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Estimates from Japan’s time series regressions suggest that Japan’ consumption share would be 1 percentage point lower if its elderly population ratio were at the G-7 (excluding Japan) average.
Note, however, that the consumption share depends also on future demographic structure. For example, if Japan will continue to experience faster aging than other economies, it may need to save more now, leading to a lower current consumption share.
According to a standard representative agent model, consumption (level) responds only modestly to output gap (level) because a temporary shift in output has a limited impact on lifetime income that determines consumption. Such a response implies a negative correlation between the consumption share in GDP and output gap.
See, for example, Walker (2005) for details about financial liberalization starting in the late 1990s.
1,800 hours was a target set by a follow-up report to the “Maekawa Report” (issued in 1987).
Property income is defined as income from financial and nonfinancial assets (e.g., interest income, dividends, rent).
Morikawa (2006) presents evidence that productivity growth in the manufacturing sector has tended to be higher than that in the services sector across advanced economies.
In addition to the factors listed here, Matsuura and Shiraishi (2004) argue that the age-based remuneration system, which is prevalent in Japan, could reduce holdings of risky assets. Under this system, young employees receive lower wages relative to their performance, leaving their future wages as effectively risky financial assets. These assets are subject to the uncertainty surrounding the lifetime employment system, which could encourage young workers to hold disproportionally more safe assets.
Until the late 1990s, commercial banks were not allowed to provide trusts or foreign currency deposits to households.
Stock returns including capital gains have been generally lower than 10-year JGB yields throughout the post-bubble period (Matsuura and Shiraishi, 2004).
Following the global financial crisis, the dividend payout ratio rose further in Japan. However, this largely reflects the fact that in Japan, many corporates pay out a fixed amount dividends even if profits are squeezed (as happened following the global financial crisis). The dividend payout ratio will likely fall once profits recover to a normal or pre-crisis level.
Historically, the large crossholdings may have been easing pressures against corporates to enhance their profitability and pay out more of their profits.
According to Nakagawa and Shimizu (2000), the percentage of Japanese households that consider safety in financial investment to be of the utmost importance is as high as 44 percent—more than 15 percentage points higher than households in the United States.
Using the U.S. data, Malmendier and Nagel (2009) find evidence for the idea (originally suggested by Ameriks and Zeldes, 2004) that those who have experienced lower stock returns in their lifetime are less likely to hold stocks.
Alternatively, one could use aggregate data, but they tend to produce a negative association between growth rates of private consumption and household property income in Japan (which is counterintuitive) partly because business cycles cannot be fully controlled for due to lack of good instruments.
The JPSC is provided by the Institute for Research on Household Economics.
A similar form of equation has been typically estimated to test excess sensitivity of consumption growth to known or expected changes in income (e.g., Parker (1999)).
Control variables are the household head’s age, age squared, the number of family members, education dummies, occupation dummies, industry dummies, and time dummies. The intention of their inclusion is to control for unobservable factors including preferences and household/age specific interest rates.
An alternative approach could be to use the current change as the main independent variable. A technical problem with this approach is that the current change would need to be instrumented for by the two year lag (ΔPi,t-2) to avoid the aggregation problem (Working, 1960), but the two year lag is not a strong enough instrument.
However, since the lagged change in property income may also have lifted Ci,t-1 and thus reduced ΔCi,t, the estimate may be understating the true MPC.
Under the assumption that corporate profits (in percent of GDP) will eventually return to pre-crisis levels.
A permanent rise in stock returns, if achieved, could have an even larger GDP impact because as noted earlier, the estimated MPC of 10–20 percent may be lower than MPC from a permanent increase in household property income.
Over-borrowing from consumer financing companies has been described as the “hell of consumer financing” (or “Sarakin Jigoku” (in Japanese)) and has long been an important social problem. In response, the government has passed legislation that caps interest rates and limits borrowing to one third annual income.
A reverse home mortgage is a loan against housing equity. A resident does not have to repay the loan or move out of his home until he or she dies.
By contrast, in the U.S., the number of new reverse home mortgage contracts under the public Home Equity Conversion Mortgage system has reached 100,000 a year, up from below 10,000 in 2000 (FHA Outlook, 2010).
Some may argue that stronger bequest motives in Japan could prevent homeowners from applying for reverse home mortgages. However, empirical evidence suggests that bequest motives are weaker in Japan than in the U.S. (Horioka and others, 2001).
Cross-shareholdings are being unwound particularly by banks that aim to reduce market risks.
Under the revised Money Lending Act, credit information agencies (to which consumer finance companies report) have the obligation to share information on consumer credit with each other, but not to commercial banks.