Although NISA (Nippon Individual Savings Account), iDeCo (individual-type defined contribution pension plan), and many other financial-asset-formation support measures for individuals have been put in place, the use of personal financial assets in Japan continues to exhibit a pronounced tendency towards ordinary savings. At NRI, research and study have led us to support the introduction or improvement of various systems, but how can individuals’ financial assets be more effectively utilized? We asked Katsutoshi Takehana of the Financial Market & Innovation Research Department to share his thoughts on these issues, including the results of NRI’s “Study Group on Household Financial Assets and Macroeconomics”.

Why is the Shift from Savings to Investment Important?

――Tell us about the circumstances that led to the study forum.

Beginning in the early 2000s under the slogan “From Savings to Investment”, the government set up investment promotion-and-support systems aimed at individuals, such as NISA and iDeCo. Private-sector financial institutions responded to the shift as well. But while use of the associated systems has increased and the systems are otherwise starting to show some degree of penetration, they cannot be said to have taken hold widely. Rather than discussing individual policies, we thought we would be more likely to get beneficial thoughts by addressing these problems from a general standpoint. Working from that belief, in November 2017 we put together the study forum, with cooperation from specialists in macroeconomics, public finance issues, and other related fields. The forum met six times in six months and became the site of an exciting discussion.

――Why is the preference towards saving so strong in Japan?

This was discussed in great depth at the forum, and we believe the answer lies in the common sense and the social systems that were built up in the roughly fifty years after the end of World War II. Up until the 1980s, people believed that a public pension would be enough to keep them secure in their old age. The interest rate on bank savings was high at around 5%, even higher than the rate of inflation. Before the bubble economy collapsed in the early 90s, land values increased faster than stock values, making it more beneficial to own land than to own stocks. In other words, keeping assets mainly in savings and land was a smart decision for individuals, and it appears that those habits are deeply rooted even today. The problem is that the conditions that made that a smart decision ? the public pensions, the bank interest rates, and the land values ? are no longer in place.

For example, in the case of public pensions, there probably aren’t many people thinking “I’ll be okay if I trust my life after retirement completely to the government”; likewise, while the interest rate on savings may increase a bit depending on the course of fiscal policy, there’s no way it’s going to return to previous standards.

Because of these changes, from a policy standpoint it has become important to foster the effective utilization of Japan’s abundant individual financial assets, which total more than 1.8 quadrillion yen (USD16.3 trillion), and to strengthen income formation. When we look at Japan alone it is difficult to expect major growth, but overseas there are many countries and regions where growth will continue. We believe that by directing individual people’s money to those places, passing on the fruits of growth, and otherwise padding the income routes, we can strengthen income formation for Japanese households.

At the government level as well, systems like NISA and iDeCo have been put in place as I mentioned earlier, and as of March 2018, NISA had 11.67 million accounts and iDeCo had about 850,000 participants, so it could be said that these investment models have spread to some extent. Nonetheless, the fact is that we still haven’t reached the point where all household financial assets are being put to productive use.

The Need to Develop a Core Argument for Systems/Policies

――What are some of the systemic challenges for NISA and iDeCo?

Industry groups including the Japan Securities Dealers Association and Japanese Bankers Association have already made proposals to the government for how to make NISA and iDeCo more convenient and user-friendly. These proposals contain many important suggestions, such as making NISA permanent and relaxing the early withdrawal requirements for iDeCo.
There are no internal contradictions or incongruities between these suggestions, and we believe the government should move forward with them.

In addition, I personally think we need to do more to develop something like a core argument that can serve as a foundation and a basic premise for all of these individual measures.

Setting policy objectives would be an example of what I mean. People have been calling for “From Savings to Investment (Asset Formation)” for a long time, but the “ideal form” all of this is supposed to take ? the specific type of condition we want Japan’s individual financial assets to achieve ? has not been sketched out, and there is no unifying vision that tells us where we’re trying to go with all this money.

On the other hand, it’s easy to say we should debate the “ideal form”, but when you try to think about the issue seriously there is a wide range of issues to discuss, so there’s a strong need for specialists from different fields to come together and share their wisdom. Even at the study forum, although we were able to confirm the importance and the difficulty of the issues, we didn’t get to the point of actually diving in and discussing them deeply. By fleshing out a core argument, I believe we will be able to communicate the issues inherent to “From Savings to Investment” widely, beyond the financial sector.

――Looking ahead, what types of research activities are you planning?

This “ideal form” is one example of the “core argument” I’ve been discussing, and in continuing to think about this issue, we’re going to encounter a lot of points that are “important, but are not ordinarily brought up in discussions”. So I think we will want to take careful stock of these points. Since it would be difficult if not impossible to handle everything by ourselves, we will need to draw on the capabilities of outside specialists and practitioners to deepen our investigations and our discussion, and to disseminate our results.