The odds are against this, and given that the yen has reached 160 yen to the dollar, most market prices are trending well. More importantly, Japanese stocks have been recovering over the past two years, coinciding with the yen's depreciation. This is his one indicator that this is a necessary adjustment rather than a pending collapse.Noah has good post About the whole topic. Here are some related observations.
1. Don't bet on a financial crisis when it comes to a mature and functioning economy. Crisis like this are the exception. Moreover, financial crises are by their nature nearly impossible to predict in economies with functioning financial markets. If that prediction were correct, the crisis would have already arrived.
2. However, crises do occur and there may be hidden influences in the economy. Although the Asian financial crisis of the 1990s was not obvious in advance, there was a strong crisis in South Korea as a whole. long run Financial situation due to increased export potential. Therefore, talking about this is not a waste of time.
3. The real question is what Japan will do with its entire government debt in addition to its declining population. Note that the debt-to-GDP ratio is sometimes estimated at 260%, but much (half?) of it is held by the Bank of Japan. However, I am not sure whether we should ignore the relevance of debt held by the Bank of Japan. Overall. This still means banks are less solvent and whether monetizing debt or printing money is a way to automatically overcome the dilemma I discussed in #4 .Institutional barriers remain important somewhat.
4. Japan's short-term interest rates are again very close to zero. Therefore, it is difficult to inflate debt through asset exchange, since the „new money“ is simply saved and may turn out to be irrelevant.It is true that Japan's central bank can try to make credible promises that inflation will continue. actual banknotes Until prices skyrocketed. But this type of inflation is difficult to predict and control, so such promises are probably a) unreliable and b) unwise. „We're going to keep the printing presses running (literally, not figuratively) until inflation hits double digits!“ It doesn't have an amazing impact on the country's credibility, fiscal or otherwise.
4b. The government's long-term financial situation is so difficult that it is difficult to raise real interest rates.
5. All of Japan very strong external position and overseas asset portfolio. Nevertheless, the extent to which any of them will help Japan address long-term solvency issues is an open question. Will the Japanese Ministry of Finance begin confiscating the Toyota factory in Kentucky?
I'm not as optimistic as many optimists in this regard. The depreciation of the yen redistributes wealth to Japanese consumers who buy imported food (directly) and energy (indirectly) and Japanese multinationals who hold dollars. But how much can a one-time increase in a company's stock-paying capacity prevent unsustainable long-term growth? I wouldn't bet the house on that.
6. Similarly, I'm not very impressed with the Bank of Japan's strong dollar holdings. As South Korea demonstrated just before the Asian financial crisis in the 1990s, such foreign exchange reserves can be quickly depleted during a currency crisis.your total government debt is Approximately 9 trillion dollars, and the Bank of Japan holds $1 trillion. This is a nice cushion, but it won't save the day, as the Japanese government's debt will accumulate further, especially in unfavorable demographic conditions.
7. If you think about the current political economy, it's a little worse than we realize. Inducing „fiscal austerity'' through exchange rate fluctuations means that redistribution from the people goes to Japanese companies rather than to the national treasury to repay and repay the national debt. This will make it more difficult to raise taxes later. Perhaps instead of adjusting the exchange rate, the government should have directly implemented fiscal austerity. How good is a political message like this?: „We know you're hurting by the high prices of imported energy and food, but don't worry. Big tax increases will make it all happen. I'm going to solve it.“
8. When push comes to shove, does the market believe the Japanese government can pull off a large tax increase?Current taxes are Approximately 34% of GDP, far below the level of Western Europe, but I'm still going to say „yes“. And even if the market believes such a tax increase is possible, it probably won't be needed any time soon. That's the main reason I'm betting on the financial crisis here.
9. Perhaps the real wild card is China, where there is a risk of infection regardless of which direction it spreads. Who really knows what's going on with China's economy? Certainly not. However, it would be a nightmare scenario if the world's second and third largest economies were to experience major financial problems, such as capital outflows, at the same time.