Transcription
What exactly does "Poor Japan" mean? Deflation means that the more cash you have, the more convenient it becomes. Even though the economy isn't growing, people's lives are becoming richer. A system has been created over 30 years to somehow get by by optimizing for deflation at zero interest rates, and that system is now on the verge of being overturned from its foundations.
May I also ask you about the inconvenient truth of household income? Yes. It's said that the widening income gap in Japan is due to global capitalism, but when you look at the data, the income gap is not widening. If the gap were widening, the top 1% would be on an upward trend, and the median would be decreasing. As you can see from this, only Japan is on a downward trend. In short, Japan is a society where everyone is becoming poor, and within that assumption, how should one protect their own and their family's lives?
Hello. The theme of this Pivot episode is inflation and capital strategy. We have invited author Akira Tachibana. Thank you for joining us. Thank you. We are currently connected with Mr. Tachibana online. As Mr. Tachibana does not publicly disclose his face, we are broadcasting this with an animated icon. Mr. Tachibana, you have recently published your new book, "Poor Japan: Capital Strategy for Surviving an Inflated World." You have published various books on investment and other topics, but what exactly does "Poor Japan," the theme of this book, mean?
Japan has been in a deflationary period until now. Deflation means that the more cash you have, the more its utility increases. In this sense, even though the economy is not growing, life is somehow becoming richer. Especially for salarymen, their annual income increases with age, so there wasn't a significant problem. However, especially since around 2022, prices in Japan have started to rise, and as is often said, wages are not keeping up. It has been 30 years since the collapse of the bubble, and for the first time, people are beginning to realize that they are becoming poorer. This, I believe, is connected to social unrest, such as losses in elections or recent major events. That's the background, and that's why I decided to write this book.
Since it has been a long deflationary period, holding cash was a good strategy at the time, but things have changed again. I would like to ask you about this, as it is discussed in your book. We have prepared two main themes for this discussion. First, "The Reality of Poor Japan: Awaiting Price Hikes, Job Losses, and the Decline of the Yen," and second, "Asset Defense Strategy in an Inflated World." Regarding "Poor Japan," which we discussed at the beginning and in your book, covering economy, employment, assets, and career, where should we start thinking about this?
Fundamentally, for 30 years, we have not experienced inflation. Young people, in particular, have never even experienced the fact that depositing money in a bank earns interest. This was an abnormal situation globally. However, the problem with the Japanese economy is that it has been optimized for deflation at zero interest rates, and a system to somehow get by within that framework has been created over these 30 years. And that system is now on the verge of being overturned from its foundations. This is causing anxiety for many people. What I consistently write in this book is that, for example, in the current situation in Iran, or previously in Ukraine, or in the Gaza Strip in Palestine, if you are exposed to physical attacks or violence, there is almost no way to survive other than to escape. Conversely, economic turmoil is something we know will happen, and with basic knowledge, we can hedge against it or take out insurance. Therefore, compared to physical violence, economic issues are more manageable, and you can protect your own and your family's lives and happiness. That is the message I wanted to convey.
It's fundamentally changing. And you, Mr. Tachibana, have been advocating for a long time that this is a change that can be prepared for. From your perspective, how widespread do you see this understanding to be? Well, the biggest turning point was the start of NISA, and its expansion, which led many people to invest in global stock indexes. And as a result, stocks have been rising. At the same time, the yen has depreciated, so those who started NISA early on have seen considerable returns. And people are finally starting to change their values, thinking that their strategies were not wrong. For my part, for over 20 years, I have been writing that the risk of the yen is too great for Japanese people, and from a financial theory perspective, holding financial assets in dollars is the most rational approach. Initially, I was almost ignored, and most of the responses were along the lines of "What strange things is this person saying?" But I feel that things have changed considerably recently.
Mr. Tachibana, you mentioned that Japanese people hold too much in yen, including real estate and cash, making them too concentrated in yen. Yes, that's right. Also, their income is not in yen, is it? Because they work for a company. So, the risk of the yen is too great, and to hedge against that, it's better to hold foreign currency-denominated assets. It's a common-sense idea, but it was almost never understood.
Was the reason it was difficult to understand at the time because the ingrained atmosphere of deflation hadn't dissipated? No, it wasn't that. It was the idea that "If I hold foreign currency, I'll lose money." So, the thinking was that "The yen has no risk." And foreign currencies have risk, so it's obvious that it's better to hold assets with no risk than assets with risk. And as I mentioned earlier, in deflation, prices continuously fall, so the risk of the yen doesn't become apparent. But now, prices are finally rising, and the yen has depreciated to 160 yen to the dollar. Tourists are coming to Japan from all over the world because it's cheap, and they look richer than Japanese people, don't they? Luxury hotels and high-end restaurants are full of foreigners. It's only now that people are beginning to realize that they are becoming poorer, and the risk of the yen.
Was NISA a significant catalyst for this realization? Yes, I think NISA was very significant. And then, starting with Orca, there was a sharing of the idea that this is the most economically rational approach. The traditional life plan of buying a home with real estate and holding only cash, believing that one could live a secure life, is finally spreading among people.
