Two Japanese Banks Lower an Interest Rate to 0.001%
March 30, 2002
Two Japanese Banks Lower an Interest Rate to 0.001%
By KEN BELSON
TOKYO, March 29 — With the basic logic of
their business twisted into knots by years of
recession and falling prices, two of Japan's
largest banks said today that they would slash the
interest rate they pay on ordinary savings accounts to
0.001 percent, just one-twentieth of the already tiny
0.02 percent they pay now.
Savers at UFJ Holdings and Bank of Tokyo-Mitsubishi
hoping to double their money would now have to
leave it on deposit for 69,315 years. In a typical
American savings account paying 2.5 percent, the
balance doubles in less than 30 years.
From a Japanese bank manager's perspective, taking
deposits is becoming a less and less attractive proposition, even at infinitesimal interest rates. With the start of the
new fiscal year on Monday, the government is withdrawing its unlimited guarantee for time deposits, leaving the
banks to find and pay for private deposit insurance for accounts over $75,000 or do without. Deposits over
$75,000
in ordinary accounts lose the government's unlimited guarantee a year later, on April 1, 2003.
There is little hope for making up the cost by charging more for loans — there is too little demand from
creditworthy borrowers for that — so the banks say they have little choice but to effectively stop paying interest.
For the consumer, the change removes any pretense that a bank account is an
investment. The A.T.M. withdrawal fee alone — generally 105 yen, or about 79
cents — would wipe out a year's interest earnings on 100,000 yen ($754).
The banks' announcement caused barely a ripple today. "People are so used to
low interest rates that it no longer shocks them," said Yasuhisa Shiozaki, a
Japanese legislator.
With prices falling across the economy — the government announced today that
consumer prices declined 1.6 percent in February — money left in a bank
account gains purchasing power over time here even without earning interest. (Of
course, so does money stuffed in a sofa cushion.)
Over the long term, though, the disappearance of interest has broad implications
in this nation of savers. Wages are falling, jobs are disappearing and surveys
show that most families feel less secure about the future than they did before. In
response, they are cutting their spending sharply, hoping to avoid tapping savings
they may need if things get worse. Household spending fell 2.9 percent in
February.
They are also shunning stocks and other investments perceived as risky, and it
shows in the Nikkei 225 stock index, which finished the fiscal year today at
11,024, down 15.2 percent from a year ago.
Most Japanese prefer the safety of banks, the country's postal savings system
and gold bars, which have been hot sellers this year. Savers hold about 100
trillion yen ($754 billion) in regular savings accounts at the largest banks.
As deposit insurance for large accounts is phased out, analysts say, customers will pay greater attention to the
financial soundness of the banks they trust with their money. Smaller and shakier banks have already experienced
flocks of customers nervously shifting money to larger institutions that are seen as more robust — or at least, less
likely to be allowed to fail.
Depositors also face the risk that the Bank of Japan will accede to political demands and explicitly try to restart
inflation in the country by flooding it with even more yen than now. Because inflation usually moves faster than
interest rates once it gets going, many depositors may react to its reappearance by sending money to
interest-bearing accounts overseas.
"Because people know prices are falling, there's no sense that their money is becoming less valuable," said
Christopher Walker, an economist at Credit Suisse First Boston in Tokyo. "But if we see inflation, the investing
public will respond."
No exodus has happened yet — only about $200 million of the nation's $10.5 trillion in household savings is now
held overseas.
Consumer groups have been advising savers to think twice before pulling their money out of banks, advice that
resonates after investors in some money-management funds found out last year that they had been burned by Enron
(news/quote) bonds, setting off a stampede out of the funds.
"While there is deepening mistrust of banks, people looking at other financial options often find brokers trying to
sell
products to uninformed people," said Junko Hanai, who works at the Japan Consumer Lifestyle Advisory Group.
"So we tell consumers not to rush, and to stick to savings accounts."
Fortunately, the same banks that slashed interest rates on regular accounts also offer "superordinary savings"
accounts that require a minimum balance of 100,000 yen but pay 30 times the interest. Doubling your money in a
superordinary account takes only 2,310 years.
Copyright 2002 The New York Times Company |
