Latest / Stephanomics / Japan Is Caught Between the US, China and the War on Inflation

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Japan Is Caught Between the US, China and the War on Inflation · Stephanomics

• 0:04
  Speaker 1: Hello, Stephanomics, here the podcast that brings you the global economy.
• 0:07
  Speaker 1: This week, I'm in Japan, which seems for once to
• 0:10
  Speaker 1: be right in the thicker things. For years, this country
• 0:14
  Speaker 1: has been the odd one out in the global economy. Inflation, politics, policy,
• 0:19
  Speaker 1: they all seem to work differently here, even though those
• 0:22
  Speaker 1: differences have sometimes given us a sneak preview of economic
• 0:26
  Speaker 1: troubles to come. A big financial crisis followed by years
• 0:30
  Speaker 1: of slow growth, central bank pumping hundreds of billions into
• 0:34
  Speaker 1: the economy, cropping up asset markets, all in an effort
• 0:37
  Speaker 1: to stop low inflation. All of that happened in Japan.
• 0:41
  Speaker 1: Years before it happened in the US and Europe. People
• 0:45
  Speaker 1: talked about the Japanification of the world economy, the idea
• 0:49
  Speaker 1: that every aging industrial society was going to end up
• 0:53
  Speaker 1: looking like Japan. They're not saying that anymore now. Inflation
• 0:57
  Speaker 1: has taken off in the rest of the world, and
• 1:00
  Speaker 1: Japan might just might be starting to be more like
• 1:03
  Speaker 1: other places. And not just in the sense that it
• 1:07
  Speaker 1: might be finally able to change its monetary policy from
• 1:10
  Speaker 1: the maximum loose setting it's been at for nearly a decade.
• 1:15
  Speaker 1: Japan's also stuck in the middle of the Biden administration's
• 1:18
  Speaker 1: hardened approach to China and spook by the invasion of Ukraine,
• 1:22
  Speaker 1: the Japanese Prime Minister Kishida is planning to ramp up
• 1:26
  Speaker 1: defense spending, testing the limits of the pacifist constitution that
• 1:31
  Speaker 1: the US imposed on Japan after World War Two. I'm
• 1:34
  Speaker 1: going to talk to Bloomberg's longtime government reporter here, Isabel Reynolds,
• 1:38
  Speaker 1: about that a little later. I'll also talk through the
• 1:42
  Speaker 1: challenges facing the Central Bank and all of Japan with
• 1:46
  Speaker 1: a former senior official at the Ministry of Finance who
• 1:49
  Speaker 1: has also been the chair of the Asia Development Bank.
• 1:52
  Speaker 1: But first, Bloomberg's Japan economy reporter, Yoshiaki Nohara, has a
• 1:57
  Speaker 1: story to tell you about fish. Wage is on the
• 2:00
  Speaker 1: price of a plate of sushi. That is the sound
• 2:14
  Speaker 1: of a tuna auction at the wall's biggest fish market
• 2:18
  Speaker 1: to your soul market in the Bay of Tokyo, bells ring.
• 2:26
  Speaker 1: The men haddle up with a shouting bidding gold. Looking down,
• 2:35
  Speaker 1: I see hundreds of giant tuna all over the trading floor,
• 2:40
  Speaker 1: some roll, some frozen, some from Japanese waters, some from abroad.
• 2:47
  Speaker 1: Most are destined to be in mouth watering, sashiming or
• 2:51
  Speaker 1: sushi dishes at the ground. The market seems just as
• 3:02
  Speaker 1: big as ever, but something has changed and almost everyone
• 3:08
  Speaker 1: is feeding the pain. Whatever. You know, My guy that
• 3:16
  Speaker 1: this morning is a scan director of Tokyo Marine Products
• 3:22
  Speaker 1: Whole Serah's Association. Unique prices have shot up by more
• 3:29
  Speaker 1: than that's absolutely a matter of fact. I'm just talking
• 3:33
  Speaker 1: about the overall prices. Of course, some items are rising
• 3:37
  Speaker 1: by a whole lot more. Inflation has been dormant in
• 3:48
  Speaker 1: Japan since the mid n despite policy makers taking extraordinary
• 3:54
  Speaker 1: steps to get prices rising again. But with global inflation
• 3:59
  Speaker 1: catching fire in the recovery after the pandemic, the heat
• 4:04
  Speaker 1: has finally spread here too. They will, like the movie,
• 4:12
  Speaker 1: continue to go. The auction prices will keep going up
• 4:14
  Speaker 1: and up. They're set by these negotiations with bias, not
• 4:18
  Speaker 1: by contracts. So for fresh fish like tuna, the market
• 4:22
  Speaker 1: prices changing every day. You know how it works. Higher
• 4:28
  Speaker 1: fewer prices mean extra costs or fishing boats to catch
• 4:33
  Speaker 1: fish and transport them. On top of that, you have
• 4:36
  Speaker 1: the impact of lingering global supply change disruptions, and now
• 4:42
  Speaker 1: the historic collapse of the end that makes imported fish
• 4:46
  Speaker 1: way more expensive, and forty percent of japan seafood actually
• 4:54
  Speaker 1: comes from abroad. All of this has prices rising as
• 4:59
  Speaker 1: the fastest rate in forty years, and the government is
• 5:02
  Speaker 1: stepping in to help squeeze the consumers. If that sounds
• 5:07
  Speaker 1: familiar where you are, well the similarities and there. Because
• 5:13
  Speaker 1: the inflation rate here is still only three point six percent,
• 5:20
  Speaker 1: you might ask, how can inflation still be so low
• 5:25
  Speaker 1: when Japan is an island country heavily dependent on important
• 5:30
  Speaker 1: food and energy. To understand that, I need to take
• 5:35
  Speaker 1: you to another floor of the fish market, yosh Noble.
