Japan’s savings rate rose to its highest level in two decades, as anxiety over the pandemic and the economic outlook appeared to encourage people to pocket cash handouts from the government instead of spending them.
On average, people saved 44 percent of their income in the five months through August this year, up from 33 percent in the same period last year, according to household spending data released Friday by the internal affairs ministry.
Higher savings rates means less spending, which is bad for the country’s overall recovery. Private consumption accounts for more than half the economy and a rebound is especially important with the virus hitting exports markets even harder than Japan.
“Until the virus is gone, it’s hard to see the savings rate going back down to where it was,” said economist Takeshi Minami at Norinchukin Research Institute. “Consumer sentiment has improved somewhat but behavior hasn’t returned to normal. As long as people are reluctant to travel and eat out spending isn’t going to recover to what it was.”
The savings rate was particularly high in June, when a lot of the government’s cash handouts arrived in people’s bank accounts, the data showed. People in both high and low income brackets increased savings, but low earners saved more.
The overall jump in savings mirrors the findings of a report last week that showed net income for Japanese households hit a record high during the second quarter as government handouts swelled bank balances and people staying at home spent less money.
“Compared to the falls seen during the global financial crisis, the decline in consumption this time is remarkable,” added Minami. While people have been coming around to the idea of consuming again recently, actual spending hasn’t fully recovered, he said.
Cash and deposits held by households rose to a record ¥1.03 quadrillion ($9.7 trillion) in the April-June period.