Discussion Paper No. 684

A SURVEY OF
HOUSEHOLD SAVING BEHAVIOR
IN JAPAN

Charles Yuji Horioka

March 2007

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, JapanA SURVEY OF HOUSEHOLD SAVING BEHAVIOR IN JAPAN*
Charles Yuji Horioka**Institute of Social and Economic Research, Osaka University, andNational Bureau of Economic Research, Inc.
March 12, 2007
Abstract: This paper presents data on Japan’s household saving rate, considers thereasons for Japan’s high household saving rate in the past and the reasons for the recent
decline therein, projects future trends in Japan’s household saving rate, and consider the
implications of my findings. It finds that Japan’s high household saving rate was atemporary phenomenon and that it was high in both absolute and relative terms during
the 1955-95 period (especially during the 1960s and 1970s) but that it was not unusuallyhigh during the prewar and early postwar periods or after 1995; second, that Japan’s
temporarily high household saving rate was due not to culture but to temporary
economic, demographic, and institutional factors; third, that the decline in Japan’s
household saving rate since the mid-1970s is due to the weakening of these factors andthat Japan’s household saving rate can be expected to decline even further as thesefactors become even less applicable and that the rapid aging of Japan’s population has
played the most important role; and fourth, that there is nothing to worry about even if
Japan’s household saving rate falls to zero or even negative levels.
Keywords: Household Saving Rate, Household Saving, Saving, Japan, Aging, Culture
Journal of Economic Literature classification numbers: D12, D91, E21*I am grateful to Harald Conrad, Fumio Ohtake, Masaru Sasaki, and Midori
Wakabayashi for their valuable assistance and comments.
**Institute of Social and Economic Research, Osaka University, 6-1, Mihogaoka,
Ibaraki, Osaka 567-0047, JAPAN. Telephone: 81-6-6879-8586/8574. Facsimile:
81-6-6878-2766. Email: horioka@iser.osaka-u.ac.jp
This paper is forthcoming in Florian Coulmas, Harald Conrad, Annette Schad-Seifert,
and Gabrielle Vogt, eds., The Demographic Challenge – A Handbook about Japan(Leiden: Brill Academic Publishers, 2007), 2 volumes.

1. Introduction
It is often claimed that the Japanese are big savers and that they save a lot
because it is part of their national character to do so and/or because of the influence ofConfucian teachings, which regard frugality as a virtue. In this paper, I examine (1)whether or not the Japanese really do save a lot and whether or not they have always
saved a lot, (2) why the Japanese save a lot (if indeed they do), and (3) whether or not
we can expect the Japanese to continue saving a lot in the future as well.
The organization of the paper is as follows:

In section 2, I present data on

trends over time in Japan’s household saving rate and on household saving rates ininternational perspective; in section 3, I consider the reasons for Japan’s high householdsaving rate; in section 4, I consider the reasons for the recent decline in Japan’s
household saving rate; in section 5, I project future trends in Japan’s household saving
rate; in section 6, I consider the implications of my findings; and section 7 is a brief
concluding section.
To preview my main findings, I find, first, that Japan’s high household savingrate was a temporary phenomenon and that it was high in both absolute and relative
terms during the 1955-95 period (especially during the 1960s and 1970s) but that it was
not unusually high during the prewar and early postwar periods or after 1995; second,that Japan’s temporarily high household saving rate was due not to culture but to1

temporary economic, demographic, and institutional factors such as the high growth rateof income, the low level of household wealth holdings, the unavailability of consumer
credit, the young age structure of the population, the bonus system of compensation, tax
breaks for saving, the low level of public pension benefits, and saving promotion
activities; third, that the decline in Japan’s household saving rate since the mid-1970s isdue to the weakening of these factors and that Japan’s household saving rate can be
expected to decline even further as these factors become even less applicable and thatthe rapid aging of Japan’s population has played the most important role; and fourth,that there is nothing to worry about even if Japan’s household saving rate falls to zero oreven negative levels because the other sectors of the economy will at least partly take up
the slack, because investment can also be expected to decline, and because Japan always
has the option of borrowing from abroad.

2. Do (Did) the Japanese Really Save a Lot?
In this section, I present data on trends over time in Japan’s household saving
rates and on household saving rates in international perspective in order to shed light onwhether Japan’s household saving rate is high in absolute and/or relative terms.

Ipresent data on net saving (saving net of depreciation on fixed capital) because it is net

2

saving that leads to an increase in wealth or assets and that is thus the more meaningfulconcept.

2.1. Trends over Time in Japan’s Household Saving Rate
I look first at trends over the past century in Japan’s household saving rate.
As I have shown in Horioka (1993a), Japan’s household saving rate was volatile during
the prewar, wartime, and early postwar periods.

It was low, sometimes even negative,

during about half of the years in this period (1907-15, 1921-30, and 1946-49) but washigh and generally in the double digits during the other years (1906, 1916-20, 1931-44,
and 1950-54).

