The Ageing Effect Ep. 4: 'The Tsunami will also come to your country'
Yumiko Murakami, head of OECD Tokyo, and Swiss Re's Chief Research & Innovation Officer Jeffrey Bohn on Japanification
For decades, Japan has been experiencing low growth, low inflation, and low interest rates, largely driven by an ageing population – a phenomenon termed “Japanification”. Demographic trends aside, what are the mechanisms that lead to these effects? How has Japan addressed the challenge so far? And what can the world learn from Japan’s experience as the first super-aging country? In this final episode of The Ageing Effect, Yumiko Murakami, Head of the OECD Tokyo Centre, joined us remotely for a conversation at the Swiss Re Auditorium with Jeffrey Bohn, Chief Research Officer of the Swiss Re Institute.
Our key takeaways
Murakami likens the phenomena grouped under “Japanification” to an uncontrollable demographic tsunami that the country tries to ride out. As the flow of young people into the labor force dries up, retirees form an ever growing group – as of now, over 40% in relation to the working population aged 15-65. And though Japan may currently be the first, other countries will have to face similar issues within the next decades. Switzerland, the European South, South Korea and even China are expected to deal with similar scenarios by 2050.
According to Bohn, the time period after the economic bubble burst in Japan was marked by denialism – a reluctance to accept the structural changes now known as Japanification –, while the stages of rationalization and acceptance have only been reached recently. The same development can be seen in other countries suffering the same fate.
In economic terms, Japan is characterized by low baseline labor productivity. This has been improving amidst a brewing labor shortage. But, while the trend in the past three decades has been positive, this hasn’t been enough to cushion against other adverse effects of Japanification, ultimately resulting in meagre GDP growth. Moreover, zero interest rates have put pressure on pension systems. In tandem with increased life expectancy, this has led to perceived retirement insecurity, hence why many retirees continue working. All of this points to a lacking economic resilience.
The gradual shift from a manufacturing-based to a service-based economy hasn’t been met by necessary structural changes and investments, both speakers argue. Government and businesses alike have missed the boat on adoption of digital technologies. Nevertheless, Murakami asserts that there is ample opportunity in the crisis: a shrinking labor market supply and low unemployment suggests that there may be less opposition to automation. Still, managing to reskill all the workers in time is the challenge there, she contends.
As far as former Prime Minister Abe Shinzō’s ‘three arrows’ are concerned, both speakers agree that the first two – monetary expansion and fiscal policy – have been a success, while the effects of the third arrow – policies supporting structural changes – have been lackluster. They see the need for labor reform, more support for women in the workplace, and legislation that stimulates private investment and the founding of new companies.
Yumiko Murakami joined OECD in 2013 as the head of OECD Tokyo Centre. She has been leading discussions with various stake holders in Japan and Asia, particularly in the areas of Corporate Governance, tax guidelines, gender diversity, education, international trade and innovation. Prior to joining the OECD, Yumiko held a number of leadership positions, such as as Managing Director at Goldman Sachs and Credit Suisse. Yumiko has diverse professional experiences, ranging from banking in New York and London to UN Peace Keep Operations in Cambodia. Yumiko has an MBA from Harvard University, MA from Stanford University and BA from Sophia University. She sits on the Japan Advisory Board of Harvard Business School as well as several advisory committees of the Japanese Government. She is the author of a best-selling book, Turning Demographic Challenges into Economic Opportunities (Japanese only), which is ranked #1 at Amazon Japan in the economics category.
Jeffrey Bohn is Chief Research & Innovation Officer at Swiss Re Institute. Most recently, he served as Chief Science Officer and Head of GX Labs at State Street Global Exchange in San Francisco. Before moving back to California, he established the Portfolio Analytics and Valuation Department within State Street Global Markets Japan in Tokyo. He previously ran the Risk and Regulatory Financial Services consulting practice at PWC Japan. He has published widely in the area of credit risk. He co-authored with Roger Stein Active Credit Portfolio Management in Practice (Wiley, 2009). His recent research focuses on factor modeling and large-scale risk simulations. Dr. Bohn is an affiliated researcher at U.C. Berkeley’s Center for Risk Management Research.