Post-tsunami, Consumer Confidence Rises in Japan
After Japan’s economy was hit hard by the 2011 Tohoku earthquake and tsunami tragedy, it seems Japanese consumers are finally getting back to a steady cycle of luxury retail purchases, not just dictated by necessity or frugality. With the country’s successful win of the 2020 Olympics bid, a positive energy and hopeful attitude has begun to motivate the people and troubled economy of the nation. However, a recent increase in sales tax due to Prime Minister Shinzo Abe’s new economic legislation, Japan’s recovering economy may hit an unfortunate roadblock.
As the yen continues to drop in value and the worldwide currency exchange rate becomes harder to handle, both international and domestic retailers in Japan may find themselves raising their sales, significantly. Though the new sales tax is relatively low compared to that of western consumer economies, the possible raise in prices could cause “consumers [to] hesitate buying expensive bags and clothes,” said Miyako Sekimoto, fashion director at Matsuya department store. In order to compete with prices abroad and to continue to purchase goods from western economies abroad, retailers will need to raise prices to keep business in check. President of Fast Retailing Co. Ltd, Tadashi Yanai, remarks,
“the economy is starting to improve. However, since the consumption tax will be raised, it’s cautious.”
Though troubling, evidence in the past points to a relatively low change in sales with increasing sales tax. Japan’s sales tax was last increased from 3% to only 5% in 1997, resulting in a lower, but unsubstantial decrease in consumer sales. The implementation of a higher tax may even raise consumer spending on luxury goods during the period before the change, as consumers choose to ‘stock up’ on goods before the price increase.
Consumer confidence in Japan is now higher in 2013 than it was a year ago in 2012, with a 45.7 on the consumer confidence index determined by the Japanese Cabinet Office, in comparison to 2012′s 40.4. Employment has also increased, with a surprising 52.1 compared to that of last year’s 38.2.
Japan is also experiencing a slow, but steady rise in tourism, something that was nearly halted after the 2011 earthquake. 1 million tourists from abroad visited Japan in July, 18.4% higher than the same month of last year. With the majority of visitors coming from other areas of Asia, such as South Korea, Taiwan and China, tourists are engaging in luxury brand shopping in Japan’s premiere fashion districts such as Ginza, Harajuku and areas of Tokyo.
International designers and retail companies are hoping Japan’s next economic boost will come from the upcoming 2020 Olympics, which will be hosted in Japan.