• 5:46
  Speaker 1: Yoshashi is one of several hundreds of small wholesalers who
• 5:51
  Speaker 1: buy seafood from the larger wholesalers and process it to
• 5:55
  Speaker 1: sell to retailers. It's not just fish, it's getting price here.
• 6:01
  Speaker 1: Sarching oil prices mean the cost of the plastic rock
• 6:05
  Speaker 1: to stop fish going dry and to form ice boxes
• 6:09
  Speaker 1: to keep fish cold are all going up too, But
• 6:14
  Speaker 1: these costs are not being passed on to customers, or
• 6:18
  Speaker 1: not yet anyway, Well, we can't. As you know, prices
• 6:26
  Speaker 1: on restaurant manames are pretty much fixed everywhere. You can't
• 6:30
  Speaker 1: just dump call our extra costs on our own customers.
• 6:33
  Speaker 1: We have to swallow the pain to a certain degree.
• 6:37
  Speaker 1: More obviously, that Yang is making things even more complicated
• 6:42
  Speaker 1: for your Shashi. By October this year, Japan's currency had
• 6:47
  Speaker 1: shared more than twenty against adalla at. Japan's stacked with
• 6:51
  Speaker 1: ultra low interest rates while the US hike rates to
• 6:56
  Speaker 1: tackle inflation. That's raised the price of your Hash's imports
• 7:01
  Speaker 1: the sea adgents from the US and Mexico, for example,
• 7:05
  Speaker 1: But it also means he makes a higher profit on
• 7:09
  Speaker 1: the sushi ingredients he exports to other markets in Asia. Overall,
• 7:15
  Speaker 1: his business managed to just stay above water, but his
• 7:20
  Speaker 1: restaurants in Japan are losing money and he had to
• 7:24
  Speaker 1: tap into company savings to keep paying his employees. So
• 7:29
  Speaker 1: why doesn't he just keep raising prices for his customers?
• 7:35
  Speaker 1: How does everyone is scared doing that in the US.
• 7:42
  Speaker 1: It's like people think crist sykes are inevitable because costs
• 7:45
  Speaker 1: are going up. But in our case here, we really
• 7:48
  Speaker 1: wonder what the customers will keep coming back if we
• 7:50
  Speaker 1: raise prices. Yoshi has she isn't alone many happenings. Companies
• 8:01
  Speaker 1: are very reluctant to pass on costs because of this
• 8:05
  Speaker 1: fear of losing customers not used to inflation. Two numbers
• 8:11
  Speaker 1: demonstrate how much they absolve. Nine point one percent is
• 8:16
  Speaker 1: a pace of rising material costs for companies, three point
• 8:21
  Speaker 1: six percent is a pace of inflation. Consumers see that
• 8:26
  Speaker 1: gap means squeeze the profit, and with less profit, companies
• 8:32
  Speaker 1: keep wayses front and if they're wases aren't going up,
• 8:36
  Speaker 1: people are less willing to accept higher prices. Japan has
• 8:42
  Speaker 1: been stuck in this vicious cycle for more than two decades.
• 8:47
  Speaker 1: As Bank of Japan Governor Harrohiko Crowder reminded us after
• 8:51
  Speaker 1: a recent media now which is effectively rising by around
• 8:57
  Speaker 1: three percent, we can't achieve our two percent inflation go
• 9:00
  Speaker 1: stably and sustainably. What you need, isn't it by sticking
• 9:06
  Speaker 1: with rock bottom interest rates while most of the world
• 9:10
  Speaker 1: is tightening. The Bank of Japan hopes finally to break
• 9:14
  Speaker 1: the cycle and the false wages up, even if it
• 9:18
  Speaker 1: means the yng falling and the Finance Ministry spending billions
• 9:24
  Speaker 1: of dallas propping it up, as they did this fall
• 9:28
  Speaker 1: fourth of first time in twenty four years. It's an
• 9:32
  Speaker 1: awkward combination, but the government and the central bank are
• 9:36
  Speaker 1: both hoping this can be the final chapter of the
• 9:39
  Speaker 1: country's decades long battle to raise inflation, but Japanese consumers
• 9:46
  Speaker 1: ready for a world where prices go up year after year.
• 9:51
  Speaker 1: I went to your Hashi Sushi restaurant in Chiba, seast
• 9:55
  Speaker 1: of Tokyo to test the move. Steph at the sushi
• 10:06
  Speaker 1: restaurant are getting ready for lunchtime. Restaurant manager recycle Inshida
• 10:13
  Speaker 1: comes back from the Toyosa market with boxes packed with
• 10:17
  Speaker 1: the fish gone for now. At the days of buying
• 10:21
  Speaker 1: road tuna to keep on budget, she buys it frozen. Now.
• 10:28
  Speaker 1: I really wonder how much longer we can go on
• 10:31
  Speaker 1: like this. I just don't see an end to how
• 10:33
  Speaker 1: your prices. We pushed up some prices on our menu
• 10:36
  Speaker 1: a bit, but we've already been hit by another rising coast.
• 10:41
  Speaker 1: That was the first price hike at the restaurant in
• 10:44
  Speaker 1: nearly six years. Nishida kept many of the items unchanged
• 10:50
  Speaker 1: out of fear of losing customers. It's lunch time now.
• 11:00
  Speaker 1: I meet no zoie Imori, a thirty eight year old
• 11:04
  Speaker 1: nurse who is sitting at the table with her parents.
• 11:07
  Speaker 1: You know they've just given up on the trip to Hawaii.
• 11:13
  Speaker 1: After calculating how much you would cost more because of
• 11:17
  Speaker 1: a cheapm they tell me they shop for household essentials
• 11:22
  Speaker 1: at the lowest prices, and they're only buy clothes when
• 11:26
  Speaker 1: it's on sale. Right. I think price hikes are inevitable,
• 11:31
  Speaker 1: but the problem is wages they aren't rising. As they
• 11:37
  Speaker 1: finished their meal, I asked them about the lunch price.
