WEBVTT - Japan Is Caught Between the US, China and the War on Inflation 0:00:04.160 --> 0:00:07.520 Hello, Stephanomics, here the podcast that brings you the global economy. 0:00:07.800 --> 0:00:10.840 This week, I'm in Japan, which seems for once to 0:00:10.920 --> 0:00:13.960 be right in the thicker things. For years, this country 0:00:14.000 --> 0:00:18.880 has been the odd one out in the global economy. Inflation, politics, policy, 0:00:19.400 --> 0:00:22.640 they all seem to work differently here, even though those 0:00:22.720 --> 0:00:26.200 differences have sometimes given us a sneak preview of economic 0:00:26.239 --> 0:00:30.280 troubles to come. A big financial crisis followed by years 0:00:30.280 --> 0:00:34.000 of slow growth, central bank pumping hundreds of billions into 0:00:34.040 --> 0:00:37.600 the economy, cropping up asset markets, all in an effort 0:00:37.640 --> 0:00:41.320 to stop low inflation. All of that happened in Japan. 0:00:41.960 --> 0:00:44.920 Years before it happened in the US and Europe. People 0:00:45.000 --> 0:00:49.280 talked about the Japanification of the world economy, the idea 0:00:49.360 --> 0:00:53.000 that every aging industrial society was going to end up 0:00:53.040 --> 0:00:57.920 looking like Japan. They're not saying that anymore now. Inflation 0:00:57.960 --> 0:01:00.040 has taken off in the rest of the world, and 0:01:00.160 --> 0:01:03.680 Japan might just might be starting to be more like 0:01:03.840 --> 0:01:06.959 other places. And not just in the sense that it 0:01:07.040 --> 0:01:10.360 might be finally able to change its monetary policy from 0:01:10.400 --> 0:01:14.039 the maximum loose setting it's been at for nearly a decade. 0:01:15.040 --> 0:01:18.320 Japan's also stuck in the middle of the Biden administration's 0:01:18.400 --> 0:01:22.560 hardened approach to China and spook by the invasion of Ukraine, 0:01:22.959 --> 0:01:26.520 the Japanese Prime Minister Kishida is planning to ramp up 0:01:26.560 --> 0:01:30.959 defense spending, testing the limits of the pacifist constitution that 0:01:31.040 --> 0:01:34.399 the US imposed on Japan after World War Two. I'm 0:01:34.400 --> 0:01:38.560 going to talk to Bloomberg's longtime government reporter here, Isabel Reynolds, 0:01:38.600 --> 0:01:42.400 about that a little later. I'll also talk through the 0:01:42.480 --> 0:01:46.200 challenges facing the Central Bank and all of Japan with 0:01:46.240 --> 0:01:49.200 a former senior official at the Ministry of Finance who 0:01:49.200 --> 0:01:51.600 has also been the chair of the Asia Development Bank. 0:01:52.320 --> 0:01:57.560 But first, Bloomberg's Japan economy reporter, Yoshiaki Nohara, has a 0:01:57.560 --> 0:02:00.800 story to tell you about fish. Wage is on the 0:02:00.840 --> 0:02:13.959 price of a plate of sushi. That is the sound 0:02:14.040 --> 0:02:18.200 of a tuna auction at the wall's biggest fish market 0:02:18.639 --> 0:02:25.679 to your soul market in the Bay of Tokyo, bells ring. 0:02:26.360 --> 0:02:35.079 The men haddle up with a shouting bidding gold. Looking down, 0:02:35.440 --> 0:02:40.040 I see hundreds of giant tuna all over the trading floor, 0:02:40.880 --> 0:02:46.160 some roll, some frozen, some from Japanese waters, some from abroad. 0:02:47.440 --> 0:02:51.560 Most are destined to be in mouth watering, sashiming or 0:02:51.800 --> 0:03:02.079 sushi dishes at the ground. The market seems just as 0:03:02.160 --> 0:03:08.120 big as ever, but something has changed and almost everyone 0:03:08.639 --> 0:03:16.679 is feeding the pain. Whatever. You know, My guy that 0:03:16.800 --> 0:03:22.280 this morning is a scan director of Tokyo Marine Products 0:03:22.560 --> 0:03:29.079 Whole Serah's Association. Unique prices have shot up by more 0:03:29.120 --> 0:03:33.880 than that's absolutely a matter of fact. I'm just talking 0:03:33.880 --> 0:03:37.880 about the overall prices. Of course, some items are rising 0:03:37.920 --> 0:03:48.040 by a whole lot more. Inflation has been dormant in 0:03:48.120 --> 0:03:54.160 Japan since the mid n despite policy makers taking extraordinary 0:03:54.240 --> 0:03:59.120 steps to get prices rising again. But with