Has Chinese Currency Manipulation Succeeded in Breaking Japanese Manufacturers?

Tonight’s Financial Times has a eye-popping story, that the survival of Sharp, one of Japan’s top consumer products manufacturers, is in doubt:

Sharp has admitted there is “material doubt” about its ability to stay in business as it warned of a second year of record losses, deepening the gloom surrounding Japan’s once dominant consumer electronics industry…

The warning came a day after Panasonic stunned investors by projecting a second consecutive $10bn loss. Panasonic’s share price dropped a further 19 per cent on Thursday.

Sharp and Panasonic, along with Sony, are the most consumer-focused of Japan’s large technology companies. All three have suffered as prices for flatscreen televisions and other household items plunged globally.

A strong yen and competition from lower-cost manufacturers elsewhere in Asia have turned the products that once underpinned their success into financial millstones. Last year, the three groups suffered a combined net loss of Y1.6tn – a figure that Sharp and Panasonic will come close to matching between them this year.

The story correctly notes that an immediate cause of Sharp’s problems are botched investments in liquid crystal display manufacture. But a big, arguably the biggest, part of the story, is how long the yen has remained in nosebleed territory. Most observers thought a yen above 90 would be catastrophic for Japanese exporters, even allowing for the fact that they have moved a lot of production to lower-cost centers elsewhere in Asia. And the yen maintained that price from the crisis onward, and more recently has sustained the astonishing level of above 80 even in the face of intervention by the Bank of Japan. And there’s a reason for that. China has been buying yen, forcing Japan to buy dollars to keep the yen from going even higher. In other words, China has been accumulating yen and shifting the “dollar manipulation” onto Japan. The common view, that China is the largest foreign buyer of US Treasuries, is dated. In 2012 to date, Japan has purchased more, and its dollar reserves nearly equal China’s.

This post from Tim Duy in 2010, “Yen Intervention, or Why Japan is Now Carrying China’s Water,” lays out how this worked:

Now, suppose Japanese officials believe that intervention is required regardless of the G-20. Presumably, they will give US Treasury Secretary Timothy Geithner a phone call to at least keep him in the loop, if not to receive his implicit consent. One wonders if Geithner will recognize what he would be consenting to: Japanese intervention, if it occurs, means that Chinese authorities managed to get Japan to acquire their Dollar reserves for them. Instead of buying Dollars, China buys Yen, which in turn induce Japan to buy Dollars. This maintains the artificial capital flows to the US while allowing China to escape accusations of being a “currency manipulator.”

Since then, Japan’s currency challenge only intensified, culminating in last week’s almost comical complaint from Japanese policymakers:

Japan’s government said it will seek discussions with China over the nation’s record purchases of Japanese bonds as an appreciating yen threatens to undermine an economic recovery.

Japan is closely watching the transactions and will seek to maintain close contact with Chinese authorities on the issue, Vice Finance Minister Naoki Minezaki told lawmakers in Tokyo. Finance Minister Yoshihiko Noda suggested at the same hearing that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.

Did policymakers recognize the irony of their situation? It is not exactly a secret that Japan has made frequents excursions into the currency markets. But apparently they feel that intervention should be limited to Dollar purchases. Surely another Asian nation wouldn’t play the same game on them?

Alas, the Chinese did – under pressure to “loosen” the renminbi – and pushed the Japanese into intervening last night to tame the surging Yen. In effect, the Chinese managed to get the Japanese to do their Dollar buying for them. Honestly, I have a hard time faulting the Japanese. They are facing a serious deflation problem, and pumping Yen into the system is an appropriate response (all though, they might simply sterilize the intervention, which would be, in my opinion, a policy error).

