”They say miracles are past; and we have our— William Shakespeare
philosophical persons, to make modern and familiar,
things supernatural and causeless. Hence is it that
we make trifles of terrors, ensconcing ourselves
into seeming knowledge, when we should submit
ourselves to an unknown fear.”
The Japanese economy is built different.
As of May 19, the inflation rate year over year over there was 3.5%. Compare that number to the American inflation rate of 4.05% in May, 4.93% in April month and 8.58% last year.
Fellow G7 members also can’t compare to Japan’s low inflation standards:
You’d think, by the current logic of the Powell Fed, that Japan’s low inflation means they have kept consistently high interest rates.
In fact, Japan has a history of negative interest rates for the last three decades—and still sees incredibly low inflation compared to the rest of the world.
Their unique economic conundrum—so different from the one the American experiment faces—is demographic primarily.
For one, we know that Japanese consumers (and companies) are “persistent savers.” Their approach to saving has been commodified for Western minds in books on “the Kakeibo method,” a Japanese budgeting system that teaches you how to manually track your spending through journaling and other reflective practices to help reign in your own spending.
Kakeibo is, let’s just say, different from your average American, “let’s take out a loan, buy a boat and dock in Oahu for the summer” mentality.
In Japan more than one in four people are 65 or over. That is 28.7% of the population, making up 36.17 million—nearly the entire population of Poland!
That’s a sizable chunk of sushi eaters.
Remember Japan’s “Economic Miracle” during the 1980s?
In short, after a record period of economic growth after the Second World War, Japan rapidly became the world’s second-largest economy. But population growth began to stagnate. The workforce ceased to expand. By the 1990s, the Japanese economy had hit a wall.
Shinzo Abe, the former prime minister of Japan, attempted to counter Japan’s economic stagnation with “Abenomics”—a monetary policy hinged on a super easy central bank, and a financial mechanism known as the “window guidance.”
As economist Paul Krugman explained: “Japan’s banks lent more, with less regard for quality of the borrower, than anyone else’s. In doing so they helped inflate the bubble economy to grotesque proportions.”
Shinzo Abe was assassinated on July 8, 2022 while speaking at a political event outside Yamato-Saidaiji Station in Nara City, Japan. There is yet more to learn from his economic specter; low interest rates continue to be the Japanese monetary policy of choice.
Fast forward to today’s “economic miracle”… Mr. Haruhiko Kuroda, 31st Governor of the Bank of Japan, said that “under the current economic conditions, it’s appropriate to continue monetary easing.”
“In order to bring inflation in Japan down,” adds Stefan Angrick, a senior economist at Moody’s Analytics in Japan, “you would have to slow demand rather sharply, and that’s tricky because demand was already sort of weak [in Japan] relative to other economies.”
The Bank of Japan’s monetary policy contrasts sharply with that of the European Central Bank, which raised borrowing costs to a 22-year high on Thursday.
World-wide inflation is not an issue for the Bank of Japan. In fact, they want good inflation—the kind created by lively consumer demand, not stimulative monetary policy—and as of this week, they have shown they are committed to achieving it.
Follow your bliss,
The Wiggin Sessions
P.S. Persistently low interest rates in Japan present a unique opportunity known as the “carry trade”. We saw this in the mid-2000s, too. You can borrow for next to nothing in Japanese Yen, then deposit it in the money market of your choice in the US, UK or Europe and immediately pocket 5-6% for your troubles.
Addison Wiggin is an American writer, publisher, and filmmaker. He was the founder of Agora Financial and publisher for 18 years. An acclaimed New York Times best-selling author, his books include: Financial Reckoning Day, Empire of Debt, The Demise of the Dollar, and The Little Book of the Shrinking Dollar. Addison is also the writer and executive producer of the documentary I.O.U.S.A., an exposé on the national debt, shortlisted for an Academy Award in 2008. He lives in Baltimore, Maryland with his family. Addison started his latest project, The Wiggin Sessions, powered by Consilience Financial, in March 2020. He films from a homegrown studio in his basement.