By Mary Jordan and Kevin Sullivan
Washington Post Foreign Service
Sunday, April 12, 1998; Page A01

CHIBA, Japan—The proof is not in the pudding. It's in the soy sauce.

Every day just about every Japanese person uses soy sauce, on rice and fish and chicken and in cooking. Yuzaburo Mogi, family patriarch of the famous Kikkoman brand, can tell by people's soy sauce-buying habits that his nation's economy is in deep trouble.

"Food companies are usually not hit by recession, but this time we are having trouble," said Mogi, whose family has been making soy sauce for more than 300 years. "People who usually buy expensive soy sauce are buying cheaper sauce. And people who bought our cheaper soy sauce are now buying other brands."

The declining soy sauce index is a useful indicator to explain why one of the world's richest countries is in so much trouble. The heart of why the economy is expected to shrink for the first time in a quarter-century is simple: People are spending less.

The collective power of 126 million of the world's richest consumers buying less has left a backlog of inventories, salary cuts for employees of sagging businesses, a drop in manufacturing output, and even bankruptcies. Asian neighbors are deeply affected: They were counting on Japan to buy their goods and lift them out of their more dire financial problems.

The United States, too, is not happy about the increasingly frugal Japanese consumers. American officials worry that Japan will export more cars, computers and other goods to U.S. shores, increasing the politically sensitive trade deficit.

"People stopped buying; that's what went wrong," said Yoshio Terasawa, a member of the parliament and former top official in the Japanese Economic Planning Agency.

Kathy Matsui, strategist at Goldman Sachs & Co., said the impact of consumer spending is "so huge" because of its domino effect. "If they start consuming again, it lifts corporate confidence, and that in turn triggers investment in the private sector, and that leads to a growing economy," she said.

Prime Minister Ryutaro Hashimoto aimed a $30 billion rescue effort directly at consumers last week. He proposed a tax cut that would give a typical household as much as $500 this year and again next year.

But housewives, retirees and salarymen in this Tokyo suburb are not impressed with Hashimoto's rescue. They said it will not move them to spend more.

In hours of discussions, they talked about why they started saving more: fear that more jobs will be lost and wages cut, distrust of the government's ability to correct structural problems in the economy and a growing feeling that if they do not look out for themselves, no one will.

Japan has a narrow social safety net compared with the welfare system in the United States, so there is considerable concern that if problems worsen, the government will give no subsidies for food or rent.

Just as important, because Japan has one of the world's highest percentages of older people, there is fear that the nation cannot provide for the costly needs of the elderly, from medicine to housing.

"I'm worried about getting old and not having enough money," said Yuko Nakamura, 40, a housewife. Standing in the Daiei supermarket in Ichikawa, Nakamura said she and her office-worker husband have high expenses related to the education and upbringing of their children, ages 7 and 10. But they are trying to put more money away for retirement. One way she does that is choosing more carefully at the supermarket, including buying a $1.50 liter of generic soy sauce instead of the $8 premium brand.

These days she'd rather pocket the difference. She said her government works in good times, but she's not convinced it's going to be there for her in bad times.

The average Japanese family has savings and investments of about $90,000, giving Japan one of the world's highest rates of savings. But even with that high savings rate, households absorb a full 60 percent of all goods produced in Japan. That is why even a 3 percent to 5 percent drop in spending can turn off the nation's economic engine.

But regardless of the effect Japanese consumers are told they are having on the global economy, men and women here say they are simply looking out for their children, their families and their retirement.

Toshie Kawashima, 30, a sales clerk in a children's clothing store near the Ichikawa subway station, said her husband's paycheck is lower than it was. A delivery-service employee, he is paid according to the number of deliveries, and they have dropped off.

"So I look to cut corners, cut out the extras," said Kawashima. "I look for cheaper things. It's not that I have stopped buying. I just buy cheaper products -- the daily special or the less expensive brand."

Kawashima said her husband earns about $4,600 a month, and she saves about $400 of that. The rest goes for rent, food and expenses. She makes $700 working part time, and nearly all of that goes for their 2-year-old child's baby sitter.

Government statistics released Friday suggest that families are spending 3.5 percent less of their disposable income than they were five months ago. Spending on autos fell 19.4 percent in March, and department store sales were down 5.4 percent. There were also big reductions in spending on furniture, clothing and entertainment. Japanese are also spending less on vegetables, fish and meat.

There is no feeling of desperation in Tokyo. Stores and restaurants are still busy, but stores are trying harder to attract customers, putting "sale" signs on much of the merchandise, and restaurants have reduced menu prices.

Takeshi Yamada runs a dry cleaning business in Chiba, and he has resorted to daily specials to attract more customers. Today it's $2.40 to clean a sweater.

Yamada blames the government for much of the slack in business. He said it raised the sales tax from 3 percent to 5 percent last year just as a torrent of shocking news was coming out about how shaky the banking system was.

Many people said the psychological effect of finding out that the tax on their $15,000 car was not $450 but $750, and that what had been thought of as a rock solid financial system was in fact wobbly, was devastating.

"I'm very skeptical about the government's ability to get us out of this," Yamada said. "I am not expecting the tax cut to do anything. The government has proposed so many measures, nothing has worked; why should this?"

Yamada said he has no intention of spending any money he gets from reduced taxes. "I am worried about what comes next, so I save."

It's not that people have stopped buying. Most people still drive nice cars, they just aren't trading them in on new ones at the pace they once did. Trendy American chain stores such as Starbucks coffee and Gap clothing are booming.

"After all, the Japanese people are still rich," Kawashima said. "We're just being more careful."

But many businesses that are considered non-necessities, like the Chinese food counter run by Maeda Sakon, have been hit hard.

He said his business is down 50 percent because people are grabbing cheaper lunches elsewhere.

"As Japanese people cut out the extras, I'm worried," he said. "The government keeps saying all these [measures] will improve things, but what I go by is my sales, and they are going down.

"I think people don't even know exactly what they fear, they just have a great worry about the future," he said.