While the crisis in Fukushima persists, markets are struggling to come to any sort of conclusion on just what sort of impact this is going to have on the Japanese consumer.
The best we’ve got, thus far, is historical comparison. And while Kobe is the most talked about, 9/11 may be a better example.
Societe Generale point out two opposing, but interesting facts to ponder. After September 11, U.S. consumer confidence plummeted, but retail sales sky rocketed. Only problem is the Japanese may not have the same toolkit to create that surge.
It is difficult to search for events for comparison, but in our view, U.S. consumers’ state of mind after the 9/11 could make a good comparison. Population generally avoided crowded areas for fear of encountering terrorism. Consumer confidence plunged in September to October 2001 (see chart above). However, the decline in consumer confidence did not mean stagnation in retail sales. In Japan’s “worst case scenario”, consumer confidence is likely to tank as in U.S after 9/10. We are pessimistic that the Japanese consumption trend could diverge from confidence as it did in U.S. though. While there will still be demand from consumers to replace lost consumer durables, we expect fiscal situation won’t allow Japanese government to relieve consumers with tax cut as we detail in the next section.
The problem with Japan, is if the “worst case scenario” does occur, the government will need to spend so much money, they may need to raise taxes too.
On top of the fiscal stimulus of JPY 5-10 trillion we are already expecting in the aftermath of the earthquake, the government will need to spend an even larger amount to relocate evacuees and to help them find jobs. We estimate that another JPY 5-10 trillion fiscal spending would be required for the program. In this instance, it is likely that the Japanese government would be forced to raise taxes, instead of relying on more JGB issuance. Consumers are likely to be burdened with increased taxes on top of the collapse in confidence.
Not good, and that’s why the future Japanese chart will likely not match this one.
Photo: Societe Generale
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