Japanese Housewives in control of $14.9 trillion in savings

Japan never ceases to amaze me. When I first traveled to the island I was an angry, impatient New Yorker. I decided to stop over in Japan to visit a old friend of mine on route to Beijing for a semester abroad.

I had no idea what I was getting into. I spoke a bit of Chinese, but no Japanese, and had prepared little else besides a youth hostel in Tokyo for my first week in the country.

I got off the subway at Asukasa, drenched in sweat from some of the worst August humidity I have ever felt in my life—and trust me I have felt bad humidity... The beginning of the Amazon in the province of San Martin, Peru or the swamps of Louisiana do not compare.

After twenty minutes of wandering I was drenched from head to toe in sweat. I walked into a laundry mat and before I could talk three workers quickly helped me inside. They handed me a glass of water, a cold washcloth and offered me a seat.

The workers got on their store computer, found map quest directions and then proceeded to carry my bags for twenty minutes up some intense hills, across ridiculous intersections and all the way to the door of my hostel. They then refused a tip. I did not even know what to say, except, “how do you say thank you in Japanese?”

"Ari-ga-to"

Today, Bloomberg ran a interesting story on the return Yen carry trade, which is when traders in Japan take out cheap loans at Japan's 0.1% interest rate and invest it in higher yielding foreign bonds where the interest rate is higher.

The article talks about the return of “housewives.” Housewives you say? As it turns out, housewives usually manage investing their family savings. Japanese families currently have a incredible $14.9 trillion in savings!

Ron Harui of Bloomberg writes:

“They’re seeking higher returns after the central bank cut its benchmark interest rate to 0.1 percent. Investors who sell the yen against the euro would earn 3.4 percent by year-end, compared with 0.25 percent in one-year yen-denominated deposit accounts, data compiled by Bloomberg show."


Question: If Japan has all this capital sitting on the side lines, would it not be wise to figure out a way to invest a higher portion of it in Japan?

Japan's central bank is essentially stuck in a catch 22. On one side the low interest rate stimulates growth by encouraging lending. However, if the money being lent is invested internationally in foreign bonds that yield a higher rate of return than a Japanese savings account, the true goal maintaining low interest rates is not being achieved.

The way things stand at the moment, Japanese savers are technically helping fund Australia's huge budget deficit through the purchase Australia's higher yielding bonds.

I'm sure the matter is more complicated than my gross simplification. I welcome comments from someone more familiar with Japan's financial sector.