Japan in the post-sub prime collapse

The financial turmoil is still tearing down the world's financial system and economies (so, technically, the title is not correct, as it is still on-going).

What do you think where Japan would be after all the dusts are settled?

My guess is it would coast through without a noticeable growth for the first few years, followed by a declining per capita output and wealth, while the rest of the up-and-coming countries will zip through.

I have listed some of the key points.

Key points:
1. Cash cow industries in Japan depend on the export markets. The world markets are basically in a recession and Japan's export-dependent industries have been hit hard. This point is related to #7.

2. Japanese banking industries have survived the lost decade and have abstained from participating in the exotic financial instruments (My guess is they would have participated in them if they had a means. But, they were so badly burned by the real estate market collapse that they stayed in the simple deposit-based banking business). Unless they take advantage of the current financial turmoil to enter the world financial markets, Japanese banking industries will stay the insignificant banking player in the world market.

3. The J-government's debt load is staggering, which is close to almost 2X of Japan's GDP. Even though Japan's saving is close to USD 14 trillion, the national debt at USD 8 or 9 trillion is a significant amount. The future tax increases will stifle investments, entrepreneurship, and other private economy initiatives. This point will be exacerbated by #4.

4. Aging population along with Japan's innate xenophobia will put a massive burden on Japan's economic productivity and tax base. Counting on the external investment incomes is like counting on your income in one source such as your 401 k or mutual funds. You know how it ends up when something goes down in the area where you don't have any control. Japan's overseas investments are in the middle of the pack compared to other countries'. So, Japan is not a top investor in the world now.

5. Inept diplomatic strategies.
Japan's tendency to be an isolationist (even though it replies on the international trade for its wealth).
Japanese's poor command of English.
Its lack of clear communication skills (Japanese cultures and its language is full of ambiguity; in the international arena, it is important to have an impeccable communication skill in English to express your thoughts clearly and unambiguously.)

6. Japan's sclerotic political system will not help Japan's economic revival nor its political standing on the international arena. On this front, there is no cure unless all the current MPs perish from the earth.

7. Japan's stagnant domestic demands would also keep itself dependent on the overseas markets. On this front, there won't be much or an improvement as its aging population will reduce the consumption further down the road.

8. Japan may need to spend more on its Self Defense Force (aka military), as USA needs to direct its limited resources to prop up its domestic economy, sort out its fiscal problems, and finish its unfinished jobs in Iraq and Afghanistan. That increased spending would add more debt on top of the current huge pile of debt Japan has.

Note 1: The above are some of the key points which would affect Japan's future. Some of them are pre-existing condition.

Note 2: Please keep this thread an intelligent exchange of ideas.

Its a bit difficult to say.

I agree with your points 1 and 4. Point 1 is by far the biggest problem for Japan. It exports mainly cars and electronics, demand for which have been hardest hit worldwide (and particularly in the US).

About point 2, I would add that Japanese financial institutions have both opportunities and dangers. On the one hand they are in a decent position to buy up assets of failing US and European banks (Nomura picked up some of Lehman's most profitable operations for next to nothing). That might leave them in a much better position when the economy approves. On the other hand, Japanese banks are much more vulnerable to fluctuations in stock prices due to their shareholdings (banks in the US on the other hand aren't allowed to own shares), so the collapse of the Nikkei has posed a particular problem to them. I don't think any of them will collapse like what we are seeing elsewhere though.

About point 3, I would say that a lot of countries face similar problems. The US, for example, in addition to its government debt (smaller as a percentage of GDP than Japan's) also has massive future problems with entitlements to deal with (and its savings are much less). So in terms of Japan's competitiveness this is a problem, but I think it isn't necessarily fatal as loads of countries face similar problems.

I note that Japanese companies, thanks to their savings and being generally lowly leveraged, have been able to take advantage of the crisis and buy up companies in other countries whose stock prices have fallen.

I attended a presentation by a researcher from Nomura who is very critical of the Japanese government's response to the crisis, noting that the attempts to maintain stock prices have been largely done with a lack of understanding of how markets work, etc. The Economist is also fairly pessimistic, noting the small size of the government stimulus plan being wholly inadequate:

Early in, early out

I think I tend to agree with this.

