- The Washington Times - Thursday, September 1, 2005

KAMAKURA, Japan — At a forest shrine lined with incense-burning urns, Japanese pilgrims enter a small cave where they stoop to wash coins and bills in trickling spring water.

Cleanse your money here, the tradition goes, and it will multiply.

The ritual dates back perhaps 700 years, and it says something about the Japanese view of money: an attitude far different from that of many Americans. Cash — cold, hard currency — is a precious, treasured commodity here, something to be treated with reverence.

“I pay for everything in cash,” said Shu Nagaye, a 23-year-old student, as he meticulously scrubbed his paper money and coins — 11,720 yen, worth roughly $105 — all placed carefully in a woven basket.

“When I don’t have money, I control myself and don’t buy anything.”

Like most Japanese, Mr. Nagaye despises being in debt, and unlike most Americans, he avoids it at all costs.

He has used the single credit card he owns only for travel abroad, and took care of that charge in one payment. The only money he has ever borrowed was in small amounts — from friends — and he made sure to repay it quickly.

Such cautious, almost fearful attitudes toward debt are common in Japan, the world’s No. 2 economy. While Americans pile up mortgages and credit card debt, Japanese are reluctant to borrow at all, creating a problem of economic stagnation. While the United States sells U.S. Treasury bonds to cover its expenses, Japan, China and other nations buy them.

Hoarding is common

On a personal level, hoarding cash is so common among Japanese — from bills stuffed under mattresses to gold bars in safes — that there is a phrase to describe the practice: “tansu yokin,” meaning “savings in a chest of drawers.”

Import bag makers such as New York-based Coach Inc. design wallets and coin purses especially for Japanese, who often carry large wads of cash. American billfolds need more room for credit cards, less for paper money and coins.

The Japanese government has tried to encourage business borrowing to break a decade-long economic slowdown by keeping interest rates at virtually zero for four years. Although this policy prevents Japanese from earning much interest on their bank savings, relatively few buy stocks or mutual funds, whose value is liable to change.

U.S. debts far higher

The Bank of Japan says Japanese have $13 trillion in assets — 55 percent of it in cash and savings, and only 9 percent in stocks. Of Americans’ $36.5 trillion in assets, only 13 percent is in cash and savings, and 34 percent in stocks.

Another notable statistic: The United States has twice as many people as Japan, but 23 times as much credit card debt — more than $800 billion.

For decades, credit card companies have tried to woo Japanese, with little luck. A study by JCB International Co. Ltd. found only about 8 percent of transactions here involved credit cards, with the rest carried out in cash.

Data leaks in the United States that exposed millions of cardholders to identity theft, including thousands of Japanese, have only intensified the deep distrust of credit.

Credit cards shunned

A survey of credit card holders by Nihon Keizai Shimbun, Japan’s top business daily, showed 46 percent of respondents were seriously considering getting rid of their cards, reducing the number of cards they have or using cards less frequently because they don’t think the risks are worth it, especially when used mainly to get bonus miles and discounts.

“Japan has always been a cash-oriented society,” said JCB spokeswoman Wakaba Kamimura, adding that the company has been offering trips to Disneyland and easy ways to pay utility bills as enticements. “There’s this common idea that credit should be used only for very expensive purchases.”

Muneaki Fujii, 49, a schoolteacher with a 25-year loan on his home, is in a borrowing minority — only a third of Japanese households have mortgages. Even for Mr. Fujii, the loan is a rarity. “I don’t buy things that I can’t pay for in cash,” he said. Nearly all American homeowners, by contrast, take out mortgages — many for the tax breaks alone.

Bills paid by bank

Japanese also rarely use checks. They have their rent, utilities and other monthly bills automatically deducted from their bank accounts, and such transactions cost no fees.

Some have proposed cultural explanations for the two nations’ spending patterns. The “American dream” emphasizes entrepreneurship, while the Japanese equivalent stresses stability and lifelong employment with a single company.

Others point to government policies. American tax law provides substantial breaks for home-mortgage interest; Japanese policy does not, although there are some tax refunds for loans. Also, the Japanese government has focused its development efforts on big business, and major banks’ rules are written so small businesses and individuals have a hard time qualifying for loans.

Interest is high

To fill the need for borrowing by individuals, a legitimate loan-shark industry has sprung up, known as “sarakin” — short for “salaryman kinyu,” meaning “consumer financing.” It offers easier loans but at interest rates as high as 29 percent a year, driving some people into bankruptcy. Illegal lenders, which are rampant, charge more.

Most Japanese are conscientious about returning the money they borrow, complete with the hefty interest. Still, some people can’t pay, and “sarakin hell” has grown into a social problem. Some debtors get sucked into continuous borrowing, often turning to more sarakin to return sarakin debts.

Being a deadbeat is considered such a disgrace that suicide sometimes is chosen over bankruptcy. Economic hardship is the No. 2 reason behind suicides in this nation, which total more than 32,000 a year. A third of people who commit suicide kill themselves because of financial problems, police say. Illness is the No. 1 cause, at 39 percent.

Trade is a seesaw

The difference between Japanese and American spending habits is played out on the national level as well.

While American trade and budget deficits have ballooned, Japan has been struggling persistently with a trade surplus — worried about a political backlash for taking away American jobs.

Meanwhile, Tokyo has been snatching up U.S. Treasuries, financing America’s giant debt as Americans buy Japanese goods.

The reasons are historical. The United States has been Japan’s most important ally since the end of World War II, and Japan counts on U.S. military might, especially its nuclear weapon capabilities, to protect it against the threat of neighbors such as North Korea and China.

Yen-dollar balance

Until recent years, Japan’s central bank actively bought the dollar — intervening in the foreign exchange market to stem the U.S. currency’s fall. This was out of friendship toward Washington and from self-interest.

A weak dollar, or strong yen, generally hurts Japanese export giants such as Toyota Motor Corp. and Sony Corp. by making their products more expensive abroad and eroding the value of their overseas earnings.

Dumping U.S. Treasuries — totaling about $680 billion, or more than a third of the foreign holdings of Treasuries according to the U.S. Treasury Department — isn’t seen as a realistic option for Japan.

When Prime Minister Ryutaro Hashimoto noted in 1997 that Japan at one point had been “tempted” to sell some of its huge cache of U.S. government securities, the Dow Jones Industrial Average tumbled 192 points — its biggest point fall then since the 1987 crash.

Trust is declining

Ever since, Japanese politicians and scholars have been more guarded in their comments, even when wondering aloud about selling Treasuries. But these days, a vocal and influential minority has gradually begun to point to the dangers of investing so heavily in a currency whose future appears so precarious.

The dollar has lost about 7 percent of its value against the yen in the past three years, largely because of worries about U.S. trade and budget deficits.

“People are starting to speak up,” said Kazuyuki Hamada, a political analyst in Tokyo and an author of books on currencies. “The trust for the dollar is declining.”

Reflecting widespread opinion here, Mr. Hamada says the United States has grown overly dependent on foreign money because its manufacturing strength has eroded over the decades. Japan needs to protect itself by diversifying its investments in case the U.S. economy and dollar collapse, he argues.

China’s shift cited

China’s decision to scrap the dollar peg for its currency, the yuan, has renewed such concerns. China announced the yuan will trade against a basket of currencies that includes the yen and the euro.

But such worries are rarely on the minds of Japanese people on the street. Like many others, S.T. Takahashi, an auto worker who owns no credit card, is more worried about falling into personal debt.

“It’s scary,” he says. “I pay in cash.”

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