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Japan - An Economy To Study

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December 15, 2008 – Comments (13)

I think looking at Japan's history and demographic and contrasting that with North America is a good exercise.  They've had an enormous housing bubble collapse with an aging population.  I tend to think Japan is a little more mature in terms of where they are with the aging population, quite possibly because of their longer life.  (Off topic, their almost entirely non-smoking population prior to WWII is why they have the longest living population -- and that male smoking peaked at about 80% for some age cohorts after WWII is why life expectancy is declining now.  And the female population in Japan remained non-smoking until around the 80s.  While I am on the topic, the masters of manipulation, the tobacco industry, used Japan's longevity data for years to cast doubt on smoking and longevity.  In the 80s and 90s Japan boasted the longest life expectancy, yet it seemed like many smoked.  The old people were predominately born prior to WWII and premature death from smoking is relatively small for people under 60, which was the age of the smoking population.  So, Japan in the 80s and 90s is the model country to look at for natural life expectancy.)

So, Japan has had to carry an aging population that lives longer... sound like anything coming up???

Another thing about Japan to look at is the caution they would have towards the markets because of the losses in the early 90s.  I think their banks did exercise more caution. When there was an effort to pull banks together to put money into a lost cause, Japan was a hold out for it. 

And, some have said Japan did things to handle their crisis wrong, yet it seems to me that similar things are being done...

13 Comments – Post Your Own

#1) On December 15, 2008 at 1:39 AM, dwot (42.57) wrote:

Another off topic, in this article I found the consistent assine extrapolation of data to make absurd comments. 

It seems that no one takes the time to study why something is so, like why Japan currently has so many centurians -- who came from a population of non-smokers.  They would have had the least exposure to second had smoke out of any population group as well.

"The number of centenarians in Japan has been increasing for nearly 40 years and is expected to reach nearly 1 million — the most in the world — by 2050, according to United Nations‘ projections, the AP reported."

Bogus, Japanese centenarians will die out and the smoking population coming up behind them will not enjoy such long life.

So, how did the world finances get to be such a mess?  Stupid extrapolations expected to go on forever without any analysis of why and how that might change.

This garbage analysis is everywhere.

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#2) On December 15, 2008 at 2:46 AM, saunafool (98.59) wrote:

dwot,

I've been thinking a lot about Japan too. On one hand, we are on the wrong side of the same kind of credit bubble that resulted in their 18 years of stagnation, deflation, and recession.

On the other hand, Bernanke-san is more determined than any central banker in history to avoid deflation. He has clearly indicated he will do whatever necessary to create inflation.

Will house prices inflate? If not houses, commodities? Stocks? I don't know. All I know is that the man with his hand on the volume knob is going to turn it up "to 11" if necessary to create inflation.

It's sad, really, because deflation might be bad, but it brings prices back in line with incomes and at the end of the cycle life is affordable again for ordinary working people. Inflation destroys everyone except the super-rich who are never destroyed.

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#3) On December 15, 2008 at 5:45 AM, talkingdog (90.06) wrote:

Another aspect of Japanese public health is  diet, and specifically the increased intake of fats, and this is gathering a lot of attention under the label of "metabolic syndrome."

As for longevity, I believe that cancer has been the leading cause of death, but heart disease may increase in importance due to this fat diet. You may see this reflected in the actuarial numbers later than lung cancer from smoking, though, since the fatty diet really took off a little later, in the 60's.

This is most clearly the case in Okinawa, where the diet was most thoroughly Americanized, and where a very fatty stir fry dish involving Spam is a local favorite.

 

As for the 18 years of deflation, that should be called "18 years and counting," since land prices fell again in the most recent survey.

One thing about the Japan housing market at this point is that the expectation of going into negative equity is baked in the cake when you buy a house or condo. People buy in full knowledge that they will be underwater and still they buy. Totally irrational, perhaps.