Japan must try to slow America's decline

Posting a link to an excellent op-ed piece on how Japan and the U.S. should help each other in the coming years by Stanford professor emeritus.

The Asahi Shimbun | Breaking News, Japan News and Analysis

With the current recessionary momentum, I think it is not feasible to correct this deadly economic impacts many countries (including USA, UK, and Japan) are going to face over the course of next several months (or more likely next a few years). We are now entering the threshold of new era which no one really knows how things would shape up except for some educated "speculations". The era of terra incognita in the world finance and politics.
I really think things will get really ugly as the political and economic status-quo starts unraveling.

Rather difficult to answer since even the so-called experts have different opinions about how long this situation is going to last. Therefore I would say that no matter when this is over, Japan definitely has the potential to come out stronger than before.

I think it'll be interesting to see the inflationary effects of both U.S. and Japan, as a result of their increases in the money supply. The consumption habits are polar opposites (Japan having a high savings rate and U.S. having a negative one) but at the same time, if history does repeat itself, then it's possible that a repeat of the Japanese bubble can occur in the long run... but then again, it's nearly impossible to predict the long run.

The capital markets seem to be performing better now but I'm still skeptical of this because I don't see the economic rationale behind this. The GDP may be slightly improving but this is attributed to a variety of the stimulus packages, as well as cost cutting initiatives done by corporations (thus temporarily decreasing cost and increasing net income).

I also get the impression that if the DPJ wins in the upcoming election, their debt level will get even worse. I'm still trying to understand the consequences of high levels of debt on a macroeconomic level because Japan has always had a high debt/GDP ratio and yet, it's still been seen as a safe haven for currency traders. Even if interest costs are higher, the central bank would be able to just print more money to service the debt (right?). I think the high levels of debt will have different effect for the U.S. economy and the Japanese economy. This is because the majority of treasury securities investors in Japan are domestic (i.e. insurance companies) but in the U.S., the main creditors are the Chinese and Japanese governments. I think that this would give Japan a disadvantage because more money to the domestic investors of Japanese t-securities can lead to a higher inflation problem in Japan. This being said, Japan is currently in a deflation so maybe the process of servicing their debt won't lead to disastrous consequences. I'm still trying to understand the effects of leverage though (for governments... not corporations) so if there's any logical fallacies in my opinion(s), please state them.

Ride said:

I'm still trying to understand the consequences of high levels of debt on a macroeconomic level because Japan has always had a high debt/GDP ratio and yet, it's still been seen as a safe haven for currency traders. Even if interest costs are higher, the central bank would be able to just print more money to service the debt (right?). I think the high levels of debt will have different effect for the U.S. economy and the Japanese economy. This is because the majority of treasury securities investors in Japan are domestic (i.e. insurance companies) but in the U.S., the main creditors are the Chinese and Japanese governments. I think that this would give Japan a disadvantage because more money to the domestic investors of Japanese t-securities can lead to a higher inflation problem in Japan. This being said, Japan is currently in a deflation so maybe the process of servicing their debt won't lead to disastrous consequences. I'm still trying to understand the effects of leverage though (for governments... not corporations) so if there's any logical fallacies in my opinion(s), please state them.

Click to expand...

Everydoby says that Japan's national debt is reaching 2 times of GDP, and thus collapse sooner or later.... This logic is wrong. It is because ....

1) Japan's debt is NOT a national debt, BUT a government debt, and lender is Japanese citizen or financial companies. Foreigners are not interested in J-bonds as it's very low yield. In short, J-government debt is equal to Japanese people's Asset.

2) Japan's debt is a total of J-bond, which is issued in Japanese YEN, NOT USD or Euro, and Japan is a sovereign nation having a right to print Japanese Yen note.

3) Japan is the largest creditor nation in the world. So if we see National Balance Sheet, Japan is the most healthy/financially sound company in the world.

In fact, J-bond's 10-years yield is about 1.5%, which is the lowest rate among all advanced nations, meaning Japanese government has more than enough buyers of J-bonds in Japan.

I suggest you NOT to trust Newspaper and Nobel-prized economists, but trust the reality.

