What can we learn from Japanese households?

One of our inescapable truths is that risk-free interest rates in the next ten years will be higher than the exceptionally low levels of today, but are still likely to be relatively low by the standards of pre-global financial crisis levels.

Given that we see interest rates remaining low even after monetary policy normalisation, we ask whether low returns
on cash could result in households taking on more risk to seek higher returns. The importance of this shift in household portfolio allocation is threefold. Firstly, this provides insight into future retail investment trends and specifically the future demand for risky and conservative investment vehicles. Secondly, the willingness of households to take on more risk is significant for the real economy as a key channel for the monetary policy transmission mechanism. Thirdly, this aids the understanding of retail investor flows, which can play a part in driving market prices.