Sucked into deflation again - Japan's $2 cup noodle binge is sign of the times

Tue May 17, 2016 8:27am EDT
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By Tetsushi Kajimoto and Stanley White

TOKYO (Reuters) - Japanese consumers can't get enough of cup noodles, with spending on them surging by more than a quarter over the past year. That sounds like good news, but for a country still struggling to escape deflation it's a worrying signal.

Weak consumer spending is fuelling speculation that Prime Minister Shinzo Abe will again delay a planned sales tax hike, and Japan is expected to have dodged a recession at the start of this year by the smallest of margins - helped by an extra 'leap year' day in the January-March quarter.

Consumption, one of the few economic engines that fired when Abe launched his "Abenomics" stimulus plan more than three years ago, is faltering. And rising sales of cheap cup noodles is a worrying sign that consumers have little confidence that deflation is being banished.

"Consumers remain on guard against rising costs of food and living, refraining from spending on other items, and they're rebuilding savings spent during the last-minute buying spree," said Hiromichi Shirakawa, chief economist at Credit Suisse.

Cup noodles, costing as little as 180 yen ($1.65), are a favorite for penny pinchers. Average monthly spending on cup noodles surged 26.1 percent in January-March from a year earlier, government data show - the fourth straight quarter of double-digit growth.

Spending on noodles is growing at the fastest pace since Abe took office in late 2012. At the same time, data shows households are spending less on non-durable goods such as utilities, education, recreation, transport and communications.

With private consumption accounting for roughly 60 percent of the economy, this renewed frugality is a signal that Japanese policymakers could struggle with yet another year of disappointing growth and low inflation.

Policymakers are worried. Bank of Japan Governor Haruhiko Kuroda said this month that weakness is starting to show up in consumer spending, but he expects a tight labor market to support household spending in the future. In March, the government lowered its assessment of private consumption due to falling spending and weakening consumer sentiment.   Continued...

A shopper queues to pay at the cashier inside a discount drug store at a shopping district in Tokyo, Japan, March 7, 2016. REUTERS/Yuya Shino/File Photo