Hi John,
Regarding the Japanese economy, I'm not quite in the optimist's camp yet and my intuition is largely based on demographics. As you probably already know, Japan is the leader in the greying of OECD countries. Their population is aging faster than any other. The implication is that they aren't replacing the population at the most productive years of life in sufficient numbers to offset the increasingly burdensome pension costs to the economy.
Already, Japan's public debt, driven to very high levels by Keynesian notions on how to spend their way out of the '90's recession, is a what I consider a dangerous level, which the BoJ is masking by the near zero rate of interest on Yen borrowing. This, of course, leads to all sorts of "moral hazard", as traders borrow Yen in order to purchase other interest-bearing assets, including our own Treasuries, in a nearly risk free swap. At the same time, the average saver in Japan, with money in the postal savings system is punished for the bad economy with nearly non-existent interest on household savings. There is no real incentive to capitalize industrial expansion on the Japanese islands because it is painfully clear that most export industries were over-capitalized in the late '80's and the '90's. Most new capital allocation from the keiretsu is occurring off-shore, primarily in the PRC, where compelling labor cost differentials make a compelling argument for industry to abandon the workers of the home islands.
I may be painting this a bit bleaker than is warranted, but I intend to try to get you to comment on some debating points here, and I'd love to hear your bull case for a Japanese recovery. I just don't see it. The new Prime Minister has been brought in as a breath of fresh air. But I'm afraid he strikes me as more capable of hot air. I just don't see him cleaning house at MITI, Finance and the BoJ to the extent needed to break the curse of the good ol' boy system that has stifled innovation and created the appalling lack of discipline in the banking sector.
Comments Welcomed!
Cordially, Ray :) |
