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Teetering euro, U.S. drought may send yen toward 50-to-$1 level

44 Comments

A Tokyo housewife opens her parasol as she exits her home on a hot afternoon, and heads in the direction of her neighborhood supermarket. Her husband, who works for an electronics manufacturer, has seen his salary cut repeatedly over the past several years, and since his wages are down by around 30% from what they were before, she's become increasingly budget conscious.

But on every aisle of the store, the food items on the shelves -- cooking oil, butter, bread, confections, tofu, natto, soft drinks, beer -- all reflect price increases of from 10% to 20%, caused by record-high prices of grains and other commodities as the U.S. heartland sizzles and shrivels under severe drought conditions. The higher costs of feed grains will also affect the cost of pork and beef.

The surging value of the Japanese yen was not enough to offset the cost increases, leading to progressively shrinking household budgets. Meanwhile, her bills will also be higher for electric power, perhaps by around 1,000 yen more per month. Back home, she asks her 30ish son -- a university grad who has yet to find work -- "Have you eaten lunch yet?" It's past noon on a weekday and he's just crawled out of bed.

Shukan Shincho (Aug 2) warns this is a foretaste of Japan in the year 201X -- perhaps sometime very soon -- where the yen trades at 50 to the U.S. dollar and the Nikkei-Dow average fluctuates around 5,000 yen.

"Under this situation, employment opportunities at Japan's manufacturing firms would likely plummet," predicts Toshihiro Nagahama, chief economist at the Dai-ichi Life Research Institute. "But because the working population as a whole won't decline rapidly, it's likely that overall wages will fall. People at the lower income rung, as well as those in the middle, and higher income levels as well, will all be affected. It's going to hit everyone hard."

Should the worst-case scenario occur, Nagahama predicts that middle-class wage earners may even find themselves below the poverty line, a situation American hedge fund manager Doug Kass calls "screwflation." It's a phenomenon that is already unmercifully starting to peck away at the prosperity of members of Japan's middle class, no matter how hard they work.

To make matters worse, European economies are teetering. On July 23, Moody's downgraded the credit ratings of Germany, the Netherlands and Luxembourg from "stable" to negative."

The various implications of the possibility of looming financial crises not only for Greece but for Spain and possibly even Italy have already driven the Euro down to 94 yen. This may also impact negatively on the U.S. dollar, Nissei Insurance senior economist Tsuyoshi Inoue tells the magazine.

The instability of the dollar and Europe, a writer for a national daily newspaper predicts, will lead to "a continuing string of corporate bankruptcies."

"Layoffs would become increasingly severe, and wages would decline further," he speculates. "Hiring of new university graduates would come to a halt, leaving young people with nowhere to seek jobs but overseas. And there'd be no market for stocks of export-oriented companies. If French and German banks sell off their Japanese paper to settle bad debts, it could cause the stock market here to plummet."

Economic analyst Takuro Morinaga agrees that the possibility of a 50 yen to the dollar exchange rate can't be ruled out. The result, he says, would be "violent deflation" with Japanese manufacturers shifting production offshore, leading to unemployment levels unseen since the 1930s.

As a hedge against currency instability, some people in the financial sector are recommending shifting assets to the Chinese yuan in anticipation of its rise against the dollar and yen. An unnamed banker is quoted as saying he and his colleagues have already shifted one-third of their savings to Renminbi. While the magazine seems to think that clever investors can reduce the impact of a major crash, for most, suggestion that diversifying assets may stave off disaster is anything but reassuring.

© Japan Today

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44 Comments
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It's the carry trades that is causing the Japanese Yen to appreciate in value.

0 ( +1 / -1 )

someone always catches attention by being the most extreme, the above is very unlikely

5 ( +5 / -0 )

It's the carry trades that is causing the Japanese Yen to appreciate in value.

