Rising energy costs to weigh on Japan households

Significant changes can be seen in the direction of Japan's wealth transfers. They have shifted from "households to corporates" which generated sluggish domestic demand to "corporates to households" which leads to domestic demand expansion. 

The household savings rate hit bottom in Q4 08 at 1.1% and recovered to around 4.5% between 2011 and 2012. During this period, net domestic fund demand expanded fromaround 0% to -3.5% (the negative figure indicates leveraging, or expansion of demand while a positive figure means deleveraging, or demand is shrinking).

The reason why the recovery in consumption was weak is because households had to repair fundamentals first until their low savings rate rose sufficiently, before actually expanding consumption. It is not appropriate to limit the cause of low household savings rate to the ageing population. 

This does not explain why the household savings rate is rising despite the ageing population. The direction of wealth transfers is very important for this reason.

In other words, even if the population is ageing, as long as the direction of wealth transfers is maintained as "from corporates to households" with strong corporateprofit growth, household fundamentals should firm, says Societe Generale.