An extremely interesting article at The Burning Platform on the current state of the Japanese economy and the high probability that it will go very badly wrong in the near future.

On the current status of Japan we have this rather descriptive metaphor :

John Mauldin has described Japan as a bug in search of a windshield. Bug meet windshield.

Which is rather surprising when most of the press you see will talk of a lost decade and deflation being their problem when, according to the article, the problem is the aging population and fundamentally broken finances.

As a pointer to the future of Europe, where populations are aging rapidly (hence governments everywhere scrambling to raise retirement ages to try and avoid the problem) it would seem like a pretty clear warning to sort out the welfare system before we get to the same position. I have a feeling though, that Japan will go tits up long before then and after that there will not be much in the way of money on the world anyway.

The Japanese problem with population is amply demonstrated by the following graph from the article :

The ratio of workers to pensioners growing rapidly in coming years will not help the economy one little bit and all those pensioners will be looking to their savings to support themselves rather than continuing to buy government bonds.

The second element of Japans problems lies in their debt levels with the following chart showing that 59% of the current tax take goes towards funding debt interest payments even though the interest rates Japan pays are at historic lows :

The smallest nudge in interest rates will give them a real headache which will give everyone else a migraine.

Not a great position to be in and an even worse outlook.

Recommended reading.