 

 

 

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#4) On December 15, 2008 at 7:29 AM, saunafool (98.59) wrote:

One thing about the Japan housing market at this point is that the expectation of going into negative equity is baked in the cake when you buy a house or condo. People buy in full knowledge that they will be underwater and still they buy. Totally irrational, perhaps.

Actually, I would bet that it means prices are pretty good. The numbers I've seen suggest that the price/rent and price/income ratios in Japan are quite favorable compared to the rest of the world. In olden times, people would buy a house so they could pay it off during their working years and know they had a place to live when they retired. The idea of capital appreciation had little to do with the purchasing decision.

With that in mind, if buying is cheaper than renting, even if prices are declining, buying is the right choice.

After all, we had the exact opposite situation over the past 5-7 years in most Western cities (North America and Europe). Everyone believed prices would go up 8-10% per year forever. So, prices were bid upwards in anticipation of future increases. Who cares if you pay $800,000 for a bungalow, housing prices double every decade (NAR ad campaign). It doesn't matter what you pay, prices only go up.

Yet, when that same bungalow is selling for $300,000 17 years later, the people think prices only go down and assume it will be worth $150,000 after 10 more years, driving prices down further.

At the point where the belief is so widespread, prices will eventually hit bottom, simply because buying will be cheaper than renting. Unfortunately, these cycles take a long time to work out.

In Japan, I think the cycle is worse because their demographics are worse--more older people, lower birth rates, no immigration.

dwot--thanks for pointing out the connection between smoking and Japanese longevity. Makes a lot of sense. Got anything on those people in Sardinia who live forever?

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#5) On December 15, 2008 at 8:30 AM, talkingdog (90.06) wrote:

I think we had this thread here a few months ago, but I will make the point again.

Two big differences between personal assets in Japan and US.

1) Land may go up or down, but the price of the Japanese house itself always goes down to zero in 15 to 20 years. Housing loans are recourse loans, and this means the only walkaways are in the dead of night.

2) Vast bulk of Japanese personal wealth is held in land, not securities. If the estimated overall pension funding shortfall, private and public, is around $20T, then the only assets most retirees will have to fall back on will be land, which will increasingly get sold off, keeping steady downward pressure on land prices for the forseeable future.

 

Now, on a different note, sortof symbolic. This past week on Japanese TV there have been many scenes of crowds of Japanese on the train platform, weeping as they bid fairwell to the Bullet Train #0, the very first one built.

This Bullet Train has a great deal of symbolic importance to Japanese people because its introduction marked the time back in the 60's when Japan really arrived as an economic contender, and it epitomized the cutting edge technology that the country would one day soon be famous for.

 

It kindof symbolizes the dream of Japan as No. 1. But that was only an illusory dream, because as it turns out the Japanese could not even stay No. 1 in train technology.

For many years, a good portion of the bloated public works budget has been devoted to building more and more of these high speed rail lines, in a network that will eventually cover the entire country. It's obscenely expensive, most of it never turns a profit, and it's obsolete. 

Yes, the sad thing is, I suspect that most of those weeping people on that platform are only dimly aware that the Chinese have already leapfrogged past this obsolete Japanese bullet train technology and built the world's first operational maglev line, to Shanghai Airport. And that the Chinese are going ahead and now building a line from Shanghai to Beijing. And they are not using Japanese technology but German.

Instead of weeping sentimentally about the lost glory days of their Bullet Train, the Japanese should be on that platform celebrating the arrival of the first maglev from Osaka to Tokyo right now. 

But in fact the Japanese maglev technology is still not ready for prime time (like their aerospace rockets) and it's hard to forecast when the worn-out main Osaka to Tokyo Bullet Train line will be replaced with maglev.

All of which is to say that the Japanese themselves have apparently become fat and rich and lost the boldness and "hungry spirit" that once made them seem unbeatable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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#6) On December 15, 2008 at 5:02 PM, abitare (31.77) wrote:

U r great. Great post here....

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#7) On December 15, 2008 at 6:02 PM, CBombay (28.33) wrote:

I have not stats to back this up.  But I bet the Japanese import less oil per capita than Americans.  And, they have less fossil fuel reserves. 

