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PAST AND FUTURE TRENDS IN JAPAN’S HOUSEHOLD SAVING RATE AND THE IMPLICATIONS THEREOF FOR JAPAN’S CURRENT ACCOUNT
BALANCE
Charles Yuji HoriokaInstitute of Social and Economic Research, Osaka University
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The Purpose of This Paper
To examine past and future trends in Japan’s household saving rate, the determinants of these trends, and the implications thereof for Japan’s current account balance.
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Outline of My Talk
I. Data on Household Saving in Japan
II. The Determinants of Japan’s Household Saving Rate
III. Future Trends in Japan’s Household Saving Rate
IV. Summary and Conclusion
V. The Implications of My Findings for Japan’s Current Account Balance and for Policymakers
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I. DATA ON HOUSEHOLD SAVING IN JAPAN
(a) Trends over Time in Japan’s Household Saving Rate
(b) Japan’s Household Saving Rate in International Comparison
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Trends in Japan's Household Saving Rate, 1955-2007
0.0
5.0
10.0
15.0
20.0
25.0
195519
5719
5919
6119
6319
6519
6719
6919
7119
7319
7519
7719
7919
8119
8319
8519
8719
8919
9119
9319
9519
9719
9920
0120
0320
0520
07
Calendar Year
Percent 68SNA
93SNA
93SNA(2000)
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Table 1: Net Household Saving Rates of Selected OECD Countries, 1985-2005
1985 1990 1995 2000 2005
Australia 10.8 7 8.5 12 6.7 18 2.8 19 -2.6 22
Austria 10.5 8 13.3 6 10.9 11 8.4 8T 9.5 6T
*Belgium 11.1 6 9.2 11 13.2 5 9.8 5 7.8 10
Canada 15.8 3 13.0 7 9.2 13 4.7 15 -0.2 18
Czech Rep. na na 9.0 14 3.6 16 3.3 16
*Denmark na 1.3 19 0.9 22 -1.3 21T -0.6 21
Finland 3.4 14 3.6 16 4.7 19 -1.3 21T -0.5 20
France 8.9 10 9.3 10 12.7 6 11.4 3 11.6 3
Germany 12.1 5 13.9 4T 11.0 10 9.2 7 10.7 4
Hungary na na 15.6 3 16.0 1 17.7 1
Ireland na 6.1 13 8.5 16 9.6 6 10.9 5
Italy 21.5 1 23.8 1 17.7 1 8.4 8T 9.5 6T
Japan 16.5 2 13.9 4T 11.9 7 8.3 10 2.4 17
South Korea 14.8 4 22.5 2 17.5 2 10.7 4 4.3 14
Netherlands 5.6 13 17.7 3 14.6 4 7.0 12T 5.7 13
New Zealand 1.3 16 0.7 20 -3.8 23 -4.1 23 -7.1 23
Norway -3.3 17 2.2 18 4.6 20T 5.2 14 11.8 2
*Portugal na na 10.1 12 7.0 12T 6.9 12
*Spain 7.8 11 9.8 8 11.5 9 7.8 11 7.3 11
Sweden 2.2 15 3.2 17 9.1 15 3.2 18 7.9 9
Switzerland na 9.6 9 11.6 8 11.8 2 8.8 8
*United Kingdom 6.9 12 5.6 15 7.0 17 3.5 17 3.5 15
United States 9.2 9 7.0 14 4.6 20T 2.3 20 -0.4 19
OECD Mean 9.1 9.7 9.5 6.3 5.6
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Conclusion
Japan’s household saving rate used to be high in both absolute and relative terms but has been declining in both absolute and relative terms since the mid‐1970s and is no longer high by any standard.
