Starting on Friday 28 June 2019 Japan will for the first time host a two-day G20 leaders’ summit in Osaka. As per the government’s website: “Concurrent with the Summit meeting, the Finance Ministers and Central Bank Governors’ Meeting, the Foreign Ministers’ Meeting, and other ministerial meetings will also be held at eight different locations throughout Japan.” Rather more surprising, the text also states: “‘The G20 Summit is a perfect opportunity for people from all over the world to see and experience not only a newly revitalized and transforming Japan – which is thanks to booming corporate profits and a wave of inbound investment as a result of bold regulatory reforms and other stimulus measures.”
I fear that the reality is different, with endless stimulus measures fighting against the prevailing wind. So much so that Westerners sometimes look to the Land of the Rising Sun as an example of what not to do.
The Nikkei 225 index started a serious rally in 1974 at 3,500 – eight years before US and European bourses got bullish – to peak at almost 40,000 in January 1990, again 10 years before the FTSE 100 first peaked at the 7,000 area.
Throughout these decades, Japanese interest rates were persistently lower than those in all other countries, helping slow yen appreciation, keeping a 2 per cent lid on inflation (and wages) and helping an economy that had slowed significantly post-bubble. The Bank of Japan, like Mario Draghi’s ‘whatever it takes’, shovelled money into the system so that, as at the end of 2018, it owns 45 per cent of all its government’s bonds and more shares than you’d care to count, so that it’s the first G7 central bank whose balance sheet is bigger than GDP.
The above has created zombie companies, and especially banks, on perpetual life-support. These have in turn meant that unemployment is and has been far lower than that in G20 cohorts (currently 2.4 per cent where it was in the late 1950s). Now, after six years in the top job, prime minister Shinzo Abe’s three ‘arrows’ to revive things have missed their mark, one among many Liberal Democratic Party leaders to fail.
The undertow to the ebbs and flows is demographics. Japanese women aren’t keen on having babies, producing just 1.43 each. Instead, a record 68.5 per cent are working, one of Abe’s few successes; this compares to the UK’s new record 72.1 per cent and 57.1 per cent in the US. Because immigration rates are low, it means that the total population has dropped from almost 128m to 123.6m today. Those aged between 15 and 64 (internationally recognised as working age) have suffered a sharper drop from 82m to 75m – testament to the ageing population. This creates big fiscal issues with dwindling government receipts and higher social and care costs.
Related to this are property prices, with even Tokyo condominium sales flatlining most of the time since 1987, brief spikes in the mid-1990s and again for a few years from 2010; villages and small cities have turned into ghost towns. The same goes for department store sales, displaying zero growth for almost 30 years – again, bar brief flurries of activity.
All the above is coming to a country near you. Can you spot the storm clouds?
