Japanese companies are reportedly hoarding more than ¥600 trillion in retained earnings, with restrained investment and management focused on savings since the 1990s cited as the background. The article explains the relationship between deflation and corporate behavior, alongside the argument that such criticism is misguided.
The shift by Japanese companies from investors to savers is cited as one factor behind the economic stagnation known as the “Lost 30 Years.” Retained earnings in the corporate sector are said to exceed ¥600 trillion and are discussed as a factor holding back economic growth.
From the 1990s onward, Japan’s corporate savings rate turned positive. After the bubble burst, companies increasingly prioritized debt repayment, while banks also tightened lending standards amid the financial crisis. As a result, capital investment was restrained, restructuring and cost-cutting advanced, and retained earnings accumulated.
A correlation is observed between the corporate savings rate and consumer prices. It is explained that continued excess savings intensify deflationary pressure, causing demand to shrink and prices to fall in a vicious cycle. The relationship between inflation and investment is organized using the distinction between demand-pull and cost-push inflation.
The government is said to have an important role in bringing the economy out of deflation, and the criticism that executives should be pushed too hard to demonstrate “animal spirits” is challenged. The argument is made that the government should provide a path toward long-term growth while companies make rational decisions under deflationary conditions.