Note that this post was written shortly after China announced that it was moving to more “market based” rates, which pretty much everyone (save yours truly) thought was a Big Deal, and in the next few months, indeed proved to mean far less in the near term than breathless commentators had thought (all you needed to do was read how the new basket mechanism worked, it was really not hard to foresee this outcome). China had announced this change shortly before Geithner looked likely to designate China a currency manipulator, which served to buy more time. Duy continues by speculating whether Geithner was fooled by this subsequent move (of directing its currency manipulation through the yen) or playing along:

So, Geithner finally realizes the extent of the Chinese nonevent. Recall the press fanfare that accompanied the initial Chinese currency announcement – journalists falling all over themselves to speak brightly of China’s economic maturation. How many of those stories were sourced by Treasury officials crowing about the breakthrough that allowed them to avoid labeling China a currency manipulator? And where does this leave Geithner? Either complicit in trumping up the most minor of policy adjustments, or completely sucker punched by his Chinese counterparts. Honestly, I don’t know which is worse.

What it all boils down to is this: There apparently is no motivation for global central banks to stop directing capital inflows at the US in an effort to support mercantilist objectives. If it isn’t China, it will be some other economy. And equally apparent, there is no motivation among US policymakers to address such government directed capital flows.

So this outcome was predictable. In some ways, it’s impressive that Japanese manufacturers were able to hold out this long in the face of the the catastrophically high level of the yen. But as someone who worked with the Japanese, I’m sorry to see these great companies on the ropes. Japanese, unlike Americans, respect entrepreneurs because they promote employment, and they also take a craftsman-like pride in high quality production. It’s sad that companies that upheld those values may not make it, in large measure to financial and geopolitical issues (the US unwillingness to rock the boat with China) rather than pure competitive merits.

Update 7:00 AM: I put this in comments, and decided it needed to go in the post proper:

OK, due to the hour, I did truncate the argument maybe more than I should have.

1. China still runs a dirty float. It manages the RMB in a wide band v. a basket of currencies. The dollar is far and away the biggest currency in this basket (IIRC, ~ 60% ). So even though QE in theory weakens the dollar, China will move its RMB price to (substantially) adjust. A modified race to the bottom.

2. Nevertheless, China’s terms of trade with the US have been worsening, not due to the RMB per se, but price increases in China due to inflation. If you have a fixed currency exchange rate, and you have 10% inflation and your trade partners have 0% inflation, your goods will be 10% more costly to them in a year.

3. But sending the yen to the moon has meant (to the extent it can) Japan has gotten hit even worse than China. So while China has lost some exports to US repatriation of manufacturing (yes, that IS happening) and smaller Asian markets (Vietnam, Bangladesh), it has reduced these losses by eating into Japan’s market via goosing the yen.

Read more at http://www.nakedcapitalism.com/2012/11/has-chinese-currency-manipulation-succeeded-in-breaking-japanese-manufacturers.html#RpmK9acU2jGQQUiO.99

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  1. Conscience of a Conservative

    The question is why Japanese concerns such as Sharp & Panasonic which are global businesses have not responded by moving more production to more competitive locations.

  2. superduperdave

    Yves, is it really CHINA that is the currency manipulator here? Or is it perhaps Washington?

    1. Yves Smith Post author

      OK, due to the hour, I did truncate the argument maybe more than I should have.

      1. China still runs a dirty float. It manages the RMB in a wide band v. a basket of currencies. The dollar is far and away the biggest currency in this basket (IIRC, ~ 60% ). So even though QE in theory weakens the dollar, China will move its RMB price to (substantially) adjust. A modified race to the bottom.

      2. Nevertheless, China’s terms of trade with the US have been worsening, not due to the RMB per se, but price increases in China due to inflation. If you have a fixed currency exchange rate, and you have 10% inflation and your trade partners have 0% inflation, your good will be 10% more costly to them in a year.

      3. But sending the yen to the moon has meant (to the extent it can) Japan has gotten hit even worse than China. So while China has lost some exports to US repatriation (yes, that IS happening) and smaller Asian markets (Vietnam, Bangladesh), it has reduced these losses by eating into Japan’s market via goosing the yen.

