I think Japan is in all kinds of trouble.
The Yen is trading at its highest against the Dollar in 15 years. Which is killing Japan exports. Japan’s economic growth is nearly all export driven and its growth shunted to a halt last quarter going from 1% to 0.1%.
There is the definite feeling that Japan is losing ground and its touch. Japan took a serious blow when last quater China over took it to become the world’s second largest economy.
The strength of the Yen is raising pressure on teh governemtn to intervene in the currency market to weaken the currency. It has not done this by direct selling since 2004 when it sold 35 trillion Yen.
The Bank of Japan does not want to intervene by selling Yen or more debt. Japan has spent two decades flooding its banks and economy with cheap money. No country has printed so much paper money for so long. And yet it ‘needs’ to do it again to try to weaken the Yen and spur its industries. But increasingly The BoJ is pushing on a wet noodle. If it can’t find buyers then production is pointless. More QE may be past the poinht of diminishing returns where the dubious advatages are now far outweighed by the risks.
Prime Minister Naoto Kan said recently that Japan was “at risk of collpase” under the weight of its enormous debts. Debt to GDP is well over 100% already. And as I noted yesterday Japan will soon, perhaps now, have to face selling its debt on the international market. The day Japan cannot sell its debt internally to its own people, it ‘s debt costs will double or triple. That event itself will make interantional news and hurt Japan seriously. I think we would fairly quickly hear noises of sovereign credit rating trouble.
No wonder Japan does not want to intervene. But if the Yen continues to rise they will intervene. They will have no choice. Japan has not done what China is doing, which is to build up a stronger domestic economy. Japan has stayed focued too exclusively on exports.
The long post war period of political and economic stability in Japan is over. The Nikkei, Japan’s stock market is trading today at 8995 having dropped relentlessly since March. It is now only 200 points of its ’08 low point and far, far below the 13000 where it stood before the Bank crisis began. We won’t even talk about the glory days of Decmeber 29th 1989 when it stood at 38, 957. THAT is what failing to clear bad debts and bailing out insolvent banks did to Japan and what it will do to us.
Japan could still be the wild card.
If you want to read the background to this post you could take a look at Japan – A lesson in lies and pain.
But can Japan build up a domestic market when it's citizens are already at a high level? In China they have started from a very low subsistence farming level so it is 'easy' to get growth as people stock up on what we regard as essentials like TVs and fridges.
There is a finite limit to growth if the population remains constant.
True IanG. In which case they are screwed if they can't get the Yen down.