Daibutsu, Kamakura

Daibutsu, Kamakura
Daibutsu in Kamakura, June 2010. There were thousands of school kids visiting that day. It was still great fun.

Saturday, January 29, 2011

Japan's Debt Crisis

Below is a portion of a recent January 27, 2011 article from Time.com regarding Japan's debt crisis.

Standard & Poor's on Thursday downgraded Japan's long-term credit rating. Granted, the rating is still very, very strong, but the action does indicate how investors are growing nervous about the deteriorating state of government finances even in those economies considered to be the bedrock of the global economy.

Japan has been heading here for a while. Its government debt to GDP ratio, at around 200%, is already the highest of any industrialized country. Its economy has been in a slow-motion economic crisis for two decades, yet policymakers have proven incapable of undertaking the sort of reforms necessary to get growth going again. And despite talk of a hike in the consumption tax and other measures to shore up state finances, the latest budget, passed in December, is anything but austere, with borrowing expected to exceed tax revenues. Thus giant budget deficits are expected to continue. S&P noted all this in its statement on the downgrade:

The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s. Specifically, we expect general government fiscal deficits to fall only modestly from an estimated 9.1% of GDP in fiscal 2010 (ending March 31, 2011) to 8.0% in fiscal 2013. In the medium term, we do not forecast the government achieving a primary balance before 2020 unless a significant fiscal consolidation program is implemented beforehand.

Nor are the underlying dynamics within the population and economy going to help Japan get out of its fiscal mess:

Japan's fast-aging population challenges both its fiscal and economic outlooks. The nation's total social security related expenses now make up 31% of the government's fiscal 2011 budget, and this ratio will rise absent reforms beyond those enacted in 2004. An aging and shrinking labor force contributes to our modest medium-term growth estimate of around 1%.

S&P, however, has little faith that the current administration running Japan can implement a serious program that could reverse the deteriorating trend in national finances:

In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer. We think there is a low chance that the government's announced 2011 reviews of the nation's social security and consumption tax systems will lead to material improvements to the intertemporal solvency of the state... Thus, notwithstanding the still strong domestic demand for government debt and corresponding low real interest rates, we expect Japan's fiscal flexibility to diminish.

To be clear here, Japan is not Greece or Ireland. S&P's downgrade doesn't mean Japan is spiraling into a debt crisis. Japan is still a creditor nation with giant foreign exchange reserves and high national savings. But at the same time, the downgrade shows the slippery slope all of the developed world finds itself on. As debt mounts and aging populations put more strain on government budgets, there is a rising possibility that investors will eventually lose confidence in countries like France, the U.K. or Japan in the same way they have with Greece, Ireland and Portugal. This isn't going to happen tomorrow, but it will happen unless governments fix their finances, and in an intelligent way that supports long-term growth.

Thursday, January 27, 2011

Japan has no "coherent strategy" to tackle problems that have been decades in the makinge

That is the report from credit reporting agency Standard & Poor's. That is a pretty harsh and depressing statement. Since the economic collapse in Japan in the late 80s, Japan apparently decided to solve the problem with massive government spending rather than to deal with their debt and undergoing massive restructuring. It appears that decision over 20 years ago and the lack of much willingness to change has only made Japan's problems worse. Will Japan ever realize their problems and deal with them in an aggressive way? I'm not sure.

Below is an article from Fortune.com describing S&P's recent and shocking downgrade of Japan's debt credit rating.

Japan downgrade: The beginning of the end?

Posted by Katie Benner

What a downgrade of Japanese debt by S&P could mean for the country's future and for the rest of the world.

Japanese debt downgrade

Tokyo still looks bright.

The timing of the downgrade of Japan's sovereign bonds by Standard & Poor's on Thursday came as a bit of a surprise to some. After all, Japanese government bond yields have been relatively stable recently, the yen fairly strong, and, as Citigroup points out, the government has vowed to address its sky-high debt load this year.

But S&P isn't convinced that's going to happen. "The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s."

The agency has been concerned about Japan for months, issuing reports last October and November that said the country's debt, the highest in the developed world, threatened to destroy its credit worthiness. As it did then, S&P says today that the country has no "coherent strategy" to tackle problems that have been decades in the making.

