According to the most recent report by the Bank of Japan, Japanese households decreased their total cash reserves at a historic rate in the previous quarter as they grappled with the increasing cost of living.

Cash holdings among citizens dropped to ¥105.3 trillion ($707 billion) in the last three months of December, marking a 3.4% decline from the previous year - the largest decrease recorded since data collection began in 1998, as published in a quarterly flow of funds report by the central bank on Friday.

This reduction is likely due to the growing popularity of cashless transactions and a surge in consumer spending caused by inflation, reversing the trend of cash accumulation during the Covid pandemic, as outlined by the BOJ during a briefing.

Economists have been monitoring households' response to this shift in behavior, particularly regarding hoarded cash reserves kept at home. With the economy seemingly moving out of deflation, money not invested or stored in a bank account risks losing value in real terms.

Data from the flow of funds report revealed a record increase in household investments in trusts as more individual investors turned to this asset. Additionally, holdings of Japanese government bonds experienced the most substantial growth since 2007.

Earlier on the same day, a government report indicated that Japan's inflation surpassed expectations, remaining well above the BOJ's 2% target. Consumer spending, not adjusted for inflation, reached a record high of ¥332.9 trillion in the last quarter.