Japan shows that a nation of geriatrics is still capable of financial reform Filming the closing prices of the Nikkei on 22 February, 2024

Consider the way of the tiger

We should learn lessons from Japan as we start to face our own demographic crunch


This article is taken from the April 2024 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

From the moment I opened the door to him, I knew that this year’s financial health check was going to be even more miserable than my recent company medical.

My financial adviser avoided eye contact as he clicked open his black leather box briefcase and laid out meaningless bits of paper on the kitchen table. Slowly the ghastly diagnosis emerged.

My investment trusts had gone thrombotic. “More sellers than buyers, I am afraid,” muttered my adviser. The stake in a commercial property fund stacked with empty provincial shopping centres was still gouty. And the spivvy micro-cap fund, run by a chum I once drank with in a Leadenhall basement bar, was now in a terminal condition.

But, amidst the gloom, there was one corner of my portfolio in rude health. A Japanese equity fund I had half forgotten about had jumped 30 per cent.

After two lost decades, the Nikkei has been the stand-out performer of the past year. Whilst it would be an exaggeration to say that this Asian tiger is once again roaring, there have been some positive real-world changes which have underpinned the froth in the markets.

There may be lessons from Japan for us, as we face our own unsettling economic future.

Back in the late Eighties and early Nineties, Japan was the future. My daughter’s bedroom was covered in hideous Hello Kitty posters. My son developed repetitive strain injury from over-use of his Nintendo Gameboy.

In the City, the Japanese were buying everything: train manufacturers, software companies, even Scotch whisky distilleries. We taught ourselves to use chopsticks in greasy yakitori joints and practised that fiddly business card thing the Japanese do.

At my local park cafe, there are fewer pushchairs and more knitting circles

I even made a stab at learning the language, though I never mastered more than the basics like kono kaisha ni ikura harau ka — that’s Japanese for “How much are you willing to pay for my company?”

Then in 1992 the bubble burst, and so did the careers of some friends who had been long in Tokyo real estate. So began a long period of stagnation. Bad demographics is the conventional explanation for why the Japanese economy has spent so long in the doldrums. The median age is now approaching 50. The fertility rate is stuck at 1.4 live births per woman, and the overall population is slowly shrinking.

But recent developments have shown that a nation of geriatrics is still capable of reform and progress. The perkiness of the Japanese financial markets is at least in part a fortunate legacy of the structural reforms put in place by Prime Minister Shinzo Abe before he was shot dead campaigning in 2022.

These included cutting business taxes, with incentives to get more older people into the workplace. Meanwhile the stuffy boardrooms of Japan, under pressure from Western activists, have finally started to prioritise shareholder value.

So what are the lessons for us Brits? Well, you don’t have to be a population scientist to see that we have already entered our own demographic crunch.

In London, primary schools are being mothballed. At my local park cafe, there are fewer pushchairs and more knitting circles. For all the hysteria about the small boats, the real migration story is the exodus of industrious Eastern European families from Britain in search of a better life for their children in Łódz, Brno or Timisoara.

The message from Japan is clear. Deregulation is the only solution to this slow moving, but inexorable crisis. But it is a message that seems to be lost on our politicians.

This March, Jeremy Hunt announced in his Budget that defined contribution and local government pension funds would have to declare how much they put into UK equities. He may be well-meaning, but it will turn into another piece of gold-plated compliance bureaucracy, which will add to the City’s general sclerosis.

On the Labour side, Rachael Reeves’ plan to abolish zero-hour contracts seems precisely designed to deter older people from returning to the workplace.

Thanks to the new miracle of electric-powered bicycles, there’s no reason why the over-65s can’t enjoy a life of flexibility, fresh air and social contact as a courier for Deliveroo.

It is not inevitable that the UK suffers the same long-term stagnation as the Japanese. But unless our politicians abandon their growing appetite to regulate, to ban and to tax, I fear we are headed for a lost decade or two of our own.

Until the Hunts and the Reeves wake up to the risk, I am instructing my financial adviser to stay short of UK PLC and go long on, well, anything else.

Enjoying The Critic online? It's even better in print

Try five issues of Britain’s newest magazine for £10

Critic magazine cover