We hate to pick on Goldman’s Naohiko Baba, but in a brief note out on the Japanese savings rate he makes a kind-of maddening comment.
See apparently, the government just revised down its estimates of the Japanese savings rate, as seen in this chart here.
Photo: Goldman Sachs
Japan’s household saving rate has attracted significant attention particularly from a perspective of domestic absorption ability of JGBs. If the saving rate drops to negative territory due to Japan’s demographic problem, dissaving will start and then Japanese domestic banks, most active JGB investor category since 2008, may become unable to hold more JGBs over the medium-term horizon.
The logic goes: Japanese households stop saving, demand for JGB evaporates, and then the government runs into sovereign debt trouble.
But the logic doesn’t go far enough, because a drop in household savings inherently equals a jump in spending, and a jump in spending means both a jump in taxes (less need to issue debt) and a jump in GDP (less need for the government to spend to counteract the economy). So yes, JGB demand theoretically drops, but then so does the need to issue JGB.