Thursday, January 31, 2013

The Bad News

Satyajit Das paints an "abandon all hope all ye who enter here" portrait of the Japanese economic and budget situation, long term (Link). The upshot: getting all hotted up about Abenomics, whether for it or against it, is probably a waste of energy.

All that Das writes is true. I nevertheless take heart in this dismal passage:
Japan's current account surplus has also allowed the government to run large budget deficits which can be funded domestically. Since 2007, the Japanese trade account surplus has fallen sharply, turning into a deficit in 2012.

The factors driving the fall include an appreciating Yen and slower global growth, which has reduced demand for Japanese products, such as cars and consumer electronics. In late 2012, territorial disputes with China exacerbated the decline in exports. It also reflects the impact of the Tohoku earthquake and tsunami as well as the subsequent decision to shut down Japanese nuclear power generators, which increased energy imports, especially Liquid Natural Gas.
Unlike the demographic and incomes problems the country faces, items in the above passage are fixable -- or at least lend themselves to amelioration with government help and guidance.

Work on energy supply -- which Abe Shinzo, in his recent policy address to the Diet, managed to ignore -- and you are attacking the trade deficit and economic restructuring at one swoop. Make gestures toward a cooling down of the acrimony in the Japan-China relationship -- which Abe is doing (Link) -- and one buys Japanese companies some breathing room to realign themselves to political changes in China. Damage the yen's status as a safe reserve currency -- and shutting up about doing so (in Diet questioning yesterday Abe again went into the red zone, promising to help those hurt by endaka) -- and one can help the profitability of Japanese companies (though just why Japan's exporters cannot handle currency strength and/or volatility escapes me).

It is not as though nothing can be done.

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