Not any more - there is barely any difference between Japanese and other G-7 interest rates. When US and UK interest rates were c.5%, there was a clear carry trade to move from yen to other currencies, but now that USD and EUR rates are near 0%, the carry trade is dead.

5 ( +5 / -0 )

Ah_so

Thanks, I wasn't aware of that.

1 ( +2 / -1 )

Yes, Japan's economic problems are all the fault of foreigners. The fact that Japan has failed to adopt to a globalized world economy and address serious structural issues at home have nothing to do with its own woes.

A really strong yen will make imports, like energy, cheaper improving consumers' standard of living. Since Japan runs big current account surpluses, it can afford to take advantage of having a strong currency, rather than cry about it. The problem is a mindset that hasn't changed since the 1960s. Exporting more TV sets ain't an option anymore.

-9 ( +8 / -17 )

While the above scenario is very unlikely, the whole situation has plenty of FAIL to go around. For example:

-Lots of corn is grown for ethanol, decreasing supply for food. This is because of government subsidies.

-High Fructose corn syrup, a replacement for sugar, is used because of tariffs on imported sugar. These tariffs are imposed by governments, but motivated and passed by the corn lobby. This increases the demand, and the price, of corn

-Commodities are priced in dollars. Because of FED money printing, U.S. inflation is exported to countries that must pay dollars for these commodities, pushing up their prices

-Japan has tariffs on imports, which make it harder for Japanese to buy imported goods for cheaper prices.

-Japan has bet heavily on always having a strong export sector as a main component of its economy. They've basically made entire industries dependent on a certain yen/dollar ratio.

0 ( +5 / -5 )

@Ah

someone always catches attention by being the most extreme, the above is very unlikely

Well, in 1995 it was at 80. Anything is possible.

@Jefflee

A really strong yen will make imports, like energy, cheaper improving consumers' standard of living. Since Japan runs big current account surpluses, it can afford to take advantage of having a strong currency, rather than cry about it. The problem is a mindset that hasn't changed since the 1960s. Exporting more TV sets ain't an option anymore.

Can you just please provide some references, data, anything to back your claims? I'd like to see it.

6 ( +8 / -2 )

I have read more articles saying the opposite, the potential for a hugely weak yen over the next 1-3 years is highly likely. If Japan government goes into debt and defaults, then the yen's value will plummet. The Japanese debt is at an all time high and the government has been inactive in resolving this, and could potentially be the biggest debtor nation in the world by next year. Therefore, investors will choose to buy assets in U.S dollar and other stronger developed nations. I think the Japan economy is on a crash course, and economics just doesn't support the strong yen.

0 ( +1 / -1 )

Well, it's true that US food prices will go up because of the drought, but if the yen is at the rate of 50 to a dollar instead of its current 78 to a dollar or thereabouts, that should make up for it. Ditto for other imports, like oil, denominated in dollars, as Jefflee said, and maybe euro-denominated imports as well.

Exports, on the other hand, would be in really bad shape. Japan won't be able to sell anything, as the strong yen would make their products unaffordable.

I don't, therefore, believe that the 50 yen to a dollar scenario will come to pass. They will defend 75 to a dollar very strongly, though it is expensive to do so, and if that fails, they will start printing more money, I think.

3 ( +3 / -0 )

FarmboyJul. 31, 2012 - 10:33AM JST

They will defend 75 to a dollar very strongly, though it is expensive to do so, and if that fails, they will start printing more money, I think.

They won't be allowed to, as it would be blatant currency manipulation and japan would go down in history as the country which started the great currency war of the 21st Century.

Noriko Hama was predicting that the Yen would go to about 50 to the dollar in the 1990s. it's not like it's new news.

Japan is caught between a rock and a hard stone. There is no way it can borrow money on the international money markets because it would have to borrow at 8% plus rates, due to its present 'GDP To Debt' ratio. That would trigger her domestic rates surging to similar levels and the country would be faced with mass bankruptcies and house loan defaults.