1. Cash cow industries in Japan depend on the export markets. The world markets are basically in a recession and Japan's export-dependent industries have been hit hard. This point is related to #7.

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It was Correct as we saw it for the past months. After inventory is normalized, it goes up again but still not good enough as the global market is not fully recovered yet.

2. Japanese banking industries have survived the lost decade and have abstained from participating in the exotic financial instruments (My guess is they would have participated in them if they had a means. But, they were so badly burned by the real estate market collapse that they stayed in the simple deposit-based banking business). Unless they take advantage of the current financial turmoil to enter the world financial markets, Japanese banking industries will stay the insignificant banking player in the world market.

Click to expand...

I think .... that J-banks do not need to follow the self-collapsed Anglo-American Investment Banking model. I personally believe that Banking Business is a kind of shadow business, not a leader of industries but a supporter of industries.

History will tell us what model is the way to go.

4. Aging population along with Japan's innate xenophobia will put a massive burden on Japan's economic productivity and tax base. Counting on the external investment incomes is like counting on your income in one source such as your 401 k or mutual funds. You know how it ends up when something goes down in the area where you don't have any control. Japan's overseas investments are in the middle of the pack compared to other countries'. So, Japan is not a top investor in the world now.

Click to expand...

Ageing population is a problem, but except USA, all advanced countries are following Japan's path.
Probably, Japan needs to extend retirement age and let seniors continue to work.

5. Inept diplomatic strategies.
Japan's tendency to be an isolationist (even though it replies on the international trade for its wealth).
Japanese's poor command of English.
Its lack of clear communication skills (Japanese cultures and its language is full of ambiguity; in the international arena, it is important to have an impeccable communication skill in English to express your thoughts clearly and unambiguously.)

Click to expand...

Japanese's poor command of Ennglish is equivalent of Westener's poor command of Japanese.
It is true that English is important in the global market, but the importance is limited to some areas, such as Financial Business and IT industries. Not so important in the manufacturing industries.

Plus, Language barrier works both way. Ameican intelligent workers lose their jobs as Indian cheap-intelligent workers replace them.

5. Inept diplomatic strategies.
Japan's tendency to be an isolationist (even though it replies on the international trade for its wealth).
Japanese's poor command of English.
Its lack of clear communication skills (Japanese cultures and its language is full of ambiguity; in the international arena, it is important to have an impeccable communication skill in English to express your thoughts clearly and unambiguously.)

Click to expand...

History clearly tells ... IF Japan becomes outspoken or seek political leadership, then Japan was/is/will be bashed. So ..... keep low profile is the best and keep distance especially from the West. Silence is golden.

6. Japan's sclerotic political system will not help Japan's economic revival nor its political standing on the international arena. On this front, there is no cure unless all the current MPs perish from the earth.

Click to expand...

Political system is rooted in each country's history and tradition. Comparison is not meaningful as far as democracy works.

7. Japan's stagnant domestic demands would also keep itself dependent on the overseas markets. On this front, there won't be much or an improvement as its aging population will reduce the consumption further down the road.

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Stagnant consumer market = Less consumer's spending = Stangant economy/Shrinking GDP ....
That's why J-government launched massive stimulus package by selling J-bonds.

In short, government spends money instead of consumers as the money comes from J-bonds, which are financed by Japanese. I think .... nothing is wrong.

And ALL the world economies are taking the same steps as Japan. But All countries, except Japan, rely on foreigners for financing. I suggest you to worry about the sales of US T-bonds, not about J-bonds.

8. Japan may need to spend more on its Self Defense Force (aka military), as USA needs to direct its limited resources to prop up its domestic economy, sort out its fiscal problems, and finish its unfinished jobs in Iraq and Afghanistan. That increased spending would add more debt on top of the current huge pile of debt Japan has.

Click to expand...

Thanking to Article 9 of the Made-in-USA constitution, .... regardless of our wish, we are not able to deploy them to Afghanistan. American should be more confident of being as a World-Police.

Astroboy said:

Stagnant consumer market = Less consumer's spending = Stangant economy/Shrinking GDP ....
That's why J-government launched massive stimulus package by selling J-bonds.
In short, government spends money instead of consumers as the money comes from J-bonds, which are financed by Japanese. I think .... nothing is wrong..

