Recently, many tourists visiting Kyoto, Japan were surprised to find that the wooden railings of the three bridges across the Kamo River were covered with a layer of moss, and there were many cracks at the connection points of the railings.
According to Japanese media reports, the reason why this ancient bridge built in 1590 suffered such a tragic situation is that the financial situation of Kyoto is not optimistic and it is almost bankrupt.
Kyoto’s financial distress is a microcosm of Japan’s financial predicament.
In May of this year, the Japanese government disclosed the national debt situation of the previous fiscal year: as of the end of fiscal year 2021, Japan’s long-term debt balance exceeded one trillion yen for the first time, an increase of about 44 trillion yen compared with 2020, a record 1017.1 trillion yen. The new high of the yuan is almost equivalent to twice the GDP of Japan.
Japan’s long-term debt balance hit a record high for the sixth year in a row, doubling in 20 years.
The current Prime Minister Fumio Kishida said during his election campaign that he would focus his administration on domestic affairs and deal with issues such as epidemic prevention and control, economic and people’s livelihood, etc. However, the media and academic circles are generally not optimistic about his ability to resolve the huge financial deficit.
”The mouth of the crocodile is getting bigger and bigger”, “Titanic sailing to the glacier”… The Japanese have taken a lot of jokes for their government’s financial problems, and their dissatisfaction is palpable.
The aging population, the government’s nearly distorted quantitative easing policy, and the unsound fiscal system have become the three big mountains that weigh on Japan’s finances. Under the joint action of the three, the Japanese government’s rescue of the market by tearing down the east wall to make up for the west wall will not help.
Endless retirement expenses
Wealth accumulation is nothing more than increasing income and reducing expenditure, but there is such an expenditure, not only can the Japanese government not reduce expenditure, but can only spend more and more – this is social security expenditure based on medical and nursing, annuity, childcare and other systems.
In March of this year, social security spending accounted for one-third of the fiscal year 2022 spending budget approved by the Senate of the Japanese Diet, an increase of 439.3 billion yen from the previous fiscal year to a record 36,273.5 billion yen.
Japanese Prime Minister Fumio Kishida visits a nursing home in Tokyo on May 19, 2022
Behind Japan’s life expectancy ranking first in the world, it is indispensable to support its various pension benefits.
The soaring social security spending reflects the increasingly severe problem of aging. According to the 2020 national census (the census) released by the Ministry of Internal Affairs and Communications of Japan, the population over the age of 65 accounts for 28.6% of Japan’s total population, and the number of elderly people has reached a new high.
Behind Japan’s life expectancy ranking first in the world, it is indispensable to support its various pension benefits, but this also objectively brings social security and financial pressure, and constantly drags down economic growth.
A few years ago, the Japan Financial Advisory Conference released survey data. It is expected that the elderly population over 65 years old in Japan will peak around 2040, and the related social security expenditure will reach 190 trillion yen, which will increase about 190 trillion yen compared with 2018. 60%.
The freezing three feet is not a day’s cold, and the deep aging is a microcosm of Japan’s economic bubble after the burst. Accompanied by the aging of the population, there are also the laying down of the Buddhist system of young people and the declining birthrate.
In 1995, Japan’s total fertility rate fell below 1.5, the internationally recognized low fertility line. This has been the case for 26 years now: starting in the 1990s, Japan saw a wave of laid-off workers following the recession, while children born in the previous economic miracle-induced baby boom grew up—and in the process, they watched The elders face the dilemma of the economic downturn.
The insurmountable class, and Japan’s continuous implementation of the “abundant education” system, make many young people choose to “lie down”. Downgraded consumption, low desire to buy, and “Buddhism” have become synonymous with this group of young people. In this context, the desire for love and the birth rate have both declined.
According to official data from Japan, the proportion of the single population in Japan has reached as high as 30%. Among them, the proportion of men who had never married before the age of 50 was 23%, and the proportion of women was 14%. Relevant agencies predict that in 2035, half of Japanese people will be single; Japan’s National Institute of Social Security and Population Issues estimates that even in the most optimistic scenario, the Japanese population in 2065 will still decrease by 25% compared with 2020.
Old man walking his dog alone on the street in Japan
Unmotivated young people lead to low birth rates, and low birth rates lead to an aging society. An aging society delays retirement and prolongs working years, which in turn makes young people more reluctant to struggle. Japan seems to be caught in an inescapable cycle.
Data from the Japanese Ministry of Health, Labour and Welfare shows that in 2019, Japan’s total social security payments accounted for 22.1% of GDP. 55.9% of the financial resources for social security payments come from enterprises and the labor force. With the reduction of the labor force, this piece of social security financial resources shrinks, and the growth of the elderly makes social security expenditures inflated, and the government’s financial pressure intensifies.
More intuitive is the Japanese pension. Japan’s pension system adopts a pay-as-you-go system, which means that when the pension expenses paid by the working population are lower than the expenses of the current retired population, the insufficient part needs financial funds to advance.
The number of people with pension needs is increasing as the expenditure side, while the working population who can pay pensions is less and less as the supply side. This situation is basically unsolvable in Japan, and it is no wonder that former Prime Minister Shinzo Abe will Japan. The low birthrate is called “national disaster”.
Economic stimulus fails
Looking back in history, after World War II, Japan had a period of rapid economic development in the 1960s and 1980s, but after the bubble economy burst in the early 1990s, the “Heisei boom” since 1986 was almost completely destroyed. When it comes to huge deficits these days, there are always many who blame them as the aftermath of the bursting of the bubble economy.
Unlike the U.S. method of passing on the crisis by over-issued U.S. dollars, Japan has relatively few means to deal with the economic crisis: the government has increased its fiscal budget, and it has become the norm to issue subsidies to specific companies or citizens, which also paved the way for the high debt of the Japanese government. .