In fact, it exceeded 30 or even 40 percent at the height of World War II(1941-44), but during the war years, goods were scarce or rationed and the stateencouraged and often forced people to save.

If we exclude the war years (1937-45),

Japan’s household saving rate was low, on average, during both the prewar and early
postwar periods, averaging only 4.3 percent during the prewar period (1906-1936)
according to the Long-Term Economic Statistics and only 5.6 percent during the early
postwar period (1945-54) according to the former System of National Accounts(hereafter SNA).1
Turning to the post-1955 period, a continuous time series is unfortunately not3

available for the entire post-1955 period. The Japanese government switched from the1968 United Nations SNA to the 1993 United Nations SNA in 2000, and thus data basedon the 1968 SNA are available only for the 1955-1998 period whereas data based on the1993 SNA are available only since 1980.2

Two further complications are that the 1995

benchmark revision was implemented at the same time as the conversion to the 1993
SNA and that the 2000 benchmark revision was implemented in 2005.

As a result,

there are three different data series for the 1955-2004 period, with data based on the1968 SNA (1990 benchmark revision) being available only for the 1955-1998 period,
data based on the 1993 SNA (1995 benchmark revision) being available only for the
1980-2003 period, and data based on the 1993 SNA (2000 benchmark revision) being
available only for the 1996-2004 period.
In the case of the 1993 SNA, I present data on the adjusted household savingrate because it includes social transfers in kind (i.e., social benefits in kind and transfersof individual non-market goods and services from the government and from private
non-profit institutions serving households) in both the numerator and the denominatorand hence is the correct theoretical concept and because it is consistent with thehousehold saving rate based on the 1968 SNA.
Figure 1 and Table A-1 show data on all three series for the 1955-2004 period,

4and as can be seen from this figure and table, Japan’s household saving rate showed asteady upward trend from the mid-1950s until the mid-1970s, increasing from 11.9
percent in 1955 to a phenomenal level of 23.2 percent in 1974 and 1976, but has showna downward trend since then, falling to the 2 to 3 percent level in recent years.
(Figure 1 about here)
If we give precedence to data based on the 1993 SNA whenever possible,
Japan’s household saving rate exceeded 20 percent only during the six-year period from1973 until 1978, exceeded 15 percent only during the 21-year period from 1961 until
1981, and exceeded 10 percent only during the 41-year period from 1955 until 1995.
To sum up, Japan’s household saving rate was not always high.

It was highduring much of the postwar period (especially during the 1960s and 1970s), but it was
not necessarily high during the prewar and early postwar periods and has by no means
been high in recent years.

2.2. International Comparison of Household Saving Rates
I turn now to an international comparison of household saving rates.

Horioka(1989, Table 1) shows data on household saving rates for the 1975-84 period for the
sixteen Organization for Economic Cooperation and Development (OECD) member

5

countries for which data are available, while Table 1 shows data on household saving
rates for the 1985-2005 period for the 23 OECD member countries for which data are
available. Data are available only on gross household saving rates for five of thesecountries, but since net household saving rates are, on average, about 70 percent ofgross household saving rates, the figures on the gross household saving rate wereconverted to a net basis using this conversion factor in the case of the five countries forwhich only gross data are available.
(Table 1 about here)
As can be seen from Horioka (1989, Table 1) and Table 1, Japan’s householdsaving rate was one of the highest among the OECD member countries during the
1975-85 period.

It ranked first in 1975, was second only to Italy in 1980 and 1985,

and was 1.79, 1.61, and 1.81 times the OECD average in 1975, 1980, and 1985,
respectively. However, Japan’s rank among the OECD member countries as well as
the ratio of her household saving rate to the OECD average both fell steadily during thesubsequent twenty years.

For example, by 1990, Japan had fallen to fourth place (tie)and her household saving rate had fallen to 1.43 times the OECD average.

By 1995,

Japan had fallen further to seventh place, and her household saving rate had fallen
further to 1.25 times the OECD average. By 2000, Japan had fallen further to tenth6place although her household saving rate rose slightly to 1.32 times the OECD average.
Finally, by 2005, Japan had fallen further to 17th place and her household saving rate
had fallen to only 43 percent of the OECD average.
Thus, Japan’s household saving rate was formerly high not only in absoluteterms but also relative to the other developed countries and was at one point the highest
in the developed world, but it has since fallen not only in absolute terms but also
relative to the other developed countries and is no longer high by any standard.
What is especially striking is that Japan’s relative ranking fell sharply during
the 1985-2005 period even though 17 of the 23 OECD member countries for which data
are available as well as the OECD average showed downward trends during the same
period (with the OECD average falling to only 62 percent of its 1985 level by 2005).
This is because Japan’s household saving rate declined even more sharply than that of
the other OECD member countries.
Incidentally, what OECD member countries have shown the highest householdsaving rates?

