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  5. The Long-term Trend and Outlook of Japan’s Household Savings Rate

2009 Vol.1
The Long-term Trend and Outlook of Japan’s Household Savings Rate


Japan’s household savings rate used to be the highest among developed countries, reaching over 20% in the mid-1970s. The population’s age composition being young and high income growth at the time were among the factors for recording such high numbers. However, as the economy steadily shifted from a high-growth to steady-growth phase and the pace of income increase decelerated, the household savings rate gradually declined. From the late 1990s, the downward trend of the household savings rate became significant and in fiscal 2007, it dropped to the 2% level. Sluggish income growth and the increase of elderly persons living off pensions due to the aging population were the cause of decline.
As Japan’s population continues to age, the number of workers’ households to save money should decrease. On the other hand, those who do not work and instead spend their savings will drastically increase. As such, it is likely that the household savings rate will decline further, and possibly reach minimal levels by 2025. In the past, households have played the role of providing domestic funds to economic entities such as corporations as needs arise, but the pattern of domestic money flow may change gradually influenced by the decline in the household savings rate. Once the corporate sector, in the excess savings mode for the past several years because it has squeezed excess debt, changes its position to excess investments, domestic funds supply may tighten. Slowdown of the economy could dampen the demand for funds, but the decrease in domestic funds surplus could also result in a very tight situation in domestic funds demand and supply. At the same time, current account surplus will likely decline over time.