Japanese shoppers reluctant to spend

Revenues at amusement parks have soared since the September opening of Disney Sea near Tokyo

By the BBC's Duncan Bartlett in Tokyo

The shops in the busy streets around Shinjuku station in central Tokyo show little sign of being in recession.

Department stores and boutiques are full of people looking for Christmas and new year gifts.

In Takeshimaya Times Square the decorations have been up since October and the sound of "Jingle Bells" plays endlessly in the stores.

Most shoppers want a bargain and this year shopping costs less than it did last December.

Most shoppers want a bargain

In fact, prices have tumbled for 27 months in a row.

But that hasn't been enough to get people to spend more.

Shops have seen the amount of goods they've been selling fall for the past six months and many retailers have therefore gone out of business.

One recent casualty was the nation's fourth-largest supermarket operator Mycal.

Bankruptcies in Japan are running at record levels and every time a firm goes bust, it means job losses. At 5.4%, Japan now has the highest unemployment level since the Second World War.

Companies which go under usually end up owning money to their banks and the staggering level of "bad loans" the banks have accumulated is an acute problem for Japan's financial system.

The government admits the banks' debts are at least $1.2 trillion but some experts believe it could be even more.

Prime Minister Junichiro Koizumi has promised to try to sort out the problem within three years and there is some evidence the banks are starting to get to grips with the challenge.

In November, three banks, Mizuho, Sumito Mitsui and United Financial all said they would lose money this year as a result of writing off loans to companies which will never be repaid.

Limited choices

Meanwhile, Finance Minister Masajuro Shiokawa has also promised to address the problem of falling prices.

He has urged the Bank of Japan's Governor Masaru Hayami to use policy tools to boost consumer prices to their levels before Japan began experiencing deflation in 1997.

The central bank's choices are limited

But with interest rates in Japan already close to zero, the Bank's options are limited.

The zero interest rate policy was designed to make life easier for the banks and other heavily indebted companies.

However, some economists argue that raising interest rates would give Japanese savers a better return on their money and thus encourage them to spend more.

However, not every business in Japan is in decline.

Revenues at amusement and theme parks surged 86% in September thanks to the recent openings of Universal Studios in Osaka and Disney Sea near Tokyo.

It seems that for the Japanese, it's still worth paying to get away from their worries and spend some time having fun.