Japanese reflation

[kMal]

I find it ignorant of HUMANS (because that is what we all are.. no matter where you work or what you do) to inject more and more money into a failing economy worldwide. I think it is best to solve the problems first, before injecting loads of money into a corrupt financial sector!

[Debi]

(first of all, Hi to you guys, I'm brand new)

I guess it would be useless to make a full documented analysis on a non-specialized forums so I will just give my opinion.

Right now Japan economical situation is so complex that I will try to keep it short.



In financial crisis, traders turn to USD, JPY and gold.
The same thing happened this time, which greatly valued the JPY.

As we all know, Japan rely heavily on exportation.
Import raw, export manufactured; a strong JPY mean less export so less income.

Japanese financial authorities would like to see JPY much weaker than it is right now. The forex being what it is, it is very hard to change a macro trend.

Japanese inflation was so low in the last decades that we should talk about chronical deflation instead. So japanese are more than happy to see higher inflation nowadays.

Now for those of you who are scared about inflation, you just can't compare Japan economy to minor economies like Argentina or Zimbabwe who suffered from HYPERinflation. JPY have the reputation of being stable, thats why people turn to it in time of crisis.

Inflation can have devastating effect when not controlled but can also have positive effects.

It will devaluate the JPY. Concretely, it mean more exportations and more income. Import price is pretty much irrelevant because of the added-value of manufactured goods.

Also, considering that the vast majority of Japan debt is domestic, it will diminish it.

I could go on but I'm running out of time,

To conclude, Japan was stuck with deflation for the past decade and seeing some inflation in the current situation is totally welcome.

だいじょぶ

Edit : Oh by the way, it is not 15 billions yen, it is 15 trillions. hehe.

[Shanis]

i didn´t know how to name it in german it´s billion and my dictionary gave me several words to translate it^^ and japans problem is that most countrys now support their own car trade so a higher inflation won´t help them. An other point is that japan has to import some things, no country has everything it needs and many things are produced abroad. Next is that a higher inflation will devalue the money so people in japan will have to get an inflationary adjustment or they will have less money, which will drop buying power.

[Debi]

Even if each countries support their own car brands, it's still customers who decide what they buy. Protectionism is not good for any economies, don't you agree ?

Hmm, you are right, Japan also import massively. But it's mainly raw material and energy. With the added-value they get by transforming those goods into manufactured goods, the output value always outweight the input.

Take China for exemple. The chinese currency is undervalued. As a result, importing goods from China is so cheap that chinese exports are much more higher than they should be in standard conditions.

Japan WANT a devalued money.
check those graph EUR/JPY
EUR/JPY Quote & Charts, Currencies, Currency Markets, Rates on International Currency - CNBC.com
check the 1 year chart and look at what happened in october 2008
From 155 yen for 1 Euro it went to below 120yen for 1 euro.
This is an overvalution of the yen which it hurt Japanese economy very badly.

By the way, inflation is a natural economic phenomenon.
It is better to have a low inflation than a deflation.

Like I said, japan debt is mostly domestic debt contracted inside Japan, more money mean more capacity to pay those debt.

Maybe the buying power of the japanese people will decrease a little bit, but the cash flow will increase, so will the exportations.
More exportation mean more jobs, less unemployment.

Trust me on this one buddy, Japan economy will be fine and much better with a higher inflation for some time.

[Shanis]

Yeah I agree with you that protectionism is bad, but take countries like germany, here are all people buying just german cars, like VW or Opel and Fiat (I don´t know if Fiat is a german company) because these cars are supported by the government, you get 2500€ if you let your old car scraped so many people do this. I don´t know anyone who bought an american or japanese car just because of this cause they are now much cheaper then cars from abroad companys (but it´s still a fail because everybody buys this small cars like smart and golf or polo etc. but these cars aren´t manufactured in germany xD just VW produces them but in france and poland or so )

[Debi]

Originally Posted by Shanis

Yeah I agree with you that protectionism is bad, but take countries like germany, here are all people buying just german cars, like VW or Opel and Fiat (I don´t know if Fiat is a german company) because these cars are supported by the government, you get 2500€ if you let your old car scraped so many people do this. I don´t know anyone who bought an american or japanese car just because of this cause they are now much cheaper then cars from abroad companys (but it´s still a fail because everybody buys this small cars like smart and golf or polo etc. but these cars aren´t manufactured in germany xD just VW produces them but in france and poland or so )

This is specific to Germany because you guys produce quality cars.
But consider countries who don't have this kind of industry.
Let's take Canada as an example. Even if the goverment heavily bailout Ford, GM and Chrysler, people still buy mostly Toyota and Honda.
Why ? Because it's the free market and japanese cars are much more interesting than the scrap on 4 wheels the american can produce.

International market is wide. Middle East import LOTS of japanese cars.

Check this website.