Therefore it must borrow domestically and as long as it does that, it will have no foreign debt and the Yen will remain an attractive currency, until other countries get their own foreign debts in order: which is at least 10 years away.

Of course it will all come crashing down suddenly, long before that, when the Japanese government is forced to default on its domestic debt and bonds, which is around 5 years away.

There's nothing Japan can do.

-13 ( +3 / -16 )

They won't be allowed to, as it would be blatant currency manipulation and japan would go down in history as the country which started the great currency war of the 21st Century.

Dog,

That's nonsense. They've already done it many times, and sometimes with the cooperation of other countries. They have recently signaled that they will do it again.

http://www.nytimes.com/2011/11/01/business/global/japanese-officials-intervene-to-weaken-yen.html http://www.ft.com/cms/s/0/b91061ce-5168-11e1-a99d-00144feabdc0.html#axzz22ACyaUnH

9 ( +9 / -0 )

Sorry, I meant to include the quote from Dog as a quote above.

0 ( +0 / -0 )

A+b/a=a/b≡?Jul. 31, 2012 - 10:04AM JST

Can you just please provide some references, data, anything to back your claims? I'd like to see it.

It's not rocket science.

Rather than Jeflee wasting his time, finding sources to pamper to your ignorance, why don't you do a basic google of the benefits of a strong currency and running a surplus current account.

-11 ( +4 / -15 )

Dog japan will not be to blame for starting the currency war, the currency war is already well under way, U.S. and China been manipulating their currencies .

The yen wont go anywhere near 50 as japan will print money and defend its currency and not give a flying f&*() about being blamed for anything.

The article above is like saying super man and spider man are real.

5 ( +8 / -3 )

FarmboyJul. 31, 2012 - 11:34AM JST

Dog,That's nonsense. They've already done it many times, and sometimes with the cooperation of other countries. They have recently signaled that they will do it again.

In the late 1990s and early 2000s, Japan was allowed to run a weak Yen policy, and was helped by others, because the world was booming and needed cheap imports and the Japan promised to buy US govt bonds with the extra Yen. The understanding was that Japan would use the breathing space to reorganize an export driven economy into a service/IT domestic led economy. Koizumi and the LDP did not keep their side of the bargain, rather Koizumi tried to keep Japan's distorted manufacturing base by changing the employment laws, which in itself shrunk domestic demand.

After 3/11 Japan got a brief sympathy help, but since then, Japan has been intervening by itself. Not only will this not work, but the patience of others is running thin with Japan's mercantilist mind think. Last time japan intervened it got a slap on the wrist from the US and if it does again, especially if Romney wins the election, then japan will be penalized as a currency manipulator.

Forget the bluster of Jun Azumi, he was a one time NHK talento, who has a better understanding of manga than macro/micro currency exchanges; I kid you not.

The last unitary intervention

-11 ( +3 / -14 )

Dog: I'll agree with Farmboy and say:

Dog,... That's nonsense.

5 ( +6 / -1 )

Dog Romney isnt going to win the election so japan wont have to worry about that part of your argument and the rest is fantasy.

-1 ( +2 / -3 )

Can you just please provide some references, data, anything to back your claims?

How about a textbook called Economics 101? Merchandise, commodities, etc are normally originally priced in local currencies or the dollar. When the yen is strong against those currencies, Japanese importers can buy more units for the same amount of yen than before the yen strengthened.

Think it this way: a trip to Hawaii yields more bargains for Japanese tourists when the yen is 78 to the USD than when it is 100 to the USD. this ain't rocket science.

-2 ( +5 / -7 )

How about a textbook called Economics 101?

I have never seen a textbook called Economics 101. I do not agree with your reasoning.

-2 ( +8 / -10 )

It is time to rethink the value of everything.

3 ( +4 / -1 )

she asks her 30ish son—a university grad who has yet to find work—“Have you eaten lunch yet?” It’s past noon on a weekday and he’s just crawled out of bed.

