Japan's attempt to restimulate the economy through consumer spending (something that has so far failed in the US and everywhere else courtesy of a third consecutive year of global household sector deleveraging) appears to be going horribly wrong. Exhibit A: "Japanese safe maker Eiko Co. says sales jumped more than 40 percent after the March earthquake and tsunami, a sign that consumers will hoard more cash at home and restrain an economic rebound...“The television footage of the tsunami destroying everything in its path must have served as a warning for cash- rich people,” said Tsutomu Ishii, head of sales for the Tokyo- based company. “They have cash at home and they don’t want to leave it without any protection anymore."" If economic recovery is based on spending for cash hoarding devices that the BOJ has done an amazing job. Alas, we are fairly confident not even Keynes has a footnote in any of his theories suggesting that consumers buying up safes, mattresses, socks or other cash storage devices is in any way stimulative of GDP. Alas, the bottom line (and as we have been claiming since the beginning of May) is that the BOJ will have no choice but to step in yet again to take the place of Japan's consumers who are not only disenchanted with stock returns, but now have to worry about natural disasters. "Households aren’t ready to help the economy by spending" said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo.
The March 11 disaster that left more than 23,000 people dead or missing may discourage spending as households stick to “tansu yokin,” the centuries-old Japanese practice of keeping mattress money. While output is bouncing back, weak demand may slow an economic recovery as officials struggle to boost consumer spending after decades of deflation.
“It’s absolutely essential for Japan to get people to spend,” said Robert Feldman, head of Japan economic research at Morgan Stanley in Tokyo. “Weakness in consumer spending is one of the reasons for the economy contracting -- it’s crucial for the government and the Bank of Japan to work together properly to end deflation.”
Consumer spending slid 0.6 percent in the three months through March as Japan entered a recession according to the textbook definition, two straight quarters of contraction. The Bank of Japan will conclude a policy meeting today after the International Monetary Fund called for it to boost asset purchases to “guard against deflation risks
Millions in paper money destroyed:
In the devastated northeastern Tohoku region, safes recovered since the data have indicated the scale of tansu yokin. In Ishinomaki, a stricken city, about 700 are stored at a police station, officer Yoshiaki Fukushima said. Officials there have reports of another 750 missing, claimed to contain an average of about one million yen each.
"I was stunned by the amount of cash I was seeing,” said Fukushima, who found as much as 70 million yen ($870,000) in one of the boxes. In another case, he couldn’t get the bills out because they were swollen with water.
At least 500 are at a police station in Kesennuma city, and one contained as much as 40 million yen in cash, said Hiroki Sato, a local police commissioner.
In 2008, the central bank estimated tansu yokin at about 30 trillion yen and Hideo Kumano, chief economist at the Dai-Ichi Life Research Institute in Tokyo, said the amount may now be in a range from 20 trillion yen to 45 trillion yen.
This is why every central bank fears the toxic spiral of deflation more than anything:
“The country is in deflation so even if you leave money under the mattress, you are still earning,” said Morgan Stanley’s Feldman. “It’s a relatively attractive asset. You have to protect it but it’s not too hard.”
Average monthly household spending dropped 8.5 percent in the past decade in nominal terms, according to the statistics bureau
There is no chance monetary authorities have a hope in Fukushima of reversing century old habits:
Poor returns on stocks -- the Nikkei 225 is down more than 30 percent in the past five years -- discourage investing, while low interest rates limit the lure of bank saving accounts. At the Bank of Japan, Governor Masaaki Shirakawa’s policy board has kept the benchmark between zero and 0.1 percent since October.
And here is the kicker- Japanese households have $10 trillion in cash and deposits!
Japanese households had 55 percent of their 1,489 trillion yen of financial assets in cash or deposits at the end of last year, about four times the proportion in the U.S., according to the Bank of Japan.
Luckily, the safe scramble trend has not yet gone global, at least according to a cursory Google Trends search of "cash safe"
On the other hand, in non-Japanese countries, for many it is the true currencies of gold and silver that have already replaced the allure of paper cash. Nonetheless, if the chart above begins demonstrating a material pick up, then the world's central banks may just as well close up shop.
As for Japan - good luck.