Can Japan trade out of trouble?

I appreciate it when readers of my blog share their thoughts on what I’ve written.

I want to thank Ziv Nakajima Magen, who’s based in Fukuoka, for his feedback and ideas.

Ziv makes an interesting podcast called Japan Real Estate, which I recommend.

We’ve been communicating about Japan’s economy; in particular the comments I reported last week by the chief economist at TS Lombard, Charles Magnus.

Symptoms of a “disease”

I explained that Mr Magnus believes that Japan has a “disease” and he described the symptoms as:

Bloated budget deficits
Falling wages
Zero to negative interest rates
Price deflation
Rising government debt
Hobbled banks
And a “docile” labour force

What is Japanisation?

I asked my readers a question: what do you think Mr Dumas means by “Japanisation”?

Here’s the reply I received from Ziv Nakajima Magen:

“Japanisation is an economic and social policy which is meant to reduce the reliance on imports. However, simply trying to reduce the reliance on imported goods and thereby attempting to reduce trade deficits won’t be enough to solve the country’s financial woes, the causes of which run far deeper.”

The China factor

The value of goods and services which Japan imports is significantly higher than its exports, so it has a significant overall trade deficit.

In July this deficit totalled about 250 billion yen, ten percent more than a year ago.

China accounted for most of it but Japan also booked a trade deficit with the European Union.

America is different

However, the situation with the United States is quite different because Japan runs a large trade surplus with America.

I think that has important implications in two areas.

Double challenge

Firstly, it raises the question of whether “Abenomics” is working.

Reuters reporter Daniel Leussink says an improvement in domestic demand is helping to drive economic growth but warns that this could be upset by a new higher rate of sales tax which will be introduced soon.

The other issue is how Japanese businesses can continue to make money by exporting to the lucrative US market without upsetting President Donald Trump.

He’s repeatedly complained about the trade surplus that Japan has with America and has threatened to slap tariffs of 25% on imported Japanese cars.

This week, the Japanese Prime Minister Shinzo Abe will meet Mr Trump in New York and they’ll try to agree a deal which satisfies both sides.

But avoiding a trade war with America would only be a minor victory for Mr Abe.

Real success would be achieved if he can reignite Japan’s economy by reforming the way its companies and institutions operate.

And that’s why I tend to agree with Ziv that “attempting to reduce trade deficits won’t be enough to solve the country’s financial woes, the causes of which run far deeper.”

My friendly dentist needs proof of my pain

I’m almost friends with my dentist, Richard. Whenever I pay him a call, he greets me with a polite, ironic question: “To what do I owe the pleasure of your visit today?”

This is an invitation to explain my agony.

After I tell him which part of my mouth feels the most tender, he confirms this self-diagnosis by making a hard, sharp tap on the affected area using a big metal tool.

Hopefully, after hearing a loud cry of pain, he’ll sink a syringe into my gums and start the painful process of finding a cure.

The “disease” of Japanisation

Some experts say that Japan is suffering from chronic economic pain which it is unwilling, or unable to treat.

This week, I heard a long list of the symptoms of “Japanisation” delivered by a renowned British economist, Charles Dumas.

He was pretty blunt. Skipping any small talk about Japan’s many charms, he launched directly into the diagnosis.

Mr Dumas said that Japan’s problems include

Bloated budget deficits
Falling wages
Zero to negative interest rates
Price deflation
Rising government debt
Hobbled banks
And a “docile” labour force

Mr Dumas, who is Chief Economist at TS Lombard, said that similar symptoms affect other countries, too. And indeed as CNN reported last week, the European Central Bank has pushed interest rates further into negative territory in order to support the region’s flagging economy.

Clever words

My dentist and Mr Dumas both have a fondness for jargon, which they have picked up during their long studies of medicine and economics.

I am afraid I struggled to fully comprehend the phrase “Japanisation proves that demand management is no remedy for persistent structural weakness – continued budget deficits are unlikely to yield growth.”

(If you can explain that with clarity, please drop me a line.)

There was however one slide I could could clearly understand. It stated that poor Japan has a “disease” which can’t be cured easily.

The populist response

Charles Dumas noted that in other countries, economic malaise has led to a rise in populism.

This has created political movements led by iconoclasts, who challenge the status quo. As Mr Dumas explains in his book Populism and Economics, such leaders offer to help people take back control from established, privileged elites.

He claims that populism is both necessary and scary, because it’s a force for change and reform.

Populists rarely garner much political support in Japan.

Some maverick politicians – including Communists – tap into people’s resentments over the economy, but you’d have to go back to the Seventies to find significant numbers of people who advocated radical change.

Future forecasts

The cover of his book says that Mr Dumas is “one of the world’s leading macroeconomic forecasters.”

Yet he himself told his audience that economics is a “dismal science.”

And he admits that his pessimistic perspective has led him to be labelled Nostra-Dumas, after the 16th Century seer Nostradamus, who predicted that terrible woes would befall future generations.

I am afraid that rather gloomy pun was his only moment of humour.

Actually, I wasn’t surprised that Mr Dumas didn’t forecast any significant economic improvement for Japan. Very few people do, and even Prime Minister Abe’s attempts at optimism have worn rather thin.

Nevertheless, Japan remains a relatively rich and peaceful country, despite its economic aches and pains. Its next leader will no doubt follow a pretty similar approach to Mr Abe. The Japanese won’t vote for a revolution led by a populist rebel any time soon.

