Japan.. is collapse inevitable?

Japan isn't unique in its ability to cope with hard times. There's interesting stuff going on in Greece, Spain and Portugal as their economies turn to dust.

What's with the mad max, apocalypse, Armageddon descriptors? How economies cope and the people within them will vary from country to country. Some will experience total ruin and the worst things that that brings. At the other end the smart cookies will make a killing. The thick end of the wedge will be at the bust end unfortunately. Whether countries descend into civil strife even war remains to be seen. I don't see things going well for middle eastern and African countries. Europe's problematic. Plenty of civil unrest there and we aren't even near the end game yet. The US will be interesting. South America – hope we don't go back to the old days of military dictatorships. By and large I would expect that most western countries will stay relatively stable while they work through this.

Unfortunately history shows us that economic collapses are often followed by war. Here's hoping we don't go down that path.

What makes you think there is a dollar in buying Yen now when it's clearly loosing value…The end is in sight for the Yen as we know it. Japanese currency collapse is now seen as real possibility.

I'm talking about you buying yen as it falls (and while the BOJ makes a concerted effort to weaken the yen)… crazy. Now the BOJ is going to monetise Euro's for the ESM. As if their own debt pile isn't big enough they're going to add more to it. Somebody must be getting something out of this. I can only go by your posts but your timing seems to be somewhat premature. 

The Yen will not depreciate strongly because competing CB's won't let it.

The BOJ will and is trying to devalue. Other CB's will counter. Last ten years. They were doing ok in keeping the yen competitive up until the GFC where they got absolutely smashed. They managed to claw it back fairly quickly but then other CB's got into the 'lets play silly buggers with our currencies' game and ever since its been a cat and mouse game of sea sawing currency madness.

The above chart screams correction to a stronger yen then the cycle will start again. There is no way the other CB's will let the yen get away from them. Their problem now is that the yen might be seen as a good buy and push the yen back up. I suspect the yen carry trade will also jump at this opportunity.

I think you're oversimplifying the China dispute. This isn't like the last few bingles these guys have had and sorted fairly quickly. This one's much more protracted and there's no real sign anyone's backing down to any great extent. Japan's taken a pounding on this one and I don't see any easy or quick resolution to this dispute. Until it's resolved once and for-all it'll continue to fester and flare up for some time yet.

I still see it as a massive diplomatic fumble. When ever it gets reduced to this level of antagonism (and that's putting it mildly) you can hardly describe it as anything else. From where I'm standing Japan's coping the worst of it.

China-Japan Dispute Takes Rising Toll of Top Asian Economies

Japan Times tries to talk up Japanese prospects in China

When you describe the public works schemes and other diverse range of initiatives you seem to paint these as measures that will pull Japan back to a more financially stable position. On the contrary. While they contribute to economic activity and disasters like Fukushima provide an opportunity to rebuild with more modern technology and more productive efficient systems they don't in themselves solve many of the problems Japan faces financially. Disasters hurt the bottom line and require substantial financing to rectify. The replacement infrastructure may be better but at the end of the day there's a lot of red ink on the ledger that needs to be ameliorated.

There's a theory in economics that touts the value of destruction through war, natural disaster etc as benefit economically in that it stimulates business activity and is therefore to be welcomed. It gets debunked regularly as incorrect.

Again, that cyclic logic. You can't claim the Japanese spend too much and hoard too much at the same time.

You're deliberately misrepresenting the article. It indicates that consumers will hold currency in a deflationary environment because it gains buying power. Opposite to inflation. You're well aware that every economy has spenders and savers. Most CB's including Japans are trying to push consumers to spend when they've already spent too much. The BOJ is trying to avoid deflation which most consider to be more damaging than inflation (because the BOJ like other CB's wants to inflate at least some of debt away). 

So on the one hand you have an economy that's obviously been overspending and living beyond its means for decades but elements within the populace who are holding on to their hard earned a little longer than the CB bureaucrats would like.

Good luck on the energy thing. If the Japanese get it right they'll be the first in the world. I won't hold my breath.

Yes, except that Japan is nowhere near the end of its ability to borrow or lend to itself internally.

I think you're in the minority there and its exactly that mind set that prevents there ever being a sane sound approach to economic management. Kyle Bass, who's a pretty switched on cookie by all counts, has already indicated the Japanese bond mark has about 3 years before things go pear shaped. I suppose they'll do what the ECB and Fed are already doing and that's monetising their own debt. As far as I know it's never been done successfully for any length of time. When they get to lending to themselves you'll know your real close to going belly up.

The first predictions to Japan's financial collapse were made some 15 years ago,

Financial mismanagement is a bit like gangrene. If you get it early the consequences are fairly mild – a toe a finger maybe. Let it go thinking things will come right and you risk loosing limbs. Fail to cut deep and back enough and your life hangs in the balance.

