How did Japan lose the financial war?

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Source: Li Jianqiu’s world (id:lijianqiudeshijie)

The yen fell by 134 again, creating a deficit for 10 consecutive months under the condition of the sharp fall of the local currency. If the current situation is followed, the yen has depreciated by nearly 30% from 2020 to today. The statistics of Japan’s per capita GDP this year are bound to be worrying. It is associated with the fact that the yen itself is a “safe haven currency”, which is far less stable than the RMB under the turbulent situation.

The RMB has appreciated to its peak since 2014 and began to depreciate greatly in 2019. The lowest and highest fluctuations are only about 15%.

However, Japan has a narrow territory, no natural resources, and is very dependent on foreign trade. Politics and military are controlled by others. At its peak, Japan has been trying to use economy to pry up and elevate its political status. However, it does not know that a country’s political, economic and military forces are inseparable. There is no country where one item is particularly strong and others are particularly weak. Even if this happens in the short term, in the long term, if the weaknesses cannot be reinforced, their strengths will be returned sooner or later. It’s just that there are different ways to return it.

As long as there is a short board, then the short board is bound to have an accident.

Military weakness inevitably leads to military problems,

Political weakness inevitably leads to political problems,

If the economy is weak, there will inevitably be economic problems.

And then spread to the whole country.

Let’s review the financial story of Japan.

Economics in books and economics in reality

There will be many difficulties in explaining economics in books in the 1970s and 1980s. Let’s take an example: after the collapse of the Bretton Woods system, the US dollar was decoupled from the environment. By 1976, the US current account had deteriorated significantly, and the US began to intervene verbally, leading to the decline of the US dollar.

The failure of the Vietnam War and the outbreak of the Iranian revolution, coupled with the instability in the Middle East, caused great political harm to the United States. By the time Reagan came to power in the 1980s, the United States had suddenly become the world’s largest debtor from the world’s largest creditor.

Many people are very familiar with this period of history. It is suggested that in order to reduce the deficit, countries with current account deficits need to introduce capital, which will increase liabilities in a broad sense. If the income is too large than the expenditure, the external net assets will be reduced, and in the long run, only the external net debt will be left.

The largest scale of net foreign assets of the United States was in 1981, reaching 140billion yuan. By 1984, it was basically zero. Overseas capital dominated by Japanese funds entered the United States through a large number of purchases of U.S. Treasury bonds, which led the United States to become a debtor country from the largest creditor country.

The problem of the current account deficit lies in the trade imbalance. That is to say, the United States has a huge trade deficit. Under the economic theory, the dollar should be devalued. In this way, the United States’ exports to Japan will increase and its imports to Japan will decrease. Finally, the two countries will balance their trade balance.

However, looking back at the US dollar in the 1980s, it is very strong, which is not normal.

Looking back at Reagan’s policies: Reagan could stimulate domestic consumption while carrying out the largest arms campaign in the history of the United States. These arms campaigns did not produce investment value. Then the question arises: where did the money come from in the United States?

The answer is the inflow of Japanese capital. In 1976, the total amount of Japanese purchases of US Treasury bonds was US $197million, which rose sharply to US $13.8 billion in 1986. In 1985, Japan’s annual foreign investment was US $81.8 billion, of which US $53.5 billion was bond investment, most of which was investment in US Treasury bonds.

The excessively high US dollar has brought Japan a huge trade surplus, leading to the expansion of Japan’s current account surplus. Once the US dollar depreciates, Japan will suffer huge exchange rate losses. How much will the US dollar depreciate against the Japanese yen after the Plaza Accord?

From 250 yen per dollar in 1985, it fell directly to 134 yen per dollar, and then from 134 yen per dollar to 73 yen in 1995.

These Japanese investors are not only insurance companies, banks or individual investors, but also Japanese export enterprises. During the period of dollar appreciation, Japanese export enterprises invested their export dollars in US bonds. When the bonds were due and repaid, the payment received was nearly 60% less than that at the time of purchase.

Japan generally uses the 15% bookkeeping method in the corporate finals, that is to say, 15% of the exchange rate difference loss is included. But what if the exchange rate loss is as high as 20%, 40% or more?

When signing the Plaza Agreement, Japanese finance minister Takeshita Takeshita was very proud, saying that the depreciation of 20% was OK. The Japanese government expected that the dollar would depreciate by 200 yen to 1 dollar at that time. As a result, it continued to fall, and finally broke 150 yen.

