan from the local overseas manufacturing subsidiaries of Japanese corporations (i.e. the value of reverse imports) showed steady growth, and for textiles and electrical machinery reverse imports actually grew faster than imports as a whole. Reverse importing is an adjunct to foreign direct investment, and price declines thus induced represent a long term structural change in prices.

Based on the findings above, it seems clear that the post-1994 phenomenon, widely labeled a "price collapse", will prove to be not a transitory effect of economic recession, but a long term structural shift in the Japanese economy.

Section 3: "Price Collapse" and Deflation

A "price collapse" is brought about by either an increase in efficiency or a decline in demand. A "price collapse" resulting from greater efficiency increases real wages and is always desirable. However, if the current decline in prices is the result of shrinking demand, then the "price collapse" cannot simply be restrained, but must be countered with government policy measures.

Chapter 3: The Diversification of Consumption Behaviour

Income is the basic determinant of consumer behaviour, but many other factors also have an effect on it. In addition to the economic dimension, this chapter also investigates the impact of other social and household attributes, and the current diversity in consumer behaviour.

Section 1: The Effect of Social and Household Attributes on the Ownership of Durable Consumer Goods.

Analysis of the pattern of consumer durable ownership reveals considerable variety depending upon family make-up and circumstances. For example, spacious homes have such items as system kitchens, whilst large families tend to own items such as tumble dryers, and families with children tend to own beds, audio-visual equipment and the like. The diversification of consumer durable ownership is partly due to the availability of high-class and low-class items fulfilling the same function, as in the case of central heating and oil stoves. Also, if one removes the effect of higher earnings in households where both the husband and wife work, then such households possess relatively fewer consumer durables.

Section 2: Intergenerational Consumption Characteristics by Item Category

Breaking down consumption expenditure by age group of household head reveals that the younger generation spend more on eating out, whilst those in their 40s spend a particularly high amount on education. Another notable point is that reading and recreation expenditure is low for those in their 40s and 50s. Finally, investigating how social and household circumstances affect expenditure patterns across age groups highlighted a number of points, including higher expenditure on eating out for households containing junior and middle school children, no difference in education expenditure due to a household’s male/female child balance, and reading and education expenditure rising in proportion to the number of children.

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