Opinion

No Interest!

By SCOTT T. HARDS

The recent plunge in Japanese stock prices has got the media once again predicting that Japan is headed for economic disaster, but I'm not so pessimistic.

The Japanese economy has already weathered far worse, and there are a number of positive signs in the current economic data too. But you wouldn't know it if you're one of Japan's many senior citizens who is trying to live off the interest on their savings.

A short-term time deposit at a Japanese bank today pays just 0.25 percent annually. That means if you invest¥1 million, you get no more than ¥2,500 in interest per year. Put another way, if you withdraw cash from your bank account after business hours or at a different bank just twice a month, then the fees on the withdrawals will equal the bank's annual interest payments to you!

At rates like these, I have no interest in investing my money in a bank savings account. But in Japan, what alternatives are there? Securities companies' so-called MMF products are not paying much better. And even government securities offer barely 2 percent ― but to get rates like that you have to be ready to commit your money for two to three years at least. So what's my advice for investing your savings now? Don't! That's right.

With interest rates this low, you are often better off spending your money than saving it. Remember, the "return" on your money doesn't have to be measured in terms of an interest rate. If you go out and buy that new personal computer, car, dress or whatever it is you've always wanted, the return you'll get in personal enjoyment will probably far outweigh the value of the measly interest the bank would have paid you if you'd left your money there. And you'll help stimulate the sluggish economy in the process. But why stop there...?

Now is also a very good time to go out and borrow money. That's right: shakkin. Japanese people hate that word, but what's bad news for investors is great news for borrowers. Of course I'm not suggesting that people in financial difficulty should get funds from some illicit "sarakin" credit agency or anything; but if you want to buy a car, finance a vacation or get a new home, it may be years before you again see interest rates as low as this! Some housing loans and small business loans are currently being made at rates as low as 3-4 percent.

So if you've got something you've always wanted to buy, an idea for a new business, or you just want to take a long vacation, now is the time for a trip down to your local bank to see what they can do for you. You'll probably find them more than happy to loan you whatever you need or want. See, I told you the economy wasn't so bad!

Shukan ST: Feb. 14, 1997

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