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The following article was published in our article directory on October 26, 2010.
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Japan Face Savings Crisis

Article Category: Business

Author Name: Amanda xzh

Japan had long-term savings rates in the industrialized countries, countries with the highest. In the 20th century, early 80s, after-tax income of Japanese households will be about 15% of storage. At that time the Japanese rapid growth of income, so the family can be a significant increase in Japanese consumer spending at the same time, a substantial increase in savings.

But from the 90s of last century, the Japanese family income levels used to maintain the proportion of consumer spending increased. Compared to previous generations, the Japanese young people are more interested in immediate consumption, not so worried about the future. Leave a legacy for the descendants of the traditional view has faded. Therefore, Japan's household savings rate has been declining, in the last century down to below 5% in 2009, when slightly more than 2%. At the same time, Japan's budget deficit exceeded 7% of GDP.

In general, low household savings rate and the government will force large-scale negative savings of a country borrowing from other countries. But Japan has maintained a current account surplus, continuing to exceed their GDP3% of funds lent to foreign countries for other countries this year alone to provide a 175 billion U.S. dollars in loans. In short, Japan's national savings is still more than its domestic investment, which the Japanese can be a net capital exporter.

National savings over investment will not only allow Japan to become a capital-exporting country, and together with the mild deflation for the long-term Japanese interest rates remain low. In fact, despite the massive government deficits and huge government debt (nearly 200% of GDP), 10-year Japanese government bond interest rates are still only 1%, which is the world's lowest interest rate of these bonds.

But in the future, how will it? Although the current situation will last for years, but interest rates increase and decrease in net corporate savings will end Japan's current account surplus.

Low deflation rate changes to the low inflation rate may rise in interest rates will be one of the reasons. Japan's consumer prices declined about 1% per year. If, as governments and central banks want to see it, prices rose by 2 percentage points - that turned into a 1% inflation rate, then interest rates will also increase by 2 percentage points. Since the debt-GDP ratio is 200% increase in interest rates will eventually increase the government's interest bill, an increase of about 4% of GDP. Thus, accounting for GDP7% of the budget deficit to rise to 11% of GDP.

In addition, the higher the deficit will amount to a debt-GDP ratio to rise further. As a result, debt interest would rise, the amount of the deficit will rise. The rising deficit and the vicious cycle of debt will likely further raise interest rates, in turn, accelerated the cycle.

Similarly, the deficit increases the amount of support would eliminate the current account surplus is now too much savings. If the business on the increase in plant and equipment investment rate or pay high wages and bonuses more to reduce the company's savings, then the same negative consequences would occur; and if the scale of housing construction increased, then the savings will be reduced.

Japan has been able to maintain a high fiscal deficit, low interest rates and to maintain net capital exports because of its high rate of private savings in order to maintain a positive national savings. However, due to the impact of the current low level of household savings, rising deficits and debt to national savings will soon become negative. Deflation to Inflation will accelerate this process changes.

Thus, Japan's real interest rates will rise and low private savings rate will directly conflict with the large fiscal deficit, causing the stock market downturn, the decline in business investment, but also hinder economic growth.

If Japan's domestic net savings surplus is gone, then Japan will not only not be able to export 175 billion U.S. dollars his country's capital, but also may absorb the savings of other countries.

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