I know this is a ficticious scenario, but that one is happening now. I would imagine that a person graduates from college at around age 22-24. If so, this guy has been idle for 6 years. I know things are bad, but just curious, what time did this guy go to bed? If you are out of work, I understand. But sleeping until noon, if you have been at home all day, is not going to get you any job. Just my thoughts.

-3 ( +2 / -5 )

It is time to rethink the value of everything.

Thought of the day, man.

1 ( +2 / -1 )

weak yen is liklier than strong

1 ( +1 / -0 )

Print Money Japan... Here is my solution... for every baby born in Japan to a married couple with at least one Japanese parent... give that family Y30 million. Just print the money... no govt bonds or anything... print it. For every child thereafter.... Y20 million. The family in question cannot wire or take the money out of Japan for at least 10 years. Two problems solved.... it will weaken the Yen and it should increase the birth rate. They have incentives for cars!

-1 ( +1 / -2 )

The problem with economics 101 is the special tag line "All else being constant" so yes, having a stronger yen (with all else being constant) will make imports that much cheaper but in turn cause exports to be more expensive. Again, this doesn't take into account what is happening elsewhere in the world

2 ( +3 / -1 )

@dana.. wouldn't all that money printing cause inflation and make prices more expensive anyways?

2 ( +3 / -1 )

Dog

Rather than Jeflee wasting his time, finding sources to pamper to your ignorance, why don't you do a basic google of the benefits of a strong currency and running a surplus current account.

Japan's balance of trade is already negative. The current accounts are in (declining) surplus only because Japanese investors are bringing Yen back in from other countries by selling those foreign assets, to benefit from the rise of the Yen. But they will run out of assets eventually. The current account was even in negative territory in January 2012. http://www.tradingeconomics.com/japan/current-account http://www.tradingeconomics.com/japan/balance-of-trade

A strong currency does advantage consumers as it allows a country to import cheaper foreign products. But a strong currency is devastating to an economy in the long-term in a globalized world economy, because it makes what the economy produces uncompetitive and thus increases unemployment and reduces salaries. If things cost less, but people have no income, they're much worse off than if things cost more but they still had a job. A weak currency brings jobs and investments, even if it reduces the purchasing power of consumers.

Let's look at countries for which the currency had been undervalued or overvalued to see if having a strong currency really is a good thing.

For Greece, the Euro has been, for years, overvalued. For Spain and Portugal, likewise. Still true, to a lesser extent for Italy and Ireland.

For Germany though, the Euro is undervalued (how can the Euro be undervalued for Germany and overvalued for Greece? Simple, price and wage levels differ in these two countries, since they share the same currency, the Euro is basically an "average" of what each nation's currency would be). China is a great currency manipulator and its Yuan is strongly undervalued. India's Rupee is also.

So, what is better in the long term? To be like Greece and have a very strong currency for the state of the economy, or to be like Germany and have a currency that is relatively weak? The answer is quite evident it seems. You seem to want Japan to become like Greece, having a strong currency that allows for a short-term spending binge but which ultimately ravages the economy.

Ideally, currencies must be neither strong nor weak, but appropriate to maintain a balance in trade, avoiding huge trade surpluses or deficits. Once upon a time, we had Bretton-Woods, a system that sought to stabilize currency exchange rates to reduce trade deficits and surpluses, but no more. The neoclassical economists have convince the elites that trade deficits don't matter, that it's all just a keynesian's foolishness. Now we pay the piper for listening to neoclassical lies.

4 ( +4 / -0 )

Dog: I take it you subscribe to the Keynesian School of thought.

I think we all forget that the balance of trade should be just that.. a balance. Japan running huge surpluses over the years is great for them, but it is catching up with the strengthening of the yen. Soon they will be forced to import more goods to balance the trade with the rest of the world.

