How Japan Is Literally Dying

It may be the start of a New Year, the start 2015, but that doesn't seem to usher new life into the Land of The Setting Sun. Just after Christmas in 2014, we penned down the sheer demise of the Japanese economy as prices slipped yet further, but we revealed the real stunner to be real wage growth, or in Japan's case, real wage shrinkage. Readers should know by now how we feel about Japan, and how utterly deep the country has been digging into quicksand. It is on one hand a little sad to see a once great imperial nation slip into the shadows, but it is sheer comical to see its central planners (Abe, Kuroda et al) engage in fancy polices which are but a nostrum.

We thought the string of surprises would end there for 2014, but it didn't. Those cheeky Japanese had to pull one last hare out of its hat, and on New Year's Eve of all times. That was technically no surprise to us because it was to be expected. It just proves the title of this piece, that Japan is literally dying, day by day. Not an economic death, but a mortal death.

Highest Number Of Deaths; Lowest Number Of Births

Japan's Health Ministry reported on New Year's Eve that the country saw 1.001mn births and 1.27mn deaths in 2014. Births were 9,000 lower than in 2013. Even taken by themselves, these 2 statistics are significant in highlighting a key nail in Japan's coffin: its population is shrinking. If a country experiences a shrinking population, not because of migration or a plague, but because of a demographic trend, it is indeed very safe to say that the country is in decline.

When we look at data, we never look at a single set. So when taken into proper context as the following chart highlights, we realize that at 1.001mn, 2014 had the lowest births of any year so far; and at 1.27mn deaths, Japan had the higher number of deaths on record. This means the birth-death gap is not only negative, but by the largest negative in history. The trend in both directions shows no sign of turning, so continue to expect the expected going forward.

As seen from this chart courtesy of ZeroHedge, the so called demographic "death cross" in Japan happen at the end of 2005. Even with advancements in healthcare and increasing life expectancies, more Japanese are dying as each year passes, simple because of its population skew towards older aged people

As seen from this chart courtesy of ZeroHedge, the so called demographic "death cross" in Japan happen at the end of 2005. Even with advancements in healthcare and increasing life expectancies, more Japanese are dying as each year passes, simple because of its population skew towards older aged people

There are no shortage of extrapolations, all of which paint almost the same picture of a greying population without the ability of a productive demographic to reproduce at the current replacement level. As aging baby boomers slip into retirement and eventually pass on, the onus of a shrinking population and an economy with little competitiveness to the table should be enough to make one shrivel in cowardice, even when being some 35 years ahead of those predictions.

The current Administration of Shinzo Abe inevitably takes this age old problem into account when campaigning and winning over the population's popularity. Japanese politics is quite literally a game over which party spins the nicest and fairest tale on the fate of Japan's demography. But whatever jawboning politicians may utter from the start of 2015, the hard and cold facts don't change.

Home prices although in a 25-year bear market, have failed to stimulate child bearing by younger families. Tokyo remains one of the world's most densely populated cities. We feel it first hand being in Singapore, which is also extremely densely populated. Home affordability has always been an issue for young families in these cities. However, effects are more pronounced for Japan because of its fragile economy, always teetering on the edge of recession (4 recessions in the last 5 years and currently in one).

Lower child bearing rates are a secular trend amongst the developed nations and isn't exclusive to Japan alone. Countries like Germany, Britain, Singapore, Switzerland, and to some extent America are reeling from the effects of the general unwillingness to bear children. People are getting married at older ages, even so they tend to wait longer before choosing to conceive a child, and even tent the number of conceptions averages lower than the long term historical averages.

Without delving too far off topic, here are some of the commentary from news sources. The BBC was first to break the story:

Japan’s birth rate slumped to a record low in 2014, health ministry figures show, dropping to 1,001,000 newborns in 2014 - 9,000 fewer than in 2013.

The fall is the fourth in consecutive years and comes as the estimated number of deaths continues to rise, at just under 1.3 million last year.

Some estimates say that by 2050 the population could be as low as 97 million - 30 million lower than now.

Experts warn the impact of the decline will harm Japan in various ways.
A lowering of the number of people aged between 15 to 64 is predicted to lower potential growth and shrink Japan’s GDP.

That in turn is expected to harm the pension system and other elements of social welfare. The impact in rural areas is predicted to be especially damaging, putting the very existence of some communities in danger.

Another decline in the number of children is inevitable as “the number of reproductive-age women is on the decline”, an official at the health ministry was quoted by Kyodo News as saying.

Government figures in April revealed that Japan’s population shrank for the third year running, with the elderly comprising 25% of the total for the first time.

The proportion of people aged 65 or over is predicted to reach nearly 40% of the population in 2060, the government has warned.

The story doesn't improve with the Financial Times coming up with pretty depressing extrapolations. Such are the facts that the surmounts the nation:

The broader demographic problems remain. Last weekend, as the government fulfilled an election pledge to present an extra spending package, it outlined plans to arrest population falls outside the major cities, challenging local authorities to boost births via support to women aged 20 to 39, the group most critical to rebuilding the population.

If the current nationwide fertility rate of 1.4 stays unchanged, a task force warned in November, then Japan’s population of 127m would drop by almost a third by 2060 and by two-thirds by 2110.

Even if the fertility rate were to rapidly rise to the replacement level of 2.07 by 2030 and then stay there, the population would keep falling for another 50 years before stabilising at a little less than 100m.

Relaxing the nation’s relatively strict controls on immigration could provide some relief, but Mr Abe has made it clear that he is “flatly opposed to opening the door”, said Masatoshi Kikuchi, a strategist at Mizuho Securities in Tokyo.
— Financial Times

More Than Just Demographic Issues

We want readers to understand that japan is not only facing a long-term demographic problem, but also structural issues, some of which are more immediate than others. Although we have laid down a very comprehensive primer on the issues Japan faces, albeit almost 3 years ago; the relevance of said 3-year-old content proves how prevalent these problems are to Japan. Not all chickens have come home to roost yet, and we suspect what has been a slow trickle in the past will subsequently escalate into a more sizable flow and ultimately unleash the torrent of malaise that has been kept being the dam for more than  years now.

As much as we wish to write another missive about the state of affairs in Japan, we just do not have the time to revisit topics that have been already been extensively covered in the past. New meat on the same old bones, as they say. What we can tell our readers with good confidence, is that as long as the BoJ and the Japanese government remain predicated on fixing leaking pipes and a sealed pressure cooker with duck tape, problems will not be fixed and will all come cascading down once enough time has elapsed.