Understanding the Decline in the Japanese Saving Rate in the New Millennium
This paper investigates why the Japanese household saving rate, which fell from the late 1990s to the first few years of the new millennium, suddenly stabilized after 2003. Analyzing income and spending data for different age groups, we argue that this is explained by Japanese corporate restructuring prompted by the 1997 financial crisis and the resulting labor income decrease being concentrated in older working households. We believe two important changes in income distribution are associated with this mechanism. First, the negative labor income shock, which was mostly borne by the younger generation in the initial stages of the “lost decade” finally spread to older working households in the late 1990s and early 2000s. Second, there was a significant income shift from labor to shareholders associated with corporate restructuring during this time. This resulted in a decline in the wage share, so that the increase in corporate saving offset the decline in household saving.
It is more than two decades since Fumio Hayashi tried to explain the apparently high Japanese saving rate in his seminal article (Hayashi 1986). Today, Japan is widely recognized as a country with a "declining saving rate". As shown in Figure 1, the Japanese household saving rate was around 18% at the beginning of 1980s. It has been declining ever since, down to 3.3% in 2006. The total decline is now about 15% over little more than a quarter of a century. There is little doubt that this declining trend is mostly explained by the aging of Japanese society (Horioka 1997; Dekle 2005; Chen, Imrohoro · glu, and º Imrohoro · glu 2006; º Braun, Ikeda, and Joines 2008).