Demand for One-Yen Coins Dampened by e-Money, Tax Hike

September 17, 2018

Tokyo- The number of one-yen coins in circulation has fallen sharply in Japan, as consumers increasingly choose cashless payments with electronic money or credit cards.

The government has stopped minting new coins for circulation, while deteriorating units are being withdrawn.

With the consumption tax rate slated to be raised from 8 pct to the round figure of 10 pct in October 2019, the one-yen coin is bound to lose more favor with consumers.

According to the Bank of Japan, the number of one-yen coins in circulation stood at 37.8 billion in 2017, down 8 pct from the peak level of 41 billion in 2002.

By contrast, the amount of financial settlements by e-money exceeded 5 trillion yen in 2016, about 7 times the level of 2008, when the BOJ started its survey.

The one-yen coin, the minimum-denomination currency in Japan, came into the spotlight when the consumption tax was introduced at a rate of 3 pct in 1989.

The Ministry of Finance minted more than two billion one-yen coins annually, about double the amount in 1988, for three straight years from 1989, in anticipation of growing demand for use in change. The number in circulation rose above 35 billion in 1991, compared with 24.6 billion in 1985.

Demand slumped, however, after the consumption tax rate was raised to 5 pct in 1997. In 2011 to 2013, the ministry stopped issuing new coins for circulation, limiting production to some 500,000 to 700,000 units intended for collectors.

The ministry restarted minting the coins when the tax rate was lifted to 8 pct in 2014, but the lack of growth in demand due to the spread of e-money transactions prompted it to stop issuance again in 2016.

At the time of the consumption tax hike to 10 pct, the tax rate is expected to be kept at 8 pct for some products, including food items. Still, demand for one-yen coins for payments and change is likely to diminish, given the experience after the tax increase to 5 pct.

Minting a one-yen coin is said to cost about 3 yen. "The more coins you make, the bigger the loss becomes," Yukinobu Kitamura, professor at the Hitotsubashi University Institute of Economic Research, said.

The government has set a goal of boosting the share of cashless payments in all settlements from 18 pct in 2015 to 40 pct in 2025, mainly to reduce transportation and storage costs linked to cash transactions, in another blow for the one-yen coin.

According to one proverb, someone who makes fun of one yen will eventually cry over one yen. The saying may fall out of use along with the coin. Jiji Press