Click to expand...

The Keynesian economics has been tested and proved to work in the past. So, the J-gov's spending the tax payer money on public works in themselves is not an issue here. The issue is on what the J-gov had spend over the last 20 years.

JerseyBoy said:

The Keynesian economics has been tested and proved to work in the past. So, the J-gov's spending the tax payer money on public works in themselves is not an issue here. The issue is on what the J-gov had spend over the last 20 years.

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J-govenrment's accumulated debt nearly reaches the size of 2 X GDP. But yield of 10-years J-bond remain unchanged, almost 1%, being at the lowest level in the world. Japanese are willing to purchase such low-yield J-bonds, and J-government continues to spend on behalf of Japanese. Foreginers have nothing to do with it.

Japan's enomony cannot be gauged by the modern Keynesian economics NOR Marxist eonomics.

Greece's total debt amounts to 113% of its gross domestic product.
Investors are worried that Greece may not be able to pay off its huge debts, and are seeking safer countries for their money. This week two-year bond yields have surged to 3.09% from 1.9%.
Ten-year Greek bonds had their worst weekly decline since January, with the yield up to 5.3% from 4.99%. By contrast, the German 10-year bund - which is the benchmark government bond for Europe - yields 3.2% and the two-year bond pays only 1.2%.
BBC News - Greece insists it will not default on huge debts


Greek debts, 113% of GDP, are much smaller than Japan's government debts - some 200% of GDP. But investors fear the risk of default of Greece, and thus yield jumped up. However, yield of J-bonds continues to be the lowest - around 1.2 to 1.4% - in the world's sovereign bond's yield ranking. In Japan, house loan lending interest rate for 10 years is now 1.5% only..... which is less than half of German government 10-year bond.

I suggest .... if you want to purchase a house, you better purchase it in Japan, NOT in Greece.

Immigration

Astroboy said:

Ageing population is a problem, but except USA, all advanced countries are following Japan's path.
Probably, Japan needs to extend retirement age and let seniors continue to work.

Click to expand...

Japan is also in the process of allowing more immigration. Citizenship requirements have been greatly relaxed, and so are visa regulations, thanks to the DPJ (Minshuto). In fact, it is much easier to immigrate to Japan today than to most of the EU countries (unless you are an EU citizen) and to the US.

Astroboy said:

Stagnant consumer market = Less consumer's spending = Stangant economy/Shrinking GDP ....
That's why J-government launched massive stimulus package by selling J-bonds.
In short, government spends money instead of consumers as the money comes from J-bonds, which are financed by Japanese. I think .... nothing is wrong.
And ALL the world economies are taking the same steps as Japan. But All countries, except Japan, rely on foreigners for financing. I suggest you to worry about the sales of US T-bonds, not about J-bonds.

Click to expand...

The US is in debt to China for about USD1 TRILLION. That is to China alone. It has a trade DEFICIT with 98 countries. The situation is very grave here. Also most educated foreigners do not want to stay here, only come for short-term work or study. However foreigners, mainly Asians, account for a whalloping percentage of graduate students in the sciences. So America is also heading for a brain drain.

President Obama wants to invest billions of USD into a high speed train system, but the current system (Amtrak) is a shambles with trains that would never be allowed to operate in most of Asia, much less Japan. Besides, where does he plan to get all this money? In short, America is FLAT A$$ BROKE, and unfortuantely the US media is not telling the entire truth. In fact, the media here always try to protray Japan and other nations as worse off when in fact America is at the epicenter of the collapse.

It's true, America is at the epicenter of the collapse and Japan and Europe are right in there too. Read Ambrose Evans Pritchard on the UK Telegraph and Karl Denninger on Market Ticker to get a broad view of what a disaster the world's economies are in. Personally, after doing a lot of reading I think Japan's only way out is to devalue the Yen. The high value of the yen is just going to keep their economy in a stagnant state. I can't think of what other options they may have.

hsakakibara1 said:

President Obama wants to invest billions of USD into a high speed train system, but the current system (Amtrak) is a shambles with trains that would never be allowed to operate in most of Asia, much less Japan. Besides, where does he plan to get all this money? In short, America is FLAT A$$ BROKE, and unfortuantely the US media is not telling the entire truth. In fact, the media here always try to protray Japan and other nations as worse off when in fact America is at the epicenter of the collapse.