• 11:41
  Speaker 1: The price of the lunch special has been unchanged for years.
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  Speaker 1: Eight pieces of sushi, including fresh tuner and the steamed egg.
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  Speaker 1: It costs nine yen or six point five U S dollars.
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  Speaker 1: I know, I know it's a still for average tourists
• 12:03
  Speaker 1: from overseas, and they agree this is very cheap. Yes,
• 12:08
  Speaker 1: this is cheap. I asked them if they think the
• 12:13
  Speaker 1: price should be hired. That discount for customers means less
• 12:17
  Speaker 1: profit for the restaurant. Less profit means workers are not
• 12:22
  Speaker 1: getting away. I don't think it's too cheap. The cheaper
• 12:27
  Speaker 1: the price, the happier we are. Kroda will stepped down
• 12:34
  Speaker 1: from the central bank soon after ten years trying to
• 12:38
  Speaker 1: make inflation normal gain in Japan. If this restaurant is
• 12:43
  Speaker 1: anything to go by, his job is not quite downe
• 12:52
  Speaker 1: in Tokyo for Umberg News. I'm Yosha Ki. Yeah, m so,
• 13:10
  Speaker 1: Isabel Reynolds has been here in Tokyo covering the government
• 13:13
  Speaker 1: in the country for many, many years. About twenty you
• 13:16
  Speaker 1: were saying, and I wanted to briefly dig into how
• 13:20
  Speaker 1: all of this is feeding into Japanese politics and how
• 13:24
  Speaker 1: the hardening lines between the US and China are also
• 13:28
  Speaker 1: affecting Japan's strategic outlook and it's where it sees itself
• 13:32
  Speaker 1: in the region. Is abelt Assuming that quite a lot
• 13:36
  Speaker 1: of people listening to this podcast are not closely following
• 13:39
  Speaker 1: Japanese politics, just give us a quick introduction to Prime
• 13:43
  Speaker 1: Minister from your Kashida, who came into office just over
• 13:46
  Speaker 1: a year ago. Yes, well for me, for Kia came
• 13:50
  Speaker 1: into office as a bit of a perhaps a person
• 13:54
  Speaker 1: lacking in personality, I would saying he managed to win
• 13:57
  Speaker 1: the job as leader of the party despite being the
• 14:00
  Speaker 1: most popular option with the public. So he came in
• 14:03
  Speaker 1: with this kind of slightly devish image in terms of
• 14:07
  Speaker 1: of security policy um and on the economy. On the
• 14:11
  Speaker 1: other hand, his policies on COVID were very popular. He
• 14:15
  Speaker 1: was quite conservative on that and Japan's elderly population tended
• 14:19
  Speaker 1: to like that UM, But then all of a sudden,
• 14:22
  Speaker 1: his predecessor and former boss Prime ministerians Or Abbe was
• 14:25
  Speaker 1: shot dead. That unveiled a huge scandal about links between
• 14:30
  Speaker 1: a controversial church known as the Moonies and the LDPUM
• 14:35
  Speaker 1: and that totally underlined his support UM. So it's been
• 14:38
  Speaker 1: falling ever since, and and issues over inflation and rises
• 14:42
  Speaker 1: in the cost of living have certainly not helped well.
• 14:45
  Speaker 1: I was going to ask you about that looking at
• 14:46
  Speaker 1: his approval rating, which I think is what you'll tell
• 14:49
  Speaker 1: me is but it's pretty it's pretty low at the moment.
• 14:51
  Speaker 1: How is inflation affecting that, Yes, it's it's certainly among
• 14:55
  Speaker 1: the issues that are weighing on on his support it UM.
• 15:01
  Speaker 1: I think we can say that he's seen as someone
• 15:04
  Speaker 1: who's perhaps not very proactive in a lot of ways.
• 15:07
  Speaker 1: So that played into his advantage when it came to COVID.
• 15:10
  Speaker 1: He didn't rush to open up the borders and left
• 15:12
  Speaker 1: everyone in when people were still worried about the virus.
• 15:15
  Speaker 1: But when it comes to inflation, is he changing things enough?
• 15:19
  Speaker 1: Is he doing enough to help people? If you look
• 15:21
  Speaker 1: at the polls, I think a majority would say no,
• 15:24
  Speaker 1: and that's definitely one of the factors that's that's hurting him.
• 15:27
  Speaker 1: And one of the things that sort of happened while
• 15:28
  Speaker 1: I've been here in Tokyo is a is a confirmation
• 15:31
  Speaker 1: of a big increase in defense spending. What's the significance
• 15:36
  Speaker 1: of that, I mean obvious, Traditionally we do think of
• 15:38
  Speaker 1: Japan as being constitutionally limited in what kind of defense
• 15:44
  Speaker 1: build up it can do. But I see it's on
• 15:47
  Speaker 1: course to the story you've written, and on course to
• 15:49
  Speaker 1: spend more than Russia on defense, right, Yes, yes, I
• 15:52
  Speaker 1: mean this is in fact a huge turning point for
• 15:55
  Speaker 1: for Japan, and I think it's mainly inspired by Ukraine.
