Earlier this week, we were amused but not at all surprised to learn that Japanese citizens are buying safes like they’re going out of style.
The reason: negative rates and the incipient fear of a cash ban. “Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash--the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates,” WSJ wrote. “Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does.”
Put simply, the public has suddenly become aware of what it means when central banks adopt negative rates. The NIRP discussion escaped polite circles of Keynesian PhD economists long ago, and now it’s migrated from financial news networks to Main Street.
Although banks have thus far been able to largely avoid passing on negative rates to savers, there’s only so long their resilience can last. At some point, NIM will simply flatline and if that happens just as a global recession and the attendant writedowns a downturn would entail occurs, then banks are going to need to offset some of the pain. That could mean taxing deposits.
As we noted on Monday, circulation of the 1,000 franc note soared 17% last year in Switzerland in the wake of the SNB’s plunge into the NIRP Twilight Zone. As it turns out, demand for big bills is soaring in Japan as well.
“Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases,” Bloomberg writes. “While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts -- where it can make its way back into the financial system and be put to productive use.”
One safe maker who spoke to Bloomberg said safe shipments have doubled over the last six months. While part of the demand for safes is likely attributable to the country's new "My Number" initiative, "the negative-rate policy is likely to intensify the preference of Japanese households to keep cash at home,” Hideo Kumano, an economist at Dai-ichi Life Research Institute said. “Overall, the trend of more cash at home reflects concern about the outlook for economy among households. This isn’t a good thing.”
No, it's not. And just wait until the Japanese (and European) public makes the connection between NIRP and the cash ban calls. That is, once average people grasp the concept of the effective lower bound and then figure out that a cashless society will allow policymakers to dictate economic outcomes by robbing the public of its economic autonomy, it will be time to break out the torches and the pitchforks.
We suppose it's time for Kuroda to propose banning the 10,000-yen note. You know, to deter the Yakuza...