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Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance Paperback – November 26, 2003

4.1 out of 5 stars 9 customer reviews

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Editorial Reviews

Review

"An important new book..." —Hugo Restall, The Asian Wall Street Journal, 10/25/2002



"Winner, 2002 Association of American Publishers Professional and Scholarly Publishing Award for Economics" — Award



"... a provocative new book." —John Thornhill, Financial Times, 11/18/2002



"[The book has] many astute... observations about the Japanese economic and political system." —Richard N. Cooper, Foreign Affairs, 5/1/2003



"many astute and sometimes provocative observations about the Japanese economic and political system." — Foreign Affairs

About the Author

Akio Mikuni is one of the most universally respected analysts of the Japanese economy in the global financial community. He is the president and founder of Mikuni & Co. Ltd, Japan's leading independent, investor-supported bond-rating agency. Mikuni was named one of the fifty most influential individuals in Asia by Business Week in 1999. He also has been the subject of profiles in the Financial Times and Fortune. R. Taggart Murphy, a former investment banker, is foreign professor, College of International Studies, Tsukuba University, Japan, and a nonresident senior fellow in the Foreign Policy Studies program at the Brookings Institution. His recent books include The Weight of the Yen: How Denial Imperils America's Future and Ruins an Alliance (W. W. Norton, 1997) and Ugokanu Nihon e no Shohosen ( Prescriptions for a Japan That Is Not Moving), (Mainichi Shinbunsha, 1998).

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Product Details

  • Paperback: 304 pages
  • Publisher: Brookings Institution Press (November 26, 2003)
  • Language: English
  • ISBN-10: 081570223X
  • ISBN-13: 978-0815702238
  • Product Dimensions: 6.1 x 0.8 x 9 inches
  • Shipping Weight: 15.2 ounces
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (9 customer reviews)
  • Amazon Best Sellers Rank: #2,614,515 in Books (See Top 100 in Books)

Customer Reviews

Top Customer Reviews

Format: Hardcover
Akio Mikuni & R. Taggart Murphy have produced an excellent critical piece on the multiple troubles that Japan now finds itself, as well as realistically outlining how the elites are still very much unaware of the full consequences of their actions, and indeed inaction. This book also raises a number of interesting indepth parallels in Japanese history, illustrating that Japan has been in similar waters before and like the past, cannot adapt and change policy before disaster causes havoc. It is furthermore explained that, like all previous merchantile and/or socialist regimes, Japan's production capacity approach to trade is of little use unless profits and risk management are approached seriously. There is some hope for Japan, but the authors wisely find that Japan's war production approach (which is indeed ancient), coupled with its ministerial fiefdoms (whom act like warlords of old.....and control things like banks and until recently the Japanese equity markets), weak liberal democratic structures, non-guilded unions, and lambish populous, coupled with a mountain sized foreign (US$) currency reserve, {which as they argue convincingly, cannot ever really be swapped for Yen....it would destroy Japan (and cause much angst elsewhere)}, all need fundamental revision. Fundamentally, this book highlights the enigma of Japanese power. It should be read along with books like Cartels of the Mind (Ivan Hall); Japan's Big Bang (Declan Hayes); Dogs and Demons (Alex Kerr);The Enigma of Japanese Power (Karel van Wolferan); and Hirohito and the Making of Modern Japan (Herbert P. Bix). Having lived in Japan for four years, I would highly recommend this book.
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Format: Paperback Verified Purchase
The main thesis: 'Japan is trapped by the mercantilist policy which resulted in exporting capital to finance external surplus without sustainable returns' is inspiring but a bit misplaced. The authors could tell the story in a simpler way: Japan's economy, under the bureaucratic allocation of resources, was obsessed by the export market share and production scale, leading to unsustainable overcapacity and debt burden. Stock and real estate bubbles in the 80s not only failed to raise the economy out of the troubles but triggered the 'inevitable' collapse of the whole system.

Chronic surplus and excessive foreign reserves, which functioned to finance the consumer power of the US and maintain an under-valued yen, were the symptoms of overcapacity rather than the direct causes of economic stagnation. In addition, although the argument which attributes deflation to the drainage of Japan's money supply for funding external surplus is interesting, the root causes were more likely to be a scarcity of investment opportunities due to overcapacity and the bursting of asset bubbles. The authors create a gimmick by over-emphasizing the financial symptoms while glossing over the underlying ( and perhaps a bit banal) structural reasons of Japan's collapse.

The story-telling techniques is poor, especially regarding a smooth chronology. Time and again I have to figure out a timeline to put the events in a chronological order for myself to obtain a clearer picture of how things happened; the authors are unaware that they hinder the readers by occasionally jumping to the 90s while discussing the pre-war problems or suddenly inserting a episode in the 80s when the current narrative is about the 60s.
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Format: Paperback
Akio Mikuni, president of Japan's leading bond-rating agency, and R. Taggart Murphy, a professor at Tsukuba University, relate how Japan, the world's second largest economy, became trapped in deflation.

Japan is the world's top creditor nation with huge holdings of bonds, equity, loans and foreign investments. It has vast trade and current account surpluses with most countries in the world. The floating exchange rate is supposed to adjust automatically to prevent such payment imbalances, but these are now far greater than they ever were under the fixed rate system.

In the 1980s, Japan's landowners and speculators used huge real estate and equity market bubbles to take wealth from the working class. In the early 1990s, the bubbles burst, and the largest pile of non-performing loans ever seen buried much of Japan's banking system. Every monetary and fiscal policy failed, including a 72-trillion-yen reflation and bank bail-out package in 1998.

During the US state's postwar occupation of Japan, it had seized control of Japan's currency. As the authors point out, "No matter how much capacity you have accumulated, no matter how many claims you have the theoretical right to exercise, unless you control the currency of your international trade, investments, and finance, you are at the mercy of those who do control that currency."

So Japan accepts payments for its exports, and returns from its investments abroad, in the dollar. It keeps its ever-growing hoard of dollars in the USA, which transfers buying power to the USA, funding, for example, Silicon Valley. The US state's control of the yen is the key to the dollar's strength, allowing the USA to depend on imports and to run huge trade and current account deficits.
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