Japan occupied the number one position in 1975, Italy occupied thenumber one position in 1980, 1985, 1990, and 1995, and Hungary occupied the number
one position in 2000 and 2005.

Moreover, these countries have ranked relatively highin other years as well (except for Japan in 2005).

7

France, Germany, South Korea, andSwitzerland have also shown relatively high household saving rates (except for South
Korea in 2005).

By contrast, the Scandinavian countries (Denmark, Finland, Norway,

and Sweden), the Czech Republic, New Zealand, the United Kingdom, and the UnitedStates have shown relatively low household saving rates (except for Norway in 2005).
Thus, the rank ordering of the OECD member countries has been relatively stable overtime.
An exploration of the reasons for these inter-country differences in householdsaving rates is beyond the scope of this paper, but many of the countries with low
household saving rates have generous social insurance systems, and thus households inthese countries may not feel the need to save for retirement and/or for precautionary
purposes.
Note, however, that these inter-country differences in household saving rates
have not necessarily been stable over time.

For example, the relative positions ofAustralia and Canada fell by as much as that of Japan during the 1985-2005 period(from seventh place to 22nd place and from third place to 18th place, respectively), andFinland, South Korea, New Zealand, and the United States also showed sharp declines
in their relative positions.

By contrast, Norway showed a sharp increase in its relative

position (from 17th place in 1985 to second place in 2005), and France, Ireland, and8

Sweden also showed substantial increases.

An interesting case is that of theNetherlands, whose rank increased sharply from 13th place in 1985 to third place in1990 before falling back down to 13th place in 2005.
The fact that inter-country differences in household saving rates are relatively
stable but sometimes show sharp variations over time suggests that these differences are
due partly to long-term factors and partly to short-term factors.
To sum up, Japan’s household saving rate was high in both absolute andrelative terms during the 1955-95 period (especially during the 1960s and the 1970s) but
has declined in both absolute and relative terms since the mid-1970s and is no longer
high by any standard.

3. Why Did the Japanese Save So Much?
In the previous section, we found that the Japanese saved a lot during the
1955-95 period (especially during the 1960s and 1970s) but not before or after.

In thissection, we consider the reasons why the Japanese saved so much during this period.

3.1. The Impact of Culture
One oft-heard hypothesis is that Japan’s household saving rate has been high9for cultural and/or religious reasons.

One variant of this hypothesis is that it is part of

the national character of the Japanese to save a lot, and another variant is that theJapanese save a lot because of the influence of Confucian teachings, which regard
frugality as a virtue. In this subsection, I consider how much explanatory power thishypothesis has.
First, if Japan’s household saving rate was high for cultural reasons, it should
always have been high because culture is presumably relatively invariant over time.
As we saw in section 2, however, Japan’s household saving rate was high primarily
during the 1955-95 period (especially during the 1960s and 1970s) and was not
unusually high during the prewar and early postwar periods or after 1995.
Second, since culture presumably weakens over time as better transportationand communication systems facilitate the influx of foreign influences, we would expect
Japan’s household saving rate to show a downward trend over time if culture is an
important determinant thereof.

However, as we saw in section 2, Japan’s householdsaving rate did not show any clear trend during the prewar period and showed a clear
upward trend during the early postwar period (until the mid-1970s) although it has
shown a downward trend since the mid-1970s.
These two pieces of evidence strongly suggest that culture is not an important

10

explanation of why Japan’s household saving rate was high during much of the postwar
period.

3.2. The Impact of Economic, Demographic, and Institutional Factors
What then can explain why Japan’s household saving rate has been high duringmuch of the postwar period?

My hypothesis is that Japan’s household saving rate washigh during the 1955-95 period (especially during the 1960s and 1970s) because ofvarious temporary economic, demographic, and institutional factors that were applicableduring this period.

Horioka (1990) lists more than thirty such factors, and Hayashi(1986, 1997) and Horioka (1993b, 2006a) are also useful summaries of the literature on
household saving behavior in Japan. Here, I examine what I consider to be the eight
most important explanations of why Japan’s high household saving rate was high during
the 1955-95 period (especially during the 1960s and 1970s).
(1) The High Growth Rate of Income.

The high growth rate of income

during the high-growth era from the 1950s to the early 1970s undoubtedly helped raise
Japan’s household saving rate.

When income grows rapidly and/or unexpectedly,

households often cannot adjust their living standards and consumption patterns at thesame pace, and as a result, saving (the difference between income and consumption)

11

tends to increase, at least temporarily.
(2) The Low Level of Household Wealth Holdings.

Household wealthholdings were very low in Japan just after the Second World War because the war
destroyed much of Japan’s housing stock and the postwar hyperinflation reduced thereal value of financial assets.

