ETF Trends
ETF Trends

 Although we must acclimate to economic conditions to survive, we must be mindful of the devastating effect frugality may have on a nation’s overall economy and the exchange traded funds (ETFs) that track these nations.  Take a look at Japan.

As we are in a recession so severe that some have deemed it a mild depression, American consumers have turned to frugality to maximize the efficiency and effectiveness of every dollar that they have.

Japan was plagued by an economic catastrophe from the 1990s until the early 2000s, which forced the vast majority of consumers to turn to frugality and scale back on spending. Eventually, the nation pulled itself up by its bootstraps, thanks to a boom in exports to the United States and China; however, this still didn’t spark consumer spending.

Now that nation faces yet another trying time and Hiroko Tabuchi for The New York Times states the following reasons why frugality will still prevail in Japan:

  • The average worker’s paycheck has shrunk in the last few years, leaving consumers with less disposable income.
  • Japanese exporters used aggressive cost-cutting strategies to gain a global competitive advantage, which led to lack of job security and an attraction to temporary workers. In fact almost 48% of workers age 24 or younger are temps.
  • Japan’s aging population isn’t spending and stuffing their extra yen away for a rainy day.
  • Distrust in Japan’s pension system is forcing those close to retirement to save, save, save.
  • Japanese economic stimulus programs have been hindered by deflation because consumers believe that goods will be cheaper in the near future.

Even as the country was booming, it was mostly on exports and not consumer spending. In fact, between 2001 and 2007, per-capita consumer spending rose a scant 0.2%. As exports dry up, domestic consumption is not picking up the slack.

By no means should one spend more than he can afford, but being overly frugal can definitely have a long lasting impact on consumer lifestyle and habits. Let’s just hope that our recession doesn’t stick around for too long and leave a permanent stamp on American society.

Meanwhile, President Barack Obama has met with Prime Minister Tara Aso yesterday, report Sachiko Sakamaki and Roger Runningen for Bloomberg. Aso is increasingly unpopular, and there’s a stalemate over the stimulus package. Obama stressed the importance of a United States-Japan relationship, as they’re the world’s two largest economies.

Take a look at the beating the iShares MSCI Japan Index (EWJ) has taken. It’s down 11.2% over the last month and 38.4% over the last year

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.