According to Takahiro Mitani, trashing your currency, destroying your bond market and gutting the real wages of domestic citizens is a surefire ticket to economic success. Yes, that's what the man says,
“I have no doubt that the economy is in a recovery trend if you look at the long run….”
After two years of hoopla and running the BOJ's printing presses red hot, however, there is not a shred of evidence that Abenomics will lead to any such thing. In fact, after the recent markdown of Q3 GDP even deeper into negative territory, Japan's real GDP is no higher now than it was the day Abenomics was launched in early 2013; and, in fact, is no higherthan it was on the eve of the global financial crisis way back in 2007.
In the meanwhile, the Yen has lost 40% of its value and teeters on the brink of an uncontrolled free fall. Currency depreciation, of course, is supposedly the heart of the primitive Keynesian cure on which Abenomics is predicated, but there is no evidence or honest economic logic to support the proposition that—–over any reasonable period of time—–a nation can become richer by making its people poorer.
That's especially true in the case at hand, which is to say, a Pacific archipelago of barren rocks. Japan imports virtually 100% of every BTU and every ton of metals and other raw materials consumed by its advanced $5 trillion industrial economy.
Yet thanks to the mad money printer who Prime Minister Abe seconded to the BOJ, Hiroki Kuroda, import prices are up by a staggering 30% since 2012. Even with oil prices now collapsing, the yen price of crude oil imports is still higher than it was two years back. Not surprisingly, input costs for Japan's legions of small businesses have soared, and the cost of living faced by its legendary salary men has risen far faster than wages.
Accordingly, domestic businesses that supply the home market—and that is the overwhelming share of Japan's output—are being driven to the wall, bankruptcies are at record highs and the real incomes of Japan's households have now shrunk for 16 consecutive months and are down by 6% compared to 2 years ago. And the purpose of all this punishment?
Well, its something right out of the Keynesian “Sesame Street”. We are talking here about our friend the letter “J” that was scribbled on a napkin in Cambridge MA more than a half-century ago. That is to say, when you trash your currency your trade balance is supposed to get worse for a while, and then it gets all better. Hence, the “J-curve”.
Needless to say, its not working for Japan. The fact is, Japan is an old age colony that is in debt up to the eyeballs of what will soon be a retirement population larger than its work force. So it desperately needs to run a trade balance—and better still, a surplus—-with the rest of the world in order to accumulate acorns for its long time future as an economic rest home.