global inflation 0:03:59.200 --> 0:04:03.440 catching fire in the recovery after the pandemic, the heat 0:04:04.000 --> 0:04:12.040 has finally spread here too. They will, like the movie, 0:04:12.080 --> 0:04:14.960 continue to go. The auction prices will keep going up 0:04:14.960 --> 0:04:18.240 and up. They're set by these negotiations with bias, not 0:04:18.360 --> 0:04:22.279 by contracts. So for fresh fish like tuna, the market 0:04:22.320 --> 0:04:28.520 prices changing every day. You know how it works. Higher 0:04:28.560 --> 0:04:33.000 fewer prices mean extra costs or fishing boats to catch 0:04:33.040 --> 0:04:36.599 fish and transport them. On top of that, you have 0:04:36.720 --> 0:04:42.200 the impact of lingering global supply change disruptions, and now 0:04:42.279 --> 0:04:46.000 the historic collapse of the end that makes imported fish 0:04:46.320 --> 0:04:54.200 way more expensive, and forty percent of japan seafood actually 0:04:54.240 --> 0:04:59.160 comes from abroad. All of this has prices rising as 0:04:59.200 --> 0:05:02.719 the fastest rate in forty years, and the government is 0:05:02.720 --> 0:05:07.760 stepping in to help squeeze the consumers. If that sounds 0:05:07.839 --> 0:05:13.599 familiar where you are, well the similarities and there. Because 0:05:13.640 --> 0:05:18.320 the inflation rate here is still only three point six percent, 0:05:20.600 --> 0:05:24.599 you might ask, how can inflation still be so low 0:05:25.240 --> 0:05:30.159 when Japan is an island country heavily dependent on important 0:05:30.160 --> 0:05:35.760 food and energy. To understand that, I need to take 0:05:35.839 --> 0:05:46.000 you to another floor of the fish market, yosh Noble. 0:05:46.080 --> 0:05:51.040 Yoshashi is one of several hundreds of small wholesalers who 0:05:51.080 --> 0:05:55.440 buy seafood from the larger wholesalers and process it to 0:05:55.600 --> 0:06:01.159 sell to retailers. It's not just fish, it's getting price here. 0:06:01.880 --> 0:06:05.680 Sarching oil prices mean the cost of the plastic rock 0:06:05.800 --> 0:06:09.680 to stop fish going dry and to form ice boxes 0:06:09.960 --> 0:06:13.960 to keep fish cold are all going up too, But 0:06:14.200 --> 0:06:18.400 these costs are not being passed on to customers, or 0:06:18.480 --> 0:06:26.200 not yet anyway, Well, we can't. As you know, prices 0:06:26.200 --> 0:06:30.440 on restaurant manames are pretty much fixed everywhere. You can't 0:06:30.480 --> 0:06:32.760 just dump call our extra costs on our own customers. 0:06:33.680 --> 0:06:36.919 We have to swallow the pain to a certain degree. 0:06:37.520 --> 0:06:42.440 More obviously, that Yang is making things even more complicated 0:06:42.560 --> 0:06:47.200 for your Shashi. By October this year, Japan's currency had 0:06:47.279 --> 0:06:51.440 shared more than twenty against adalla at. Japan's stacked with 0:06:51.800 --> 0:06:55.839 ultra low interest rates while the US hike rates to 0:06:56.000 --> 0:07:01.120 tackle inflation. That's raised the price of your Hash's imports 0:07:01.560 --> 0:07:05.240 the sea adgents from the US and Mexico, for example, 0:07:05.920 --> 0:07:09.479 But it also means he makes a higher profit on 0:07:09.560 --> 0:07:15.120 the sushi ingredients he exports to other markets in Asia. Overall, 0:07:15.760 --> 0:07:20.680 his business managed to just stay above water, but his 0:07:20.840 --> 0:07:24.320 restaurants in Japan are losing money and he had to 0:07:24.360 --> 0:07:29.320 tap into company savings to keep paying his employees. So 0:07:29.440 --> 0:07:34.040 why doesn't he just keep raising prices for his customers? 