Editorial: Rebuild Japanese Economy:

 Article Source: https://mainichi.jp/english/articles/20221022/p2a/00m/0op/011000c

Article:

The Japanese yen is showing no sign of hitting bottom. Its rapid depreciation is not just the result of the U.S. dollar rising worldwide, but also suggests the global market is "selling off Japan" as the world's third largest economy weakens. The Japanese government and financial sector should deal with the situation with a sense of crisis.

The yen recently slipped briefly to the 150-yen zone against the U.S. dollar -- a 32-year low. The main cause was the difference between monetary policies taken by Japan and the United States. The U.S. Federal Reserve Board, emphasizing controlling inflation, continues major interest rate hikes. The Bank of Japan, on the contrary, has maintained its ultra-easy monetary policy to prop up the economy.

What we are seeing is a situation where the high-interest-rate dollar is in demand, thus weakening the Japanese yen. The yen's depreciation also stands out in comparison to the currencies of other developed and emerging economies, and one can assume that this suggests structural weakness in the Japanese economy.

Ideas:

The Bank of Japan might need to see it might be in a losing situation as the yen continues to weaken against the US dollars. As import prices continue to increase in Japan many companies and consumers are feeling the affects of the weak yen.

But at the same time, it might know something that other central banks don't know as inflation in Japan is still relatively low compared to what other countries are experiencing.

However the BOJ must know that its under pressure to eventually increase the rate, even its just a incremental rate increase to try and minimize the yen situation. 

Article:

As a resource poor country, Japan depends on other countries for energy and many foodstuffs. Following a surge in import costs such as on crude oil, Japan saw a record trade deficit in the first half of fiscal 2022.

While exports are also growing, Japan hasn't been able to cover the deficit from imports as "made-in-Japan" goods are far scarcer now than in the past. Japanese companies and financial actors are selling the yen to get dollars to pay for imports.

The Japanese government and business world have heretofore welcomed a weak yen, because it helps expand Japanese exports and inflate overseas profits converted into yen. The "Abenomics" economy policy mix led by the administration of former Prime Minister Shinzo Abe was intended to drive the yen's fall by executing a monetary easing policy.

Ideas:

The Japanese government and the business world, most likely those related to exporting might favor a weak yen, but what about the rest of Japan and the domestic economy, which might not have any dealings related to exporting.

Exports, might only be about 20 percent of GDP, but some or many exporters are large manufacturing companies. Yes, there are thousands of smaller export companies focused on a product of two but most exporters are the major companies that rely on a weak yen to keep it profits high.

At the same time the weak yen of course bringing more tourists and more tourist money, which of course helps. But Japan has yet to see the huge increase of tourists as China is still closed off which were a big part of the surge in 2019.

Article:

And Abenomics did help gain profit mainly among Japan's multinationals. However, even with a weak yen, Japanese firms seeking to expand have continued to relocate production outside the country, and the "hollowing-out" of domestic industries is not getting any better. Japanese firms also haven't been able to offer sufficient pay rises.

The weak yen has caused import costs to soar, causing the inflation rate in Japan to reach a 31-year high. This is squeezing business and household finances.

The Japanese government has a gasoline price subsidy in place to combat soaring commodity prices, and plans to lay out electricity and gas price containment measures. With such ad hoc tricks, however, the sinking of the Japanese economy will not stop. It's crucial for Japan to fundamentally rebuild its economic structure.

Ideas:

As usual, as everywhere, big business always seems to get the benefits of policy and the others such as in the domestic economy might not see as many benefits.

But as seen, many Japanese companies are still relocating to countries to make it easier to produce and avoid the yens weak position. 

And the add in the salary situation and its not a surprise that companies are moving to places like Vietnam, Indonesia, India and so on.

Change is not easy, and to completely re-engineer the Japanese economy could take decades and many companies might not be willing to change, which means the structural challenges will remain in Japan for sometime.

Article:

Business owners should, for example, put more effort into decarbonization and digitization projects to get ahead of the global current, with the government supporting these initiatives. What is needed now is a strategy to strengthen Japan's economic power.

Ideas:

Again change might take some time to see any real structural changes in the Japanese economy. No doubt that are many businesses that are moving forward with whatever is needed to remain competitive in the global economy, but at the same time, there are probably jot enough taking the initiative needed to be competitive in the global economy in the future.

There might be many new startups in Japan or those willing to start new companies that can compete in the 4th revolution but the major big companies still run the economy and as such the startups and others might still be minor players.

Perhaps its true that Japan is losing its place in the global economy because its not moving forward and or not transforming its major industries fast enough to remain a competitive force in the global economy.

Of course this has been talked about ever since the asset bubble crash of around 1990.

Have a nice day and be safe!