Thursday, September 17, 2015

Japan Downgraded from AA- to A+

(Source: CNA)

Is this a surprise? Well, it isn't to me given the fact that I think the Abenomics is a insane policy based on crazy Keynesian theories. (Go team Austrian economics!)

Japan is so far down the rabbit hole, I don't see how it's possible for them to ever recover. Their debt is beyond crazy. Their demographics is worsening. They have a rich and beautiful culture, but is immensely tough to assimilate global workers into. Their language is not easy to pick up and is frankly, quite isolating for them. It's not as if their domestic market is huge and growing, unlike places like Indonesia or India. How can things improve?

Keep in mind that what I am referring to is their economy, not the digits of their stock markets. Regardless how crazy people are to believe that pigs can fly, they will have to wake up one day and face reality.

I don't mean to be a bitch to compare Singapore with Japan, but unfortunately that is the only country that I have some form of vague expertise on. Singapore is currently the only Asian country left that is top rated of AAA, AAA and Aaa by S&P, Fitch and Moody respectively.

In contrast to Japan, which is spiraling into a debt hole, Singapore's budget is much more often than not balanced and with a surplus.

Let's look at some simple demographics. Japanese people are much older with a median age of 46, tieing them for 2nd place for country with the oldest populations. Singapore is much better off, with our median age being only 33. Both Japan and Singapore have similar fertility rates of 1.46 and 1.26 respectively, which is well below the replacement value of 2.1.

How can this be overcome? If the population is declining, the only solution is to bring in people to make up for the numbers! However, Japan is strongly hindered by their culture and language, making them one of the world's most homogeneous populations. Due to this immense barrier, they are completely unable to stimulate immigration into their country. Immigrants make up a mere 1.9% of their population, while immigrants make up a staggering 42.9% of Singapore's population.

With their weakening currency, Japan is also not the top choice for foreign workers anymore. Foreign workers now choose countries which are easier to settle down and get used to, while still getting paid a competitive salary. Even if foreign workers do want to work in Japan, Japan doesn't want foreign workers. Their policies are not friendly and their people are not as welcoming.

When Lim Swee Say took a swipe at China or Malaysia, it was too easy of a cheap shot. Who would want to be Chinese or Malaysia? If he had instead brought attention that our GDP per capita based on PPP is more then DOUBLE of Japan, people might sit up and cherish our extremely lucky and favourable position that we are currently on.

Don't get me wrong, this isn't a swipe to Japan. I love eating Japanese food, I watch Japanese anime and I am planning to learn some basic Japanese before I head to Japan for a holiday next year. However, that doesn't change the fact that Japan is rapidly deteriorating as an economy and they need to expand their economy or else they would only be left with the nuclear options. However, it seems that they do not have any aces left up their sleeves to play.

Abenomics seems to be all that they had and they went all-in on that one.

The good news is that the game is still being played. The bad news is that we all already know how it ends.

How long can this shill game last? The answer is that it is well within reasonable probability that it lasts for a very, very, very long time. You don't need to look very far to see countries that have been run entirely on debt for years (hi Italy!). Since Japan runs their own currency, they would never default since they can just "print" more money pay back their debt. Of course, that would lead to hyper-inflation.

The path that Japan is on has 1 only destination - the devaluation of their currency. Unless they have an economic miracle before then.

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