Hunkered Down

Japan is a nation of savers who

TOKYO – Finance has been a lifelong passion for Kogoro Hasegawa, 52. As a young man, he considered working for a brokerage before taking a job with Japan’s public broadcaster, NHK.

In the 1980s, Hasegawa did well in Japan’s stock market, earning three or four times his initial investment before cashing out. What’s the value of Hasegawa’s stock portfolio now? Zero. Ditto for bonds. Does he dabble in on-line trading? No thanks.

Instead, his nest egg of roughly $260,000 is in life insurance policies with a savings feature and time deposits. “The way things are now, I don’t intend to invest,” Hasegawa says. “Japanese hate big risks. We’re not too adventurous.”

Hasegawa isn’t the only one hunkering down. Japan is a nation famous for saving, but much of the money is socked away in banks – even though ultra-low interest rates mean deposits earn next to nothing, and the banking industry is a mess.

Japan’s workers save about 10 percent of their disposable income. Households have 14 quadrillion yen, or about $10 trillion, in assets. Nearly 54 percent is in bank and postal savings accounts, while 29 percent is in insurance and pension policies. About 7 percent is invested directly in stocks, 4 percent in bonds, and a mere 2 percent in Japan’s version of mutual funds. Over 50 percent of Americans’ assets are in stocks, mutual funds and bonds.

Regular Japanese savings accounts, meanwhile, offer an average return of 0.02 percent. Open one today and you’d double your money in about 3600 years. So why do savers favor banks? Fear, mostly. Japan’s stock market crashed over a decade ago but still hasn’t recovered, the once-envied economy is in tatters, jobs are disappearing and even big Japanese companies are going bankrupt.

But banks look increasingly risky, especially weaker ones, because of mounting bad debts. As the economy worsens, loans are souring faster than banks can clean them up. The government says it’s ready to pump public money into banks to prevent a crisis.

Still, anxiety is rising over plans to end full protection for deposits on April 1. Barring last-minute changes, the government will guarantee up to 10 million yen per depositor per bank. That’s more worrisome for businesses and other large depositors than for average savers; even so, the central bank says people are shifting money from smaller banks to larger ones and to regular savings accounts from less-liquid time deposits. Some savers say moving to the government-run postal savings system looks like the best bet.

Such adjustments seem pointless, considering the bigger picture. With a rapidly aging population, Japan’s public pension and health insurance systems are under threat. For a financially secure retirement, working-age Japanese need to maximize the returns on their investments. But diversifying brings potentially nasty shocks. “Because interest rates are so low, I moved some money into stocks, but the market really tumbled,” says businessman Hiroshi Niijima. “The banks are bad and so are stocks. What can you do?”

As the yen weakens, foreign currency-denominated accounts look more attractive. They offer better interest and are widely available. “Those may be okay if you know what you’re doing,” Niijima says. “But for ordinary people, there’s too much risk.”

Even supposedly safe investments have blown up. A handful of Japanese-style money market funds that had Enron Corp.’s bonds in their portfolios suffered losses when the energy giant collapsed.

Amid all of this, brokerages, private bankers, investment managers and advisers are trying to convince the public to venture beyond the local bank. But the market is tough, and Morgan Stanley, Merrill Lynch and others are closing or shrinking operations.

“There’s a lot of comforting, a lot of explaining about products, a lot of hand holding,” says Alison Pockett, president of Magellan Tresidder Tuohy, a personal investment planning company that specializes in overseas investments and has over $100 million under advice.

Pockett says it can take three months to sign up the typical Japanese prospect. Just 10 percent of Magellan’s clients are Japanese, but Pockett sees potential for growth.

As she says: “At the moment, there isn’t anything in Japan, unless people are willing to take a risk on venture-capital projects that can really make them money.”

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