Government subsidies designed to encourage cashless payments in Japan are being taken up much more quickly than predicted, and last week the country was urged to extend the scheme.
Under the initiative, consumers earn shopping points worth up to 5% of a purchase’s value for using non-cash payment methods – including credit cards – at registered small and medium-sized businesses. The government has also started providing subsidies to stores to install cashless payment equipment.
The International Monetary Fund (IMF) recommended last week that the country – which in contrast to many neighbouring East Asian states, remains relatively reliant on cash – consider extending the initiative, which is running for an initial nine months to the end of June 2020.
The IMF says that extending the point-reward programme would help to “cushion the impact” of a two percentage point sales tax increase that raised the retail levy rate from 8% to 10% in October.
Under the reward-points digital money initiative, daily rebates to consumers from 1 October to 4 November averaged ¥1.2bn (US$11m), according to Japan’s Ministry of Economy, Trade and Industry. Bloomberg reported that the government has budgeted ¥280bn (US$2.6bn) to the end of March, covering both the rebates and subsidies for businesses installing cashless-payment equipment. However, if the pace of daily outlays continues, the funding will run out before that time.
The ministry is monitoring the situation and a decision has yet to be made about how to deal with a potential shortfall, Yoshiko Tsuwaki, the economy ministry’s official in charge of the programme, told Bloomberg.
Takashi Miwa, chief economist at Nomura Securities Co, told the news agency that the cashless initiative is having an impact. “It spread widely among small and medium-size stores during the final period before the tax hike,” he said. “This is likely to limit the drop in consumption.”
Aim to double cashless payments by 2025
Japan’s government faces challenges including reluctance among its ageing population to use digital money – a reality that is out of kilter with its international reputation as a tech-savvy nation. Unlike other Asian countries such as South Korea, take-up of mobile phone-based payment platforms and digital-money services in Japan remains relatively low. Just last month a Reuters report described the Japanese as “the world’s most dedicated cash hoarders”.
The government wants to double cashless transactions to account for 40% of consumption by 2025.
Reuters described how organisations have recently been prompted to step up promotion of their e-payment solutions and that QR code payment app PayPay – owned by SoftBank and Yahoo Japan – saw memberships jump from five million to 15 million since August, “thanks in part to the government’s campaign”.
Similarly, East Japan Railway Company has seen e-payment members increase by more than one million since September. “Customers benefit from the convenience of electronic payment, while we receive fees and reduce costs by going ticketless,” Tomoyuki Soyama, deputy general manager tasked with IT business development at East Japan Railway, told Reuters. “It’s a win-win situation.”
Other media have reported similarly positive consumer reaction to the government push.
Export-reliant Japan is coping with the global slowdown and local factors such as rebuilding after October’s Typhoon Hagibis – the worst storm to hit the country in decades. As a result, prime minister Shinzo Abe announced an economic stimulus package, the country’s first since 2016, in November.
Last week’s IMF report, meanwhile, says that Japan’s macroeconomic challenges will “intensify due to demographic headwinds”. Official projections anticipate that the country’s population of 127 million will shrink by more than 25% in the next 40 years.