It is well documented that the Japanese population is shrinking. The following chart shows that the population has shrunk by an average of 115,000 per year since peaking in 2005.

What is not so well documented is the fact that the Japanese are also leaving the country in very significant numbers!

The Japanese Statistics Bureau tracks the number of Japanese passport holders entering and leaving the country every month. The next chart shows the annual NET DEPARTURES from Japan since 2003.

One can see that not only is the number of Japanese people falling by 115,000 per year, the number of Japanese actually living in Japan is also falling by a further 50-100,00 per year, thus bringing the annual erosion to approximately 200,000 per year.

Since Japan has an annual GDP per capita of around JPY 3.8 million. That's a theoretical loss of annual GDP amounting to JPY 760 billion! Although it's a mere 0.16% of 2009's nominal GDP, it is a big deal in a country where nominal GDP growth has averaged -0.4% over the past 10 years!

In fact, the actual damage is probably a lot worse that 0.16% because most of the people who leave are adults of economically productive age.

David Fuller's view To state the obvious, these are not encouraging signs and foreigners are also leaving Japan. However, Japan's stock market has experienced a revival of interest in the last six weeks, as you can see from this weekly chart of the Topix Index.

I think Japanese shares have attracted interest for the following reasons:


1. They are arguably cheap.
2. Having underperformed, Japan is regarded as a recovery candidate.
3. The Topix Index had returned to an area of potential support near 800.
4. A weekly key reversal occurred from this level in early November.
5. The BoJ is finally pursuing a more aggressive monetary policy.
6. The BoJ appears to have targeted the "too strong" yen.

Another sign of improvement is that the Topix Banks Index (historic, weekly & daily) has at least temporarily pulled out of its death spiral. Also, the Topix 2nd Section Index, which has led in the past, has rallied from lateral and psychological support near 2000.

I realise that every journey begins with a single step but it is too soon, in my view, for this technical evidence to be regarded as more than a technical rally, albeit from very depressed levels.

I do not like the demographic trend highlighted by Bernard Tan and others over many years. Also, China appears to be eviscerating Japan via the transfer of technology, as Fullermoney has mentioned before and as the lead article above mentions. Additionally, South Korea's own technological development has made it an increasingly formidable competitor for Japan.

I wish Japan well but its political governance remains sclerotic. Previously, Fullermoney has cited a weaker yen (shown here as USD/JPY) as a prerequisite for a significant stock market recovery and I see no reason to change this view. In the short term, I would continue to give the stock market recovery, evident over the last six weeks, the benefit of the doubt. However I would turn cautious once again when it is next interrupted by downward dynamics and breaks in the recent progression of higher reaction lows currently evident on daily charts.