Guacamole, tulips and Japan’s lost decade

This week’s blog is based on some insights I’ve gleaned from listening to the Nobel Prize winning economist Robert Shiller.

He said to me that “Since you’re a journalist, I think I have to point out that people who go into journalism do have idealistic purposes. It’s not a field you would go in if you think like a billionaire.”

He’s right, of course, because although there are some reasonably well paid journalists, most of us are much poorer than the famous people we write about, including Nobel prize winners.

Tulip mania

I asked Professor Shiller about the influence of the media. I put it to him that in countries like China, the economic coverage is always upbeat but in the UK, the media sees its primary role as raising concerns.

“The media has a complicated relationship with economics,” he replied. “There was no evidence of speculative bubbles before there were newspapers.”

He reminded me that the price of tulips soared up way beyond their real value when prices were hyped by the media way back in the early 1600s, just at a time when newspapers and magazines were starting to become popular.

Lessons from Japan

Professor Shiller’s new book is called Narrative Economics and as well as speaking at the LSE he also did an interview with the BBC in which he gave an interesting example about the way people respond to rate cuts by central banks.

“When the Federal Reserve in the United States cut its base interest rate to between zero and a quarter of one percent, it launched a narrative which reminded people of Japan’s experience. After the Bank of Japan cut rates to zero, the Japanese economy went through a lost decade.  Using the “Z word” starts a scary narrative which might harm people’s confidence, so central bankers know they have to be careful what they say.”

“I am proposing that the narrative we use causes changes to the economy and you can run controlled experiments to show this,” said Professor Schiller, who is head of economics at Yale University in the United States.

Trump the genius

“I focus on popular narratives which come to mind when people are making economic decisions. And I think that Donald Trump is a genius at one thing, which is judging narratives and packaging them. He manages to be in our faces all the time. He’s learned how to make audiences excited, in the same way that fighters inspire audiences to be excited about a fake wresting match.”


During his speech, at the London School of Economics, Professor Shiller told a story to illustrate how our minds focus on visual images rather than abstract ideas.

Professor Shiller said that students at a law school were offered two accounts of a crime and then asked to decide if the accused was guilty.

The first group of students were simply told some facts but the second group heard a story.
It contained this phase:

“The accused lunged at the victim, and in the process knocked over a bowl of guacamole, which fell onto a white shag pile carpet.”

Professor Shiller said those who heard the guacamole story were more likely to convict the accused than the group who just heard the facts.

Professor Shiller concluded: “Economists like to think we are the queen of the social sciences because we don’t have to deal with fuzzy stuff, only the data” but he went to explain how the stories we tell affect people’s emotions and have a big economic impact, which can be measured.”

Pink Floyd’s swipe against Japan

I once worked with a woman who sang vocals on a number one hit single by the legendary British rock band, Pink Floyd.

When I met her, she was a hard-working radio producer at the BBC.

But when she was a schoolgirl in 1979, she was picked to be in the video of the song Another Brick In the Wall and gleefully expressed her anger at an oppressive regime.

“We don’t need no education, We don’t need no mind control,” she sang, as part of a choir of children from Islington Green School, in London.

“Hey, teachers, leave them kids alone!”

Hit and miss

Another Brick In the Wall remains Pink Floyd’s most recognisable song. It has catchy lyrics set to a disco beat, with searing electric guitar. It’s sold millions of copies worldwide.

But four years later in 1983, Pink Floyd put out another single called Not Now John which was a commercial failure.

The track contained a lot swearing, although there was a censored version for the radio. The other problem was the complexity of the song’s subject. It deals with the resentment felt by blue collar factory workers against foreign rivals in the manufacturing sector.

When Rachel Mann reviewed it for the website Quietus she concluded that Not Now John was written in the voice of an arrogant man and although she thinks it’s a fun song, in her view it is “musically crass and obvious.”

The wily Japanese

The song’s narrator complains that he must compete with “the wily Japanese.” This has led to complaints that Pink Floyd were derogatory to Japan.

Collins Dictionary says that “if you describe someone, or their behaviour, as wily, you mean that they are clever at achieving what they want, especially by tricking people.”

In the video for the song, backing vocals are provided by a trio of geisha girls, played by Caucasian women. The film features an Oriental boy wearing a T-shirt with Japan’s Rising Sun flag, who falls to his death.

I believe that Not Now John reflects the political mood of its time. In the early 1980s, Japan was far from popular in the UK and Europe, partly because of its rising economic power.

Rivalry and protectionism

In his 1983 book The Japanese Mind: The Goliath Explained, Robert C Christopher mentions how European governments tried to exclude Japanese products from their markets and he complained about “the cultural and ethnic arrogance” that Europeans displayed towards Japan.

“Broadly speaking,” wrote Mr Christopher “Western Europeans did not like the Japanese, had no desire to understand them and would devoutly wish they would just go away.”

Partner not rival

I am pleased to say that things have improved.

These days the Japanese are held in respect by many people in Europe, although they do still tend to be stereotyped.

On the whole, Japan is regarded as an economic partner, rather than a rival.

Rock on

My colleague says she enjoyed singing “We don’t need no education” for Pink Floyd.

However, I know that in reality she appreciated her time at school and when she left, she devoted her career to explaining international affairs.

I still like listening to Pink Floyd and am jealous that she sang with them yet I know that a rock song is not the best way to delve deep into economic theory.

Even the great Pink Floyd struggled to have a hit with a reflection upon the political implications of an imbalance of trade.