2012-2-24
The “Unless Shukan Asahi Has One Million Subscribers, It Cannot Possibly Be Said That True Intelligence Exists, Nor Can One Become a World Leader” series. From the March 2 issue of Shukan Asahi.
The article that I recommended U subscribe to in the preceding chapter is, like my own book, an article that everyone throughout Japan should read.
…The boldface in the text is mine.
For three weeks, this magazine has stated that readers must not be deceived by the campaign being advanced by the Prime Minister’s Office and the Ministry of Finance: “The Japanese economy is in danger. Raising the consumption tax is the only solution.”
This magazine is not saying that it is “opposed to raising the consumption tax under any and all circumstances.”
It has pointed out that there are things that must be done first and has also proposed alternative policies.
That is because raising the consumption tax is not a “magic wand” that will solve every fiscal problem, and it also has disadvantages, including causing the economy to retreat.
For the fourth installment of this investigation, let us once again hear from the editor of Yamikabu Shimbun, the “underground bible of the business world.”
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Prime Minister Noda appears determined to press ahead with the consumption-tax increase at all costs.
He reportedly intends to submit the consumption-tax bill to the Diet by the end of March without waiting for consultations between the ruling and opposition parties.
Amid that movement, the Bank of Japan has finally introduced a quantitative-easing policy. Has it implemented the “right” policy for the people, or has it merely used quantitative easing to assist the “most incorrect” policy of raising the consumption tax? The answer is not yet known.
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On February 14, the Bank of Japan decided to undertake additional monetary easing (quantitative easing) that would increase the supply of funds to the market by up to ¥10 trillion.
In response, the Nikkei Stock Average, which had fallen below 9,000, temporarily climbed into the 9,400 range for the first time in six months, while the exchange rate, which had been in the ¥77 range to the dollar, moved into the ¥79 range (both as of the 17th). For the time being, therefore, the yen weakened and stock prices rose, and the effects of “quantitative easing” appeared to be emerging.
In Shukan Asahi and on my blog, I have repeatedly argued for the necessity of “bold quantitative easing on the scale of ¥50 trillion.”
That is because quantitative easing is the “least expensive and most immediately effective” policy, imposing not even a single yen of burden on the public.
Although the Bank of Japan had, of course, already been conducting quantitative easing, it was clearly insufficient, and that had been the fundamental reason for the strong yen and low stock prices.
Quantitative easing, in the first place, means that a central bank (the Bank of Japan) purchases government bonds and other assets from private financial institutions and supplies those institutions with funds. When the economy is stagnating as it is now, however, banks are reluctant to use those funds for lending, and consequently all the money supplied by the Bank of Japan merely accumulates, exactly as it is, in the current-account balances that financial institutions maintain at the Bank of Japan.
Under this latest round of additional easing, the scale of the “Asset Purchase Program,” through which bonds and other assets are purchased from financial institutions, was expanded from ¥55 trillion to ¥65 trillion, with the additional ¥10 trillion allocated to purchases of long-term government bonds. Because those long-term government bonds are purchased from private financial institutions, the money is paid to those institutions, but that money goes nowhere and remains accumulated in their current accounts at the Bank of Japan.
For this reason, many scholars say, “Quantitative easing is meaningless because the money does not go into lending,” and there are indications that the Bank of Japan basically thinks the same way.
But this is wrong. That is because quantitative easing possesses a “magical effect.”
First, when the Bank of Japan carries out quantitative easing, it sends the market a powerful message: “The Japanese government and the Bank of Japan will support the Japanese economy at any cost.” This produces optimistic expectations about the economy and drives stock prices upward. Nor should we overlook the effect of increasing the supply of yen, thereby weakening the currency. For Japan, whose export industries are its lifeline, this is another major factor promoting economic recovery.
Human psychology carries extremely important weight in economics. When the market sees the advance of a “weaker yen and higher stock prices,” sentiment improves and actual economic activity becomes more vigorous. In the movement toward prosperity, an improvement in banks’ lending attitudes and the disappearance of their “reluctance to lend” are, in fact, the very last things to occur.
The same is actually true in both the United States and the eurozone: economic activity does not immediately become vigorous merely because quantitative easing has been implemented.
At the end of last year, the euro fell below ¥100 for the first time in approximately ten years, and its depreciation continued thereafter.
The principal cause of the euro’s decline lies in the balance sheet of the ECB (the European Central Bank; hereafter, the term is used to mean the scale of its assets and liabilities).
The ECB balance sheet announced at the end of last year stood at €2.73 trillion, having expanded rapidly from €2.18 trillion only three months earlier.
That was because, in December of last year, the ECB implemented as much as €489.2 billion (approximately ¥50 trillion) in quantitative easing for 523 banks within the eurozone.
