Dis-saving in Japan: a logical consequence of an aging population

The above chart is courtesy of Claus at Alpha.Sources blog, and bears close examination. You see that household income has experienced negative growth since about 1997 and household savings has been shrinking since the turn of the century. I believe this data is consistent with an increasing proportion of retirees to the Japanese population as a whole; as once the breadwinner retires income shrinks to whatever pension/social security payments are forthcoming and the households of retirees start to spend the savings that they have accumulated over the years to make up for the drop-off in income. This shouldn't be surprising as the whole point of saving during one's working years is to provide for retirement. The tricky part is making sure you have enough savings to last until you die.

The problem from a national perspective is that due to the need for retirees to spend their savings, the national investment capital base is beginning to shrink. For the most part, Japanese savers have their cash in domestic investments. The shrinkage of available investment capital will make it difficult for the country to come up with technological breakthroughs that would increase productivity enough for the working age population to cover the cash needs of the country's retirees.

A study by McKinsey and Co. projects that "the net financial wealth of Japanese households will decline 0.2% annually between 2003 and 2024." That projection ought to give Japanese leaders some sleepless nights.

Japan's space program: an opportunity for growth?

by Scott Peterson

It seems to me that a sector that Japan could be a solid competitor globally would be in the commercial launch business. Basd on my cursory scan of the Japan Aerospace Exploration Agency's page on it's H-IIA-primary large-scale launch vehicle, the vehicle could be competitive
with other commercial launch ventures, such as International Launch Services and Sea-Launch.

In addition, investing in space exploration initiatives would provide high-paying jobs which should help domestic demand somewhat and could provide a source of national pride.

Development of a ballistic missile program would also generate jobs and would raise Japan's profile as a military force to be reckoned with. I don't think that Japan with a credible military is anything to be feared more than say the militaries of India or China.

The Bank of Japan's decision and the underlying data

The BoJ decided not to change the overnight rate, which was not a surprise. However data that was released in the same time frame is concerning. GDP data was released which showed that annualized Q1 GDP growth of 2.4%, was a sharp sequential decline from a revised 5.0% (previously 5.5%). SeekingAlpha quotes a Tokyo analyst to the effect that "the BoJ will hold at 0.5% over the next three to six months, since there is no hurry to hike while consumer prices are still falling"...continued deflation in consumer prices is a concern.

Having a significantly lower GDP number on top of a downward revision of the previous quarter's figure is not good. Recalibration of expectations for the next year for Japan's economy would be wise, I think.

Another high-value export possibility for Japanese manufacturers

Financial Times Deutschland posted a report recently that describes how "China's introduction of locally assembled Japanese "bullet trains" shows that the country has completed the transfer of foreign world-class high-speed rail technology, Beijing's Ministry of Railways has claimed. Lightly modified versions of Japan's E2-1000 Shinkansen went into service on lines around Shanghai recently but the rail ministry and official media have played down the trains' origins and instead stressed China's success in ‘‘ digesting'' foreign technology." According to the same report, China is planning on building "5,400km of high-speed lines in the four years from 2006." If Japanese firms can get a significant portion of that business, it would provide a good boost to the exports side of Japan's GDP books.

There is a potential stumbling block, however. As the above quote mentions, the fact that the high speed train technology came from Japan has been kept as low key as possible. The reason for this as described in the FTD article is that"Lingering Chinese anger at Tokyo's 1931-45 invasion means that purchases of Japanese technology are particularly sensitive, in spite of a recent thaw in bilateral diplomatic ties. Reports of the 2004 Shinkansen deal prompted internet protests and street demonstrations, and an initial batch of trains exported from Japan was shipped without the customary public ceremony."

So politcal relations between Japan and China represent a significant hurdle to increased exports from Japan to China. It is remarkable to me how the Japanese occupation of China remains such a sticking point. Relations between Japan and the United States have been very warm since World War II in spite of the fact that on the US side, Pearl Harbor and the massive number of deaths in the Pacific theater could be sore spots; and on the Japanese side, the nuclear bombings of two of its cities plus catastrophic bombings of other cities could provide fodder for discord even now.