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Japan enters rehab for cash addiction
[HONG KONG] Japanese officials are checking their country into the cash addiction clinic. Ditching banknotes could generate a big one-off boost to economic activity, plus permanently upgrade productivity. But the government will have to give stronger encouragement to elderly consumers, polite bankers and reluctant merchants to change their ways.
The benefits of converting Japan's 112 trillion yen (S$1.40 trillion) worth of notes and coins into database entries are myriad. Citizens of the Land of the Rising Sun settle four out of five purchases with cash. In fact, the world's third-largest economy, otherwise a futuristic wunderkind, is probably the most backward advanced economy when it comes to electronic payment.
Such conservatism generates a lot of unnecessary costs: minting coins and printing notes, maintaining automatic teller machines, and paying employees for hours spent mindlessly counting and transporting bills. Cash is easier to hide and harder to track, an irritant for tax collectors and law enforcers. Theoretically it even impedes the stimulative effect of Japan's negative interest rates: currency hidden under the mattress is immune.
A study by Visa and Roubini ThoughtLab reckons an "achievable cashless scenario" could generate, over time, US$70 billion in economic impact in Tokyo and Osaka alone – equivalent to 3 per cent of urban GDP (gross domestic product). Relative gains in smaller metrotropolises could be even higher.
Prime Minister Shinzo Abe's administration wants to double the cashless transaction rate to 40 per cent by 2025. That would do a lot for a US$5 trillion economy that grew just 1.3 per cent in the second quarter. It would also support local fintech companies like SoftBank-backed Paypay and others like e-commerce outfit Mercari, ready to capitalise on the boom.
Countries with smaller populations and fewer banks have been able to leave paper behind quickly. Mr Abe must force some 35 million pensioners to adopt new technology, plus convince small merchants to adjust to processing fees, and persuade bankers to crank up ATM charges. His policy push has been too polite so far: An October hike to the consumption tax included rebates for cashless transactions, but that's not enough. Given the present economic slump, there's no time like the present to try harder.
Japan reported on Oct 24 that factory activity shrank at the fastest pace in over three years during the same month. Activity was hurt by slumping new orders and output.
Japan rolled out a twice-delayed increase in its sales tax to 10 per cent from 8 per cent on Oct. 1. The new policy offers rebates for cashless transactions conducted at smaller stores.