At that time, Japan’s financial regulatory system was too old compared to the fast-growing economy. The supervisory power is nominally in the hands of the Ministry of Finance and the Bank of Japan – but since the appointment and removal of central bank officials is entirely in the hands of the Ministry of Finance, the Ministry of Finance can also directly order the central bank, which also makes the Bank of Japan almost a subordinate institution of the Ministry of Finance. The exaggerated quantitative easing policy was born in this context.
Since 1992, under the pressure of economic downturn, in order to stimulate growth, the Japanese government has greatly expanded public works expenditures, which increased by 30% year-on-year in that year and continued to rise in 1993. Just when the Japanese economy was slightly improving, in 1998, under the impact of the Asian financial crisis, the Japanese economy experienced negative growth for six consecutive quarters. The Japanese government once again resorted to a monetary offensive and continued to increase public investment.
With a high degree of centralization, Japan’s financial policies are highly coordinated. When a crisis comes, disorder and lack of supervision have become the boosters of the crisis.
No wonder former Prime Minister Shinzo Abe called Japan’s declining birthrate a “national disaster”.
On September 1, 2017, people commemorate the victims of the Great Kanto Earthquake
In 2001, Junichiro Koizumi, then the Prime Minister of Japan, started to carry out economic structural reform, comprehensively cut public investment, and reformed the financial supervision system, and achieved certain results. However, the arrival of the financial crisis in 2008 destroyed the reform achievements that had not yet been warmed up.
In addition, unexpected situations such as the Hanshin Earthquake in the 1990s and the Great Kanto Earthquake in 2011 made Japan’s already poor financial situation even worse. The Japanese government’s temporary supplementary budget has become the norm: a supplementary budget is formulated almost every year, under various names. Grant subsidies to enterprises, local governments, etc.
Plenty of money has failed to help Japan’s economy take off again. According to the calculation of Professor Pang Deliang from the Northeast Asia Research Center of Jilin University, from 1969 to 2011, Japan’s total fiscal expenditure had a negative effect on economic growth. Especially before the 1990s, the negative effect of Japan’s actual fiscal expenditure was even greater; , the average annual growth rate of the Japanese economy is only 1%, and it has not been able to rely on fiscal expenditure to quickly get out of the trough.
In the response to the new crown epidemic, the Japanese government is not inactive, but the price is quite heavy. For example, in 2020, the Japanese government launched three consecutive supplementary budgets, making its debt increase higher than the average value of European countries and the world.
More importantly, in the face of such a large supplementary budget expenditure, the Japanese government has yet to open up new financial resources such as the special reconstruction tax (a tax set up to solve the reconstruction problem of the Kanto earthquake), and the financial situation is inevitably deteriorating day by day. .
The second Yubari?
Japan’s unsound fiscal settings are also reflected in the local government, which also makes the Japanese government’s fiscal deficit spread to the local area.
Local governments in Japan are divided into prefectures and cities, towns and villages. The former has a relatively large area under its jurisdiction and is also known as “wide-area local government”, while the latter is a grassroots local government.
In 2008, in Yubari, Hokkaido, a Ferris wheel was dismantled to be used as a material for local urban construction
Crowds in the streets of Kyoto, Japan
Since the provisions on local self-government were written into the Japanese Constitution in 1946, the right of local self-government in Japan has been expanded. All affairs directly related to the daily life of residents are carried out by the local government.
This also means that in addition to the foreign affairs, defense, currency and judicial affairs undertaken by the central government, Japanese local governments will assume corresponding responsibilities. In terms of finance, Japanese local governments have completely independent budgetary powers.
Relevant statistics show that Japan’s “local tax” revenue accounts for about 40% of the total tax revenue, while the local fiscal expenditure accounts for 60% of the total fiscal expenditure. According to the statistics of Japan’s Ministry of Internal Affairs and Communications, since 1990, the amount of insufficient local finance has soared more than tenfold in less than five years. In order to meet the expenditure needs, many local governments began to continuously issue local bonds.
In addition to the aforementioned Kyoto, in fact, as early as 2000, Izumaki Village in Fukushima Prefecture was already in a state of financial failure; in 2007, Yubari City in Hokkaido became the first city in Japan to file for bankruptcy.
Yubari City, located in Hokkaido, was a famous coal capital during the Meiji era. The expensive Yubari honeydew melon and the best film “Happy Yellow Handkerchief” of Japan’s “Hochi Film Awards” made Yubari famous in the 1970s.
As the status of coal resources weakens, Yubari inevitably faces the problem of a large outflow of population. To this end, Yubari actively responded to the call of the Japanese central government to issue bonds to build a tourism industry, hoping to use tourism to reshape the city’s image.
Unfortunately, the Yubari government did not have enough development capacity to unearth tourism projects with distinct local characteristics. With the downturn of Japan’s economy in the 1990s, tourism projects such as theme parks and ski resorts dropped to freezing point. The hotel resorts that Yubari spent a lot of money built were unpopular and quickly became non-performing assets.
In order to avoid a blow to the city’s image due to the bad financial situation, Yubari City even used a crooked brain, using the “cashier arrangement period” from April to May every year to transfer the various fund income of the new year and the funds borrowed from the bank. Short-term loans were included in the previous year’s income to conceal the deficit. But after all, the paper could not contain the fire, and Yubari could only file for bankruptcy in the end.
Whether Kyoto will become the second Yubari in the future, we don’t know, but the financial pressure of Japan’s central and local governments is visible to the naked eye. According to economic laws, continuing to borrow heavily for the next economic cycle may be the only way out for the Japanese government at present.
It’s just that no one knows whether or not Japan’s next economic growth cycle will come, and when will it come, and Japan, with its low birthrate, will be able to “receive” such a cycle by then?