A Time For All Matters: A Monetary Revolution

Posted on 19 April 2013 by admin

Joe talks about economic troubles in Japan.

By: Joe Makoto
-Opinions Editor-

“At the time [in 1989] there was a kind of irrational exuberance among the Japanese. They tended to think the economy would increase forever and even surpass the US … In reality, that time was boosted by financial bubble. Right now, our economy is still struggling to get out of low growth and stagnation. If we want to benefit from growth in Asia, our manufacturers should shift their focus from high-grade value-added products to medium-growth value-added, which is where the growth is — and what China and Korea are very good at.”

– Tetsuro Sugiura, chief economist at Mizuho Research Institute

Quoted by the BBC

Mr. Kuroda has been appointed the next governor of Bank of Japan, and it is a new era. Or possibly the old era, as Japan’s central bank only recently gained “independence” in any meaningful sense. This independence from political power was granted to atone for the “sins” of share and commercial land inflation in the late 1980s. It was considered dangerous to politicize monetary policy. But the Bank of Japan is now losing independence, after what can only be politely described as the technocratic administration of current governor, Mr. Shirakawa.

Japan is finding itself in a really strange place; they have done everything “right,” most people go to university, the Internet is beamed down fiber optics, they have built about as many roads and bridges as they could. And yet, the higher paying jobs did not appear. So now, it is looking at Korea and Taiwan and seeing a model for employment creation.

One thing this implies is a much weaker Yen, to lower the effective international wage of the Japanese worker. This is not as far fetched as it may seem; Japan did exactly this in the 1930s. It worked then; and while it would be painful as imports go up in price, (particularly energy products like oil and natural gas), there would be ample and steady employment.

Another thing that it implies is effective reduction of debts of companies with strong non-Yen revenue sources. This realization has already caused the share of exporters to soar on the stock exchange, a rare occurrence in a market that had lost nearly 75 percent of its value over two decades of grinding deflation.

Some people have voiced concern of uncontrollable near term capital flight from Japan as inflation expectations become unhinged causing a plunge in the Japanese Government Debt market. At least in the near term this is misreading the situation. The Japanese people have lived literally twenty years in which their currency, the Yen, has appreciated in value and become harder and harder to receive. This will not be undone by a mere hint of inflation; but eventually, confidence may go, and go quickly when it does.


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