The following is from Hideo Tamura's regular column in today's Sankei Shimbun.
It is no exaggeration to say that he and Mr. Yoichi Takahashi are the only ones who write correct economic theory that is not a copycat of the Ministry of Finance.
Why can't the rest of them even say a correct economic theory?
The answer is found in the article by Yukihiro Hasegawa, which was re-published in the previous chapter.
This paper is a must-read not only for Japanese citizens but also for people around the world.
The main reason for the yen's super depreciation is deflation's preservation.
The yen has hit the 160-yen per dollar level.
Speculators can see through the usual pattern of the Ministry of Finance looking for opportunities to intervene in the foreign exchange market and the Bank of Japan looking ahead to an early interest rate hike.
So, let us ask the question: What is the culprit behind the super depreciation of the yen?
What is the source of the super depreciation of the yen?
Takuji Aida, chief economist at Credit Agricole Securities, believes that "the risk is that expectations for a complete end to deflation in Japan are fading.
We agree.
Since last year's April-June period, household consumption has declined for four consecutive quarters from January to March.
Although the April household survey for April's Ministry of Internal Affairs and Communications should have begun to reflect the significant wage increase in the spring labor offensive, real household disposable income has remained lower than in the same month of the previous year.
Fumio Kishida's administration blustered at the beginning of the "Basic Policies for Economic and Fiscal Management and Reform 2024," which was approved by the Cabinet earlier this year, saying, "We have a once-in-a-lifetime historical opportunity to break free from deflation and realize a growth-oriented economy completely," but the fiscal policy it has formulated is to achieve a primary balance (PB) of only ¥2.5 trillion by FY2025. However, the fiscal policy that the government has formulated states the goal of achieving a primary balance (PB) surplus in FY2025.
The PB surplus is a guideline for the Ministry of Finance to induce the administration to raise taxes and implement fiscal austerity measures. Since its introduction in FY1997, it has contributed to the entrenchment of chronic deflation. Realizing this, former Prime Minister Shinzo Abe forced Prime Minister Kishida to remove the FY25 PB surplus target from the text of Kotta 2022, but Kishida reinstated it.
The Bank of Japan, under the leadership of Governor Kazuo Ueda since last April, terminated its large-scale monetary easing policy in March of this year due to concerns that the weak yen would cause prices to rise.
At the June monetary policy meeting, the Bank announced a reduction in JGB purchases, which would raise long-term interest rates.
At the same meeting, there were strong opinions that "it is necessary to raise interest rates promptly without delay.
The BOJ officials do not seem to be bothered by the irony that every time such a hawkish stance is expressed, it weakens the yen.
The combination of running a budget surplus and tightening monetary policy, both in terms of interest rates and the quantity of money, in the face of weak domestic demand preserves deflation.
Then, economic vitality is unlikely to return.
Japanese companies, financial institutions, and even the general public will abandon domestic demand and turn to outward investment.
The yen will be sold off, and the dollar will be bought.
The exchange rate of the yen against the dollar has continued to fall, first to 150 yen per dollar and then to 160 yen per dollar.
The graph shows the year-on-year changes in Japan's foreign claims and debts against the yen and the U.S. dollar.
As of the end of March 2012, the balance of claims and debts stood at 1,584 trillion yen and 1,101 trillion yen, respectively.
The increase in foreign claims is linked to the depreciation of the yen.
Securities investment increased markedly in March, rising 124 trillion yen from the previous year and accounting for most of the increase in outward credits.
In addition to institutional investors such as life insurance companies, households, and banks also invest in securities.
In contrast, companies are holding back on investment in securities and increasing direct investment.
Foreign debt can be translated as foreign claims on Japan.
What is striking is the sharp increase this year, up ¥191 trillion from the previous year.
Of this amount, ¥107 trillion was invested in equities.
Foreign investors, mainly investment funds, see the "cheap" Japanese market as an excellent opportunity to generate investment returns.
U.S. investors have given up investing in China, where there is no way out of the recession triggered by the real estate bubble bursting.
Since the middle of last year, major investment funds such as Blackstone, which has been called the most pro-China group on Wall Street, have been investing in Japan seriously.
A group of U.S. institutional investors who are considering terminating their investments in China and switching to Japan often ask the author about the Japanese market.
Foreign investment in Japan is accompanied by buying the yen, which has the effect of 'curbing' the yen depreciation.
However, the fact is that the yen's depreciation has continued because more money is leaving Japan.
Japanese investors and businesses, including households, will be the key to stopping further yen depreciation in the future, then, as they are increasingly looking overseas.
Unless the Japanese people regain confidence in their economic revival, their hard-earned money will flow outward and not back home.
The condition for this is a complete break from deflation.
Still, as mentioned earlier, the Kishida administration and the Bank of Japan have yet to talk and do the opposite.
At this juncture, with the regular Diet session drawing to a close and the LDP presidential election to be held in the fall, a movement within the LDP to "bring down Kishida" has surfaced.
While the LDP's political and policy straying is out of the question, the focus will be on whether or not a new leader will be chosen who will compete on policy within the party to end deflation and revitalize the country.
(Editorial Board Member)
2024/6/29 in Osaka
