Monday, June 05, 2006

Short-Term Bullish And Long-Term Bearish News For Japan

Today it was reported that capital spending by Japanese companies rose a full 13.9% at an annual rate in the first quarter of 2006 compared to the previous quarter. This was much higher than was assumed in the preliminary estimate of first quarter GDP and assuming zero net changes in other components, this will raise overall volume growth from 1.9% to 3.2%.

The longer term outlook for Japan looks weaker though, as it was reported that the fertility rate of Japanese women fell to an all-time low of just 1.25 children per woman. Although this is higher than in neighboring South Korea, where the fertility rate fell as low as 1.08 children per woman last year, that is much lower than in most Western countries, even though they with the exception of the United States, New Zealand, Ireland and Iceland all have fertility rates lower than the 2 cildren per woman needed to maintain a stable population in the long run.

This low fertility rate will mean that the ageing of Japanese society -who already have the world's highest median age- will accelerate further. This need not mean a lower standard of living assuming that average retirement age is raised along with the median age, and Japan have in fact been much better than Western countries with a particularly high median age like Italy and Germany in keeping its old people in the work force. But even if it does not necessarily mean a lower per capita income, it will certainly mean that the relative influence of Japan in the world economy will diminish.


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