I have a few things on my mind this week. We have to talk about Japan and the BOJ. Last week’s decision by the BOJ to raise its deposit rate above zero for the first time in 17 years cements Japan and its central bank as a counter cyclical indicator, of sorts. While major central banks have spent the majority of the past 18 months raising interest rates, the BOJ has stubbornly resisted calls to exit NIRP, despite rising inflation. Now that the ECB, BOE and Fed are on the cusp of lowering interest rates, the BOJ is pulling the trigger on a hike. The BOJ’s decision raises a number of fundamental questions for global macro traders and thinkers. The most obvious one is whether the twin inflation shock from Covid and shifting geopolitics is now pulling major developed rate markets out of their ZIRP/NIRP funk. And if they are, does this mean that the idea of long-term gravity of rapidly ageing population weighing on inflation and interest rates is wrong? Is Japanification now reversing? I am sceptical, but if Japan manages to escape, it would go a long way to falsify the idea of a determinist link between ageing and disinflation.
Read MoreJapan invariably looms as the central case study for the economic and societal effects of rapid fertility decline, population decline and ageing. Japan is, measured by median age, the oldest country on earth, excluding the greying millionaires of Monaco and the some-5,000 people on British St. Helena. At the end of 2021, Japan had a median age of 48.4, well ahead of the second major country on the list, Italy, with a median age of 46.8. Japan is about to get older still. According to preliminary estimates, the country’s fertility rate fell further last year, albeit marginally, while the gap between births and deaths remained wide as ever. The number of live births fell by 5.0%, to 770.774, while deaths rose by 9.0%, to 1.57 million. Japan’s rapidly ageing population is the result of a quicker and more sustained post-1945 fertility transition than in other developed economies.
Read MoreLast week we learned that China’s population shrunk last year, for the first time in 60 years, by 850K, the net result of 9.6M live births, and 10.4M deaths. It is worth taking these numbers with a pinch of salt. Accurately accounting for some 1.4B people is difficult, especially down to a sub-1M difference between deaths and births. It’s possible that future revisions will show that China’s population has been shrinking since the beginning of the 2020s, or that it won’t start shrinking until 2025 or beyond. What is clear for anyone with even cursory knowledge of Chinese demographics, however, is that this headline was coming sooner rather than later. China’s fertility rate has long since declined below the replacement level, and all-age mortality is now rising as the population ages. But does it matter that China’s population is now shrinking?
Read MoreWhether you’re an evolutionary biologist, cultural sociologist or a neoclassical economist, the study of human fertility behaviour can be boiled down to an interplay between two immovable forces: the quantum and tempo effect. The first treats the fundamental question of reproduction; how many children to have, and how much resources to invest in each of them. In its simplest form, the quantum effect is the study of how much, if at all, women exert control over the quantity of offspring they produce. The extent to which they do—and almost all disciplines agree that they do in most social contexts—the analysis focuses on the conditions that determine the number of children, and how much resources that are devoted to each of them. It is an analysis of trade-offs, concentrated on the trade-off between the quantity and quality of offspring. How this balance is achieved represents one of the most crucial processes in the study of reproduction, aggregate fertility, and the demographic transition.
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