Mrs Togawa leaves her house in western Tokyo determined to buy a safe. She has come to a shop with a great selection, a name for decent prices and a reputation for having doubled its sales of safes since this time last year.
Behind the 60-year-old retired schoolteacher’s journey, she says, are months of mixed messages, media furore and personal fretting about the effect of negative interest rates on her decades of savings. A solid steel box offers a sense of stability in very unusual times. Or at least, she thought it did.
She has come armed with the maths of her own finances — and those of many Japanese households like hers. Deposit interest at Japanese banks has been below 1 per cent for a quarter of a century, but since negative rates took hold on February 16, ¥1m ($9,600) deposited in a bank earns just ¥20 of interest. Charges for using a cash machine range from ¥108 to ¥216 and other basic fees are several times that. A safe is as much protest as practicality.
Mrs Togawa agrees that, in many ways, she is Mrs Watanabe — the notional Japanese matriarch and holder of the household purse-strings. Even the nation’s top bankers, programmed to abhor any flight of deposits, admit privately that they sympathise with the Mrs Watanabes, who have helped push up sales of safes in Japan’s biggest hardware chains by 100 per cent since this time last year.
Buying a safe may offer some feeling of security, but there are serious questions over whether it makes sense.
While interest on deposits in Japan is derisory, it is not zero, and hidden from view is the deposit insurance being borne by the banks themselves. Even a fairly economical safe costing ¥25,000, stuffed with ¥10m and depreciated over five years, would probably not pay for itself in terms of saved costs. Mrs Watanabe, living in the most earthquake-prone country in the world, needs that insurance.
And while Japan may be fairly law abiding — recording only 93,566 cases of breaking and entering in 2014, compared with 775,000 in England and Wales — only the most carefree saver would buy a safe and not install a burglar alarm. Secom, Japan’s largest security company, charges ¥10,000 a month to protect a three-bedroom house.
Still, safe sales have soared. There are two explanations. The first is that their popularity has more to do with the introduction last autumn of national identification numbers, a move that has led some to conclude that hoarding cash will protect them from the taxman and the prying eyes of the government.
The second is that the average Japanese person, like Mrs Togawa, can see that the Bank of Japan’s negative interest rate policy has been implosive. Negative rates may have been introduced earlier in Europe and Switzerland, but the consequences have been more spectacular in Japan. Within four months, almost 80 per cent of Japanese government bonds are trading at negative rates. Japan’s money market funds, once beloved by savers, have been closed.
As economists point out, buying a strongbox is more emotional than mathematical: a visceral response to a financial environment seemingly upended by negative rates. The nation’s financial system, represented by the banks, have left Mrs Watanabe and her family feeling let down. The three-year-old economic revival programme known as Abenomics, for all its initial promise, has not left her feeling any better off, or future-proofed her meticulously scrimped household savings.
In a recent interview, Yasuhiro Sato, the president of Japan’s second-biggest bank, Mizuho, said: “The Japanese are very conservative so [after the announcement of NIRP] many rushed to buy safes. In theory, negative rates will stimulate the economy . . . the reality is that people just feel very uncertain for the future. It will take some time to understand the real benefit.”
Even though stashing away cash makes no financial sense, chatter about safes — and the public’s reaction to negative rates in general — has monetary policy consequences. Any blow to consumer confidence offsets the economic stimulus from lower borrowing costs.
Since adopting negative rates, Haruhiko Kuroda, the BoJ’s governor, has been hauled before parliamentary committees to explain himself on an almost weekly basis while enduring an unfamiliar level of heat from newspapers and TV stations.
“I think the BoJ is partly responsible for the negative reaction because their communication with the markets has been poor,” says Kiichi Murashima, chief economist at Citi in Tokyo. Mr Kuroda notoriously ruled out negative rates just days before announcing them.
