Why Japan Still Uses Cash

[Updated July 2019]

Japan is often romanticised as a technologically savvy futuristic land, and the obvious breeding grounds for a robot revolution, so then why is this tech obsessed country still resisting the global migration towards cashlessness? Every travel blog on Japan reminds tourists to always have cash on hand but also assures there is always an ATM nearby; a reality that mystifies both tourists and foreign residents alike. Especially since Japan’s Asian neighbours are sprinting away from cash as fast as they possibly can. But the Bank of Japan and the government seem to teeter between accepting the status quo and understanding the inevitability that electronic money is the way of the future.

To be fair, alternatives to cash aren’t scarce in Japan. Credit card ownership per capita is on par with other “advanced economies” as outlined in a report by the International Statistical Institute in 2017. The number of credit cards issued per inhabitant is around 2.8, the same as Australia, the UK and the US, but China is leading the pack with an average of 4 cards per adult. In addition, prepaid cards like Suica, Pasmo, & Icoca are easily accessed and readily used for transportation or nominal purchases (e.g. at a convenience store), and online banking is commonly utilised for monthly payments like rent and utilities. However, if we look at the amount currency in circulation, Japan tops the charts with cash transactions accounting for nearly 20% of GDP and at the opposite end is Sweden with a mere 2%. Even looking at emerging economies like South Africa and Brazil, cash transactions account for less than 5% of GDP making Japan quite the anomaly.

There are no officially declared reasons for why Japan remains a heavily cash based economy, but what is clear is that both individuals and institutions are propping up a system that is mutually beneficial and there have been few meaningful incentives to disrupt the country’s addiction to cash...

But if we were to make a list, here are some of the main reasons.

Tansu-Yokin

The Japanese version of “saving money under your mattress,” but instead of a mattress it’s a dresser. The Dai-ich Life Research Institute estimates the amount of tansu-yokin was around 43 trillion yen (380 billion USD) in 2017. Decades of low or even negative interest rates, paired with risk averse attitudes to investment meant the safest place to keep one’s savings was in the home.In addition, jolts of economic insecurity during the oil crises in the 70s, the bursting of Japan’s economic bubble in the 90s and the financial crisis in 2007 is not lost on Japan’s ageing population. So despite conventional economic wisdom to diversify investments, there seems to be a sense of security in the tangibility of cold hard cash.

ATMs

ATMs are just as common as vending machines in Japan. As of late 2016 there were over 200,000 ATMs throughout the country as reported by Nikkei Asia Review; a direct result of customers demanding easy access to cash. And, the benefit for financial institutions comes in the form ATM fees as detailed by Toyo keizai earlier this year. For example, 99% of Seven Bank’s net profit of26.1 billion yen (232 million USD) was earned from ATM fees, and regional banks generate 13% of their revenue from ATM fees as well. Even though maintaining ATMs is an expensive affair, both institutions are the populous are seemingly willing to bare the costs for the sake of convenience.

Small Businesses

The clichéd saying, “small businesses are the backbone of the economy,” is in fact true in Japan. Family or individually run stores, restaurants, and other business are ubiquitous throughout the country. Often, these establishments can’t afford to or simply refuse to pay heavy credit card charges and thus operate in cash, and since the average person walks around with notes and coins in their wallet, not accepting credit cards doesn’t negatively affect business. In addition, it is commonly known that these small business often claim losses or minimal profit in order to minimise income taxes; these Shōwa Era practices can only be maintained if business is conducted in cash.

Safety

The three points above all require people to move around with and store wads of cash, and this can only be possible if the country is safe enough to do so, which it is. Because the number of pick pockets, break-ins, and overall theft is low, people don’t feel uncomfortable walking around with tens or even hundreds of thousands of yen (hundreds or thousands of dollars). Even if a wallet is lost, it is most often returned with all the cash still inside. The safety of the country cannot be overlooked as a key reason why Japan hasn’t felt the urgency to make daily transactions digital.

Natural Disasters

In the summer of 2018 alone, Japan experienced a myriad of natural disasters, from earthquakes, to heavy rains and typhoons both of which brought flooding to large residential and commercial areas. Each of the natural disasters came with power outages, some lasting for days. And no electricity means no electronic money. Japan’s residents are routinely advised to prepare emergency kits with essentials like food and bottled water, and one that cannot be overlooked is cash. Once again, we circle back to why there is a sense of security in having cash accessible at home. 

Fundamentally, the pervasiveness of cash has reinforced the convenience of using cash. Online retailers offer a COD (cash on delivery) service while airlines, phone companies, concert promoters and even the government issue payment slips with a barcode that can easily be paid at a local convenience store, in cash. Taxis and small retailers don’t scowl at the sight of breaking a 10,000 yen note, and payment machines on public transportation also make change. So for the average consumer it’s difficult to see the drawbacks of using cash when the system is explicitly designed to make the use of cash painless. What’s additionally important is that maintaining a level of anonymity is extremely valued in Japanese society and cash transactions allow for that.

As the rest of the world increasingly views cash as a nuisance, Japan has done away with many of the inconveniences of cash and has found a happy medium. Sure, maintaining a cash based economy is incredibly expensive and also inconvenient for tourists, so looking towards the 2020 Olympics Japan knows it needs to become more e-money friendly as the Economist pointed out in 2017. McDonalds reportedly started accepting Visa and MasterCard at the end of last year and Banks are trying to reduce maintenance fees for ATMs, but only time will tell if Japan’s consumer will feel comfortable enough to have their personal data linked to every yen they spend.