From a rational point of view: the dollar has been so devalued, Japan should stop investing in the United States.

It is very strange that after the large-scale depreciation of the US dollar in 1986, Japan’s investment in US debt increased. It was not until it was reduced to 120-130 that Japan gradually reduced its investment in the US.

But after 1988, Japan began to increase its investment in the United States.

Logically speaking, isn’t this the loss that you have borne for nothing?

Political decisions

In 1987, the yen had risen sharply against the US dollar. In order to stabilize the international monetary market, countries signed the Louvre agreement to stop the continuous depreciation of the US dollar caused by the Plaza Agreement. Japan agreed to reduce its trade surplus and cut interest rates.

Under what circumstances will the “interest rate cut” be implemented?

Only when the economy is bad. Interest rates should be raised in the economic boom and reduced in the economic recession.

Let’s look back at Japan’s economic growth rate:


It can be said that there was no need to cut interest rates in 1987. In this case, cutting interest rates will only promote the growth of the foam.

As shown in the figure, the interest rate reduction in this place should not be at all:


When the interest rate should not have been lowered, the interest rate was lowered by such a large margin that it was more than two points, and one drop was two years.

After Greenspan replaced Volcker as chairman of the Federal Reserve, the United States kept raising interest rates. This is the interest rate of the United States:


With low interest rates in Japan and high interest rates in the United States, funds naturally continue to flow from Japan to the United States.

During the period when the United States raised interest rates, it was not that no country had ever tried to raise interest rates. At that time, West Germany raised interest rates a little. Then, it was severely reprimanded by US Treasury Secretary Baker, who claimed that Germany “violated international policy coordination” and said that “German interest rate hikes could not ensure the stability of the US dollar”.

Greenspan’s interest rate hike punctured the foam in the United States and triggered a great crash in US stocks. It was common sense that interest rate hikes would puncture the foam. Just as the US Federal Reserve raised interest rates, US stocks would fall, but Japan’s wise operation came.

In the case of the US stock market crash, Japan magically introduced two measures:

First, the stock market in Japan rose in an emergency. The Ministry of Tibet told the four major securities companies in Japan that it hoped that they would immediately come forward and buy stocks on a large scale.

Second, the mobilization of specific money trusts and the free operation of funds has relaxed the previous management regulations.

Let’s look at Germany. After being criticized by US Treasury Secretary Baker, Germany slightly lowered interest rates, and then ignored Baker and increased interest rates.

This kind of magic operations, such as the collapse of US stocks and the depreciation of the US dollar, ran through Japan in the 1980s and 1990s. Today, it is simply unimaginable.

There are various irrationalities in the relationship between Japan and the United States. For example, it is rare to see a currency that has not played a leading role in the strong appreciation of the yen. In the process of Japan’s economic prosperity, China and Europe have simply relied on the dollar instead of diversifying investment in Deutsche Mark, sterling and gold, and have not established a trade and foreign investment channel settled in the yen.

These are common sense in the economic circles, and do not need the level of an economics professor. The “diversified investment” itself is generated to avoid risks, but Japan is not decentralized, just focusing on the dollar.

Whenever the U.S. trade surplus goes wrong and the dollar goes up or down, the United States will call on Japan and other countries to solve the problem. There is even a so-called “Japan US structural agreement meeting” dedicated to solving the U.S. problem.

But if Japan’s economy goes wrong, will Japan summon the United States to help Japan solve the problem?

you must be dreaming.

Take the “Japan US structural agreement meeting” as an example. This organization originally spent money on each other’s economic and social structure, and then had a dialogue. However, at every coordination, Japan was always blamed. Japan needs to carry out “structural reform”, and the United States is the core of everything.

If the relationship between the two countries operates in this way, no matter how much money Japan has, it will be squeezed. When many people understand the Plaza Agreement, at first they think that the Plaza Agreement led by the United States caused Japan’s problems. Later, after some media explanations, they mistakenly think that “Japan’s own economic policies led to Japan’s economic foam”.

The premise of “Japan’s own economic policy” is that “Japan has its own economic policy”.

In a country that is not politically and militarily independent, no matter how strong its economy is, it is just a lamb to be slaughtered, or even fatter.

Just like the Song Dynasty.

Look at the current world energy market, isn’t it clear at a glance?

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