      1. E. Paradis

        For what its worth, it is evident that there is more to this than FX. Swaps account for a huger multiple beyond any real trade going on between – China/Japan/US.

        Perhaps all this suggests is that you have some kind of triangular arbitrage or vicious circle that has panned out from the use of leverage beyond restraint. This all the while, the absolute constraints in the real world have to do with real consumption, which is falling in the US and in many other places.

        None of the concerns mentioned about China deal with the productive constraints that leverage absolutely Cannot hide from the Markets. Mechanisms such as the Global Surplus Recycling Mechanism may be rearing their head for one, and the “setups” you seen in the leveraged financial Markets have no direct link back to the real economy, which is of course now highly constrained by the breakdown on the surplus mechanism and the constraint on consumption globally, not to mention price / margin constraints due to high oil prices and other commodities.

        1. Susan the other

          My vocabulary almost works in an opposite direction from economic-speak. But I’m trying to grok this in full. I just received a newsflash from the ultra-low frequencies: China is not, repeat, NOT, interested in WW3. But this might be the equivalent for our way of doing business: China is going protectionist under the radar. By acquiring Japan. Very ironic in the recent historical sense since Japan thought it could appropriate China in the 1930s and then we stepped in to save China fearing the Asian monolith.

          But I keep thinking about those Russian foxes. They discovered that some foxes are born with peaceful genes. And they merely bred them until they had domestic foxes. The rest of the foxes were vicious nasty little beasts. But the domesticated ones, the ones who were able to leapfrog all that survival stress, were as sweet as dogs and cats. Point? The world, China and the USA for now, has come from vicious nasty ancestors, bloody and cutthroat dynastic carnage. But we have avoided the worst. And our economics is coming to reflect this, rapidly now.

          I really don’t know what I’m saying here. Except that our business as usual practices will not work from here on in. Because China will ally with Japan for the mutual benefit of both countries: China has the domestic demand and Japan has the industrial capacity. And so I wonder if the surplus mechanism isn’t working exactly like it must. Until it is changed. I wish I could understand this on a digital level.

          1. different clue

            If China succeeds in exterminating all industry within Japan and busting Japan all the way down to a producer of silkworms, tea, and soybeans . . . and NOTHing else, how does that benefit Japan?

            And how much carbon did Japan emit for every shinola TV Japan produced? And how much carbon does China emit for every shit TV China produces? If China emits more carbon per TV than Japan emits/emitted, then the Chinese extermination of every possible industry within Japan to re-locate the wreckage to China will raise the level of carbon emmissions . . . and global warming-heating-burning even higher than now.

            Embrace our Big Heat Rising future.

  3. Can't Help It

    If you think about it, hurting Japan is like shooting yourself in the foot in the current fragile state of the global economy. The Japanese economy is still the third biggest in the world. If they are first to go to some sort of hyperinflation (230% of debt/GDP ratio) or other extreme scenarios, it’s pretty much good bye. People are worried about Greece, they should probably be looking at Japan.

    Japan has a tough future in front of it. In order to move ahead it has to face its own culture of soft corruption and tolerating the close relation between the government, the zaibatsus and the yakuza. As someone currently studying Japanese, all I can say is “ganbatte”!!!

  4. financial matters


    By Andy Xie 03.23.2012
    The Yen’s Looming Day of Reckoning

    Japan looks set to depress the value of the yen to boost trade – how China must brace itself for the impact

    The Only Way Out
    Japan has only one way out – a massive devaluation.

    Yen devaluation is likely to unfold quickly. A financial bubble doesn’t burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days.

    When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then.

    China and South Korea
    A yen collapse will impact China and South Korea most, just like in 1998. It will trigger substantial weakness in their industries. If a banking system succumbs, the shock can bring down an entire economy, as South Korea’s experience in 1998 demonstrates.

