Japan’s measures for encouraging the spread of cashless payments will likely need more funding beyond the end of March and could be extended as part of a planned government stimulus package.
The International Monetary Fund recommended Monday that Japan consider lengthening the time frame of its measures to support consumption after an October sales tax increase to support the economy, citing the cashless-payment reward program among the measures.
The program is aimed at supporting consumption in the wake of the tax hike and increasing efficiency at small- and medium-sized retailers. It provides subsidies for installing cashless-payment equipment and 5% rebates for consumers making cashless purchases at registered businesses through the end of June.
Japanese consumers still lag far behind their international counterparts in using cashless methods such as mobile phone-based payment platforms, credit cards or e-money.
Under the program, daily rebates to consumers from Oct. 1 through Nov. 4, averaged 1.2 billion yen, according to the economy ministry. The government has budgeted 280 billion yen for the year ending in March for the rebates and installing cashless-payment equipment at businesses.
If the pace of daily outlays continues, the portion of the budget initially allocated for rebates would run out in February, according to a Bloomberg calculation. The ministry could draw on funds not used for equipment subsidies to make up a shortfall should one arise.
The ministry is still monitoring the situation and no decision has been made about how to deal with a possible shortage of funding, according to Yoshiko Tsuwaki, the economy ministry’s official in charge of the program. Seasonal factors may influence the pace of consumption and rebates, she added.
More money could be provided for the cashless measures and their duration could be extended in the stimulus package ordered by Prime Minister Shinzo Abe earlier this month. The package is aimed at supporting the economy as it recovers from typhoon damage and deals with the impact of the sales tax and a global slowdown.
Cash is still king in Japan partly because the nation’s low crime rate makes it safe to carry and use bank notes. Promoting cashless transactions is one way for the country to boost productivity and deal with its chronic labor shortage as its population grays and declines.
The government’s cashless incentives are part of a wider set of measures aimed at smoothing out consumer demand before and after the sales tax increase. A previous hike in 2014 triggered a 7.3% contraction of the economy as spending dived after the increase.
“The cashless initiative is having an impact,” said Takashi Miwa, chief economist at Nomura Securities Co. “It spread widely among small and medium-size stores during the final period before the tax hike. They are also showing greater interest since the program started in October. This is likely to limit the drop in consumption.”
The IMF also said the measures were helping lower the economic impact of the tax this time round.
Under the program about 770,000 small and medium-sized companies have installed cashless payment terminals using the government subsidies, according to a Nov. 21 tally by the economy ministry. That represents 39% of about 2 million businesses eligible under the program. The tally is expected to grow to about 860,000 by Dec. 1, the ministry said.
There are also signs that consumers are losing their reluctance to use cashless payment methods. Nearly 49% of multiple-member households are now making cashless payments, according to a Bloomberg calculation based on data from the Central Council for Financial Services Information at the Bank of Japan.
Still, the proportion of spending covered by cashless transactions is much lower. The government wants cashless transactions to cover 40% of consumption by 2025, compared with 21% in 2017.
— Yoshiaki Nohara and Emi Urabe (Bloomberg)