We try to avoid hyperbole as much as possible at Hedgeye, the research firm where I work as an analyst. But after researching Japanese demographics and pension obligations, we have to say that in our opinion, they present one of the most dangerous potential risks to global investing over the next 10-20 years. For background, let's explain Japan's demographic headwinds, which often get bandied about without much supporting data. For starters, with 22.7% of its population above the age of 65 (as of 2009), Japan has the world's oldest population. That figure will continue to grow; Japanese government projections raise the ratio to 29.2% by 2020 and 39.6% by 2050.
Currently, the ratio of retirees to working-age Japanese is 35.5%. In just 10 years time, retirees will make up 48%. In a society notorious for luxurious pension packages, going from a 3-to-1 to almost a 2-to-1 ratio in contributors-to-retirees in a matter of just a decade is frightening to say the least. And it doesn't get any better: By 2050, the ratio of retirees to working-age population will reach 76.4%, according to projections from Japan's Ministry of Health, Labour and Welfare. (more)
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