Japanese households presumably saved as much as they

did in part to restore their wealth holdings to desired levels.
(3) The Unavailability of Consumer Credit.

Consumer credit was not readily

available in Japan until recently, and thus Japanese households found it necessary tosave in advance of purchases of such big-ticket items as housing, automobiles, furniture,and electrical appliances.

Moreover, the paucity of credit also increased the need forprecautionary saving because Japanese households knew that they would not be able toborrow in times of emergency.
(4) The Young Age Structure of the Population. The age structure of Japan’s
population was one of the youngest among the industrialized countries until recently.
As Table 2 shows, in 1975, the share of the elderly (those aged 65 or older) in Japan’s
total population was only 7.9 percent, which was the lowest among the OECD member
countries at the time (this ratio was 3.6 percent in South Korea in 1975, but South Korea
was not yet an OECD member country at the time). According to the life cycle12hypothesis, the aggregate household saving rate will be higher in a country with a young
population because the young typically work and save, whereas the elderly typicallyretire from work and dissave, and thus the young age structure of Japan’s population canhelp explain her high household saving rate in the past (see, for example, Modigliani
and Brumberg 1955). Indeed, Horioka (1989) finds that the low ratio of the aged
population to the working-age population was by far the most important cause ofJapan’s high private saving rate during the 1975-84 period, and the same undoubtedly
holds for her household saving rate.
(Table 2 about here.)(5) The Bonus System of Compensation.

Japan’s bonus system ofcompensation, whereby a large chunk of employee compensation is paid in the form of
semiannual lump-sum bonuses, is often said to have encouraged, or at least facilitated,saving (see, for example, Ishikawa and Ueda 1984).
(6) Tax Breaks for Saving.

The Japanese government introduced many tax

breaks for saving such as the maruyū system (the tax-exempt system for small savings
whereby the interest income on bank and postal deposits and on government bonds was
tax-exempt, up to a limit), and these tax breaks for saving may have induced Japanesehouseholds to save more than they would have otherwise.

13

(7) The Low Level of Public Pension Benefits.
benefits were relatively low in Japan until 1973.

Public old-age pension

This made it necessary for Japanesehouseholds to save on their own to prepare for their life after retirement.
(8) Saving Promotion Activities.

The Japanese government and thequasi-governmental Central Council for Savings Promotion engaged in a variety ofsaving promotion activities such as the preparation and distribution of magazines,
statistical handbooks, booklets, leaflets, posters, films, household financial ledgers, andmoney boxes, the appointment of private citizens as saving promotion leaders, etc.,
during much of the postwar period, and Garon (1997, Chapter 5) has argued that thesesaving promotion activities helped to raise Japan’s household saving rate.

4. Why Don’t the Japanese Save As Much Now?
In the previous section, I discussed why Japan’s household saving rate was sohigh in the past, but in this section, I discuss why Japan’s household saving rate has
shown a downward trend since the mid-1970s.

My thesis is that Japan’s householdsaving rate has declined since the mid-1970s because the factors that caused Japan’s
household saving rate to be high until the mid-1970s gradually became less applicable
after the mid-1970s.

14(1) Double-digit rates of economic growth ended in the early 1970s, andincome growth rates have been low in recent years, especially in the 1990s.
(2) The wealth holdings of Japanese households increased rapidly as a result of
their high saving rates, and by 1990, the ratio of household wealth holdings tohousehold disposable income in Japan was by far the highest among the Group of 7(G7) countries (Canada, France, Germany, Italy, Japan, the United States, and theUnited Kingdom) (see Horioka 2006a, Table 5.3).3(3) Consumer credit has become more and more available over time, and by
1990, the ratio of household liabilities outstanding to household disposable income inJapan was by far the highest among the G7 countries (see Horioka 2006, Table 5.3).
(4) Japan’s population is aging at an unprecedented rate, with the share of the
population aged 65 or older to the total population rising from 7.9 percent (lowest
among the OECD member countries at the time) in 1975 to 17.2 percent (third place
among the OECD member countries) in 2000 (see Table 2).
(5) According to the Basic Survey on Wage Structure (Chingin Kouzou Kihon
Toukei Chousa), conducted annually by the Ministry of Health, Labour and Welfare,there has been a long-term decline in the ratio of bonus income to regular employeecompensation since 1975: the ratio of “average annual special cash earnings” to15

“average monthly scheduled cash earnings” showed an upward trend until 1975,
peaking at 3.92, but has shown a downward trend since then (except for a temporary
increase during the 1979-92 period when economic conditions were favorable), fallingto 3.00 by 2005.
(6) Most tax breaks for saving including the aforementioned maruyū systemwere abolished (except for the elderly) in 1988.
(7) Public old-age pension benefits were dramatically improved in 1973, and apublic long-term care insurance program was introduced in 2000
(8) Government saving promotion activities have been scaled back, and theCentral Council for Savings Promotion was renamed the Central Council for Savings
Information in 1987 (and renamed the Central Council for Financial Services
Information in 2001), gradually shifting from the active encouragement of saving toproviding consumers with information on the array of financial services available andhelping them with life planning.
Moreover, I concluded earlier that culture was not an important determinant ofJapan’s high household saving rate, but to the extent that it is important, it can help
explain the decline in Japan’s household saving rate since culture presumably weakens
over time due to the increasing influx of foreign influences.

