Japan’s two big problems

Tsuno o tamete ushi o korosu. The remedy is often worse than the disease. Regardless of the language, the idea is that Japan’s actions in recent history appear to have created a situation worse than the deflationary spiral and stagnant economic growth they were intended to fix. 

Two major problems are at play. Firstly, Japan has the world’s most rapidly aging population due partly to a low birth rate and to a cultural rejection of any bulk immigration that would assist in the repopulation of the country.  The attached chart courtesy of The Asahi Shimbun illustrates Japan’s increasing death rate and decreasing birth rate trends. It is predicted that in 45 years, Japan’s now 130 million strong population will be as small as 90 million and a whopping 40% of those are anticipated to be over 65. Projecting this out to 95 years and the population is set to sit at only 45 million with an even greater percentage falling within the over 65 bracket. 

This issue is not insignificant because of the second major problem which is Japan’s steadfast adherence to the collective Keynesian policies that comprise Abenomics.  Devaluing the currency and attempting to inflate the economy to prosperity has seen Japan claim the dubious title of the most indebted nation in the world at more than 225% of GDP. There is now much experimental evidence that largely disproves Keynesianism and its adoption by a country with the population trends described above throws fuel on the fire.

Consider the destiny of a shrinking population burdened with ever increasing debt and comprised of growing numbers of retirees who don’t purchase the consumer items required to support economic growth. Japan’s grand currency printing is an attempt to forfeit the yen as we know it in a desperate attempt to produce growth.

The people of Japan are not oblivious to the peril facing their currency. As an example, already a year ago Tanaka Kikinzoku Jewellery reported monthly gold sale spikes of more than 500% as people sought to protect their wealth. A chain is only as strong as its weakest link and one important lesson from the GFC is that economies don’t fail in isolation.