Japan's consumer spending chain of doom

1. Japan's retirees have plenty of money saved, but they will spend gradually to make sure they have enough to survive on until they die.

2. Below replacement birthrates mean younger demographic cohorts don't generate enough personal income to spend enough to generate positive sequential consumer spending growth.

3. In conjunction with the shrinking pool of workers mentioned in two, the personal income number is negatively affected by retirement of higher paid workers who are replaced by lower paid workers--see Japanese Growth Revisited by Edward Hugh at Japan Economy Watch.

4. Japan as a matter of policy allows effectively zero in-migration, so supplementing domestic population growth with guest workers/immigrants is not going to happen.

5. As Claus Vistesen states in Japan's Economy: Chasing Illusions, also at Japan Economy Watch "Japan in order to grow and as a function of its ageing population will need to continuously raise capex and productivity in order to compensate for lower consumption which again means that growth to greater and greater extent will be driven by its need and ability to export." The problem is that Japan's enormous public debt limits the country's ability to fund public works capex and the fraction of Japan's businesses that export are unlikely to be able to generate enough additional productivity through capital investment to generate robust GDP growth. In addition, outside of a few headline industries, Japan's exporters aren't that much more efficient or productive than export firms in many other countries.

5. Given flat to negative domestic consumption, there is little incentive for foreign direct investment in Japan targeting Japan's domestic market. (Plus there are still undoubtedly significant barriers to foreign investment, even though Japan has loosened up in this regard in recent years)

6. Given sub-replacement birthrates, a shrinking population guarantees shrinking domestic consumption, and it is highly unlikely that birthrates will increase in Japan any time soon.

To sum up: I don't expect to see domestic spending contributing anything to Japanese GDP growth anytime soon