    Both China and South Korea have weak banking systems. South Korea’s banking system is one of the most leveraged in the world due to high level of household loans. In 1998, a similar shock sank its banking system that was overleveraged with industrial loans. Now it is overleveraged with household loans. A shock could sink it again.

    Overinvestment and a property bubble make China’s banking system very vulnerable to such a shock. Unless China substantially increases the capital in its banking system, a big yen devaluation could cause China’s banking system to sink. China suffers from overinvestment and a property bubble, as Southeast Asia and South Korea did in 1997. In terms of the magnitude of leverage, China’s situation is much worse. Hence, a yen devaluation could wreak havoc to China’s economy.

    1. Can't Help It

      Well history has shown that the last stock bubble in Japan deflated relatively slowly, 3 years plus I think after the BOJ governor in 1989 (a man who claimed to never own a single share in the stock market) started raising rates. Currency wise though, Xie maybe right, but short Yen has been a widow maker for years, and it may very well swallow in a few more victims. The fact is every government now is holding each other’s bonds, this game may still take a while yet.

  5. Synopticist

    Everything that China’s done over the past two decades or so makes perfect sense if you simply assume that she plans to fight a world war in the next few years.

    I’m NOT saying China is, but, if you look at it through that lens, it all fits. Very nicelly.

    1. MyLessThanPrimeBeef

      While Mao was famous for his ‘political power grows out of the barrel of a gun,’ the tried and true way in China has always been to govern with Confucianism after you gain power, which means a lot of maintaining if status quo, respect for authority, rote memorization/study for entrance examination (the US education system will suffer collateral damage here) and sophistry, or diplomacy.

      This understanding of the Chinese way of thinking means that they prefer to divide and conquer their barbaric ‘Yi, Di, Man and Rong’ neighbors.

      So, if there is going to be any conflict, their Art-of-War preference would be to let others do the fighting (financial kind, military kind, etc).

  6. Jeff B

    Perhaps someone could explain to me why Japan doesn’t just print more money, either by having it’s central bank forgive debt or just by printing and handing out money to its citizens. Is there internal political pressure to not do this? I have been pleased to see this recently discussed in the context of ways to approach stimulus.

    It seems like a pretty effective counter to someone buying up your currency to keep it’s value high and it is something that the central banks that are being manipulated have direct control over. Transferring the benefit to your population directly or indirectly through government spending would seem like a way to defray the political costs. Even doing some sort of small pilot program might discourage another country from trying to prop up your currency, since you can easily print faster then they can make purchases.

    1. Stelios Theoharidis

      I would probably suggest the reason that Japan isn’t inclined to follow through with a very large devaluation is twofold. 1) their companies have integrated supply chains in other nations across Asia 2) the largest holders of Japanese debt are still probably the Japanese people.

      Rock and hard place. I am sure that some industries that have more integrated supply chains are probably lobbying heavily against the idea of currency devaluation.

      1. Jeff B

        I do know that the Japanese people hold a lot of the government debt, that was one of the reasons that I suggested that a possible solution would be to give them the money that is printed.

    2. financial matters

      BOJ has done a fair amount of QE similar to the US and to China printing a lot of renminbi to buy up US dollars. But of course this is artificial and I like the analogy of watering a toxic vegetable garden. We aren’t getting at the basic problem of tending the soil (removing toxic assets) but are just spreading a lot of water and in fact flooding the garden. Also MMT rather than just throwing water at the system advocates proper water management.


      Deep Economic and Debt Frictions Triggering Competing Currency Wars

      Currencies / Fiat Currency Sep 29, 2010

      By: Jim_Willie_CB


      Lastly, an illustrative example is given about a vegetable garden that continues to suffer damage, wherein no remedy is sought, which produces lousy inadequate output for survival. The garden is the US Economy and the water comes from the US financial system. The key to the garden’s success is plowing under the soil and proper water management. To see how the US Economy does not and cannot respond to the current policy, consider a vegetable garden. It fails to produce much crop output, a fine analogy of the current landscape. The reasons why it cannot be revived must be closely examined. They are not even remotely understood in the United States by either the economists, leaders, or population. The analogy is not perfect, but it sure hits a realistic and sensitive chord. It makes sense.

