Investment Insights are written by Angeles' CIO Michael Rosen
Michael has more than 30 years experience as an institutional portfolio manager, investment strategist, trader and academic.
Japan grew from the (literal) ashes of the Second World War to become the second largest economy in the world by creating products we all wanted. Some were revolutionary, like the Sony Walkman, some just a better version of an existing product, like the Toyota automobile. And some were wildly popular for inexplicable reasons, such as Hello Kitty or Teenage Mutant Ninja Turtles.
The Japanese economy was an amazing success story. But two decades of no growth, deflation and a shrinking population combine with public comments from politicians and CEOs that are often platitudinous, mysterious and contrary to reality, leaving many investors confused and frustrated. In that confusion and frustration, it has become common to hear that Japan is just different, not like the rest of the world, where traditional metrics just don’t apply.
I am certainly no Japan expert, and there may be some truth to this characterization of Japan exceptionalism. But in recent years, I’ve come to believe two things about Japan: that the policies that led to stagnation and deflation over the past 25 years may not have been as irrational as outsiders believe, and secondly, to some degree, Japan’s current challenges are a preview of what lay ahead for the rest of the world.
I may come back to a fuller discussion of why and how I came to these conclusions, but here, I wanted to share some demographic data. As the great French philosopher, Auguste Comte, father of positivism, noted, demographics is destiny.
It was widely reported two years ago that adult diapers are poised to outsell baby diapers in Japan. Certainly, the growth trajectories have been diverging (see below). The Nikkei newspaper reported that the crossover in sales will come in five years, but Unicharm, Japan’s largest manufacturer of diapers, believes that tipping point has already occurred.
In more recent news, the elderly are now committing more crimes in Japan than teenagers do (see below). This is the first time in history a society has more elderly criminals than teenage hooligans.
Let’s remember that Japan has a crime rate one-tenth that of the rest of the world, so the image of diaper-wearing old folks running rampant through the streets of Tokyo causing mischief and unrest is not quite accurate. Still, I can’t help but think that criminals in diapers is another trend that Japan will soon be exporting to the rest of us.