Japan's households, firms keep piling up cash at record pace as pandemic persists

FILE PHOTO: Women walk past a restaurant at a shopping district in Tokyo, amid the coronavirus disease (COVID-19) outbreak, Japan August 17, 2020. REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) - Japan’s currency in circulation and bank deposits rose at a record pace in December, data showed on Wednesday, as a resurgence in coronavirus infections prompted companies and households to continue hoarding cash rather than spending it.

The numbers highlight the challenge the government faces in trying to contain the virus without threatening Japan’s already fragile economic recovery.

Prime Minister Yoshihide Suga is expected to announce an extension of state of emergency measures beyond Tokyo as early as Wednesday as COVID-19 infections keep rising.

Japan’s M3 money stock - or currency in circulation and deposits at financial institutions - rose 7.63% in December from a year earlier, marking the biggest increase on record, Bank of Japan data showed. The rise slightly exceeded a 7.59% gain in November.

Companies continue to pile up deposits as a precaution against the pandemic, while households are holding off on spending due to uncertainty over the outlook, a BOJ official said at a briefing.

Japan’s economy has been recovering moderately, after suffering its biggest postwar slump in April-June last year due to curbs imposed on economic activity to contain the virus.

Reporting by Leika Kihara; Editing by Kenneth Maxwell