Shinzo Abe’s Demographic ‘Bonus’

One week ago today, Bank of Japan Governor Haruhiko Kuroda announced a shift from quantitative purchases of Government bonds towards an effort to control the yield curve.

Market response was subdued, with the prevailing sentiment being one of skepticism when it comes to the ability of the BOJ to control the curve across all maturities. JBG 10Y resumed their downward slide, as yields – having briefly touched  negative 0.1% yesterday – drifted away from the BOJ’s target of zero percent, highlighting the institution’s – and by proxy, the Government’s – loss of credibility.

To be sure, Central Bank market theatrics are always a spectacle to behold, but on the day Mr. Kuroda unveiled QQEWYCC, premier Abe delivered a show of his own in front of a crowd of finance professionals in New York.

In a chilling chimerical mix of macho bravado and ivory tower disconnect from the real world, Mr. Abe painted Japan’s demographic crisis as a blessing in disguise. In the father of Abenomics’ own words:

“Japan may be aging. Japan may be losing its population. But these are incentives for us. Why? Because we will continue to be motivated to grow our productivity” […] “Japan’s demography, paradoxically is not an onus, but a bonus”

If it rhymes it must be true, right? Wrong, and the Prime Minister knows it. In fact, it is utterly farcical to claim that Japan’s aging demographic structure does not put a tremendous strain on GDP, the NHS and Social Security. If anything, the BOJ’s policy of NIRP has served only to exacerbate things, with the Government Pension Investment Fund posting losses of over $50 billion last fiscal year.

Mr. Abe also referred his cabinet’s policy of relaxing visa requirements for highly qualified professionals in fields such as IT, robotics and engineering, in an effort to attract foreign talent.

The idea itself isn’t without merit, as it could – at least in theory – help offset Japan’s brain drain. It all depends on execution, though, because with Tokyo University not even ranking first in Asia for 2016, and an archaic corporate structure that hinders career advancement, Mr. Abe has a rough sales pitch to make.

Ultimately, though, the number of people with advanced degrees in science and technology only account for an infinitesimal fraction of the population. The government could potentially succeed in attracting thousands of PhD-yielding savants, and the economic impact would still be somewhat negligible.

Formalized knowledge in the form of an advanced degree isn’t necessary to operate in every day society. Taxi drivers, farmers and restaurant owners – who are the backbone of the economy – run their businesses using simple, time-tested heuristics and have been generally successful at it.

It should be apparent to anyone outside the ivory tower of academia or the technocratic circles of government that the crux of a successful immigration policy – and I’m going on a limb here and assume that, contrary to all evidence, extensive immigration positively impacts the aggregate wealth of the host country – should lie, not on pandering to the intellectual elites, but on improving the working conditions of Filipino nurses or factory workers from neighboring China.

A modicum of modesty might help too, for the first step towards the solution to any problem – even one so mind-boggling complex as the demographic crisis facing Europe and Japan – is admitting that it exists in the first place.


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