Japanese economic stimulus collides with savings habit

When Japan handed Tokyo bus driver Keiki Nambu and his wife Takako $870 for each of their nine children, they spent it exactly as the government feared: paying off a mortgage rather than of shopping.

That kind of financial prudence has helped Japanese families amass a staggering $17 trillion in assets over the years, with more than half of it parked in savings accounts. But it also poses a headache for policymakers, who struggle to stimulate consumption and bolster a moribund economy.

Prime Minister Fumio Kishida’s government has paid out nearly $17 billion in cash stimulus to families. But unlike the stimulus in the United States, which boosted consumer spending, the impact is considered limited in Japan, where households are more likely to save money or pay off debt, like the Nambu.

This highlights an ongoing problem in the world’s third economy, whose public debt is already more than twice the size of GDP (Gross Domestic Product).

“If the father’s salary stays the same but prices keep going up, all we can do is ask him to work as hard as possible,” said Takako, 39.

Her husband earns about $44,000 a year, including the optional “bonus” paid twice a year by Japanese companies, but cut when things go wrong, like during the pandemic. After all, the stimulus money is just helping to make up for that shortage, Keiki said.

The Nambu children range in age from less than one year to 17. The children are only given water and milk to drink — the family consumes about five liters of milk a day. The father insists that the children take quick showers, to save on the bill.

In terms of size, the Nambu are not typical — the average Japanese family shrank to 2.21 people at the end of 2020, down from 2.82 in 1995, according to census data. The average in Tokyo can be even lower, 1.92.

But their frugality is common.

big savers

Private consumption accounts for more than half of Japan’s GDP. But households may be spending as little as 10% of stimulus money and saving the rest, said Koya Miyamae, senior economist at SMBC Nikko Securities.

Economic insecurity keeps consumption stagnant, Myanmae added, and a recent spike in infections with the Covid-19 variant has also left people hesitant to spend.

Another economist, Hideo Kumano of the Dai-ichi Life Research Institute, admits that about 75% of benefits will end up in savings, although he believes the figure could be higher if parents decide to set aside more for their children’s education.

Concerns that the money will go to savings led some municipalities to pay half the stimulus in coupons. Tokyo was not one of them.

Other cash payments to all of Japan’s inhabitants at the start of the pandemic accounted for about 27% of the money spent, according to a July 2020 survey by the Mitsubishi Research Institute.

The Nambu received about $8,700 from this round of stimulus —​$870 per child plus a one-time payment from the government.

They initially thought of spending a night at a neighborhood hotel. Frugality won out in the end, but they spent $210 on sushi and ice cream.

The family will also use some of the money to buy a backpack and gym clothes for Keifu, 6, who starts elementary school in April. The clothes she inherited from her brothers were very worn after being worn by six of them.

Translated by Luiz Roberto M. Gonçalves