Japan’s $707 Billion Stimulus Hinges on Elderly Spending Money

Japanese Prime Minister Yoshihide Suga has briefly put virus containment ahead of the economy by temporarily halting a nationwide travel campaign aimed at spurring spending among consumers including the elderly.

The septuagenarian premier needs to get more people of his own generation spending if he wants to keep the economy’s recovery on track over the coming months. People over the age of 65 make up 29% of the population and account for almost 40% of the consumer spending that is the biggest driver of Japan’s economy.

The elderly demographic also has the largest share of deaths from Covid-19. So while much of Suga’s $707 billion stimulus package focuses on making the economy greener and more digitalized in the future, its near-term fate depends more on making sure it’s safe for older people to spend both in their neighborhoods and on trips.

The halting of the “Go To” travel campaign will slow the recovery for now but the program’s extension through June shows the government still hopes it will eventually help drive the recovery with the over-65s also playing their part in supporting growth.

Still-fit seniors with time on their hands would normally stand to benefit most from the 35% travel subsidies and 15% spending rebates offered by the campaign. But with infections setting new records and the number of seriously ill rising, the suspension is likely to make them even more reluctant to venture out of their homes.

“People of my age feel that once you get infected, you are done for,” Ichiro Noguchi, 79, said over the phone from his hometown in Osaka a day after the governor there asked residents to stay home as much as possible in early December. “It may be OK for young people, but it’s different for us, catching this literally puts our lives at risk,” Noguchi said, adding that an acquaintance had died due to Covid.

Japan’s virus infections jumped 56% in the past month through Dec. 14 with new daily cases topping 3,000 on Saturday. Among deaths with age disclosure, 96% of Japan’s Covid fatalities are among those 60 or older as of Dec. 7, according to the National Institute of Population and Social Security Research.

“The impact of the suspension on consumer spending by seniors is going to be huge,” according to Hideo Kumano, executive chief economist at Dai-Ichi Life Research Institute, characterizing the move as a U-turn by the government. “Elderly people know they are the ones at highest risk and this announcement will end up scaring them more.”

The recent surge of virus cases and the halting of the program come at the worst possible timing to potentially derail Japan’s biggest shopping season. The new year is also a peak travel period as people go back to their hometowns to spend time with their families, just like Thanksgiving or Christmas in the U.S.

On a street known as Grandma’s Harajuku in Sugamo, Tokyo, the number of shoppers has dramatically dropped since the outbreak of pandemic, according to Yoshikazu Kizaki. While the district is rarely as crowded as the real Harajuku–a fashion mecca for teens–it is a popular shopping area for seniors. This year Kizaki says sales at his five-decade old family bag store have plunged by about 70% from the same period last year.

“The toughest part is having no idea how long this is going to last,” said Kizaki, who is also an executive member of the shopping street association there. “At this point I’m more worried about the outlook for the economy than whether I’m going to get the virus.”

Household spending by those 65 or above dropped more than 12% in September during a previous uptick in virus cases while consumption among younger people remained largely unchanged, an indication of the sensitivity among older people to news of rising cases.

The Bank of Japan cited the cautious behavior of the older population as a key reason for expecting only a moderate recovery in consumer spending in its quarterly outlook report in October when it downgraded its growth projection.

Overall consumer spending accounts for around 54% of the world’s third largest economy, according to government data last week confirming the fastest expansion of the economy in 50 years. Still, even with the growth spurt, almost half the lost growth of 2020 remains unrecovered. Suga’s stimulus is aimed at ensuring the momentum doesn’t just fizzle out.

Traveling is a major economic activity that many elderly can enjoy, according to Hiroshi Yoshida, the head of the Research Center for Aged Economy and Society at Tohoku University.

“Older people don’t generally buy flashy sportscars or luxury goods, so once they lose the chance to go out, their spending nosedives,” Yoshida said.

Watching out for seniors has a knock-on effect too, he says. “Young people are asked to limit their activities to ensure older people avoid infection, so in this way the entire economy is bearing the burden of aging demographics,” he said.

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