>As the yen keeps on weakening to the cheers of clueless Japanese
politicians >hoping for an export-led recovery and studied inaction by the
country's central bank, >Japan's neighbors are not amused.
Well certainly those Japanese companies that actually built factories in SE Asia aren't so amused either. And why is it o.k. for SE Asia or the US to export on a cheapened currency but not for the Japanese (whose currency by any measure I know is still overvalued against the US dollar--and that means overvalued against the currency everyone in SE Asia has pegged their economy to in some way or other).
The idea behind a cheaper yen is a move to somehow cause a little inflation in the Japanese economy.
>Since late 2000, in two (December 2000/January 2001 and December
>2001/January) ratchet moves, the yen has lost about 21 percent against the
US >dollar. This controlled devaluation, which economic ministers >say
merely reflects >market fundamentals, has done little for Japanese growth:
Exports account for just >10 percent of GDP.
Were market fundamentals involved when the dollar halved against the yen back in the 80s and then halved again by the early 90s? Does anyone understand what havoc this created for Japan?
>But as the yen slide continues from the present 133 toward 140 to the
dollar, it is >continuing to erode the export competitiveness and growth
potential of other Asian >economies whose export dependencies range from
China's 25 percent to Korea's 45 >and Southeast Asia's more than 50 percent.
Yes, and the Americans love it. It's called 'divide, conquer and rule'. Time to put the uppity Chinese capitalist in their place while buying up bankrupt Japan, Inc.
>The sharpest recent reaction has come from China. In an early February
article in >Beijing's Jingji Ribao (Economic Daily), central bank vice
governor Li Zaohang wrote >that China should devalue its currency when
necessary to ease
>pressure on economic growth arising from difficulties in expanding exports.
Yes, we all know how efficient manufacturing in China is. Really, it's mostly just Japanese and Korean manufacturing technology and a cheap currency that makes China the supplier of goods to both the USA and Japan (China has a large trade surplus with Japan, too).
>Yen devaluation is not a short-term phenomenon, Li notes. Instead, "behind
it lie >stronger long-term economic motives"to achieve three goals:
"shifting the pressure >of the US recession on the Japanese economy to
Southeast Asian countries
>and China, which are Japan's competitors in exports; preventing the euro
from >challenging the dominant positions of the US dollar and the yen; and
weakening the >internal drives for China's economic growth by shrinking its
external space".
>In conclusion, Li urged the central bank to adopt a more flexible exchange
rate >system.
Not a short-term phenomenon. Hmmm. Just look at the value of the yen vs. the dollar over the past 20 years and you will see that the consistent, persistent trend has been for the yen to gain against the dollar and to stay overvalued against it. It's interesting that in this bit of analysis the interests of the yen are put in the same phrase as the interests of the dollar, which would seem to be a contradiction of terms. More divide and rule vis a vis the euro.
>That's tough talk. And while Japan may not be as concerned about the role
of the >euro as Li thinks, the gist of his charges is correct. Japan is
showing precious little >concern for the geese struggling to stay aloft in
its turbulent
>wake in the once proudly proclaimed East Asian flying geese development
pattern. >As for China, containing rather than
>assisting its growth is a not-so-new, but ever more urgent Japanese
preoccupation.
What concerns have the Europeans shown for Japan? They were consistently more protectionist about Japanese electronics and automobiles and they thought they could deal with US control of the global economy without Japan. Now they realize that elections in Africa are about the only issue they can lead on.
>Not only China is concerned. South Korea is as critical of Japanese
attempts to >substitute beggar-thy-neighbor policies for domestic reform.
About two-thirds of >Korean export goods directly compete with Japanese
products in foreign markets,
>especially in the automobile, shipbuilding, steel and electronics sectors.
According to >the Korea International Trade Association, a 10 percent
depreciation of the yen >tends to cut Korea's annual exports by US$2.7
billion (1.7 percent)
>and imports by $800 million, resulting in a $1.9 billion loss in trade
balance.
