The Nikkei newspaper reported last week that three major Japanese paper products companies will be expanding into (ahem) diapers for seniors. So called “incontinence products” are flying off the shelves thanks to Japan’s aging population.
The demographics are only going to skew older in the years to come, hence the Nikkei predicted adult diapers will surpass the more typical variety for babies soon — and a previous report from Unicharm, Japan’s biggest diaper manufacturer, told Bloomberg last year that infant diapers have already fallen behind.
While this sounds like an occasion for levity, it’s certainly no laughing matter in Japan. Thanks to an aging society and a low birth rate, the country’s economy is groaning under the strain of big entitlement programs and not enough tax revenue to support them. That’s to say nothing of the challenge to consumer spending and capital markets as older Japanese rely more and more on fixed incomes and capital preservation strategies.
Japan’s fertility rate is 1.39 for women, below the “replacement rate” as Japanese citizens gradually age and die. Japan’s population peaked in 2005, and is poised to shrink by about 1 million people this year, according to estimates.
Japan also has the highest median age in the developed world, topping out at 44.3 in 2010, according to the CIA’s World Factbook. The United States, by comparison, was 36.9 while the fast-growing emerging market of Brazil was just 30.5.
This demographic time bomb is going to dramatically reshape consumer and investor culture in Japan — and not just in the form of diaper sales. How will government spending support the overwhelming portion of seniors in Japan? How will discretionary spending suffer since older Japanese have less desire or ability to travel or spend on luxury goods?
The Nikkei stock exchange has been booming in 2013 thanks to central bank policy propping up equity markets in Japan and elsewhere, but the run appears short-lived. While the iShares MSCI Japan Index ETF (EWJ) is indeed up 22% year-to-date to beat the S&P 500, it has seen big volatility lately and suffered a gut-wrenching 14% slide in just a few weeks across May and June before recovering. Major Japanese stocks including Sony (SNE), Hitachi (HTHIY) and Honda (HMC) have all actually underperformed the S&P 500 since the rollback.
In the short-term, there’s no telling what might spark a quick rally in Japan. But longer-term, the diaper data is no laughing matter. It foretells a very painful future for Japan’s economy, and companies that do business there.
- Also hot in Japan — the snail facial to treat signs of aging. (Fox Business)
- Japan’s demographics problem could help the robot biz, at least. (Quartz)
- Out of need for immigrants to boost the labor force, Japan has quietly turned to China. (IHT)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing he did not own a position in any of the stocks named here.