• 16:00
  Speaker 1: People in Japan looked at Ukraine and realized that they
• 16:03
  Speaker 1: could be sitting there perfectly quietly and someone else might
• 16:06
  Speaker 1: come and attack them. Until now, I think it had
• 16:08
  Speaker 1: been sort of assumed that if you didn't attack anyone else,
• 16:12
  Speaker 1: well they wouldn't probably wouldn't attack you either, um, but
• 16:15
  Speaker 1: that that mindset has definitely changed a lot. If you
• 16:18
  Speaker 1: look at the polls, people are in favor of more
• 16:20
  Speaker 1: defense spending, and obviously there are issues about how much
• 16:22
  Speaker 1: more you should spend, way you should get the money
• 16:24
  Speaker 1: for that. I mean, will Japan cut its huge pension
• 16:27
  Speaker 1: budget to put money into defense. That would not be
• 16:30
  Speaker 1: a very popular option, or raising in a country full
• 16:33
  Speaker 1: of many many pensioners exactly exactly, and raising taxes is
• 16:38
  Speaker 1: very unpopular as well. So there's still many questions over
• 16:41
  Speaker 1: whether that where the money comes from. But I think
• 16:44
  Speaker 1: Japan is actually reaching a historic turning point over defense,
• 16:48
  Speaker 1: and it's happening amazingly quietly. During the Prime Minister Abbey's administration,
• 16:53
  Speaker 1: we often saw huge demonstrations outside the Prime Minister's residents
• 16:57
  Speaker 1: over what he was doing in defense, which was which
• 16:59
  Speaker 1: pay else in comparison really in terms of size with
• 17:03
  Speaker 1: what Prime Minister Kishido is doing despite his soft image.
• 17:07
  Speaker 1: Of course, it was Prime Minister Abbe who had was
• 17:11
  Speaker 1: the part of a shift in Japan's approach and a
• 17:15
  Speaker 1: sort of a tougher stance of these of each China,
• 17:18
  Speaker 1: at least on the sort of strategic front. I mean,
• 17:20
  Speaker 1: I guess we have to. It's not they're not worried
• 17:22
  Speaker 1: about being invaded by Russia when they spend this money.
• 17:25
  Speaker 1: It's very much with with China and defense against China.
• 17:29
  Speaker 1: In mind, I saw that he did meet with President
• 17:32
  Speaker 1: Sieging being last month in Thailand. You know, how did
• 17:37
  Speaker 1: the summit go and how has all this fed into
• 17:40
  Speaker 1: its relations with China? Because China is still Japan's biggest
• 17:43
  Speaker 1: trading partner, even as we're talking about these massive increases
• 17:47
  Speaker 1: in defense spending, right, I mean, the relationship was still
• 17:50
  Speaker 1: phenomenally important in terms of the economy for both sides.
• 17:54
  Speaker 1: Um So that was was the first big meeting on
• 17:58
  Speaker 1: that scale for Japan and China now for three years,
• 18:01
  Speaker 1: um um we I think we see a very different
• 18:05
  Speaker 1: relationship between Japan and China now, um largely because of
• 18:10
  Speaker 1: Beijing's clampdown on Hong Kong. I think that was a
• 18:12
  Speaker 1: turning point for Japan where they started to realize that
• 18:16
  Speaker 1: that China was going to be more difficult to deal
• 18:19
  Speaker 1: with them they realized. Um So, we've seen a more
• 18:22
  Speaker 1: robust attitude from Japan towards China on many fronts since then.
• 18:27
  Speaker 1: On the other hand, I think they do not, certainly
• 18:30
  Speaker 1: not everybody. And then the administration kind of appreciates what
• 18:33
  Speaker 1: America is doing on Taiwan. Um. For example, the visit
• 18:37
  Speaker 1: by Nancy Pelosi EA to Taiwan did not go down
• 18:40
  Speaker 1: very well with everybody in Japan. UM. They don't like
• 18:43
  Speaker 1: UM what they might see as unnecessary provocations. So where
• 18:47
  Speaker 1: they can cooperate, they say they do want to and
• 18:50
  Speaker 1: they want to continue their economic ties as as much
• 18:52
  Speaker 1: as they can. UM. At the same time, we're saying
• 18:55
  Speaker 1: reports that this huge increase in defense spending, a lot
• 18:59
  Speaker 1: of it's going to be intercepting missiles down on the
• 19:01
  Speaker 1: Southwestern Islands, which are close to Taiwan UM, so they're
• 19:04
  Speaker 1: going to be trying to be ready for whatever might
• 19:06
  Speaker 1: be coming down the pike. The way you describe that,
• 19:10
  Speaker 1: there was a world in which sort of economics and
• 19:14
  Speaker 1: geopolitics could go on different tracks, and that was very
• 19:17
  Speaker 1: much a world that Japan lived in the last few decades,
• 19:22
  Speaker 1: China becoming a much more important economic partner, even as
• 19:26
  Speaker 1: the political stance was very much, you know, as an
• 19:28
  Speaker 1: ally of the US and in a defensive stance visa v. China.
• 19:34
  Speaker 1: I think President Biden would say, you can't have those
• 19:38
  Speaker 1: things running on separate tracks anymore. And we've seen policies
• 19:42
  Speaker 1: from the US, like the attempts to limit access to
• 19:45
  Speaker 1: the sort of cutting edge semiconductor technology which Japan is
• 19:48
  Speaker 1: kind of in the cross airs, and we talked about
• 19:51
  Speaker 1: that on a previous program with the Japanese Trade minister.
• 19:57
  Speaker 1: Do you think do you think that Japanese politicians to
• 20:01
  Speaker 1: Japanese people are ready for a world in which you
• 20:06
  Speaker 1: actually have to start picking sides, not just politically but
• 20:11
  Speaker 1: also economically. Or do they think you can somehow have
• 20:15
  Speaker 1: kind of parallel supply chains, you know that sort of
• 20:17
  Speaker 1: keep the US happy but also continue training with China.
• 20:20
  Speaker 1: How are people grappling with that? Um? Yeah, and I
• 20:23
  Speaker 1: think they will put it out at the last possible minute.
