The habits built during Asia's Lost Decade still have a hold on the Japanese economy, even years after recovery.
TOKYO - As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.
The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan's economy.
Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyo residents in the booming 1980s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.
The Takigasaki family in the Tokyo suburb of Nakano goes further to save a yen or two. Although the family has a comfortable nest egg, Hiroko Takigasaki carefully rations her vegetables. When she goes through too many in a given week, she reverts to her cost-saving standby: cabbage stew.
"You can make almost anything with some cabbage and perhaps some potato," says Takigasaki, 49, who works part time at a home for the disabled.
Her husband has a well-paying job with the electronics giant Fujitsu, but "I don't know when the ax will drop," she says.
Japan eventually pulled itself out of the Lost Decade of the 1990s, thanks in part to a boom in exports to the United States and China. But even as the economy expanded, shell-shocked consumers refused to spend. Between 2001 and 2007, per-capita consumer spending rose only 0.2 percent. Now, as exports dry up amid a worldwide collapse in demand, Japan's economy is in free-fall because it cannot rely on domestic consumption.
In the last three months of 2008, Japan's economy shrank at an annualized rate of 12.7 percent, the sharpest decline since the oil shocks of the 1970s.
"Japan is so dependent on exports that when overseas markets slow down, Japan's economy teeters on collapse," said Hideo Kumano, an economist at the Dai-chi Life Research Institute. "On the surface, Japan looked like it had recovered from its Lost Decade of the 1990s. But Japan in fact entered a second Lost Decade -- that of lost consumption."
Economic stimulus programs have been hampered in Japan by deflation, the downward spiral of prices and wages that occurs when consumers hold down spending -- in part because they expect goods to be cheaper in the future.
Economists say deflation could interfere with the 2 trillion yen ($21 billion) in cash handouts that the Japanese government is planning, because consumers might save the extra money on the hunch that it will be more valuable in the future. The same fear grips many U.S. economists and policymakers.