Japan Economy

Japan is the world’s second largest developed economy — the third-largest in the world by nominal GDP, and fourth in terms of purchasing power parity.

In the last two decades, Japan has seen living standards rise by a considerable amount, comparative income equality and the appearance of a purely functional banking system. It’s an economic miracle.

However, despite its enormous power and economic improvements, the Japanese economy is still in deep water. There’s a strange disconnect between Japan being a rich country, already living in the future, and its history of lost growth and absent inflation.

And in the nature of the global economy, when a crisis occurs overseas, it creates a ripple effect across the globe.

That’s why it’s such an important thing to keep an eye on.

And our editors here at Money Morning do so regularly.

In its current state, Japan’s debt heavily outweighs its revenue. The Bank of Japan has employed one of the biggest money-printing programs in history — and in turn has devalued the yen and created mass volatility in the Japanese stock market.

Sure, a little bit of inflation can be good to reduce the burden of debt, but Japan has experienced genuine price stability for two and a half decades — which isn’t always a good thing.

Internally, there is a heightened public demand for deeper reforms in remedying Japan’s endemic economic problems, but fear of the upheaval which such measures would cause.

The increasing problem of demographic decline — caused by low birth rates and an aging, shrinking population — is also posing a major, long-term economic challenge.

To put that into perspective, the number of Japanese peoples aged 15–64 peaked in 1995 and has since fallen more than 10%. The total population hasn’t undergone as dramatic a change, but since seeing a peak in 2010, the country is seemingly the same size as it was 25 years ago.

The country is also experiencing pressuring security concerns from North Korea, and China’s claims of sovereignty in the East and South China seas are also creating waves.

The question now stands, how will an economic fallout of Australia’s second-largest trading partner affect the Australian share market, the economy and your investments?

This section explores that very topic, plus the latest in current events and updates surrounding the Japanese economy.

Why Japanese Debt is a Disaster Waiting to Happen

US money manager Kyle Bass says Japan’s central government spends 50% of its revenue on servicing debt. If interest rates rose by 2% then all of Japan’s tax revenue would be spent on servicing debt, leaving it with no money for anything else.
Money Morning Australia