by Noriyuki Morimoto
The Financial Services Agency (FSA) encourages the working population to build assets for an abundant life in retirement. This is natural since consumption is the driving force of economic growth, with the elderly accounting for a large proportion of such consumption, and the agency’s administrative objective is to achieve sustainable economic growth through the advancement of financial functions.
The objective of financial administration is to create a virtuous cycle in which sustained economic growth and stable asset formation by the people are mutually regulated; growth of the economy leads to an increase in asset values, which in turn stimulates consumption and leads to economic growth. In other words, the creation of a virtuous cycle is aimed for because, in reality, a vicious cycle is prevailing.
As life expectancy lengthens, people will need more resources in retirement, but without the increase of available assets on hand, the elderly will have no choice but to live frugally and cut back on their spending according to the amount of assets they have. In fact, since the assets of the elderly are concentrated in savings accounts with zero interest rates, there is no way that their assets will increase. There is no denying that this works towards reduced consumption and encouragement of penny-pinching.
On the other hand, efforts to increase assets come with the risk of having the opposite effect of eroding assets, which seems extremely challenging under the uncertainty of old age. This is likely a cause for the disproportionate amount of money going into savings accounts. So there is a vicious cycle here.
The FSA’s policy agenda is embodied in a variety of measures, a key policy of which is financial structural reform. It aims to replace the current flow of individual savings to banks and back to industry through loans, with a flow of individuals acquiring bonds and stocks issued by industry, either directly or through investment trusts. The savings concentrated among the elderly are both extremely important for this measure and a difficult issue to resolve.
Therefore, the FSA is putting off this difficult issue and focusing on asset formation for the working population. In other words, before breaking the vicious cycle of the current elderly, the priority is to prevent the future elderly, i.e., the current working population, from falling into the same vicious cycle.
[Category /Growth Strategy]
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.