And the Americans love every bit of it. Interests like Carlyle Group get the owners' equity and you can play China off of S. Korea against Japan to import the goods to the US for profits. Afterall, as any American 'analyst' knows, the Asians are 'good at making things'. They just don't understand how the world of finance works.
>Now let's suppose that - as the yen keeps on sliding - China and Korea
devalue. >Southeast Asia, which directly competes with China in numerous
product categories, >will then have no choice but to do the same. Japan will
successfully have
>exported currency volatility and chaos to the rest of Asia, weakening at
the same >time the 1997 crisis economies' ability to service their
dollar-denominated debts and >saddling them with higher inflation and
interest rates. "All told,
>a sharply weaker yen is unambiguously bad for the economies in Asia
ex-Japan," >Lehman Brothers said in a recent report.
Look where the analysis comes from: Lehman Brothers--advisers extraordinaire to Carlyle Group and Ripplewood Holdings, etc. More divide and rule.
>Even for Japan, however, there is more bad news than good, especially in
the longer >term. Some of the country's economists are convinced that the
only way to crush >deflation is to push the yen lower, thus raising import
prices and
>changing people's expectations. But that's a myopic view. Deflation is not
just a >Japanese phenomenon, it's global in nature. In the fourth quarter of
2001, even the >US GDP deflator turned negative (-0.3 percent) for the first
time in its
>42-year history, and over the same period the consumer price index and the
price of >gold were at or near their lowest levels since 1990. The global
deflationary trend is >not principally due to weak demand or a monetary
phenomenon as such;
>it is imparted on the world economy by the massive and - as US Fed chairman
Alan >Greenspan stressed recently - continuing productivity gains derived
from the large->scale introduction of information technology in the 1990s.
Yes, but how many of you who read Asia Times can say you have lived through actual price deflation? It makes an entire economy unprofitable and it makes loans unpayable. Sure, it's nice to go to a Uniqlo store and buy a coat made in China for half the price of one made in Japan. But with deflation, even when you buy TWO coats, you just pumped LESS money into the economy than last year when you bought one coat.
As for productivity gains, yes, Enron and Global Crossing prove the point, no doubt. Suffice to say I'm not convinced that this productivity thing (which, surprise surprise the US says is a US thing only) is anything at all. Three years ago magazines like Business Week were .com, new economy, and productivity crazy, now they only talk about productivity.
>Japan's import prices might rise briefly as a result of the yen's
depreciation, but will >quickly adjust again.
That's vague. What is the mechanism of adjustment? Prices fluid upward, sticky downward (but not so sticky when you have an overvalued yen and a deflationary economy).
>Meanwhile, the weak yen will tend to protect the least efficient producers
and once >again postpone the necessary shake-out of the unproductive
domestically-oriented >sectors of the economy.
Often what are called the least efficient companies in Japan are the ones that do all the shit work for Sony and Toyota and all the darlings of Japan, Inc.
>Instead, Japan should stop worrying about deflation as such, aggressively
deregulate, >and engineer a high-tech driven shift out of manufacturing -
much as
>occurred in the US economy over the past two decades when manufacturing
>employment decreased from 21 percent of total
>employment to just 12 percent today.
Yeah, just what Japan needs. A NASDAQ .com bubble. And if it isn't already going to the high tech end of things, why are entities like Carlyle Group putting bets on telecoms, G3 phones, and internet in Japan?
>Under such circumstances, worries about competing for manufactured exports
>market share with China would soon be out of the window. Turnaround as well
would >be effected regarding Japan's most deep-seated problem: woeful
returns on equity
>and investment. (ROE in Japan is just 2 percent, compared to 6 percent in
Germany >and 15 percent in the US).
ROE doesn't count for much when companies don't pay dividends and the markets aren't going up. This is just investment bank propaganda.
>But tell that to ruling Liberal Democratic Party politicians! Even if per
chance they >understood it, they'd rather see some short-term gains and
bitch about China any >day.
Divide, conquer and rule. The US of Carlyle Group now rules Asia. If only the natives had cooperated more, it could have been accomplished back in 1998.
Charles Jannuzi