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Japan Is Dying

Harvey Jones
January 28, 2011

Two or three decades ago, it was fashionable to say that Japan was the future. And now it seems that we were right: Japan does look like the future. Just not in the way we expected.

Back in the 1970s, Japan was the rising economic powerhouse that was set to shift the balance of power from West to East, rather like China is supposed to be today.

Then look what happened. It suffered not one lost decade but two of them, and is heading for a hat-trick. And as far as I can see, this is only the beginning of its woes.

Dead country
I spent a couple of months in Japan 20 years ago, and I loved the place and the people. But it pains me to say that unless the country goes through a radical (and unlikely) transformation, it will be no more. It will cease to be. It will shuffle off its mortal coil, run down the curtain and join the bleedin' choir invisible.

It will be an ex-country. Do you want to invest in that?

How much debt?
Japan has problems. It has public sector debts of nearly 250% of GDP, compared to 59% in the U.K. Its budget deficit is 8.7% and no plan to shrink it for at least five years. And this week, ratings agency Standard & Poor's downgraded Japanese debt from AA to -AA, claiming it lacks a "coherent strategy" to control this massive deficit.

So far, Japan has been able to service its borrowings by turning to its own people, who buy 94% of its government debt, even at rubbish yields of around 1.21%. But this can't go on forever, and for a very worrying reason.

The future is grey
Japan is aging. It has the oldest population in the world, with an average age of just over 44 years. And it's getting older.

I like old people, but you can have too many of them. In Japan, there are just three workers for every pensioner. In a decade, that will fall to just two workers, and continue to shrink. Japanese pensions have been notably generous. That will have to change.

Just as people shrink with age, so do countries. By 2055, the Japanese population will have shed a massive 38 million people, falling from 128 million to around 90 million.

The Japanese have stopped replacing themselves. The average woman has just 1.27 babies, and the number is falling. It ranks 184 out of 195 countries in the UN fertility ranking table.

The country seems to be going off sexual reproduction altogether. In a recent government survey, an incredible one in three Japanese males aged between 16 and 19 said they weren't interested in sex, or were actively averse.

If demographics are destiny, Japan is doomed. Once a population starts declining, it is very hard to reverse, except perhaps by immigration, which all those conservative, elderly Japanese people will resist.

1.21% anyone?
So what will happen to all those people? They will stop working, claim pensions, and die. They