Is everything okay in Japan? Are you kidding me? are you serious when you say that
The world isn’t necessarily pretty in Nishitokyo, but that’s okay. The city blends seamlessly into the vast, calm sea of Tokyo metropolitan skyline stretching to the west. Houses built, stores overcrowded. Ukraine, war, really any type of conflict is far from over. In the morning at Hoya Station, when conductors force passengers onto crowded trains, something violent happens. But it is also done in accordance with the national understanding that everything has to adapt in one way or another. Masked crowds run peacefully through the clean, chaotic grays of everyday life, and the shelves of the 24-hour supermarket are always full of rice, fish, miso and everything the local cuisine needs. All is well in Japan.
Yet Saki Aida, an educator in her 60s, can’t say she doesn’t feel the Russian war at all. She stands next to the oranges with her shopping cart and says, “I noticed that vegetables are getting more and more expensive. Also, lately there has been less plastic packaging. “For example with onions and potatoes.” Saki Aida lives alone with her husband, so it doesn’t bother her much. “But for a large family, it’s probably difficult.”
Japan, the world’s third largest economy, has long seemed like a happy island state, somewhat forgotten by the world. He persevered, barely moved, but wasn’t unhappy either. Japan has benefited from record high debt in its currency, a cohesive national economy and an ultra-loose monetary policy, which the central bank has pursued in close collaboration with the right-wing conservative government. And during the pandemic, Japan was more balanced than any other G-7 country because of its cleverly balanced policy of closing borders and its belief in adhering to the national collective society. Thus, prices in the country were still reasonably stable even when the coronavirus was already fueling inflation in the United States and Europe.
But since Russia invaded Ukraine, Japan has had to worry about its financial balance. Inflation in April rose to 2.1% from 0.5% in January. Energy and food prices are rising. Japanese farmers are complaining because fertilizers are getting more and more expensive. And the yen falls and falls. Last week it was the lowest in 24 years. Since energy is primarily an imported commodity for Japan, it also adds cost pressure for the general public. Frank Roewkamp, head of the East Asia Institute at Ludwigshafen University of Economics and Society, says: “Japan has a real problem.”
Everyone has a real problem. Basically, Japan is doing even better than the United States and Europe, as the inflation rate there is slightly above 2%. However, Japan seems to be a prisoner of its own courage at the moment.
Among the industrialized countries, the country is at the forefront of a radical policy of low interest rates. The Federal Reserve in Washington and the European Central Bank in Brussels have done well to follow the example of the Bank of Japan (BOJ) in Tokyo, although they have never loosened their monetary policies to the extent that the Japanese consider them as made easy. But in the crisis, Americans and Europeans are reluctant to put more and more money into the system. The two central banks have announced a major increase in key rates to curb inflation. BOJ, on the other hand, continues as before. She can’t help it.
BOJ acknowledges that high inflation is only a temporary phenomenon
Ever since newly elected Prime Minister Shinzo Abe introduced his so-called Abenomics policy in 2012, Japan has been moving almost at the pace of a hypothetical fundraising program for the national economy. Since then, the central bank has regularly purchased government bonds from commercial banks and other financial institutions, thereby guaranteeing loans at extremely low interest rates and indirectly ensuring government liquidity. Japan’s key interest rate is currently in negative territory at -0.1%. This concept of printing almost any currency and going into debt worked.
The only problem: the share of the central bank in the public debt is very high in Japan. As of December 2021, the BOJ held 43% of all Japanese government bonds. In addition to taxes, debt accounts for about half of Japan’s national budget. This national budget, in turn, bears not only the cost of social order, education, defense, etc., but also the interest on the national debt. “Now imagine that interest rates increase in Japan, for example by one percent, like in Germany,” says Rovekamp, ”then this interest item explodes on the expenditure side.”
The Ministry of Finance in Tokyo published an extrapolation on this in January: according to it, if interest rates on government bonds increase to 1.3%, interest rates on interest rates at in fiscal 2025 will cost taxpayers 28.8 trillion yen, up from 24.3 trillion yen this year. year. The yen will be In the coming years, the increase will be even more severe if more and more old, cheap government bonds are gradually phased out and have to be replaced by new, more expensive bonds.
The BoJ cannot allow this. At the same time, the dollar is becoming expensive. The yen depreciates. “It is important to keep an eye on financial and currency market developments and their impact on Japan’s economic activity and prices,” the BOJ’s latest monetary policy brief said. But she actually believes that high inflation is only a temporary phenomenon.
specific central bank. Optimism is part of their job. Economists Rovekamp and others are skeptical. The war continues, the energy and food crisis has only just begun. And Japan isn’t exactly heading into the post-pandemic future at any rate. For example, Prime Minister Fumio Kishida’s government was reluctant to open borders to foreign tourism, a booming industry before Corona. And the “new capitalism” that Kishida announced before his election in October 2021 initially seems like an old-fashioned concept for a bit more economic regulation and redistribution.
However, Frank Rovekamp is a little more optimistic for Japan than for Europe. Because in Japanese collectivist society, people are used to reducing demands and accepting difficulties. For example, seniors who are already in their seventies contribute to reducing social expenditure by working. “The Japanese are in difficulty, but they will face these difficulties without major upheaval,” says Rovekamp. “They’re just going to tighten their belts.”
That’s exactly what Saki Aida would do in Nishitokyo. Due to her husband’s health, she no longer has a car, so she doesn’t care about the price of gas. But electricity is getting expensive. Saki thinks Aida. It is difficult to save on air conditioning due to the sweltering summer. They can’t save on travel because they haven’t been away long enough anyway. “Maybe I can save on clothes,” Saki Aida says, a bit distraught. Many people are likely to have a problem with inflation in Japan: they could hardly be more frugal.