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
Zero to negative interest rates
Rising government debt
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.
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.”