Click to expand...

Astroboy said:

Everydoby says that Japan's national debt is reaching 2 times of GDP, and thus collapse sooner or later.... This logic is wrong. It is because ....
1) Japan's debt is NOT a national debt, BUT a government debt, and lender is Japanese citizen or financial companies. Foreigners are not interested in J-bonds as it's very low yield. In short, J-government debt is equal to Japanese people's Asset.
2) Japan's debt is a total of J-bond, which is issued in Japanese YEN, NOT USD or Euro, and Japan is a sovereign nation having a right to print Japanese Yen note.
3) Japan is the largest creditor nation in the world. So if we see National Balance Sheet, Japan is the most healthy/financially sound company in the world.
In fact, J-bond's 10-years yield is about 1.5%, which is the lowest rate among all advanced nations, meaning Japanese government has more than enough buyers of J-bonds in Japan.
I suggest you NOT to trust Newspaper and Nobel-prized economists, but trust the reality.

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I agree. Japan's debt is NOTHING compared to the US debt. But the US credit rating is higher mainly because of POLITICAL reasons to keep it there. The same is true for Britain, an insignificant nipple in the world today. Their rating shoul be lower as well.

hsakakibara1 said:

I agree. Japan's debt is NOTHING compared to the US debt. But the US credit rating is higher mainly because of POLITICAL reasons to keep it there. The same is true for Britain, an insignificant nipple in the world today. Their rating shoul be lower as well.

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Don't be too pessimistic about US economy.

USD is the key currency in the world. Theoretically, it is possible for USA to print US T-bond unlimitedly in USD. And as USA is a sovereign nation, nobody can blame USA.
US external current-account deficit is a problem, but the problem is more serious to Japan/China/other surplus countries than USA.

I think .... Many American misunderstand their own economy. People tend to thnik that government debt will become future tax, and thus government-led economic stimulus package should be stopped asap..... but this is wrong because:

1. US government debt is financed in USD. Not in Japanese Yen or others. So if USA needs to repay it, just print the money on its own.

2. Future tax ? .... No it's not true. USA is a sovereign nation, meaning it will exist permanetly, and thus government debt can be rollover forever.

3. Devaluated USD ? .... Yes it is, and US people will suffer from inflation as import prices will soar, but at the same time US export can be driven. Trade surplus will help US economy to go brisk... meaning stronger USD.

USA is not a Greece, nor Russia, nor Argentine.

hsakakibara1 said:

Japan is also in the process of allowing more immigration. Citizenship requirements have been greatly relaxed, and so are visa regulations, thanks to the DPJ (Minshuto). In fact, it is much easier to immigrate to Japan today than to most of the EU countries (unless you are an EU citizen) and to the US.

Click to expand...

When Anericans/Europeans begin to tell .... Japan should allow more immigration as Japan needs to keep economic growth while the country enter into ageing society, They are already troubled with immigration. This means US/EU push Japan to follow their broken societies.

New Arizona law forcing hard choices on migrants
New Arizona law forcing hard choices on migrants

I believe that Japan should not seek fake economic growth (using immigration). Social stability is more important than any others in Japan, I believe.

We need more immigrants

Astroboy said:

When Anericans/Europeans begin to tell .... Japan should allow more immigration as Japan needs to keep economic growth while the country enter into ageing society, They are already troubled with immigration. This means US/EU push Japan to follow their broken societies.
New Arizona law forcing hard choices on migrants
New Arizona law forcing hard choices on migrants
I believe that Japan should not seek fake economic growth (using immigration). Social stability is more important than any others in Japan, I believe.

Click to expand...

Immigration is not "fake". Japan must allow more people in to diversify itself. We need new blood. That is how Japan was first devised. Most of the people are decendants of foreigners (from Russia, Chian, Southeast Asia, Korea, etc.) Having more immigration will help us with more creativity, dynamism, etc. But we must allow those that will not beomce wards of the state.

