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"households of persons in their thirties, forties and fifties in
Japan on average
saved 23.9 percent of their annual income between 1980
and
1994"
from http://www.nri.co.jp/nri/publications/nriqF/96winter/chap02.html
Chapter 2
The Savings Rate is Falling
The evidence thus suggests that Japan's current account surplus will
continue to shrink. Ten years ago, the Ad Hoc Commission
on Economic Structure Reform (NOTE 2) noted in its final report that
the "fundamental cause" of Japan's large current account
surplus lies in the "export-oriented structure of Japan's economy."
The report went on to state in emphatic terms that reducing
the current account surplus requires changes in the nation's economic
structure. Ironically, the current account surplus is now
shrinking rapidly not because of changes that Japan has made in the
structure of its economy, but because of changes that have
occurred in the structure of the global economy since the end of the
Cold War.
Even so, Japan's need for economic reform, which got its first real
impetus from the Ad Hoc Commission's report, has not
diminished in the least. On the contrary, because the market economy
has begun to take root in many new places in the world -
presaging a more competitive world economy - Japan needs to pursue
economic reform all the more.
Market-opening efforts and other economic reforms, it is said, will
reduce the trade surplus. While a more open economy may
produce an increase in imports of particular products at the
microeconomic level, it may not necessarily have the desired impact
on the nation's current account balance at the macroeconomic level.
Market-opening efforts can actually be counterproductive,
since higher volumes of imports can depress sales and earnings in the
affected domestic industries, and thereby cause domestic
demand and overall imports to slow.
However, Japan's efforts over the past decade to open its markets
wider to imports and to eliminate unnecessary economic
regulations have worked to increase both exports and imports. For this
reason, they have been right on target in terms of
promoting the nation's interests in trade.
The trend toward a smaller current account surplus is directly related
to another phenomenon: a declining household savings
rate.
The proportion of income saved by households headed by persons in
their sixties and older in Japan is much lower than the
amount saved by households of younger persons. According to Management
and Coordination Agency statistics, households
of persons in their thirties, forties and fifties in Japan on average
saved 23.9 percent of their annual income between 1980
and
1994, compared with just 17.2 percent for households headed by persons
aged 60 and above.
Given the speed with which the proportion of senior citizens is rising
in Japan's population, the savings rate should decline
quickly, especially after the year 2005 or so, when the current
generation of postwar babyboomers begins to retire. The 2010
Committee on World Economy, an advisory council of the Economic
Planning Agency that was formed in 1991 and on which
the author was a member, projected that the household savings rate
would drop from 15.6 percent in 1985-86 to around 9.0
percent by 2010. As of 1994, the savings rate had already dropped to
12.8 percent, more than 10 percentage points below
where it was just two decades earlier.
Assuming the savings rate declines rapidly, if Japan's public sector
continues spending more than it takes in as revenue - issuing
bonds to cover budget deficits - the end result will be either a
crowding-out of private investment as government borrowing
pushes up interest rates, or a swift plunge into current account
deficits, marking an end to Japan's role as a generator of surplus
domestic savings. In the latter case, the current account balance
could well swing into deficit as early as 2003.
To next
(NOTE 2) The Ad Hoc Commission on Economic Structure Reform, also
known simply as the Maekawa Commission after its
head, Mr. Haruo Maekawa, then-Chairman of the Bank of Japan, was
formed by the Japanese government in 1985 to study
and issue recommendations on structural reform. At the time, Japan was
coming under enormous international pressure,
especially from the United States, because of its large and growing
trade surpluses, and many critics argued that cumbersome
government red tape and other nontariff barriers were significant
causes of the trade surpluses. The Commission's report, issued
in 1986, tackled this issue and provided the impetus for what would
eventually become a continuing process of deregulation.
Copyright 1996 Nomura Research Institute, Ltd.
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