When Japan's economy collapsed in the late 1980s, the government chose not to write down bad loans or take the pain of massive restructurings. Instead it launched a massive borrowing program in the hope of stimulating the economy enough to outgrow its rough patch. Government debt grew from 66% of gross domestic product in 1989 to 226% in 2009 -- by far the largest percentage of any industrialized nation. (The U.S. figure is 93%.) Despite the spending, Japan's economy never strengthened, and the country fell into a cycle of increased deficit spending.

Certainly Japan's woes are no secret. But perhaps paradoxically, because the country has stagnated for so long, many assumed the economy had bottomed out. Sure, a recovery may not be likely -- but a collapse? Hard to imagine, or so one might think.

The debt problem could push Japan's rating into the BBB category after 2015, S&P said in November, "and by 2025, the country's fiscal indicators might weaken to the extent that they would be more typical of the performance we currently associate with speculative-grade sovereigns (those rated 'BB+' or lower)." Today's downgrade pushed its long-term rating from AA to AA-minus.

While the move came as a surprise to some, a handful of investors and economists saw the downgrade as an acknowledgment of what they have believed for years: Japan is en route to a national debt crisis and a massive devaluation of the yen.

Kyle Bass, who runs the Dallas-based hedge fund Hayman Advisors, has been the most vocal prophet of Japan's doom, taking his message to conferences and the media for over a year. The genial southerner, who darkens at the mention of the country's finances, is wagering his investors' money (and his own) that, sometime in the next five years, the Japanese government will have to pay such high interest rates to sell its bonds that the government will effectively go bankrupt. "The Japanese have created the circumstances for the greatest financial failure in world history," he says. The worldwide impact will be "awful."

Money manager Vitaliy Katsenelson and Devin Stewart, a senior director at the Japan Society in New York and a Carnegie Council Senior Fellow, agree with Bass. The way they see it, Japan has never meaningfully flirted with a loan default because it has always been able to borrow money from its own life insurance companies, pension funds, and banks.

Indeed, these institutions own more than 90% of all of Japan's outstanding debt. Moreover, they loaned the government ever-larger sums and demanded almost no yield in return. That left the Japanese government much like a man who carries a huge balance on an ultralow-interest-rate credit card: His salary may never be large enough to pay the bill in full, but he can always cover the minimum payment.

Disastrous demographics

Bass, Katsenelson and Stewart say that this balancing act is being upended because of a simple shift in demographics. Seniors now make up about 23% of the country, according to estimates from the Organization for Economic Development and Cooperation. That's nearly twice the percentage of retired citizens in the U. S. and three times that of the rest of the world.

The graying of the population is playing out in two ways that could have disastrous consequences for Japan. First, entities like life insurance companies and the Government Pension Investment Fund will be net sellers of Japanese government bonds going forward so that they can gather cash to support the new pensioners.

Meanwhile the population is in long-term decline -- the working-age group peaked in 2009 -- so there are fewer workers and a smaller pool of tax receipts to support the retirees. Japanese tax revenues have collapsed to levels not seen since 1985, both because of the demographic shift and the global recession.

That means Japan has to sell more bonds even as its traditional customers begin selling more than they buy. The rub: "The available pool of capital to buy bonds is no longer greater than the debt needs," says Bass.

Japan will someday have to entice new investors, mostly from other countries -- and it doesn't have an appealing story to tell. The government currently runs a deficit of about $500 billion a year and growing. And it has the highest corporate taxes and among the highest income taxes in the world. Attempts to raise the nation's value-added tax have been rejected by the people. Efforts to raise capital by liquidating the country's $2.8 trillion in financial assets (many of which are U.S. Treasuries) would send the sort of desperate signal that would hurt the price of Japanese bonds.

In short, if Japan wants to sell bonds to the rest of the world, it's going to have to offer higher interest rates. But if Japan paid what the rest of the G-7 pays, its interest costs would immediately exceed its revenues. Current debt payments are about $244 billion a year. Bass has calculated that every percentage point in higher yields adds another $125 billion in annual interest expenses. So if investors demand just an extra two percentage points above current yields -- bringing Japan in line with what Canada would pay to issue debt -- that adds $250 billion in annual interest payments to the country's debt figure. That eats up the nation's entire $489 billion in revenue.