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II. THE DETERMINANTS OF JAPAN’S HOUSEHOLD SAVING RATE
(1) The reasons for the high level of Japan’s household saving rate in the past
(2) The reasons for the decline in Japan’s household saving rate since the mid‐1970s
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(1) The Reasons for the High Level of Japan’s Household Saving Rate in the Past
(1) The young age structure of the population(2) The low level of public pension benefits(3) The high growth rate of income(4) The low level of household wealth holdings(5) The unavailability of consumer credit(6) The bonus system of compensation(7) Tax breaks for saving(8) Saving promotion activities(9) Culture/tradition
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Table 2: Share of the Aged Population in Selected OECD Countries, 1975-2025
Country 1975 2000 2025
Australia 8.7 19T 12.3 19T 18.6 19
Austria 14.9 2 15.6 10T 24.3 7
Belgium 13.9 5 17.0 4T 23.7 8
Canada 8.5 21 12.6 18 20.7 17T
Czech Rep. 12.9 9 13.8 16 23.1 10
Denmark 13.4 8 15.0 13 22.5 11
Finland 10.6 15 14.9 14 25.2 5
France 13.5 7 16.0 7T 22.2 12
Germany 14.8 3 16.4 6 24.6 6
Hungary 12.6 10T 14.6 15 21.2 16
Ireland 11.0 13 11.3 22 16.3 23
Italy 12.0 12 18.1 1 25.7 3
Japan 7.9 22 17.2 3 28.9 1
South Korea 3.6 23 7.1 23 16.9 22
Netherlands 10.8 14 13.6 17 21.9 13T
New Zealand 8.7 19T 11.7 21 18.5 20T
Norway 13.7 6 15.4 12 21.8 15
Portugal 9.9 18 15.6 10T 20.7 17T
Spain 10.0 17 17.0 4T 23.6 9
Sweden 15.1 1 17.4 2 25.4 4
Switzerland 12.6 10T 16.0 7T 27.1 2
United Kingdom 14.0 4 15.8 9 21.9 13T
United States 10.5 16 12.3 19T 18.5 20T
OECD Mean 12.6 16.0 24.4
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The Age Struc tu re o f Japan 's Popu lat ion , 1955-2004
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10
20
30
40
50
60
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004
Year
Perc
ent
(%)
Youth Dep. Ratio
Elderly Dep. Ratio
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(2) The Reasons for the Decline in the Japan’s Household Saving Rate Since the
Mid‐1970s(1) The aging of the population(2) The improvement in public pension benefits(3) The decline in the growth rate of income(4) The increase in the level of household wealth holdings(5) The increase in the availability of consumer credit(6) The decline in the share of bonuses in total compensation(7) The abolition of tax breaks for saving(8) The abolition of saving promotion activities(9) The weakening of culture/tradition
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III. FUTURE TRENDS IN JAPAN’S HOUSEHOLD SAVING RATE
(1) The impact of the aging of the population
(2)Other factors causing Japan’s household saving rate to decline (the stagnation of household incomes, etc.)
(3) Factors holding up Japan’s household saving rate (the decline in land and equity prices, uncertainty about public pensions, etc.)
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IV. SUMMARY AND CONCLUSIONS
(1) Japan’s household saving rate used to be high but has declined sharply in recent years and is no longer high in either absolute or relative terms.
(2) Japan’s household saving rate will continue its decline due to the rapid aging of her population and other factors and may well become zero or negative within a few years.
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V. THE IMPLICATIONS OF MY FINDINGS FOR JAPAN’S CURRENT ACCOUNT BALANCE AND FOR POLICYMAKERS
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Implications for Current Account Surpluses (1)
(1) Japan has had a surplus of saving since the 1980s and much of this surplus saving has been provided to the U.S. and other countries, leading to capital account deficits and offsetting trade and current account surpluses. This has helped alleviate saving shortages in other countries but has, at the same time, exacerbated trade frictions with other countries.
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Shar
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nt)
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Figure 3: Trends over Time in Saving, Investment, and IS Balances in Japan
InvestmentSaving
IS Balance
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Implications for Current Account Surpluses (2)
(2) Japan’s current account surplus increasedsharply during the 2001‐07 period despite sharp declines in her household saving rate due to temporary factors such as a sharp increase in corporate saving and a sharp decline in corporate as well as public investment.
(3) Japan’s current account surplus has since begun declining and will continue declining due to continuing declines in her household saving rate and the weakening of the aforementioned temporary factors.
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2001 2007 Change between 2001 and 2007
Business sector 5.17 6.98 1.81Government sector -2.64 -2.91 -0.27Household sector 3.10 2.22 -0.88Economy as a whole 5.63 6.28 0.66
Business sector 3.11 4.93 1.82Government sector 3.07 0.35 -2.72Household sector -1.57 -1.93 -0.36Economy as a whole 4.60 3.35 -1.26
Business sector 2.06 2.05 -0.01Government sector -5.71 -3.26 2.45Household sector 4.67 4.15 -0.52Economy as a whole 1.02 2.93 1.91
Investment
IS Balance
Table 3: Changes in Sectoral Saving, Investment, and IS Balances
Saving
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Implications for Current Account Surpluses (3)
(4) Thus, Japan will no longer be able to provide capital to the rest of the world as she has in the past, but as long as there are other high‐saver countries from which Japan and other low‐saver countries can borrow, this will not necessarily cause any problems either for Japan or for the world as a whole.
(5) Nonetheless, the strengthening of the yen caused by the decline in capital outflows will hurt Japanese export industries and the workers in those industries with possible ripple effects on the economy as a whole.
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Implications for Current Account Surpluses (4)
(6) Thus, it seems desirable to stem the decline in capital outflows to some extent, and one way to do so is to increase government saving by reducing government deficits and reconstructing government finances. Since the government debt to GDP ratio in Japan is dangerously high (close to 200%), it seems desirable to reconstruct government finances in any case.
(7) But doing so too quickly will nip Japan’s economic recovery in the bud, so the government should give priority to economic recovery until the recovery reaches full speed. This is precisely the priority ordering of Prime Minister Hatoyama’s administration, which is a fortuitous thing.
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Thank you for your attention.
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