Ultra-low interest rates and a love of cash have seen the amount of banknotes and coins circulating in Japan surge over the past two decades, creating big opportunities for the security companies that transport money.
With a typical Japanese savings account offering 0.001 percent interest and no change on the horizon with monetary policy, demand for cash will stay strong and the businesses that specialize in handling it for banks and retailers are eyeing their next market for expansion: the countryside.
As regional banks battle with demographic decline and evaporating lending margins, cost-cutting efforts are likely to mean more outsourcing contracts for logistics companies like Nippon Express Co., Sohgo Security Services Co. and Secom Co.’s Asahi Security, along with more sales for Glory Ltd., a maker of cash-counting machines.
A remarkable feature of Japan’s economy is that while nominal gross domestic product has barely increased over the past 20 years, and the population has begun to decline, banknotes and coins have more than doubled, to 106 trillion yen ($970 billion) at the end of April. This is equivalent of almost 20 percent of GDP, way above the levels seen in the U.S. and the Euro area.
Credit and debit cards and e-money account for just 17 percent of the nation’s private consumption, versus 85 percent in South Korea, 56 percent in Singapore and 35 percent in India, according to a 2015 report by the Japan Consumer Credit Association.
Japan will probably move toward being a cashless society one day, but the amount of notes being used isn’t likely to fall much in the next 10 years or so, according to Tadashi Tachiyashiki, who manages the security transport branch office of Nippon Express in Fukuoka, on the southern island of Kyushu. “Cash will continue to be around, and there is considerable amount of ‘mattress money’ in people’s homes.”
While the city of Fukuoka is thriving, many surrounding areas, such as Saga, are struggling. Regional lender Saga Kyoei Bank Ltd. said it’s already using a local logistics firm for basic cash transport and management of its ATMs, and that there could be room to bring in contractors to reduce costs for other activities.
“Outsourcing from regional banks will probably come up a lot in the next couple of years,” said Toshimasa Murata, president of Asahi Security in Tokyo. “There are a lot of regional banks that still don’t know about these outsourcing services.”
It’s a rich vein that Asahi and others have already tapped with Japan’s big national banks, who’ve been ahead of many smaller lenders in rationalizing these operations.
Shares of Asahi’s parent company, Secom, have jumped 79 percent since Haruhiko Kuroda became Bank of Japan governor in April 2013 and launched a massive monetary stimulus program. The broader Topix stock index rose 60 percent over the same period.
Secom shares are projected to rise 5 percent over the next 12 months, according to the consensus target from analyst recommendations compiled by Bloomberg. Nippon Express, which has advanced 63 percent since April 2013, could fall about 11 percent, the estimates show. Glory may gain 15 percent, according to the projections.
Analsyts expect Sohgo, which has surged fourfold since April 2013, to increase about 2 percent over the next 12 months.
“Unless the economy shrinks considerably, the outlook for these businesses is looking stable,” said Kyoichiro Shigemura, a senior analyst at Nomura Securities Co. in Tokyo. He has buy ratings on Secom and Sohgo.
And there’s also Japan’s famously low crime rates, which makes the business less dangerous than in other countries. The robbery rate in the U.S. is more than 40 times higher than Japan, according to data from the United Nations Office on Drugs and Crime. It’s about 75 times higher in France and more than 20 times higher in Germany.