Outflow of yen from Japanese savers accelerating

That is according to Bloomberg, which has a story today describing how, referring to yen flows:

``It's reaching the point where the central bank must take rate action,'' says Hiromichi Shirakawa, a former Bank of Japan official and now chief economist at Credit Suisse Group in Tokyo. ``Capital is flowing out of Japan too quickly, making the economy vulnerable to currency fluctuations.''

Driving the flows are individual Japanese, of whom "a growing number... joining fund managers in shifting money out of Japan"... ""The bank is worried that when the carry trades unwind, households will get burned,'' says Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. "..

The Bloomberg post mentions Japan's demographic situation, quoting Dai-ichi Life Research Institute: "A wave of retirees is likely to increase the flow even more. The first of Japan's 7 million baby boomers reach the retirement age of 60 this year, triggering lump-sum payments that will total 50 trillion yen for those born between 1947 and 1949"... the expectation is that those lump-sum payouts will be invested overseas...

It appears that the Japanese finance authorities are approaching a point where they will have to make a decision on their monetary policy that will have a major impact on Japan's economic situation for an extended period of time...

Unemployment in Japan

Now as we have been noting here on JEW over the last months, unemployment in Japan is trending steadily down, as can bee sen in the graph below which comes from the Labour Force Survey of the Japan Statistics bureau:



Now in part the decline in unemployment is a natural response to the - largely export driven - extended economic boom Japan has been enjoying recently, but this is certainly not the WHOLE story, since Japan, as is well known, has an ageing population, and in addition the population is actually now declining (and has been since 2005), as, of course, is the population of working age (and hence the workforce, if we take this as the conventional 15-65 age group, but see below). As such, absent immigration (and generally speaking Japan does not have any immigration worthy of mention as can be seen in this post) it is hard to see where Japan will find the labour to sustain economic growth into the future.




(Please click on image to see more clearly).

This chart has been extracted from an excel file which constitutes Table 1 on this page.

Now what can be readily seen is that while the total population started to decline in 2005, the working population (which is Japan is defined as everyone OVER 15) has been climbing (albeit slowly and steadily) for the last couple of years, a feature which is undoubtedly due to the growing proportions of the population in the older old age groups, and slowly increasing life expectancy. On the other hand, if you look at the totals for employed people, you will see that this actually peaked in the late 90s, and while the number has been climbing of late, we have still not reached the peak achieved at that time.

Although the data in the table is not seasonally adjusted, and thus difficult to intrepret, there does seem to have been a significant jump in employment in May 2007 (up to 64,440,000 from 63,351,000 in April, although this may yet be revised). Until we see more data it is hard to know exactly what to make of this, since in general we have been seeing signs that the Japanese economy has been slowing somewhat in 2007.

On point which is also worthy of attention is the percentage of employment which is part-time. This has been growing, and was up to 29% of total dependent employment in 2005 from 19% a decade earlier (this being the latest data I have to hand).

Another aspect which should not be forgotten is that the Japanese are fairly long-living, and participation rates in the higher age groups are high by international standards, as the chart below indicates.



So, all in all, a rather puzzling picture, where one thing seems clear, the current expansion is going to hit labour capacity limits at some point or another.

Update

I have now found some more data on part-time employment as a percentage of total employment. In April 2007 - according to the Provisional Report on the Monthly Labour Survey - there were 11,352,000 part time jobs, and 32,770,000 full time ones, which means that roughly 26/27% of employment was part-time. The Report also makes the following observation:

"Regular employees in April 2007 were increased by 1.6% compared with a year earlier, full-time employees were increased by 0.8%, part-time employees were increased by 3.6%."

Which seems to suggest that part-time employment has been growing rather more rapidly that full-time in recent months.

In line with this observation, the March Report says this:

"Regular employees in March 2007 were increased by 1.5% compared with a year earlier, full-time employees were increased by 0.9%, part-time employees were increased by 3.2%."

The February report says this:

"Regular employees in February 2007 were increased by 1.6% compared with a year earlier, full-time employees were increased by 0.7%, part-time employees were increased by 4.2%."

