Bankruptcies and suicides rise as Japanese struggle with mounting debt
The problem with consumer lending
Dear readers, Tokyo Calling was supposed to be on vacation until next year, but I found an interesting - though worrying - news from Bloomberg (via The Japan Times), so here it is.
“Personal debt is overwhelming an increasing number of Japanese as higher interest rates and the rising cost of living bite.
“Consumer loans are rising at the highest rate in 16 years. Household borrowing exceeded incomes for the first time last year. And government officials are worried that many people accustomed to rock-bottom rates will struggle with their mounting loans.”
Although Japan's debt situation is by no means unique, the country has the lowest salaries among the Group of Seven, and its central bank is increasing borrowing costs while its peers are lowering them.
Attorneys predict that this year will see the biggest number of personal bankruptcies since 2012, which is already the most since the epidemic. Tragically, suicides linked to debt are also on the rise.
“The problem,” the article says, “is all the more remarkable given that the country is better known for savers stashing cash under the mattress rather than piling into debt.
“Yet average household debt rose to ¥6.55 million ($42,000) in 2023, higher than incomes, government data showed.
“Take the case of a Tokyo-based medical worker who filed for personal bankruptcy last year after her consumer loans reached about ¥11 million. The woman in her early 60s said she fell into a spiral of paying back debt, borrowing money from one lender in order to return money to a previous one, and then taking out another loan to pay that back. She asked not to be identified given the social stigma of bankruptcy.”
The Financial Services Agency (FSA) reports that the interest rates on the majority of outstanding consumer loans range from 14% to 16%. According to the woman, she was paying up to 18% on some of her loans.
As the fourth-largest economy in the world recovers from decades of deflation and economic stagnation, the rise in consumer debt highlights Japan's delicate balancing act. In some instances, people are borrowing as inflation raises prices, even as they are becoming more optimistic about the future and securing loans for home purchases and other expenses.
The ratio of household debt over average disposable income in Japan hit a record 122% in 2022, according to the latest comparative figures compiled by the Organiation for Economic Co-operation and Development. That’s in contrast to the U.S. and the U.K., where it’s fallen over the past decade.
Huge wage gap
In some of the biggest economies in the world, people are taking out more loans, but the problem is more severe in Japan because of the country's low wages. According to OECD data, average salaries in Japan in 2023 were roughly $47,000, far less than the $80,000 average in the United States.
"There are still companies where wages remain low, and these companies are unable to keep up with rising prices,” said Takuya Hoshino, chief economist at Dai-ichi Life Research Institute.
According to a government data, over 70,000 persons declared individual bankruptcy in 2023. According to court data from January to October, the number could increase to between 75,000 and 80,000 this year, according to Shigeki Kimoto, an attorney at Tokyo's Shinwa Law Office.
In its October biannual financial system report, the BOJ also noted the rise in household debt, stating that young people who own more homes are subject to higher interest payments.
“Debt problems from multiple borrowings,” the Bloomberg article continues, “have been blamed as a major factor causing more people to take their own lives, with such suicides jumping to 792 in 2023. The last time the figure was this high was in 2012, in the aftermath of a government crackdown on consumer lending that led to the shuttering of thousands of moneylenders and choked off credit.
“Consumer lending has grown by 8% or more every month through September this year, according to year-on-year data from an industry group. That’s the highest since it started compiling the statistics in 2008.
“Yoshimasa Morikawa, a spokesman at SMBC Consumer Finance, one of four big Japanese lenders in the sector, said that post-COVID consumption has boosted borrowing. It’s seeing rising demand from people in their 20s due to ads on social media such as TikTok, he said.”
Gen Z borrowers
For some, Japan's enormous household savings, which as of the end of September totaled over ¥1.1 quadrillion, might act as a buffer against growing debt. However, compared to older households, younger ones have far less saved.
The nation expanded the pool of possible borrowers by reducing the age of adulthood from 2022 to 18 years old. In 2023, the average debt of households headed by people under 29 nearly tripled to ¥9.92 million compared to a decade earlier.
FSA officials have cautioned that young individuals without steady salaries are at risk of falling into years-long debt, particularly if they take on debt without careful preparation.
According to the Bloomberg article, “Poor financial literacy adds to the problem. The country’s citizens had lower scores to common questions about money than people in the U.S. and major European nations, such as the definitions of inflation and diversified investment, according to a 2022 survey from a Bank of Japan-backed industry group.
"Some people are probably getting loans to cover the part of their living expenses that their wages can’t cover,” adding to the pressure of mortgage payments, said Nana Otsuki, a senior fellow at Pictet Asset Management Japan. As the economy improves, borrowers may be hoping rising incomes will allow them to pay back debt, she said.”
I’ve always considered consumer lending companies not much better than organized crime. Acom, Aiful, Takefuji, Sumitomo Mitsui Banking Corporation (Mobit). Remember those names. And be afraid.
"There are three kinds of people: the haves, the have-nots, and the have-not-paid-for-what-they-haves (accredited to Earl Wilson)." A sad state of affairs...
"Poor financial literacy adds to the problem." We live in an unequal world. Better financial literacy would certainly alleviate things. But if the workers aren't getting paid enough, it's always going to be a struggle.