Abenomics and the State of Japan

EDITORIAL, ASIA & THE PACIFIC, ECONOMICS, 22 April 2013

Johan Galtung, 22 Apr 2013 - TRANSCEND Media Service

From Kyoto, Japan

When Prime Minister Shinzo Abe was forced out of office on September 2007 his focus had been on a strong foreign policy, against the peace Article 9 in the constitution, rewriting history and patriotic education, but not on economic improvement.  This time Abe has added strong economics, dubbed abenomics; including the hyper-capitalist TPP, Trans-Pacific Partnership. Not to irritate the US Abe-LDP (Liberal Democratic Party) sees as the guardian of Japan’s security against China and North Korea.

On April 4 the Bank of Japan announced a policy of QE, “quantitative easing”–Orwellian for printing money–doubling the circulating money to 270 trillion yen in two years to turn Japan’s 0.3% deflation to 2% inflation. With so much yen around devaluation follows, making Japan more competitive. With the Bank of Japan buying state bonds, public works could follow, for employment. With both, economic growth.

As a consequence the dollar soared, from 76 yen some years ago to 100; the Nikkei market index soared to above 13,000 for the first time since August 2008, and Abe’s approval rating to 70%.  So far so good.

And then, what happens?  The hope is to regenerate the golden 1960-70-80s Japan.  But both the world and Japan have changed.

Take the 18% depreciation of the yen in the last six months against the 16 other most traded currencies–with the US protesting the use of the exchange rate, not domestic stimulus.  China-India now cover the whole range of world demand for industrial products at higher quality/price. Add Brazil, Russia and South Africa for the emerging economies of BRICS: their policy is now to create a new development bank to challenge the dominance of the World Bank and the International Monetary Fund, the ageing instruments of the declining economies of the West and Japan.

True, Japan’s biggest producer of automatic sushi-making machines exports much more; a niche with limited spin-offs, but the prices for imported furniture, foreign cars, electricity and gas have also gone up.

But, given Japan’s very low food self-sufficiency rate–39%, down from 73% in 1973, 128% in the USA, 237% in Australia, 70% in UK–food prices will rise soon; hitting households before increases in income.

Moreover, how will Japanese capital react to the fall of the yen?  They may invest for export. But, if they “want to put their money abroad, then the fall may become like an avalanche” (Soros).

Take the switch from deflation to inflation, from lower prices for buyers to higher prices for sellers, from consumers to business.  Population (-.22%), GDP growth (-.2%), record trade deficit, unemployment–of GDP.(1) Much domestic growth will be needed to compensate in an ageing Japan with 30 million people above 65, negative population, GDP growth (-.2%), unemployment at 4.2%, and a public debt well exceeding 200% of GDP.

But even more dangerous is the process of engineered inflation: will they be able to stop at 2%?  Inflation has a reputation for being self-sustaining.  With that much money chasing the products prices go up and up, capital will escape and with it capital-holders.  True, the US Federal Reserve, the model that Japan is imitating, not only doubled–like Japan and the UK–the monetary base but more than tripled it from the 2008 crisis till today. However, the inflation has averaged less than 2% as Economics Nobelist Paul Krugman points out (nor have the interest rates soared). But the runaway prediction may need more time to come true; besides, the US trade deficit has grown 50%, nearly half of the public debt is in foreign hands, capital-holders sit on capital not risking investment, and the US job report for March 2013 was the worst in nine months.

Is this really a model for Japan to follow, or rather to fear?

Take the soaring Nikkei rate above 13,000 and the Dow Jones half way from 14 to 15 thousand; in countries with sluggish or no growth.

This huge gap between finance growth–financial and real estate shares leading the way, spelling asset bubbles–and real growth, will sooner or later lead to a quick or slow crash in the finance economy, as happened recently in both countries.

Add to this the gaps between serving debt (2.5% interest) and serving people, and between printed money and real value. Rich people in poor and rich countries put their money away to avoid taxes and economic collapse, to the tune of US$32 trillion, twice the US GDP.  Whether their havens in the West are safe is another matter.

