For the first time since records were collected in 1955, or nearly six decades, Japan’s population is drawing down its savings and the savings rate, calculated as savings divided by disposable income plus pension payments, was negative 1.3 percent. It is a dramatic change from when the Japanese saved nearly a quarter of their income (23.1 percent) when the savings rate peaked in 1975.
Japan had the highest household saving rate among members of the Organisation for Economic Cooperation and Development (OECD) in the 1960s until it fell to the lowest. After all, an aging population draws down savings and Japan is the fastest-aging country in the world; its population has been shrinking for a decade, BBC reported.
It’s another blow to the Japanese Prime Minister Shinzo Abe, who just won another term to try and implement his policies dubbed Abenomics. On the campaign trail, he said Abenomics aimed to raise wages and employment to revive the economy and defeat deflation or price falls.
However, earnings (adjusted for inflation) dropped 4.3 percent from a year earlier in November. It is the steepest decline since the 2009 global crisis and marks the 17th month of falls.
Highly Indebted
Japanese households are unsurprisingly spending less. The average spend has dropped by 2.5 percent, which is the eighth consecutive drop - a trend that would not help boost domestic demand and prices.
Inflation has clocked in at a 14 month low. There’s no price pressure on nominal yields on government bonds. The 10 year bond yield has fallen to a record low of below 0.3 percent.
Such low borrowing costs will help the highly indebted country, but it also reflects an expectation that the economy and inflation won’t be getting going, and ultimately lead to rate rises.
Since their debt crisis in the early 1990s, the Japanese have been reluctant to borrow on a large scale. So, unless wages rise sustainably, it’s hard to see how household spending can. Without more domestic demand, firms are reluctant to raise wages and invest, which is why they still hold substantial cash.
Domestic consumption
The high savings rate of Japanese firms is another reason why declining household savings did not noticeably affected the country’s current account surplus - which measures the amount of money made investing from the rest of the world as well as trade - for a while.
With savings drawn down and falling wages, it’ll be hard for Japan to rely on consumption to recover. Until consumer spending does recover, Japan faces an uphill battle to revive its domestic economy.
Slow Growth
Japan’s inflation rate fell to its lowest level in over a year in November as the economy struggles to emerge from recession. The world’s third-largest economy remains largely stagnant except its labor market, an indication of the depth of a slump caused by a national sales tax increase in April this year.
The rate of increase in Japan’s core consumer price index—adjusted for volatile fresh-food prices and the impact of a national sales tax increase in April—fell to 0.7 percent in November from a 0.9 percent rise the previous month, according to government data released Friday.
Inflation has been slowing across the world, a trend that is strengthening with the rapid descent of international oil prices, complicating efforts by central banks, such as the Bank of Japan (BOJ) and the European Central Bank, to prevent or get rid of deflation.
The latest inflation reading is the lowest since September 2013, and matched a forecast of economists polled by The Wall Street Journal and the Nikkei.
Less than two months since the BOJ expanded its stimulus policy of flooding the economy with cash through government bond purchases, expectations are strengthening that cheaper imported oil will push the inflation rate further down and away from the BOJ’s target over the coming months, forcing the central bank to act once again.
