By Akio Mikuni
Until eventually relatively lately, the japanese encouraged one of those questioned awe. they'd pulled themselves jointly from the destroy of conflict, outfitted at breakneck velocity an impressive array of export champions and emerged because the world's quantity economic climate and biggest web creditor kingdom, they usually did it by means of flouting each rule of monetary orthodoxy. this day, notwithstanding, merely the puzzlement continues to be - at Japan's lack of ability to arrest its financial decline, for its festering banking hindrance and the dithering of its policymakers. Why cannot the japanese executive locate the political will to mend the country's difficulties? This quantity goals to respond to why. The authors contend that the rustic has landed in a coverage catch that defies effortless resolution. Deep-rooted political preparations restrict the "obvious" measures recommended at the kingdom by way of such a lot of observers. on the center of Japan's challenge, mockingly, lies the main obvious image of the country's fiscal good fortune: its huge, immense, dollar-denominated exchange surpluses. those large gathered surpluses have lengthy exercised a starting to be and perverse impact on financial coverage, forcing Japan's professionals to help a build-up of deflationary money.
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Till relatively lately, the japanese encouraged one of those questioned awe. that they had pulled themselves jointly from the break of battle, outfitted at breakneck pace an impressive array of export champions and emerged because the world's quantity economic climate and biggest web creditor kingdom, they usually did it by means of flouting each rule of financial orthodoxy.
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Additional info for Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance
Meanwhile, meaningless elections were instituted that gave ordinary citizens no real say in how they were governed. While membership in the shogunal ruling class had been explicit—one was either born into a family that enjoyed feudal entitlements or not—and membership in its contemporary descendent is more fluid, the continuous transfer of power and privilege from one generation to another has never been seriously disrupted by either political upheaval or economic change. A handful of wealthy entrepreneurs such as Honda’s Honda Soichiro or Sony’s Morita Akio notwithstanding, no rising class grown rich on new technologies, no Japanese equivalent of Detroit or Silicon Valley has forced the Tokyo-centered elite to share either economic or political power.
The dollars earned by Japan’s excess of exports over imports stem from production outstripping domestic consumption, which in turn derives from production capacity greater than that required by Japan’s domestic needs. In fact, Japan’s production capacity not only exceeds the country’s The Policy Trap 25 Figure 1-8. Exports as a Percentage of Japan’s Gross External Assets Percentage 100 80 60 40 20 1945 1950 1960 1970 1980 1990 2000 Sources: International Investment Position of Japan, Ministry of Finance; Balance of Payments, Ministry of Finance and Bank of Japan; and Estimates of Long-Term Economic Statistics of Japan Since 1868, Toyo Keizai Shinposha.
From a financial point of view, it makes no difference whether claims are accumulated on foreigners or on residents as long as they are denominated in the country’s own currency; the money never leaves the domestic banking system. Central bankers can ignore the claims. But if those claims are denominated in a foreign currency, then they become problematic, because beyond a certain point they cannot be used domestically. In Japan, that point was reached by the late 1960s, when the country’s dollar holdings exceeded its need for currency in circulation.
Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance by Akio Mikuni