0:07:35.320 --> 0:07:42.400 How does everyone is scared doing that in the US. 0:07:42.520 --> 0:07:45.280 It's like people think crist sykes are inevitable because costs 0:07:45.280 --> 0:07:48.000 are going up. But in our case here, we really 0:07:48.040 --> 0:07:50.200 wonder what the customers will keep coming back if we 0:07:50.360 --> 0:08:00.960 raise prices. Yoshi has she isn't alone many happenings. Companies 0:08:01.000 --> 0:08:04.880 are very reluctant to pass on costs because of this 0:08:05.080 --> 0:08:11.160 fear of losing customers not used to inflation. Two numbers 0:08:11.360 --> 0:08:16.760 demonstrate how much they absolve. Nine point one percent is 0:08:16.800 --> 0:08:21.440 a pace of rising material costs for companies, three point 0:08:21.560 --> 0:08:26.640 six percent is a pace of inflation. Consumers see that 0:08:26.760 --> 0:08:32.160 gap means squeeze the profit, and with less profit, companies 0:08:32.280 --> 0:08:36.160 keep wayses front and if they're wases aren't going up, 0:08:36.760 --> 0:08:42.360 people are less willing to accept higher prices. Japan has 0:08:42.360 --> 0:08:46.360 been stuck in this vicious cycle for more than two decades. 0:08:47.040 --> 0:08:51.800 As Bank of Japan Governor Harrohiko Crowder reminded us after 0:08:51.880 --> 0:08:57.160 a recent media now which is effectively rising by around 0:08:57.160 --> 0:09:00.160 three percent, we can't achieve our two percent inflation go 0:09:00.440 --> 0:09:06.400 stably and sustainably. What you need, isn't it by sticking 0:09:06.400 --> 0:09:10.120 with rock bottom interest rates while most of the world 0:09:10.320 --> 0:09:14.800 is tightening. The Bank of Japan hopes finally to break 0:09:14.880 --> 0:09:18.720 the cycle and the false wages up, even if it 0:09:18.960 --> 0:09:24.079 means the yng falling and the Finance Ministry spending billions 0:09:24.080 --> 0:09:27.839 of dallas propping it up, as they did this fall 0:09:28.320 --> 0:09:32.040 fourth of first time in twenty four years. It's an 0:09:32.040 --> 0:09:36.280 awkward combination, but the government and the central bank are 0:09:36.400 --> 0:09:39.800 both hoping this can be the final chapter of the 0:09:39.920 --> 0:09:46.760 country's decades long battle to raise inflation, but Japanese consumers 0:09:46.840 --> 0:09:50.560 ready for a world where prices go up year after year. 0:09:51.640 --> 0:09:55.120 I went to your Hashi Sushi restaurant in Chiba, seast 0:09:55.120 --> 0:10:06.480 of Tokyo to test the move. Steph at the sushi 0:10:06.559 --> 0:10:13.080 restaurant are getting ready for lunchtime. Restaurant manager recycle Inshida 0:10:13.480 --> 0:10:17.400 comes back from the Toyosa market with boxes packed with 0:10:17.520 --> 0:10:21.680 the fish gone for now. At the days of buying 0:10:21.800 --> 0:10:26.400 road tuna to keep on budget, she buys it frozen. Now. 0:10:28.280 --> 0:10:30.800 I really wonder how much longer we can go on 0:10:31.000 --> 0:10:33.520 like this. I just don't see an end to how 0:10:33.640 --> 0:10:36.760 your prices. We pushed up some prices on our menu 0:10:36.840 --> 0:10:40.480 a bit, but we've already been hit by another rising coast. 0:10:41.200 --> 0:10:44.760 That was the first price hike at the restaurant in 0:10:44.880 --> 0:10:50.040 nearly six years. Nishida kept many of the items unchanged 0:10:50.160 --> 0:10:59.840 out of fear of losing customers. It's lunch time now. 0:11:00.440 --> 0:11:03.960 I meet no zoie Imori, a thirty eight year old 0:11:04.080 --> 0:11:07.200 nurse who is sitting at the table with her parents. 0:11:07.880 --> 0:11:13.000 You know they've just given up on the trip to Hawaii. 0:11:13.360 --> 0:11:17.480 After calculating how much you would cost more because of 0:11:17.520 --> 0:11:22.800 a cheapm they tell me they shop for household essentials 0:11:22.840 --> 0:11:26.679 at the lowest prices, and they're only buy clothes when 0:11:26.720 --> 0:11:31.559 it's on sale. Right. I think price hikes are inevitable, 0:11:31.960 --> 0:11:37.160 but the problem is wages they aren't rising. As they 0:11:37.280 --> 0:11:40.680 finished their meal, I asked them about the lunch price. 0:11:41.559 --> 0:11:46.200 The price of the lunch special has been unchanged for years. 0:11:47.200 --> 0:11:52.480 Eight pieces of sushi, including fresh tuner and the steamed egg. 0:11:53.360 --> 0:11:57.640 It costs nine yen or six point five U S dollars. 