Aaron Costello, a global investment strategist at Cambridge Associates says that the need to borrow from the outside would probably trigger a debt crisis, but it could be a long time before this happens. In some ways, Japan's fate is tied to the speed with which investor sentiment can change.

"Like all government debt, Japan faces a confidence game," Costello says. "Right now there's plenty of confidence, but the markets inside and outside of Japan may move in anticipation of stress. It could price in the need for incremental foreign purchases and you could see yields easily double to 3%."

The Japan of the future

Vice Finance Minister Fumihiko Igarashi said this week that his country must fix its budget problems or face a debt crisis that could trigger a global depression.

Bass says the scenario would mean the political chess game between debtor and indebted nations is on. "Central banks should be positioning themselves for this and playing out the endgame," Bass says. "How many times do you think the U.S. military has game-theoried a conflict between Iran and Israel? I'd be willing to bet countless times. But how many times do you think our Treasury has played out a Japanese bond crisis? I'm willing to say never."

Most importantly, the difference between Japan, which seems relatively sanguine, and the struggling EU nations, which seem to flirt with disaster everyday, is that no one has enough money to bail out Japan.

"If Lehman Brothers was too big to fail, then Japan would be too big to save," agrees Costello. "In some respects Japan is ahead of the curve, because Europe and the United States are eventually going to have to deal with this, and it will be interesting to see how this plays out."

Monday, January 24, 2011

The alarm bells of Nagasaki

Below is an article from Economist.com about the population and apparent economic decline of Nagasaki. Nagasaki since the time of the Edo period has been one of Japan's most open and vibrant cities. While the rest of Japan was closed to foreigners during the Edo period, Nagasaki still engaged in limited trade with the Dutch and Chinese. Is the article's description of the decline of Nagasaki an accurate description of much of Japan today? I wonder if depopulation is necessarily a bad thing if managed right. I'm not sure if Japan will mange it's depopulation right however. The article

The alarm bells of Nagasaki

Japan’s “window on the world” is now a window on what ails the country

AT 60, Hiroshi Ikeguchi wryly describes himself as one of the youngest in his district. He has lived his whole life in Irifune, just above the Mitsubishi Heavy Industries shipyard. But like his ageing neighbours, the Nagasaki suburb is collapsing around him. A dozen houses have been left to rot after their owners have died. Some are piles of timber; in others, katsura trees grow through the roofs. Outside one is a new year’s offering of fruit left by a neighbour who still laments how the death of the “kind old lady” who lived there went undiscovered for a week. Peer through the letterbox, and in the gloom you see a calendar pinned to the wall. The date is September 1988.

In Mr Ikeguchi’s youth, when Nagasaki was rebuilding itself after nuclear devastation in 1945, the streets near his house rang with the sound of shipwrights walking to the Mitsubishi yard each morning. Now Nagasaki’s economy has gone still. The port city’s fortunes show how three forces sapping Japan’s energies—depopulation, overcentralisation and foreign competition—are hurting not just rural backwaters but once-prosperous cities on Japan’s fringe. The phenomenon remains partly hidden. Residents of luxury apartments across the bay complain about Irifune’s shabby appearance. If only they knew, Mr Ikeguchi says, how bad it really is.

The brain drain reinforces a demographic trend. The prefecture’s working-age population has shrunk from over 1m in 1990 to 874,000 in 2008, a result both of the exodus and a declining birth rate. The prefecture of 1.45m is shrinking and ageing so fast that one of Nagasaki’s main department stores, Tamaya, has closed down its children’s department and stocked up on undergarments and hearing aids. With shrinking investment, and fewer jobs and young families, new house-building has fallen by half in the past ten years.Nagasaki’s troubles are self-reinforcing, argues Takamitsu Sato, president of the Nagasaki Economic Research Institute. Since the 1960s a brain drain has sucked people towards Osaka and Tokyo. Young people who left to find jobs elsewhere never came back. Even now, seven in ten college students leave to study, and over half of young people find jobs elsewhere.

So now Nagasaki’s living standards are falling too, a shock in a country where economists said that individuals could be better off even if the overall economy shrank in size. Mr Sato’s institute reckons that if today’s trends continue, GDP per person will fall from ¥3.26m ($28,000) in 2007 to ¥3.14m by 2020. Everything, he says, is going downward.

