Japan: Covid-era ‘excess’ savings may be smaller than estimated

We think that a dissaving-driven consumption boom is unlikely to happen in Japan. Excess savings accumulated during the pandemic, in our view, is smaller than generally thought, and the withdrawal savings will be limited going forward.

Based on the pre-Covid average savings rate, Japan’s excess savings is an estimated 10% of GDP, second largest after the US. Unlike the US, Japan’s excess savings have barely been touched.

What you will learn:

• However, we believe that the size of Japan’s excess savings is overestimated given the trend rise in the savings rate in the late 2010s. 
• We think the rise in savings rate is structural and will continue. First, poor income prospects and heightened concerns about the sustainability of the social security system promote precautionary saving. Second, rising labour participation and changes in the household income structure encourage saving.
• A consumption boom financed by the withdrawal of excess savings will not happen because the need for precautionary savings will increase even further in the coming years. Plus, excess savings tend to be concentrated in higher-income households.