Nissin loves Abenomics...English teachers...not so much

Good morning everyone,

It's another gorgeous day out there! There's no real change in the forecast-it's going to be pretty much the same as yesterday and then tomorrow, Sunday, and Monday will see the same blue skies and warm weather. Tuesday is looking like it's going to cloud over and then there's a chance of rain on Wednesday.

Japanese consumers can’t get enough of cup noodles, with spending on them surging by more than twenty-five percent over the past year. That sounds like good news, but for a country still struggling to escape deflation it’s a worrying signal.

Weak consumer spending is fuelling speculation that Prime Minister Shinzo Abe will again delay a planned sales tax hike, and Japan is expected to have dodged a recession at the start of this year by the smallest of margins - helped by an extra ‘leap year’ day in the January-March quarter.

Consumption, one of the only things that improved when Abe launched his “Abenomics” stimulus plan more than three years ago, is faltering. And rising sales of cheap cup noodles is a worrying sign that consumers have little confidence that the economy is going to improve anytime soon. “Consumers remain on guard against rising living costs, refraining from spending on items other than necessities, and they’re rebuilding savings spent during the last-minute buying spree (before the last tax increase),” said Hiromichi Shirakawa, chief economist at Credit Suisse.

Cup noodles, costing as little as Y100, are a favorite for penny pinchers. Average monthly spending on cup noodles surged 26.1% in January-March from a year earlier - the fourth straight quarter of double-digit growth. Spending on noodles is growing at the fastest pace since Abe took office in late 2012. At the same time, data shows households are spending less on non-durable goods such as utilities, education (that's why English teachers don't like Abenomics), recreation, transport and communications.

With private consumption accounting for roughly 60% of the economy, this renewed frugality is a signal that Japanese policymakers could struggle with yet another year of disappointing growth and low inflation.

And those policymakers are worried. Bank of Japan Governor Haruhiko Kuroda said this month that weakness is starting to show up in consumer spending. In March, the government lowered its assessment of private consumption due to falling spending and weakening consumer sentiment. The economy grew at a rate of just 0.2% in January-March, after an annualised 1.1% contraction at the end of 2015 - avoiding recession with the help of an extra day from the leap year to boost the numbers.

When Abe launched his administration with bold promises to shake Japan from its deflationary torpor, consumer sentiment surged and shoppers splashed out on big-ticket items. But now, opinion polls show a majority of voters are losing faith in “Abenomics”, as well as in the BOJ’s radical monetary stimulus, and consumer sentiment is weakening. The main reason for the weak rebound in consumer spending is a lack of real increase in wages. Price-adjusted real wages have fallen for the past four years.

While household spending among high-income earners has held steady after the sales tax hike, lower-income households have reined in spending. “People with lower incomes quickly realised that wage gains were not likely to continue, and higher food prices put a lot of pressure on the household budget,” said Norio Miyagawa, senior economist at Mizuho Securities.

All of which means, of course, that people are buying more and more cup noodles. They're cheap, they last forever and they fill you up. Yeah, they're not that healthy, but they're great for a quick bite. Anyone want to bet that Nissin sends a 'Thank-you' card to PM Abe!? Ha ha!

Have a great day!

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