Once the balance sheet recession has been mitigated, then the Japanese government will have to begin deregulation and other structural reforms to entice businesses to borrow again. This should help businesses overcome the psychological hurdle against borrowing, and it will give financial institutions outlets to keep savings. He sees the Bush tax cut as a step in the right direction, but he still worries that this may not be enough. He advocates government spending as the best way to ensure that capital is going directly into the economy instead of hoping that businesses will divert some of the tax savings away from paying down debt and towards consumption and investment. The Japanese government encourages people to save so that the government can spend.
Japanese consumers feel obligated to save because they have to save with regulatory structures.
Perhaps the removal of these regulatory structures will encourage consumption. He argued that it would make sense if the Japanese had curbed their consumption and increased their savings once the recession hit. Nevertheless, the Japanese had high savings rates even in good times. Consequently, it is probably more a part of the culture of the Japanese people to save than it is economic factors. Q. Government debt in Japan is 130 percent, and with prefectures, postal savings, and hidden liabilities, it could be even higher at 200 percent.