Jirou Terajima gives an interesting overview of socio-economic statistics for 2007, with a mind to what can be expected in 2008 (Sekai, March edition).
(1) Material (a) and Human Logistics (b)
- (a) The proportion of Japan’s total trade composed of imports and exports from/to the United States fell to 16.1% from 17.5% the previous year (2006). Trade with China accounted for 17.7%, exceeding America’s share for the first time since the post-war occupation. Trade with the Far-Eastern subcontinent (China, Hong Kong, Singapore and Taiwan) amounted to 27.8% of the total, and with Asia altogether to 45.8% – indicating that Japan’s manufacturers are increasingly standing on the strength of Asian consumers. A striking contrast from the half-century after the war when common sense dictated that ‘trade basically means trade with America’.
- (b) Equally striking changes are evident in statistics for flows of people, too. In 2006, the number of Japanese travelling to America totalled 3,670,000, to China 3,770,000 : numbers of Japanese travelling to China exceeded those travelling to America for the first time since the war. In 2007, Americans accounted for 820,000 of foreign visitors to Japan, significantly less than the (over) 3,000,000 who came to Japan from China. Japan has entered an age of ‘mutual exchange’/'mutual interflow’ with Asia, starting with China. The writer sees these changes as an indication that Japan, while still valuing its cooperative relationship with the United States, has overcome its post-war trauma, and has broken free from that era’s 60 years of ’seeing the world only through the eyes of America’; observers should take heed that Japan is now finding its identity in the heart of a new sense of Asian dynamism.
(2) A Structurally-Weak yen
One principal reason for the changing flows of people to and from Japan is the exchange rate fluctuations that have occured since the century began. Comparing rates (of the yen and others) from 2000 and 2007 we see that the Chinese Yuan, despite its government’s controls, has risen by 19%, the Honk Kong dollar by 9.2%, the Singapore dollar by 25.1% – indicating that visitors from those countries have found that Japanese prices have dropped quite pleasingly in the last 7 years. For example, in the case of visitors from China – where people’s wages have doubled – Japanese prices have dropped by 60-70%. (Taiwan is an exception, gaining only 3.7% on the yen since 2000.) Conversely of course, for the Japanese, Hong Kong and Singapore are not quite the ’shopping countries’ they used to be; the writer reports that flights from Japan to Hong Kong after the New Year holiday are full of Hong Kong Chinese laden with designer-label-emblazoned shopping bags, quite the opposite of what used to be the case.
Even more extreme changes have taken place with regard to the Australian dollar (up 57.9% since 2000), the Korean Won (up 32.9%), and the Russian rouble (up 20.4%). Over 70,000 Australians visit the ski resort of Niseko in Hokkaido each year, and have started buying up chalets and villas, pushing up property prices. Russians seem to prefer the ski slopes of Niigata and hotels there are reporting a roaring trade. Meanwhile, the onsens of Beppu, in Oita prefecture (Kyushu), are supported by the visits of over a million Koreans each year. Once again, we see that ‘exchange rate magic’ is the underlying cause of this flow of people. In the case of resource-rich Australia – where incomes have doubled this century – visitors are falling over themselves to come and find Japanese prices now equate to a quarter of those back home.
(3) What has caused Japan to ’shrivel’?
Under the banner of ‘economic stimulation’, Japan has maintained – for 12 successive years – a ’super-low interest rate policy’, with the bank discount rate breaking the 1% line. The Bank of Japan last year abandoned its zero interest rate , upping it to 0.25% in February last year (2007); it now stands at 0.5%. The Federal Bank of America’s ‘FF’ rate reached a peak of 5.25% in June 2006, but has been cut 4 times since the sub-prime debacle broke in August last year and was set at 3.5% at the end of January this year (2008). So, the interest rate gap between Japan and America has narrowed, but a 3% difference still exists. When you consider that the European rate stands around the 4% level and Australia 6%, the Japanese level is conspicuously low.
Japan’s individual financial reserves are said to amount to 1,550,000,000,000,000 yen (１５５０兆円), but this money is being pushed abroad by the low interest rate policy – the so-called ‘yen carry’ (yen are bought/borrowed and then used abroad to buy other currencies or financial products). The Yen Carry, in its strictest sense, as conducted by institutional investors is estimated at over $200,000,000,000, but in its broader sense, encompassing the investment activities of Japanese and foreign individuals and companies the figure is said in some quarters to be nearer $1,000,000,000,000 : not a fact the Japanese can be proud of. Mr.Terajima rounds this section off by pointing out that the money the Japanese people are working so hard to accumulate is being sucked out of the country (because of the low interest rate policy), often ending up being used by foreign institutions or individuals to attempt to buy out Japanese companies rather than to support business activity in Japan. Investment in Japanese companies thereby ends up benefiting foreign investors : 60% of trades on the Tokyo Stock Exchange are conducted by foreign investors, and 28% of shares in major Japanese companies are held by foreigners (as of September 2007). With the fall in the stock market this year, foreign investors have been steadily ’selling Japan’; whereas the New York Dow’s biggest drop was of 15%, the Nikkei plumetted by 31%, indicating the precarious nature of Japan’s dependence on foreign investment.
Mr.Terajima concludes that the super-low interest rate policy has warped the Japanese economy, causing the market to fall to a third of its level at the peak of the bubble in 1989 (39,000yen), and its currency to flounder in relation to neighbouring countries. The Japanese have been stubbornly ‘thinking inside the box’ – as an export country of course a weak yen appears desirable, to stimulate the economy a low interest rate is desirable – and this has led to huge flows of capital out of the country. Japan needs to reconstruct its general strategy after looking carefully at the current state of its economy.
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February 26, 2008 at 9:18 pm
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