The following is from a regular column by Hideo Tamura that appeared in the Sankei Shimbun on July 23.
As mentioned, he is one of Japan’s top economic commentators, alongside Yoichi Takahashi.
They are the only commentators with genuine knowledge, not just regurgitating what they hear from the Ministry of Finance.
It is a must-read not only for the Japanese people but for people worldwide.

The Deep Structure of the Super-Weak Yen
Amid the super-weak yen, the government has changed the face of the 10,000 yen note to Eiichi Shibusawa, the father of modern capitalism.
When the Yūkichi Fukuzawa note appeared 40 years ago, the yen soared to super-strength the following year.
So I wonder:
Why is the yen the only primary currency so conspicuously and heavily influenced by the dollar?　　　

The world’s reserve currency, the US dollar, like the yen, euro, yuan, and other currencies, is not backed by gold or silver.
The first non-convertible world currency was the Mongol Empire’s paper money, “Koushou,” in the 13th century.
According to Marco Polo’s Travels in the East (Toyo Bunko, translated by Atago Matsuo), thin pieces of paper made from mulberry bark were cut and stamped with the emperor’s (khan’s) seal and red ink.
As long as you had the paper money, you could trade goods throughout the empire and all the kingdoms.　
The dollar is the world’s modern-day equivalent of the Kousho.
The reasons for this are the US’s powerful military might and the fact that the dollar is the petro-dollar, the currency used to settle oil transactions.
However, this is by no means a solid foundation. China and Russia are gaining momentum in the military sphere, and Middle Eastern oil-producing countries may be unwilling to accept transactions denominated in renminbi.　
The only remaining strength of the dollar is that the New York market in the US is the center of the global financial market.
Surplus money from around the world flows into the US, and international financial capital is redistributed worldwide.
The dollar mediates international finance.
However, the US has the most significant current account deficit globally and constantly needs vast amounts of capital inflows.
If the inflow were to dry up suddenly, dollar interest rates could soar, and stock prices could plummet.
This is precisely what happened on October 19, 1987, the day of the biggest stock market crash in history, known as “Black Monday.”
The Plaza Accord, which was reached two years earlier, was aimed at correcting the strong dollar, but the decline in the dollar exchange rate became unstoppable, and the New York financial market fell into a panic.
Since then, the US Federal Reserve has been struggling to implement a monetary policy that takes into account the inflow of capital from outside the country.
However, this policy is not reliable because global investors are driven by interest rates.
The critical question is whether any countries can provide a stable flow of funds to the US.
Japan, an ally of the US, has accepted this role without complaint.
The US is the world’s largest net debtor, while Japan is the world’s largest net creditor, forming a symmetrical relationship.
The amount of money the US needs for market and economic stability is equal to its economic balance of payments deficit.
Since the dollar is the reserve currency, yen funds that leave Japan will always be converted into dollars somewhere.
In other words, Japan’s foreign investment and loans will be absorbed into the flow of dollar finance circulating within and outside the US.

The graph shows the trends in Japan’s foreign investment and loans, the US current account deficit, and the yen-dollar exchange rate for each fiscal year.
Taking the period from FY2012, when Abenomics began, to FY2020 as an example, Japan’s total outward investment and lending was 420 trillion yen, and the total US current account deficit was 410 trillion yen, meaning that the US deficit was entirely offset by Japanese money.
The US financial market, economy, and yen-dollar exchange rate all stabilized.
Furthermore, although there was a gap between the totals of 166 trillion yen and 370 trillion yen for the periods from FY2021 to FY2023, Japanese money still covered 45% of the US deficit.
The steady depreciation of the yen began in the second half of FY2021, and the underlying cause was the expansion of the US current account deficit.
The deficit, 72 trillion yen in FY2020, increased to 109 trillion yen in FY2021, 130 trillion yen in FY2020, and 132 trillion yen in FY2023.
The capital inflow from Japan was insufficient to keep up with this, so the Fed decided to raise interest rates significantly and continuously from March 2022.
This led to an increase in the interest rate differential between Japan, where interest rates were very low, and the foreign exchange market, where speculation in the sale of yen and the purchase of dollars became popular. This continues to the present day.
The stronger the dollar, the more global investors are attracted to dollar assets.
Japanese households have also started to look at dollar-denominated investment trusts and deposits.
As a result, the US financial market has stabilized. Although market interest rates are high, they have not soared, and stock prices continue to rise.
The US economy has not overheated to the point of causing high inflation and is continuing to perform well.
What should Japan do?
As mentioned above, as long as the structure of Japan’s money making up for the debts of the hegemonic US is established, the yen will inevitably tend to weaken.
However, if the Bank of Japan were to raise interest rates too quickly, it would invite deflationary pressure.
Amidst stagnant domestic demand, companies and financial institutions would not invest in or lend to the domestic market but would instead rush to invest in overseas markets.
The vicious cycle of a weak yen and domestic recession would worsen.
The government should boldly implement fiscal stimulus measures aimed at growth and achieve complete deflation, but Prime Minister Fumio Kishida, who follows the Ministry of Finance’s line, finds this impossible.
What is urgently needed is not new banknotes, but the emergence of a new political leader.
(Editorial Board Member)