      The view is better elaborated by means of a vegetable garden analogy, such as one acre of land, or 4/10-th hectare. Imagine this derelict garden is the de-industrialized USEconomy racked by asset bubbles. The analogy is in no way complete, but some aspects are one-to-one almost perfectly. To begin with, this acre suffered from two gardener custodians mainly having money to devote to the garden from the housing mortgage bubble. It broke and thus starved the garden of money for most upkeep, as the water flow has been systematically constricted. The garden must be plowed under and turned over, but it is not. See the banks which are not liquidated, nor their toxic assets liquidated, as the process would bring them ruin and thus loss of all power. So the soil is not conducive to growth of much. The garden must have its weeds removed, but they are not. See the regulatory burden which is the norm, the constant. The USFed applied a big hose to irrigate the garden, but since the soil is not prepared, it cannot absorb water. Businesses cannot grow, since credit is scarce, and capital is wasting away. The vast irrigation programs resulted in vast pools of collected water, with some runoff that actually stripped the land of its nutrients and seeds. See the huge bank reserves, and the interrupted capital formation step. The landlord did step in and force the planting of a queer beast of a crop, which actually caused more problems. See the Clunker Car program, the GM Volt electric car, and the home buying tax credit. The primary problem is the soil. It is not turned over properly to release new nitrogen juices. The soil is not soft and conducive to new growth, free of weedy roots like dandelions. The soil cannot absorb the hose of water effectively. Thus the crop is poor.

      The landlords need to be eliminated, even permitted a dangled fate from the nearby oak tree. They are too well entrenched in the farm county political structure though. The landlords are untouchable and can never be given justice, despite their horrible theft of water, despite their frequent purchase of crops with phony lord coupons. See the confiscation of savings from baseless printed money. The landlords are invisible and know no nation as home, as they operate a monopoly on the lake water source. They control from the shadows and have gardeners eliminated who cause a ruckus. The misery and hunger caused has been horrific, and the theft of water has been staggering. New landlords should take over. Their advisors, the arrogant lot who watch from their luxurious porches, who never have accomplished anything in their lives on a farm, should be eliminated also, their high priests even shown the same tree. See the Goldman Sachs syndicate officers, Wall Street included, the cast of economic advisors, the regulatory scarecrows that rotate in field roles, even the US Federal Reserve.

      The secondary problem is the irrigation, as the hose goes through the landlord’s property, and he steals much of it before creating the damaging floods in the garden. The gardeners must pay for the landlord’s stolen water, part of the deal from this imperfect arrangement. The irrigation system must be redesigned so that a network of channels is created to more evenly distribute the water in smaller volumes, with much less skimming, and with less likelihood of large pools collected without theft. The channels must bypass the landlord’s property altogether. Let him build his own well, and work for a change. Let him experience calloused hands and dirt under his fingernails, even an aching back from labor under the sun. This garden is a wreck, and cannot grow vegetables in any conceivable volume that would sustain life, not with the current landlords serving in their current roles, as the people endure heavy work with sweaty brows, only to find meager crop output for their family dinner tables.

      1. MyLessThanPrimeBeef

        That’s a great analogy.

        It’s clear from the article that money printing is not the solution.

        It’s less clear how MMT would mean proper water management. More details would be appreciated. Another question would be if there are other ways to proper water management without MMT.

        1. financial matters

          I like MMT as it is against the ‘landlord’ philosophy. Money can be printed by the govt directly and given in directed amounts to socially useful projects.


