TOKYO: People in Japan are hoarding the cash they accrued during the pandemic despite an easing of restrictions, with savings actually increasing to ¥62 trillion (US$478 billion), or more than 10% of the country’s gross national product.
The trend appears to reflect a general feeling of insecurity among consumers about the future — a mood in stark contrast with the US, which saw savings plummet 60% from its pandemic peak.
The Bank of Japan’s quarterly Outlook for Economic Activity and Prices describe so-called Covid savings as money that was saved rather than spent due to Covid measures, such as the closure of entertainment venues and travel. The BOJ estimated Covid savings to be about ¥50 trillion as of the end of 2021.
The BOJ had said in its analysis that there is a possibility that some of these savings would be spent, pushing up personal consumption as the pandemic subsides.
But an estimate by Daiwa Securities shows savings at the end of September had expanded to ¥62 trillion, a more than 20% increase from the BOJ’s estimate for December 2021. Ending Covid restrictions and opening up the economy took time, putting a further damper on personal consumption.
Household spending for the July to September quarter was ¥75 trillion. That is ¥3.4 trillion less than the trend before the pandemic, according to Daiwa, showing a rather slow recovery of consumption as savings continue to rise.
The increased savings have allowed households to sustain a certain level of spending despite the impact inflation has had on prices of everyday items. However, this has not translated to an environment of strong consumer spending.
Meanwhile, in the US, Covid savings have largely been drained and consumer spending is up. An estimate by the Japan Research Institute put Covid savings in the US at around US$2 trillion as of mid-2021, with many benefiting from large government stimulus plans.
As the country’s economy opened up, consumption rose and savings shrunk to US$710 billion by the end of 2022.
Although the US Federal Reserve is continuing rate hikes to suppress inflation, strong household spending is supporting the economy. So-called revenge consumption has flourished as people’s spending suddenly expanded after being suppressed during the days of Covid closures. The growth of real household spending in October to December period was solid at 2.1%.
For Japan, the focus will be whether people start using their Covid savings, following the trend in the US.
According to data compiled by credit card company JCB and data analytics company Nowcast, money spent by credit card in December rose 7.1% compared with same month in 2016 to 2018, suggesting there is some signal of acceleration.
The BOJ expects private consumption to increase. The latest Outlook for Economic Activity and Prices said this is “mainly because pent-up demand is likely to materialise, supported by household savings that had accumulated as a result of pandemic-related restrictions, as the resumption of consumption activities progresses further while public health is being protected.”
Economist Hajime Inoue at the Japan Research Institute echoed this view, saying “the Covid savings will serve as the fund for spending.”
Others were more sceptical.
“It is hard to think of Covid savings to be used by much, given how strongly people feel uncertainty about their future in Japan,” said Toru Suehiro at Daiwa Securities.
“Unless it comes with wage hikes, Covid savings are likely to become money put off to the side in preparation for extra spending in the future, and unlikely to be used for spending,” said Hideo Kumano at The Dai-ichi Life Research Institute.
Kumano’s view suggests monetary policy alone is not enough to create a situation where wages continue to rise and people can feel secure enough to spend their savings. Fiscal policies and reforms to the welfare system are also key.
