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No. 15 — April 14, 2000

 

Feature Article

WHERE WILL JAPAN'S MATURING POSTAL SAVINGS GO?

Arthur J. Alexander

Summary

Measured by deposits, Japan's postal savings system is the world's largest financial institution. Its almost ¥260 trillion ($2.4 trillion at ¥110=$1.00) on hand at the end of January 2000 represented one-third of all Japanese bank deposits. Driving the current interest in the postal savings system, though, is the fact that some ¥100 trillion ($909.1 billion) in high-yielding deposits that were guaranteed for up to 10 years — so-called teigaku accounts — will be reaching maturity in the 24 months beginning in April 2000. In that month alone, the peak period for maturing accounts, an estimated ¥5.9 trillion ($53.6 billion) will be up for grabs. Clearly, the flow of money into and out of the postal savings system is important to Japan and, given its scale, to financial markets everywhere.

Financing for many of the government's off-budget operations could be in jeopardy if the money in the maturing accounts leaves the postal savings system. Such a massive outflow is the exact hope of other financial institutions, including foreign investment firms with Tokyo offices. Some financial analysts have speculated about a possible surge in Japanese money seeking higher returns in U.S. markets, an outcome with implications for exchange rates, interest rates and American stock yields.

This report assesses the likelihood of a large volume of money leaving the postal savings system. It finds that depositors have few reasons to transfer maturing funds to other assets since the postal savings system not only offers comparable returns but also greater safety than the alternatives. Moreover, Japanese savers have shown little inclination to put their money into riskier, higher-return investments in numbers large enough to make a difference. Considerable movement into and out of various accounts is likely, but when the dust settles, little net change will have occurred. A huge amount of money still will be socked away in postal savings accounts.

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Weekly Review

MORI CONSIDERED CARETAKER; JUNE ELECTIONS POSSIBLE
--- by Barbara Wanner

Yoshiro Mori's easy victory in the April 5 Diet vote to select a successor to Prime Minister Keizo Obuchi, who remained comatose following a stroke three days earlier, belies a powerful undercurrent of political activity that could end the new government as soon as mid-June. Mr. Mori included some upbeat, inspirational prose in his April 7 inaugural speech to lawmakers, pledging to achieve a "rebirth of Japan" through policies aimed at economic recovery and education reform. However, the former secretary general of the Liberal Democratic Party, which governs Japan in cooperation with the New Komeito and the just-formed New Conservative Party, is regarded as a mere caretaker, an opinion that has prevailed since he assumed power.

 

EMPLOYMENT IN JAPAN DIPS DESPITE RISING OUTPUT
--- by Douglas Ostrom

Is Japan's economy expanding or contracting? The Management and Coordination Agency has thrown another monkey wrench into the ongoing debate among economists on both sides of the Pacific over that seemingly simple question. At the time of its March 31 announcement that seasonally adjusted unemployment had risen to a record 4.9 percent in February, MCA supplied details that render suspect the conventional, and recently repeated, interpretation of the higher jobless number. An alternative explanation has implications for the argument about where the economy currently stands.

 

MEAGER WAGE HIKES IN JAPAN DIM PROSPECTS FOR REVIVAL OF CONSUMER DEMAND
--- by Jon Choy

In springtime, the thoughts of Japanese turn not only to romance but also to the annual private-sector pay negotiations known as shunto. With the economy struggling and corporations in the midst of restructuring, labor unions grimly faced off against management this year. Reductions in the most recent summer and winter bonuses set the tone for the 2000 shunto, with most of the fireworks coming out of the discussions of nonwage issues. Since consumer spending represents roughly 60 percent of domestic demand, observers warn that the record-low raises won so far this year could hold back the economy's recovery.

 

JAPAN, MEXICO LOOK TOWARD FREE-TRADE AGREEMENT
--- by Marc Castellano

International Trade and Industry Minister Takashi Fukaya indicated April 4 that Japan would consider a free-trade arrangement with Mexico. The announcement followed the previous day's release of separate studies commissioned by Mexico's Department of Commerce and the quasi-governmental Japan External Trade Organization, each of which recommended that the two countries pursue this idea. Although Mr. Fukaya cautioned that the immediate launch of bilateral negotiations is not likely, he confirmed Ministry of International Trade and Industry officials' interest in studying the possibility.

 

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