0 ( +0 / -0 )

@malfupete The problem is it's not going to be a matter of importing more goods. What's really happening is they are being forced to off-shore their production. Things will balance out, but at the cost of massive lay-offs. Sony, Panasonic/National, Sharp, are all brands that have been shuttering plants and moving them overseas. What's japan going to have to export? A few brand names and Cultural goods? Those are fine but aren't big enough to pay the bills.

0 ( +1 / -1 )

Sony, Panasonic/National, Sharp, are all brands that have been shuttering plants and moving them overseas. What's japan going to have to export?

Are you assuming no other nations follow this pattern? Really?

4 ( +4 / -0 )

Perhaps Krugman will encourage Bernanke to lend BOJ his helicopter from which to disperse all that freshly printed perty paper?

2 ( +2 / -0 )

Drout reports very exaggerated. The corn in the back 40 here in ohio is tall and the ears are fully developed. The warm winter suckered some greedy farmers into early planting (hoping to double crop) and the usual early summer dry spell is being sold as the big drout, and the undeveloped corn sold to government subsidized insurance. Farmers who planted on usual schedule will harvest normal yields as mid summer storms are raining away nearly daily. Media needs "calamity" to sell papers and newscasts, and commodity traders are happy to cash in on "news" of drout.

4 ( +4 / -0 )

japan will have to follow the lead of the swiss before long, and put its foot down.

that should make all of the currency traders obsolete pronto presto. let them stand in the unemployment lines...

the usa basically tried to screw the world with its Empire Finance strategy. now it's time to pay for that play. free-trade agreements? nonsense. just another ruse aimed at benefiting the larger country.

@JeffLee what, you work for samsung? your posts would seem to indicate that such is the case, with a bias toward korean manufacturers over japanese. once again, korean products are inferior to japan's, and are only selling because of the imbalance in the exchange rates.

4 ( +6 / -2 )

@Dog

"There's nothing Japan can do."

LOL, are you like a wolf boy who craves attention ? Yeah, sure, Japan will go down in 5 years.

"why don't you do a basic google "

Basically you are saying you don't have anything to backup your claim, LOL typical. As always, may i suggest you leave this country if you hate it so much ?

3 ( +5 / -2 )

Plus 1 for Ubikwit's above post only wish is we could vote more than once.

-2 ( +1 / -3 )

@Dog

In the late 1990s and early 2000s, Japan was allowed to run a weak Yen policy, and was helped by others, because the world was booming and needed cheap imports and the Japan promised to buy US govt bonds with the extra Yen. The understanding was that Japan would use the breathing space to reorganize an export driven economy into a service/IT domestic led economy. Koizumi and the LDP did not keep their side of the bargain, rather Koizumi tried to keep Japan's distorted manufacturing base by changing the employment laws, which in itself shrunk domestic demand.

There are some aspects of that statement that are factual, but others that are speculative and still others that are simply incorrect or the stuff of fantasy.

First, what do you mean by "allowed to run a weak Yen policy"? i don't doubt that there were synergies for the economic allies of Japan during that period, but the statement you follow that with:

The understanding was that Japan would use the breathing space to reorganize an export driven economy into a service/IT domestic led economy.

This is simply an ideological technocratic textbook argument that embodies an element of social darwinism wrapped in nationalism. Just look at the example of the USA--which I assume would be your pinnacle example of an evolved service/IT domestic led economy--where the manufacturing base was hollowed out by the politicos negotiating treaties that benefited only American industrialists and their cohorts in other countries by facilitating the relocation of production bases to countries with cheaper labor and lax environmental and labor laws.

To whom are the people in a "service sector" economy supposed to be providing a service?

The final point you make regarding Koizumi and the LDP is interesting because Koizumi was known to kowtow to Bush, and this period saw the influx of huge numbers of finance sector workers from the USA coupled with M&A or takeovers of Japanese banks that--one by a firm associated with Quail--and the weakening of the labor laws to facilitate the use of "temporary workers" was promoted by American companies complaining about the high cost of doing business, etc. So there is no correspondence between Japan-USA here, just a corrupt case of collusion between propertied class cretins (Koizumi-Bush) attempting to undermine the government to serve their respective private interests.

