Wednesday, 13 February 2013

Japanese stocks and consumer confidence rise but so does debt burden

Japanese stocks rose on Tuesday, with the Nikkei 225 rising 1.9 percent to 11,369.12, close to its 33-month high of 11,498.42 hit last Wednesday.

While Japanese investor sentiment would have been boosted by a comment by economy minister Akira Amari on Saturday that the government will increase economic efforts to help the Nikkei reach 13,000 by the end of March, the news on Japan has also become somewhat more positive in recent weeks. That positive trend has continued so far this week.

A report on Tuesday showed the consumer confidence index for general households in Japan rose to 43.3 in January from 39.2 in December.

Wednesday brought news that Japan's tertiary industry index rose 1.4 percent in December.

For the long term, however, Claus Vistesen and Edward Hugh think that Japan faces serious problems as a result of its demographics.

Japan is not only an ageing society: It’s THE ageing society. Following decades of an ultra low birth rate and negligible immigration, it faces a steady decline in its working-age population and a rising dependency ratio for decades to come. There is no changing this now. Even some "miracle" reversal of the fertility problem would take decades to work through, so whatever happens next, things will get worse before they get better.

The decline in the working-age population means that any fiscal stimulus to combat deflation creates its own problems.

[I]f Japan is going to see a decline in working population over the next several decades . . . then it means the issue is a deep structural one which won't be resolved by any kind of "kick start", however large. The only consequence of having permanent fiscal injections will be not to give stimulus, but rather an accumulation of debt that will be increasingly harder for those smaller and poorer workforces to pay down in the future – especially if the process is associated with ongoing deflation.

Meanwhile, though, deflation has been kept at bay in most other countries. A report on Tuesday, for example, showed that UK inflation was unchanged at 2.7 percent in January.

However, another report from the UK showed that house prices fell in January. The Royal Institution of Chartered Surveyors' house price balance fell to -4 in January from -1 in December.

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