JRI Research Journal;Vol.5 No.12,
Macro Challenges to the Realization of the Asset Income Doubling Plan
Revamp of Retirement Benefit Plans Is Vital
Takeshi Makita
Summary
Japanese Prime Minister Fumio Kishida has announced an “Asset Income Doubling Plan” to promote a shift “from savings to investment.” This slogan has actually been around since 2001, though little progress has been made so far.
Although Japan’s total household financial assets are colossal, income from assets has barely increased because there is a heavy emphasis on savings accounts with ultra-low interest rates and only a small proportion of wealth is invested in stocks. One of the reasons for this is that the financial assets of Japanese households are unevenly distributed. The bulk of them are in the hands of the elderly, an age group that is more conservative about investing in risk assets. Meanwhile, the younger generation, who are keen to invest in risk assets, are starved of the cash to invest.
The root cause of this is thought to be Japan's unique seniority-based wage system and retirement benefit plans. Many companies have introduced retirement benefit plans with a view to encouraging longer service. However, these plans have resulted in financial assets getting stuck in the savings accounts of elderly people, and are also hindering labor market mobility and flexibility. The revamp of the plans would be both a blessing and a curse, but if companies that currently only offer lump-sum retirement benefits began paying out part of the benefits in the form of annuities and allocated the rest to wage increases, it is highly likely that younger workers would increase their investment in risk assets.
On the other hand, stable and long-term rises in stock prices necessitate increasing nominal GDP growth, so growth strategies such as restoring the "earning power" of Japanese companies are crucial. In light of the current situation, where increases in disposable income have not led to an expansion in consumer spending, it is also vital to dispel concerns about the sustainability of the social security system amid the graying of the population and the decline in real living standards due to reduced purchasing power.
To engineer the "shift from savings to investment," we must take a serious look at the factors that have stood in the way of this shift, and not only upgrade finance-related systems and the tax regime, but also make fundamental changes to an economic structure that has been rendered obsolete and inefficient.