Japan's savers won't play ball as BOJ turns negative

By Minami Funakoshi and Taiga Uranaka

TOKYO (Reuters) - The Bank of Japan (BOJ) hopes that cutting interest rates below zero will boost spending and investment, but fear, inertia and years of paltry returns mean the nation's army of savers is unlikely to march to the central bank's tune.

After the BOJ made its move on Friday to charge banks for holding their reserves from Feb. 16, some retail banks are already cutting their deposit rates, and the rest are expected to follow suit.

Bank of Yokohama Ltd (8332.T), one of Japan's biggest regional lenders, cut its one-year rate to 0.02 percent from 0.025 percent, and Resona Bank, a unit of fourth-largest lender Resona Holdings (8308.T), halved its rate to 0.025 percent on five-year deposits.

Central bank governor Haruhiko Kuroda aims to break the deflationary mindset that has blighted Japan for decades and get the economy moving, but his compatriots are compulsive savers. More than half of the $14 trillion in Japanese households' financial assets are either bank deposits or cash, compared with only 13.7 percent for the United States and 34.4 percent for the euro zone.

Ryoji Yoshizawa, director at Standard & Poor's Ratings Japan, doesn't think the cuts will change that.

"Interest rates are already very low, so further cuts are not likely to have much impact on depositors."

Tokyo pensioner Kozo Nishimura remembers getting 8 percent on his savings at Kyowa Bank, which later became Resona, 320 times what the bank pays now on five-year deposits, but he has long since become used to getting scornfully low returns.

"A change of 0.01 points is such a microscopic thing," said Nishimura, 70, who used to own an electronics shop. “For now, I’ll just wait and see.”

Noriko Ainoya, 71, who runs a shop selling handbags in Sugamo, a Tokyo shopping district popular with the older generation, is equally dismissive of the "dimes and pennies" she gets on her savings.

But the alternatives are too risky.

"I'm scared to keep money under the mattress," she said. "But I don't know about investing, either, since there's no knowing how stocks will move.”

Ultimately, Japanese investors value security, said a sales official at a major brokerage firm.

"Even if interest rates on time deposits fall from 0.02 percent to 0.01 percent, depositors are not losing money. Many people are likely to keep deposits even if interest rates go down to zero."

Banks are unlikely, however, to follow Kuroda into negative territory. It would be too unpopular to charge savers, especially the elderly, for holding their money, finance professionals say.

"There have been attempts in the past by banks to introduce charges on deposits, but they failed due to the backlash from retail and corporate clients," said Yoshinobu Yamada, banking analyst at Deutsche Securities in a note to clients.

Some are already at or near the tipping point.

"There's no point in depositing money," said Kiyoshi Ishii, 72, the worried owner of a shop selling rice crackers in Sugamo. "There's no other way than to keep money under the mattress," he said.

That could be music to the ears of companies making something a little more secure than the mattress.

"At this point, the outlook for future sales is unclear," said Akira Kondo, who works at Eiko Kogyo Co, the top maker of safes in Japan. But "there is a chance the sale of safes would rise following TV reports", he added.

(Additional reporting by Emi Emoto and Junko Fujita; Editing by Will Waterman)