Looking ahead, what do you think will happen? Your book also discusses "Japanese-style stagflation." Could you elaborate on that? Yes. It's very difficult to predict how the economy will develop from here. However, there are people who assume that everything will go well and spend all their money now, thinking that they will receive a lot of pension in the future and have no problems. This is a kind of optimistic strategy, and I don't deny that it's an individual's choice to live that way. However, if such an overly optimistic strategy fails, things can turn out badly. On the other hand, if you are too pessimistic and think that the Earth will be destroyed by climate change, then you might adopt the opposite extreme strategy, thinking, "If that's the case, then nothing I do matters." So, my argument is that one should establish a premise, or a process, that assumes that at least this much will happen, but it won't get any worse than this, and then plan one's future life based on that.
Is that fundamentally a minimax strategy? Yes, precisely. And based on that, considering Japan's future, I'm not saying that stagflation will definitely occur. However, it's better to assume that something like stagflation could happen within the next 5 to 10 years, or even sooner, and think from that perspective. This means becoming poorer due to inflation. However, true stagflation also involves rising unemployment. This was a major problem in Western countries in the 1970s. As I wrote in the book, Japan's population is decreasing, and the elderly population is increasing while the young population is decreasing. Therefore, it's difficult to imagine a future where youth unemployment will rise significantly. That's why I call it "Japanese-style stagflation." It means that Japan as a whole will become poorer, but unemployment will not decrease significantly. Conversely, it means a society where you work hard but don't become rich will arrive. And within that assumption, how should one protect their own and their family's lives? That's what I wrote about.
If Japanese-style stagflation occurs, what will our lives specifically be like? The "equation for the wealthy" that I often talk about is quite simple: to increase assets, you first have the difference between income and expenses. If you consider that surplus funds are then used for investment, there are only three ways: increase income, decrease expenses, and increase investment returns. This applies to everyone. For example, even with an annual income of 20 million yen, if you live luxuriously in a penthouse apartment, 20 million yen might not be enough, and you might be living a very tight life. However, with an annual income of 8 million yen, if you live a more modest life, you might be able to live on 5 million yen, leaving 3 million yen for investment. This grows exponentially over 10 or 20 years, leading to a significant difference. Therefore, I believe it's important to consider your own income, how much you spend from it, and how you invest it.
In that regard, I believe assets also change depending on the balance between income and expenses. For example, people who used to have the image that an annual income of 10 million yen would allow for a luxurious life will find it naturally more difficult. Yes, if prices rise overall, that will become more difficult. Especially in countries like the United States, it's said that even with an annual income of 25 million yen, one can only afford a basic lifestyle. While that might be an extreme example, we must also consider that the overall cost of living is increasing. In such cases, the question is whether income can truly be increased to offset the cost of living. If not, and if you have a family, you need to discuss it with them and find an optimal solution within the environment of inflation and your own life.
You also mentioned the "inconvenient truth of household income" in your book, which I found quite alarming. Could you elaborate on that? Yes. This is based on the "Survey on Income Redistribution" conducted by the Ministry of Health, Labour and Welfare. It's hardly ever discussed, and I was very surprised when I first saw it. As you can see here, 30% of households have an income of less than 1 million yen, and 51% of households have an income of less than 2.5 million yen, which is half of all households. These are quite surprising figures. However, this is official data collected by the Ministry of Health, Labour and Welfare every three or four years, so it's not incorrect. And yet, why is it that hardly anyone talks about this? This is income before redistribution, so it includes pensions. This is household income after excluding pensions. The reason for this is precisely the aging of Japan's population. This means that there are a great many people who have no income other than their pension. Therefore, when we look at the distribution of household income by income bracket, excluding pensions, we find that there are a surprisingly large number of people with very low incomes in Japanese society.
As the aging population progresses, will this shaded area continue to increase? Yes, that's right.
Another surprising finding was that nominal income has decreased by about 9% in three years. It's strange for nominal income to decrease. After all, everyone writes that nominal wages are increasing due to inflation. So, shouldn't household income also increase? Yet, it has decreased by 9%. The reason for this is also something that hardly anyone discusses. If you think about it, it's because the number of people retiring is increasing. This is my interpretation. For company employees, even though their real wages are decreasing, their nominal wages are increasing, aren't they? If nominal wages increase overall, nominal income should also increase. However, the reality is that nominal income is decreasing nationwide. This is because the number of retirees is increasing. Therefore, since pensions are not included in this definition, the overall household income is decreasing because there is no income other than pensions. This is the inconvenient reality of Japan. So, even though everyone says we need to increase real wages, they are not wrong, but even if companies work hard to increase the income of their employees, household income nationwide will decrease. This is the reality of Japan, and it's a document that points this out.
Will this trend continue to strengthen? Yes, of course, there are people who continue to work even in old age. However, looking at this data, it seems to be only a part of the picture. As long as the number of retirees increases, we must consider that Japan's overall affluence, or income, will decrease.
