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Japan Diary

October 3, 2022

The Japanese should not undervalue their own economy

ow that the yen is weakening because the BOJ(Bank of Japan) is keeping interest rates low, Japan's GDP in dollar terms will shrink further and further, falling below $4 trillion. The won has also fallen sharply against the dollar, from 1,082 won per dollar in January 2021 to 1,429 won on September 1 of this year, so it is unlikely that Japan will be overtaken by South Korea in the foreseeable future. Germany's euro has also fallen against the dollar.

Since Japan's national strength is mainly based upon its economic prowess, Japanese people are overly sensitive to the "size of GDP," but we should sit back and examine the contents of this "GDP" number a little more closely. Japan's GDP is not inflated by a financial bubble (although it is difficult to calculate precisely), which means that Japan's GDP is really formed by the production and provision of meaningful goods and services.
Moreover, unlike the United States, where the top 10% of earners own 70% of net assets, Japan is a country where the gap between the top and bottom is small. In the case of the U.S., the remaining assets of ordinary people are only 30% of the total. Perhaps GDP, too, is effectively about one-third of the nominal figure. In that case the effective size of the US economy is not much different from that of Japan. In Korea, too, only a handful of people working for large companies such as Samsung enjoy high salaries.

Japan is losing out to Korea and China in the production of consumer electronics, but it has a monopoly and oligopoly of the world market in several categories of production and export of machinery for the manufacturing of IT products, consumer electronics as well as components thereof and related advanced technology materials. These are so-called B to B products, not for consumers but for producers, which only Japanese and German companies can offer because these products require the highest quality and on-time delivery. Today, the export of electronic components alone generates almost the same amount of foreign currency as the export of home appliances in Japan's golden age.

Japan is now running a trade deficit due to soaring energy prices, but it has essentially maintained enough economic strength to cover its imports. So, why don't we just increase domestic consumption and turn a favorable cycle of increased production and investment? The media always says and writes that Japan has lost, been beaten, or is doomed, and this makes everyone feel that way, and the economy shrinks.

Japan is a country that has the power to "change things" abroad. This is because in a world of conflicting major powers, a move by a medium-sized country like Japan or Germany can change the balance drastically. Next year Japan will be a non-permanent member of the UN Security Council. It also has the ability to provide economic assistance and infrastructure building, which most countries can not afford. I wish that my fellow Japanese stop undervaluing their own strength.