• 20:25
  Speaker 1: I mean, there may be ways that the US can
• 20:27
  Speaker 1: force them to do things that they don't really want
• 20:29
  Speaker 1: to do in terms of the economy. Um. But as
• 20:32
  Speaker 1: far as they possibly can, I think they are going
• 20:34
  Speaker 1: to continue with those things because as everyone knows there's
• 20:38
  Speaker 1: a risk of a recession next year, Brimnisua is not
• 20:41
  Speaker 1: going to want to do anything that will damage the
• 20:43
  Speaker 1: economy in any way. So I think, yeah, they will.
• 20:48
  Speaker 1: They will push as hard as they can to to
• 20:50
  Speaker 1: stay where they are. It's interesting that it's been so
• 20:53
  Speaker 1: quiet that he's managed to do this big thing on defense,
• 20:56
  Speaker 1: and it hasn't been as contentious as these rather more
• 20:58
  Speaker 1: modest steps at Prime Minister Abbert it Took. I just
• 21:02
  Speaker 1: wondered whether would it start being contentious if it seemed
• 21:06
  Speaker 1: if he if the Prime Minister was more explicitly saying,
• 21:11
  Speaker 1: you know, our relations with China have to change going forward.
• 21:16
  Speaker 1: My sense is that even though the public in Japan
• 21:19
  Speaker 1: and China both still feel I think, quite hostile toward
• 21:23
  Speaker 1: one another, um, I think the strength of the business
• 21:27
  Speaker 1: lobby in Japan is such that it's going to be
• 21:30
  Speaker 1: quite hard for for Kia to do that kind of thing.
• 21:33
  Speaker 1: And to be honest, it's not really his style to
• 21:36
  Speaker 1: go out and say something very aggressive, you know, if
• 21:39
  Speaker 1: he doesn't really have to. So I think if Japan
• 21:42
  Speaker 1: is pushed into a corner by the US, of course
• 21:44
  Speaker 1: it will go along because the US is always going
• 21:46
  Speaker 1: to be its most important partner. But as far as
• 21:50
  Speaker 1: it can, it wants to cling onto that strong relationship
• 21:52
  Speaker 1: in the economy with China. It's fascinating because exactly the
• 21:56
  Speaker 1: same conversation is happening in the US, where businesses are
• 21:59
  Speaker 1: all hoping and pushing and saying, we do what it's
• 22:05
  Speaker 1: not practical to decouple this global economy, and we don't
• 22:09
  Speaker 1: know what's going to happen, Isabel Reynolds, thank you so much. So.
• 22:19
  Speaker 1: Ko and Nakao was Japan's top currency official at the
• 22:22
  Speaker 1: Finance Ministry. Then he ran the Asian Development Bank until
• 22:27
  Speaker 1: he's now chair of the Mitsuho Research and Technologies Institute
• 22:31
  Speaker 1: and as one of the names floated to replace Governor
• 22:34
  Speaker 1: Coroda at the Bank of Japan. Nakasan we heard in
• 22:39
  Speaker 1: the piece that my colleague Yoshi did for the podcast.
• 22:44
  Speaker 1: You know, families are not enjoying a rise in the
• 22:47
  Speaker 1: cost of the things that they buy, but those rising
• 22:50
  Speaker 1: prices they do hold out the possibility that we might
• 22:53
  Speaker 1: be at the end of these years of battling deflation
• 22:57
  Speaker 1: in Japan and policy can possibly start to be more normal.
• 23:03
  Speaker 1: So I just wonder whether what do you think. Do
• 23:04
  Speaker 1: you think it's different this time? Do you think there
• 23:06
  Speaker 1: is an opportunity for Japan to break out of that cycle.
• 23:10
  Speaker 1: I'm not sure yet, but many people, including the b O,
• 23:15
  Speaker 1: j and politions and also scholars, have been saying that
• 23:18
  Speaker 1: we need some moderate inflation and to get out of
• 23:22
  Speaker 1: the deferition definition is really bad. So I understand the logic,
• 23:27
  Speaker 1: but this time this inflation is more by the important
• 23:33
  Speaker 1: inflation because of community prices and because of the depreciation.
• 23:38
  Speaker 1: So if infreation is based on the wage increase and
• 23:41
  Speaker 1: the more permanent move over prices, which are healthy, it's okay.
• 23:46
  Speaker 1: But this is a little bit more abrupt. And we've
• 23:50
  Speaker 1: seen the yen has obviously fallen very dramatically this year.
• 23:55
  Speaker 1: The UK we've had to fall in the power as well.
• 23:57
  Speaker 1: But I've seen some people say that fall in the
• 24:01
  Speaker 1: end will be fantastic for Japanese industry. That you could be,
• 24:06
  Speaker 1: it will be part of the rebirth of Japan as
• 24:09
  Speaker 1: an exporting nation. But I know others think it's deeply damaging.
