Lok Sang Ho

The Legacy of Japan's Heisei Malaise

The only valid solution is depreciation of the Yen, which the Bank of Japan has given up out of ignorance.

Most Likely Scenario Is Still Recovery

My forecast for the US economy is not "rosy": I see recovery soon but not strong recovery; I also see unemployment possibly peaking around 10%; I see more need for assistance to the states; I see piles of debt as you do. However, I see a weak dollar and a higher US savings rate to be part of the solution. Americans need to tighten their belts and pay for their overspending in the past. Americans need to work harder for LESS(less consumption). More Americans have to work. But we have seen higher debt to GDP ratios before. When the economy recovers, the debt to GDP ratio will fall, and the current debt levels does not spell the end of the world.


On Jul 09 10:51 AM Larry House wrote:

> Why does someone who sees problems in the economy have to be a pessimist?
> I am an optimistic person, but when I see what I think are problems,
> they don't just go away because I am an optimistic person. I hope
> you are right in your rosy outlook. I don't short stocks; I don;t
> buy distressed debt; I want things to pick up. I have four grandkids
> that I hope live better than I do. However, I guess there had to
> be a "however," I see a consumer on his heals who is spending less
> and saving more; I see credit hard to get; I see 10% unemployment;
> I see massive government debt; I see a weakening dollar, and I think
> those things will prevent a robust economic rebound for many months
> to come. So that affects my investing outlook. I am underweight
> stocks (right now) and overweight bonds. I am not sitting in all
> cash or hiding in a cave or only investing in gold. I don't think
> my view makes me a pessimist, but I don't think things are just fine
> or as good as your cherry picking data would suggest. Can't we all
> just get along!!

The Yen Needs to Depreciate

The current account did turn into red as predicted. Fortunately the Yen did depreciate significantly after this article was published. But it needs to go down more.

The Yen Needs to Depreciate

I should add that if Japan or China became self sufficient and does not trade with the rest of the world, the entire world will suffer.



On Feb 17 11:23 PM HaavBline wrote:

> This article is a bunch of nonsense. “No resources” is just a Japanese
> excuse for maintaining their mercantilistic trade policies forever
> without shouldering responsibilities of a rich nation.
>
> Japan is no Hong Kong. It is the 2nd largest economy in the world
> by GDP. It has one of the largest population is the world. Its people
> enjoys per capita GDP that equals any western countries. Its territory
> claims stretches far beyond its four main islands deep into the pacific
> ocean. They just happened to lack oil and industrial metals, commodities
> they needed in an earlier stage of industrial development but no
> longer needed in great amounts because they have upgraded their industries
> to the high value-add and low energy consumption industries.
>
> Japan’s export-driven growth model already reached its limits last
> time their bubble popped in the late 80s. They have had 20 years
> to make the adjustment to slowly move to a domestic growth model
> and they failed completely, because they never really tried. They
> apply zero interest rate policy without policies that stimulate domestic
> growth and consumption, this created the Yen Carry Trade which every
> salary men and housewives participated. Driving tides and tides of
> liquidity to other markets, contributing to the global asset bubble
> directly.
>
> The Yen appreciation after the global crisis began is the direct
> result of tens of millions of Japanese unwinding their Carry Trade
> fearing they will lost their principle. When they sold foreign assets
> and return the money to Japan, they had to buy Yen and pushed up
> its value.
>
> As the 2nd largest economy and the largest and richest in Asia, Japan
> should not shirk its responsibility to maintain a domestic driven
> market economy in Asia. They should exit the export-driven growth
> game and allow poorer Asian countries to sell the Japan’s domestic
> market so as to help facilitate these other countries to climb the
> wealth accumulation ladder which eventually will turn Asia into the
> largest integrated domestic markets in the world, and thereby helping
> themselves sustain economic growth and high quality of life.
>
> A higher Yen valuation should be maintained in order to push the
> Japanese toward this direction.
>
> As of now, the world will NOT miss out when Japanese trade craters
> at all, because few countries depend on selling to their domestic
> markets.

