Liam Halligan’s latest article for The Telegraph considers the role of political manoeuvres and industrial lobbying in Japanese economic policy:
when the victorious Kan on Wednesday ordered a wholesale yen sell-off, the country’s first currency intervention in six years, the markets were entirely wrong-footed. That allowed the yen to be pushed down by 3.1pc against the dollar and 3.4pc against the euro.
Since then, Japan’s yen manoeuvre has attracted much economic comment – as pointy-headed analysts have recalibrated their complex models and updated their spreadsheets. In the real world, though, currency interventions are strategic, not scientific. This one, too, should be analysed through an unashamedly political lens.
As well as trying to secure his position in the Diet, it appears Kan has also been looking out for certain vested interests:
The yen’s recent rise has deeply unsettled Japan’s powerful export lobby. Kan’s decision drew rare public praise from carmakers such as Toyota and Mazda. Adding to the air of euphoria, the Nikkei index of leading shares soared by 3pc on Wednesday, as the yen fell. With the Ministry of Finance declaring that “the strong currency can no longer be over-looked”, more selling may be in the pipeline. Japan’s currency, after all, remains higher than just three weeks ago.
But while such interventions may help Kan, Toyota, and Mazda, they do nothing to promote the long term health of the Japanese economy:
In the end, only structural reform, not short term fixes, will allow the Japanese economy to recover in a meaningful way – a lesson that holds in the UK as well. When I’ve argued against “quantitative easing” and debt-fuelled Keynesian boosts over the last two years, I’ve often been met with a glib one-word response: “Japan”.
Many UK policymakers have been brain-washed into thinking Britain needed to print money like crazy and prostrate itself with more state debt in order to avoid a Japanese-style “lost decade”. This was always dangerous nonsense.
Japan didn’t stagnate because it refused to do QE and a massive fiscal expansion, or because it waited and did both half-heartedly. Japan suffered a 10-year slump precisely because its too-big-to-fail, politically-connected “zombie” banks were allowed to stagger on, acting as a massive drain on the broader economy. The same is now happening in the UK. That’s the real lesson from Japan – a lesson that Prime Minister Kan, with his myopic currency move, has shown he is yet to grasp.
Read the whole article.