At times I think China's communist government is admirable because it always puts nation's interest before anything else. For one thing, it has been firmly refusing to unpeg its currency from the U.S. dollar despite the mounting pressure
from the West. By contrast, it once again proved to be a piece of cake
for the American government and the Federal Reserve Board to coerce their
Japanese counterparts into playing along with this "swim together and sink
On December 16, the FRB headed by Ben S. Bernanke took a big step to lower its benchmark interest rates applicable to the interbank federal funds to near-zero levels. Japan's monetary authorities instantly became paralyzed and chose not to react swiftly. Actually Japan has implemented the zero-interest monetary policy since 1998. By now it has exhausted all the economic steroids it could avail itself of. So the only workable countermeasure the Bank of Japan could have taken against Bernanke's assault was to go for a negative interest strategy.
But all that Japan's central bank could actually do was to lower its key interest rate a couple of notches from 0.3% to 0.1% after 3-day-long hesitation and deliberation. The delayed action certainly indicated that the government and the BOJ had had difficulty pursuing the Japanese interest while currying favor with the American policymakers whose primary concern is the failing auto industry there. The Japanese will never ever understand that there's no such thing as a sustainable win-win situation in this world. As a result, the value of the Japanese yen, which shot up to a 13-year-high of upper 87s against the green back, still stays in the range of 89-90 yen over the weekend.
Japan's economy has been increasingly depending on exports for its recovery from the post-bubble doldrums. Now its exports account for 16% of nominal GDP, where the U.S. and China top the list of the importers of Japanese goods and services. Given BOJ's indecisiveness and weak-kneed response to the drastic move on the part of the FRB, it is little consolation for major Japanese companies that China's economy is more export-driven.
Take Toyota for example to figure out more specifically the magnitude of the implications
of the yen's appreciation. Like any other Japanese corporations
doing business overseas, the auto maker has used an unrealistically optimistic
assumption for the exchange rate for budget and pricing purposes. Some
say the self-styled professional economists Toyota retains have recommended
something like a 100-yen-a-dollar rate. Now the company is saying that
1-yen depreciation in the value of the U.S. currency will translate into
a loss of 40 billion yen, or $440-450 million, at the pretax level.
Now in the face of the real crisis "caused by the U.S." the entire country is panicking. Among other groups of people being seriously affected, a good part of the 2.3 million contract personnel have now started screeching for help because they are on the verge of losing overnight their jobs and housings arranged by temp-dispatching agencies at the same time. Up until recently, these temps were saying they have chosen a free and independent way of life at the cost of job security. But now they are waving red flags as their parents and grandparents did decades ago, as if they have taken for granted all along that lifetime employment is an entitlement.
The media and the general population here are showing great compassion for the hardest-hit people. Nobody (but me) finds their protests disgusting and dares to say, "Who cares if they have to join the growing number of people called 'internet cafe refugees' or simply go homeless?" For my part, much less do I feel sorry about regular employees of these corporations for their plight. This is all the more true with the regulars being laid off by Toyota because the auto maker is one of the few Japanese companies which have constantly reengineered their processes from R & D, to manufacturing, to sales and administration. I'm sure that having left the legacy of lifetime employment behind a long time ago, Toyota is now cutting thousands of jobs as the last resort. There's no other way out of the crisis.
On the flip side of the deepening crisis, though, there is at least one good news: now the truth about Japan's "population pinch" has revealed itself. Up until recently, Japan's media and the general public always attributed nation's loss of vigor to the dwindling population. But now it's dawning on them that all this fuss over the shrinkage of population was yet another red herring and that this country is too over-populated to be short-handed. The overall quality of people always outweighs the headcount, as this blogger has maintained in the last 4-plus years.