Lo, Japan no longer “looks that bad”, according to Paul Krugman, in an entry on his blog headlined “Japan reconsidered:
For a decade or so Japan’s lost decade has been the great bugaboo of modern macroeconomics. Economists constantly warned that you mustn’t do X or you must do Y, because otherwise we’ll turn into Japan. And policymakers congratulated themselves in advance for not being like their Japanese counterparts, who dithered and drifted, refusing to make hard decisions.
Well, I’m sure I’m not the only person to notice this: Japan doesn’t look so bad these days.
While he’s certainly not the only person to notice, Krugman is hitting an increasingly hot topic of debate: the growing obsession with Japan parallels (see related links below). Anyone who gives an opinion on anything connected to financial crisis these days seems to have to have a view on how closely today’s situation (anywhere) resembles the circumstances surrounding Japan’s “lost decade” in the 1990s.
See, too, the latest from Morgan Stanley strategist Teun Draaisma, who says equity markets (in general) look to be following the direction of Japan’s flailing markets in the 1990s.
So, concludes Krugman, given what the next couple of years in the US are likely to look like, Japan’s lost decade “is actually starting to look pretty good”.We may or may not be about to face our own lost decade, but the sheer misery millions of Americans will face in the near future probably exceeds anything that happened in Japan during the 90s. I still hope we can do better than the Japanese did, but it’s not at all obvious that we will.
But just in case such insights might arouse bull sentiment on Japan, Lex on Monday examined the latest figures from Tokyo showing that Japan’s 13-year-old current account surplus morphed into a deficit in January, according to official data.
Yet trade, as it reminds us, is “just part of the picture”:
For the past two decades, Japan’s current account surplus has been boosted by foreign investment income. Last year this dwarfed the trade balance, making up almost the entire current account. surplus. Sadly, that situation is now history. The strong yen, plus falling interest rates and squelched dividends, slashed net investment income in January to $10bn, two-thirds last year’s amount. This is bad news for Japan.
In fact, noted one seasoned Japan-watcher, while everyone else is going on about how other countries are beginning to resemble Japan, Japan itself is beginning to look more like Japan every day…
Related links:
Japan reconsidered – NYT Krugman blog
Japan until further notice - FT Alphaville
Martin Wolf: Japan’s lessons for a world of balance-sheet deflation – FT
Rethinking the lessons of Japan’s debt unwind – NakedCapitalism
In Japan Inc’s classroom – FT Alphaville Long Room