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Japan’s Demographic and Financial Implosion Accelerating

Despite the positives of cheaper oil, a weaker yen currency, and zero interest rates, Japan’s Nikkei 225 stock index plunged -3.02% in overnight trading. Over the last 25 years, Japan has become the world’s most indebted nation and its stock market has lost 70.4% of value as the nation is literally beginning to die out in a demographic implosion.

The Japanese stock market peaked at 38,957 in December 1989 and has fallen to 16,890 for a -56.4% loss. But after 90% inflation over the period, the real loss is equal to -70.4%.

Within the next 50 years, the population of the world’s third largest economy will fall by one third from 127 million to 87 million, according to government forecasts. In 100 years, the population will fall by two thirds to 42 million people. Without replenishing its workforce, a rapidly aging population is at the heart of Japan’s financial malaise.

Japanese leaders over the last century sought to strengthen Japan economically and militarily to prevent losing control to foreign colonial powers. Referred to as “tanitsu minzoku,” or people from a single stock, the effort cultivated a strong sense of ethnocentrism among the Japanese to motivate them to sacrifice for the common good.

This desire for racial purity explains why Japan has been highly resistant to foreign immigration. Currently, less than 2% of Japan’s population is not ethnically Japanese.

Japan’s population was estimated in July 2014 to be 127,103,388. The age structure is:

0-14 years: 13.2% (male 8,681,728 / female 8,132,809)
15-24 years: 9.7% (male 6,429,429 / female 5,890,991)
25-54 years: 38.1% (male 23,953,643 / female 24,449,655)
55-64 years: 13.2% (male 8,413,872 / female 8,400,953)
65 years and over: 25.8% (male 14,218,655 / female 18,531,653) (2014 est.)

With the average resident’s age at 46.1 years old and rising fast, Japan has already begun to suffer a negative population growth of -.17%. This compares to a positive +.44 for China and +.77 for the U.S.

Japan’s demographic collapse has also created the world’s worst dependency ratios:

Total dependency ratio: 63.3 %
Youth dependency ratio: 21.2 %
Elderly dependency ratio: 42.1 %

Each working Japanese person in their prime earning period of 25-54 years old is now responsible to provide for 2.4 older and younger persons.

While Japan’s average life expectancy has been rising, its birth rate peaked in 2000 and has been shrinking since 2005. Last year, a record 244,000 died and the trend is accelerating. In 2065 when the population of Japan is down to 87 million, about 40% of residents are likely to be 65 years or older.

Twenty-five years ago, Japan’s government debt was a low 50.6% of the nation’s Gross Domestic Product (GDP). But today, Japan has the highest debt to GDP in the world at 226.1%, according to the CIA. To put that stunning number in perspective, Japan is almost 30% more indebted than Greece, which is a financial basket case.

Despite running spending deficits to subsidize dependency, Japan made its economic challenges worse by raising the income tax rate from 50% to 50.84% and spiking the sales tax from 5% to 8%.

Other than opening up the country to mass immigration, the only answer is for government policy to encourage a rise in the birth rate. The Japanese government since 2000 has provided public funding for in-vitro fertilization and other fertility treatments for women interested in becoming pregnant.

But it seems that the youth of Japan regard sex as “superfluous and unnecessary.” A recent government report found that “45 percent of Japanese women aged 16-24 are ‘not interested in … sexual contact,’ as are 25 percent of Japanese men.”

With nationwide local elections planned in April, the ruling Japanese coalition just announced $29.12 billion of additional stimulus that the government said would boost GDP by 0.7%. But after 25 years and trillions of dollars of failed stimulus spending, Japan’s experience should serve as a warning for other nations regarding the financial consequences of a demographic implosion.

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