January this:

"Regular employees in January 2007 were increased by 1.6% compared with a year earlier, full-time employees were increased by 0.9%, part-time employees were increased by 3.3%."

December this:

"Regular employees in December 2006 were increased by 1.4% compared with a year earlier, full-time employees were increased by 0.9%, part-time employees were increased by 2.9%."

So the trend towards part-time work is definitely there, and this is obviously being reflected in average salaries. What will be interesting to look at will be the May 2007 data, to see how much of the new employment this month is part-time.

To get a final idea of what all this means I have looked at the earliest data in this series, for September 1998. At that time there were 34,755,000 full-time employees, which we could compare with only 32,770,000 in April 2007, so in the last ten years the number of full-time jobs has actually FALLEN by nearly 2 million jobs. At the same point the number of part-time jobs was 6,788,000 while by April 2007 this number had risen to 11,352,000, ie it had nearly doubled.

Immigration In Japan

Since the Japanese labour market is tightening all the time, and this process must have a limit given the declining labour force issue, I thought I'd take a look at the Japan immigration situation, and I found the graph I am posting below, which makes pretty sombre viewing. I think it shows what they call "flatlining".

Net Migration Compared. EU, USA and Japan



Source: OECD, Labour Force Statistics.
The vertical axis shows inward migration in thousands.
Click over image to enlarge

Net migration here is measured as the difference between the total population on 1 January and 31 December for a given calendar year, minus the difference between births and deaths.

Searching around for more info on the situation I found this useful article one migration information source: Japanese Immigration Policy: Responding to Conflicting Pressures, by Chikako Kashiwazaki, Keio University and Tsuneo Akaha, Monterey Institute of International Studies:


As of the end of 2004, 1.97 million foreign nationals were registered in Japan, accounting for about 1.6 percent of the total population (127.69 million) and representing a 1.3 percent increase from 1.7 million in 2000. (See Table 1.)

Koreans composed the largest group (607,000), followed by Chinese (488,000), Brazilians (287,000), and Filipinos (199,000). Well over 90 percent of resident foreigners came from either Asia (74 percent) or South America (18 percent).

Approximately 41 percent of registered foreigners are permanent residents, including 466,000 "special permanent residents," or former colonial migrants and their descendants.

The overall trend toward the settlement of newcomer immigrants is also indicated by the rise in the annual number of permanent resident authorizations, from less than 10,000 in 1996 to nearly 20,000 in 1999 and to 48,000 in 2004. The "permanent resident" status, for which there is no limit to the length of stay in the country, differs from the long-term resident status noted above. Meanwhile, approximately 15,000 people, mainly Koreans and Chinese, have been naturalized every year.

Among Koreans, many were students; the Chinese were generally trainees and students; and nearly 40 percent of the Filipinos arrived with "entertainer" visas. The "entertainer" status is given to actors, singers, dancers, and professional athletes; it permits an individuals to work in Japan for three months, six months, or up to one year.

One visa category that has received public scrutiny in recent years is that of "entertainer." This classification has been used by known and suspected criminal groups in Japan and abroad to bring prostitutes into the country. The government has begun enforcing stricter procedures for screening employers and employees in the "entertainment" industry and heavier punitive measures against violators.

the ageing of the population — and the beginning in 2005 of a population decline — have raised the urgency with which Japan must alleviate labor shortages and fiscal burdens resulting from these demographic trends. In particular, the business community has stepped up its call for a relaxation of labor-import control.

In response, the government has begun to consider relaxing restrictions on employment of certain categories of workers for which there are serious labor shortages, such as medical doctors and nurses. Foreign doctors and nurses must pass Japan's national examinations (ie written exams in Japanese) in their respective fields before they are allowed to practice.


I think the last point especially - about the exams for nurses - gives some idea of just how grave this situation is, and is likely to become, in the context of the severe demographic challenges Japan is facing.

