BLOG: LAND OF THE DYING SUN: JAPAN’S LOOMING DEBT CRISIS

This week, as school is just starting at UC San Diego, Prospect is revisiting some of our most popular pieces from the previous academic year. We will begin posting new material soon; until then, enjoy our look back!

By Nolan Weber
Senior Editor

Work-a-day meth addicts can keep it together for a time—and they may even get a lot of stuff done. Hey, look at Christopher Walken. He managed to earn a small fortune staying alive for countless rounds of Russian Roulette in The Deer Hunter. Granted he wasn’t a speed addict, but the fact is, no matter what, unsustainable situations always crash—hard.

That might as well be the case with Japan. The confluence of factors impending over its eventual demise retain such a serious tone, it is hard not to fear for the nation’s long-term governmental stability. From energy to fiscal to monetary policy, Japan finds itself between a rock and a hard place on every front.

In the wake of the Fukishima Nuclear Disaster, Japan has halted the production of all nuclear power—reducing domestic energy production by 30 percent of pre-Fukishima levels. Japan now has to import fossil fuels to make up the difference. With national debt at 230 percent of GDP and a budget deficit of 56 percent of GDP, Japan currently has to grapple with negative economic expansion while producing domestic energy at heavy loss. Indeed, Japan has entered a deep recession given its economy is contracting at an annualized rate of 2.3 percent.

Furthering disconcerting sentiment, Japan currently allocates 25 percent of its budget to simply service the interest on its debt.To keep itself afloat, the industrial titan is seeking to devalue the yen to maintain its manufacturing-based, export-driven economy. Yet, by debasing its currency Japan is destroying its citizens’ wealth. The people of Japan, more than any other developed nation, buy their own government bonds—Japanese debt. Consequently, citizens are primed to see negative returns on their investment and realize a dystopian retirement if the Bank of Japan tries to print its way out of this predicament.

The Bank of Japan certainly cannot deflate. If policy is set to strengthen the yen, their economy will shrivel in the face of Japan’s need to export. It is a resource poor nation. It imports 90 percent of raw goods, yet, historically, it has done an excellent job in generating wealth by creating usable products out of raw materials. However, if the Bank of Japan decides to let the yen appreciate in value, the manufacturing upon which the country depends will be priced out of the market.

We don’t have a place in history to reference where a decades-long, recession-stricken country has suddenly lost 30 percent of its energy output and forced to survive. Will Japan collapse? I don’t know. But what I do know is the Bank of Japan has clearly adopted a policy of currency debasement–printing. To that end, there has been no nation that has been able to print its way to prosperity. Indeed, people orders of magnitude smarter than myself are trembling at what will happen next.

Photo by Matteo Mazzoni

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5 responses to “BLOG: LAND OF THE DYING SUN: JAPAN’S LOOMING DEBT CRISIS

  1. Pingback: In The News Today :: Jim Sinclair's Mineset·

  2. Japan has no way of coming up out of the mess they are in, e.g. obama and his advisors who snort in the white house will never let Japan currency, stocks, bonds, goods, folks, etc, up for air because they are merely the result of the vendetta since ww-2 and since obama declared via his adisors contemplation of their navals that one world govt is dead, all govts must stand on their own 2 feet, and, best of all, each nation is versus all other nations, dog eat dog, ho ho ho

  3. add on to mine above,,,,,,, also the Japanese, Folk and thus their govt and business affairs are not inventors nor innovators but copy cats same as Chinese (),per mandate by their Tong)— these asians merely sit back and let the west be creative and then copy the stuff evolved by the west and thus is not applicalbe to Japan, as above, and thus fails from day one and never can succeed,,,,, —-they the Japan Folk ought wake up and see the game and then put their loot into research and development big time so their Folk can evolve great things and great ways of profiting off Markets…. or at least try

  4. this is first time i saw your post and looks like you have set up your forum in good ways meaning if you have an email list for daily or whatever postings of your finds, please put me on that list

  5. Pingback: Liens intéressants (12 mai 2013) | Poésie fiscale·

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