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Japan: An Inflection Point

financialsense.com / DAVID KOTOK / 01/11/2017

Picture this story on the front page of the New York Times or the Wall Street Journal:

japantimes.co.jp/news/2017/01/06/national/social-issues/japan-academic-societies-propose-defining-elderly-aged-75-older.

Hat Tip to Jeff Uscher of Japan Insider for the catch. Jeff notes that “As of September 2016, 27% of the Japanese population was aged 65 or older but ‘only’ 13% are aged 75 or older.” Jeff reminds us that “the standard of being considered elderly was raised from 60 to 65 back in 1956.” That change was driven by a United Nations ruling. In 1956 the average life expectancy of a Japanese man was about 64 years. Today it is about 81 years. For women, life expectancy was about 68 years then and is 87 years now.

Translate this approach to payments for workers and retirees. Take the working age to 75 and the pre-elderly age to 65, and the entire payments structure of benefits shifts dramatically. This change occurs at a time when Japan’s aging population is working longer and the labor market in Japan has tightened. Remember, Japan has very strict limits on immigration. In Japan, the ratio of job openings to job applicants has tightened to the level it was 20 years ago.

Does this measure portend the end of deflation in Japan? Will we finally see changes in incomes and movement away from the two-decade malaise of no inflation, limited growth, and continuously rising savings rates as people worked longer and accumulated more money in order to protect themselves in their old age?

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