Kerry, i tend to be less pessimistic about Japan. although i acknowledge the problems are far from solved, and do in fact expect a final , painful wash-out, i don't think the Japanese in general care so much about stock market gains. they have on average only 7% of their savings invested in stocks, a tiny percentage compared to the US. however, the collapse of the Japanese bubble has also destroyed real estate prices, which is far more serious: mortgages taken on during the bubble years are now unsupported by any home equity, a terrible situation to find oneself in.
it is one of the reasons why i keep railing against all bubble manifestations in the US, be it in the market or in RE. imo to allow such bubbles to grow to the sky is extremely irresponsible, and the Greenboink Fed has done just that.
note re. Japan, that no change in nominal prices of financial assets actually equates to a REAL capital gain, as deflation has eaten away at consumer prices. besides, Japan has a huge bond market bubble going, which makes up a bit for the ground lost in equities. regarding Japan's industrial prowess, i can only say it's a mistake to underestimate it. a huge chunk of the world's hi tech equipment is in fact made in Japan, proof that Japan remains competitive in crucial areas.
another aspect is that Japan does in fact have the MEANS to end its predicament. it remains the world's largest creditor, by far. it has a huge pool of private sector savings...REAL savings, as opposed to speculative investments. the problem is really to mobilize these savings...to do so, drastic reforms are needed, and that means even more pain in the near to medium term.
i disagree completely with the proposed monetarist solution of simply monetizing the Japanese govt. debt. i think that's a strategy that could backfire badly, as it does nothing to engender structural change for the better.
admittedly Japan's problems are very difficult to overcome, and no quick fix solutions come to mind...even the longer term solutions are somewhat in doubt, aside from the fact that the govt. should cease and desist from its interventionist policies and let the market do its dirty , but necessary work.
there is btw. an inherent, and not widely recognized danger lurking in a possible Japanese upswing: once underway, it will pull Japan's savings back home. the West, especially the US, would lose its most important source of cheap funding, and interest rates would consequently have to rise, perhaps sharply. something to keep in mind...a Japanese recovery is not necessarily an unalloyed blessing, except for Japan itself of course. |
