From Kyoto, Japan
When Prime Minister Shinzo Abe was forced out of office on September 2007 his focus had been on a strong foreign policy, against the peace Article 9 in the constitution, rewriting history and patriotic education, but not on economic improvement. This time Abe has added strong economics, dubbed abenomics; including the hyper-capitalist TPP, Trans-Pacific Partnership. Not to irritate the US, Abe-LDP (Liberal Democratic Party) sees itself as the guardian of Japan’s security against China and North Korea.
On April 4 the Bank of Japan announced a policy of QE, “quantitative easing” – Orwellian for printing money–doubling the circulating money to 270 trillion yen in two years to turn Japan’s 0.3% deflation to 2% inflation. With so much yen around devaluation follows, making Japan more competitive. With the Bank of Japan buying state bonds, public works could follow, for employment. With both, economic growth.
As a consequence the dollar soared, from 76 yen some years ago to 100; the Nikkei market index soared to above 13,000 for the first time since August 2008, and Abe’s approval rating to 70%. So far so good.
And then, what happens? The hope is to regenerate the golden 1960-70-80s Japan. But both the world and Japan have changed.
Take the 18% depreciation of the yen in the last six months against the 16 other most traded currencies – with the US protesting the use of the exchange rate, not domestic stimulus. China-India now cover the whole range of world demand for industrial products at higher quality/price. Add Brazil, Russia and South Africa for the emerging economies of BRICS: their policy is now to create a new development bank to challenge the dominance of the World Bank and the International Monetary Fund, the ageing instruments of the declining economies of the West and Japan.
True, Japan’s biggest producer of automatic sushi-making machines exports much more; a niche with limited spin-offs, but the prices for imported furniture, foreign cars, electricity and gas have also gone up.
But, given Japan’s very low food self-sufficiency rate – 39%, down from 73% in 1973, 128% in the USA, 237% in Australia, 70% in UK–food prices will rise soon; hitting households before increases in income.
Moreover, how will Japanese capital react to the fall of the yen? They may invest for export. But, if they “want to put their money abroad, then the fall may become like an avalanche” (Soros).
Take the switch from deflation to inflation, from lower prices for buyers to higher prices for sellers, from consumers to business. Much domestic growth will be needed to compensate in an ageing Japan with 30 million people above 65, negative population, GDP growth (-.2%), unemployment at 4.2%, and a public debt well exceeding 200% of GDP.
But even more dangerous is the process of engineered inflation: will they be able to stop at 2%? Inflation has a reputation for being self-sustaining. With that much money chasing the products prices go up and up, capital will escape and with it capital-holders. True, the US Federal Reserve, the model that Japan is imitating, not only doubled–like Japan and the UK–the monetary base but more than tripled it from the 2008 crisis till today. However, the inflation has averaged less than 2% as Economics Nobelist Paul Krugman points out (nor have the interest rates soared). But the runaway prediction may need more time to come true; besides, the US trade deficit has grown 50%, nearly half of the public debt is in foreign hands, capital-holders sit on capital not risking investment, and the US job report for March 2013 was the worst in nine months.
Is this really a model for Japan to follow, or rather to fear?
Take the soaring Nikkei rate above 13,000 and the Dow Jones half way from 14 to 15 thousand; in countries with sluggish or no growth.
This huge gap between finance growth–financial and real estate shares leading the way, spelling asset bubbles – and real growth, will sooner or later lead to a quick or slow crash in the finance economy, as happened recently in both countries.
Add to this the gaps between serving debt (2.5% interest) and serving people, and between printed money and real value. Rich people in poor and rich countries put their money away to avoid taxes and economic collapse, to the tune of US$32 trillion, twice the US GDP. Whether their havens in the West are safe is another matter.
Cheap and changing yen will inevitably lead to speculation of all kinds, in equities, high yield bonds, precious metals, currencies including yen, real estate bubbles. Maybe soft deflation is better?
Add to this the final blow: joining the TPP. Michael Hoffman in “Fearing the worst if Japan joins the TPP” (Japan Times, 21-04-13 – a superb paper similar to Al Jazeera in presenting all sides to issues), quotes studies predicting “Americanization of Japan”: no job security but hiring-and-firing, US controlled companies, Japanese yielding to English, importing ever more US products killing domestic rice, wheat and beef, lowering health standards in food and medical services. The TPP negotiations are secret, but NAFTA (North American Free Trade Agreement) gives some idea: exporting jobs from richer to cheap labor countries on the condition that workers are kept underpaid – like in Mexico, hurting all but not capital; all sacrificed to the rampant profit motive of US and US-run businesses.
Prediction: with abenomics, most of the above within 2-5 years.
Alternatives: realize that the old golden days are gone, that US-West-Japan are outcompeted by BRICS. Go for acceptable, more modest deals. And that Japan could do very well at social and cultural growth, going for equality rather than more inequality, for quality of life, happiness, arts, rather than for quantity of money. People, not “think tanks”, have to work out the details, (USA has 1,823, EU 1,457; Japan only 108–mostly conservative). Be creative, not imitative.
And, instead of joining the US in increasing the insecurity, join the neighbors in an East Asian Community and revise the TPP for an egalitarian partnership from China to US and from Japan to Latin America.
First published at Transcend Media Service.
