Macroscope | Japan’s doing OK, but demographic bomb ticking

The good news about Japan is that its economy is doing OK, in absolute terms, given the number of working-age people who live there.

The bad news is the number of people, of working or any age, is dropping.

The even worse news, longer term, is that debts don’t fall with population, they only get harder to pay back across a smaller base.

Japan fell into its fourth recession in five years, with the economy shrinking at an 0.8 per cent annual clip in the quarter to September. That performance looks less bad, at least to the woman in the Tokyo subway, if compared to the fact that overall population is declining at a rate of about 0.3 per cent a year, and working-age population is falling at well over a per cent annually. Growth has been stop and start, but population dwindles inexorably.

Investors, especially those with exposure to Japan’s massive government debt, don’t really care if Japan is doing well with what it’s got. While the Bank of Japan is buying up bonds faster than the government is issuing them, the longer out you look, the less sustainable the numbers appear. Japanese government debt now stands at 245 per cent of annual output, almost two and a half times the 102 per cent in the U.S.

Abenomics, an all-out programme of fiscal and monetary stimulus designed to end decades of deflation, has clearly not succeeded as planned, with this marking the second recession during Prime Minister Shinzo Abe’s three years in office.