Chapter 6

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Chapter 6


Summary

Japanese households use to be one of the world’s biggest savers and because of that, they had a massive trade surplus. But they are no longer, as they now save less than the American households based on income. The saving rates have fallen from 18% of income in 1980 to about 1% in 2008. This is due to the growing numbers of people aged 65 and over. The ratio of Japanese aged over 65 to those of working age rose from 14% in 1980 to an estimated 34% in 2008. It is forecast to increase to 49% by 2020. With so many people in the retired field, less money are being put into savings as they are pulled out of the bank and used as an retirement plan. Another issue that is causing Japans saving rate to decrease is a decress in income. Japan’s trade balances are no longer in the surplus zone but instead moved to the deficit zone due to the world recession. The low demand and the strengthening yen have destroyed Japan’s exports. In the six months to January, it had an annualised trade deficit of ¥4 trillion ($39 billion), compared with a surplus of almost ¥11 trillion a year earlier. Although in January, there was still deficit showen, experts expect a surplus for the year as a whole but as much as 1% of GDP would have been reduced compared to the peak of 4.8% in 2007.

Connection

In this chapter, we learned about the positive and negative effects savings can have on one country’s economy. On the positive side, the more money one puts into the bank for savings, the more there is for the country to lend out for investments. With that, the interest rates would be lowered for those that want to burrow money. The negative side would be reduced consumption due to savings. The more one saves, the less there is for them to spend. The factors for increased savings are higher incomes, which is what is described in the article. When people are young and working, they consumed but put a large sum of their earning into a savings account to themselves for retirement. Once they reach retirement, their income have significantly dropped and they are pulling money out of the bank thus decreasing their savings or are dissaving. That is the problem for Japan because the percentage of people being over 65 is on the rise as baby boomers are reaching retirement age.

Reflection
It is a vicious cycle as the recession is forcing people to stop saving as many are becoming unemployed and are digging deep into their savings account to survive. Although many are reaching into their saving to live, it is still not enough. The banks are making the interest to go down as the banks want to encourage people to start burrowing money and spending. I think in a time like this, savings is as important as spending. With little being put into savings, there are less money going into the bank that can be lend out to investments that can help bail us out of the recession. Also, with savings being a huge part of one countries GDP, a decrease of it affects the countries economic state greatly.

*Comment on Raymond C