Analysis:Japanese savers have rediscovered interest rates and banks are feeling it

Analysis:Japanese savers have rediscovered interest rates and banks are feeling it TOKYO, Nov 6 : For years, Japanese savers left their cash in bank accounts that paid next to nothing because few things paid much more. With government bonds now yielding four times as much as deposits, that no longer holds and banks are starting to worry. When the Bank of Japan last week declared victory in its near 14-year battle to lift inflation to its 2 per cent target, it closed a long chapter of near-zero interest rates. Now, rising bond yields are making households more sensitive to returns on their money, fuelling a boom in government bond purchases and prompting some to shift a portion of the $7 trillion they hold out of bank deposits. Takashi Kamachi, a 46-year-old self-employed businessman in Osaka, recently moved 600,000 yen ($3,785.01) of his teenage son's gift money, held for years in a Japan Post Bank account, into retail government bonds (JGBs). "Banks are promoting time deposits again, but I thought government bonds looked far more attractive, perhaps four or five times better in terms of returns," he said. To be sure, the shift is still modest. However, policymakers hope households will eventually play a bigger role in funding Japan's massive budget as stable holders of government debt, and help fill a hole left by the BOJ's diminishing JGB purchases. "Foreign investors can help fill the gap, but what Japan really needs is a stable buyer base, and that means households," said Kenji Nakanishi, a senior ruling party lawmaker and key advocate of expanding retail ownership of government bonds. 'INTEREST RATES EXIST' Retail Japanese government bond sales in the April-October period have nearly doubled from a year earlier to 6 trillion yen. Over last three consecutive months, monthly sales have exceeded 1 trillion yen, as yields on popular retail bonds climbed above 2 per cent, far outstripping bank deposit rates that mostly remain below 1 per cent. "People are starting to realise that interest rates exist," said Takayuki Nakagawa, general manager of retail marketing at SBI Securities, Japan's largest seller of retail government bonds. Many buyers are first-time investors seeking a safe alternative to bank deposits, according to Nakagawa. Drawn by a government guarantee of principal, they represent the same conservative savers banks have traditionally relied on for funding, he said. Despite the BOJ lifting its policy rates, commercial banks have kept deposit rates low to minimise funding costs, offering around 0.5 per cent on one-year deposits, not enough to beat inflation. In contrast, 3- and 5-year retail notes and 10-year floaters all offer coupons above 2 per cent. Japanese households hold roughly 2.50 quadrillion yen in financial assets, according to BOJ data, with cash and deposits accounting for about 1.13 quadrillion yen. Even with that demand, household holdings of government bonds account for less than 1 per cent of their financial assets, compared with roughly 2 per cent for US households' holdings of Treasury securities. JGBs must also compete with global and domestic equities, which have already attracted a steady stream of funds from younger investors seeking higher returns. Eager to find sources of revenue to fund their spending, some lawmakers want to make JGBs more attractive, such as through longer-duration products and incentives such as inheritance-tax benefits. "Now that momentum is finally building, this is exactly the time to give it an extra push," Nakanishi said. Finance Minister Satsuki Katayama wants to improve the appeal of retail government bonds. Her ministry, for one, is studying the launch of additional retail bond products, it said on Thursday, while also calling for discussions on preferential tax treatment for buyers. PUSHBACK The idea, however, faces pushback from some lawmakers who fret it would widen income disparity by benefiting already wealthy households. Meanwhile, commercial banks fear a shift into bonds could drain deposits, leaving less ammunition to profit from increasing borrowing demand. Some bank officials say they are already seeing once loyal customers shift money into JGBs. "Preferential treatment for retail government bonds would be a problem," said a senior regional bank official, who requested anonymity. Bank lending has consistently outpaced deposit growth this year, with loans rising 5-6 per cent from a year earlier while deposits grew only around 2 per cent, according to BOJ data, forcing lenders to compete more aggressively for household savings. "A rapid and excessive shift of funds from bank deposits into retail government bonds could weaken the credit-creation function banks are responsible for and affect their ability to supply growth capital to the economy," Mizuho Bank head Masahiko Kato, who is also chair of a banking lobby, said in September. There are also questions about financing Japan's huge debt with household savings. Foreign investors have increased their presence in the JGB market, raising concerns that yields could become more vulnerable to sharp swings in global sentiment. The BOJ's share of the JGB and T-bill market has fallen to 41.2 per cent in June 2026 from a peak of 47.9 per cent in December 2023, as it tapered bond purchases to unwind monetary stimulus. Banks' share has more than halved to 17.8 per cent since 2013, when the BOJ deployed a huge asset-buying scheme. Takero Doi, a professor at Keio University, said instead of boosting retail bond demand, policymakers should focus on reducing government debt. "You could simply end up seeing households replacing banks as buyers of retail government bonds," he said. "That won't solve the underlying problem." ($1 = 158.5200 yen) (Additional reporting by Takaya Yamaguchi, Noriyuki Hirata, Takahiko Wada and Miho Uranaka; Editing by Sam Holmes)