          Michael Hudson on How Finance Capital Leads to Debt Servitude


          Q: How has finance capitalism shaped economic theory to change the idea of a “free market” and treat social spending and investment as deadweight overhead instead of treating rentier income and property claims as overhead as in the classical economics of industrial capitalism?

          A: Rhetoric plays a key role here. The essence of a “free market” financial style is to take planning out of the hands of government – democratically elected political representatives – and centralize it in Wall Street and other financial centers. Relinquishing the allocation of credit and untaxing property and finance transforms the
          mode of planning into the diametric opposite of what it meant to the Enlightenment and to the classical economists who sought to steer the drives of industrial capitalism to serve society’s long-term growtand raise living standards.

          A free market financial-style means disabling government regulation(which Hayek called the Road to Serfdom), to give rentiers the unchecked freedom to exploit, not protect society by ensuring it freedom from exploitation. So this isn’t really a “free market” as people discussed this in the 19th and 20th centuries. It is a market of unchecked fraud and exploitation, with wealth and power being
          untaxed as well as deregulated. This is the economics of General Pinochet elaborated along the lines that Margaret Thatcher in England and Ronald Reagan’s “crazies” in the United States pushed under the slogan of the “Washington Consensus.” As Grover Norquist expressed matters, the aim is to “shrink government to a size so small that it can be drowned in the bathtub.” Of course, it is the citizenry that
          ends up being drowned in debt.

          In practice a financialized “free market” simply shifts planning out of the hands of government and centralizes it in those of Wall Street and other banking centers. Financial dirigisme aims to endow a rentier oligarchy, not uplift the citizenry and the “real” production-and consumption economy. So what ends up being reduced is not government debt, but public spending on goods and services,
          especially on Social Security and medical care – along with taxes on wealth and debt-leveraged “capital” gains. In contrast to public purchases of goods and services employing labor, new government debt is created mainly to bail the banks out of the losses that result from their self-destructive over-lending and outright gambling. The effect is to increase the government’s deadweight overhead under oligarchy,in contrast to democracy.

          What is important to recognize in analyzing this shift in the locus of centralized planning is that the financial sector’s objectives are the opposite of those in the public sector. Democratic governments seek to increase employment, output and living standards. But relinquishing central planning to the banks, as the ECB and Washington Consensus
          wants to do, replaces democracy with oligarchy. Under these conditions financial planning takes the form of austerity, lowering wages and living standards. The ensuing economic crisis is used as an opportunity to grab whatever property is in the public domain – infrastructure, real estate and mineral rights, and even the creation of new monopolies to sell off and use the proceeds to pay the debts. (Chicago, for instance, sold the right of Wall Street investors to
          install parking meters on its sidewalks – increasing the cost ofdriving and doing business.)

          This is how the South Sea Bubble was orchestrated: Sale of the asiento monopoly on the slave trade with the Americas that Britain’s government had won from Spain. Stock in the company was sold to the public – with insiders making early gains and then selling out before sticking the public with the crash. This is basically the plan to privatize Social Security. It is Pinochet’s and Thatcher’s “pension fund capitalism” expanded to orchestrate bubbles by inflating asset prices on credit, and then letting the economy collapse as it becomes high-cost and insolvent. The process is capped by the government creating debt to bail out the banks, but to help the tangible production-and-consumption economy recover. So financial planning under oligarchic government is all about the FIRE sector.

          Unfortunately, economic history no longer is taught as part of the neoliberalized economics curriculum, at least here in the United States. So people are not aware of how destructive financialized management and planning has been ever since the fall of Rome.

        2. MyLessThanPrimeBeef

          As related to the analogy, I see proper water management consists of

          1) not diverting the water flow
          2) not flooding the garden

          i.e. not too much and not too little.

          As you referenced, MMT does achieve #1, but I am not sure if it says anything about #2.

          Also, are there other ways for achieving #1? Are there other ways for achieving both #1 and #2?

