Monday, June 05, 2006

Japan revisited

The Japanese economy has certainly been a source of mixed signals since the BOJ decided to end the ultra-loose monetary policy and thus claimed to have ridden themself with the ugly beast of deflation. This subsequently prompted powerful opinion makers such as The Economist and the FT to hail Japan as an awoken tiger ready to take on the rest of the world.

For an overview of the flurry at the time see this post by Edward as well as these two from Alpha.Sources. More generally you should also go see this aggregated blog of all Edward's posts on the Japanese economy. As you can see by following the links above the members of this team were somewhat sceptical about this sudden change of fortune for Japan and recently it seems as if the declining population and the subsequent demographic outlook for Japan has gotten due attention from some of the initial optimists (Economist article walled for non-subscribers).

(From the Economist)

"Early this month came news that Japan’s fertility rate (the average number of children a Japanese woman bears in her lifetime) fell last year to a record low of 1.25. It was, said the prime minister, Junichiro Koizumi, “an extremely tough figure”. Demographers had hoped that the fertility rate would bottom out at over 1.3, compared with a population replacement rate of 2.1, seen last in the early 1970s. Last year, too, the population saw its first decline in peacetime since records were kept. The government predicts that the Japanese population of nearly 128m will fall to just over 100m by the middle of the century. Nothing less than national survival, the Yomiuri Shimbun newspaper despairs, is at stake.

Some blame the demise of the traditional omiai, or match-maker: in the mid-1960s love matches overtook the number of arranged marriages for the first time, but now women want to get married later or not at all. Politicians, hitherto shy of sounding like wartime propagandists, are now urging women to breed. The government’s trade ministry even promotes the computer-dating industry. One of the biggest firms, Zwei, whose brochures are full of soft-focus idylls of white weddings, says its research shows most single people under 45 do not remain unmarried by choice. Rather, busy professionals simply haven’t found the right partner. Zwei and others are happy to help.

It is anyone’s guess when the fertility rate will turn up. For now, though, what matters is not so much a falling population but a change in its mix. Since the second world war, average life expectancy has jumped by 30 years, to 82. After the war, just 5% of Japan’s population were over 65. Today, the proportion of elderly, at 20%, is the highest in the world. By 2015, one in four of all Japanese, or 30m, will be over 65. Less remarked is a coming sharp decline in the number of younger workers: over the next decade, for instance, the number of Japanese in their 20s will fall by 3m, to 13m. It means that by 2030, there will be only two workers for every retired person, and three workers for every two retirees by mid-century. The Labour ministry estimates the workforce is shrinking by 0.7% each year."

Troublesome reading indeed.


CapTVK said...

CV, from your own blog

``If the current birthrate, which is the lowest in the major developed countries, continues, there will be no Japanese,'' Jim Rogers, who co-founded the Quantum fund with George Soros in 1970, said in Tokyo last month. ``Who will pay the enormous debt?''"

Well, even with a TFR this low there will be Japanese around for quite a while. Till around the year 3300 in fact, so Jim Rogers´s funds are safe for the foreseeable future (excluding market risks of course) ;)

CV said...

"Till around the year 3300 in fact, so Jim Rogers´s funds are safe for the foreseeable future (excluding market risks of course) ;)"

Of course, and you are right to point that one out because it puts the whole question in perspective. I.e. of course Japanese people are not going to vanish from the face of the earth.

I am arguing narrowly in order to prove a point ... :)

Anonymous said...

Japan's TFR dropped below 2.1 in 1975.

However, note that China's dropped below the same level only 10-15 years later, and is following the same trajectory.

The effects are somewhat disguised for a while by the fact that China's dropped much faster from a much higher level -- around 6 as recently as the 1960's -- but that's temporary.

On trend, China will be down to South Korean/Japanese levels of fertility by the middle of the next decade, or possibly before. The urban areas are _already_ at that level, (TFR of 1 or fractionally below) and nearly half of all Chinese are now urban.

Edward Hugh said...

"Japan's TFR dropped below 2.1 in 1975."

Stirling, I agree with you completely on this. I think the fact that Japan went below replacement 30 years ago is very important. It is now very hard to see Japn's fertility recovering in any meaningful way. The UN median forecast of an ultimate 1.9 tfr (on which incidentally all the longer term economic forecasts are based) seems to have very little credibility when looked at in this light.

China will, as you suggest, in all probabilty follow this path, as may many of the newly developing countries.

Immigration is, of course, one unpredicatble variable here. Japan simply hasn't opened for immigration. Given China's size it is hard to see external immigration being an important factor there. Some brides from North Korea perhaps.

In Latin America Argentina and maybe Chile can benefit to some extrent from migration from less developed countries like Bolivia and Peru, but even this is over a very limited time horizon as these countries will themselves moved to below replacement fertility and possibly begin to develop economically, although in the short term political factors seem to be working against this.