Japan is back as No. 1. Yes, I know, Japan’s gross domestic product has fallen behind China’s and is now “only” the third-biggest in the world. But in the world of money, credit and investment, Japan is back in the No. 1 slot of being the world’s largest creditor country. Make no mistake — China may be the factory of the world, but it is Japan that is the world’s predominant source of saving and investments.

The numbers speak for themselves. At the end of last year, Japan owned net global assets of ¥328 trillion. Germany was the second-largest global creditor, owning ¥262 trillion, followed by China in third place, owning ¥205 trillion. Against the Japan-led phalanx of global creditors, we have the United States as the standout gigantic global debtor: At the end of last year, the U.S. owed ¥886 trillion to the world. America has accumulated more than 10 times more debt than the runner-up global debtor, France, at ¥63 trillion.

Japan’s renaissance as the world champion surplus saver and source of financial capital is a key consequence of Abenomics and the domestic economic recovery. It has manifested itself in many different forms such as the fact that Japan’s public pension investment fund is now the largest single global investor in U.S. equities; that SoftBank manages the world’s leading global technology investment fund; that Japan has surpassed China to become the largest international investor in Australia; that Japan’s mega-banks have been the dominant creditor in non-China Asia for three years running; that Japanese companies are on target for another record year of outward foreign direct investment, to name just a few of the big headline deals that have channeled Japan’s domestic surplus savings into the world.

Clearly, it is hard to argue that the re-birth of Japanese global investment is a bad development. However, it does suggest that Abenomics has worked to restart growth in national income but has not worked to promote sufficient new domestic investment opportunities: Japan is back to where she was in the late 1980s and early 1990s, the last time Japan was the world’s largest creditor. Yes, national income and national savings are growing again, but the earned income does not get spent or invested at home. Domestic savings once again exceed domestic spending and investment, thus fueling a recycling of this new Japan savings surplus that propelled Japan back to global top creditor. The verdict is clear: From a macroeconomic perspective, Abenomics has brought back, but not changed, Japan’s basic economic structure. The country is back to being an excess saver.

To demonstrate this point, let’s look at Japanese households and consumers: In the five years before Abenomics started at the end of 2012, employment income dropped by ¥11 trillion and consumption dropped by ¥8 trillion. This was a deep consumer-led recession, forced by aggressive corporate restructuring in the wake of the global financial crisis and the 2011 Great East Japan Earthquake and tsunami disaster.

The fact that incomes fell by more than consumption implies Japanese people actually dis-saved, i.e. dug into their savings to maintain some desired minimum level of spending.

Since the start of Abenomics, slowly but surely, employment income actually began to turn around, spurred on by the aggressive monetary and fiscal policy expansion ordered by Team Abe. In fact, in the first two years of Abenomics, employment income rose by ¥8 trillion, but consumption rose ¥10.4 trillion. Again, consumption growth exceeding income growth implied a falling savings rate. Clearly, Japanese consumers were so upbeat and confident in the future that they were prepared to borrow and live beyond their means. This 2013-2015 period was, from an economist perspective, a truly “new Japan,” where savings actually fell while consumption rose faster than incomes.

Unfortunately, this “new” dynamic did not last past the initial two years of Abenomics. Since 2015 incomes continued to rise, but the rise in consumption began to lag. In other words, Japan was back to her traditional normal state of generating excess savings relative to spending.

Specifically, since the start of 2015 until this summer, employment income rose by ¥24.3 trillion, but consumer spending rose a mere ¥3.6 trillion (both between the first quarter of 2015 to the second quarter of 2018). Clear speak: Since 2015, Japan’s consumer savings rose by almost 4 percent of GDP. The household sector’s ¥21 trillion swing back toward excess savings has been the principal force propelling Japan back to the status of No. 1 global saver and creditor.

To be sure, Japanese consumers are not the only ones saving more. Japanese corporations are doing exactly the same. Since 2015, corporate Japan has been running an annual savings surplus of almost 5 percent every year, and surplus cash balances for listed companies have surged to almost 160 percent of GDP. Sad but true — both Japanese private households and private corporations appear primarily focused on hoarding cash and accumulating savings, rather than spend or invest. We’re back to the exact private sector structural savings surplus that has been the hallmark of Japan’s economic structure since the 1980s.

Technically, a possible off-set to the private sector savings surplus comes from the public sector deficit. If the private economy generates more savings than investments or spending, the fiscal deficit can absorb those savings, and only the excess left thereafter becomes available to invest overseas. But the key point is not how to balance the accounting identities but the fact that private sector behavior has not changed under Abenomics: The rising household sector savings rate in Japan suggests consumers are not confident in the future and instead opt to build nest-egg savings; and the continued surge in corporate cash hoarding confirms that corporate leaders do not see future profit opportunities.

The good news is that Japanese corporate and investment managers have found new confidence to venture oversees, and actually make bold new investments on the global stage where returns are higher than at home.

The bad news is that Japan’s policy leadership appears increasingly preoccupied with maintaining the status quo, rather than seeking to promote and stimulate new domestic investment opportunities.

A new agenda of privatization and deregulation is needed to raise returns and profitability in domestic markets. Without it, Japan will become ever more dependent on global markets for her future prosperity.

Based in Tokyo, Jesper Koll is WisdomTree’s head of Japan. He publishes blogs at www.wisdomtree.com/blog .

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