Amid this turbulence, the safe has been presented by some as a solution in much the same way that gold bullion has been pitched to Japanese savers as a financial haven. Cainz Home, one of the country’s biggest DIY chains, brands its display of safes by asking shoppers whether they “have a negative rates strategy in place”.
Spending plan thwarted
If NIRP has done little to stimulate Japanese industry so far, it has been a boon to the publishing business. Bookshops are stocked with scores of titles that explain the dangers of NIRP and attempt to offer guidance on how to ride out the storm. Negative Interest Rates, a hot-selling book by Isaya Shimizu, is typical of the genre, warning that “bank saving is not a zero-danger activity”.
For the administration of prime minister Shinzo Abe, the safe surge represents a resounding defeat. The primary goal of the Abenomics project has been to convince Japanese households to move more of their savings from bank deposits into the stock market.
Until stocks began to sag because of the strengthening yen, Mrs Watanabe was given every incentive to invest. The Government Pension Investment Fund has led a rotation from JGBs into domestic equities. Between Mr Abe coming to power for the second time in December 2012 and its peak last summer, the Topix index rose more than 100 per cent. When Japan Post finally pulled off its long-awaited $12bn initial public offering last November, it was priced and pitched to attract small investors dipping a toe into equities for the first time. In that light, the dubious economics of installing a large steel box and filling it up with paper look even worse in contrast to doing the opposite: taking a risk on stocks.
Of Japan’s three largest companies, shares in Toyota offer a dividend yield of 3.9 per cent, Mitsubishi UFG 3.7 per cent and telephone company NTT a return of 2.7 per cent. They trade on inexpensive price-to-earnings ratios of between 7 and 12 times last year’s profits. The lower the return on a bank account, the more attractive equities look by comparison.
Furthermore, if the BoJ succeeds in its goal of using negative rates to generate inflation, there is a chance that corporate profits will keep pace with rising prices, whereas banknotes are certain to lose their real value. Cash is only likely to perform better if Japan sinks deeper into deflation.
The two options sum up the challenge facing the BoJ. If consumers believe the central bank will succeed, they have every reason to invest, which will help its policy succeed. If they believe it will fail, they are more likely to stash cash in a safe — and in doing so they will cause the BoJ’s policy to fail.
The BoJ is delighted by how effective negative interest rates were at driving down bond yields from already low levels, to the point where 10-year JGBs now yield minus 0.15 per cent. Because of that success, senior officials at the BoJ think more rate cuts are their best available tool for monetary easing, and the central bank may cut rates again as early as July. “I think the BoJ is ready to cut the policy rate to minus 0.2 or minus 0.3 per cent,” says Masaaki Kanno, chief economist at JPMorgan in Tokyo.
Before doing so, however, it wants to win over the public and persuade them to forget all about safes. Mr Kuroda has come out fighting, arguing that teething troubles with negative rates are fixed.
The BoJ hopes its message — that it will always shield consumers from negative rates — is getting through. “We think the public now understand that deposit rates will never be cut,” says a BoJ official. It is happy to highlight statistics showing the impracticality of safes, noting that ¥100m in ¥10,000 bills weighs 10kg and fills a physical volume of roughly 12 litres — bigger than the safes on sale in many shops.
Martin Schulz, senior economist at the Fujitsu Research Institute, says that while negative rates had intensified the public’s view that they have been “ripped off” of the income they expected to receive on their savings, the safe-buying spree would prove shortlived as mathematical sense prevailed.
As Mrs Togawa shops for safes with her daughter in a branch of Shimachu Homes, the logic of safe ownership becomes less obvious. She is inspecting two safes: one apparently sturdy looking and costing ¥28,800, but the other promoting its ability to withstand a house fire and costing ¥62,800. Neither is within her budget, and they are both bigger than she imagined.
“I read a few magazines and started thinking about buying a safe from March this year but really had no idea it was going to cost so much,” she says. “You couldn’t even hide it anywhere in the house. I don’t know why they’ve been so popular.”