JAPAN is a strange country. That is not necessarily a criticism, but simply a fact. While all societies and cultures are unique and have their own peculiarities, Japan takes these to a new level.
The Japanese pride themselves on having a culture with a nearly unbroken history that spans thousands of years and, yet, based on birth and marriage records, they have no desire to build for the future. Demographically speaking, their nation is dying.
While the Japanese are traditionally pictured as conservative worker bees who are laboring within narrow environments, their culture and government are often extreme. Other countries use vending machines as a convenience. In Japan they are almost an obsession, selling items from apples to umbrellas and everything in between, including pornography.
Japan’s ambitions during World War II were self-defeating. Creating an empire in East Asia that stretches from the Land of the Rising Sun to as far as Australia was completely unrealistic, given Japan’s population size and industrial capacity. Attacking Pearl Harbor in Hawaii without an immediate, follow-on invasion guaranteed its defeat in the first battle of the war.
The postwar period saw the United States giving Japan advantages and economic assistance that the former’s allies, including the Philippines, did not receive. In the 1960s and 1970s, the Japanese economy was unstoppable, growing at an average annual rate of 7.5 percent. Japan took over US manufacturing in everything from television sets to automobiles. Japan had the strongest economy and was on track to becoming the most powerful and influential one in the world.
While Japan’s two-decade growth was fueled by genuine economic activity, toward the end of this growth run the government began artificially reducing interest rates and expanding the money supply to achieve further growth. This created an asset-price bubble that saw companies using the value of higher stock prices to buy office buildings and borrowing money against the increased value of these buildings to buy more stock.
It all eventually collapsed, and the government ramped up money-printing to counter the collapse. Fighting a fire with gasoline is not a sensible policy.
For the last two years, after 20 years of virtually no economic growth and a flat standard of living, the government, under Japanese Prime Minister Shinzō Abe, decided that the problem of the failed policy of the 1990s was that the government did not use enough gasoline.
Japan has begun increasing the money supply, and the Bank of Japan (BOJ) has been buying Japanese government debt and doing everything it can to devalue the yen. The economy has not been growing, and the lower yen has increased, rather than decreased, the country’s trade flow.
But the Japanese stock market has more than doubled in the last two years. Residential construction activity is at its strongest in more than a decade because of the government funding the borrowing to build. Property prices were falling at a 5-percent annual rate in 2012; this year those prices are increasing at the rate of 5 percent. Have any of the Japanese policymakers read about Japan in the 1990s?
The Japanese government’s fiscal situation is so bad that it makes the Philippines, at its lowest point, look stable and sound. The government debt to gross domestic product ratio is at 250 percent; the Philippine ratio is the lowest in 25 years, at 49.2 percent.
Last week Japan has taken its next, desperate step: The BOJ will print $700 billion in the next 12 months. Based on the size of the Japanese economy (one-third of the US), that amount is triple the US Federal Reserve’s money-printing scheme. The yen has lost 7 percent of its value against the US dollar in the last three weeks. The Japanese money supply rose 37 percent in October.
The significant policy change is that the BOJ will be buying both Japanese stocks and into foreign markets. Honestly, this is a huge development, as these funds will be placed in markets all over the world.
The global debt crisis is still in full swing, with no end in sight, as the can has been kicked further down the road from Washington to Tokyo. But don’t worry. Tomorrow’s nasty hangover is far away and, in the meantime, the bar is open and the check will be paid by Japan.
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