This is an analysis by an economist that appeared in the Nikkei Shimbun. Generally, people say that economic inequality is widening, don't they? Looking at the United States, for example, that is indeed the case, and people say that economic inequality is also widening in Japan, and that it's due to global capitalism. However, when you look at the data, as seen in the Ministry of Health, Labour and Welfare data, the income gap is not widening in Japan. I found this somewhat strange, and then I saw the economist's data in the Nikkei Shimbun. This is the distribution of corporate income from 1995 to 2019. As you can see, the gap is not widening at all. If the top 1% were on an upward trend, it would look like this, but there is no tendency for it to widen, and the median is actually decreasing. Even including the wealthy, income has not increased at all. This is different in other countries, isn't it? Yes. This shows the share of the top 1% of income. In countries like the United States, the United Kingdom, Germany, South Korea, and France, the share of income for the top 1% has been steadily increasing since the 1980s. This is precisely the widening of inequality. In Japan, there is no data before around 2015, but as you can see, only Japan is on a downward trend. It's completely different.
This is precisely the reality of Japan. Therefore, those who have been talking about widening inequality have looked at the widening inequality in the US and the UK and assumed that the same thing must be happening in Japan. And they have been making a fuss about the widening inequality, which is unacceptable, without any evidence. But as you can see, inequality is not widening in Japan. In fact, it's shrinking. Everyone is becoming equal, and everyone is becoming poor together. This is the reality of Japan's lost 30 years. Therefore, the argument about widening inequality, which applies to societies like the United States, does not apply to Japan at all. This data was published in the Nikkei Shimbun, so I believe people will gradually correct their views. But what was all the fuss about before that?
Widening inequality has often been discussed with anger. Is the reason it hasn't been discussed much yet because people don't know? Yes, most people don't know. Not everyone reads the Nikkei Shimbun. However, according to the data, this is income, so assets might be widening, but not to the extent seen in Western countries. In fact, there isn't much data on Japanese assets, but even looking at that, extreme widening of inequality doesn't seem to have occurred. So, in short, Japan is a society where everyone is becoming poor together, even though it's a society that is equal.
So, the fact that inequality is not widening does not mean that this is a good situation. Yes. What is pointed out here is that the widening of inequality can also lead to a richer society. Elon Musk now has wealth of around 100 trillion yen, which is an unimaginable amount. However, when comparing Japanese society with American society, America is overwhelmingly richer. Therefore, the problem with Japan is that inequality cannot widen. In other words, a rich society inevitably leads to widening inequality. Then, the government must adjust that widening inequality through redistribution, such as social security. However, in Japan, inequality cannot widen in the first place. Therefore, it cannot become rich, and it cannot be redistributed. If society becomes richer, a source for redistribution will emerge, won't it? However, looking at this, Japan's biggest problem is that it cannot become rich because inequality cannot widen. Therefore, there is no source for redistribution. And the struggle to snatch small portions from each other is precisely what is happening. Then, if consumption tax is reduced, where will the funds come from? If pensions for the elderly are paid, won't social security costs for the working generation only increase? This is the reality of everyone fighting over small pies. I believe this graph suggests why this is happening.
The fact that inequality is not widening means that there is simply a cap on it. Yes, that's right.
Also, in your book, you mentioned "a society centered on the elderly." The redistribution to the elderly and the redistribution to single mothers are vastly different. There is an almost unbelievable gap, or discrimination. This is also in the report from the Ministry of Health, Labour and Welfare. I believe the government understands that this is inexplicable discrimination. Otherwise, they wouldn't present such data, would they? However, the reason why everyone doesn't know is that the media, especially newspapers and television, have elderly readers and viewers, in their 70s and 80s. If they were to write an article saying, "Japan is a society centered on the elderly, and single mothers are suffering, and the reason is that too much redistribution is going to the elderly," it would cause an uproar and a huge backlash. Therefore, even if they know this, they choose to ignore it and not report on it at all. This is the current state of the Japanese media.
How can this change? Well, all media are businesses. If they lose readers, the company will go out of business. So, it won't change. Ultimately, everyone prioritizes their own lives. Of course, they don't lie, but they can decide what to report. Therefore, they don't want to touch anything that would make their readers uncomfortable. This is unlikely to change, so it's better to view newspapers and television, or old media, with that premise. When receiving information yourself, you should keep in mind that there is such a premise. There is a very strong bias. The Nikkei, which has working-generation company employees as readers, still writes about these things. However, other newspapers and television, especially those with variety shows, do not use this information at all.
What is the optimal portfolio for inflation? There is only one choice. No investment strategy can beat tax-free investment. What kinds of risks should we consider? Inflation is an economic phenomenon, so what happens is predictable. First, prices will rise. Along with that, interest rates will also rise. And the exchange rate will move towards yen depreciation. It's almost impossible for anything else to happen. Should we get involved in FX, futures, or options, which are for advanced users? I don't really recommend it. However, if you don't have basic knowledge, you can't judge whether you can invest rationally in those products. When considering how to protect your assets in the future, in times of war or major turmoil, knowing the mechanism of options can increase your chances of success.
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