Why Japanese pile cash like crazy

Overview

Japan is known worldwide for its strong preference for cash and a relative distrust of banks. More than half of Japanese households' financial assets are held in the form of cash or deposits—a significantly higher proportion than in the United States or the Eurozone. This phenomenon cannot be fully explained by low interest rates or an aging population alone; it has deep historical and cultural roots. This report examines the historical events that have led to Japanese people's distrust in banks, outlines the psychological evolution of financial attitudes, and analyzes the development of Japan’s unique culture of cash preference.

Postwar Turmoil (1940s–1950s): Currency Reform and Deposit Freezes

Following World War II, Japan's economy suffered from hyperinflation and severe material shortages. In 1946, the government implemented emergency financial measures, including a major currency reform. All bank deposits were frozen, and the old yen was forcibly exchanged for new yen. Citizens were allowed to withdraw only small amounts of their deposits, with the remainder effectively locked away.

Simultaneously, the government imposed a one-time property tax targeting individual assets, with tax rates ranging from 25% to 90%. As a result, many people's savings were drastically reduced or lost in value. This left a traumatic impression that money entrusted to the government or banks could vanish overnight.

High-Growth Period (1950s–1970s): Economic Stability and Financial System Strengthening

During Japan’s postwar economic boom, the financial environment stabilized. In 1971, the government introduced the Deposit Insurance Act and established the Deposit Insurance Corporation to protect depositors. Nevertheless, due to past experiences, many citizens continued to prefer holding cash. People trusted government-operated postal savings more than private banks. The culture of deposit-based saving formed during this era laid the groundwork for the later preference for cash.

Bubble Economy and Collapse (1980s–early 1990s): Asset Bubbles and Deposit Insecurity

Japan experienced a massive asset bubble in the 1980s, with soaring real estate and stock prices. When the bubble burst in the early 1990s, asset values plummeted and banks were saddled with non-performing loans. In 1997, the failure of Hokkaido Takushoku Bank shattered the long-standing belief that banks could never fail.

This event deeply shocked the public, who began to see bank deposits as unsafe. Even though the government promised full protection for deposits, people increasingly preferred to keep their money in cash, driven by anxiety over the stability of financial institutions.

21st Century: Zero Interest Rates, Negative Rates, and Continued Cash Preference

Since the 2000s, the Bank of Japan has maintained a policy of near-zero interest rates, eventually introducing negative interest rates in 2016. As a result, deposit interest essentially disappeared, and people feared losing money just by keeping it in the bank. Cash in circulation surged, and sales of personal safes spiked. Many citizens concluded it was better to keep cash at home.

Japan’s aging population also contributed to this trend, with many elderly individuals preferring traditional cash over digital payments. Concerns about digital security and government oversight of assets further fueled this preference.

Financial Distrust and Cultural Characteristics

These historical experiences have profoundly shaped Japanese financial behavior and culture. People developed a deep-seated distrust of banks and the government, leading to practices like “closet savings” or hiding cash under the tatami floor. This culture of concealment reinforced risk aversion and a preference for stable assets.

Japan also maintains a strong cash-based society. Despite its technological advancement, Japan sees low adoption of digital payments. This is partly due to public concern about financial privacy and a general mistrust of financial institutions.

Summary

The Japanese public's distrust of banks is the result of historical events and cultural evolution. Beginning with the postwar deposit freeze, followed by the burst of the economic bubble, the 1990s financial crisis, and recent negative interest rate policies, the distrust has only deepened. Although the Japanese government promotes investment over savings, the cultural inclination toward holding cash is unlikely to change quickly. Financial distrust in Japan is a legacy of history and remains a persistent force today.