• 24:12
  Speaker 1: So with which side were you on? I don't like
• 24:15
  Speaker 1: cheap n I don't like cheapen. The good everything is
• 24:17
  Speaker 1: cheap in Japan, which is making the income I said,
• 24:20
  Speaker 1: personally everything low. And these are the japan going back
• 24:24
  Speaker 1: to the developing countries. And it's not that it's not
• 24:27
  Speaker 1: a good thing for the Japanese life or Japanese presence,
• 24:31
  Speaker 1: Japanese life, Japanese life, Japanese presents and whatever. I don't
• 24:38
  Speaker 1: like the cheap cheap in Japan. It's not good for
• 24:41
  Speaker 1: the Japanese economy. For several reasons. Once again, the imported
• 24:45
  Speaker 1: prices will or up and uh, the competitiveness gained by
• 24:51
  Speaker 1: the cheap being is not necessarily healthy and good for
• 24:55
  Speaker 1: the economy. And in addition, as the secrator rule being
• 24:58
  Speaker 1: you worked for him yea being mentioned through curlerency, it's
• 25:05
  Speaker 1: good before the economy because of the effort to gain
• 25:09
  Speaker 1: compete compete giveness through the more real things, and also
• 25:14
  Speaker 1: for financial industry to have a stable and a kind
• 25:18
  Speaker 1: of stronger courlerency is much better than the weakening. That
• 25:22
  Speaker 1: was the view of the Germans for many years, that
• 25:24
  Speaker 1: it's a constraint that makes you efficient because you can't
• 25:27
  Speaker 1: just rely on being cheaper. I'm afraid the UK is
• 25:30
  Speaker 1: not set on that part, but we will see. And
• 25:33
  Speaker 1: the Bank of Japan faced very early in trying to
• 25:36
  Speaker 1: deal with the problem of the risk of deflation, the
• 25:40
  Speaker 1: problem that interest rates could not fall below the zero
• 25:44
  Speaker 1: and obviously lots of other central banks have had to
• 25:46
  Speaker 1: deal with that in the global financial crisis, but now
• 25:50
  Speaker 1: Japan is the last one standing. Everybody else has been
• 25:53
  Speaker 1: raising interest rates. That the Bank of Japan still has
• 25:56
  Speaker 1: this quite extreme version of um not just stative easy
• 26:00
  Speaker 1: buying bonds, but also buying other assets, but also promising
• 26:06
  Speaker 1: to control long term interest rates, the so called yield
• 26:10
  Speaker 1: curve control. How on earth are you going to get
• 26:12
  Speaker 1: out of it? Do you think? Yeah, I think it's
• 26:14
  Speaker 1: very difficult to tell them. The build that can change
• 26:17
  Speaker 1: the policy in thestitution in Japanese are different from other countries.
• 26:22
  Speaker 1: And in addition, even in these conditions because of imported
• 26:26
  Speaker 1: the prices and also the commodity prices high, Japan's price
• 26:33
  Speaker 1: CPI right is still more moderate than others. It is
• 26:37
  Speaker 1: very clear that the wages are not that so much
• 26:41
  Speaker 1: increasing at this moment. The America has faced with the
• 26:46
  Speaker 1: very high increasing ages but because of the exit from
• 26:51
  Speaker 1: a pandemic and also because of a great resignation kind
• 26:57
  Speaker 1: of phenomena. But the in Japan is not the happening.
• 26:59
  Speaker 1: So lestitution is different. But uh, it is becoming more
• 27:04
  Speaker 1: clear clearer that the bog policies of irritical control. As
• 27:09
  Speaker 1: you mentioned, the quotitative is massive one including some risk
• 27:13
  Speaker 1: as set like a reed or real estate. These combinations
• 27:19
  Speaker 1: have more career clearly have a more side effect which
• 27:24
  Speaker 1: is bad, including as if the government can issue government
• 27:29
  Speaker 1: bond that very low cost to almost their cost, so
• 27:35
  Speaker 1: it's uh damaging that the discipline of our piscal policies
• 27:40
  Speaker 1: and also the spread for the intermediately banks is very small,
• 27:46
  Speaker 1: which makes the bank activity more conservative or less active.
• 27:51
  Speaker 1: And also in addition, Exchenerate is often influenced by the
• 27:58
  Speaker 1: easy matter policy. So it is becoming clear that the
• 28:02
  Speaker 1: applies have some side effects. As I said. One of
• 28:05
  Speaker 1: the side effects, as you said, is that the Bank
• 28:07
  Speaker 1: of Japan is very involved in the government bond market
• 28:10
  Speaker 1: in a way, in a way there is no government
• 28:12
  Speaker 1: bondmarket because it's bought all of the government. But also
• 28:16
  Speaker 1: in buying the government bonds, you're making it very cheap
• 28:18
  Speaker 1: all the time for the government to spend. What are
• 28:23
  Speaker 1: the what are the risks of that? As you say
• 28:25
  Speaker 1: that you've you've allowed the government to get used to
• 28:28
  Speaker 1: spending and spending and spending. That's right. So yeah, I
• 28:31
  Speaker 1: already mentioned that discipline is lost by this policy, and
• 28:35
  Speaker 1: some people might say that the government that can't spend
• 28:39
  Speaker 1: more because interst rates is law and the efficial radios law,
• 28:43
  Speaker 1: but we still need some disciplines or government spending because
• 28:48
  Speaker 1: the Japan's debt to GDP ration is already two hundred
• 28:52
  Speaker 1: sixty per cent or GDP much higher, maybe double UH
• 28:57
  Speaker 1: of the United States. So in the end, the if
• 29:02
  Speaker 1: we continued to have a high increasing debt to debratial,
• 29:07
  Speaker 1: people start worrying about the incredibility or the repairment or
• 29:11
  Speaker 1: government bond. If they can be fined refinanced all the time,
• 29:15
  Speaker 1: it's okay. But if we continue to have these ex
• 29:19
  Speaker 1: explosions of our debt depracial maybe it is not a
• 29:23
  Speaker 1: recent British case. I was going to ask you about that.
• 29:27
  Speaker 1: So when you see Britain getting into a mess with
• 29:30
  Speaker 1: the basically with the market's reassessing the riskiness of government
• 29:37
  Speaker 1: debt in the UK and real problems in the long
• 29:43
  Speaker 1: term in the market for long term government debt government
• 29:47
  Speaker 1: I have used is that? Does that give you pause?
