Occasional Paper

Saving Behavior and the

Asset Price "Bubble" in Japan

Analytical Studies

Edited by Ulrich Baumgartner and Guy Meredith

International Monetary Fund

Washington DC

April 1995

Does Japan Save Too Much?

Kenneth Miranda

Japan's high saving rate relative to those of other indus-
trial countries gives rise to the question of whether
Japan is saving "too much." This section utilizes the
conditions on optimal steady-state saving behavior de-
rived from neoclassical growth theory to examine
whether Japan saves too much (or too little)--thus as-
sessing the optimality of its national saving behavior.

The section is organized as follows: the first part pro-
vides a brief review of recent trends in Japanese saving
behavior and a comparison with other major industrial
countries; following an outline of three testable condi-
tions derived from neoclassical growth theory for as-
sessing the sufficiency of saving, the second part exam-
ines the empirical evidence for each of these approaches;
the last part draws some conclusions from the analysis.

How Much Does Japan Save?

Saving behavior is important because it helps to deter-
mine the evolution of future consumption opportunities.
As such, saving can be viewed as the portion of current
income that allow s a nation to raise its future consumption
opportunities--mat is. to raise its standard of living.

Japan's postwar saving behavior can be viewed in this
light Saving has enabled Japan to increase its stock of
assets rapidly (physical and financial as well as domestic
and international), increase worker productivity, achieve
rapid rates of economic growth, and raise its standard
of living.



Recent Trends in National Saving

Chart 2-1 shows Japan's national saving rate, both
gross and net of depreciation, for the period 1975-93.
Both of these measures indicate a negative trend through
the first pan of the 1980s, with levels in the early 1980s
that are about 2 percentage points of GNP lower than
those recorded at the beginmng-e^tfafeRelaodi'Since 1983,
however, mere has been a motferate increase in saving

Gross saving in Japan declined from about 33 percent
of GNP in 1975 to 30 percent in 1983, before recovering
beginning in the mid-1980s. Preliminary data for 1993
suggest that gross saving rebounded to 33 percent of
GNP. For net saving, the secular decline through 1983
is more marked (from 20 percent of GNP in 1976 to
16 percent of GNP by 1983) because of rapid rates of
depreciation charges over the period. Chart 2-1 also
shows disaggregated saving data. As can be seen. the
upturn in the saving rate in the latter half of the 1980s
was due primarily to an increase in general govern-
ment saving.

Table 2-1. Saving Rates of Major Industrial Countries
(In percent of GNP)

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

Average 

1984-93

Canada

21.1

20.1

19.0

20.2

20.6

20.1

17.4

15.8

15.0

15.3

18.5

France

18.8

18.7

19.8

19.3

20.8

21.6

21.3

20.6

19.7

18.2

19.9

Germany

21.7

22.0

23.8

23.4

24.2

25.6

24.3

22.0

21.9

20.7

22.9

Italy

21.1

20.4

20.1

19.7

19.9

19.7

19.4

18.3

17.5

18.2

19.4

Japan

30.8

31.6

31.9

32.1

33.2

33.5

33.7

34.4

34.1

33.2

32.8

United 

Kingdom

17.6

17.7

16.6

16.7

16.7

16.5

15.8

14.6

13.7

13.2

15.9

United 

States

16.7

15.1

13.4

13.6

14.3

14.1

12.9

12.3

11.6

12.6

13.7

Source: IMF, World Economic Outlook (Washington, various issues).

Japanese Saving in an International Context

Table 2-1 and Chart 2-2 show Japanese gross saving
in comparison with other major industrial countries for
the most recent ten-year period. As can be seen, there
are wide disparities in saving behavior across countries.
Japan is clearly the highest saver among the major indus-
trial countries, and by a large margin. The. other countries
are clustered in terms of their saving rates, with the
United States and the United Kingdom at the low end
of the spectrum.




How Much Should Japan Save?

The preceding indicates that Japan's saving rate is
high, both in absolute terms and relative to other coun-
tries. In saving, a country chooses to forgo current coo-
sumption in order to increase future consumption oppor-
tunities. Clearly, a balance must be struck between the
costs of forgoing consumption today and the benefits of
increased future consumption. Too little saving will be
suboptimal in that a low level of capital formation wiD
result in a low level of sustainable consumption. Too
much saving, however, can also be suboptimal because
present and future consumption opportunities are forgone
in favor of building and maintaining me stock of capital1.

Neoclassical growth theory provides at least three sepa-
rate, but interrelated- conditions by which to assess
whether an appropriate balance between consumption
and saving (investment) is struck—mat is, whether a
country is saving too much or too little2 These are (1)
the (modified) "golden-rule" criterion; (2) the dynamic ...

1 In such a circumstance, a society puts itself on a path toward capital
saturation or overaccumulation, thereby driving the marginal product
of capital toward zero

2 In a neoclassical growth model, the economy converges to a steady-
state balanced-growth path (with a constant capital-labor ratio, con-
stant net rate of return to capital, and a constanf rate of growth�. The
constant long-run rate of growth will equal the i exogenous i rate of
population growth plus the (exogenous; pace of icctmotopcal prog-
ress. Although the long-run rate of growth is DCX affected by the
economy's savine rate. die saving rate determines the steady-sute
capital-labor ratio as well as the level of consnnipoon per capita.
Thus. the "choice" of the saving rate has imponani implications far
steady-stale consumption opportunities. See Sotow (1956). Hahn and
Matthews (1964). Jones (1976). and Phelps (1961 and 1966) for an
overview of neoclassical growth models and golden rules. Also, see
Evans (1992) for a discussion of the neoclassical growth model and
the adequacy of saving in the United States.

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