Japan's culture of not spending crimps economic rebound

Japan's "lost decade" has turned a nation of savers into one in which people are even more reluctant to part with their yen – which holds lessons for the US.

Normally, a healthy savings ethic is an enviable trait: Witness how much trouble Americans have gotten in by spending beyond their checkbooks. But Japanese thriftiness has gone so far that it is undermining the nation's ability to surmount a deepening economic slump. It presages challenges consumption-oriented nations may face in getting people to reopen their wallets.

Consider the frugality of Kumi Kimura. She drives a decade-old compact car and shops at discount stores. Her family doesn't eat out unless there is something to celebrate. "Many homemakers are very aware of bargains, carefully checking advertisements," says Kumi, a mother of two who works at an elder-care facility.

The global recession has hit Kumi's hometown hard. Obu, a city of 85,000 in central Japan, is a "corporate castle town" of Toyota, which recently posted its first loss in 70 years. With Toyota subcontractors dotting the region, the carmaker's slump has had an "enormous economic and psychological impact," says Hiroto Kimura, Kumi's husband.

Certainly much of Japan's reticence to spend stems directly from its economic woes. In the last quarter of 2008, the nation's gross domestic product fell at an annual rate of almost 13 percent. The deepening malaise is forcing firms to cut back workers' hours. More than a third of the workforce is now part-time or temporary employees.

Japan's problem is that "people's income is depressed," says Richard Katz, editor in chief of The Oriental Economist. "If they had more money, they would spend more."

Yet, there is evidence that the slump of the 1990s has changed buying patterns. Even when the nation began to emerge from the "lost" decade, per capita consumer spending remained virtually flat between 2001 and 2007. Young people don't seem inclined to buy as much either. Surveys show Japanese in their 20s saving more.

The elderly have become more miserly because of concern about shrinking retirement funds and the solvency of the nation's Social Security system. "As the country ages, sales of consumer durable goods don't go up," says Hiromichi Shirakawa, chief economist at Credit Suisse in Japan.

Kumi and her family benefit by having no mortgage. After Hiroto became ill and had to quit his job eight years ago, the family moved in with Kumi's mother. Since then, Hiroto has worked as a temporary mail carrier and, more recently, as a full-time bus driver.

To save money, the family rarely shops at major department stores, and Hiroto admits to wearing the same sweat suit for three decades. The family has put off buying major appliances. "The TV and refrigerator are more than 10 years old," says Kumi. "So is the air conditioner."