ECONOMY: Japanese angry over Fukuda’s gas tax

In Japan, mounting anger over bread-and-butter issues

Rising prices, shortages of food items, and political gridlock spur calls for a quick election.

Tokyo — At a Jomo gas station in western Tokyo, an attendant in green-and-orange overalls recently explained why rising prices may topple the governing party after more than 50 years in power.

“People don’t come here to complain. But they will complain during the next election,” says Mayumi Uchida, noting the line of drivers who hurried to fill their tanks before a liter of gasoline jumped from 126 yen ($1.18) to 160 yen on May 1. “Many people didn’t even bother to vote in the last election. But this time they are going to vote against Prime Minister Fukuda and the governing party, because the cost of everything is increasing and our salaries are the same.”

Amid political gridlock, the first significant price hikes in a decade for basic items are politicizing consumers long known for their apathy and resignation. Many worry that inflation, which many economists once said would spur growth, will instead stifle demand and sink Japan back into the recession of the 1990s.

Polls suggest that two-thirds of Japanese disapprove of Prime Minister Yasuo Fukuda’s move to reinstate the gas tax on May 1, after it had expired March 31, resulting in artificially low prices for a month.

Due in part to the tax controversy, Mr. Fukuda’s approval rating has dropped by between 5 and 8 points to below 21 percent, according to separate surveys by the Nikkei and Asahi newspapers. The ratings are lower than those of his predecessor, Shinzo Abe, when he resigned in September.

Sensing the public’s anxiety, opposition politicians, who control the Upper House, have stepped up pressure on the ruling Liberal Democratic Party to call a quick election.

Fukuda argues that the taxes are needed to cover a burgeoning deficit. “In the last month, we have lost 180 billion yen worth of revenue,” he told a press conference last week. “If this state continues, every day the local and state governments will lose 6 billion yen of revenue. We can’t just neglect this revenue shortage. I’m not considering dissolving the Lower House at this moment.”

But the Democrats claim that the ruling party has long used road taxes for wasteful spending on pork-barrel construction projects. Since winning Upper House elections last year, the Democrats have criticized the LDP, who control the Lower House, for ignoring bread-and-butter issues.

Indeed, those have compounded the ruling party’s woes. Prices for bread and instant noodles have spiked. And butter has disappeared from shelves in recent weeks, partly a result of the growing popularity of bread and declining output by farmers, who face rising fuel and grain costs. While not a serious threat, the shortages have a symbolic impact as well as practical political one: Instead of trumpeting a longtime policy of shielding markets, Japan is calling for more imports and hopes to boost local production.

Japanese officials are also concerned about the broader global food crisis. During the Asian Development Bank’s annual meeting in Madrid Sunday, Japanese Finance Minister Fukushiro Nukaga warned that soaring prices might wipe out a decade of economic growth in Asia.

“Those hardest hit are the poorest segments of the population, especially the urban poor,” said Mr. Nukaga, quoted by Reuters. “It will have a negative impact on their living standards and their nutrition, a situation that may lead to social unrest and distrust.”

He and other leaders backed an ADB strategy to give low-cost credit and technical assistance to boost agricultural production to meet rising demand.

At home, after six straight months of rising consumer prices, the Bank of Japan last week reduced its growth forecast to 1.5 percent for the year started April from 2.1 percent.

“The current rise [of prices] is of an undesirable nature. It is not being caused by stronger consumption demand but by higher costs,” Economy Minister Hiroko Ota said recently. “Consumption demand is likely to remain weak because workers’ wages are not picking up.”

Average consumer prices recorded in March increased by 1.2 percent compared with levels a year earlier, according to Statistics Bureau figures. It said food costs rose 1.6 percent, while fuel, light, and water charges climbed 4.2 percent.

“This increase is small by comparison to levels in foreign countries. But this is a major rise in Japan,” says Yoshiki Shinke, a researcher at Dai-Ichi Life Research Institute in Tokyo. “Wages are still not increasing. So when combined with price rises, this has a big influence on consumers, especially on people with lower income levels. Consumer confidence is plummeting across the board.”

A wide range of retailers are reporting losses. Major beermaker Kirin’s stock value dropped the most in a decade after it said on Wednesday that its first-quarter operating profit fell 46 percent because of rising material costs and lower sales at its soft-drink division. Department stores also reported declining revenues in March.

Last year, Japan’s vehicle sales, excluding minicars, fell to their lowest level in 35 years. Vehicle sales this year, including minicars, will likely fall 1.2 percent for the fourth year in a row to about 5.32 million, according to the Japan Automobile Manufacturers Association.

The consumer mood shift is manifested in part in changing shopping habits. While department stores report declining revenues as demand falls, small-scale designers and shops continue to sprout up in the youth fashion mecca of Shibuya in Tokyo. The value of online shopping, meanwhile, continues to grow, up 9.5 percent to 3.7 trillion yen ($35 billion) in the year ending March 2007, according to the Japan Direct Marketing Association.

This potential for growth in new sectors gives some optimism among the deluge of negative indicators. “If the US economy recovers, and the price of oil decreases, then this might not last very long,” says Mr. Shinke. “But if the price of oil continues to rise, and brings the US economy downward with it, there will continue to be a negative impact on Japan.”

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