Asia’s debt crisis starts to approach its endgame as the yen continues to tumble

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:

“Our nation is on the brink of being unable to maintain its societal functions.  It is now or never when it comes to policies regarding births and child-rearing – it is an issue that simply cannot wait any longer.”

The key issue is simply that consumer spending is the largest part of GDP. And Japan’s ageing population means this spend is now falling, as the chart shows. Spending last year by people aged 70+ was down by a third versus spending by those aged 45-54.

Older people are effectively a replacement economy, as they already own most of what they need. They aren’t having children. And their incomes decline as they enter retirement.

In turn, this means consumer expenditure’s contribution to the economy has been falling. As the chart shows, it has fallen from 58% in 2014 to 52% in 2021.

In order to maintain growth, Japan has had to increase its exports. They have doubled from 9% in 1994 to 18% in 2021 as the second chart shows.

But the days of Japan having world-beating companies such as Sony and Toyota are in the past. Today, there are many good companies fighting for the same markets.

So Japan has taken the devaluation route and allowed the currency to fall, in order to boost its exports.

What happens next is the key question?

The function of debt is to bring forward demand from the future. If I can’t pay today, I borrow in the hope I can repay in the future.

And back in 1990 when Japan’s asset bubbles burst, its debt was just 40% of GDP, as the chart shows.

So it was relatively easy for the government to borrow. And when the late premier Abe arrived, he adopted Ben Bernanke’s stimulus policy. The debt ratio soared, virtually doubling in just 10 years.


By any normal standard, Japan seems now to be completely unable to repay this debt.

Its ageing population means its consumer spending will continue to fall. And so policymakers are effectively trapped:

  • It can’t allow the currency to fall much further – as that would risk a collapse
  • The only way to stop this would be to increase interest rates to world levels from today’s 0.9%
  • But higher interest rates would reduce consumer spending and further weaken GDP growth
  • And in any case, Japan can’t afford to do this, given that debt is now 263% of GDP


In Greek mythology, Pandora opened a box containing all manner of troubles. And that is the risk facing Japan, and the global economy, today. It has no good options left:


  • 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.

And it would come at a time when global debt to GDP has reached 336%. As we warned in the Financial Times in August:

A global Debt Jubilee seems the best hope of avoiding “a return to the Great Depression of the 1930s“.