The Yen Needs to Depreciate

Japan of course is the second largest economy but it has little natural resources. Its huge population need accommodation, food, energy, clothing, transportation, if nothing else. All of these things need to be produced with imported raw materials, even though it is highly capable in terms of the arts of production.

China can meaningfully switch to home production without importing a lot even if its exports industries crumble. Not so with Japan. Japan can never be self sufficient.




On Feb 17 11:23 PM HaavBline wrote:

> This article is a bunch of nonsense. “No resources” is just a Japanese
> excuse for maintaining their mercantilistic trade policies forever
> without shouldering responsibilities of a rich nation.
>
> Japan is no Hong Kong. It is the 2nd largest economy in the world
> by GDP. It has one of the largest population is the world. Its
> people enjoys per capita GDP that equals any western countries.
> Its territory claims stretches far beyond its four main islands deep
> into the pacific ocean. They just happened to lack oil and industrial
> metals, commodities they needed in an earlier stage of industrial
> development but no longer needed in great amounts because they have
> upgraded their industries to the high value-add and low energy consumption
> industries.
>
> Japan’s export-driven growth model already reached its limits last
> time their bubble popped in the late 80s. They have had 20 years
> to make the adjustment to slowly move to a domestic growth model
> and they failed completely, because they never really tried. They
> apply zero interest rate policy without policies that stimulate domestic
> growth and consumption, this created the Yen Carry Trade which every
> salary men and housewives participated. Driving tides and tides
> of liquidity to other markets, contributing to the global asset bubble
> directly.
>
> The Yen appreciation after the global crisis began is the direct
> result of tens of millions of Japanese unwinding their Carry Trade
> fearing they will lost their principle. When they sold foreign assets
> and return the money to Japan, they had to buy Yen and pushed up
> its value.
>
> As the 2nd largest economy and the largest and richest in Asia, Japan
> should not shirk its responsibility to maintain a domestic driven
> market economy in Asia. They should exit the export-driven growth
> game and allow poorer Asian countries to sell the Japan’s domestic
> market so as to help facilitate these other countries to climb the
> wealth accumulation ladder which eventually will turn Asia into the
> largest integrated domestic markets in the world, and thereby helping
> themselves sustain economic growth and high quality of life.
>
> A higher Yen valuation should be maintained in order to push the
> Japanese toward this direction.
>
> As of now, the world will NOT miss out when Japanese trade craters
> at all, because few countries depend on selling to their domestic
> markets.

Japan's Nikkei: Black Hole or Buying Opportunity?

Blame it on an extraordinarily strong Yen. Fiscal stimulation could not help an export-dependent economy like Japan. A strong Yen can cripple the economy. If the US dollar were to be the strongest currency in the world as the Yen is today, US would suffer nearly the same. But US is better positioned than Japan because US is a much larger economy that can produce much of what it consumes.

Japan's Nikkei: Black Hole or Buying Opportunity?

Blame it on an extraordinarily strong Yen. Fiscal stimulation could not help an export-dependent economy like Japan. A strong Yen can cripple the economy. If the US dollar were to be the strongest currency in the world as the Yen is today, US would suffer nearly the same. But US is better positioned than Japan because US is a much larger economy that can produce much of what it consumes.

Japan's Dual Currency Proposal: A Slippery Slope

The proposal is not so horrible as your readers have it. I have been advocating that the Bank of Japan intervene aggressively to stop the Yen's relentless and destructive rise, which is hurting everybody in the real economy. Such sales of new issues of Yen is just to quench the appetite of the Yen buyers and in and of themselves are not inflationary, unless the Yen declines excessively. But then if the Yen does decline excessively the Bank of Japan can always buy them back with its huge holdings of US dollars. Comparing this strategy to a Weimar Republic-like scenario misses the point because the new money is not used by the government to compete for scarce goods with honest citizens who buy with their hard-earned money.

Is the Yen Now Like Oil at $147?

Tim Geithner is simply silly. An excessively strong yen and an excessively strong yuan will hurt everyone, US included.

Strong RMB, Yen Not Good for the World

Remember the Plaza Accord in 1985 in which joint pressure was put on the USD to depreciate against market forces?