you can look at it from a variety of angles...
* a decade ago, when Japan already had the largest secular current account surplus and net foreign investment position in the world, if you were to suggest that this country was about to embark upon a porkbarrel spending spree creating the most indebted government in the free world and would result in a credit rating lower than Botswana's, people would have wanted to know what you were smoking and where they could get it.
Japan is a multiheaded hydra of competing bureaucratic fiefdoms. there is no such thing as political accountability because each bureaucracy (typically a Ministry) is accountable only to itself.
thus there is no such thing as state planning or some kind of national consensus leading to policy implementation. literally anything can happen and it usually does. this is not much different from the crazy generals who decided to attack Pearl Harbor and launch Japan on a course of national near-suicide.
if you look at how insane Japan's policies are on any number of subjects, negative nominal yields cannot be too much of a surprise.
* from a financial perspective, with deflation running at 1-2% a year in Japan, a futon portfolio has a real return of 1-2%. in contrast, in the US, a money market account is getting--what, about 0.5%-while the CPI including energy & food is a little above 3%. thus US cash real yield is -2.5%, which is the way Greenspan wants it. you need negative returns on cash to get people to do other things with their money. how do you get negative returns on cash in a true deflationary economy like Japan's (as opposed to a pseudo-inflationary economy like the US)?
Japan has been unable to create inflation despite the government's indebting itself to the tune of 5 or 6 times GDP. this is a reflection of overcapacity in Japan and their structural current account surplus (which they must maintain in order to keep up a strong dollar, so that we can buy their goods, so that their industrial overcapacity does not grow even more).
if Japan taxed cash at 3% in a 2% deflation environment, then that is a -1% real return, which is still better than the US money market return!
not that this argument would convince a lot of Japanese cash holders, but obviously something must be done which is a radical measure. all the Keynesian radical spending of the past decade hasn't helped, so whathafak, why not tax cash?
the most radical measure of them all, and the one which they will eventually have to adopt, is to let the currency rise to a market value. this will kill a ton of industry in Japan, just put them out of business (back in 1995, when the JPY briefly hit 80 to the dollar, many Japanese manufacturers were in the red on both fixed AND variable margins--i.e., the proverbial situation where you lose money on every unit but try to make it up on volume). and will probably be very deflationary. but in the long run, what other choice do they have? just as in the long run it seems impossible that the rest of the world can give the US a free ride (what Jacques Rueff called "deficit without tears" back in the 60s) on a 5% current account deficit forever.
* the way this story came out is kind of weird. you can see it seems amazing in the US, because your post linking a little blurb article in Forbes elicited like 9 responses. so you would think it would be big news in Japan, but i haven't found any mention of it in the places i look at on the web there, nor heard mention of it on the national broadcast station NHK (although they had an in-depth look at the Sammy Sosa corked-bat story). the forbes story said the Japanese article was in Shuukan Gendai. what is Shuukan Gendai? is it like the Washington Post, where Greenspan reportedly leaks stuff through some favored reporter as an unofficial message to the market?
no, Shuukan Gendai is this insipid gossip weekly, somewhere between People Magazine and National Enquirer in terms of sophistication and content. what kind of venue is this for leaking what would seem a radical policy change? not a very good one. which means that it's not the word from on high, sending some "signal" to the markets. instead, it's probably a legitimate leak from closed-door brainstorming sessions on how to get the Japanese economy into gear. the fact that it's not sending a message means that it's true, in the sense of an idea that is legitimately being considered. whether it happens is of course another question, but i would consider it much less damaging than many other policies that have been enacted over the years by bureaucrats without public consent. of course it's all speculation at this point and i haven't been able to track down the damn article yet--but the point is, nothing can surprise me in terms of the stupidity of Japanese bureaucrats. |
