Monday, November 19, 2012

Discussion Topic 11/19/2012;_ylt=Atam5NIvFwBJDAmLc3ema0CiuYdG;_ylu=X3oDMTQ4MHVzbDl1BG1pdANDTkJDIFRvcCBTdG9yaWVzBHBrZwMzNmI5MTEzZC03MmM1LTMyZWYtYTZmZC1iZGViNzFlMThhNjIEcG9zAzQEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBHZlcgNlZDcwZDM3Yy0zMWE3LTExZTItYjdiYS00MzA0NWRlMGYwZjI-;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3
What do you think about the similarities and differences between US and Japan?


  1. Tim Shoji
    Japan is going through a critical period right now: high debt, persistent deflation, and a paralyzed government that can't make important decisions. The debt is much higher than the U.S., but like the article says, it is largely borne by its own citizens (Japan has a high savings rate). Politically, the new ruling party DPJ has been unable to pass any important measures. The dynamic in Japan is different than the U.S., but for all intents and purposes we can say that just like how Republicans and Democrats can't agree, Japanese political parties have also engaged in a very bitter fight for the last few years and unable to get anything done.

    Regarding the deflation, unlike the U.S., the monetary policy in Japan (by Bank of Japan) has largely been ineffective; at the end of the day, if people don't want to spend money, it doesn't matter how cheap the credit is. Japanese economy suffers from some structural problems that America doesn't face, mainly that there's more supply than demand. Basically, people don't want to buy things. Japanese companies are producing a lot of goods that Japanese consumers don't want, so they're NOT spending their money.

    Here's what I think Japan needs to do:
    1. Sign the Trans-Pacific Partnership and open up their market to the rest of the world. If they get rid of their archaic views on trade, and stop protecting certain industries, free trade will ultimately benefit Japanese consumers.
    2. As a nation, they have to reform their corporate governance structure. A lot of Japanese boards aren't actually accountable to their shareholders, and managements do not face enough pressure to innovate and improve.
    3. Improve their immigration policy, to allow the importation of cheap, efficient labor. Despite being an advanced economy, Japan is one of the most closed-societies in terms of allowing foreigners to come in to work.

  2. Kalyan Kanakamedala
    I echo Tim's second point on necessary policy changes in Japan. I know, in the healthcare sector, the government tightly controls profit margins, and this has a dampening effect on innovation. I imagine it might be similar across other sectors. In my opinion, innovation is a major factor which differentiates the United States from Europe ( and Japan, and it is affected by taxes on monetary gains, the education system, and other elements related to extent and equity of opportunities. However, at the same time, the similarities between the decades-long depression in Japan and the current climate in the United States should serve as a rather forceful message to politicians that a bi-partisan and effective approach to the fiscal cliff must be reached.

  3. Mengyao Kong
    To be honest, I am not as knowledgeable as Tim for this topic. I have less opinion what is going on in Japan. However, as an advanced economy in the world, I think there are a couple of things I think will work:
    1. Open the gate and encourage the trade, less subsidy on their industry, this kind of subsidiary thing never work. For instance, what did we try to do 10 years ago, the government called it we use the market to exchange the high tech for auto industry. What do we have right now? I heard there is a Chinese car got one star rating for driving security rating over five. It is like a humiliating raring. Sometimes we have to expose our kids in the real world to make them grow up.
    2. The relationship with China. Nobody wants to see anything severe of the issue in Diaoyu Island. l hope it is done in a peaceful way (Maybe I am unrealistic). However, this anti-Japanese thing doesn't work like it seem to be. At the time of 1919, we didn't use the goods from Japan, which worded because all products are produced in Japan and shipped to China. The only party who had loss is Japanese manufacture. Right now, we have manufacture develop and manufacture tons of stuff labeled brand of Japan but actually help our economy.

  4. Tian Tan
    Rumors are that many hedge funds are buying CDS of Japanese companies like Sony, Panasonic and Nippon Paper which means they are betting on financial distress of these seemingly unbeatable corporations. Many of these big Japan companies reported decreased profit this year and their credibility has been questioned by the market.

    Like Tim said, Japan is in a more difficult situation than USA is. I think the most important threat for JAPAN is that their economic capacity. Unlike USA and China, which are naturally big markets due to their population, vast territory and abundant resource reserves, Japan is highly dependent on export. If Japan lost their technology edge someday in the future, their net export will drop sharply and they are going to have big trouble.

  5. Glenn Alpert
    I'd like to learn more about Japan's situation. Kyle bass, who spoke at the UVA investment conference had a lot to say about the topic:

    "The fallacy of the belief that countries that print their own currency are immune to sovereign crisis will be disproven in the coming months and years. Those that treat this belief as axiomatic will most likely be the biggest losers. A handful of investors and asset managers have recently discussed an emerging school of thought, which postulates that countries, as the sole manufacturer of their currency, can never become insolvent, and in this sense, governments are not dependent on credit markets to remain fiscally operational. It is precisely this line of thinking which will ultimately lead the sheep to slaughter."

    in other words, if one thinks that a government which prints their own currency is immune to insolvency and not dependent on credit markets, they are mistaken.

  6. Pian Li
    The biggest difference between the two economies is that Japanese economy is more due to its domestic development while US problems occurs because of the external debts. Firstly, in the past years, Japan failed to stimulate its domestic demands while the situation in US is not that serious. According to HSBC HK, Japan’s economic development over the past decade shows that it’s been extremely dependent on exports and external demand. Secondly, Japan's bond market is not doing well. Its extra yield that investors demand to hold 20-year government bonds instead of 10-year bonds has increased to 92 basis points, the most since July 1999, according to data compiled by Bloomberg. In contrast, US is not doing well because it owes too much to other countries. However, the US can recover quicker than Japan because its domestic consumption ability is more powerful. If people are not spending money, then no demand, no sales, no revenues of factories, no manufacturing, etc.

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