NONE OF WHICH WOULD HAVE DONE ANY GOOD UNLESS THEY ALSO OPENED THEIR BORDERS:

Japan Has More Than Just a Yen Crisis: The currency crisis is merely one symptom of the country's general aversion to change after the boom-and-bust 1980s (William Pesek , 9/02/10, Business Week)

The price of Japan's aversion to change is going up. After the boom-and-bust 1980s, the government should have rid banks of bad loans, deregulated industry, made tax policies more pro-business, raised productivity, and encouraged entrepreneurship.

If Japan had done all these things, it would have a much better balanced economy today, and the yen's value would not matter nearly so much. Instead, Japan opted for Band-Aids such as massive government spending, low interest rates, and a weaker yen.

Exchange rates became a particular obsession in the 2000s as Japan focused on its export behemoths to maintain a trade surplus. To their great surprise, Japanese policymakers discovered that the currencies of nations that export more than they import go up—especially in crisis-wracked times, when investors seek safety. The bureaucrats also learned that companies, even those with strong Japanese roots, react to strong currencies. The Renault SA-Nissan Motor alliance, for example, recently announced it is increasing production in South Korea to cut its reliance on Japan as a manufacturing base.

Now, thanks to the glacial pace of change, Japan's relevance globally is waning. China's economy officially surpassed Japan's in size in August. The moral of this story? "Don't cry about the strong yen, fix the problem," says Naomi Fink, strategist at Bank of Tokyo-Mitsubishi UFJ in Tokyo.

Japan has a demographic/spiritual problem, not an economic one.

Posted by Orrin Judd at September 6, 2010 8:39 AM