Tax Cut May Not Spur Yen to Spend in Japan

Once she pays her mortgage and utilities, homemaker Yumiko Futenma parcels out the remainder of her husband’s monthly salary into 10 envelopes. They hold the money she budgets for food, the kids’ schooling, medical expenses and miscellaneous items such as toilet paper. She even doles out a monthly allowance for her breadwinner husband.

If there are yen left in any envelope at month’s end, Futenma spends them on “luxury” items such as secondhand clothes for her two young daughters.

So the recent news that Japan’s $128-billion economic stimulus package will bring the family a tax rebate prompted a bit of gratitude, but hardly jubilation. “Anything helps,” the 29-year-old homemaker said. “But it’s not much.”

Though Japan announced a $30.7-billion, one-year tax cut to help jump-start its flaccid economy, the rebate amounts to about $46 a month for a family of four. That’s enough for Futenma to maybe cover dinner at Denny’s--a popular restaurant in Japan--or buy about a case and a half of beer.

“It will just disappear into everyday life. I won’t be able to buy anything,” added Futenma’s friend, Akiko Noda.

Sentiments Show Depth of Malaise

The sentiments of typical middle-class Japanese homemakers such as Futenma and Noda--who discussed their views in Futenma’s small condominium in southern Tokyo--show the depths of Japan’s economic malaise.

Their perspective also suggests that the vaunted tax cuts that Japanese officials initially had resisted may do little to rev the world’s second-largest economy, despite U.S. officials’ lobbying to encourage the policy change. Eisuke Sakakibara, vice minister with the Finance Ministry, last month said he was counting on the public works part of the package to kick in far more economic juice than the tax cuts.

Instead, the people who control most of the household spending in Japan--the homemakers--have been tightening their purse strings lately, even as government officials try to loosen them. A similar tax cut announced in December apparently has done little. Household spending fell 5.7% in March from the same period in 1997, the biggest drop since 1974, the government said Friday. The biggest spending plunge was in durable goods.

Department store and supermarket sales have been withering as a result, and new car sales were down 7.4% in April. During the “Golden Week” holidays that began Wednesday, fewer than half the number of Japanese who traveled abroad last year are doing so again, according to the Mainichi newspaper.

“Right now, everyone in Japan is in a depressed mood,” said 40-year-old Noda. “Since the country is so small, maybe this feeling spreads faster.”

Exacerbating the homemakers’ fears has been a torrent of grim economic tidings lately, ranging from record-high unemployment rates that reached 3.9% in March to the unheard-of defaults of a major bank and a securities firm in recent months. Just Thursday, the Asahi newspaper published a survey showing that half the 200 top executives polled expect the sluggish economy to deteriorate further.

In Tokyo at least, appearances don’t give much indication of a recession: Stores and restaurants seem to be bustling. By comparison with U.S. cities, few homeless people are visible, and there are few reports of hunger. The situation is hardly as dire in this well-to-do nation as it is in Indonesia.

Instinct Is to Tighten Spending

Nevertheless, Futenma and Noda have grave worries about their future, and their instinct is to tighten spending even more. They think times were tougher economically in the early 1980s, but their confidence is far shakier now than it ever was.

After the Kobe earthquake in 1995 and the toxic-gas attack on the Tokyo subway later that year came last November’s once-unthinkable collapses of two leading financial institutions, Hokkaido Takushoku Bank and Yamaichi Securities Co.

“The things that were most stable, like the banks and the safety of Japan, these beliefs have been shattered,” Noda said. “That’s why we feel that a salary or bonus cut could happen any time. That’s why we can’t spend money for shopping or traveling. I feel like I am in a tunnel and I cannot see the light.”

Noda says she isn’t too fearful that her husband, a salaryman at a chemical company, will lose his job. Most major companies still honor unwritten “lifetime employment” policies. But his bonus is another matter. The sizable semiannual bonuses given by most major Japanese companies are an integral part of salaries and are often squirreled away. They help fuel one of the highest savings rates in the world--about 13.1% of household income in 1995, the latest statistic available from the Bank of Japan. The U.S. rate is 4.8%.

Nevertheless, even some of Japan’s most relentless penny pinchers are having a hard time squirreling away money these days. To save the $20,000 for the down payment on the small condominium they bought two years ago, which cost $223,000 at present exchange rates, the Futenmas lived in a one-room apartment for about five years, even after their daughters were born.

The couple borrowed about $20,000 from their parents to renovate the condo in a dingy 26-year-old building, and they are using the annual $10,200 in bonuses that Futenma’s husband, Norifumi, receives to repay the family loans and cover real estate taxes. The condo is immaculate and cheery, consisting of two bedrooms and a bathroom off a long hallway leading to the small main room that functions as a living room/dining room with a tiny kitchen along one wall.

The Futenmas have little room for other appliances or furniture, with a stereo, large television, love seat, kitchen table and small coffee table taking up most of the available space. They would like to buy a car, but Yumiko Futenma says they can’t afford it--or the $300 monthly charge for a parking space.

Futenma’s husband earns about $54,500 a year at current exchange rates, and she sets aside the $1,150 monthly mortgage payment, or about one-third of his monthly after-tax pay. She budgets about $385 a month for the family’s meals, excluding rice--or less than $25 a week for each family member. That money must cover the bento box lunches she makes for her husband to take to work. She budgets about $153 for rice and sake. Other allotments include $76 for medical costs and $76 for miscellaneous items. And she gives her husband $269 to cover his incidentals and his $50 monthly train pass. Utilities amount to a few hundred dollars a month.

Children’s Education Funds Untouchable

Like most Japanese mothers, Futenma said the one thing she’ll never cut is her children’s education expenses, which amount to $153 a month for 5-year-old Akane’s kindergarten. The after-school cram classes and art lessons for 7-year-old Aya cost $107 a month. Futenma and her husband never go out at night together, she said, because hiring a baby-sitter so a husband and wife can spend a pleasurable evening out by themselves is frowned upon in Japan.

The couple blew their wad on the condo and now have no savings. To help make ends meet, Futenma took on a part-time job two years ago that she can do at home: odd tasks such as pasting price stickers on small items.

With the $300 she earned one month, she made the first splurge on herself she can remember: She bought a black suit for $233, a bargain in Japan. She wants to wear it to her daughter’s kindergarten graduation. She usually makes do with hand-me-downs from her sister, who lives in an apartment upstairs with their parents. Futenma apologized to her husband for the indulgence. “It’s OK,” he replied. “It looks good on you.”

But Futenma’s husband, a warehouse manager for a company that imports wooden doors from the Philippines, was asked to forgo his customary annual $1,200 pay hike this year because the construction industry has been hit so hard. Meanwhile, the couple have been paying more for everything because the national consumption tax was raised last year by 2 percentage points to 5%.

During Golden Week, Futenma said, the family won’t make its annual visit to Okinawa to visit her husband’s parents. Instead, they will probably hang out in a neighborhood park. They will dispense with their usual two-day summer vacation at a hot spring, which adds up to about $600.

But the worst part? Said Futenma: “We can’t see when the dark times will end.”

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Chiaki Kitada and Etsuko Kawase of The Times’ Tokyo Bureau contributed to this report.