0:11:58.360 --> 0:12:02.920 I know, I know it's a still for average tourists 0:12:03.080 --> 0:12:08.319 from overseas, and they agree this is very cheap. Yes, 0:12:08.720 --> 0:12:13.240 this is cheap. I asked them if they think the 0:12:13.280 --> 0:12:17.640 price should be hired. That discount for customers means less 0:12:17.679 --> 0:12:22.600 profit for the restaurant. Less profit means workers are not 0:12:22.679 --> 0:12:27.520 getting away. I don't think it's too cheap. The cheaper 0:12:27.600 --> 0:12:33.880 the price, the happier we are. Kroda will stepped down 0:12:34.000 --> 0:12:38.240 from the central bank soon after ten years trying to 0:12:38.280 --> 0:12:43.000 make inflation normal gain in Japan. If this restaurant is 0:12:43.120 --> 0:12:47.679 anything to go by, his job is not quite downe 0:12:52.400 --> 0:13:10.200 in Tokyo for Umberg News. I'm Yosha Ki. Yeah, m so, 0:13:10.440 --> 0:13:13.320 Isabel Reynolds has been here in Tokyo covering the government 0:13:13.360 --> 0:13:16.280 in the country for many, many years. About twenty you 0:13:16.320 --> 0:13:20.679 were saying, and I wanted to briefly dig into how 0:13:20.840 --> 0:13:24.160 all of this is feeding into Japanese politics and how 0:13:24.200 --> 0:13:28.200 the hardening lines between the US and China are also 0:13:28.320 --> 0:13:32.560 affecting Japan's strategic outlook and it's where it sees itself 0:13:32.600 --> 0:13:36.040 in the region. Is abelt Assuming that quite a lot 0:13:36.080 --> 0:13:39.120 of people listening to this podcast are not closely following 0:13:39.200 --> 0:13:43.760 Japanese politics, just give us a quick introduction to Prime 0:13:43.760 --> 0:13:46.880 Minister from your Kashida, who came into office just over 0:13:46.920 --> 0:13:50.559 a year ago. Yes, well for me, for Kia came 0:13:50.600 --> 0:13:54.360 into office as a bit of a perhaps a person 0:13:54.480 --> 0:13:57.640 lacking in personality, I would saying he managed to win 0:13:57.840 --> 0:14:00.360 the job as leader of the party despite being the 0:14:00.400 --> 0:14:03.080 most popular option with the public. So he came in 0:14:03.160 --> 0:14:07.479 with this kind of slightly devish image in terms of 0:14:07.480 --> 0:14:11.960 of security policy um and on the economy. On the 0:14:11.960 --> 0:14:14.920 other hand, his policies on COVID were very popular. He 0:14:15.000 --> 0:14:19.000 was quite conservative on that and Japan's elderly population tended 0:14:19.040 --> 0:14:22.080 to like that UM, But then all of a sudden, 0:14:22.560 --> 0:14:25.880 his predecessor and former boss Prime ministerians Or Abbe was 0:14:25.960 --> 0:14:30.400 shot dead. That unveiled a huge scandal about links between 0:14:30.840 --> 0:14:35.280 a controversial church known as the Moonies and the LDPUM 0:14:35.280 --> 0:14:38.520 and that totally underlined his support UM. So it's been 0:14:38.560 --> 0:14:42.720 falling ever since, and and issues over inflation and rises 0:14:42.760 --> 0:14:45.240 in the cost of living have certainly not helped well. 0:14:45.240 --> 0:14:46.880 I was going to ask you about that looking at 0:14:46.960 --> 0:14:49.280 his approval rating, which I think is what you'll tell 0:14:49.360 --> 0:14:51.080 me is but it's pretty it's pretty low at the moment. 0:14:51.080 --> 0:14:55.240 How is inflation affecting that, Yes, it's it's certainly among 0:14:55.560 --> 0:15:00.560 the issues that are weighing on on his support it UM. 0:15:01.480 --> 0:15:04.080 I think we can say that he's seen as someone 0:15:04.120 --> 0:15:07.040 who's perhaps not very proactive in a lot of ways. 0:15:07.160 --> 0:15:10.080 So that played into his advantage when it came to COVID. 0:15:10.160 --> 0:15:12.320 He didn't rush to open up the borders and left 0:15:12.320 --> 0:15:14.840 everyone in when people were still worried about the virus. 0:15:15.960 --> 0:15:19.320 But when it comes to inflation, is he changing things enough? 0:15:19.440 --> 0:15:21.600 Is he doing enough to help people? If you look 0:15:21.600 --> 0:15:23.640 at the polls, I think a majority would say no, 0:15:24.160 --> 0:15:27.280 and that's definitely one of the factors that's that's hurting him. 0:15:27.320 --> 0:15:28.760 And one of the things that sort of happened while 0:15:28.800 --> 0:15:31.800 I've been here in Tokyo is a is a confirmation 0:15:31.800 --> 0:15:36.440 of a big increase in defense spending. What's the significance 0:15:36.480 --> 0:15:38.520 of that, I mean obvious, Traditionally we do think of 0:15:38.640 --> 0:15:44.400 Japan as being constitutionally limited in what kind of defense 0:15:44.440 --> 0:15:46.920 build up it can do. But I see it's on 0:15:47.040 --> 0:15:49.000 course to the story you've written, and on course to 0:15:49.040 --> 0:15:52.360 spend more than Russia on defense, right, Yes, yes, I 0:15:52.360 --> 0:15:55.480 mean this is in fact a huge turning point for 0:15:55.480 --> 0:15:59.240 for Japan, and I think it's mainly inspired by Ukraine. 