Friday, January 25, 2013

Many Thanks

Many thanks this morning to commenter "Troy." He has increased the value of my hastily-set down, half-formed opinions with links, supportive statements and counterarguments.

Though I value all of his comments--and hope my readers do likewise--I would like to highlight two of his most recent contributions.

The first is the link to the Ministry of Finance's English-language brief Japan's Fiscal Condition. While an update is due, the paper nevertheless provides an invaluable review, in just a few pages of graphs, of the background to the decisions being made regarding the country's finances. If you ever want, as I do, to rid yourself of the "It is my understanding that..." disease, going over this paper is a great first step.

The second contribution is a graph of the size of Japan's 25-45 years-of-age cohort (Link). While I for selfish reasons despair at the narrowness of the window described, Troy's graph does show the fundamental macroeconomic problem: the swiftly falling numbers of persons in the top consumption years. Reductions in Japan's productive capacity can be made up with increased participation of women in the workforce, delayed retirement and increased productivity. However, the loss of domestic consumption is an issue the government and business either fail to grasp or want to face.

One big victim of the shrinkage in the domestic market will have to be keiretsu tribalism. That Japan's markets are not free -- that purchases by either corporate consumers or individuals are guided as much by keiretsu loyalties as price or quality -- can be accepted and acceptable as long as the domestic market is growing or stable. The reality of a shrinking market -- that in order to keep sales on the same level, one must make inroads into a competitor's customer base -- is not something Japan's established businesses want to think about.

However, do not make any investments based upon the above. No matter how inevitable the collapse of a large institutional structure, it will survive longer than reason dictates or suggests.


Troy said...

"Markets can remain insolvent a lot longer than you and I can remain rational" or something.

When I moved to Tokyo in 1992 I had absolutely no clue and no education about the bigger-picture trends, how Japan got to where it was, nor any of the unsavory details about its more recent bubble period and ongoing collapse.

The N225 had just completed an Elliot Wave "5th of Five" move down when I hit Narita, and would hold at that bottom until I left Japan in 2000.

My only exposure, such as it was, was religiously watching Today's Japan on PBS, from 1989-1992. Plus a kind soul gave me Wolferen's work prior to me going, that was a useful head's up.

I just knew they exported a lot of cool stuff to us, stuff that defined my life growing up in the 1970s and 80s -- Sony, Datsun, Namco, Toyota, Akai, Sharp, Taito, Sega, JVC, Honda, Pioneer . . . the Japanese knew consumer goods!

I don't know where Japan is going this decade or next. People say Japan needs more people, but I think if Japanese people need jobs, Japan has enough people.

I think Japan still has too much NIIP to go to ¥150, but we'll see.

Troy said...

I was mucking around in Excel for a bit then found that Wikipedia had already what I was creating . . .

Japan is no Norway or Switzerland, but that's not bad for a nation of 130M!

For balance's sake, the per-capita NIIP of the USA is a negative $13,000 or so, UK is negative $5000, ROK is negative $3000, Sweden is negative $11,000.

US & UK have rather severe negative current account balances, while ROK and Sweden are at least improving their position apparently.

This is the kind of data you need a snifter of drink, a fireside, and a comfy chair to ponder in a chin-stroking way for a while.