Last week, the Japanese yen fell through the US$ : ¥150 level for the first time since 1990. As the chart shows, it has now fallen by nearly 50% against the US$ in the past two years.
The currency is behaving as if Japan were a 3rd world country. Yet it is actually the 3rd largest economy in the world. Clearly, something is wrong, very wrong.
One key problem is that Japan has the oldest population in the developed world. UN Population Division data shows its median age is now 48.4 years:
- As the chart shows, the Perennials 55+ cohort is now 41% of the population
- The UN forecasts it will be 43% by 2030 as the Wealth Creator and Under 25s cohorts decline
- And the total population itself is not only ageing, but also in decline
As Japan’s premier Fumio Kishida warned on taking over in January:
- If the Bank of Japan does nothing, the currency collapse will likely continue, and may even accelerate. It is already at its lowest level since 1990, before the bubble burst
- But if it raises rates, even to 1.5% or 2%, then the economy will slow. Consumer spending will likely reduce and the debt burden will increase still further
- And as the Bank of Japan owns >50% of all Japanese Government Bonds, its own debt is now equal to Japan’s GDP
But the problems don’t stop there. The Bank of Japan has also been effectively creating a false market in equities:
- As an excellent Bloomberg analysis noted last year, the BoJ is now the “largest owner of the nation’s stocks“
- It also now owns 80% of all Exchange Traded Funds traded in Japan, valued at $260bn at the end of July
- It is therefore effectively trapped, as nobody else could possibly afford to buy its portfolio if it sold
- If it did try to sell, it could easily “spark a major sell-off” as Bloomberg warns
And then there are major “second-order risks”:
- As the Council on Foreign Relations warned earlier this year:“Total holdings of foreign bonds by private Japanese institutional investors, excluding Japan’s $1tn reserve portfolio, reached $3tn”
- And as JP Morgan has warned:“Japanese investors may start to unwind investments overseas if yields are more competitive in their home markets. This could potentially be seismic for global financial markets. We worry as the yield curve normalizes and rates go up, you could see a decade — or longer — of repatriation. This is the one risk I worry about.”
Plus, of course, when investors finally wake up and focus on Japan’s looming debt crisis, they may well start to look more closely at China.
After all, China’s debt is even larger than Japan’s at 280% of GDP, due to its post-2008 stimulus programme. It also has an ageing population, with its Perennials the main source of future population growth.
The risks of a second Asian Debt Crisis seem uncomfortably high. And unlike 1997, which focused on ASEAN countries, a 2024 Crisis would involve the world’s second and third-largest economies.
A global Debt Jubilee seems the best hope of avoiding “a return to the Great Depression of the 1930s“.