Japan’s economy, which relies heavily on domestic consumption, has been hit hard by the Covid-19 pandemic. The changes in how people live and work have depressed demand in some sectors, while boosting it in others. This article will explore how the pandemic has affected Japan’s consumption patterns and what challenges and opportunities lie ahead.
The decline of the interpersonal economy
One of the main factors behind the slump in Japan’s consumption is the severe decrease in activities that involve interpersonal contact, such as dining out, traveling, entertainment, and personal services. These sectors, which are collectively called the “four interpersonal industries impacted by Covid-19”, account for more than 10% of Japan’s GDP and employment.
According to new research from Goldman Sachs, Japan’s strong post-Covid recovery in consumption has “slowed considerably so far in 2023” to levels that are still 4 per cent below the pre-pandemic average. The problem is partly down to the effects of the state of emergency declared in January 2023, which urged people to stay home and avoid non-essential outings. The government also implemented measures such as cash handouts, travel subsidies, and tax incentives to support these industries, but they were not enough to offset the drop in demand.
The pandemic has also changed the preferences and behaviors of consumers, who have become more cautious and selective about spending their money. Some people have shifted their consumption from offline to online, while others have increased their savings or invested in assets such as stocks and real estate. These trends have implications for the future of the interpersonal economy, which may face structural challenges even after the pandemic is over.
The rise of the digital economy
On the other hand, some sectors have benefited from the pandemic-induced changes in consumption patterns. These include the digital economy, which encompasses e-commerce, online services, telework, streaming, gaming, and other activities that can be done remotely or virtually. These sectors have seen a surge in demand as people have adapted to the new normal of living and working under Covid-19.
For example, e-commerce sales in Japan grew by 16.5% year-on-year in 2020, reaching a record high of 22.7 trillion yen. Online services such as food delivery, online education, health care, and entertainment also saw rapid growth as people sought convenience and safety. Telework became more widespread as companies adopted flexible work arrangements to prevent infections. Streaming platforms such as Netflix and Amazon Prime Video gained more subscribers as people looked for entertainment at home. Gaming also boomed as a popular pastime, with Nintendo’s Switch console selling over 20 million units in Japan since its launch in 2017.
The digital economy has not only provided new sources of revenue and employment, but also contributed to social innovation and inclusion. For instance, online services have enabled people to access goods and services that were previously unavailable or inaccessible due to distance, time, or cost. Telework has allowed people to balance work and life better, as well as reduce commuting costs and environmental impact. Streaming and gaming have offered people more choices and diversity in entertainment and culture.
The outlook for Japan’s consumption
The pandemic has had a profound impact on Japan’s consumption patterns, creating winners and losers among different sectors. The question is whether these changes are temporary or permanent, and how they will affect Japan’s economic recovery and growth.
Some experts argue that once the pandemic is over, people will resume their pre-Covid consumption habits, especially in the interpersonal economy. They point out that Japan’s culture and society value face-to-face interactions and experiences, and that people have pent-up demand for travel, dining out, and entertainment. They also suggest that the government should continue to support these industries with fiscal and monetary policies until they recover fully.
Other experts contend that the pandemic has accelerated the digital transformation of Japan’s economy, and that some of the changes in consumption patterns are irreversible. They claim that people have become accustomed to the convenience and efficiency of online services, and that they will not go back to their old ways of spending. They also propose that the government should invest more in digital infrastructure and innovation to foster new growth engines and enhance competitiveness.
The reality is likely somewhere in between these two scenarios. Japan’s consumption patterns will probably reflect a mix of old and new preferences and behaviors, depending on various factors such as income, age, lifestyle, location, and personal taste. The challenge for policymakers, businesses, and consumers is to find a balance between preserving the strengths of the interpersonal economy and embracing the opportunities of the digital economy.
