Japan's economy has been stuck in negative growth for 28 years, while the U.S. economy has soared, and the gap between the two countries has widened to 21$51 trillion. What's going on here?Why is Japan's economy so sluggish and the U.S. economy so strong?
To understand Japan's economic decline, we have to go back to 1985, when the United States and Japan signed a historic agreement called the Plaza Accord.
The purpose of this agreement is to solve the problem of the imbalance between the United States and Japan, the United States believes that the depreciation of the yen is the main cause of the deficit, so it asks Japan to agree to let the yen appreciate in order to reduce Japanese exports to the United States. Japan, under pressure from the United States, had to accept this demand, thus starting a currency war.
The consequence of the yen's appreciation is a disaster for the Japanese economy. Due to the sharp appreciation of the yen, Japan's exports lost their competitiveness in the international market, resulting in a sharp decline in exports, and at the same time, Japan's imports also increased, resulting in a narrowing of the ** surplus, which dealt a serious blow to Japan's economic growth.
On the other hand, the appreciation of the yen has also triggered an asset bubble in Japan, and due to the increase in the purchasing power of the yen, both the Japanese ** and the real estate market have seen crazy increases, forming a huge false wealth. These bubbles finally burst in the early 90s, leading to Japan's financial crisis and recession.
In the face of the economic crisis, Japan has taken a series of countermeasures, but none of them have worked. The Bank of Japan has continuously lowered interest rates, and even implemented a zero-interest rate policy, trying to stimulate the economy by increasing monetary **. But this policy did not have the desired effect, but instead led to deflation and economic stagnation.
As a result, Japan's debt level has been rising, reaching the highest level in the world. Japan's economy has been in a 30-year downturn, known as the "lost 30 years."
While Japan's economy was struggling, another round of dollar harvesting began. In 2022, the Federal Reserve began a cycle of interest rate hikes in response to the overheating of the U.S. economy and inflationary pressures.
The sharp depreciation of the yen has dealt a new blow to the Japanese economy, not only increasing the cost of imports, but also exacerbating the risk of deflation. What is even more puzzling is that while the yen is depreciating so wildly, the Bank of Japan has been buying a large number of U.S. bonds for three consecutive months, which seems to be actively cooperating with the harvest of the dollar. This raises questions about whether Japan has given up its monetary sovereignty and is willing to become a vassal of the dollar.
However, Japanese economists recently said that the Bank of Japan will raise interest rates next year to curb the decline in the yen exchange rate. This could be Japan's last chance to fight back in this currency war. If the Bank of Japan raises interest rates and the Fed is forced to cut them, this could lead to a ** in the yen exchange rate and a slide in the dollar index.
This will bring stability to the Japanese economy and reduce the pressure on Japanese exporters caused by the frequent depreciation of the yen over the past 30 years. Let's wait and see whether Japan can seize this opportunity to reverse its economic destiny or continue to be harvested by the dollar.
From a historical and current perspective, we analyzed the decline of the Japanese economy and the harvest of the dollar. saw Japan's defeat in the currency war, and its far-reaching impact on the Japanese economy. I also saw Japan's helplessness and dilemma in the currency war, as well as its attitude and strategy towards the dollar. We also see Japan's last chance in the currency war, and its hopes and challenges for the Japanese economy.