Maybe those ancient bullet trains would boost American productivity.

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#8) On December 15, 2008 at 7:25 PM, talkingdog (90.06) wrote:

Japan consumes less energy than the US, but that is mainly due to climate and home heating and the fact that they strictly zone heat and cool their homes.

As for Oil Peak and that argument, because of population density and the nature of the infrastructure, they are much better set up than almost any country to switch to all-electric. 

They also have vast geothermal generating potential that is almost untapped, for what I believe is a funny cultural reason.

 

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#9) On December 16, 2008 at 12:10 AM, arboretum (28.29) wrote:

Nice post. I think in some ways the US economy is headed the same way as Japan (such as in the real estate sector in more crowded parts of the US).

However, I think the Japanese motor industry is a lot less "mature" than the American one. If you want to see where the US motor industry is headed, look at the UK, not Japan. Consolidated into one giant corporation, in thrall to the unions, bailed out nearly every year for 20 years until it was taken over by a foreign company, dumped and finally allowed to go bust. It was the kindest thing done to it for some time.

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#10) On December 16, 2008 at 12:58 PM, spugnik (84.78) wrote:

Very interesting post! 

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#11) On December 16, 2008 at 5:04 PM, kirkydu (93.74) wrote:

One thing to consider in contrast to Japan is that if necessary the United States can easily allow ten or twenty new immigrants to balance things if we can't do it fiscally (which we probably can't).  Demographically, due to our wide ranging geography (America's greatest asset), we can adjust to any circumstance given a decade or so.

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#12) On December 17, 2008 at 1:29 AM, talkingdog (90.06) wrote:

One more comment on dwot's article, concerning the Japanese tobacco industry:

 >>the tobacco industry, used Japan's longevity data for years to cast doubt on smoking and longevity.

 

Let's be clear who we are talking about here, the Japanese tobacco monopoly (which has now been privatized as JT, http://www.jti.co.jp/JTI_E/outline/Welcome.html) was under the direct control of the Finance Ministry of the Japanese Government. It was a fief of the Ministry and a source of revenue that the Ministry had direct control over. (and I believe the successer to the MOF still holds the largest portion of shares of JT).

As for their tobacco health impact findings, this was a case of the dominant branch of the government (MOF) exerting pressure over other branches, such as the Ministry of Health, to release research findings in favor of their tobacco monopoly.

Now, of course, the situation has drastically changed, as smoking is declining in Japan. JT has thrown in the towel on further earnings growth in Japan and is instead focussed on expansion in China, and the third world. And not only do they market Japanese brands, but they have also been purchasing foreign brands -- "Winston tastes good, like a cigarette should!"

 

 

 

 

 

 

 

 

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#13) On December 27, 2008 at 3:18 PM, BGriffinFlorida (26.92) wrote:

Japan provides a concrete and recent example but it is also significantly different.

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Japan is a net exporter of goods and although the second largest economy, the increases in unemployment did not reach a level of self-amplification.  Stimulous during this period in the United States kept demand for goods from spiraling downward.  As a result, the 1990 - 2000 'deflation in Japan, wasn't actually deflation except for a very short time late in that period.  It was predominantly disinflation.

here is a graph showing PPI and CPI

http://www.rieti.go.jp/en/papers/contribution/kobayashi/data/04010001_01.gif

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Here is a graph showing unemployment rates (Japanese unemployment rates are widely considered to be underreported based on western standards)

http://www.dallasfed.org/research/eclett/2006/images/el0601c1.gif

 

The situation is likely to be fundamentally different if the largest economy in the world, an importing economy, experiences strong persistent deflation.

Our CPI was down 1% in October and 1.7% in November, not on a year over year basis... but for that month alone.  if this rate of decline holds, it is far in excess of anything Japan experienced. 

 

Saunafool, I have to disagree with the idea that deflation is likely to bring prices more inline with wages.  The problem is that wages are likely to experience deflationary pressures as well.  This exaserbates affordability issues.

 

 

 

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