16

Thus, virtually all of the factors that caused Japan’s household saving rate to behigh have weakened over time, and this can explain why Japan’s household saving rate
has declined so sharply since the mid-1970s.

5. How Much Will the Japanese Save in the Future?
In this section, I speculate about future trends in Japan’s household saving rate.
In my opinion, the most important factor determining future trends in Japan’s householdsaving rate will be the rapid aging of her population.

Japan’s population is aging at thefastest rate in human history and has already become virtually the most aged in theworld.

As Table 2 shows, the share of the population aged 65 or older to the total

population in Japan is projected to increase from 17.2 percent in 2000 to 28.9 percent in
2025, rising from third to first place among the OECD member countries), This willcause her household saving rate to continue its rapid decline if the life-cycle hypothesis,
which assumes that the elderly finance their living expenses during retirement bydrawing down their previously accumulated savings, is valid, and Horioka (1993b, 2002,
and 2006b) argues that it is. Indeed, a number of authors, myself included, haveprojected that the rapid aging of Japan’s population will cause Japan’s household savingrate to decline to zero or even negative levels by around 2010 (see Horioka 1989,

17

Horioka 1991, and for a useful survey Horioka 1992).
I should note, however, that the discussion thus far has focused exclusively on
the impact of the aging of the population on the household saving rate.

The otherfactors that caused Japan’s household saving rate to be high during most of the postwar
period will continue weakening, and this will cause Japan’s household saving rate to
decline even more sharply.
For example, the growth rate of income can be expected to recover somewhat
as the economy recovers but is very unlikely to return to the levels of the high-growth
period; the level of household wealth holdings can be expected to resume its increase as
land and equity prices stabilize and/or recover; the ratio of bonus income to regular
employee compensation shows no signs of recovering; the special tax breaks on capitalgains on stock sales and dividend income, which were introduced in 2003, arescheduled to be abolished shortly; saving promotion activities have already been
discontinued; and .the impact of culture can be expected to continue weakening due tothe continued influx of foreign influences.
The primary exceptions are uncertainty about the future of the public pension
system and changes in the lending law. The rapid ageing of the population, combinedwith the pay-as-you-go nature of the public pension system, is causing the finances of18

the system to deteriorate, which in turn is necessitating cuts in benefits, increases incontribution rates, and considerable uncertainty about the future of the system. This is
likely to cause Japanese households to save more for life during retirement, thereby
putting upward pressure on Japan’s household saving rate.
In addition, the lending law was revised in December 2006, and as part of thisrevision, the ceiling on the lending rate for unsecured consumer loans was reduced anda limit was imposed on loan amounts. It has been projected that this will cause theoutstanding loans of consumer finance companies to be halved, and the reduced
availability of consumer loans may cause households to spend less and save more.
In my opinion, however, the factors putting downward pressure on Japan’s
household saving rate far exceed the factors putting upward pressure thereon, and thus
there is no doubt that Japan’s household saving rate will continue to decline sharply inthe coming years.

6. Policy Implications
In this section, I present the policy implications of my finding that Japan’s
household saving rate was high during much of the postwar period but that it has beenfalling since the mid-1970s and is projected to continue declining in the future as well.

19

First, however, I would like to step back and consider the role that saving playsin the economy as a whole.

Saving is indispensable in any economy because it

provides the funds for financing investment in plant and equipment, housing, social
infrastructure, etc.

Investment cannot be done without a corresponding amount ofsaving from somewhere—either from the same sector, from another sector of the same
economy, or from abroad.
In the case of Japan, the household sector saved at high levels throughout mostof the postwar period, and this abundant saving of the household sector was used in avariety of different ways.

For example, during the high-growth period of the 1950s,

1960s, and early 1970s, household saving was used primarily to finance corporate
investment in plant and equipment, and hence was instrumental in increasing the
productive capacity of the economy and in achieving rapid economic growth.

Since

the 1970s, however, a considerable share of household saving has been used to financeinvestment in housing and social infrastructure, thereby contributing toward improving
the quality of life of the Japanese people and toward facilitating economic growth.
And since the 1980s, a considerable share of household saving has been lent abroad(either directly or indirectly via financial intermediaries), thereby helping to alleviate
saving shortages in the United States and other countries but at the same time leading to20

enormous capital account deficits that had to be offset by correspondingly large tradeand current account surpluses.

