Placing Japan on Deathwatch

When we began our post, Placing Spain on Deathwatch, less than 6 weeks ago, we had no idea we would get so much material for it. We read candidate articles daily but select only the more informative to keep the workload down. We like these ‘tracking’ style posts for a number of reasons:

  • It is easier to accumulate information for an article as the story unfolds than to have to search for it at a later date.
  • If the topic is proposed early enough, the post grows to become a comprehensive source of background information.
  • Diverse items can be collected together and the post becomes an easy first source for responding to any questions or inquiries on the topic.
  • Our preference for a point-form executive style summary of information is in contrast to verbose articles that in the end, we end up creating a point-form summary of anyway.

In some respects, Japan has been comatose for a couple of decades. In the past it was a society of high personal investment. Now, Japan has the worst demographics of all nations, in part because they have virtually no immigration. Consequently, with a rapidly aging and retiring workforce, the propensity to save has been transformed into a propensity to spend in old age.

Japan may continue along its path for years or it may blow up next week. However, we think its time to place it on a deathwatch.

Keeping a Running Tab on the Situation

This section will be updated with selected news and articles on the topic as we find them.

  • 20131228: The problem with all forecasting is that we often get the substance right but rarely get the timing right. We have stopped actively following Japan because on every dimension, it is a ‘dead man walking’. We thought it might blow up in 2014. Since then, it’s economic distortions have increased and the world environment in all dimensions, is more extreme. Still. it refuses to die. We would say 2015 has to be the year but who knows? In the meantime consider Zero Hedge: Game Over Japan: Real Wages Crash Most In 21st Century, Savings Rate Turns Negative.
  • 20130607: Zero Hedge reports: Japanese Birth Rate Plunges To Record Low As Death-Rate Hits Record High. The issue never examined is the fundamental driver behind economic policy that growth is necessary. Could Japan’s population decrease to a more sustainable level? The transition will be ugly.
  • 20130314: Consider this article from Zero Hedge: Japanese Welfare Recipients Hit All-Time High. As the article notes, the number of people receiving welfare benefits nationwide hit an all-time high for the eighth consecutive month in December.
  • 20121027: While we are not following Japan closely, we do believe it is set up for a Richter 9 economic event. The problem is it could happen this year or in 5 years. It has not been a rewarding bet to date. That being said Zero Hedge gives us an excellent update of their predicament: Meanwhile In Japan…
  • 20121023: Zero Hedge presents an extensive analysis of Japanese debt in the article A Mushroom Cloudy Future: In 2016 Japan, Net Debt Per Capita Will Be $140,000.
  • 20121010: Stratfor reports Sovereign Debt Crisis Possible – International Monetary Fund. Japan could suffer a sovereign debt crisis similar to the one affecting the eurozone, according to the International Monetary Fund’s most recent Global Financial Stability Report.
  • 20120912: A report from the Washington Post, Japan plans for nuclear phaseout by 2030s, adds further concern about Japan’s future since nuclear power is integral to their economy. This comes as their balance of trade is shifting and their economic prominence is being challenged.
  • 20120823: Japan has been destructing very slowly but we feel things may be speeding up. From Reuters we find that Japan has their own fiscal cliff paralleling that of the US. See: Politics pushes Japan towards fiscal cliff as money runs out.
  • 20120820: From Stratfor we read: Japan: Biggest Trade Deficit Logged For Month Of July. Anything that worsens japan’s economic situation threatens its economic stability. This is not the first trade deficit Japan has posted in the last year
  • 20120820: Zero Hedge posted an article that shows how Japan’s fiscal situation is extremely precarious on the 3D dimensions, debt, deficit and demographics: When Japan Goes Japanese: Presenting The Terminal Keynesian Endgame In 14 Charts.
  • 20120807: We add this excellent post from Zero Hedge: Japan’s Demographic Death Rattle In 3 Charts And 333 Words.
  • 20120805: In Things That Make You Go Hmmm…: 20120729, Grant Williams documents the conditions in Japan that will lead to either depression or hyperinflation or both in perhaps 5-10 years.
  • 20120716: Courtesy of Zero Hedge (IMF Says Japan And Spain Are Done, “Debt Ratio Will Never Stabilize”) and the IMF (Nurturing Credibility While Managing Risks to Growth): the debt/GDP ratios of Spain and Italy will not peak (stabilize), or in layman’s terms, they’re screwed.
  • 20120523: Mike Shedlock writing today in Japanese Debt Downgraded by Fitch; No Urgency for Japan (Until Sudden Panic Hits) has similar observations to ours plus more commentary.
  • 20120522: Ambrose Evans-Pritchard reports: Japan’s fiscal death is a warning to the West.
    • Fitch Ratings has downgraded Japan two notches to A+.
    •  Japan’s debt has jumped by 61 percentage points of GDP since 2008, compared to eight points for the AAA bloc. Public debt is expected to reach 239pc of GDP this year, uncharted levels for a major economy in peace-time. `Net debt’ – subtracting Japan’s vast holdings of foreign bonds – is nearer 137pc but this is rising at an even steeper trajectory.
    • Gross financing needs are 59pc of GDP in 2012, compared to 14.8pc in the UK and 8.9pc in Germany.
    • Japan is at the extreme end of the spectrum for debt and unsustainable budget practices. It has been building this position for decades and shows no signs of slowing. When it comes apart the end could come quickly and catastrophically.
  • 20120427: Japan is on a multi-decade march towards the cliff. The BoJ just moved Japan another step in that direction: as MarketWatch reports: Bank of Japan to raise asset buys 5 trillion yen. Japan is a mjor global contributor to asset monetization to devalue their currency. We have not done a study yet of the direction this is heading. Our intuition suported by an army of bloggers and writers says this will not end well.
  • 20120420: Zero Hedge reports: The War For The BOJ’s Balance Sheet Gets Real. There is political pressure to stimulate the economy which the BoJ is resiting. At 30% of GDP it is 50% greater than the Fed’s. Which means … all those years of modest monetization have done absolutely nothing to stem the deflationary tide. Japan is a very slow suicide. This may speeed things up a bit.
  • 20120405: Zero Hedge reports: Is The Japanese Party Ending?. The comment that motivated creating this post is a collapse in bonds which has its own very nasty endgame (where, as a jarring reminder, if bond yields rise to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen).

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