• 29:50
  Speaker 1: Are you worried about something similar happening in Japan? I
• 29:53
  Speaker 1: think it happen in the future because of our home
• 29:58
  Speaker 1: very strong home country by US over Japanese investors. They
• 30:02
  Speaker 1: still continute to investing in the Japanese government bond. But
• 30:06
  Speaker 1: also because bulj is always UH buying the thing as
• 30:11
  Speaker 1: a bond of Japan. So in a sense, price kind
• 30:16
  Speaker 1: of signal is not really working in Japan, and it's
• 30:20
  Speaker 1: a really bad forul characteristic country or develop a common
• 30:24
  Speaker 1: country like Japan to lose the market functions of market
• 30:29
  Speaker 1: signal thing. So in the regard again there are so
• 30:32
  Speaker 1: many side effects. So but if the build changes it
• 30:36
  Speaker 1: there can be abrupt increasing or interest rate and it
• 30:40
  Speaker 1: can be uh, it can be uh transmitted to the
• 30:46
  Speaker 1: long interest rate of the housing. And also government financing
• 30:51
  Speaker 1: becomes more difficult because the refinancing go to go up,
• 30:56
  Speaker 1: so it can invite it really invite the shock to
• 31:00
  Speaker 1: the market the many ways. If the y cc IS
• 31:05
  Speaker 1: is abolished, but we need some adjustment even gradually in
• 31:10
  Speaker 1: coming years, otherwise there will be even bigger shock, a blunder.
• 31:15
  Speaker 1: H A lot of people in the markets act as
• 31:19
  Speaker 1: if it's very urgent, but it sounds like and certainly
• 31:22
  Speaker 1: we were talking to people at the bg A yesterday,
• 31:24
  Speaker 1: there's a feeling that it's not urgent. Yeah, because the
• 31:27
  Speaker 1: once again c p A is a still infition, is
• 31:32
  Speaker 1: still low, and also it is not really induced and
• 31:36
  Speaker 1: so at least from the perspective of video people, there
• 31:41
  Speaker 1: is a japanistiation is still different. So that's why the
• 31:45
  Speaker 1: policy mix can be different. As your final question, which
• 31:48
  Speaker 1: was thinking back, actually to that very memorable meeting. We
• 31:51
  Speaker 1: were asked a well bank in the autumn of in
• 31:56
  Speaker 1: Hong Kong, just as the age of financial crisis was
• 31:58
  Speaker 1: about to kick off. You know, that was the beginning
• 32:02
  Speaker 1: of an era where we saw much closer economic integration
• 32:06
  Speaker 1: with China and across the region, and a sort of
• 32:11
  Speaker 1: strengthening of the belief that you could have economics and
• 32:14
  Speaker 1: politics run on different tracks. You could have big political differences,
• 32:19
  Speaker 1: but you could still continue to integrate. The world looks
• 32:22
  Speaker 1: pretty different today. China also looks much stronger relative to
• 32:27
  Speaker 1: Japan as a regional power, and we see the Japanese
• 32:31
  Speaker 1: government increasing defense spending. I just wondered how you see
• 32:38
  Speaker 1: Japan's economy and its future in a world where the
• 32:43
  Speaker 1: US is forcing you to drive harder lines with between
• 32:48
  Speaker 1: the US and China and almost have a sort of
• 32:52
  Speaker 1: decoupling of the global economy. It's so one of the
• 32:56
  Speaker 1: most important issue of geopolitics, and also do economy or
• 33:01
  Speaker 1: economic discussions. Of course, the delusion vgent tre cran is
• 33:06
  Speaker 1: a very big phenomenon, but more a kind of the
• 33:11
  Speaker 1: historical trend is that the China has become a very
• 33:14
  Speaker 1: big economy and a very big technology center with the world.
• 33:19
  Speaker 1: It's not anymore based in the lower wages, and it
• 33:24
  Speaker 1: is become more assertive. So as you mentioned, when there
• 33:28
  Speaker 1: were Asian financial crissis and other issues in ninety nineties,
• 33:33
  Speaker 1: China's presence was much smaller. In ninety ninety. For instance, UH,
• 33:39
  Speaker 1: China's GDP in Dalla Touns was the one if about
• 33:43
  Speaker 1: in nineteen ninety, but today it is three times as
• 33:47
  Speaker 1: much or even bigger. Very I wouldn't say negligible, but
• 33:54
  Speaker 1: it was not a big player. But after as you said,
• 33:58
  Speaker 1: the Asian financial crissis the world, I realized that many
• 34:02
  Speaker 1: imagine e commies are not necessarily China alone, but the Indonesia, Thailand,
• 34:07
  Speaker 1: this country, Latin America, those are becoming important to players
• 34:11
  Speaker 1: in the world. So G twenty was established a finance
• 34:16
  Speaker 1: mistrel meetings of Central and governors meetings, and then it
• 34:20
  Speaker 1: became a submitting after the Demo crisis, and China became
• 34:25
  Speaker 1: a huge, huge economy, industrial and technological, financial in many
• 34:33
  Speaker 1: respect to China is a very big economies. So I
• 34:36
  Speaker 1: hope that the China will also become more moderate about
• 34:41
  Speaker 1: their assertations about territorial issues, domestic issues. UH they can
• 34:47
  Speaker 1: continue to be very big economy and big presence in
• 34:51
  Speaker 1: the world without assertation, without saying that the China is great.
• 34:56
  Speaker 1: China is already great economy. Chinese people still about kind
• 35:00
  Speaker 1: of resentment from the period of from the experiences of
• 35:05
  Speaker 1: the developed countries uh aggression to China, including open moll
• 35:13
  Speaker 1: and Japanese agression to China. But China is already respected
• 35:20
  Speaker 1: and the great economy. And even if they continue to
• 35:23
  Speaker 1: pass the moderate pass, even for the political system is different.
• 35:27
  Speaker 1: If they continue to pass moderate stands in many ways
• 35:32
  Speaker 1: about the diplomacy and about the domestical affairs. I don't
• 35:37
  Speaker 1: think other countries tried to repress China, but because of
• 35:42
  Speaker 1: that kind of I would say provocation. They used to
• 35:45
  Speaker 1: already regards the China as a great computer, great kind
• 35:49
  Speaker 1: of the country which can be which should be checked.