Cheap and changing yen will inevitably lead to speculation of all kinds, in equities, high yield bonds, precious metals, currencies including yen, real estate bubbles. Maybe soft deflation is better?

Add to this the final blow: joining the TPP.  Michael Hoffman in “Fearing the worst if Japan joins the TPP” (Japan Times, 21-04-13–a superb paper similar to Al Jazeera in presenting all sides to issues), quotes studies predicting “Americanization of Japan”: no job security but hiring-and-firing, US controlled companies, Japanese yielding to English, importing ever more US products killing domestic rice, wheat and beef, lowering health standards in food and medical services.  The TPP negotiations are secret, but NAFTA (North American Free Trade Agreement) gives some idea: exporting jobs from richer to cheap labor countries on the condition that workers are kept underpaid—like in Mexico, hurting all but not capital; all sacrificed to the rampant profit motive of US and US-run businesses.

Prediction: with abenomics, most of the above within 2-5 years.

Alternatives: realize that the old golden days are gone, that US-West-Japan are outcompeted by BRICS. Go for acceptable, more modest deals. And that Japan could do very well at social and cultural growth, going for equality rather than more inequality, for quality of life, happiness, arts, rather than for quantity of money.  People, not “think tanks”, have to work out the details, (USA has 1,823, EU 1,457; Japan only 108–mostly conservative).  Be creative, not imitative.

And, instead of joining the US in increasing the insecurity, join the neighbors in an East Asian Community and revise the TPP for an egalitarian partnership from China to US and from Japan to Latin America.

(1) For the economic perspective underlying this editorial, see Johan Galtung, Peace Economics, TUP 2012, www.transcen.org/tup.

________________________

 Johan Galtung, a professor of peace studies, dr hc mult, is rector of the TRANSCEND Peace University-TPU. He is author of over 150 books on peace and related issues, including ‘50 Years-100 Peace and Conflict Perspectives,’ published by the TRANSCEND University Press-TUP.

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5 Responses to “Abenomics and the State of Japan”

  1. […] First published at Transcend Media Service. […]

  2. Akifumi Fujita says:

    As Professor Galtung points out here that the hope of Abenomics is to regenerate the golden 1960-70-80 Japan. And what irritates and troubles me about Abenomics is just this point. Let me explain a little about what and how this golden period of economic growth has actually brought about to people and land in Japan.
    We in Japan experienced a period of high economic growth that lasted for about twenty years after the Second World War. How was it possible?
    An eminent Japanese economist and thinker said in his essay written in 1967 that the high growth of economy in Japan was in a way the result of “the fusion of pre-modernity and post-modernity” neglecting sufficient modernization of society. He meant by the expression that high growth of economy was possible because the concept of human rights had not been established sufficiently enough to resist the destruction of humans and nature in the exceedingly rapid expansion of economy.
    Hosai Hyuga, the then president of Sumitomo Metal Industries and one of the excellent entrepreneurs who led the high growth of economy, once asked a question to the citizens who were worrying that the natural seashores in Seto Inland Sea were disappearing very rapidly because of mal-development as follows: Which do you choose preservation of nature as the first priority or higher standard of living? They were forced to choose between the two, A, the former, or B, the latter. Of course Hyuga himself had chosen B, because it was he led later the development of Kashima in Ibaraki prefecture as the model of selection of industrial site located in low developed areas. But the ideal of the Kashima development “the coexistence of industry and agriculture” inevitably failed because farmers were forced to leave agriculture. What was left was devastated land. So, A and B were inter-related, and to choose exclusively B, the higher standard of living, necessarily led to destruction of natural environment (-A). Historically, the development of Kashima stood at the turning point of mode of industrialization of Japan from development in the vicinity of big cities to that of underdeveloped areas. The development of Mutsu-ogawara in Aomori prefecture followed, and then many nuclear power plants were successively built in low developed areas all over Japan. We have as many as 54 nuclear power plants at present. And the severe accident happened on 11 March 2011 at Fukushima No.1 Nuclear Power Plant. It is still going on.
    Under Abenomics, the alternative policy of nuclear phase-out in terms of energy consumption will never be taken. And this is a big risk not only to Japan but to the whole world. A change of mentality is needed indeed for us Japanese.

