Forget Europe and the US, start worrying about Japan

November 19, 2012, 5:47 pm Michael Pascoe Yahoo!7

It has long amazed me how little notice we take of Japan’s simply unsustainable budget, dysfunctional politics and appalling demographics.

If you think Greece has debt problems, you should try Japan. Worried about Washington’s fiscal cliff? Check out Tokyo’s. Think American politics are bad? You won’t believe Japan’s.

And our second-biggest trading partner is showing signs that it will take a dangerous turn to the right at the elections that have been called for December 16.

It has long amazed me how little notice we take of Japan’s simply unsustainable budget, dysfunctional politics and appalling demographics while whipping up a frenzy about European debt and the American Tea Party. I suspect it is further proof of how little notice we take of our most important neighbours despite the rhetoric of the Asian century.

The election might well focus a little more attention on the steadily-building disaster.

Japan’s public debt is running at 230 per cent to its gross domestic product, a figure that makes Greece look almost thrifty. According to Bloomberg, Japan’s debt works out at about $93,000 for every man, woman and child while the same figure for the US and Greece is about $33,000. Tokyo budgets to borrow more than it raises in taxes.

About a quarter of Japan’s population is already aged 65-plus and the country has a negative birth rate. With a xenophobic culture, there is virtually no migration, meaning the country is about to start shrinking quiet dramatically. There will be some 25 per cent fewer Japanese by 2050 than there are today – about 30 million fewer people, depending on which estimates you want to use. The dependency ratio – the proportion of working-age people to the those not of working age – has already crashed to just 2.4, which makes raising taxes to pay for an aging nation all the harder.

And now a change of government next month might well make things worse. The present Prime Minister, Yoshihiko Noda, of the Democratic Party, at least managed to increase Japan’s consumption tax this year in an effort to start to rein in the deficit nightmare, but he’s expected to lose power to the Liberal Democratic Party with its recycled and unimpressive leader, Shinzo Abe. Abe says he wants the Bank of Japan to further crank up the printing presses, among other things.

And the LDP is seen as taking a turn further to the right at a time relations with China are already strained.

Can it get worse? Yes – two nationalistic minority parties are merging to form what could become a powerful ginger group. You can glean something of the flavour of the two by their names – the Tokyo-based Sunrise Party and Osaka’s Japan Restoration Party. The merged entity will be known by the latter name, led by Osaka’s popular major, Toru Hashimoto, along with the former Tokyo governor, Shintaro Ishihara.

It has long been a mystery to me how a country that can produce so many world-class companies and is populated by such polite and law-abiding people somehow has such appalling inept, compromised and corrupt major political parties.

The big danger is that one day, the trusting Japanese population of aging savers will suddenly realise how unsustainable Japan’s public finances are and make a rush for the exit. It’s called capital flight.

Why anyone would want to hold Japanese bonds yields yielding almost nothing is beyond me. Throw in the inevitability of the Japanese bond bubble at some stage popping and it’s no wonder why the Japanese appetite for Australian bonds grows apace.

Japan is a delightful place to visit, but I wouldn’t want my money to stay there.

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6 Comments

  1. S01:44pm Wednesday 28th November 2012 ESTReport Abuse

    Well one must move away from the "growth for growth's sake" mentality. A shrinking GDP is not so bad if GDP per capita works out to be okay- let's face it the consumption needs of a retiree probably isn't as much as that of the young unless severe health issues are involved. However it may still be some time away before the population reduction catches up and improve the dependency ratio. On the otherhand the dysfunctional politics was well known for decades which certainly undermines competence in managing problems. The nationalistic sentiment/ border disputes can be merely a diversion - much like Hideyoshi centuries earlier who invaded Korea as a means to manage unemployed samurai class from wrecking havoc within Japan. Unfortunately none of this is likely to be in the interest of the common people, particularly in its debt laden current state.

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  2. Eurozone06:31pm Wednesday 21st November 2012 ESTReport Abuse

    The Chinese and Indians are also very Xenophobic

    Reply
  3. Kevin03:40pm Wednesday 21st November 2012 ESTReport Abuse

    I worked for a Japanese company at a senior level and I must say we are all being fooled if we think their corporate culture is honourable, respectful or even functional. If their corporate culture reflects their social and political culture, and by the looks of it, it does. Then we can expect the worst

    Reply
  4. Nick -Pspot-Cburn11:14am Wednesday 21st November 2012 ESTReport Abuse

    good 1 len

    Reply
  5. steven and michael10:27am Wednesday 21st November 2012 ESTReport Abuse

    Sorry but Japan is excellent at technology, but very good at ignoring the fact that its job for life, work for the company til your die and sacrifice for work career ethos borne from the nationalistic issues after WWII is bearing infertile fruit 50 years later. Its generational. Japan ignores the fact that it doesn't have an immigration policy or even a population boost-from-within program and IS, in the definition of the word, Xenophobic. Japanese politics is more about the old boy network than flushing in new 21st century thinkers. Abe would be a disaster, AGAIN. However, if the Emperor was to have more children and encourage the "children are good for our nation "idea, population growth=demand=stimulus=growth=debt reduction. I used to work on the Japan desk so I know.

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  6. honky11:58am Tuesday 20th November 2012 ESTReport Abuse

    xenophobic culture? according to who? the japanese are know for being one of the more polite, helpful and accomodating people on earth. sounds like this pascoe dude is the xenophobic one. he's got a face like pauline hanson's.

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