People love to talk about Japan’s government finances like there’s some big “fiscal disaster” unfolding, to use Felix Salmon’s term.
Dennis Gartman, who has turned bearish on the yen, writes about it in his letter today:
Heretofore, however, Japan was able to absorb its own debts because the Japanese people bought them… en masse. No matter what Tokyo spent, and now matter how large the federal debts, the Finance Ministry could always and everywhere count upon the Japanese people to step up and buy these securities. It was a wonder to behold and it was relentless in nature. But the game is now changing for in the harshest and most honest of responses, the MOF’s “customers”… Mr. and Mrs. Watanabe as we have referred to them in the past… are dying off. Japan’s demographics have shifted far for the worse as her population is now deckling; her birth rate is approaching levels to the right of the decimal when it should be 2.0 or more to be healthy and to sponsor a growing population and economy; her corporations are watching as their cash hoards are waning and the only buyer left shall be the Bank of Japan. As we have said, if we in the US are concerned about QE II, in Japan they can look forward to QE XV and beyond.
This sounds logical, until you take it a bit further. If the ministry of finances customers are dying off, then the need to spend goes down.
And if the customers stop investing in bonds — i.e., stop saving — then it means they’ll be spending more directly into the economy, again, reducing the need to spend.
All the Japan permabears who think the yen is about to collapse into toilet paper never take it that extra step.
So despite all the worrying, this has what the yen has done over the last 45 years.