This extract from an April 2007 issue of migration news is also informative:

Japan had two million foreign residents in 2005, up from 1.4 million in 1995. Two-thirds of the foreign residents are permanent residents, including Koreans who have been living in Japan for decades; there are 519,000 Chinese. The number of foreign workers was 180,000 in 2005, up from 155,000 in 2000 and 68,000 in 1990.

The sharpest increases have been in categories of foreigners who work but are not considered workers under labor law. The number of foreign trainees was 3,300 in 1990, 30,000 in 2000, and 87,300 in 2005. Most were Chinese, and many paid brokers $2,000 to $3,000 to get three-year jobs in small firms that pay $500 a month; trainees are also supposed to receive training. Some trainees leave the employers to whom they are assigned, citing long hours or abusive treatment, which subjects them to deportation.

JITCO, which administers the trainee program, says that it knows there are abuses, but says it lacks the authority to make unannounced inspections of Japanese firms with trainees. A 2005-06 study that relied on unannounced inspections found violations at 80 percent of the firms inspected.

The number of foreign students working part time rose from 11,000 in 1990 to 59,000 in 2000 and 100,000 in 2005.

The nikkeijin are descendents of Japanese migrants to Brazil and Peru. They began to receive three-year residence visas in 1990, and their number in Japan was 71,800 in 1990, 221,000 in 2000, and 240,000 in 2005. They do not have to work and can extend their three-year permits and change employers in Japan, and some of the jobs they abandon are filled by foreign trainees. Their children, born in Japan as well as abroad, are having difficulty integrating into Japanese society- many are neither employed nor in school.

The number of foreign overstayers was 106,500 in 1990, 232,000 in 2000, and 194,000 in 2005.

The first 15 Filipino nurses arrived in Japan to begin training to be health-care workers under a free-trade agreement between the countries. However, implementation of the broader free-trade agreement that is expected to increase migration has been delayed until Spring 2008.

The Japanese government continues to struggle to develop a migration policy. It seems clear that the foreign workers with the fewest rights, foreign trainees, often subsidize small firms that might be forced to close if low-wage workers were not available. The Neikejian, with more mobility, are able to find jobs shunned by local workers with the subcontractors of major firms.

Japanese Wages

Well adding more fuel to the fire on my post yesterday, wages data release today say that monthly wages in Japan, including overtime and bonuses, fell (0.7) for the fifth consecutive month in April (as compared with a year earlier):

Japan's wages unexpectedly fell for a fifth month, hampering a recovery in consumer spending that's being fueled by job growth.

Monthly wages, including overtime and bonuses, declined 0.7 percent in April from a year earlier, the Labor Ministry said today in Tokyo. The median estimate of eight economists surveyed by Bloomberg News was for a 0.1 percent increase.

Without higher wages, consumer spending may falter, threatening growth in the world's second-largest economy. Japan's jobless rate fell to nine-year low in April, prompting some economists to say wages will rise later this year.

``The jobless rate is expected to fall close to 3.5 percent, which will start fueling wages and give thrust to inflation,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.

So here is the puzzle: Japan's unemployment is falling as export driven growth continues and the workforce declines, but why are wages falling?

Two explanations are being offered, both of them relatively plausible, but we definitely need more info and data here:

One reason wages have fallen since December is the replacement of retiring baby boomers with younger, and therefore cheaper, employees, economists say.

Another reason is the increased use of part-time workers, whose pay averages less than half that of regular employees, according to Atsushi Seike, professor of labor economics at Tokyo's Keio University and a member of the government's labor policy council.

This trend in falling (real) wages (remember in a deflationary environment nominal wages are falling, but this isn't the point) is of rather long duration:

Average pay fell about 10 percent between 1997 and 2005, when companies replaced regular workers with part-timers. Part- timers made up more than a third of the workforce in the first quarter, rising almost one percentage point from the previous three months, the statistics bureau said this week.

Household spending has been rising slightly in recent months, but it is not really clear why this is. Certainly household spending will be a data point to watch going forward.

Household spending climbed 1.1 percent in April and has risen every month this year, even as wages slipped.