Make Japan Great Again

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MAKE JAPAN GREAT AGAIN (PDF Report)

The campaign poster on the cover page is from Yubari City in Hokkaido – “No money but love.” Yubari is notable for five things. First, it is the region that produces Japan’s most expensive melons, the type you see beautifully encased in a satin-lined pine box with a price label of US$200. Second, it had to declare bankruptcy in 2007. Third, its population has fallen from 117,000 in the 1960s to around 21,000 in the 1990s to less than 8,900 today, falling 19% in the last 5 years alone. Fourth, the average age of the city’s residents is set to hit 65 by 2020. Fifth, taxable income continues to fall with estimates that government coffers will swell by a woozy 25% of the levels seen 20 years ago.

Their claim that Yubari has the lowest divorce rate in Japan doesn’t seem to be stopping residents from divorcing it. In fact, as we learnt in our Crime in Japan series, economic woes are preventing more couples from divorcing but even some that break their vows end up living under the same roof. The problem is so prevalent that the National Police Agency had to invent a new category for domestic violence to tally the sharp rise in cases in 2014 of divorced couples living together.

Hokkaido’s woes are not just limited to Yubari. Sadly, the northern island holds 6 of the top 15 prefectures across Japan experiencing an exodus of its citizens. Hokkaido has 85 villages with less than 5,000 residents. Over the last 5 years in percentage terms, Yubari has seen a greater flood of people than Minamisoma, a town in Fukushima Pref. on the 30km exclusion zone border to the north of the crippled Fukushima Daiichi nuclear reactor.

Akita Prefecture has the highest percentage of 65yo+ citizens in Japan at 33.2% of the prefectural total. Over 27% of its workforce is in construction and manufacturing. In what world, can a community avert such a skewed employment picture? If the working aged populace is leaving with their kids (high school enrolment is down 22% in 5 years), one of the highest natural population declines and Akita has the second highest prefectural debt per capita what need is there for new construction projects or the rationale for a corporate to expand local production?

Perhaps not surprising, many citizens are seeking new fortunes in the major cities – Tokyo, Osaka, Nagoya, Yokohama, Saitama and Chiba are capturing the socio-economic spoils. One name that did surprise was Fukuoka in the southern island of Kyushu. Fukuoka Pref. can claim 3 of the top 20 fastest growing cities in Japan.

Around 20 years ago, the Japanese government embarked on a program known as ‘Shichosongappei’ (市町村合併)which loosely translates as mergers of cities and towns. However as much as that plan to sensibly merge public services was – e.g. waste collection, councils, schools and hospitals – the cities (especially to the north) have continued to shrink. Age is a big factor which shows up in prefectural GDP/capita as well as suicide rates.

Cities in the northern prefectures (Tohoku) face the biggest challenges. The Great East Japan Disaster of March 2011 has only exacerbated the move out of these areas. Eight of the top 10 places for fastest rates of depopulation are in Tohoku. Shikoku, and cities on the Japan Sea coast are also at the mercy of residents pulling up roots. We colour code these prefectures to show how our ‘basket’ correlates highly.

Our biggest concern in summary

Our biggest concern remains that of rapid acceleration of depopulation going forward. Things seem normal until the Rubicon is crossed. Then the damned flood can’t be dammed. As the productive workforce looks to abandon its roots in search of sustainability we fear that corporates also face a big dilemma. As was experienced with German reunification workers flocked to more economically viable areas in the West scorching those businesses in the East. East German regions had to hike wages significantly to stem the tide, ruining profitability. Even today the East has significantly higher unemployment rates than the former West as businesses in the former communist bloc went to the wall (no pun intended).

The Japanese government’s plans to revitalise the regions are not working because economic reversals all hinges on confidence. The chicken and egg argument is simple. If corporates fear not enough workers will remain to justify production and workers think long term quality of life will be far more sustainable in economically healthier areas, growth won’t happen in the regions.

As regional Japan continues to shrink, the pressure will then be put back on the fiscal status of the prefectural governments. The Japan Local Government Bond Association (JLGBA) highlights that the financial strength index (FSI) of Shimane is the poorest in Japan. To put that in the context of Detroit, which declared bankruptcy in 2013. Detroit has approximately $30,000 debt per resident today. Looking at Shimane Prefecture its citizens carry around $14,000 prefectural government debt per resident. Given the working age population of 54% (and falling) that number balloons to around $26,000 per working age resident. Debt servicing (around 16% in Shimane) is one thing but in the last 6 months, yields have begun to climb. As we know debt financing can turn on a dime. Read on…