0:16:00.040 --> 0:16:03.400 People in Japan looked at Ukraine and realized that they 0:16:03.440 --> 0:16:06.080 could be sitting there perfectly quietly and someone else might 0:16:06.080 --> 0:16:08.800 come and attack them. Until now, I think it had 0:16:08.840 --> 0:16:12.200 been sort of assumed that if you didn't attack anyone else, 0:16:12.240 --> 0:16:15.520 well they wouldn't probably wouldn't attack you either, um, but 0:16:15.600 --> 0:16:18.280 that that mindset has definitely changed a lot. If you 0:16:18.280 --> 0:16:20.360 look at the polls, people are in favor of more 0:16:20.400 --> 0:16:22.800 defense spending, and obviously there are issues about how much 0:16:22.840 --> 0:16:24.720 more you should spend, way you should get the money 0:16:24.720 --> 0:16:27.720 for that. I mean, will Japan cut its huge pension 0:16:27.760 --> 0:16:30.240 budget to put money into defense. That would not be 0:16:30.240 --> 0:16:33.600 a very popular option, or raising in a country full 0:16:33.640 --> 0:16:38.360 of many many pensioners exactly exactly, and raising taxes is 0:16:38.440 --> 0:16:41.760 very unpopular as well. So there's still many questions over 0:16:41.760 --> 0:16:44.080 whether that where the money comes from. But I think 0:16:44.160 --> 0:16:48.040 Japan is actually reaching a historic turning point over defense, 0:16:48.160 --> 0:16:53.200 and it's happening amazingly quietly. During the Prime Minister Abbey's administration, 0:16:53.600 --> 0:16:57.520 we often saw huge demonstrations outside the Prime Minister's residents 0:16:57.520 --> 0:16:59.800 over what he was doing in defense, which was which 0:16:59.800 --> 0:17:03.640 pay else in comparison really in terms of size with 0:17:03.760 --> 0:17:07.320 what Prime Minister Kishido is doing despite his soft image. 0:17:07.680 --> 0:17:11.199 Of course, it was Prime Minister Abbe who had was 0:17:11.240 --> 0:17:15.240 the part of a shift in Japan's approach and a 0:17:15.280 --> 0:17:17.920 sort of a tougher stance of these of each China, 0:17:18.000 --> 0:17:20.840 at least on the sort of strategic front. I mean, 0:17:20.880 --> 0:17:22.200 I guess we have to. It's not they're not worried 0:17:22.200 --> 0:17:25.159 about being invaded by Russia when they spend this money. 0:17:25.359 --> 0:17:29.000 It's very much with with China and defense against China. 0:17:29.040 --> 0:17:32.400 In mind, I saw that he did meet with President 0:17:32.760 --> 0:17:37.800 Sieging being last month in Thailand. You know, how did 0:17:37.800 --> 0:17:40.119 the summit go and how has all this fed into 0:17:40.480 --> 0:17:43.920 its relations with China? Because China is still Japan's biggest 0:17:43.920 --> 0:17:47.640 trading partner, even as we're talking about these massive increases 0:17:47.640 --> 0:17:50.640 in defense spending, right, I mean, the relationship was still 0:17:50.640 --> 0:17:53.840 phenomenally important in terms of the economy for both sides. 0:17:54.440 --> 0:17:58.439 Um So that was was the first big meeting on 0:17:58.480 --> 0:18:01.280 that scale for Japan and China now for three years, 0:18:01.640 --> 0:18:05.159 um um we I think we see a very different 0:18:05.160 --> 0:18:09.879 relationship between Japan and China now, um largely because of 0:18:10.160 --> 0:18:12.359 Beijing's clampdown on Hong Kong. I think that was a 0:18:12.400 --> 0:18:16.959 turning point for Japan where they started to realize that 0:18:16.960 --> 0:18:19.120 that China was going to be more difficult to deal 0:18:19.160 --> 0:18:22.560 with them they realized. Um So, we've seen a more 0:18:22.880 --> 0:18:26.480 robust attitude from Japan towards China on many fronts