Hi CD, <<I'm a cheery fellow. But...>> ... yes, exactly, ... more to be thought about ... at $ 11.4 trillion, the Sake2Bottles can buy the US GDP at 1 times sales ;0)
In any case, at that kind of astronomical number, there is plenty to bleed out yet.
Chugs, Jay
JUNE 9, 2003
INTERNATIONAL -- FINANCE
businessweek.com:/print/premium/content/03_23/b3836159_mz035.htm?gb
Japan's Dangerous Savings Drought
Is the nation's vast base of cheap capital drying up?
It has long been one of the economic wonders of the world. The accumulated savings of millions of Japanese households in the post-war era -- some $11.4 trillion at last count -- provided the cheap capital that Japanese industry drew on to create its postwar miracle. Later, all those yen helped to inflate the biggest real estate bubble in history, as banks funneled depositors' money into loans to reckless developers. Later still, as Japan slid into a semipermanent slump, the Japanese kept saving. And saving. Each frugal household did its bit to keep the tottery national finances from collapsing. Tucked away in personal accounts and the savings bank run by Japan's postal system, this mound of capital is still going into Japanese government bonds, which in turn fund Japan's huge debt, including an annual fiscal deficit that is approaching 10% of gross domestic product. And all those budget-busting, white elephant, make-work projects launched by the government to coax some growth out of the economy? You can thank the Japanese saver for every one of them.
All of which makes the latest economic news out of Japan highly alarming. Put simply, the great Japanese savings machine is running out of gas. The rate of saving is dropping precipitously, which adds a new economic pathology to a country already traumatized by sick banks, deflation, and economic stagnation. "The high savings rate that has long been considered a strength of Japan's economy is in rapid decline," says Morgan Stanley economist Osamu Tanaka.
Consider the figures. Japan's savings rate topped 20% of household income in the mid-1970s and clocked 14% as recently as the start of the 1990s. It is now no higher than 7%, well below that of France, Germany, and Italy. And when final calculations are in for 2002, it may drop as low as 4% -- close to the rate of that revolving credit society, the U.S. (table). So far, the Japanese government shows few signs of concern about the drop.
What gives? Typically, consumers tend to slam their pocketbooks shut and accumulate savings during tough economic times. Japanese are doing the former but not the latter. Last year, consumption levels were flat, but earnings fell 2.4% -- the fourth decline in the past five years. That difference means families are dipping into savings to avoid limiting their lifestyles. The latest data, from 2001, show household savings took a massive hit. "Savings dropped by nearly 32% [about $83 billion], marking the largest one-year decline ever," says Goldman, Sachs & Co. economist Kathy Matsui.
A confluence of factors is at work. First, savers at both the individual and corporate level are getting skimpy returns on their investments owing to near-zero interest rate levels. Second, the savings rate is being hit by rising unemployment and declining incomes across the board. Most importantly, older Japanese are being forced to spend down their savings faster than they anticipated to support unemployed or poorly paid offspring. A 1998 government survey of single women in Japan found that 80% still live with their parents. "For many youths, whether single or married, parents seem to be supporting them," says Bank of Japan economist Aiko Mineshima.
Tokyo native Gaku Itoh, 26, for example, has a $20,000-a-year job with a mobile phone company. But rather than setting out on his own on a shoestring budget, he lives with his parents -- rent-free. "I spend money mostly for going out with friends, eating, and drinking," he says.
Of course, intergenerational living arrangements have long been common in Japan. But the recent spurt in return-to-the-nesters is a reflection of Japan's dreary economic prospects. Itoh is one of the lucky ones: The jobless rate for twentysomethings is 13.2% -- the highest ever -- compared with an overall rate of 5.4%. Even college graduates have to settle for low- paying part-time jobs, as Japan Inc. restructures through attrition and fewer hires. Given the circum-stances, and the fact that younger workers are less inclined to sacrifice than their elders were at the same age, savings rates for younger Japanese are low. Small wonder, given the fact that when their parents were entering the workforce in the 1960s and 1970s the economy was booming.
Then there's the fact that some Japanese families are living beyond their means. Not only are wages falling faster than spending, but summer and winter bonuses, which many corporate workers simply stashed away in savings accounts, are being slashed or eliminated altogether. Yet Japanese are reluctant to stop spending: Witness the still vibrant sales for Gucci handbags, broadband services, and plasma screen televisions.
At some point, as their savings dwindle, sensible families will pull back more on spending. But retirees don't have the option of spending less than they earn. And their numbers are rising. The 65-plus crowd made up 17% of the population in 2000. By 2010 they will be 22% and by 2020, 27%. That means Japan is in for a big slide in savings as older folks exit their peak earning years.
The ridiculously low return Japanese are getting on their financial assets is exacerbating the problem. Take Japan's monster postal savings system, with $2 trillion-plus in assets. Some $430 billion worth of 10-year time deposits, which offered rates of about 6%, came due in 2000 and 2001, estimates HSBC Securities Japan economist Peter Morgan. Much to the dismay of money managers hawking mutual funds, account holders didn't roll this dough over into stocks and bonds, but into new savings accounts that earn less than 1%. HSBC's Morgan figures the interest income lost comes to $51 billion for Japanese households over that two-year period.
So what happens if Japan's legendary savings rate continues its slide or even goes negative, as some analysts predict? The worst case: Japan, already saddled with a budget deficit, sees its current-account surplus go into deficit and needs foreign investors -- who demand sky-high interest rates -- to finance its spending. Right now, such a scenario seems fanciful. For starters, almost all of the sovereign debt issued in Japan is snapped up by domestic investors. The Bank of Japan alone holds $511 billion worth of bonds on its balance sheet, and helps the government keep financing cheap by its steady monthly purchases. What's more, the country still has a robust -- if declining -- current-account surplus, worth about 2.5% of GDP.
But if Japan's big pool of household savings continues to shrink, at some point the government will have to start looking for money overseas -- and paying far better returns to global investors buying its bonds. That could have devastating consequences for the nation's credit rating and its ability to raise cheap capital to fund a profligate fiscal policy. A smaller pool of savings could also squeeze corporate investment on new plants and equipment.
Tokyo can avert all this if it gets the economy on the move again by creating more jobs and wage growth. If that were accomplished, a moderate increase in interest rates would get Japan's saving and investment cycle back on track for both industry and individuals. But the government's many efforts to stimulate the economy over the past decade haven't been effective at sustaining growth. As long as that pattern holds, count on Japan's savings swoon to get worse before it gets better.
By Brian Bremner in Tokyo |
