Notes From Japan 02/Apr/2012

Youth Unemployment And The Pension

Just quickly, because I’m actually hard up for time at the moment…

There’s an article here by Kenichi Ohmae (in Japanese) where he talks about the hidden youth unemployment in Japan. What’s interesting is on page 5 where he draws out a simple relationship which connects youth unemployment and the ‘parasite’ phenomenon where children stay on at home into adulthood. He points out that some statistics are revealing that 35% of people aged 35 are living with their parents in Japan. This is a staggering figure. The reason why this as happened as he points out in the article is essentially because of the generation of people who could not find lifetime employment as the earlier generations did,  have failed to enter the workforce in a meaningful way.

In short there’s a connection between youth unemployment and late marriages (or no marriages) leading to fewer children, and a breakdown of the pension system in Japan because the number of people needed to pay taxes to support the pension system won’t be there. You could readily argue they’re already at that point, which is why the Japanese finances have hit a wall. The serious drop in fertility rates happened across the last 2 decades as Gen X in Japan grew into adulthood in a stagnant economy with the lifetime employment system about to breakdown.

That being said, what Ohmae’s connection reveals is a weird kind of correlation between the property bubble bursting in Japan and the social cost being foisted on to the next generation. In a way, strange as it may seem, you could say a similar thing is taking place in Australian metropolitan areas thanks to the property bubble. As the price of renting and buying rises beyond what the young people are paid, they stay at home and fail to gain traction in society. They’re delaying having children and in some cases not having them at all. Immigration numbers are propping up Australian population growth for now, but should the bubble collapse or should China have a hard landing and the mining boom stops, the effects of these kinds of things on the economy are going to be felt as shortfalls in tax revenues for the government down the track.

It’s quite simple, really. The youth of today are going to be the adults of tomorrow. If they’re not going to be able to work, they’re not going to be able to deliver the economic benefits as expected on paper. It’s not exactly rocket science.

Bank of Japan Interview

The recent edition of the monthly magazine Bungei Shunjuh has an extensive interview with Masaaki Shirakawa, governor of the BOJ.  There are some interesting tidbits in it so I thought I might share them here.

  • Shirakawa was put in charge of figuring out how to handle bank collapses in 1988 only to realise there were so few plans for such contingencies. This research then became useful when the Bubble burst in 1989 and the banks had to be rolled up.
  • He also points out that many of the plans carried out by the governments in the world were the same plans as carried out by the Bank of Japan in wake of the Bubble bursting. Even quantitative easing was carried out, just as done by Ben Bernanke and the Fed.
  • He says the world has finally caught up with “Japan’s reality”. this doesn’t bode well. Shirakwa thinks the rest of the world are going to experience the kind of “Lost Decade” that Japan endured.
  • He keeps insisting that printing more money won’t do anything to help Japan out of the doldrums. This is in spit of the fact that Paul Krugman has pointed out that Japan, with its high deflation, is one f the few countries that could benefit from “printing money”.

It’s all interesting stuff because he attempts to answer the critics of Bank of Japan by explaining the context of the decisions made and not made, but you get the feeling that there are a lot more of the latter than the former. You also get the feeling that cleaning up the mess and the mass of bad debt left behind by the Bubble was a lot more difficult to untangle and has directly contributed to the Bank of Japan being less responsive with how things are going on a day to day basis.

Should Australia’s property bubble go bust, it seems it’s going to take a lot longer than a couple of years to wind up. It may actually affect society to such an extent that the non-mining sector sinks into a lost decade of its own, and there would be no stopping it.

Anyway, I just thought I would post those two things up while I had them in front of me.

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