TOKYO (Reuters) - While Japan’s stimulus policies are beginning to have some effect, with more people beginning to spend, pensioners, a big and growing category of consumers, are clinging on to their cash, limiting the chances of a demand-led recovery.
Consumption, which as in many developed economies makes up just under two-thirds of the economy, increased last fiscal year for most groups, but spending by households where no one was employed, which includes pensioners, fell 1.5 percent, keeping overall household spending flat.
That group, which made up 38 percent of all households last year, up from 24 percent in 2000, won’t be helped by Prime Minister Shinzo Abe’s big push for companies to raise workers’ pay.
Real wages rose 0.1 percent in April, the first increase in two years, according to the labour ministry, but pensions have fallen for the last six.
“As incomes improve among working generations, private consumption is expected to pick up through fiscal 2016, but growth would be restricted by rising retirees,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.
“Rising share of those who don’t benefit from income gains and improving job conditions could help offset positive factors.”
Chizuru Yoneyama, 79, is among them.
“I get a pension,” she said, as she walked down a shopping arcade in Tokyo’s working-class Sugamo area, “but it’s not enough to live on.”
She supplements her pension with part-time work inspecting medical samples in a laboratory, but she said she had cut her spending.
“It’s a bad time to be spending a lot of money,” she said.
It’s been bad for several years, especially fiscal 2014, when pensions fell in real terms by 3.8 percent, after a 2.5 percent fall in 2013, and the introduction of a new sales tax.
“It is possible that the increase in pensioners has weighed on consumption, because pension payouts have been falling in real terms,” said Hiromasa Matsuura, economist at Mizuho Research Institute (MRI).
MRI estimates that pensions will rise by an inflation-adjusted 1 percent in the year started in April, but the government is also planning to raise healthcare costs, which will disproportionately affect the elderly, as it grapples with a huge public debt.
To be sure, not all pensioners are penurious - the number of householders aged 65 and older account for 40 percent of all households with savings of 20 million yen (103,558 pounds) or more, according to labour ministry data.
But they are reluctant to spend capital when their incomes aren’t keeping pace.
The problem for Japan, which is struggling to lift itself clear of decades of deflation and stagnation, is not just a few years of falling pensions, however, but a long-term demographic trend in a nation that already has the world’s highest proportion of people over 65.
This year, that proportion is expected to hit 26.8 percent, according to the National Institute of Population and Social Security Research, rising to 33.4 percent in 2035. It was just 17.4 percent as recently as 2000.
“In order to completely overcome deflation, it is important for workers’ households to benefit from wage hikes, but that alone would not suffice, given a growing number of retirees,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
“To improve income conditions for the elderly, policymakers need to promote ways to boost their incomes other than pensions, such as by encouraging them to work or raise business income.”
Editing by Will Waterman