• 35:56
  Speaker 1: So it has already started. But I hope that we
• 36:00
  Speaker 1: have a more moderate stable I mean becoming after the
• 36:06
  Speaker 1: corpse of the Soviet system, we have had a kind
• 36:09
  Speaker 1: of a reasonable favorable international condition which made a huge
• 36:15
  Speaker 1: contribution to the welfare of the people. Although we now
• 36:19
  Speaker 1: face a difficulty climate change, also social divide or income divide.
• 36:24
  Speaker 1: We should tackle those issues. But overall, the favorable, more
• 36:30
  Speaker 1: peaceful liberal international system has made a huge contributions and
• 36:36
  Speaker 1: we should make every effort to keep it. And some
• 36:39
  Speaker 1: of the people who have been forced to change their
• 36:40
  Speaker 1: mind about China in the US would say that we
• 36:43
  Speaker 1: have failed many years hope that China would behave in
• 36:46
  Speaker 1: a certain way, but that can't be your policies to hope.
• 36:50
  Speaker 1: So I just wanted do you think it's risky for
• 36:53
  Speaker 1: for Japan economically to continue to believe in this new
• 36:59
  Speaker 1: world that you can be best friends with the US
• 37:02
  Speaker 1: politically but very closely related to China economically. But there
• 37:07
  Speaker 1: is no other choice, and I Japanese people should continue
• 37:11
  Speaker 1: to or there is no other choice but to believe,
• 37:15
  Speaker 1: but continue to believe that the China will be important
• 37:19
  Speaker 1: commun partners. And also the religion with the United States,
• 37:25
  Speaker 1: say in the security affairs is a crucial and alliance
• 37:30
  Speaker 1: with the United States in the Italy and the alliance
• 37:33
  Speaker 1: is a key to the Japanese stability and also it
• 37:36
  Speaker 1: is important element of a stability in Asia. If a
• 37:41
  Speaker 1: Japan starts that we amming Japan falsly, I think it
• 37:46
  Speaker 1: would be it would distablished the situation in Asia, so
• 37:51
  Speaker 1: there is no other choice. But at the same time,
• 37:54
  Speaker 1: we cannot have a very continue to have a big
• 37:57
  Speaker 1: optimistic view about China, as you said, so certain deterrence
• 38:02
  Speaker 1: in the security issues is important and sound adjustment to
• 38:06
  Speaker 1: the kind of hyper gloverization where people don't think about
• 38:12
  Speaker 1: the co execurities or interior heirs. And so we cannot
• 38:16
  Speaker 1: continue to have a hyper gloverization without any thinking about
• 38:20
  Speaker 1: this issue. We should adjust glorganization, but we cannot totally
• 38:27
  Speaker 1: abandoned that the kind of exchange it would with them,
• 38:30
  Speaker 1: the services within countries. I don't think that the US
• 38:34
  Speaker 1: totally be disengaged from the Chinese. Well, American business would
• 38:39
  Speaker 1: say that they can't. They gone too far already. But
• 38:43
  Speaker 1: just if you were pushed on it by the US,
• 38:45
  Speaker 1: do you think Japan would agree to limit, for example,
• 38:49
  Speaker 1: the semi conductor I think at this moment it is
• 38:54
  Speaker 1: good that way, so flable agree with the President Biden's
• 39:00
  Speaker 1: restrictions on semi conductor technology. It's a very difficult issue,
• 39:06
  Speaker 1: but you don't have to make the decisions. But I
• 39:09
  Speaker 1: think there can be some nuance of Japanese government which
• 39:14
  Speaker 1: can be a little bit different from that of the
• 39:16
  Speaker 1: United States. It's very difficult to explain, but the Japanese
• 39:21
  Speaker 1: history with the China is very long. To the students,
• 39:24
  Speaker 1: the Japanese students, we have to learn everything of Chinese dynasties,
• 39:29
  Speaker 1: are poem, poets, and history and the philosophers. We know
• 39:33
  Speaker 1: so many things. And Japan was so influenced by the
• 39:36
  Speaker 1: Chinese civilization. But after major restrictions, Chinese also learned a
• 39:41
  Speaker 1: lot from Japan. The Chinese word of communist, for instance,
• 39:47
  Speaker 1: is the Japanese translations of communists. So we we we
• 39:51
  Speaker 1: know each other much more than between China and the
• 39:55
  Speaker 1: United States. So I hope that the new US all
• 40:00
  Speaker 1: but difference the new US UH compared tones to reach
• 40:05
  Speaker 1: the difficult. It sounds like the British expression of you
• 40:12
  Speaker 1: want to have your cake and eat it, but maybe
• 40:15
  Speaker 1: you maybe you will achieve that. Thank you very much.
• 40:27
  Speaker 1: That's it for the Japanification of Stephanomics. Will be back
• 40:31
  Speaker 1: with something else next week. In the meantime, do rate
• 40:33
  Speaker 1: the show if you like it, and find more news
• 40:35
  Speaker 1: and analysis of Japan and the world on the Bloomberg
• 40:39
  Speaker 1: Terminal app and website. Also look at at economics on Twitter.
• 40:44
  Speaker 1: I should also say there was a grave injustice in
• 40:47
  Speaker 1: last week's credit Some very important people got left out
• 40:50
  Speaker 1: and that piece about the secondhand clothing that was co
• 40:53
  Speaker 1: reported by Ecodonto and Jani Pandia. Sorry. This episode was
• 41:00
  Speaker 1: produced by Yang Yang with help from Paul Jackson. Special
• 41:03
  Speaker 1: thanks to Yoshia Kahara, Takehito Nakao go on A, Mitso,
• 41:08
  Speaker 1: Ryotaro Nakamaru, Erika Yoka, Yama, Keiko Wiki, and Isabel Reynolds.
• 41:15
  Speaker 1: Mike Sasso is the executive producer of Stephanomics.