What A Contracting Economy Looks Like ……. Japan

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So, Japan’s trade deficit returned in April, after posting a trade surplus in March (first surplus month since 2011).  But, that’s not entirely descriptive of what’s wrong in Japan. 

Japan trade gap returns to deficit in April, more red ahead

….. The 53.4 billion yen ($439.6 million) deficit in April for the world’s third-biggest economy compared with a 227.4 billion yen surplus in March, the first in several years.

But thanks to lower oil and gas prices, the deficit fell more than forecast, nearly 94 percent from April 2014, when the deficit was 825.5 billion yen, the Finance Ministry reported Monday.

The Japanese yen, now trading around 121.60 to the U.S. dollar, is at its lowest level in price-adjusted terms since January 1973, according to Richard Katz of The Oriental Economist Report. ….

…  The overall trade balance slipped into deficit in 2011 as oil and gas imports surged following the disaster at the Fukushima Dai-Ichi nuclear power plant, which led to closure of all of the country’s reactors for safety checks.

Japan’s trade deficit hit a record early last year as consumers stepped up purchases to beat a tax hike on April 1, 2014, which was followed by a brief recession.

Costs for importing oil and gas and a shift of Japanese manufacturing to overseas markets yen, plus persistent weakness in key export markets, have so far precluded an export-led recovery.

A surge in visits by foreign tourists is helping, though demand overseas is sluggish, and inventories are rising due to higher imports late last year, said Masamichi Adachi, of JPMorgan.

“As a result, we think that both exports and imports will slow or even decline this quarter,” he said.  ……

Some people may wonder why I chronicle Japan’s slow economic demise.  I do so because there are some hard lessons to be learned.  Simple and basic, but, hard lessons, nonetheless.

Now, energy isn’t Japan’s only problem, but, it is Japan’s problem in a microcosm.  The closure of their nuke plants was catastrophic for Japan’s economy.  It’s not so much the matter of what the prices are for the sources of energy, but, the fact that Japan, sans nuclear energy, must import fuels.  You see, Japan doesn’t have the natural resources to support their economy.  So, whatever they need to import, they must export wealth, thus driving up the costs of the products manufactured by their labor.  Add to that the exceptionally high cost of their labor, (comparable to other Asian nations) and you have no long-term-win situation for what they’re trying to do.  The fact is, it was Japan’s cheap labor, along with investment from the Western world which made Japan a huge manufacturing success.  But, as other nations opened up to the wealth manufacturing can bring, (ie South Korea, China, Vietnam …. ) Japan’s position becomes/became untenable. 

Now, this doesn’t mean Japan must fall into perpetual economic ruin and have a nation full of impoverished people.  Indeed, there’s plenty of reason to believe they can have a fairly prosperous people in the future.  But, they have to do things differently than what the previous generation did. 

They’re no longer going to be the manufacturing giants they were in the past, not in today’s world.  Cheap labor will be perpetually sought.  The notion is to do what you can do to prevent the export of wealth.  In Japan’s case, I would turn back on every nuke plant they have and build more (preferably in more stable locations).  And, then do what the land allows, fishing.  As stated earlier, the land Japan has doesn’t allow for the support of its people.  So, take a page from the people of the Netherlands and expand their territory.  I understand some of the people there are fairly adept at growing rice.  I believe recent land achieved by such measures is fairly fertile.  …….. Food and energy.  If you have enough of both, you’re in a pretty sweet spot.  Sure, there’s many more wants and needs, but, food and energy, if you have enough of both, then, you can go about the business of business.  Without either, and without something else to trade, other than cheap labor, then, you’ve lost and have impoverished people. 

You see, cheap labor can’t last forever.  It moves from place to place.  As competition for labor increases, so do wages, and thus, labor isn’t cheap, anymore.  Low labor wages cannot sustain an economy because perpetually low labor wages are an impossibility in a free society.   

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11 Responses to What A Contracting Economy Looks Like ……. Japan

  1. Latitude says:

    gosh….I thought you were writing about us there for a minute

  2. leftinflagstaff says:

    ‘So, whatever they need to import, they must export wealth…’

    We did that, without having to.

  3. suyts says:

    Yep, and yep, guys. We don’t have to be like Japan, we’re just choosing to do so. We’re squandering our wealth.

  4. DirkH says:

    The people will be fine (give or take the inevitable Earthquake +- Tsunami combined with a volcano on their crazy island). The state and the Yen are finished though.

  5. DirkH says:

    E-Trade Baby loses everything.

  6. DirkH says:

    Top US propaganda office says Russia’s RT is as bad as Boko Haram.
    “On 21 January in 2015 the new chief of the BBG, Andrew Lack, told to the New York Times that the agenda of the Russian News Source RT posed a threat to the United States, as well as the ISIL and Boko Haram terror groups.”
    http://en.wikipedia.org/wiki/Broadcasting_Board_of_Governors

    I guess some of their 700 million USD annually finds its way into the pockets of our journalist impersonators at Der Spiegel who in 2014 went on a lunatic crusade against Putin, wrecking their reputation for good.

  7. Bruce of Newcastle says:

    To misquote a certain Aussie movie character: that’s not a contraction THIS is a contraction!

    Venezuela Circles the Drain

    Venezuela’s situation continues to unravel at increasing speed as the bolivar tumbled 30% over just the last week, while the country’s international reserves simultaneously hit a new 12-year low, closing at $17.5 billion.

    I estimate Venezuela’s annual inflation rate at 335%. That’s the highest rate in the world.

    Fortunately, though, they have solved the toilet paper shortage.

    Venezuela Solves Toilet Paper Shortage As Inflation Surpasses 100%

    As for the best one sentence summary of current events in Venezuela, the following may suffice:

    The Venezuelan Bolivar is worth more functioning as toilet paper than as actual currency #Faded #Drank #Socialism pic.twitter.com/Zt7aTkba5M — Wu-Tang Financial (@Wu_Tang_Finance) May 27, 2015.

    Always nice to see how socialist policies help poor people. /sarc

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