Thus, Japan’s abundant supply of household saving has

played an important role throughout the postwar period, but the nature of its role has
shifted over time.
Since the abundant supply of household saving in Japan has played such animportant role in the past, one might be tempted to conclude that the sharp decline inJapan’s household saving rate that began in the mid-1970s and that is projected tocontinue in the future as well will lead to a severe saving shortage, spelling disaster for
the Japanese economy, if not the world economy. However, I do not share this viewfor the following reasons.
First, even if the household saving rate declines, the overall level of nationalsaving in Japan will not decline if there is a corresponding increase in the saving of theother sectors of the economy such as the government and corporate sectors. The
Japanese government is currently giving top priority to reconstructing its finances(reducing its fiscal deficits) by cutting expenditures and raising taxes, and assuming it
succeeds, government saving will increase. Moreover, as the economy recovers, theprofits of corporations will presumably increase, enabling them to retain more earnings,
which count as corporate saving.

Thus, it is likely that the saving of both the21

government and corporate sectors will increase in the coming years, thereby at least
partially offsetting the decline in household saving.
Moreover, even if the overall level of national saving declines because thedecline in household saving is not fully offset by increases in the saving of other sectorsof the economy, a saving shortage will not necessarily emerge because investment may
also decline.

Japan’s population has been declining since 2005, and a declining

population means that there is less need to increase the productive capacity of theeconomy and hence less need for investment.

And if the decline in investment demandis comparable to the decline in saving, no saving shortage will emerge.

.

Moreover, even if a saving shortage emerges because the decline in investment
demand falls short of the decline in saving, this does not necessarily spell disaster either
because Japan always has the option of borrowing from abroad.

There are currently

many countries with very high saving rates such as China, Hong Kong, Taiwan, andSingapore, and Japan should be able to borrow from these countries.
Thus, I conclude that the prolonged decline in Japan’s household saving rate
does not necessarily spell disaster for the Japanese economy.

7. Conclusions

22

This paper presented a variety of data on Japan’s household saving rate andfound that Japan’s high household saving rate was a temporary phenomenon: Japan’s
household saving rate was high in both absolute and relative terms during the 1955-95
period (especially during the 1960s and 1970s) but it was not unusually high during the
prewar and early postwar periods or after 1995.
Moreover, this paper found that Japan’s temporarily high household saving rate
was due not to culture but to temporary economic, demographic, and institutional
factors such as the high growth rate of income, the low level of household wealthholdings, the unavailability of consumer credit, the young age structure of the
population, the bonus system of compensation, tax breaks for saving, the low level of
public pension benefits, and saving promotion activities.
This paper then argued that the decline in Japan’s household saving rate since
the mid-1970s is due to the weakening of these factors and that Japan’s householdsaving rate can be expected to decline even further as these factors become even lessapplicable and that the rapid aging of Japan’s population has played the most importantrole.
Finally, this paper considered the policy implications of my findings andconcluded that there is nothing to worry about even if Japan’s household saving rate23

falls to zero or even negative levels because the other sectors of the economy will at
least partly take up the slack, because investment can also be expected to decline, andbecause Japan always has the option of borrowing from abroad.

24References
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N.J.: Princeton University Press).
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Horioka, Charles Yuji (1993a), “Consuming and Saving,” in Andrew Gordon, ed.,Postwar Japan as History (Berkeley, California: University of California Press), pp.
259-292.
Horioka, Charles Yuji (1993b), “Saving in Japan,” in Arnold Heertje, ed., World
Savings: An International Survey (Oxford, UK, and Cambridge, USA: Blackwell
Publishers), pp. 238-278.

25

Horioka, Charles Yuji (1995), “Is Japan's Household Saving Rate Really High?” Review
of Income and Wealth, series 41, no. 4 (December), pp. 373-397.
Horioka, Charles Yuji (2002), “Are the Japanese Selfish, Altruistic, or Dynastic?”
Japanese Economic Review, vol. 53, no. 1 (March), pp. 26-54 (the 2001 JEA-Nakahara
Prize Lecture).
Horioka, Charles Yuji (2006a), "Are the Japanese Unique? An Analysis of Consumption
and Saving Behavior in Japan," in Sheldon Garon and Patricia Maclachlan, eds., The
Ambivalent Consumer: Questioning Consumption in East Asia and the West (Ithaca,
New York: Cornell University Press), pp. 113-136.
Horioka, Charles Yuji (2006b), “Do the Elderly Dissave in Japan?” in Lawrence R.
Klein, ed., Long-Run Growth and Short-Run Stabilization: Essays in Memory of Albert
Ando (Cheltenham, U.K., and Northampton, Massachusetts: Edward Elgar), pp.
129-136.
Horioka, Charles Yuji; Fujisaki, Hideki; Watanabe, Wako; and Kouno, Takatsugu (2000),“Are Americans More Altruistic than the Japanese? A U.S.-Japan Comparison of
Saving and Bequest Motives,” International Economic Journal, vol. 14, no. 1 (Spring2000), pp. 1-31.
Ishikawa, Tsuneo, and Ueda, Kazuo (1984), “The Bonus Payment System and Japanese
Personal Saving,” in Masahiko Aoki, ed., The Economic Analysis of the Japanese Firm
(Amsterdam: North-Holland), pp. 133-192.
Modigliani, Franco, and Brumberg, Richard (1955), “Utility Analysis and theConsumption Function: An Interpretation of Cross-Section Data,” in Kenneth K.
Kurihara, ed., Post-Keynesian Economics (New Brunswick, N.J.: Rutgers University
Press), pp. 388-436.

