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.
While Japan is by no means alone in confronting a debt problem, salaries are the lowest of Group-of-Seven countries, and the central bank is raising borrowing costs while its peers cut them.
Lawyers estimate that personal bankruptcies — already the highest since the pandemic — are on track to reach the most since 2012 this year. And in a tragic turn, suicides related to debt are also climbing.
The problem 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.
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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.
Most consumer loans outstanding have an interest rate of 14%-16%, according to Japan’s Financial Services Agency. The woman said she was paying as much as 18% on some of her borrowings.
The surge in consumer debt underscores Japan’s delicate balancing act as the world’s fourth-largest economy emerges from decades of deflation and economic stagnation. While people are getting more confident about the future and receiving loans for house purchases and other spending, in some cases they’re borrowing as inflation drives up prices.
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 Organisation for Economic Co-operation and Development. That’s in contrast to the US and the UK where it’s fallen over the past decade.
Huge Wage Gap
People are borrowing more in some of the world’s largest economies, but Japan’s relatively low salaries make the issue particularly acute. Average wages in Japan were about $47,000 in 2023, vastly behind around $80,000 in the US, according to OECD data in dollar terms.
“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 Inc.
More than 70,000 people had filed for individual bankruptcy in 2023, according to a government report. Shigeki Kimoto, an attorney at Shinwa Law Office in Tokyo, said that January-October court data indicates the figure may rise to between 75,000 and 80,000 this year.
The BOJ also flagged rising household debt in its bi-annual financial system report in October, saying that increasing home ownership among young people exposes them to bigger interest payments.
Debt problems from multiple borrowings 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.
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Yoshimasa Morikawa, a spokesman at SMBC Consumer Finance Co., 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
Japan’s vast pool of household savings — which amounted to more than ¥1,100 trillion as of the end of September — may provide a cushion against rising debt for some people. But younger households have far less saved than older ones.
The country lowered the age of adulthood to 18 from 20 in 2022, increasing the pool of potential borrowers. The average amount of debt at households led by individuals up to 29 years old almost tripled to ¥9.92 million in 2023 from a decade earlier.
Officials from the FSA have warned that young people without stable incomes are vulnerable and can fall into arrears for years, especially if they take on debt without planning.
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Poor financial literacy adds to the problem. The country’s citizens had lower scores to common questions about money than people in the US 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 Ltd. As the economy improves, borrowers may be hoping rising incomes will allow them to pay back debt, she said.
