Jonathan Punter's blog

Previous Article Next Article


Japan's economic conundrum

Typhoons, tries and 25 years of trying to get the Japanese economy over the line

If it’s true that more people live within 30 miles of Tokyo than in the entire continent of Australia, then everyone seems remarkably even-tempered about what must be the most compressed urban environment on earth.

And the arrival of thousands of fans for the Rugby World Cup 2019 has only added to the bonhomie of this extraordinary nation. Add to that their stoicism in the face of one of the strongest typhoons on record, and it’s a privilege to share this wonderful sporting event with such welcoming folk.

The sense of community and resilience that stems from such an ordered society is all too evident to any visitor. Musing between matches, it put me in mind of the economic conundrum that’s dogged the Japanese economy for the last quarter century.

Bursting of the bubble

On the (friendly) face of it, this is still a prosperous country but the interest rate tells a different story. Now in minus territory, it has been one per cent or lower since the early ‘90s.

The bursting of the bubble which, partly through reckless lending, hugely over-valued property and companies in the 80s, left a landscape dominated by liabilities where the view had previously been towering assets.

And that’s, largely, the way it has stayed. Despite the best efforts of the prime minister, Shinzo Abe, growth moves more slowly than a prop who has absent-mindedly strayed onto the wing.

Negative yield

Measured as a proportion of GDP, Japan has the highest level of debt on earth (at 240 per cent) and the absence of a traditional interest rate engine to drive growth, together with one of the world’s oldest populations, doesn’t appear to offer positive indicators for the future.

There’s also something about the sheer passage of time with little or no change to Japan’s giant economy that is staggering.

Even now, with negative interest rates as the ultimate incentive, there is little appetite for corporate investment. Not only is there transparent mistrust about the size of the bad loans government had to prop up but certainly a lack of confidence, even fear, about moving forward.

Brave Blossoms

For most of us, deciding on an investment means assessing the risk but it also means seeing the opportunity. And, like Scotland’s second half against Japan, it can be a character-builder - i.e. an almost impossible task but better to attack it with the objective in mind, than give in to self doubt from the off.

Far be it from me to read the Japanese state of mind on the strength of an unforgettable stay in the midst of the global festival of my favourite spectator sport but, even after nearly a quarter of century in the doldrums, there are no visible signs of a nation overwhelmed.

Corporate balance sheets the world over have been groaning with unallocated capital since the aftermath of the credit crunch, a situation with which Japan is only too familiar. 

It may be that a real, concerted solution has to be global which, in these politically fractured times, looks less likely.

But given the scale of Japanese assets invested outside the country, a consensus-driven, infrastructure-centred approach would be a positive move not only for the economy here but under-strain financial systems everywhere.

Don't forget to share this post!

LinkedIn Twitter

Despite the best efforts of the prime minister, Shinzo Abe, growth moves more slowly than a prop who has absent-mindedly strayed onto the wing.

Three Things Catching Our Attention

Psigma Video Blog

Psigma’s CIO Tom Becket discusses three headline-grabbing situations and what Psigma's views are as we go forward towards the end of an exhausting year

Watch the video

Sign up here for Jonathan Punter's blog

After 40 years of experience in the pensions world, I'm sharing my insights.