since then. 0:18:27.280 --> 0:18:30.320 On the other hand, I think they do not, certainly 0:18:30.320 --> 0:18:33.760 not everybody. And then the administration kind of appreciates what 0:18:33.920 --> 0:18:37.720 America is doing on Taiwan. Um. For example, the visit 0:18:37.760 --> 0:18:40.000 by Nancy Pelosi EA to Taiwan did not go down 0:18:40.080 --> 0:18:43.400 very well with everybody in Japan. UM. They don't like 0:18:43.680 --> 0:18:47.720 UM what they might see as unnecessary provocations. So where 0:18:47.760 --> 0:18:50.080 they can cooperate, they say they do want to and 0:18:50.119 --> 0:18:52.880 they want to continue their economic ties as as much 0:18:52.920 --> 0:18:55.840 as they can. UM. At the same time, we're saying 0:18:55.880 --> 0:18:59.120 reports that this huge increase in defense spending, a lot 0:18:59.119 --> 0:19:01.480 of it's going to be intercepting missiles down on the 0:19:01.520 --> 0:19:04.840 Southwestern Islands, which are close to Taiwan UM, so they're 0:19:04.840 --> 0:19:06.720 going to be trying to be ready for whatever might 0:19:06.800 --> 0:19:09.639 be coming down the pike. The way you describe that, 0:19:10.440 --> 0:19:14.000 there was a world in which sort of economics and 0:19:14.119 --> 0:19:17.120 geopolitics could go on different tracks, and that was very 0:19:17.200 --> 0:19:22.160 much a world that Japan lived in the last few decades, 0:19:22.520 --> 0:19:26.240 China becoming a much more important economic partner, even as 0:19:26.400 --> 0:19:28.639 the political stance was very much, you know, as an 0:19:28.640 --> 0:19:34.280 ally of the US and in a defensive stance visa v. China. 0:19:34.680 --> 0:19:38.240 I think President Biden would say, you can't have those 0:19:38.280 --> 0:19:42.359 things running on separate tracks anymore. And we've seen policies 0:19:42.400 --> 0:19:45.679 from the US, like the attempts to limit access to 0:19:45.720 --> 0:19:48.480 the sort of cutting edge semiconductor technology which Japan is 0:19:48.560 --> 0:19:51.080 kind of in the cross airs, and we talked about 0:19:51.160 --> 0:19:56.480 that on a previous program with the Japanese Trade minister. 0:19:57.520 --> 0:20:01.560 Do you think do you think that Japanese politicians to 0:20:01.720 --> 0:20:06.040 Japanese people are ready for a world in which you 0:20:06.160 --> 0:20:11.720 actually have to start picking sides, not just politically but 0:20:11.840 --> 0:20:14.960 also economically. Or do they think you can somehow have 0:20:15.080 --> 0:20:17.600 kind of parallel supply chains, you know that sort of 0:20:17.680 --> 0:20:20.679 keep the US happy but also continue training with China. 0:20:20.720 --> 0:20:23.760 How are people grappling with that? Um? Yeah, and I 0:20:23.760 --> 0:20:25.879 think they will put it out at the last possible minute. 0:20:25.880 --> 0:20:27.480 I mean, there may be ways that the US can 0:20:27.480 --> 0:20:29.760 force them to do things that they don't really want 0:20:29.800 --> 0:20:32.720 to do in terms of the economy. Um. But as 0:20:32.720 --> 0:20:34.560 far as they possibly can, I think they are going 0:20:34.600 --> 0:20:38.240 to continue with those things because as everyone knows there's 0:20:38.240 --> 0:20:41.359 a risk of a recession next year, Brimnisua is not 0:20:41.400 --> 0:20:43.919 going to want to do anything that will damage the 0:20:43.960 --> 0:20:48.800 economy in any way. So I think, yeah, they will. 0:20:48.920 --> 0:20:50.800 They will push as hard as they can to to 0:20:50.880 --> 0:20:53.200 stay where they are. It's interesting that it's been so 0:20:53.320 --> 0:20:56.240 quiet that he's managed to do this big thing on defense, 0:20:56.640 --> 0:20:58.840 and it hasn't been as contentious as these rather more 0:20:58.880 --> 0:21:02.840 modest steps at Prime Minister Abbert it Took. I just 0:21:02.880 --> 0:21:06.720 wondered whether would it start being contentious if it seemed 0:21:06.760 --> 0:21:11.760 if he if the Prime Minister was more explicitly saying, 0:21:11.960 --> 0:21:15.400 you know, our relations with China have to change going forward. 