JIN-286 -- Buying Time?

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J@pan Inc Magazine Presents:

T H E J @ P A N I N C N E W S L E T T E R

Commentary on the Week's Business, Technology and Cultural News
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Issue No. 286
Thursday, August 26, 2004
TOKYO

[*This week's JIN was written for us by contributing editor
Burritt Sabin.]

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CONTENTS

@@ VIEWPOINT: Buying Time?

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@@ VIEWPOINT: Buying Time?

Jaguars purring down Tokyo streets, bodacious women packing brand-name
shops in Ginza, families queuing in long lines at Narita International
Airport. Consumption, conspicuous or not, is back. If the times are not
as heady as during the bubble high of the 80s, many Japanese are
nevertheless optimistic.

The spike in exports to China is one reason. Burgeoning exports to the
Middle Kingdom and robust personal consumption have jump started the
Japanese economy after more than a decade in the doldrums.

One gauge of personal spending is the Composite Index of Consumption.
The Cabinet Office of the Japanese Government has been calculating
this index, based on family income and expenditure surveys and other
consumption indexes, since 1994. Indeed, in June the index reached
107.6, the highest level ever. But analysts say the outlook for
personal consumption is uncertain at best. If the good times stop
rolling, blame the government.

From the consumers' perspective, the government has devised a calendar
of pain worthy of the Marquis de Sade. Employee pension premiums are
due to rise in October. The hike in premiums will be followed by the
year-end abolishment of special tax exemptions for spouses. This
double whammy will undoubtedly dampen consumption. By how much?
The authoritative Japan Research Institute estimates these changes
will reduce disposal income by 0.7 percent in the October-December
quarter.

No sooner will consumers return to work after the long New Year's
celebration than exemptions for senior citizens will be abolished
and public pension benefits will be slashed. April promises to be
another cruel month, breeding hikes in national pension and
employment insurance premiums. In June, taxable income and local
income taxes will rise in conjunction with the earlier abolishment
of special tax exemptions for spouses. And in September, employee
pension premiums will shoot up. The Japan Research Institute
estimates disposable income during the October-December quarter
will be down by 0.9 percent.

Disposable income is the money in consumer's pockets after taxes
and social-security payments are deducted from income. Companies'
continuing reluctance to raise wage scales makes it difficult for
an increase in income to compensate for the heavier burden in
pension premiums and taxes. The various changes in the pension
and tax systems will unquestionably slow consumption. The only
question is to what degree.

Now's the time to splurge on that Jaguar, Gucci bag or trip to
Paris.

-- Burritt Sabin

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EDITORS
Written and edited by J@pan Inc staff (editors2@japaninc.com)

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