NCPA - National Center for Policy Analysis

Japanese Saving Less

December 15, 2003

The Japanese are renowned for their thrift. Since World War II, Japan's savings rate was always quite high. However, as the Economist reports, this may no longer be the case. The savings rate in Japan is dropping:

  • Japanese household saving fell from 23 percent of personal disposable income in 1975 to 14 percent in 1990, and to 6.9 percent in 2001.
  • Economists at Morgan Stanley estimate that this ratio fell to 4 percent in 2002 and to 2 percent in the first quarter of 2003.
  • This would put Japan's household saving rate below America's (3.5 percent) for the first time in 50 years.
  • It is also well below rates in the euro area, which are typically above 10 percent.

Economists have several hypotheses for this trend. Some argue that Japan's aging society is the cause. The ratio of Japanese aged over 65 to those of working age rose from 15 percent in 1980 to 28 percent in 2000. Most of the fall in the saving rate is accounted for those over 60. A study by Peter Morgan, an economist at HSBC, finds that the demographic shift explains half of the fall in the savings rate.

Others argue that inflation may have caused the decline. In the 1970s, extremely high inflation decimated many Japanese assets, which they spent the next two decades rebuilding.

Source: "A saving grace - The decline of Japanese thrift," Economist, July 5, 2003.

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