Paper money wears out quickly and new bank notes must be printed just to replace damaged ones. So it is with interest we note that Japan’s Ministry of Finance (MoF) plans to increase the number of ¥10,000 notes by 17% for the 2015/16 financial year. In contrast the number of ¥5,000 notes to be issued in the same period will fall by 28% while ¥1,000 notes newly issued will fall by 6%. In the five years to June 2015 Japan’s printing of ¥10,000 notes had been constant but the implementation of a negative interest rate regime has seen Japanese households start to hoard cash rather than pay banks to hold their money.
Central banks in Europe are debating the continued existence of high denomination notes and are suggesting that they only help those in cash businesses and criminals. Countries which have the euro as their currency have discovered negative interest rates tend to promote cash hoarding and the largest denominations became the most popular ways of storing cash. The central banks want citizens to spend money not hoard it and so are concerned that the large denomination notes allow citizens to store cash easily – in effect thwarting some of the aims of their quantitative easing programmes.
The actions of the MoF in Japan suggest it has taken the increasing cash holdings by Japan’s citizens as just a fact of life, at least for now. Dai-ichi Life Insurance’s chief economist, Hideo Kumano estimated the total amount of cash kept at home has risen by 14% in the past year alone. He said it is likely to be the result of people’s desire to keep their wealth unknown to Japanese authorities after a new tax and social security identification system was introduced but he also thinks the Bank of Japan’s (BoJ) negative interest rate policy is a factor.
Recent BoJ data indicates currency in circulation rose 6.7% over the year to February, the highest rate in 13 years and perhaps evidence of Japan’s increased reliance on physical cash. At the end of February, the number of ¥10,000, ¥5,000 and ¥1,000 notes in circulation increased 6.9%, 0.2% and 1.9% respectively.
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