Koizumi tried to keep Japan's distorted manufacturing base by changing the employment laws, which in itself shrunk domestic demand.

Koizumi's action on labor policy was exactly the opposite of what you assert. It was not aimed at trying to maintain Japan's "distorted" manufacturing base, but to create "flexibility in the labor market" to benefit fat-cat finance cretins from the USA at the expense of the rights of workers.

The fact that such action resulted in weakened domestic demand is a secondary point that was simply a result of the implementation of policies that had related objectives for a group of corrupt politicians and finance industry cretins. And those finance industry cretins along with quasi-public institutional entities like the Fed are responsible for facilitating the current imbalance in currency rates that is wreaking havoc in Japan. Meanwhile, the USA struggles to revive some form of a manufacturing base in its "service sector" economy...

There will always be a degree of flux, and parties trying to make a profit of some transitory aspect at any given point in time.

2 ( +3 / -1 )

someone always catches attention by being the most extreme, the above is very unlikely

The yen will by 20 to the dollar. Look at me! Look at me!

0 ( +0 / -0 )

@ubikwit

You really ought to do some basic research on Japan and read a few back copies of The Economist, circa 2000, if you wish to opine on Japan with any credibility.

The weak yen policy was a decided policy of the G7 and you seem to be the only person who missed it.

Koizumi's change to the employment laws causing a decline in the standard of living for every average Hiroshi from here to Osaka is something obvious to every person living in Japan, outside of the gaijin bubbles. Even if we discard the empirical evidence, the statistics clearly indicate that the average salary in Japan is, year on year, decreasing.

However you could just keep posting your non-specific utterances about the generality of capitalism in the 21st Century, but it does seem rather out of place on a Japanese specific website.

Go read some back issues of Noriko Hama's articles, she was writing in 2001 on about what was to come and she has frighteningly been proven right.

She was also predicting in 1997 that the Yen would eventually increase to the high 50s to low 60s exchange rate to the US dollar.

-10 ( +0 / -10 )

@Dog

I'm trying to learn a little, too, as I attempt to participate in these discussions. I don't read the Economist, and would basically consider that publication to reflect the views straddling the economics policies promoted by technocrats and the push for profits by the finance sector, which continual attempts to influence the policies formulated by the technocrats.

The point about the G7, OK, got it. It still seems like a bit of a technicality, however.

Regarding Koizumi's labor law changes, you are the one, if I recall, who asserted they were implemented with the aim of maintaining "Japan's distorted manufacturing base".

It may be plausible to assert that Japan's manufacturing base had a little extra capacity due to the "weak Yen policy", but I still fail to see how Koizumi's actions were meant to bolster the manufacturing base during that same period.

You seem to be fairly well-informed and intelligent, so I'm confident that I don't need to repeat the points I've tried to make above.

I also wouldn't argue that my points are more on a historico-macro plane than direct policy decision, but those planes do intersect at times.

As far as Noriko Hama is concerned, I don't think that making such projections by plugging some figures into a particular model is anything special. It just so happens that she may have been correct in assessing which trends were to persist.

On the other hand, there have been external factors that have arisin in the interim that could be seen to have exerted an influence she didn't foresee, yet that nonetheless resulted in her predictions containing a fair amount of verity.

I really can't comment on her predictions about the yen--as I haven't read the articles--but the current exchange rates seem to contradict other economics "fundamentals", and to benefit no-one as much as the currency traders and houses of finance.

That is why I find a degree of upright fortitude in the move by the Swiss, as it eliminated what amounts to siphoning revenue from national coffers by what should be a risky speculative epiphenomena with respect to the real economy, or so potentially devoid of profitability that people would buy bonds.

I do not support financial loopholes that allow transnational houses of finance to parasitically siphon off revenue of national economies.

