Negative rates have Japanese savers withdrawing their cash
Depositors have withdrawn $365 billion to stash at home “I feel like they’ll start charging me to keep my money there”
When the Bank of Japan unexpectedly announced negative interest rate policies in January, the first thing Tomomi Sato did was withdraw a 10th of the money in her bank account to keep it safe at home.
“It made me think of bank runs and shutdowns like I’ve heard there were in the past,” says the assistant to manga comic artists. “Eventually I feel like they’ll start charging me to keep my money there. When I think about that, I begin to worry.”
The negative rate applies to just some of the reserves Japan’s banks deposit at the Bank of Japan. There’s no plan now by banks to charge retail depositors’ accounts instead of paying interest.
Sato is emblematic of a challenge that has only deepened now that the central bank is setting rates below zero: Average Japanese aren’t feeling the benefits of more than three years of extraordinary monetary stimulus, and cash withdrawals suggest they’re losing faith. About 40 trillion yen ($365 billion) in cash has piled up in homes across Japan, according to a Dai-ichi Life Research Institute estimate—equivalent to about 8 percent of gross domestic product. That’s money banks could be lending or using to buy bonds.
“So long as Japan has what can broadly be categorized as a zero interest rate policy, the amount being withdrawn will continue to grow,” says Hideo Kumano, chief economist at Dai-ichi Life. “What it means for 40 trillion yen to be sleeping under mattresses is that the deflationary mindset is deeply rooted, and Japanese have become hypersensitive to risk.”
Financially, there’s little that separates the futon from a savings account that pays 0.001 percent annual interest. And the perception that a negative deposit rate could become a de facto tax on savers has exacerbated the migration of funds. Sales of safes in March were up 86 percent from a year earlier, the highest level ever, according to government data. Another sign Japanese are stashing cash is that paper money exceeded coins in circulation in April by the most since 1970. Analysts assume the extra bank notes went into safes and hideaways in Japanese homes. BOJ Deputy Governor Hiroshi Nakaso said in May that officials need to better explain the decision to adopt a negative deposit rate, amid harsher criticism than the bank had expected.
Another reason Japanese may want to put more money under the mattress is the government’s “My Number” initiative. In January, Japan started issuing identity numbers as it seeks to crosscheck financial data spanning government services, health care, taxes, and social welfare. There is concern it could eventually apply to bank accounts, meaning the government could find out how much people have saved.
The monetary authority’s website began carrying a statement in March
titled “Understand Negative Rates in 5 Minutes,” a dialogue between a hypothetical questioner and a BOJ official. Asked if negative rates would hurt consumption, the representative says, “If you’d put 1 million yen in the bank for a year, you would have got 200 yen in interest. Now, it’s 10 yen. This isn’t enough to damage consumption, now, is it?”
Consumption is still pretty damaged. Household spending dropped 0.4 percent in April after recording a 5.3 percent slump in March, the most in a year. Consumer prices have stagnated. The proportion of people expecting prices to be higher a year from now shrank to the lowest level in three years, according to a BOJ survey.
Monetary stimulus has also failed to ignite wage pressure, with average earnings not rising as much as 1 percent in any month since 1997. “I can’t picture that the economy is getting any better,” says securityconscious Sato.
The bottom line Japanese are showing their belief that deflation is here to stay, by withdrawing cash from banks that pay almost zero interest.