Business / Economy | YEN FOR LIVING

Uncertainty over negative interest and My Number may spur Japanese to stash more cash at home

by Philip Brasor and Masako Tsubuku

Two years ago, the Wall Street Journal reported that while Japanese consumers enjoy a sophisticated payment system that includes debit cards and e-money, the use of cash was actually on the increase. In the mid-1990s, cash transactions accounted for a little less than 10 percent of Japan’s nominal GDP. By 2012 the portion had risen to 19 percent. That’s about twice the rate of cash use in other developed countries and three times the rate in the United States.

There are various reasons for this preference, an obvious one being Japan’s storied public safety, but according to business consultant Yoko Kawaguchi, the older the Japanese person is, the higher the likelihood they will keep large reserves of cash at home. Many seniors live in residential areas where banks are not accessible, and even when there are banks nearby, they tend to feel uncomfortable with ATMs unless there’s an employee on hand who can assist them if something goes wrong. Older people are also less comfortable with credit cards and less interested in Net shopping.

But the main reason for cash hoarding is a general distrust of financial institutions that has been widespread since just after World War II, when the government locked down bank accounts ostensibly to halt inflation, though the real reason was to count assets and then tax them in order to pay the interest on all the war bonds the government had sold. In the end they collected some ¥40 billion, and savings accounts weren’t unlocked for two years. For years afterward, many people were afraid to put their money in banks.

The colloquial term for this kind of cash is tansu yokin, or “savings in the wardrobe,” and since the beginning of the year there have been two developments that could spur people to keep even more of their money at home. One is the implementation of the government’s My Number system, which assigns an ID number to each resident of Japan for tax and other financial purposes. Many people think that the government is using the My Number system to keep tabs on people’s money, not to mention their private lives, and that if they keep assets in a financial institution it can be easily scrutinized by the authorities. The other development is the Bank of Japan’s recent move toward a negative interest rate. Many people think that means if they keep money in a bank account, they will be charged interest.

The negative interest rate, in particular, may be the last straw for a lot of consumers, who are already receiving next to no interest for either normal accounts (futsū yokin), which earn around 0.025 percent, or time deposits (teiki yokin), which earn a tiny fraction more. In most major banks, these rates will drop further, and while reports say that no banks are planning to charge depositors, they may raise fees for ATM use and other services, thus giving consumers more of a reason to remove their money.

At the beginning of the year commercial banks had ¥90 billion in tōza yokin (current accounts) with the BOJ, earning 0.1 percent interest, which means the banks were still making money by doing nothing. After the negative rate was announced, they withdrew about a third of that money, according to NHK’s nightly news show “Close-up Gendai.” Salespeople for the banks have been visiting small and medium-size businesses to see if they need loans, offering rock bottom interest rates.

Lower interest rates should mean lower profits, too, but it’s not as if banks are making a lot of loans right now. The government is hoping that more people will take advantage of low rates to buy and build homes. That is essentially what happened in Europe, where negative interest was introduced five years ago. Denmark is now experiencing a real estate bubble, with properties in Copenhagen reaching New York City price levels. Banks in Switzerland are charging depositors, and, according to NHK, home safes are selling there like crazy. They’re starting to sell in Japan as well.

Sumitomo Mitsui Trust Bank is lowering its 10-year fixed-rate housing loan to 0.5 percent, the lowest it has ever been, delighting developers and builders, who saw the housing market shrink last year, but many banks say they don’t expect to see much of a boost in housing loans simply because people don’t feel secure enough in the current economic environment to buy a new home. Many banks are trying to make money by selling mutual funds and insurance policies, but they don’t put together these funds and policies. They just act as agents, and thus charge fees that customers could avoid if they went to a broker or an insurance company directly.

Professor Tsutomu Watanabe of the University of Tokyo told the Asahi Shimbun earlier this month that there’s a limit to what the BOJ can do with its negative interest policy, since there is already a huge amount of cash in circulation in Japan. Any further cuts in interest rates will cause people to take more of that money out of the bank, but people won’t do so to spend or invest it. They’ll just hoard it, as demonstrated by various incidental news reports.

During the New Year’s break, an elderly couple in Tochigi Prefecture returned from a road trip to discover someone had broken into their home and stolen ¥45 million in cash. In early December an elderly woman in Tokyo was swindled out of ¥100 million by a con man pretending to be her son. She gave the money in cash to a “colleague” of the faux son on the street. She had been keeping the money at home. Once in a while you’ll read a news story about a refuse collector finding a huge box of cash at the home of a recently deceased person. More to the point, well-to-do families keep large reserves of cash at home to avoid inheritance taxes. The National Tax Agency has been known to raid rich households in search of this cash.

Obviously, it’s difficult to know exactly how much tansu yokin there is. In 2008 the BOJ estimated it was about ¥30 trillion, so now it’s likely to be more. If the government could get people to spend or invest this money, it would go a long way toward improving the economy, but that means changing people’s minds about their futures, which remain uncertain.

What’s less discussed is another form of stagnant money called naibu ryūho, corporate “internal reserves” that are just sitting around, presumably for a rainy day. Back in the 1950s in the U.S., corporate taxes were as high as 90 percent, the purpose being to force businesses to reinvest, either in facilities or human resources. These days, stockholders are king, not stakeholders. The Finance Ministry estimates that companies in Japan held about ¥354 trillion in naibu ryūho in 2014, ¥26 trillion more than the year before, and much more than the estimated total stash of tansu yokin.

The ruling party, however, is cutting corporate taxes. Why isn’t it trying to set that money free?

Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see