Back during the Asian Crisis Japan went to the brink. It's banking system was collapsing. To head off total collapse the BOJ stepped in and used public funds to guarantee debts and recapitalise its banks. To this day its never recovered and the past decades have been dubbed 'lost decades'. Japan's problem is that it's had to fend off 2 collapses in the past 20 years or so. In 89 it was literally flattened. It seemed to recover from that with strong exports and an equally strong currency. There were those who predicted collapse and by 97 Japan was on the floor again. Its foreign reserves enabled it to hold after that hit. 

Today reserves stand at US$1.3T while its debt is on track to hit US$14T by March 2013. Debt (govt) to GDP has increased from 50% to 200% over the last 20+ years. The question now is could Japan take a 3rd hit and survive given the problems are magnitudes bigger, global in nature and Japan has a weaker economic profile and outlook than on previous occasions. 

The vultures are circling and the shorts are in. The market smells a corps in the making. It'll be interesting to see how Japan escapes this one. If past collapses are any indication it won't be pretty.

If you and I were neighbors and we were both standing on our roofs with hoses watching a bushfire come our way you'd say, "wind'll change".

Me. I'd say, "might do". Then get in my car and bugger off because I only rent the place and I moved my stuff out the week before because someone said, "good chance we'll get a bush fire up here this year. Too much fuel around and good fire conditions."

ROFL…. come on Ziv. You can't give up now. Dummy spits don't become you and I think you're way too intelligent for that even though I think you're bordering on paranoid delusional when it comes to Japan. (/sarc)

So lets summerise. I think the probability (but not absolutely conclusively) that Japan is gone for all money if it can't get its house in order.

You on the other hand have absolute faith in Japan's ability to pull the fat out of the fire and drag this thing along to eternity.

You invest in small inexpensive (relatively speaking) properties in the main with healthy (by PI standards) returns. 

If I was going to live in Japan for the rest of my natural I have no problem with this strategy as far as property investing goes. As a foreign investment though the risk is extremely high with regard to a stated policy of currency devaluation and a somewhat difficult economic environment both locally and internationally.

So where do I see opportunity?

Well I'm not really a property guy anymore. Been there done that and thought there must be better ways to turn a buck than spend half a lifetime leveraged to the eyeballs trying to build a property portfolio based on rental returns that with a bit of luck may provide me with some economic freedom in the distant future.

Given that I see the economy as a basket case and getting worse I looked a bit harder at the Japanese social dynamic and the crumbling nature of their social fabric. Problems I was able to identify that offer opportunities were;

• household income is back at 1988 levels and still declining
• suicide rates are horrendous at (globally) 2nd highest for women and 8th highest for men leaving them at 6th overall
• homelessness continues to increase (currently 30,000 and rising)
• homeless tend to be male (96%) and over 55
• 2nd layer of homeless called cafe refugees who tend to be temp/part time workers who buy accommodation at internet cafes by the night. A 3rd of all temp/PT are in this category
• PT/temp workers earn 40% less than FT workers
• unemployment continues to rise and sits around 4% (I suspect its actually higher in real terms)
• 2.5million elderly are indigent. That rate increased 183% in 10 years (1995 -2005) and is probably considerably worse now
• household saving rates have collapsed since the 80's. Japan once had the highest of any OECD country. They are now below the OECD average and falling.
• cost of cram schools creates barriers to the those below the poverty line
• those falling below the official poverty line continues to increase. In 2007 poverty was measured at 15.7% or 1 in 6
• Capsule Hotel Poverty. Capsule hotels used to be casual accommodation for those who missed trains etc. Today you can rent these on a monthly or long term basis and are increasingly popular among those who cannot afford deposits and bonds etc.

Now I'm not familiar with the cost of things over there but my instincts tell me that the low cost temp accommodation market offers opportunities. It appears to be a growth market if past trends are anything to go buy.

Ziv you're the resident expert so would this be a feasible business operation?

Yes… China and Japan will once again be happy chappies very soon. Not I think

Chinese Military On "High Alert" After It Scrambles Fighter Jets To "Counter" Japanese Jets

• At a press conference, an official with the ministry confirmed that China sent two J-10 fighters to the East China Sea after a Y-8 aircraft was closely followed by two Japanese F-15 fighters as it patrolled the southwest airspace of the East China Sea oil platform on Thursday.

Japan tracer bullets will bring war closer

• …..the Japanese government is considering permitting Japanese self-defense forces' fighter jets to fire tracer bullets as warning shots against Chinese surveillance planes which have "infringed" upon Japan's "territorial airspace" over the Diaoyu Islands.

I get the distinct impression this just isn't going to end well.

Jeez tell me about it. Old girl and I went down to the Mandurah waterfront for breakfast this morning. Two all day breakfasts (2 poached eggs, rash of bacon, a skinny sausage and half a fried tomato with toast) a tea and a cappuccino …$46!!!