          1. financial matters

            It depends on what is meant by flooding the garden. I see it both as money inappropriately spent which we certainly have plenty of, but I would like to see elected officials make these decisions rather than the likes of the Fed or the ECB. Also it could be seen as inflation. MMTers see full employment as producing the right amount of demand and helping to lessen the degree of inequality. Taxes can pull money out the system if necessary but they would be for taxing the rentier class rather than the middle class.

            Getting rid of corruption, tax evasion, corporate malfeasance would all help with one and two. I think the MMTers are creating a good discussion of what money and finance are and how they can be used productively.

          2. MyLessThanPrimeBeef

            It can be risky to tie taxation solely to inflation.

            And I think taxation should be a political issue… a sovereignty issue.

          3. financial matters

            The point with MMT is more to emphasize the difference between a sovereign countries budget which is a currency producer to a household budget which is a currency user. Sovereign governments can spend without taxing. This spending can be used for productive investment and employment opportunities to help produce a well-functioning economy.

          4. MyLessThanPrimeBeef

            For me, the government is both a currency user and a custodian of our currency and there is a difference between being entrusted to manage our currency and being a currency user.

  7. Heretic

    Japan should also do that which would really piss-off China and South Korea and the Japanese Oligachs, ban all technology transfers and collaboration with China and Korea, force the repatriation of high tech manufacturing and design back to Japan, and print Yen to satisfy any currency manipulators. Coordinate with Europe and Latin America to stem the inflow of ‘hot money’ (to prevent local asset inflation) and tax financial transactions…. But they would need to placate the Americans with something also… Perhaps some investment into the USA’s local high tech industries (which still are among the world’s most innovative).

    In effect, raise employment and high tech investment in USA and Japan, lower the same in China and Korea, and put in trade and capital controls to prevent global corporations from thwarting your initiative.

  8. Schofield

    China’s Communist leadership is playing a great game. It knows the capitalist Neo-Liberal Primitives in the West will fall over themselves to make profits to supply the rope for their own hanging as Lenin is once reputed to have said.

    1. financial matters

      I think in some ways China’s ‘top 1%, elite’ are actually very similar to those in western countries…


      financial matters says:
      July 7, 2012 at 9:07 am

      In Shock Doctrine, Naomi Klein details how many of these kleptocracies arose based on The Washington Consensus/neoliberalism. These ‘free market’ principles were highly favorable to corporations not to workers and usually had to be passed through at times of disaster where the populace was disoriented or intimidated.

      Political agendas tended to be emphasized while these destructive economic forces snuck in the backdoor.

      Tiananmen Square can be seen as workers and students wanting the opposite of the Washington Consensus/neoliberalism ie fair wages, job security, decent housing etc. The Communist leaders actually wanted unbridled capitalism which they could control to enrich themselves.. And looked to Milton Friedman for guidance..

      ‘In China roughly twenty-nine hundred of these party scions -known as the “princelings” – control $260 billion. ‘

  9. Joseppi

    Yves has pointed out the stratagy of the currency war. As we all know, export countries need a weak currency and a US strong dollar. The US is a consumerist society because of the arbitage of weak foreign currencies/low wages – this is achieved by export countries holding accumulated dollars in FOREX reserves or buying US debt bonds. This trick means less dollars in circulation compared to lots of export country currencies floating around.
    The Japanese excelled in hoarding dollars and printing Yen for the carry trade, while strangling their domestic working class wages as the Japanese elite exporters prospered. Now the Chinese are doing it to them. It is a financial martial arts move. The Japanese made a big strategic mistake by exporting their industrial production out of their country and thereby allowing other countries access to Yen to hold.
    China wants to repay the Japanese for their refusing to apologize for the WW11 atrocities. The Japanese are suicidally trying to bait China into a military miscalculation over the islands in the South China Sea so the US will intercede.
    Financial wars most of the time lead to military wars. Let all hope that enough people can see the mechanics of this and prevent a repeat of history.

