Norbert Gehrke
Jun 1, 2018 · 4 min read

Japan is flush with cash, quite literally. As much as we like to think about “cash under the mattress” in the Western world, in Japan the equivalent term is “tansu yokin”, or “cash in the wardrobe”. Originally referring to money illegally obtained or kept secret to avoid taxes, after 20 years of zero interest policy and with a deposit insurance scheme with limits of 10 million yen, many Japanese do not see much point in keeping their money with financial institutions. It is estimated that around 50 percent of of the currency now in circulation is, in fact, not circulating at all. It’s sitting in people’s houses, where they think it’s safer.

Source: Rogoff, Harvard

Japan has by far the highest ratio of currency (not held in financial institutions) to GDP. The Northern European countries (Norway, Sweden, Denmark), which have in recent years become close to cashless economies, can be found at the opposite end of the scale.

Source: Euromonitor Passport, UBS

Japan has fallen behind the cashless wave that is sweeping the world. Compared to South Korea, where cashless payment rates were close to 70 percent in 2017, Japan’s rate was less than 20 percent. China, as so often, requires a differentiated view. Along the coast and in the tier 1 cities, near cashless economies can be observed; the wide interior is dragging this down to only about 35% cashless payments at the national level, but the trend is obvious.

In April, the Japanese government has accelerated its target for raising the cashless payment rate to 40 percent by two years from 2027 to 2025. The view that the 2020 Tokyo Olympics and Paralympics will bring many foreign visitors with a strong need to use cashless services, is a typical representation of the view held by the bureaucracy that “Japan is different”, and the accommodation needs to be made for “gaijin” (foreigners) only. It is a Trojan horse, though.

Source: Central Council for Financial Services Information, “Public Opinion Survey on Household Financial Assets and Liabilities”

A government survey has shown that the use of credit cards is typically reserved for larger purchases. Even in Tokyo, one will find many establishments, including well-known retail chains, that will not accept credit cards. By contrast, many smaller purchases are conducted with electronic money, the most popular form of which are the prepaid commuter tickets, e.g. Suica, that are also widely accepted at convenience stores. While there are a number of FinTech disruptors appearing in the payments space, the local players, e.g. Kyash, tend to rely on the Visa and MasterCard network to affect payments, hence will face the same challenges as credit cards at the point-of-sale. AliPay and WeChat Pay are moving aggressively into Japan, and while their current presence only targets Chinese tourists, both are expected to become “native” with Japanese accounts during the second half of 2018.

Source: Ministry of Internal Affairs and Communications, “Survey of Household Economy”

Lastly, there are significant differences between the Tokyo metropolitan area, or the larger Kanto region, and the rest of Japan. As the chart above shows, similar to China, the key metropolitan are is leading the way in terms of cashless adoption, largely driven by prepaid commuter passes. Rural Japan is a completely different story, however.

The fascinating aspect of retail adoption in Japan is that very often, it follows an S-curve, or “hockey stick” distribution, with a very low penetration rate for a long time, until there is a sudden shift in sentiment and the majority jumps onto the bandwagon very quickly. If and when this happens for cashless payments, the government target of 40 percent by 2025 might well be a gross underestimate.



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Tokyo FinTech

一般社団法人 (General Incorporated Association) Tokyo FinTech is registered as a non-profit organization in Japan, promoting the domestic ecosystem through innovation

Norbert Gehrke

Written by

Passionate about strategy & innovation in Japan. Connector of people & ideas.

Tokyo FinTech

一般社団法人 (General Incorporated Association) Tokyo FinTech is registered as a non-profit organization in Japan, promoting the domestic ecosystem through innovation

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