Is Japan a vision of the future? Or an outlier? Or it really the centre of the financial universe? I am toying with the idea as Japan as an expression of the US political environment.
The stagnation thesis corresponds to the analysis of the JPY banking system by Richard Werner and his Princes of the Yen. He also argues that the dynamic of the last 30 years has been the cause of the political choice. But if we drift into a world with several economic zones, then the whole strategy has to come apart. It's being argued that Japan has not yet decided to whether join AUKUS formation or join SCO. The latter would be a better choice for economy, but the former is likely due to the fact that US has boots on the ground.
I think the Japanese will take a close look at the US and China, and then throw their lot in with whoever looks like winning to be honest... lets just hope China does not crack quantum computing first!
Yes... but "Rethinking Japan" suggest Japanese policy making is extremely forward thinking. Current thinking is that Japanese policy making is poor- with deflation exhibit number one, but.I am saying that is.exactly what they wanted.... Just food for thought....
Hi Russell, super interesting as always. I think it makes a lot of sense. China's rise gives them cover to reassert themselves I guess. To what extent is the question. At the end of the day, they have no "natural" reason to be such a staunch ally of the US (apart from the trauma of WWII like you point out); if they can use US distraction with China to play their own cards I don't see why they wouldn't. I'd think their demographics likely mean it wouldn't be too radical and quick though, would you agree?
Isn't Abenomics an attempt to bolster Japanese economic strength to compete with a resurgent China? In that regard, it is an extension of US political aims.
I agree wholeheartedly. Japanese reflation has many legs to run, so to speak. To use your 1970-1990 JPY timeframe analogy we're probably around 1973 here rather than 1986.
The trouble is - how many bull markets are/were supported by Japanese liquidity being exported abroad... USA I'm looking at you!
Very interesting, look forward to you next post. One question about your comment on the USD in 50,60s. Could you explain more deeply why the gold was leaving the US due to the USD being overvalued. I'm sure there is a simple macro answer that I am stumbling with. Thanks
Very interesting. Stagnation but with a CA surplus. Now that the surplus is eroded the focus must/should be on rebuilding economic activity to have that surplus again? This could be seen a competitive v US but the US needs a Japanese surplus to buy Treasuries. Tangled web.
Japan became the biggest investor in the rest of asia - so reduced the focus on Japan vs US. Now it is China v US, maybe Japan can focus on itself again?
The stagnation thesis corresponds to the analysis of the JPY banking system by Richard Werner and his Princes of the Yen. He also argues that the dynamic of the last 30 years has been the cause of the political choice. But if we drift into a world with several economic zones, then the whole strategy has to come apart. It's being argued that Japan has not yet decided to whether join AUKUS formation or join SCO. The latter would be a better choice for economy, but the former is likely due to the fact that US has boots on the ground.
Sounds like a good book! Will add to the pile.
I think the Japanese will take a close look at the US and China, and then throw their lot in with whoever looks like winning to be honest... lets just hope China does not crack quantum computing first!
Will Japan break the $ USD? Is the JGB the Berlin wall of fiat command economy?
If the Japanese start buying gold or Chinese bonds instead of treasuries - that would be a BIG DEAL....
This is true but highly unlikely while Japan still has no autonomy in defence/security. For this to happen genuine rearmament is a prerequisite.
That's why it would be a big deal - but perhaps it would happen before rearmament?
Unlikely as Japan needs military cover. It would be akin to Nixon trying to "flip" China before they had a working nuclear deterrent.
Yes... but "Rethinking Japan" suggest Japanese policy making is extremely forward thinking. Current thinking is that Japanese policy making is poor- with deflation exhibit number one, but.I am saying that is.exactly what they wanted.... Just food for thought....
Hi Russell, super interesting as always. I think it makes a lot of sense. China's rise gives them cover to reassert themselves I guess. To what extent is the question. At the end of the day, they have no "natural" reason to be such a staunch ally of the US (apart from the trauma of WWII like you point out); if they can use US distraction with China to play their own cards I don't see why they wouldn't. I'd think their demographics likely mean it wouldn't be too radical and quick though, would you agree?
Isn't Abenomics an attempt to bolster Japanese economic strength to compete with a resurgent China? In that regard, it is an extension of US political aims.
Yes - and also implies a policy of stagnation has no "political" benefits either
I agree wholeheartedly. Japanese reflation has many legs to run, so to speak. To use your 1970-1990 JPY timeframe analogy we're probably around 1973 here rather than 1986.
The trouble is - how many bull markets are/were supported by Japanese liquidity being exported abroad... USA I'm looking at you!
Great analysis, thanks.
I'm curious about your thoughts on the BoJ's yield curve control. Specifically:
-The sustainability of this rate suppression, given that the BoJ now owns over half of all JGBs.
-The impact it has on UST rates, as I suspect the BoJ's actions have been 'pulling down' treasury rates. 10 T-bonds are substantially below the FFR.
good question - feels like time for a post on bond markets
Very interesting, look forward to you next post. One question about your comment on the USD in 50,60s. Could you explain more deeply why the gold was leaving the US due to the USD being overvalued. I'm sure there is a simple macro answer that I am stumbling with. Thanks
Thought about it a bit more. If the USD is overvalued then US investors buy cheap overseas assets sending US gold offshore. Is that correct?
All countries were on the gold standard, so if you ran a current account deficit you needed to balance that by selling reserves - gold.
In the run up to world war II - most gold flowed into the US - as has peace took hold flowed back to Europe.
With a fixed exchange rate, you needed to raise interest rates to balance gold flows, or devalue.
Very interesting. Stagnation but with a CA surplus. Now that the surplus is eroded the focus must/should be on rebuilding economic activity to have that surplus again? This could be seen a competitive v US but the US needs a Japanese surplus to buy Treasuries. Tangled web.
Japan became the biggest investor in the rest of asia - so reduced the focus on Japan vs US. Now it is China v US, maybe Japan can focus on itself again?