0 ( +1 / -1 )

And those finance industry cretins along with quasi-public institutional entities like the Fed are responsible for facilitating the current imbalance in currency rates that is wreaking havoc in Japan. Meanwhile, the USA struggles to revive some form of a manufacturing base in its "service sector" economy...

-1 ( +1 / -2 )

Who would be dumb enough to exchange a dollar for a mere 50 yen? Or 60 yen? Or 70 yen? Or even 80 yen?

0 ( +0 / -0 )

How cheap do you want them?

-6 ( +0 / -6 )

@Dog

Koizumi and the LDP did not keep their side of the bargain, rather Koizumi tried to keep Japan's distorted manufacturing base by changing the employment laws, which in itself shrunk domestic demand.

I didn't write that! You own it, but it may merit further examination in relation to its presentation in combination with crystal ball prediction from financial press seers from the early 2000s when those political luminaries Koizumi and Bush shared the stage.

It could be that you meant to say that by allowing companies to hire temporary workers, the companies would be able to adjust their work force by not hiring full-time employees and paying benefits, etc., enabling the companies to flexibly respond to market fluctuations in the amount of orders they receive. That would presumably enable them to maintain the size of their distorted manufacturing base (by which I presume you mean too large), by reducing labor costs. That, however, would not seem to be a plausible rationale given the coincidence of the timing of those measures with the status of the "weak yen policy". If exports were booming due to that policy why would companies need to pay workers less? Or worry about downsizing the workforce?

You did mention that it worsened the conditions of the workers, which I acknowledge, but I still maintain that the changes in the labor laws were introduced to parallel those in the USA, in a collusive movement coordinated between two bogus politicians from political dynasties with a class-warfare agenda. Moreover, they were implemented in response to calls from Western finance entities, such as investment banks, etc., that knew they might only be here for the short term.

patience of others is running thin with Japan's mercantilist mind think.

What does that cryptic line mean? What is meant by the term mercantilist in this context? Export oriented? Who doesn't have a mercantilist mind set at present? Greece, maybe?! Surely you don't mean mercantilism in terms of monopolizing markets and establishing colonies? And I don't think that Japan has engaged in providing export subsidies in recent history: we do have the GATT nowadays...

That would seem to indicate that think that the Japanese are evil mercatilists because they are concerned about their currency being manipulated by transnational finance cretins?

1 ( +1 / -0 )

Dog

Yeah, I'm a cheese lover myself, too, and will say up front that I don't understand the details of the tariff on cheese here, but it sure is not in violation of the GATT, or they wouldn't have it.

On a related note, though, I do know a fair amount on the high tariff on malted barley derived products: beer.

I'm not sure what the figure is at now, but about 10 years ago the tax on beer in Japan stood at 220 yen/liter. That is probably the highest in the world. The tax stems all the way from the Meiji era, when it was imposed to protect the sake brewing industry, and has persisted. The tax is based on the percentage of malted barley contained in the beverage, however, and the appearance of "happoshu" was an attempt to get around the tax by lowering the malted barley content. The government then reacted by trying to raise the tax on happoshu because they were so used to booking enormous taxes from beer. That was a pretty lame move by the government!

On the other hand, about 12 years ago or so the Japanese slashed the tax on distilled alcohol to a low level. In fact, whisky and gin from Europe is now as cheap if not cheaper than it is in the USA.

I'm not trying to defend the Japanese governments policies in a biased and uncritical manner. It just seems that the term mercantilist is a little harsh considering that every other country in the world is trying to export their economy to health. The problems is that many countries are trying to manufacture the same types of goods these days.

Japan does has some high tariffs, but I think that most of them are justified for geographical and cultural reason, in particular, the rice tax. Japan has half the population of the USA with a land mass 9/10ths the size of California, and wet-paddy rice agriculture has been the staple of the economy for about 2000 years. It is part of the landscape and belongs there.

-1 ( +0 / -1 )

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