Its primary purpose was, of course, to respond to the European crisis that began with concerns over Greece’s creditworthiness, but the resulting depreciation of the euro caused stock prices in the major eurozone countries to rise.
When the balance sheet of a central bank (in this case, the ECB) expands, it means that the central bank is actively supplying funds to the market by purchasing assets from private banks or lending money to them.
In other words, because the quantity of currency simply increases, the euro depreciates.
Here Is the Decisive Mistake Made by the Bank of Japan
The dollar’s depreciation in recent years is based on the same principle. The balance sheet of the FRB (Federal Reserve Board), which corresponds to the central bank of the United States, expanded by an astonishing 3.3 times—from slightly less than $900 billion before the 2008 Lehman Shock to $2.9 trillion.
This produced a historically strong yen and weak dollar and, as a result, stock prices also rose.
The same applies to the Swiss National Bank and the BOE (Bank of England).
Turning to Japan, the Bank of Japan’s current balance sheet stands at approximately ¥139 trillion.
Astonishingly, this is below the ¥144 trillion recorded at the end of March 2006, when the preceding period of quantitative monetary easing ended.
The most important point, therefore, is that the larger the scale of quantitative easing, the more stock prices rise, the more the country’s own currency depreciates and, consequently, the faster its economy recovers.
To repeat the point, the economy does not recover through the direct effects of quantitative easing; rather, the country’s currency first depreciates and its stock prices rise, and the economy subsequently recovers as a result.
In the case of the Bank of Japan, quantitative easing is clearly insufficient. Consequently, the strong yen and low stock prices persist, and with a consumption-tax increase also appearing likely, the economy never manages to recover.
As for the latest additional ¥10 trillion in quantitative easing, the amount itself must still be regarded as far too small to produce sufficient effects.
Furthermore, this round of quantitative easing weakened the yen because Japan acted before the FRB undertook additional monetary easing and before the ECB provided the additional funding that was expected to reach as much as €700 billion. Yet once the United States and Europe embark upon large-scale quantitative easing, the yen’s depreciation will come to a halt. Because stock prices react to the foreign-exchange market, if the yen stops weakening, the welcome rise in stock prices will also stop. That would return everything to where it began. The scale of the easing should therefore have been much larger.
Quantitative easing is not a card that Japan can play repeatedly.
It would be extremely wasteful to squander that card by playing it only in small increments.
Another concern is that, when announcing the quantitative easing, the Bank of Japan went out of its way to state clearly that it would “continue easing until consumer prices rise by approximately I% from the preceding year.”
Because Japan possesses fewer natural resources than Europe or the United States, its consumer prices are more likely to fluctuate sharply as a result of factors such as increases in crude-oil prices.
If overseas political upheaval or some other factor were to push consumer-price inflation to around 0.5%, expectations might spread through the market that “the inflation rate will soon reach I%, so monetary easing will probably be terminated before long.” That could produce panic and cause an unnecessary decline in government-bond prices.
The market would make that association because the Bank of Japan has a “criminal record”: believing the economy was beginning to improve, it ended the zero-interest-rate policy then in place in 2000 and terminated quantitative easing in 2006, prolonging the subsequent recession on both occasions. It would have been better to retain the same “ambiguous language” as before, without specifying a numerical target.
Another problem is that only the Bank of Japan undertook quantitative easing, while the government continues to press ahead with its tax-increase policy as usual.
What the government now requires is an economic policy that makes use of the Bank of Japan’s quantitative easing.
On the 17th, just as stock prices rose in response to quantitative easing, the government approved the “outline” of the consumption-tax bill at a Cabinet meeting, exactly as scheduled. If quantitative easing was merely intended to assist the tax increase, neither the welcome weakening of the yen nor the rise in stock prices will last.
What should actually have been done was to implement a package of multiple policies alongside quantitative easing and thereby maximize its effects.
For example, the foreign-exchange policy mentioned last week—“Purchase foreign currencies on the scale of ¥100 trillion”—should have been implemented simultaneously with this round of quantitative easing.
The government should have purchased a large quantity of dollars through foreign-exchange intervention while the yen was strong. If quantitative easing subsequently weakened the yen, the increase in the assessed value of those dollars would have become government revenue.
The “unearned income tax” on banks, proposed in the first installment (the February 10 issue), would also be effective.
This is entirely different from the “wealth tax” that has recently emerged as a major subject in Nagatacho.
Even if quantitative easing increases banks’ deposits, the money merely lies dormant in the Bank of Japan’s vaults unless the banks stop their “reluctance to lend.”
If taxing these “idle assets held by banks” caused money to circulate throughout the market, the effects of quantitative easing would be further enhanced.
