A New Rhetorical Low

25 May

Blowhards In Korea: I Hope They Were Well-CompensatedThe churlishness expressed in the latest explosion of nationalist outrage in a South Korean daily newspaper editorial is a tribute to adolescence – and spoiled interests.

Abe seems to be hallucinating. The low-yen boom and extreme-rightists’ support have blinded him to push Japan onto an arrogant and selfish path. He is mistaken when he thinks he can challenge the memory and decency of humanity just to be popular among his own ignorant people.

If anything, the world could do without the overwrought rhetorical abuse of “God” in the mix. The Japanese press has responded as childishly and offensively – if only the two countries could recognize their mutual and reinforcing asininity. How do you spank a government?

Rhetoric – and Toru Hashimoto‘s call for brothels for American service-members in Okinawa using the example of World War Two-era comfort women is as egregious – is following international currencies in a race to the bottom.

Abenomics (and the latest round of quantitative easing in the United States) has also raised fears of currency wars breaking out between Japan and its competitors. South Korea’s central bank has already moved to cut rates in light of the ongoing decline of the yen against the won, as did Australia’s central bank recently. European exporters — especially Germany’s — are feeling the pain from the yen’s decline against the euro. If other governments engage in competitive devaluation with Japan, the benefits to Japanese exporters from a weaker yen will be muted (if this isn’t already the case). Though the G7 finance ministers’ meeting in the UK recently did not necessarily single out Japan for criticism, the fact that the meeting was held does suggest that Japan’s policies are under close scrutiny abroad.

There are also lingering questions about Japan’s fiscal situation. With the Bank of Japan (BOJ) stepping in to buy government bonds, the Japanese government can continue to borrow without having to worry about rising interest rates. But the risks of Japan’s ever-growing debt remain — and if the BOJ has in fact succeeded at convincing market actors that it is committed to raising inflation, there is the risk that it will be unable to control inflation once it has met its target, hastening the day when interest payments will rise and break the government’s budget. The government is in a race against time. It needs to trigger sustainable long-term growth that can raise tax revenue before interest rates rise. The Abe government has indicated that if economic conditions are still sluggish it will delay the consumption tax increase, passed by the Noda government, thereby postponing a useful means of closing the government’s annual deficit of 10 per cent of GDP.

Finally, the question of Japan’s demographics looms over the debate about Abenomics. Edward Hugh offers a sobering account of how demographics may forestall the Abe government’s program. If Japan’s persistent demand shortfall is actually the result of a ‘shrinking population trap’, rather than a prolonged balance sheet recession, then the government’s monetary policy experiment risks triggering capital flight as elderly Japanese investors seek higher returns elsewhere.

The point is that it is impossible to know whether Abenomics has succeeded until the whole program is put into action. Abe probably has about as favourable a political environment as a Japanese prime minister could ask for — dysfunctional opposition parties, few challengers within the LDP and high public approval ratings — which suggests that he may well be able to follow through on his ambitious agenda. That being said, if Abe cannot reverse Japan’s economic woes with all of these factors working in his favour, one has to wonder if anyone can.

Add bad journalism as another factor.

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