Unlike Americans, Japanese slow to borrow|
Last in a three-part series.
By Yuri Kageyama
AP Business Writer
KAMAKURA, Japan — At a forest shrine lined with incense-burning urns, Japanese pilgrims enter a small cave where they stoop to wash coins and bills in trickling spring water.
Cleanse your money here, the tradition goes, and it will multiply.
The ritual dates back perhaps 700 years, and it says something about the Japanese view of money: an attitude far different from that of many Americans. Cash — cold, hard currency — is a precious, treasured commodity here, something to be treated with reverence.
"I pay for everything in cash," says Shu Nagaye, a 23-year-old student, as he meticulously scrubs both his paper money and coins —11,720 yen, worth roughly $105 — all placed carefully in a woven basket.
"When I don't have money, I control myself and don't buy anything."
Like most Japanese, Nagaye despises being in debt. And unlike most Americans, he assiduously avoids it at all costs.
He has used the single credit card he owns only for travel abroad, and took care of that charge in one payment. The only money he has ever borrowed was in tiny amounts — from friends — and he made sure to return the money quickly.
Such cautious, almost fearful attitudes toward debt are common in Japan, the world's second-largest economy. While Americans pile up mortgages and credit card debt, Japanese are reluctant to borrow at all, creating the problem of economic stagnation. And while the United States sells U.S. Treasury bonds to cover its expenses, Japan, China and other nations buy them.
On a personal level, hoarding cash is so common among Japanese, from bills stuffed under mattresses to bars of gold in safes, there's a phrase to describe the practice — "tansu yokin" or "savings stashed in a chest of drawers."
Import bag-makers like New York-based Coach Inc. have to design wallets and coin purses especially for Japanese, who like to carry large wads of cash. American billfolds need more room for credit cards, less for paper money and coins.
The Japanese government has tried to encourage business borrowing, and thus break a decade-long economic slowdown, by keeping interest rates at virtually zero for four years. But even though this policy prevents Japanese from earning much interest on their bank savings, relatively few have been lured into playing the stock market or buying up the equivalent of mutual funds.
The Bank of Japan says Japanese have $13 trillion in assets — 55 percent of it in cash and savings, and only 9 percent in stocks. Of Americans' $36.5 trillion assets, only 13 percent is in cash and savings, and 34 percent in stocks.
Another notable statistic: America has twice as many people as Japan but 23 times as much credit card debt — more than $800 billion.
For decades, credit card companies have tried to woo Japanese with little luck. A recent study by JCB International Co. Ltd. found only about 8 percent of transactions here involved credit cards, with the rest carried out in cash.
The recent data leaks in the United States that exposed millions of cardholders to identity theft, including thousands of Japanese, have only intensified the deep distrust of credit.
A recent survey of credit-card holders by Japan's top business daily, Nihon Keizai Shimbun, showed 46 percent of the respondents were seriously considering getting rid of their cards, reducing the number of cards they have or using cards less frequently because they don't think the risks are worth it — especially when they use them mainly to get bonus miles and discounts.
"Japan has always been a cash-oriented society," says JCB spokeswoman Wakaba Kamimura, adding that the company has been offering trips to Disneyland and easy ways to pay utility bills as enticements. "There's this common idea that credit should be used only for very expensive purchases."
Muneaki Fujii, a 49-year-old schoolteacher with a 25-year loan on his home, is in a borrowing minority — just a third of Japanese households have mortgages. And even for Fujii, the loan is a rarity. "I don't buy things that I can't pay for in cash," he says. Nearly all American homeowners, by contrast, take out mortgages because of the tax breaks alone.
Japanese also almost never use checks. They have their rent, utilities and other monthly bills automatically deducted from their bank accounts, and such transactions require no extra fees.
Some have proposed cultural explanations for the two nations' spending patterns. The "American dream" emphasizes entrepreneurialism, while the Japanese equivalent stresses stability and lifelong employment with a single company.
Others point to government policies. American tax law provides substantial breaks for home mortgage interest; Japanese policy does not, although there are some tax refunds for loans. Also, the Japanese government has focused its development efforts on big business, and major banks' rules are written so that small businesses and individuals have a hard time qualifying for loans.
To fill the need for borrowing by individuals, a legitimate loan-sharking industry has sprung up, known as "sarakin" — short for "salaryman kinyu," or "consumer financing." It offers easier loans but at interest rates as high as 29 percent a year, driving some people into bankruptcy. Illegal lenders, which are rampant, charge even more.
Most Japanese are conscientious about returning the money they borrow, complete with the hefty interest. Still, some people can't pay and "sarakin hell" has grown into a social problem. Some debtors get sucked into continuous borrowing, often turning to more sarakin to return sarakin debts.
Being deadbeat is considered such a disgrace that suicide is sometimes chosen over bankruptcy. Economic hardship is the second-most common reason behind suicides in this nation, which total more than 32,000 a year; 33 percent of victims take their lives because of financial problems, police say. (Illness is the No. 1 cause, at 39 percent).
The difference between Japanese and American spending habits is playing out on the national level as well.
While American trade and budget deficits have ballooned, Japan has been persistently tackling a trade surplus — worried about a possible political backlash for taking away American jobs.
Meanwhile, Tokyo has been snatching up U.S. Treasuries, financing America's giant debt as individual Americans buy Japanese goods.
The reasons are historical. The United States has been Japan's most important ally since the end of World War II, and Japan counts on U.S. military might, especially its nuclear weapon capabilities, to protect it against the threat of neighbors such as North Korea and China.
Japan buys dollar
Until recent years, Japan's central bank actively bought the dollar — intervening in the foreign exchange market to stem the U.S. currency's fall. This was not only out of friendship with Washington, but also out of self-interest.
A weak dollar, or strong yen, generally hurts Japan's giant exporters such as Toyota Motor Corp. and Sony Corp. by making their products more expensive abroad and eroding the value of their overseas earnings.
Dumping U.S. Treasuries — totaling some $680 billion, or more than a third of the foreign holdings of Treasuries according to the U.S. Treasury Department — isn't seen as a realistic option for Japan.
When then-Prime Minister Ryutaro Hashimoto noted in 1997 that Japan at one point had been "tempted" to sell some of its huge cache of U.S. government securities, the Dow Jones industrial average tumbled 192 points — its worst point fall to that point since the 1987 crash.
Since then, Japanese politicians and scholars generally have been more guarded in their comments, even when wondering aloud about selling Treasuries. But these days, a vocal and influential minority has gradually begun to point to the dangers of investing so heavily in a currency whose future appears so precarious.
Drop in value
The dollar has lost about 7 percent of its value against the yen in the last three years, largely because of worries about U.S. trade and budget deficits. "People are starting to speak up," says Kazuyuki Hamada, a political expert in Tokyo and an author of books on currencies. "The trust for the dollar is declining."
Reflecting widespread opinion here, Hamada says that the United States has grown overly dependent on foreign money because its manufacturing power has eroded over the decades. Japan needs to protect itself by diversifying its investments in case the U.S. economy and dollar collapse, he says.
China's recent decision to scrap the dollar peg for its currency, the yuan, has renewed such concerns. China has said the yuan will trade against a basket of currencies, which includes the yen and the euro.
But such worries are rarely on the minds of Japanese people on the street. Like many others, S.T. Takahashi, an auto worker who owns no credit card, is more worried about falling into personal debt.
"It's scary," he says. "I pay in cash."
Do you expect debt to cause serious problems in the American economy during your lifetime? Cast your vote here.
Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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