The Future of Cash in Japan

A paper titled ‘Cash Demand and Demographic Changes in Japan’ by Hiroshi Fujiki of Chuo University, published recently by the Hitotsubashi Institute for Advanced Study, considers the impact of Japan’s rapidly ageing population and the increase of digital payments.

Currently cash usage and holdings are being sustained to some extent by the behaviour of older people who prefer cash. The paper found that the rate of decrease in cash demand will be faster than the population decrease of 0.7% based on the assumption that future older individuals will hoard less cash than current older individuals, and future younger individuals will use less cash for day-to-day payments due to the spread of cashless payments.

While the results suggested that cash on hand (COH) will decline by 1.5%–2.4% annually, and cash at home (CAH) by about 1% annually, the impact of the preference of older people for cash is perhaps overstated given that the modelling found that a 1% rise in deposit rates would cause a 20% decrease in CAH demand, a much stronger effect than demographic ageing.