I really dont know much about the economy of japan, but looking at the Yens strength the last few months, i have to wonder if they are in a serious deflationary spiral. Anyone more familiar with the economy of japan have any insight about it? I know that japan keeps their key rate at near 0% (i think its .3% now) But the yen is now around 92 to the dollar. thats insane given that our dollar has been gaining huge strength with the other currencies. How low can it really go?
I was contemplating this yesterday. The Japanese have truly substantial savings. They have always been meek at printing money versus the United States. In time though, a stronger currency will turn them more into a consumer nation and less of an exporter. Suddenly the Japanese have an enormous amount of buying power (as they should, considering how much they've exported in the past to the rest of the world). I think over time the same will happen to China and other parts of asia with depressed currencies.
They really need that savings to pay off that public debt of theirs. I just looked it up and it says they have the 3rd highest debt as a % of GDP in the world at 170% of their GDP. (#2 is lebanon and #1 is zimbabwe) U.S. is #27 as of 2007, but We probably jumped to around #15 or 16 this year with our credit crisis. I dont know how they can switch to a pure consumer driven economy when the japanese population is actually in a state of decline (as of 2008 it was -.139) So that means there will actually be 179k people less in japan than there is now, so that has to hamper growth i imagine. But who knows...maybe in the future the yen will get so strong that americans will be trying to sneak over to japan to work one day! Imagine a day when the yen is 1 dollar buys 10 yen. You could sneak over to japan to cut peoples lawns for min wage and get the equivelent of 70 bucks per hour. Americans would be to japan, what mexicans are to america.
With interest rates near zero in the US, the Yen carry trade is over. This was a form of currency rigging on their part anyway. Japan will have to learn to live with a strong currency. Countries with export surpluses are supposed to have strong currencies (assuming they are not rigged).