The Strong Impact of Japan's Saving Rate on Domestic and Worldwide Economy

The economic saving rate of Japan is among the highest in the world. According to a recent study, “the rate in the 80s and the early 90s had been over 10% steadily and higher than any other developed country.” (Katayama 1). This high saving rate has immediate positive effects on Japan’s economy and to foreign economies as well. In this short paper, we will discuss and explore some of the advantages brought by Japan’s high saving rate.

As we are all familiar with, Japan is well known for being a self-sufficient country. It is a country that innovates its own useful products, and produces quality that is competitive with American made products. One great difference between the two is that Japan’s economy has a better inclination towards saving, while the American economy is more geared towards spending and making foreign investments. That is a major advantage for Japan as far as economic stability is concerned, because by being able to save well, they are able to sustain their position as a self-sufficient nation. That would mean, they don’t need to focus on making foreign investments to maintain and even increase their gross domestic product. In countries with relatively very high spending rates such as China and the United States, there is almost a desperate need to make foreign investments and export goods. Japan, meanwhile, is able to attract more foreign investors to their soil because of its high savings rate and economic self sufficiency.

Future economic stability of citizens is another positive domestic effect of Japan’s saving rate. According to Katayama, “the life-cycle theory, one of the representative consumption theory, shows that while a rational household may save some of the income in youth, they may spend their savings after their retirement.” (3). This means that majority of Japanese citizens are placing more focus on their future rather than the present. When the current workforce reaches old age and eventually retire, they have personal savings that will ensure a better quality of life even during old age. It is a very good domestic advantage for Japan because the future generation of retired workforce will be taken good care of, even when they reach the age when they leave their jobs and cannot contribute to the Japanese economy anymore.

Japan’s saving rate does not impact its own people only, but the entire Asia and the world as well. One of our research sources states:: “…since Japan is the world's second largest economy (and the largest in Asia), developments within its borders have implications not only for itself, but the rest of the world as well, particularly the rest of Asia and the United States, its largest trade partner. Indeed, the faltering Japanese economy is potentially a significant impediment to economic recovery in the rest of Asia” (Nolan, Robinson and Wang). Although much has been said about the slight weakening of Japan’s currency and savings rate during the past 10 years, the fact remains that Japan is still the world’s second largest economy. It is also considered as the world’s largest creditor. The country’s savings rate, although not as good as before, remains slightly higher than those of highly developed countries and emerging economies. Thus, Japan is still in a position to greatly influence global economic trends in positive ways, eventually quell the current economic crises and pull more resources in the future.