Astroboy said:

Don't be too pessimistic about US economy.
USD is the key currency in the world. Theoretically, it is possible for USA to print US T-bond unlimitedly in USD. And as USA is a sovereign nation, nobody can blame USA.
US external current-account deficit is a problem, but the problem is more serious to Japan/China/other surplus countries than USA.
I think .... Many American misunderstand their own economy. People tend to thnik that government debt will become future tax, and thus government-led economic stimulus package should be stopped asap..... but this is wrong because:
1. US government debt is financed in USD. Not in Japanese Yen or others. So if USA needs to repay it, just print the money on its own.
2. Future tax ? .... No it's not true. USA is a sovereign nation, meaning it will exist permanetly, and thus government debt can be rollover forever.
3. Devaluated USD ? .... Yes it is, and US people will suffer from inflation as import prices will soar, but at the same time US export can be driven. Trade surplus will help US economy to go brisk... meaning stronger USD.
USA is not a Greece, nor Russia, nor Argentine.

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Trouble is that the US owes foreigners over 9 TRILLION dollars. They can never pay it back. Also they are dependent upon the foreign central banks to buy the T bills to keep the country going. How long is this going to last? As long as those countries are dependent upon the US market. I think in about 30 years this will nto be the case. So they cannot print up bills forever if no one will buy them.

US exports? They don't make too much anymore and world competition is fierce. So things in the longer run are not good at all.

hsakakibara1 said:

Immigration is not "fake". Japan must allow more people in to diversify itself. We need new blood. That is how Japan was first devised. Most of the people are decendants of foreigners (from Russia, Chian, Southeast Asia, Korea, etc.) Having more immigration will help us with more creativity, dynamism, etc. But we must allow those that will not beomce wards of the state.

Click to expand...

Japan has already been open for foreigners, BUT not open for illegal immigration;
unskilled labor; and criminals. Plus, Japan does not allow dual citizenship. That's it.

Broken societies of other developed countries were the result of easygoing immigration policies. When eoconomy went well, they said "We are open society and Welcome foreigners". but When economy went wrong, they begin to tell "We must tighten immigration" and Who is illegal immigrant?". Such selective policies cause social unrest in the West. Majority of Japanese don't like to see broken societies but put emphasis on social stability and continuity. So please leave us alone from the Western style immigration policies.

Astroboy said:

Japan has already been open for foreigners, BUT not open for illegal immigration;
unskilled labor; and criminals. Plus, Japan does not allow dual citizenship. That's it.
Broken societies of other developed countries were the result of easygoing immigration policies. When eoconomy went well, they said "We are open society and Welcome foreigners". but When economy went wrong, they begin to tell "We must tighten immigration" and Who is illegal immigrant?". Such selective policies cause social unrest in the West. Majority of Japanese don't like to see broken societies but put emphasis on social stability and continuity. So please leave us alone from the Western style immigration policies.

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I agree that the Western style of immigration is not good at all. But we in Japan need more legal immigrants, especially those that will contribute more to the country. We need to make it easier for those with special skills, and/or higher education to come and get citizenship. We also need laws to ban all sorts of discrimination based on age, race, nationality, gender and sexual orientation.

As for dual citizenship, Japan does not recognize it but with the exception of North Korea does not do anything if you are a dual passport holder. In fact, the government is considering allowing dual nationality in the near future.

We also need laws to ban all sorts of discrimination based on age, race, nationality, gender and sexual orientation.

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I think you perspective is not equal to mine as I don't see any Significant Discrimination in Japan. Usually When foreigners say "Discrimination" in Japan, attribuites of individuals or exageration.

As for dual citizenship, Japan does not recognize it but with the exception of North Korea does not do anything if you are a dual passport holder. In fact, the government is considering allowing dual nationality in the near future.

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That's why supporting rate of Democratic Party of Japan has rapidly been declining. Historically we don't trust foreigners claiming voting rights with keeping foreign nationality.

Meanwhile, Please do not mix up Permanent resident status with citzenship. It is very easy to obtain permanent resident status in Japan unlike US green card. Japan is already enough open society for foreigners. But still certain limits.