26

Figure 1: Trends in Japan's Net Household Saving Rate, 1955-2004
25.0

20.0

15.0
68SNA
93SNA(1995)
93SNA(2000)
10.0

5.0

03

01

20

99

20

97

19

95

19

93

19

91

19

89

19

87

19

85

19

83

19

81

19

19

77

79

19

75

19

73

19

71

19

69

19

67

19

19

63

65

19

61

19

59

19

57

19

19

19

55

0.0

Calender Year

Notes: The line marked “68SNA” shows data based on the 1968 United Nations System
of National Accounts, whereas the line marked “93SNA” shows data based on the 1993
United Nations System of National Accounts.

The 68SNA figures show the net

household saving rate, while the 93SNA figures show the adjusted net household saving
rate.

Source: Department of National Accounts, Economic and Social Research Institute,Cabinet Office, Government of Japan, ed., Annual Report on National Accounts, 2006
edition (Tokyo: Mediarando Kabushiki Kaisha, 2006), and the 2004 and 2005 editionsof the same.

27

Table 1: Net Household Saving Rates of Selected OECD Countries, 1985-2005
1985
1990
1995
2000
2005
Australia
10.8
7
8.5
12
6.7 182.8 19 -2.6
Austria
10.5
8
13.3
6
10.9 11
8.4
8T
9.5*Belgium
11.1
6
9.2
11
13.2
5
9.8
5
7.8
Canada
15.8
3
13.0
7
9.2 13
4.7 15 -0.2
Czech Rep.
nana
9.0 14
3.6 16
3.3*Denmarkna
1.3
19
0.9 22-1.3 21T -0.6
Finland
3.4 143.6
16
4.7 19-1.3 21T -0.5
France8.9 10
9.3
10
12.7
6
11.4
3 11.6
Germany
12.1
5
13.9
4T
11.0 109.2
7 10.7
Hungary
na
na
15.6
3
16.0
1 17.7
Irelandna
6.1
13
8.5 169.6
6 10.9
Italy
21.5
1
23.8
1
17.7
1
8.4
8T
9.5
Japan
16.5
2
13.9
4T
11.9
7
8.3 10
2.4
South Korea
14.8
4
22.5
2
17.5
2
10.7
4
4.3
Netherlands
5.6 13
17.7
3
14.6
4
7.0 12T
5.7
New Zealand
1.3 160.7
20-3.8 23-4.1 23 -7.1
Norway-3.3 172.2
18
4.6 20T
5.2 14 11.8
*Portugalnana
10.1 12
7.0 12T
6.9*Spain7.8 119.8
8
11.5
97.8 11
7.3
Sweden2.2 153.2
17
9.1 15
3.2 18
7.9
Switzerland
na
9.6
9
11.6
8
11.8
2
8.8
*United Kingdom
6.9 12
5.6
15
7.0 17
3.5 17
3.5
United States
9.2
9
7.0
14
4.6 20T
2.3 20 -0.4
OECD Mean
9.1
9.7
9.5
6.3
5.6

22
6T
10
18
16
21
20
3
4
1
5
6T
17
14
13
23
2
12
11
9
8
15
19

Notes: The left-hand figures denote the household saving rate, defined as household saving asa ratio of disposable household income, while the right-hand figures denote the rank of eachcountry. "na" denotes "not available," while "T" denotes "tie." The first figure for New
Zealand is the figure for 1986 because the figure for 1985 was not available. The figures
include the saving of households as well as that of non-profit institutions except in the case of
the Czech Republic, Finland, France, Japan, and New Zealand. For countries marked by anasterisk, only figures on gross household saving rates were available, and the gross figures
were converted to a net basis by using a conversion factor of 0.7 (which is the approximate
ratio of the average net household saving rate to the average gross household saving rate forthe countries and years used in the present analysis). In the case of Italy and Sweden, thefigures for 1985 were computed from figures on the gross household saving rate.
Source: For 1985 data, OECD Economic Outlook , vol. 2003/1, no. 73 (June 2003), Annex
Table 24; for 1990, 1995, 2000, and 2005 data, the same source, vol. 2006/1, no. 79 (June2006), Annex Table 23 (in the case of Hungary and New Zealand, the same source, vol.
2004/2, no. 76 (Dec. 2004), and in the case of Ireland, the same source, vol. 2005/2, no. 78(Dec. 2005), Annex Table 23).