Automobile and Motorcycle Export Statistics for November 2008

[kirakira]

Originally Posted by Debi

Japan WANT a devalued money.
check those graph EUR/JPY
EUR/JPY Quote & Charts, Currencies, Currency Markets, Rates on International Currency - CNBC.com
check the 1 year chart and look at what happened in october 2008
From 155 yen for 1 Euro it went to below 120yen for 1 euro.
This is an overvalution of the yen which it hurt Japanese economy very badly.

Printing money isn't going to do anything to help export (in the mid/long term). Yes the yen will go down but the cost of making cars and wages, materials etc. will have to go up as well because printing money doesn't make making cars and electronics more economical/cheaper so in the end its a zero sum game.

Yes I agree that Yen is over valued, the only thing the government can do is do what the Chinese government do, build up a massive foreign reserve and have a managed float.

Japan is very unfortunate in its geography (very tiny island, lots of people), it has to export to maintain it's lifestyle based on very very limited resources.

[Debi]

Originally Posted by kirakira

Printing money isn't going to do anything to help export (in the mid/long term). Yes the yen will go down but the cost of making cars and wages, materials etc. will have to go up as well because printing money doesn't make making cars and electronics more economical/cheaper so in the end its a zero sum game.

Yes I agree that Yen is over valued, the only thing the government can do is do what the Chinese government do, build up a massive foreign reserve and have a managed float.

Japan is very unfortunate in its geography (very tiny island, lots of people), it has to export to maintain it's lifestyle based on very very limited resources.

I don't understand your reasonning. It doesn't matter if the price of materials goes up if you have more money circulating. The money raised will be used to give a second breath to company who saw their exports drop by 50 % in the last year.

Of course it will hurt the average salaryman who will spend x% more to buy the common goods. But in the end, it's better to lose some buying power than to lose your job.

And since the peg was lifted, the RMB valued a lot.

[fluffy0000]

No one has enough fingers or toes to count the number of stimulus pkgs. that Japan used during the 'Lost Decade' 92-2002' and here we go again with more stim. pkgs.?
The Moral of Japan's Lost Decade
by: Lok Sang Ho February 24, 2009
My statistics indicate that Japan’s Lost Decade had much to do with the strong Yen. As an export-dependent economy, the strength of the Yen simply strangled the economy to a halt.

Put simply, Japan had experienced such strength in its currency that its export machine was stalled. With Japan’s huge population and small resource base, Japan had to rely on exports to provide employment and to be able to import. Theoretically, Japan could earn big investment income from abroad and recycle them, but while investment income from abroad did help tremendously, it is not reliable, and “recycling” is not so easy in a market economy that wants to minimize taxes and transfers.

The Yen had appreciated by 40 per cent against a basket of currencies by the end of 1993 and by as much as 56% by the second quarter of 1995. In contrast, the US dollar had depreciated by 11% by the second quarter of 1995. Although the Yen started falling after the middle of 1995, by 2000, the Yen remained 50% above the value a decade ago. Only depreciation of the Yen in the 2000s helped push the Japanese economy out of recession. end
Japans recovery pundits:
However, that image has come crashing down as the Japanese government announced that the fourth quarter of 2008 saw the fastest contraction for the economy (in terms of GDP) in 35 years. A NYTimes article entitled: “Japan’s Economy Plunges at Fastest Pace Since ’74,” describes how the Japanese economy, which is heavily reliant on exports, is suffering heavily now that the effects of plummeting global demand is taking hold:

These Numbers posted after US 'stim pkg.' to Citi-BofA note this period is
during a period of a uptick in the Japans Stock Market for the same period.
Mar. 16,2009
The following are some of the well known Japanese companies with the month-to-date performance:

1. Sony (SNE) - 17.03%

2. Nissan Motor (NSANY) - 16.50%

3. TDK (TDK) - 14.53%

4.Kyocera (KYO) - 12.11%

5.Fujifilm (FUJI) - 6.29%

6. Hitachi (HIT) - 6.26%

7. Canon (CAJ) - 2.27%

Honda (HMC) and Toyota (TM) are down less than 5%.

[kirakira]

Originally Posted by Debi

I don't understand your reasonning. It doesn't matter if the price of materials goes up if you have more money circulating. The money raised will be used to give a second breath to company who saw their exports drop by 50 % in the last year.

Of course it will hurt the average salaryman who will spend x% more to buy the common goods. But in the end, it's better to lose some buying power than to lose your job.

And since the peg was lifted, the RMB valued a lot.

What are you talking about? Print money to manipulate exchange rate? Sir do you have any idea how macro economics work? If you print money, eventually the cost of material and labour also goes up, you have to jack up the price to make a profit because your cost to produce goes up as well. Now you have to charge more yen for the same good so you are back to square one.

What you are saying is pay your workers less to reduce your cost so you can lower your price. Well duh, just pay them less instead of inflate. Much less damaging to the economy.

If devaluing the yen is all you want, then all you need is to do what the Chinese do to devalue the yen without creating all these problems associated with printing money such as inflation. Inflation isn't a good thing not to mention u need to jack up the interest rate sky high to contain it.

RMB is a managed float, it is not a free float currency and there are restrictions on how much RMB a person can buy. Its just a big open secret that it has been kept artificially low.