Thanks for those excerpts about the terminal decline of the Japanese economy. Let me tell you what I think about some of that info. and analysis. Right off, let me say your doubts about some of that info. are spot on. This piece reminds me a lot of that panicky, breathless anti-Japan analysis that comes out of Business Week all the time. I think Japan's decade long problems point to what is completely wrong with American-dominated globalization for OECD countries with very different social systems .
First, this part:
>With its own people unwilling to spend, Japan is dependent on >foreign
consumers, particularly Americans, to sustain itself. To >keep its exports
flowing, Japan also repeatedly intervenes in the >currency markets to keep
the yen artificially low.
Misleading.
Per person consumption of US goods in Japan actually exceeds US per person consumption of Japanese goods, the last time I looked. Also, US and global corporations (P&G, Coca-Cola, Nestle, General Foods, IBM, Microsoft, etc.) are far better situated here to make profits off the domestic markets than Japanese ones are in the US.
The trade deficit arises from the fact that the US has twice as many people and US consumers spend on certain big ticket items from Japan--namely, cars. Still, have no doubts, Ford controls (and terribly mismanages) Mazda, GM has increasingly stronger capital 'tie ups' with Subaru and Suzuki, and now Mitsubishi is controlled with Chrysler by Daimler-Benz (expect more Chrysler cars to be made by Mitsubishi to profit D-B).
The Japanese recycle a lot of their surpluses by importing services and spending overseas as tourists (and they do spend while abroad, with the US their favorite destination, at least up until recently).
And the piece is wrong about the value of the yen. As for the idea that the yen is artificially low because Japan intervenes to prop it up, this is puzzling anyway I look at. The biggest problem from the Japanese perspective is that Japan and US both agreed again and again that they would intervene together to keep the rate stable and the US doesn't help.
Let's say purchasing power parity was used to determine the yen to dollar rate. Then, the rate would be something like 160-180 yen per dollar. Right now, at 117 yen per dollar the yen seems highly overvalued. It is the highly valued yen that leads to the deflation. The consumer can buy more using less cash. A McD's hamburger is actually cheaper in Tokyo than it is in NYC. Waiting for consumption to go up in yen terms is waiting for Godot.
Next quote from the analysis:
>The country's banks are helpless as well. Their capital adequacy >ratio =is
estimated at a mere 1.4 percent, the Economist reports, >following =numerous
bailout plans that required no one to take >responsibility or =truly write
off losses. International banking >rules require an 8 percent =adequacy
ratio.
The banks are in trouble. Their loans are not making them money, and it is hard to make new loans to a growth sector that isn't there. Accounts of their capital adequacy ratio vary because everyone is arguing about what and what is not a 'bad' loan. Again, I always ask, if people are lining up to buy these bank assets, why are they called 'bad'? I've never seen a figure that low in the Economist, so I'd like to see a citation there.
Next quote:
>Throughout the 1990s the United States, Japan's =
>largest export market, was in the midst of its longest economic boom >ever.
So why then did Japan suffer stagnation (at least relative to Japan's previous decade) all during that time? My theory is, that with an overvalued yen, no one made much money off those exports and also they were locked into stuff that was already over-produced and commoditized.
Next, Bryan comments and asks:
>from what I know, they need =
>the government spending to stimulate the economy and raise consumer
>spending levels....getting money out of savings and into the >economy?)
But with a deflationary spiral, that's hard to do. If the yen is too strong (I'm sure it is), and if Japan has a fairly competitive domestic economy (after 12 years here I can tell you it does), producers pass savings from the high yen on to consumers. You have to remember, the only way Japan stays afloat in the global system is to import almost all its raw materials as well as a lot of manufacturered goods no longer produced here, add value to things and export. The price of food, clothing, appliances from China, etc. has come way way down. I just don't see where , at the current levels of consumption now, Japan is going to get a burst in consumer spending.
Bryan also comments:
>It seems the difference then, is that while Japan has a =
>(comparatively) large Federal debt, they have a large trade surplus, >in
comparison to the US which has a huge trade deficit and a so >called
balanced budget (which seems to be more about playing with >the numbers and
shifting things around to make it seem that it is >balanced more than it
is), but the US still has a federal debt").
Japan with the world overall and with the US still has a fairly high surplus, but it has been falling. It also has a swelling trade deficit with China. The last time I looked up the stats, Japan's national gov't's debt as a % of GDP was up there around Italy's. From a gov't that used to brag of surpluses, it looks pretty bad. Overall total levels of debt in Japan are supposed to be pretty good--this correlates with the high savings. Japan, with its trade surpluses and high savings, is not usually thought of as a debtor country.
Japan does have a high rate of personal savings. Most middle class people and lower do not put money in stocks. However, with bank bankruptcies and insurance bankruptcies, many, many people feel insecure about their life savings. P.M. Koizumi, who proved his incompetence when he was an LDP politician in charge of the Posts and Telecommunications Ministry, hates that ministry and wants to privatize postal savings and insurance, selling it off Thatcher style . 've argued--very unsuccessfully I might add--that the postal savings and insurance systems could and should have been used to solve the banking and insurance crises in the private (and mutual) sector.
I'll get this year's Asahi almanac and the one Nikkei puts out and I'll post some very specific updated statistics a bit later on this list.
Charles Jannuzi Fukui, Japan