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Demand for lowly ¥1 coin sinks as consumers take to cashless transactions

JIJI

The number of ¥1 coins in circulation has fallen sharply as consumers increasingly choose to make cashless payments based on electronic money or credit cards.

The government has stopped minting new coins for circulation while withdrawing deteriorating coins.

With the consumption tax slated to be raised to the round figure of 10 percent from 8 percent in October 2019, the ¥1 coin is bound to lose even more favor with consumers.

According to the Bank of Japan, the number of ¥1 coins in circulation stood at 37.8 billion in 2017, down 8 percent from the peak of 41 billion in 2002.

By contrast, the amount of financial settlements made via e-money exceeded ¥5 trillion in 2016, about 7 times the level in 2008, when the BOJ began its survey.

The light, aluminum-based coin is the yen’s minimum denomination in Japan and entered the spotlight when the consumption tax was introduced at a rate of 3 percent in 1989.

The Finance Ministry minted more than 2 billion of the coins annually, about double the amount in 1988, for three consecutive years from 1989 in anticipation of growing demand for use in change. There were over 35 billion in circulation in 1991, versus 24.6 billion in 1985.

Demand slumped, however, after the consumption tax rate was raised to 5 percent in 1997. From 2011 to 2013, the ministry stopped issuing new ¥1 coins for circulation, limiting production to some 500,000 to 700,000 units intended for collectors.

The ministry restarted minting the coins when the tax rate was lifted to 8 percent in 2014, but the waning growth in demand caused by the spread of cashless transactions prompted it to stop issuance again in 2016.

If the consumption tax is finally hiked to 10 percent, certain products, including food, are still expected to be taxed at 8 percent. Still, demand for ¥1 coins for payments and change is likely to diminish, given what happened after the levy was hiked to 5 percent.

Minting a ¥1 coin is said to cost about ¥3.

“The more coins you make, the bigger the loss becomes,” Yukinobu Kitamura, professor at the Hitotsubashi University Institute of Economic Research, said.

Delivering another blow to the coin, the government has set a goal of boosting the share of cashless payments in all settlements from 18 percent in 2015 to 40 percent in 2025, mainly to reduce transportation and storage costs linked to cash transactions.

According to a proverb, someone who makes fun of ¥1 will eventually cry over ¥1. This saying may fall out of use as well.