(Bloomberg) With their declining household-saving rate, Japanese consumers are no longer both financing government deficits and sustaining their nation’s current-account surpluses. How is the gap being filled?
The current-account balance can be expressed as the difference between gross national saving by consumers, business and government, and total gross investment by those sectors. In this context, gross refers to measures before the subtraction of capital consumption or depreciation. If the balance is positive, as in Japan, saving exceeds investment needs and the rest must be exported. If it is negative, as in the U.S., saving is insufficient to finance domestic investment and funds need to be imported.
In Japan, household gross saving in excess of gross capital spending is slipping as the saving rate falls. That trend is likely to continue as a result of the aging population and other forces, as discussed in yesterday’s column. The government persists with its deficit because its gross saving is negative and gross investment is positive. That leaves the corporate sector to make up for the shortfall.
Normally, the business sector is a net borrower as capital spending exceeds cash flow from depreciation and retained earnings. Yet Japanese business capital spending has been falling since the mid-1990s while export-driven cash flow has climbed. Since then, the business sector has been a saver on balance, and most of that increase in gross saving has come from capital-consumption allowances in the nonfinancial corporate sector. Businesses, then, have seamlessly replaced consumers in financing chronic government deficits and in sustaining current- account surpluses. .................(more)