  3. satoshi says:

    “Abenomics” is a bite. Behind Abenomics, there is “Abemilitarism”. To control a horse, the horse-rider needs a carrot. To control his people, a political leader needs a popular economic policy. However, what is the real intention behind the popular economic policy?

    Prime Minister Abe has steadily been moving toward one of his main political goals, the amendment of the Constitution of Japan, aka, the “Peace Constitution”. One of his first steps toward that goal is to amend the Article 96 of the Constitution. The Article 96 refers to the amendment of the Constitution. The Article 96 has made the amendment of the Constitution very difficult. It can be said that the Peace Constitution has survived to this day because of the Article 96.

    Let me quote the Article 96, the second paragraph of the Preamble of the Constitution and the Article 9. Note that although it is considered that the Preamble does not have the legal effect, it expresses the spirit of the Constitution. The interpretation of the articles in the Constitution should be made according to the spirit of the Constitution. The amendment of the article incompatible with the spirit of the Constitution leads to the destruction of the Constitution itself.

    Quote:

    CHAPTER IX: AMENDMENTS
    Article 96:
    Amendments to this Constitution shall be initiated by the Diet, through a concurring vote of two-thirds or more of all the members of each House and shall thereupon be submitted to the people for ratification, which shall require the affirmative vote of a majority of all votes cast thereon, at a special referendum or at such election as the Diet shall specify. 2) Amendments when so ratified shall immediately be promulgated by the Emperor in the name of the people, as an integral part of this Constitution.

    The second paragraph of the Preamble of the Constitution

    We, the Japanese people, desire peace for all time and are deeply conscious of the high ideals controlling human relationship, and we have determined to preserve our security and existence, trusting in the justice and faith of the peace-loving peoples of the world. We desire to occupy an honored place in an international society striving for the preservation of peace, and the banishment of tyranny and slavery, oppression and intolerance for all time from the earth. We recognize that all peoples of the world have the right to live in peace, free from fear and want.

    CHAPTER II: RENUNCIATION OF WAR
    Article 9:
    Aspiring sincerely to an international peace based on justice and order, the Japanese people forever renounce war as a sovereign right of the nation and the threat or use of force as means of settling international disputes.

    In order to accomplish the aim of the preceding paragraph, land, sea, and air forces, as well as other war potential, will never be maintained. The right of belligerency of the state will not be recognized.

    Unquote:

    Abe’s plan is to amend the Article 96 first, and then, it will be less difficult for Abe and his LDP to amend the rest of the part of the Constitution. Then, one of his main target articles to amend is the Article 9, the core article of the Peace Constitution. It is highly likely that a martial law article that ceases the effect of almost all relevant articles, including those on human rights and on relevant democratic procedures, of the Constitution may be introduced to the Constitution, if the Constitution will be amended according to Abe’s plan.

    The following news websites inform Abe’s recent movement toward the amendment of the Peace Constitution.

    http://www.thetimes.co.uk/tto/news/world/asia/article3741858.ece?CMP=OTH-gnws-standard-2013_04_17

    http://mainichi.jp/english/english/newsselect/news/20130426p2a00m0na012000c.html

    http://www.japantimes.co.jp/news/2013/04/07/national/government-reveals-contempt-for-constitution-by-ignoring-it/#.UYE5Rspj9ww

    http://online.wsj.com/article/SB10001424127887323551004578438253084917008.html

    http://www.japantimes.co.jp/opinion/2013/04/18/editorials/ldp-out-to-undermine-constitution/#.UYE8K8pj9ww

    http://en.ce.cn/World/Asia-Pacific/201304/28/t20130428_24337090.shtml

    “May 3” is the Constitution Day of Japan. The Japanese Upper House election will be held in July this year. Abe and his LDP (Liberal Democratic Party) are to argue about the amendment of the Constitution during the election campaign. The amendment of the Peace Constitution may negatively affect the peaceful and friendly relations between Japan and the rest of the nations in Asia-Pacific region.

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