Japan Would Have Taken a Different Path

Japan has maintained positive trade balance while internalizing fiscal deficits. How is that working out? By doing so, the Japanese government has hollowed out the future wealth of the country and is screwing over its own people.

Yes, the 1985 Plaza Accord has had significant impacts on the Japanese economy, yet its own failed policies have led Japan to where they are now: shrinking middle class, widening income inequality, and mounting debt (about 200% debt to GDP), etc.

The Japanese would have taken a different path instead of pursuing the extend and pretend solutions like QE, stimulus and other measures to artificially prop up the market.

The Japanese stock market would have crashed 70 percent in 2 years instead of 20 years. (The Nikkei was once over 30,000, but today it’s around 9,400). Then their economy would have rebounded and wouldn’t be in a dire situation they are now.

BOJ’ quantitative easing succeeded in stoking asset inflation, yet when it unwound its QE, deflation returned. Japan’s stock market rose up from about 2003 to 2007, and then declined after QE was unwound. Meanwhile, BOJ has been heavily monetizing its own debt.

Why has Japan taken the wrong path? For whom has this extend and pretend worked?

One has to comprehend the political economy of Japan and international relations to answer this question.

The same goes for the U.S. and Korea.

Are we seeing the similar pattern both in the U.S. and Korea?

I sincerely hope that both Korea and China will learn from Japanese experiences. (Some argue that China is already in a Japanese style bubble and Korea is not immune from this issue) As I mentioned many times, global forces are no excuse for policy failure.