0:21:16.880 --> 0:21:19.679 My sense is that even though the public in Japan 0:21:19.760 --> 0:21:23.359 and China both still feel I think, quite hostile toward 0:21:23.440 --> 0:21:27.520 one another, um, I think the strength of the business 0:21:27.560 --> 0:21:30.760 lobby in Japan is such that it's going to be 0:21:30.840 --> 0:21:33.800 quite hard for for Kia to do that kind of thing. 0:21:33.800 --> 0:21:36.000 And to be honest, it's not really his style to 0:21:36.080 --> 0:21:39.320 go out and say something very aggressive, you know, if 0:21:39.320 --> 0:21:42.639 he doesn't really have to. So I think if Japan 0:21:42.760 --> 0:21:44.800 is pushed into a corner by the US, of course 0:21:44.840 --> 0:21:46.679 it will go along because the US is always going 0:21:46.720 --> 0:21:50.200 to be its most important partner. But as far as 0:21:50.240 --> 0:21:52.720 it can, it wants to cling onto that strong relationship 0:21:52.880 --> 0:21:56.080 in the economy with China. It's fascinating because exactly the 0:21:56.080 --> 0:21:59.720 same conversation is happening in the US, where businesses are 0:21:59.720 --> 0:22:05.000 all hoping and pushing and saying, we do what it's 0:22:05.040 --> 0:22:09.120 not practical to decouple this global economy, and we don't 0:22:09.160 --> 0:22:18.000 know what's going to happen, Isabel Reynolds, thank you so much. So. 0:22:19.080 --> 0:22:22.520 Ko and Nakao was Japan's top currency official at the 0:22:22.520 --> 0:22:25.760 Finance Ministry. Then he ran the Asian Development Bank until 0:22:27.119 --> 0:22:30.919 he's now chair of the Mitsuho Research and Technologies Institute 0:22:31.400 --> 0:22:33.959 and as one of the names floated to replace Governor 0:22:34.000 --> 0:22:39.520 Coroda at the Bank of Japan. Nakasan we heard in 0:22:39.640 --> 0:22:44.119 the piece that my colleague Yoshi did for the podcast. 0:22:44.560 --> 0:22:46.919 You know, families are not enjoying a rise in the 0:22:47.000 --> 0:22:50.840 cost of the things that they buy, but those rising 0:22:50.880 --> 0:22:53.560 prices they do hold out the possibility that we might 0:22:53.600 --> 0:22:57.520 be at the end of these years of battling deflation 0:22:57.880 --> 0:23:02.640 in Japan and policy can possibly start to be more normal. 0:23:03.119 --> 0:23:04.840 So I just wonder whether what do you think. Do 0:23:04.880 --> 0:23:06.800 you think it's different this time? Do you think there 0:23:06.880 --> 0:23:09.880 is an opportunity for Japan to break out of that cycle. 0:23:10.720 --> 0:23:14.920 I'm not sure yet, but many people, including the b O, 0:23:15.040 --> 0:23:18.520 j and politions and also scholars, have been saying that 0:23:18.640 --> 0:23:22.480 we need some moderate inflation and to get out of 0:23:22.520 --> 0:23:27.560 the deferition definition is really bad. So I understand the logic, 0:23:27.640 --> 0:23:31.720 but this time this inflation is more by the important 0:23:33.080 --> 0:23:37.400 inflation because of community prices and because of the depreciation. 0:23:38.040 --> 0:23:41.720 So if infreation is based on the wage increase and 0:23:41.760 --> 0:23:46.119 the more permanent move over prices, which are healthy, it's okay. 0:23:46.160 --> 0:23:50.600 But this is a little bit more abrupt. And we've 0:23:50.640 --> 0:23:54.640 seen the yen has obviously fallen very dramatically this year. 0:23:55.359 --> 0:23:57.320 The UK we've had to fall in the power as well. 0:23:57.359 --> 0:24:01.119 But I've seen some people say that fall in the 0:24:01.320 --> 0:24:05.600 end will be fantastic for Japanese industry. That you could be, 0:24:06.400 --> 0:24:09.200 it will be part of the rebirth of Japan as 0:24:09.200 --> 0:24:12.800 an exporting nation. But I know others think it's deeply damaging. 