Can Nagasaki pull out of the spiral? Historically, after all, the city is Japan’s most open, allowing in Dutch and Chinese merchants in the 17th-19th centuries when foreign trade with the rest of the country was banned. Nagasaki is one of the closest cities to China and South Korea, with opportunities for tourism and trade. The museum to the atom bomb and its victims is world famous. Nagasaki is the birthplace of Japanese Christianity. It was a cradle of insurrection against the last shogunate, helping to shove Japan into the modern age with the Meiji Restoration of 1868.

To reverse the decline, Mr Sato has drawn up a plan with local officials that looks for overseas revenues to make up for falling domestic ones. That is hardly revolutionary. Among the goals are doubling numbers of foreign students, to 3,000; turning the shipyard into a tourist site; and bolstering sales of kamaboko, a rubbery fishcake. But asked about bolder measures such as encouraging foreign investment and skilled immigrants, Mr Sato says there is “not the right environment” for that yet.

Meanwhile, Nagasaki’s once-mighty shipping industry has been keelhauled by South Korean and Chinese yards with lower costs and quicker thinking. And Mr Ikeguchi says that even modest government initiatives, like demolishing abandoned houses in Irifune to attract newcomers, take years to grind through city hall.

Like the elders of Nagasaki, the prime minister, Naoto Kan, realises that Japan must look abroad since its own markets are shrinking. At the start of 2011, he declared (143 years after the fact, some might say) that this was the “first year of opening Japan to the outside world” in the modern era. Nagasaki is a good example of why action needs to be swift and bold.

Tuesday, January 11, 2011

Sisters found dead in Osaka apartment fell from wealthy family into abject poverty - The Mainichi Daily News

Sad story. Japan is not the country many people in the rest of the world believe where there is no poverty. This is probably more common then we realize.

Sisters found dead in Osaka apartment fell from wealthy family into abject poverty - The Mainichi Daily News:

Sisters found dead in Osaka apartment fell from wealthy family into abject poverty

TOYONAKA, Osaka -- The two women found dead in an apartment here, with no food and only a pittance in cash, are thought to be two sisters who fell from a wealthy family to such abject poverty that one apparently starved to death.

The two are thought to be Kiyomi Okuda, 63, and her sister Kumiko, 61. No food was in the room's refrigerator, and only a meager 90 yen were found in a purse. A bank book in Kumiko's name showed a balance of zero yen since June of last year.

Autopsies showed that the two died one after the other on around Dec. 22 of last year, the older woman from heart disease. The younger woman's cause of death could not be determined, but weighing only 30 kilograms and showing evidence of malnutrition, starvation seems likely.

According to a 67-year-old male relative, the two sisters were single. Their parents were wealthy landowners, but their father died about 20 years ago, and a few years later their mother died as well. Neighbors say that the two sisters worked at jobs including as school office clerks until their late 40s and lived in their parents' house across from the apartment complex, and they were even the apartment complex's owners.

However, their house was later put up for auction, and the two moved into the apartment complex, where many of the rooms were empty.

"Even though they owned land, they may not have had any income. They seemed to have been in debt, and after they could no longer depend on their father's income, things were probably particularly hard," said the male relative.

Around three or four years ago, a former classmate of the younger sister noticed her limping and recommended she go to a hospital, but she said she couldn't afford to go, even though she wasn't well.

Last year in October, the older sister went to a housewife who lived nearby and begged for a loan of 10,000 yen. The housewife says she lent her the money and the older sister thanked her and said she would try to make the most of it.

"I knew that they were very poor, but I never imagined they would die this way," said the housewife.

According to sources from the city of Toyonaka, the sisters told an Osaka District Court official who had told them they had to evict that they "didn't know what to do" about their lives. Electricity and gas to the sisters' apartment was shut off in September of last year. Unable to reach the two women, the court official asked for advice from the city on how to meet with them.

In response, the city suggested going with police and entering the women's apartment, but the city did not provide local welfare workers with information on the women or otherwise take active steps to intervene.

"It is a terrible shame that they did not contact us for help," said a city official.