    1. MyLessThanPrimeBeef

      I haven’t tried any Korean products except food, so I can’t say, but I can trust the quality of Japanese products.

  10. Roland

    Why don’t both Japan and China just peg to the dollar? The Fed will do enough devaluation for the three of them.

  11. jessica

    Japanese electronics passed their peak in terms of global dominance back in the 1980s. Part of that is schlerotic organization. Part is the drain from zombie corporations kept alive artificially since the bubble popped. Part of it is the rise of rivals such as South Korea and Taiwan. Part of it is less cultural adaptability for shifting production to outside of Japan.
    And part of it is recent currency maneuvers by China.
    This article was interesting but because it did not deal with any of these other factors, it left me not knowing how large a proportion of the problem is due to the currency maneuvers.
    And a world in which Japanese engineering culture did not have to compete with US-Chinese corner cutting and work force hyper-exploitation would be a world I would be prefer.

    1. MyLessThanPrimeBeef

      Apparently Korean corner-cutting as well – just saw something about inflated mileage claims of Hyundai and Kia.

  12. jessica

    Also, for sociological reasons, Japanese firms have done best with products whose functions could be understood beforehand. Then “only” engineering is required.
    But products that co-evolve with their users (most things Internet related) require the ability to take in information from users, which is not the strongest point of Japanese users.
    Thus the Walkman was from Sony and the iPod and iPad were from the US.

  13. Roland

    One reason Japan might need a strong currency is all the fossil fuel and raw materials they need to import.

    The ill-considered decision to reduce their nuclear energy output has aggravated that fossil fuel dependency.

    1. Stan Musical

      “The ill-considered decision to reduce their nuclear energy output has aggravated that fossil fuel dependency.”

      Yes, after all when a few of them blow up it only costs trillions of yen upfront (first 50-100 years or so) and just quadrillions down the line.

      Most Japanese reactors are aging and dangerous. Others are using bleeding-edge tech (ultra-inflammable liquid sodium) and one, MOX fuel (though 20 years on they’ve yet to get it running, blessing in disguise). The companies and bureaucrats in charge of this system have demonstrated herculean amounts of dishonesty, corruption, and incompetence.

      But yeah, much better to continue down that path to self-destruction than import fuel or gasp! invest in and develop alternatives.

  14. Steven Tan

    Japan got trounced by South Korea, not the Chinese. I was in Japan and South Korea in 2010 and could feel the difference in energy between the 2 nations. The South Koreans were overwhelming optimistic about their future, while the the Japanese were living in the past, with the lack of hope for the new generation.

    I believe this can be traced to the economic policies during the 1980s, where crony capitalism for the elites escalated in Japan and subsequently destroyed the foundation of Japan innovative ingenuity. The rich got much richer while the rest of the population had to live with less by paying more. A lesson for all capitalist nation. Stimulus after stimulus were pumped in to preserve the wealth of the elites, citing ‘too big to fail’; while these big firms gobbled the smaller and more innovative firms in fear of competition. The likes of Sony is one fine example. Honda and Toyota will come next, as the quality of the vehicles has been deteriorating, lasting on 3 yrs before needing substantive replacements. As for Korean made cars, Hyundai and Kia, the newer modals are outlasting their Japanese counterparts.

    Guess General Park, “Working an hour longer than the Japanese”, is finally producing the intended results.

    1. Joseppi

      “crony capitalism for the elites escalated in Japan and subsequently destroyed the foundation of Japan innovative ingenuity. The rich got much richer while the rest of the population had to live with less by paying more.”

      Mr. Tan,
      You nailed it. The US is going through the same process and only a few realizing it.

  15. Kiers

    Let’s face it, the USA did as much to do Japan in, as China.

    Reagan put “the Plaza Accord” on the Yen which moved it from 200 to 100 rather suddenly no?

    Can the US have the Cajuns to do a Plaza on the RMB? If not, then it’s all geopolitical theater and not serious.

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