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”

Bloomberg Businessweek (Asia) - - NEWS - Kevin Buck­land, Shigeki Nozawa, and Kazumi Miura

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.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.