Thursday, January 06, 2011

Japan's population falls by over 100,000 for first time since the war - Telegraph

Japan's population falls by over 100,000 for first time since the war - Telegraph: "Japan's population falls by over 100,000 for first time since the war
Japan's population has declined by more than 100,000 for the first time since the end of the World War Two, according to new government figures.

By Danielle Demetriou in Tokyo 12:29PM GMT 06 Jan 2011
Famously home to one of the world's fastest ageing societies, Japan experienced a record population drop of 123,000 during 2010.
The decline is the fourth consecutive annual decline and brings the current population to 125.77 million, according to statistics released by the health ministry.
The nation's already ageing population combined with an extreme summer heatwave were believed to have caused deaths to hit a record 1.19 million, an increase of 52,000 compared to the previous year.
The rise in deaths overshadowed a slight increase in birth rates, with 1.071 million babies born in Japan last year, marking an increase of 1,000 from 2009.
Meanwhile, marriage and divorce rates both decreased by around 2,000, with 706,000 couples tying the knot and a further 251,000 formally separating."

Wednesday, January 05, 2011

Jizo Bodhisattva: Guardian of Children, Travelers & Souls in Hell

The book, Jizo Bodhisattva - Guardian of Children, Travelers & Other Voyagers, written by American Zen teacher Jan Chozen Bays, provides an informative overview of the history of Jizo Bodhisattva or Ojizo-sama. For those who are familiar with or live in Japan, you probably have heard of Jizo Bodhisattva and you probably have seen many Jizo statues. It is a common sight in Japan.

I also had heard of Jizo but I did not know too much about what Jizo was or signifies. This book provided a good overview from a Zen Buddhist's perspective. The book also provided good information about some of the basic beliefs of Buddhism such as rebirth and the various hell realms.

Here are some of the interesting things I learned from this book.

A Bodhisattva is an enlightened being who vows not to enter nirvana, but instead works to free all others who suffer. Jizo's two most important vows are: "Only after the Hells are empty will I become a Buddha" and "Only after all beings are taken across to Enlightenment will I myself realize Bodhi."

Jizo is known to be the protector of children and travelers. You sometimes will see Jizo statues along roads or highways. At temples or cemetaries, a Jizo statue may be seen holding a child.

Statues of six Jizo's are often found at the entrance to cemeteries or temples. The six Jizo's represent the division of Jizo into six bodies, one to help suffering beings in each of the six realms. The six realms are the Hells, Hungry Ghosts, the Animal Realm, Human Realm, the Realm of the Asuras, and the Realm of the Gods.

There are actually many forms of Jizo. Below are some of them:

Emmei or Enmei Jizo - Jizo who prolongs life and provides benefits including watching over children and curing illness
Hara Obi Jizo - Stomach-wrapper Jizo who protects women during pregnancy
Hikeshi Jizo - Protects houses and harvests from fire
Indo Jizo - Saves humans after death and leads them to enlightenment
Meyame Jizo - Restores eyesight
Taue Jizo - Helps farmers plant rice
Mizuko Jizo - Water-Baby Jizo

There are many other Jizo's besides these above.

The popular Mizuko Jizo or Water-Baby Jizo is often portrayed as a monk with an infant in his arms and another child or two at his feet. In Japan, a ceremony called a Mizuko Kuyo is performed for grieving parents who have lost an infant either before birth or within the first few years of life. The Mizuko Jizo is a more recent creation. This Jizo and the Mizuko Kuyo ceremony arose in Japan in the 1960's.

The Jizo that is the special protector of Children arose during the medieval times in Japan. According to Japanese Buddhist beliefs, young children who have died are innocent souls who are unable to understand the teachings of the Buddha or to separate right from wrong. This also means that, through no fault of their own, they cannot become enlightened. They are stuck in a kind of limbo. Jizo protects the children in this limbo realm from demons.

Jizo statues often carry a pilgrim's staff. At the top are rings, usually four or six. Four for the Four Noble Truths of Buddhism or six for the six realms of existence such as the Hell or Human realms.

In the other hand of most Jizo statues is a cintamani jewel. The cintamani is the jewel that fullfills all wishes. The jewel is supposed to emit a warm brilliant light which illuminates the deepest reaches of the hells.

There were many other interesting facts I learned about the Jizo from this book. If you are curious about the many Jizo's located around Japan, I would recommend this book.