Analysis:Japanese savers have rediscovered interest rates and banks are feeling it

Japanese households are increasingly moving savings from bank deposits into government bonds as yields rise, giving the country a more stable source of funding for its public debt while putting pressure on banks’ deposit base. The shift follows the Bank of Japan’s declaration that it had achieved its 2 per cent inflation target after nearly 14 years, marking a break from the era of near-zero rates.

Retail bond sales reached 6 trillion yen between April and October, nearly twice the level a year earlier, with monthly sales topping 1 trillion yen for three consecutive months. Popular bonds yield more than 2 per cent, compared with around 0.5 per cent on one-year bank deposits; households hold about 1.13 quadrillion yen in cash and deposits, but less than 1 per cent of their financial assets in government bonds. Officials are considering new products and tax incentives to attract buyers, while some lawmakers warn that preferential treatment could widen inequality.