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Tuesday, February 21, 2006

At the Post Office: interest rates in Japan


Inside Shinjuku Central Post Office, Tokyo.I was at the post office to pay a slightly overdue tax bill. I took a number from the ticket dispenser and waited for about twenty minutes for my number to be called up. While I sat there waiting, a Post Office Savings Bank promotional screen further down the counter caught my eye. It was advertising the interest rates on offer for those with a bit of money to invest in Post Office time deposits.

Have a look at the photos below. Yes, nothing above 1%! The green screen is advertising savings for the purpose of buying a house. If you have a loan from the post office the amazing rates in the left-hand column apply. If you don’t you have to make do with the rates on the right. The black screen is advertising fixed time deposits, the most generous being 0.4% for between 2 and 3 years. I mean who do they think they are? The Salvation Army? World Vision?

House-building savings rates.
Time deposit interest rates.

I've been reading a book by one of Japan’s most prominent socio-economic commentators, the incredibly prolific Kenichi Ohmae, called ‘The Impact of the Rising Lower-Middle Class in Japan’ in which, among a host of other things, he points out the out-of-touch thinking of Japan’s financial institutions as part of the reason for Japan’s current decline.

Part of the reason why interest rates are low is the classic economic textbook reason that there is too much money around. The reason that there is too much money around is that the government is pumping money into the economy to battle what it calls 'deflation'. What the government doesn't realize, says Ohmae, is that what is happening is not so much simple deflation as a radical transformation of the Japanese economy. This transformation consists of a minority of rich people getting richer, and a majority of ordinary people getting slightly poorer, creating a new class that Ohmae labels the 'lower middle class' which, not having as much money as before, is not spending as freely. The same thing happened, he says, in the United States 30 years ago, and that wave is very belatedly now hitting Japan.

But in addition to this classic economic mechanism, he says the banks (read cartels) want to remain awash in, and in control of, vast amounts of money saved by the populace without properly paying for the privilege, and do so in cahoots with Japan's bureaucrats. Here’s what he says (my translation):

Kenichi Ohmae.“The banks survive by using the people’s tax money, labeled ‘public funds’. Moreover, they are still protected by the government’s ultra-low interest rate policy. They don’t pay the saver any of the interest that they ought to pay, yet on the other hand are most exacting in taking the interest they charge on loans. And they don’t stop there, squeezing money out of the populace by involving themselves in even the ‘lifestyle loan’ business. That’s how they award themselves their high salaries, making excessive profits in cahoots with the bureaucrats in what amounts to loansharking.

Sitting fat thanks to this kind of business, how can they be expected to develop international-level competitiveness? The banking business is said to have made a recovery, but take away the patronage of the government and I can see them instantly approaching crisis point, swallowed up in the wave of borderlessness."

-"The Impact of the Rising Lower-Middle Class Population in Japan", by Kenichi Ohmae.

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