Yeah. I’ not a scholar on the issue, but I don’t think Japan has much of a history of popular revolt. Whereas any Chinese Government fears that more than anything, it seems that apart from the Shimabara rebellion back in the 1600s where more than 30.000 rebels were ultimately beheaded, Japan’s various rulers haven’t had those kinds of problems all that much. When they have, rebellions as far as I know have ultimately been ruthlessly crushed.

“Growth in Japan isn’t spectacular but people are comfortable and there doesn’t seem to be any popular pressure to rock the boat.”

I think that is only half true, which is an essential part of my saying that the ‘depression’ is a designed one. There’s certainly many with reason to be comfortable, but I was there for research last month. There’s tremendous popular discomfort in Japan today while the elites and upper middle class are raking it in.
One measure is the rash of suicides brought on by debt and the seniors inability to pay for medical services.

http://www.hindu.com/2008/06/21/stories/2008062156562000.htm

“As far as why no one gets upset in the West, I think it has to do with the fact that no one influential gets hurt by Japan’s current policies.”

In the short term, no. Indeed as I said rather than being hurt, they are making a killing. But there will be a time where the carry trade stops for good, and then there’ll be bills (or hell) to pay.

Both US and China have populations that are very nationalistic and very competitive and any government that allowed the economy to stagnant in the way that Japan’s has would have been removed from power long ago.

As far as why no one gets upset in the West, I think it has to do with the fact that no one influential gets hurt by Japan’s current policies.

You can only mention “growth runs into a wall”, if you seriously believe that Japans policies are actually geared towards enabling growth among its middle class. I don’t believe that anymore than I believe Bush’s tax cuts favors Joe Average over Joe Billionarire III. You cannot have sustained growth if you take away domestic consumption entirely.

When there’s a massive trade surplus, massive corporate profits for five-six years straight yet still declining real wages, massive manipulation of inflation stats to legitimize near zero interest rates and a perpetually weak yen, then something is quite obviously off. With all this the Japanese middle class population is getting progressively less able to spend on anything , least of all imports from the US or Europe.
Look at Japanese import/export ratios to the US and Europe! It is much, much, much more onesided than China’s, and in Japan’s case it isn’t predominantly low-tech goods where US (and international) companies eventually get alot of the profit. It’s cars and high tech value added products that directly outrivals US (and European) manufacturers.

It is a deliberate distortion of trade as well as the overall state of the Japanese economy. It benefits all the conglomerates and families who have run Japan for ages. Not its general population.

Japan is a lean, efficient, productive hi-tech machine and the biggest creditor nation on the planet.

The only explanation that noone wants to tackle this monstrousity of an imbalance machine (as the carry trade and 0,5 percent interest is) is that too many with too much influence is making too much of a killing off of it.

China on the other hand refuses to play that kind of ball, and that is why they make agreements that forces Japan to buy products from them as well as make technology transfers. We in the West are just a wee bit more stuuuuupid, it seems.

I suspect Paulson has focused far more on opening up Chinese financial sector to US/ european investment than on the great power stuff, but otherwise agree.

all — JPY appreciation keeps running into a wall when Japanese growth stops. i would hope tho that the volatility in the yen dollar over the last year has reduced the size of the time bomb.

Sharp mind wrote: “It isn’t clear that interest rates are very out of line either given the growth and inflation dynamics.”

Not if you actually believe the Japanese inflation figures ofcourse…. but you shouldn’t. Not anymore than you should consider the US figures a fair representation. BoJ even argues that the increasing energy and food prices have not caused more inflation in Japan. How would that be possible when they are major net importers?
Japan owns three and half times as many US bonds as China does. The mechanism we know. Keep you own currency down while enabling the US to spend. Why would that work different from what we see from China? Contrary to China, they do their damnest to keep rates at an ahistoric minimum, well below the real rate of inflation to insure that the yen stays down.
When yen drops, Nikkei shoots upwards, companies make profits and despite these profits they point to the low domestic growth as a sign of an ongoing depression, slashing wages and cutting down the middle class spending power, just as the Japanese government cuts social services. The population is aging, sure, but it goes way beyond that.
It is a designed ‘repression’ that affords the financial and industrial elite in Japan bigger corporate profits than they ever had in the booming 70s-80s. You need not be a conspiracy theorist to put two and two together if everyone at the top is raking it in at a time of ‘crisis’.

Reason that noone wants to do anything is because our Western banking establishment and financial elites are far too happy making free money and getting the tools to hyper leverage crap investments through the carry trade. Its why Twofish is absolutely correct in saying “time bomb”.

As much as the US has quite a few things to sort out back home, as much as China can contribute to realigning world finances etc. etc. there’s no solution without looking at Japan also, IMO.

I would think that it should work the other way.

China, as a young developing nation, needs to run large current account surpluses in order to save money in other nations with higher productivity. Japan is an old developed nation and needs to run large current account deficits to pull in money to pay for an aging population.

I worry a lot about the yen carry trade. Whenever I think about the yen carry trade, the words “ticking time bomb” come to mind.

Beijing, while grudgingly increasing appreciation, clearly showed that this was the case, both in words and in action, after the G8 meeting last July where everyone ganged up on them, and their “LOOK at Japan!” pleas were completely ignored. http://quotes.ino.com/chart/?s=FOREX_USDJPY&v=dmax

It is no coincidence that real RMB appreciation has stopped simultaniously with with yen dropping again.