0:24:12.840 --> 0:24:15.040 So with which side were you on? I don't like 0:24:15.200 --> 0:24:17.879 cheap n I don't like cheapen. The good everything is 0:24:17.960 --> 0:24:20.840 cheap in Japan, which is making the income I said, 0:24:20.880 --> 0:24:24.720 personally everything low. And these are the japan going back 0:24:24.720 --> 0:24:27.480 to the developing countries. And it's not that it's not 0:24:27.560 --> 0:24:30.959 a good thing for the Japanese life or Japanese presence, 0:24:31.080 --> 0:24:38.000 Japanese life, Japanese life, Japanese presents and whatever. I don't 0:24:38.000 --> 0:24:41.600 like the cheap cheap in Japan. It's not good for 0:24:41.640 --> 0:24:45.560 the Japanese economy. For several reasons. Once again, the imported 0:24:45.680 --> 0:24:51.520 prices will or up and uh, the competitiveness gained by 0:24:51.640 --> 0:24:55.159 the cheap being is not necessarily healthy and good for 0:24:55.240 --> 0:24:58.679 the economy. And in addition, as the secrator rule being 0:24:58.800 --> 0:25:05.720 you worked for him yea being mentioned through curlerency, it's 0:25:05.760 --> 0:25:09.560 good before the economy because of the effort to gain 0:25:09.600 --> 0:25:14.520 compete compete giveness through the more real things, and also 0:25:14.840 --> 0:25:18.000 for financial industry to have a stable and a kind 0:25:18.000 --> 0:25:22.320 of stronger courlerency is much better than the weakening. That 0:25:22.400 --> 0:25:24.199 was the view of the Germans for many years, that 0:25:24.240 --> 0:25:27.760 it's a constraint that makes you efficient because you can't 0:25:27.800 --> 0:25:30.080 just rely on being cheaper. I'm afraid the UK is 0:25:30.119 --> 0:25:32.720 not set on that part, but we will see. And 0:25:33.440 --> 0:25:36.760 the Bank of Japan faced very early in trying to 0:25:36.800 --> 0:25:40.800 deal with the problem of the risk of deflation, the 0:25:40.800 --> 0:25:44.320 problem that interest rates could not fall below the zero 0:25:44.680 --> 0:25:46.960 and obviously lots of other central banks have had to 0:25:46.960 --> 0:25:49.920 deal with that in the global financial crisis, but now 0:25:50.240 --> 0:25:53.160 Japan is the last one standing. Everybody else has been 0:25:53.240 --> 0:25:56.040 raising interest rates. That the Bank of Japan still has 0:25:56.080 --> 0:26:00.760 this quite extreme version of um not just stative easy 0:26:00.880 --> 0:26:06.800 buying bonds, but also buying other assets, but also promising 0:26:06.840 --> 0:26:10.119 to control long term interest rates, the so called yield 0:26:10.119 --> 0:26:12.600 curve control. How on earth are you going to get 0:26:12.600 --> 0:26:14.280 out of it? Do you think? Yeah, I think it's 0:26:14.400 --> 0:26:17.760 very difficult to tell them. The build that can change 0:26:17.800 --> 0:26:22.000 the policy in thestitution in Japanese are different from other countries. 0:26:22.119 --> 0:26:26.360 And in addition, even in these conditions because of imported 0:26:26.480 --> 0:26:32.560 the prices and also the commodity prices high, Japan's price 0:26:33.200 --> 0:26:37.560 CPI right is still more moderate than others. It is 0:26:37.640 --> 0:26:41.400 very clear that the wages are not that so much 0:26:41.720 --> 0:26:45.879 increasing at this moment. The America has faced with the 0:26:46.160 --> 0:26:51.400 very high increasing ages but because of the exit from 0:26:51.760 --> 0:26:57.000 a pandemic and also because of a great resignation kind 0:26:57.000 --> 0:26:59.600 of phenomena. But the in Japan is not the happening. 0:26:59.680 --> 0:27:04.280 So lestitution is different. But uh, it is becoming more 0:27:04.320 --> 0:27:09.640 clear clearer that the bog policies of irritical control. As 0:27:09.640 --> 0:27:13.600 you mentioned, the quotitative is massive one including some risk 0:27:13.640 --> 0:27:18.400 as set like a reed or real estate. These combinations 0:27:19.480 --> 0:27:24.639 have more career clearly have a more side effect which 0:27:24.680 --> 0:27:29.400 is bad, including as if the government can issue government 0:27:29.440 --> 0:27:35.159 bond that very low cost to almost their cost, so 0:27:35.280 --> 0:27:40.080 it's uh damaging that the discipline of our piscal policies 0:27:40.160 --> 0:27:45.880 and also the spread for the intermediately banks is very small, 0:27:46.359 --> 0:27:50.840 which makes the bank activity more conservative or less active. 0:27:51.160 --> 0:27:57.639 And also in addition, Exchenerate is often influenced by the 0:27:58.200 --> 0:28:02.400 easy matter policy. So it is becoming clear that the 0:28:02.440 --> 0:28:05.399