Re: Re: Re: Yen still overvalued

[<gskillman@xxxxxxxxxxxx>]

FWIW, I agree with Peter's assessment of Japan's situation, and add a comment
from my previous post on the short-lived "Lessons from Japan" thread, to the
effect that Japan faces international political constraints against significant
further devaluation of the yen, reinforcing the "Keynesian" nature of Japan's
current crisis.  [The Bush administration's steel tariffs will worsen this
situation further if they go through.]

The interesting question, in light of Peter's assessment, is why the Japanese
government can't use traditional Keynesian fiscal tools to pull itself out of
the recession.

Gil




> Let me try another tack here.  My understanding has been that Japan has
> been historically locked into a pattern of development characterized by
> high savings rates and high investment shares of GDP (the
> "exhilirationist" model).  Each validates the other, and both are made
> feasible by a large trade surplus: this prevents the high rate of
> savings from becoming a Keynesian burden and it generates the induced
> demand for investment.
>
> According to this view, Japan is in the midst of a protracted adjustment
> crisis, which can either be explained by increased competition with
> other east Asian exporters for the available (i.e. US) markets, or by
> the "maturation" thesis, according to which domestic consumption can no
> longer be constrained and the economy loses its export advantage.  In
> either case, much of the capital stock is revealed as "misinvested" --
> and this on top of the bad bets made during the bubble period.  The
> Japanese system of pooling financial risk supposedly slows down the
> adjustment process; hence the outside calls for restructuring via
> write-offs and default.
>
> If this is true, the problem shows up in Keynesian fashion (reduced net
> exports), deflationary pressure (competition with lower-wage producers
> in the region), and persistent financial fragility.
>
> Comments?
>
> Peter
>
>