Japan’s economy seems to have been teetering on the edge of a total economic collapse for the past two decades as glacial growth, falling prices and an ageing population have helped government debt balloon to seemingly unsustainable levels.
Some pessimists are now asking if matters are about to come to a head — if not immediately, then during the next couple of years. So we asked our readers last week if Japan was on its way to a Greek-style debt crisis. We are pleased to report that most were confident that it was not, or at least probably not.
Even so, it is hard to ignore the sense of gloom. Things are so bad, it seems, that young people in Japan aren’t even having sex anymore. In a recent government survey, an incredible 61.4% of unmarried men between the ages of 18 and 34 said they didn’t have a girlfriend, and almost half the guys surveyed said they weren’t particularly interested in dating girls. The numbers were almost as bad among women.
Perhaps the kids are worried about the size of the country’s debts. Japan’s central bank governor certainly is — Masaaki Shirakawa warned last week that the nation’s banks, which have been busy buying Japanese government bonds for lack of any better ideas and now own close to half of all JGBs outstanding, would lose ¥6.3 trillion ($750 billion) if yields were to rise 1% across the whole curve.
That is hardly unimaginable. The 10-year yield is 1% at the moment — around half the level of 10-year US Treasuries — and has been close to 2% as recently as 2008. However, with 95% of all government bonds held domestically, Japan is not in danger of being pushed into crisis by overseas bondholders. In that sense, it is certainly not going to be the next Greece.
But with debts that are around 200% of its annual economic output, Japan desperately needs growth to escape a crisis. (Babies would also help, but that seems a long shot.) However, Japan’s trade position has weakened considerably as the strong yen has punished exporters and the retreat from nuclear power has led to a significant rise in energy imports.
It is hard to see where growth will come from without sweeping reforms and pro-growth policies. The good news is that this message has been heard. The Bank of Japan has adopted a looser stance in the hope that inflation will ease some of its pains, with some modest success, and the government is aiming to double the consumption tax to 10% in a bid to cut the deficit further. But few think that Japan is doing enough to turn the situation around.
Things may have to get worse before they get better, but our readers are at least betting that Japan will get its house in order before the government has to ask its loyal investors to engage in an act of national debt forgiveness. Mrs Watanabe may love her country, but she won’t like a government haircut one bit.