Global Economy

Rising Personal Debt in Japan: Bankruptcy and Suicide increased in Japan


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Personal debt is becoming an overwhelming issue for many people in Japan as rising interest rates and the increasing cost of living take their toll. Consumer loans are climbing at the fastest rate in 16 years, and household borrowing exceeded incomes for the first time last year. This trend is raising concerns among government officials, who fear that many individuals, accustomed to low-interest rates, may struggle with their mounting debts.

While Japan is not the only country facing a debt problem, its situation is particularly alarming. The country has the lowest salaries among the Group of Seven (G7) nations, and the central bank is raising borrowing costs while other countries are cutting theirs. As a result, personal bankruptcies are on the rise, with lawyers estimating that the number of bankruptcies this year could reach the highest level since 2012. Tragically, suicides linked to debt are also increasing.

This situation is surprising given Japan’s reputation for being a nation of savers, with many people traditionally keeping their money in savings accounts or under their mattresses. However, recent government data shows that the average household debt in Japan rose to ¥6.55 million (around $42,000) in 2023, surpassing the average household income.

One case that highlights the severity of the problem involves a Tokyo-based medical worker in her early 60s, who filed for personal bankruptcy last year after accumulating about ¥11 million in consumer loans. She explained that she had fallen into a cycle of borrowing money from one lender to pay off another, and this spiral of debt eventually led to her bankruptcy. Most of her loans carried interest rates of 14%-16%, with some loans reaching as high as 18%.

The increase in consumer debt is a reflection of Japan’s delicate economic situation. The country is emerging from decades of deflation and economic stagnation, and while there is growing confidence in the economy, inflation is pushing up prices. As a result, many people are taking out loans for house purchases and other expenses. In 2022, the ratio of household debt to disposable income hit a record 122%, according to the Organisation for Economic Co-operation and Development (OECD). This is in stark contrast to the United States and the United Kingdom, where the ratio has decreased over the past decade.

The debt problem is especially pressing in Japan due to its relatively low wages. In 2023, the average wage in Japan was about $47,000, far behind the $80,000 average in the United States. Takuya Hoshino, chief economist at Dai-ichi Life Research Institute, explained that many companies in Japan still offer low wages, which makes it difficult for workers to keep up with rising prices.

In 2023, over 70,000 people filed for individual bankruptcy, and experts predict that the number could rise to between 75,000 and 80,000 this year. The Bank of Japan (BOJ) also raised concerns about rising household debt in its financial system report, noting that more young people are taking on mortgages, which will lead to higher interest payments in the future.

Debt-related suicides are also on the rise. In 2023, there were 792 suicides linked to debt, the highest number since 2012, when a government crackdown on consumer lending led to the closure of many moneylenders and a severe credit squeeze. The rise in consumer lending, which has increased by 8% or more every month through September 2023, is also contributing to the growing debt problem.

Yoshimasa Morikawa, a spokesperson for SMBC Consumer Finance Co., one of Japan’s largest lenders, said that post-COVID consumption has driven an increase in borrowing, particularly among people in their 20s. Social media platforms like TikTok are also influencing younger generations to take out loans.

Japan’s vast pool of household savings, which totaled over ¥1,100 trillion at the end of September 2023, may provide some cushion against rising debt for older households. However, younger households have significantly less savings. In 2022, the country lowered the legal age of adulthood from 20 to 18, expanding the pool of potential borrowers. As a result, the average debt of households led by individuals under 29 nearly tripled to ¥9.92 million in 2023 compared to a decade earlier.

Financial experts have warned that young people without stable incomes are particularly vulnerable to falling into long-term debt. Poor financial literacy is also a contributing factor. A 2022 survey by a Bank of Japan-backed industry group found that Japanese citizens scored lower on basic financial knowledge than people in the United States and major European nations.

As the economy improves, many borrowers are hoping that rising incomes will help them pay off their debt. However, experts like Nana Otsuki, a senior fellow at Pictet Asset Management Japan, warn that many people are borrowing money to cover their living expenses, which adds to the pressure of mortgage payments. The combination of low wages, rising costs, and increasing debt is creating a difficult financial situation for many people in Japan.

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