The government, incidentally, has reportedly begun considering using “dormant deposits”—money left untouched in banks and other institutions for more than ten years—to support businesses affected by the Great East Japan Earthquake and for other measures. These “dormant deposits” reportedly amount to ¥80–90 billion every year, which is by no means an insignificant sum. Nevertheless, I cannot escape the feeling that this is another improvised idea intended to prevent attention from being directed toward waste in special accounts and independent administrative agencies, as well as toward “buried treasure.”
I intend to address special accounts and independent administrative agencies separately, but one example is the Government Debt Consolidation Fund Special Account, which centrally manages the issuance and redemption of government bonds and the payment of interest.
There is much that cannot be determined from publicly available information alone, but after the supplementary FY2011 budget, this account received as much as ¥17 trillion in surplus funds carried over from the preceding fiscal year.
Japan, however, issues approximately ¥100 trillion in refunding bonds every year, so there is absolutely no need to retain a surplus in preparation for redemptions—yet that is precisely what it does.
If the ¥17 trillion were transferred to the general account, it would generate revenue equivalent to approximately seven percentage points of the consumption tax.
In other words, the absolute minimum that must be done before considering a consumption-tax increase is to conduct sufficient “quantitative easing,” combine it with the necessary accompanying policies, and eliminate waste in government administration.
Prepared by Shukan Asahi staff writer Kohei Koizumi
*If readers learn that this came from an article published in Shukan Asahi, which I subscribed to at the time, they will surely be astonished and exclaim, “You cannot be serious!”
That is because such an article is unimaginable from today’s Asahi Shimbun group, which represents the old media and has simultaneously deteriorated into a condition for which there is no longer any remedy.
I now also think the following.
There was no possibility that Asahi would ever have asked me to write for it, because I was unknown, was moreover the president of a real-estate company, and, by around 2012, had exposed the fact that Asahi was actually the power behind the confusion surrounding the North Yard.
As previously stated, on July 16, 2010, I was the president of an unknown small or medium-sized real-estate company (although it was well known within Osaka’s real-estate sales brokerage industry) and was completely unknown in the world of public discourse. The confusion surrounding the North Yard provided the immediate occasion, but from the perspective of my former classmates, I had finally entered the world of public discourse, and my “The Turntable of Civilization” produced an extraordinary response among centers of power both within Japan and overseas.
Every ministry in Kasumigaseki, the executives of Japan’s leading major corporations, and professors at nearly all of Japan’s famous universities read it every day.
From overseas, explosive numbers of follows first arrived every day from the Arabic-speaking world. They were followed by every country in Central and South America.
Then, in 2011, tremendous numbers of follows continued to arrive from the West Coast to the East Coast of the United States…just when it was only a matter of time before the number of followers reached 10,000, my Twitter account was hijacked.
Not once, but twice. I therefore stopped using Twitter. At the same time, the man who had committed crimes against this column, including serious obstruction of business and defamation, vandalized the search-result pages for “文明のターンテーブル” and “the turntable of civilization” to an unbelievable extent. The number of search results plummeted to one-hundredth of its former level.
That vandalism and search interference continue to this day.
He was convicted of defrauding a certain bank of a large sum of money…our company was also defrauded of nearly the same large amount, but unlike the bank, our company was not only merely a small or medium-sized enterprise; I had also filed the criminal complaint by myself. The case therefore went as far as the Osaka District Public Prosecutors Office, and this matter (the search-interference case and the air-conditioner fraud case were also referred to the District Public Prosecutors Office) was handled by a young prosecutor from the Special Investigation Department…he said that he would secure a conviction in this matter at all costs…but although it was obvious that documents created on a computer used by a defendant who had been criminally accused in a similar, separate case had been used to deceive our company, a conviction could not be secured unless that fact was conclusively established…the prosecutor in charge learned that the friend of the company president who owned the seized PC was a company president with whom I had been very close, and asked me to request that he provide the PC to the prosecutors…the prosecutor’s wish was granted, but the heart of the computer had been destroyed (it was truly “Drill Yuko”). As a result, this matter was not prosecuted.
After being released from prison in the autumn of 2017, this man appeared on Facebook, this time impersonating Kenji Akutagawa, my pen name.
Just as he intended, even as of yesterday, google’s AI (the search results for The Turntable of Civilization) and the Being search results remain manipulated in accordance with his malicious intentions.
The search-result pages for The Turntable of Civilization have been pitifully vandalized in exactly the same manner as when this man began vandalizing those search pages after June 1, 2011…during questioning in 2012, after our criminal complaint had formally been accepted, this man confessed that he personally had committed every act…the case was also referred to the District Public Prosecutors Office, but partly because I had pursued it alone, it was not prosecuted…he is now vandalizing the search-result pages for my “The Turntable of Civilization” in exactly the same manner as he did at that time.