28

Table 2: Share of the Aged Population in Selected OECD Countries, 1975-2025
Country
1975
2000
2025
Australia
8.7
19T
12.3
19T
18.6
19
Austria
14.9
2
15.6
10T
24.3
7
13.9
5
17.0
4T
23.7
8
Belgium
Canada
8.5
21
12.6
18
20.7
17T
Czech Rep.
12.9
9
13.8
16
23.1
10
Denmark
13.4
8
15.0
13
22.5
11
Finland
10.6
15
14.9
14
25.2
5
France
13.5
7
16.0
7T
22.2
12
14.8
3
16.4
6
24.6
6
Germany
12.6
10T
14.6
15
21.2
16
Hungary
Ireland
11.0
13
11.3
22
16.3
23
12.0
12
18.1
1
25.7
3
Italy
7.9
22
17.2
3
28.9
1
Japan
South Korea
3.6
23
7.1
23
16.9
22
Netherlands
10.8
14
13.6
17
21.9
13T
New Zealand
8.7
19T
11.7
21
18.5
20T
13.7
6
15.4
12
21.8
15
NorwayPortugal
9.9
18
15.6
10T
20.7
17T
10.0
17
17.0
4T
23.6
9
Spain
15.1
1
17.4
2
25.4
4
SwedenSwitzerland
12.6
10T
16.0
7T
27.1
2
14.0
4
15.8
9
21.9
13T
United Kingdom
United States
10.5
16
12.3
19T
18.5
20T
OECD Mean
12.6
16.0
24.4
Notes: The left-hand figures denote the share of the population aged 65 or older to thetotal population, while the right-hand figures denote the rank of each country. "na"denotes "not available," while "T" denotes "tie."
Source: United Nations, World Population Ageing, 1950-2050 (New York: United
Nations, 2002).

29

Table A-1: Trends in Japan's Net Household Saving Rate, 1955-2004
SNA68
SNA93
1990 Benchmark 1995 Benchmark 2000 Benchmark
Revision
Revision
Revision
Calendar Year
1955
11.9
1956
12.9
1957
12.6
1958
12.3
1959
13.7
1960
14.5
1961
15.9
1962
15.6
1963
14.9
1964
15.4
1965
15.8
1966
15.0
1967
14.1
1968
16.9
1969
17.1
1970
17.7
1971
17.8
1972
18.2
1973
20.4
1974
23.2
1975
22.8
1976
23.2
1977
21.8
1978
20.8
1979
18.2
1980
17.9
15.4
1981
18.4
16.2
1982
16.7
14.9
1983
16.1
14.3
1984
15.8
14.3
1985
15.6
13.7
1986
15.6
13.0
1987
13.8
11.5
1988
13.0
11.9
1989
12.9
12.0
1990
12.1
12.3
1991
13.2
13.3
1992
13.1
12.5
1993
13.4
12.0
1994
13.3
11.1
1995
13.7
10.4
1996
13.4
8.5
9.2
1997
12.6
8.6
9.0
1998
13.4
9.6
10.1
1999
9.2
8.9
2000
8.2
7.1
2001
5.7
4.3
2002
6.1
4.0
2003
6.3
3.3
2004
2.6
Notes: SNA68 denotes the 1968 United Nations System of National Accounts,
while SNA93 denotes the 1993 United Nations System of National Accounts. The
SNA68 figures show the net household saving rate, while the SNA93 figures show
the adjusted net household saving rate.
Source: Department of National Accounts, Economic and Social ResearchInstitute, Cabinet Office, Government of Japan, ed., Annual Report on National
Accounts, 2006 edition (Tokyo: Mediarando Kabushiki Kaisha, 2006), and the2004 and 2005 editions of the same.

30

Endnotes

1

However, Japan’s household saving rate was high (in excess of 15 percent) during the

1935-37 period according to the former System of National Accounts.
2

A detailed discussion of the conceptual differences between the 1968 SNA and the1993 SNA is beyond the scope of this paper, but the main difference between the twolies in their treatment of bad loans. Under the 1968 SNA, write-offs of bad loans tohouseholds and unincorporated businesses are treated as a current transfer fromfinancial institutions to households. Thus, bad loan write-offs increase the incomes ofhouseholds, and because their consumption does not change, their measured saving
increases. By contact, 1993 SNA treats write-offs of bad loans to households andunincorporated businesses as a decline in the asset holdings of financial institutions, andthus they do not affect the saving rate of households.
3

The sharp decline in land and equity prices during the 1990s led to a temporary

reversal in the increase in the level of household wealth holdings, but both land andequity prices seem to have bottomed out.

31