(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


HONG KONG - Japan’s gerontocracy faces a dilemma. Prime Minister Fumio Kishida wants to shrink the country’s widening wealth gap, but one big factor aggravating inequality is the decaying state of elderly people’s finances. Securing senior citizens’ votes is crucial to winning elections, especially in Japan, yet the country’s combination of long lifespans, relatively early retirement and no wage growth has been toxic for the young.

Inequality in Japan is not extraordinarily high, but it has risen quickly and is now above the G7 average. Meanwhile, the average Japanese woman now lives 87 years, six years longer than her American peers and over two decades more than the world average. Income falls sharply for most Japanese when they retire. These pensioners, who make up nearly one-third of the population, are heavily over-represented on welfare rolls. They drain healthcare and pension funds, pushing government debt to twice economic output.

While inflation was tepid, then-Prime Minister Yoshihide Suga and his predecessor Shinzo Abe tried to shave benefits at the margins to relieve the burden on young people. In 2022 those with an annual income of at least 2 million yen ($17,533) will have to pay 20% of their medical expenses, up from 10%. Some pension payouts have been cut slightly. Last year the cabinet passed a bill pushing companies to raise the retirement age from 65.

Enter Kishida and his push to reduce inequality; “New Capitalism” is his slogan. Some investors fear that means a populist unwinding of market reforms. His redistribution talk, combined with his publicly expressed concerns about debt levels, might imply a softening of cost-control policies on elderly benefits paid for with tax hikes. Traders have coined a name for his statements: “Kishida shocks”. Despite this, or because of it, his approval rating has risen.

As in other countries, working-age Japanese have made big sacrifices to protect vulnerable older relatives from Covid. They have not been well-compensated. Unemployment is low because the workforce is shrinking, but like his predecessors, Kishida has yet to force executives to crank up salaries. Companies hoard cash even as inflation ticks up.

More retirement subsidies would reduce paper inequality, but it would be akin to redistributing slices of a shrinking pie. The best way to support elderly Japanese folks is to help their hard-working children.



- Masakazu Tokura, head of Japan's biggest business lobby, said on Jan. 25 that companies must determine wages depending on their own situation rather than in a uniform manner as a prolonged Covid-19 pandemic has caused corporate profit to become uneven among sectors. Prime Minister Fumio Kishida has pledged to stoke a virtuous cycle of wage growth, higher household income and stronger economic recovery.

- Japan's factory activity grew at the fastest pace in four years in January as output growth picked up, the au Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index reported on Jan. 24, but activity in the private sector as a whole slipped into contraction.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Antony Currie and Katrina Hamlin) ((For previous columns by the author, Reuters customers can click on SWEENEY/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | pete.sweeney@thomsonreuters.com; Reuters Messaging: pete.sweeney.thomsonreuters.com@reuters.net))