[ohanian]

Are the Japanese people carrying the Americans on their backs?

As the Japanese government continues holding short-term interest rates near zero while printing yen like it is going out of style, getting out of the yen has now replaced pachinko as the national pastime for rank and file Japanese. With housewives and cab drivers debating the best techniques to exchange their yen savings for higher yielding non-yen assets, the Japanese monetary authorities are facing the prospect of the complete destruction of their own currency, subjecting their citizens to the horrors of hyperinflation.

For years, the storied efficiency of the Japanese economy has kept its citizens from understanding just how much purchasing power they were losing to inflation. As the extremely productive Japanese economy worked to lower consumer prices, the inflationary monetary policy of the BOJ reversed those declines, robbing Japanese consumers of the benefits of falling prices. This loss represents a massive subsidy to American consumers.

[web]http://dollardaze.org/blog/?post_id=00212[/web]

[MrBill]

That is just bullshit. I am so tired of every article saying that this or that only exists as a massive subsidy to America.

Japan has a Made in Japan fiscal and monetary policy that suits its own domestic political and economic agenda. Low, slow, no growth the most of the past 15-years.

Japan's trade partners, especially the G7, have complained about the value of the yen, which is estimated to be at least 40% undervalued against the euro. This erodes European manufacturing and export competitiveness.

A weak yen also prevents other Asian manufacturers from letting their own currencies appreciate for fear of losing market share and export dependent jobs. So it has regional implications.

The fact is that the BOJ gives the whole world extra liquidity through a weak yen and its zero interest rate policy or ZIRP. If US based firms borrow in yen at low rates, they run foreign exchange risk. But if other foreign firms do the same, how is it a subsidy for the US?

Does the US export to Japan because of a weak yen? I do not think so! Import duties and non-tariff barriers as well as a weak yen make sure that exports are for the most part kept out of Japan. Never mind that the Japanese are better at selling to Americans than Americans are at selling to Japanese tastes. Call it a non-tariff barrier if you want.

We live in a globalized economy where currencies are connected through trade and capital markets. Everything the BOJ does or does not do does have an effect on everyone else. Europe and Asia as well as America. If Japan is subsidizing America through the yen carry trade at Japanese consumers' cost then they are subsidizing the whole world at the same time.

As a matter of fact the Fed may have to keep interest rates higher and for longer than they might have otherwise been to combat global inflation because of Japan's ultra-loose lending practices. That is not a subsidy to America, but a cost!