Like James Gruber (see my previous post), Cullen Roche has doubts about the sustainability of Japan's recovery.
We all know that QE has a substantial psychological impact on the market... it can be extremely powerful. One of the more noticeable stories has been that of Japan where Abenomics has appeared to be at least a marginal success in recent years... [B]ut one thing appears to be certain – the positive directional trend of many indicators appears to have changed from a steady rise to a steady sideways.
Like Gruber, Roche thinks Japan's demographics exacerbates its problem.
If the central bank is able to pull Japan out of its sustained deflation then we will likely see a permanent change in the way central banks engage their economies. But I wouldn’t get too hopeful. Not only do I fear that this has been primarily exchange rate driven, but I also fear that Japan’s terrible demographic trends are something that no central bank can overcome. And of course, that assumes QE has the power to sustain a recovery or avert disaster in the first place, which I tend to think is a position that’s overstated.
Morgan Housel traces the history behind Japan's current demographics.
Japanese fertility jumped from 3.1 children per woman in 1945 to 4.51 per woman in 1947 -- that was the baby boom -- and then plunged all the way down to 1.96 by 1961, which isn't enough to keep population growth positive.
This had a big impact on the economy. As Japan entered the 1970s and 1980s, the baby boom generation -- called "dankai," or the "massive group" -- hit their peak earning and spending years...
But over the last two decades, Japan's dankai ended their peak-spending years, and began retiring...
Japan's economy is smaller today than it was in the early 1990s. There are many reasons for this, but as Mark Steyn writes, "there is no precedent in human history for economic growth on declining human capital." In 1992, there were 86.7 million Japanese aged 15 to 64 (prime working age). Today, there are 77.5 million. That's the equivalent losing three-quarters the population of Tokyo.
Fortunately for the US, it has much better demographics.
America has some of the best demographics in the developed world, largely due to immigration. Twenty-five million more people live in America today than did in 2004... The Census Bureau projects the U.S. population will rise by another 26 million over the next decade, and by more than 80 million by 2050.
Importantly, America's working-age population is still growing, and projected to increase by 5.5 million over the next decade.
Among other things, better demographics means that the US is able to absorb the excesses of its housing bubble better than Japan did.
Indeed, a report on Monday showed that pending home sales rose 3.4 percent in March, the most since May 2011.
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