Japanese Prime Minister Shinzo Abe File photo of a press conference held at the Prime Minister's residence in Tokyo on September 11, 2019. (Xinhua News Agency/Photo)
In 1960, former Japanese Prime Minister Kishi Nobusuke was assassinated by domestic extreme right-wing elements and survived by chance. 62 years later, his grandson, another former Japanese Prime Minister Shinzo Abe, did not survive.
On the morning of July 8, 2022, Shinzo Abe was shot while giving a public speech in Nara, Japan. He was pronounced dead after being sent to the hospital for rescue. He was 67 years old.
Abe is the first person born after World War II , and he is also the longest-serving prime minister in Japanese history. The " Abenomics " he proposed has dominated Japanese economic policy for a long time in the past decade, solving the "deflation" problem that has long plagued society to a certain extent and effectively boosting exports.
Since the conflict between Russia and Ukraine and the start of the U.S. interest rate hike cycle, the return of the U.S. dollar has caused the Japanese yen to become the major international currency that has depreciated the most recently. The reason is that Abenomics has long pursued a policy of low interest rates and even negative interest rates, making the Japanese yen an "arbitrage" tool for international hot money speculation.
On June 30, 2022, Russian President Putin signed a presidential decree ordering the nationalization of the oil and gas development project "Sakhalin 2" in the Russian Far East region. The participating Japanese companies Mitsui & Co. and Mitsubishi Shoji is facing the dilemma of being kicked out of the project.
At the same time, the imported inflation caused by the war and the excessive depreciation of the yen have raised the import of raw materials and residents' living costs, making the Bank of Japan's low interest rate policy increasingly seem "tasteless." The economic recovery has stalled, but prices have continued to rise, and calls for interest rate hikes have become rampant.
The market is worried that in order to maintain domestic economic growth, the Bank of Japan will allow the yen to continue to depreciate, even if the possibility of financial risks caused by this is increasing.
Excessive depreciation of the Japanese yen will not only trigger currency selling and competitive devaluation in other Asian countries, further weakening the export capabilities of other countries, but they are also the main triggers of the 1997 Asian financial crisis. However, the "destructive power" of the yen shock to neighboring countries is no longer as good as before.
According to World Trade Organization WTO calculations, Japan's share of global export trade has dropped from about 8.8% in 1996 to 3.7% in 2021, reducing the pressure of competitive devaluation. At the same time, most Asian countries have implemented a floating exchange rate system and continuously strengthened foreign exchange reserves, adding a "safety cushion" for the possible financial crisis.
Abenomics was a turning point in Japan’s “lost 20 years”. Since then, the Japanese economy has ushered in a rare 10-year recovery period. However, in the face of a more complex international situation, this strategy has become "stretched".
"Yen depreciation, energy ban, and rising inflation" are three sharp arrows shooting at the Japanese economy at the same time. How much of Abe’s economic legacy can he leave behind?
The Bank of Japan "sticks to" low interest rates
One of the most eye-catching events in the international market in 2022 will be the "exchange rate war" between the Bank of Japan and short sellers. On June 24, the Japanese yen exchange rate was 136 yen per US dollar, hitting a 24-year low.
As the second largest overseas holder of U.S. debt, Japan has aggressively sold U.S. debt in the past few months. According to data from the U.S. Treasury Department, Japan reduced its U.S. debt holdings by $73.9 billion in a single month in March this year, setting a record. In the first four months of this year, Japan reduced its holdings of U.S. debt by a total of $107.8 billion.
If we look closely at the root cause, it lies in the Federal Reserve 's interest rate hikes starting in November 2021, and the shift in monetary policy from easing to tightening. Japan has been continuously reducing its holdings of U.S. debt since December 2021.
"Because the Bank of Japan has pursued low interest rates for a long time, and Japan is the most active foreign exchange trading market in the world, the yen has always been the currency of choice for 'arbitrage' of international funds." Chen, who works as a foreign exchange analyst at a foreign bank in Shanghai Bin explained to Southern Weekend reporters.
Since the Bank of Japan has maintained low interest rates and low inflation for many years, investors will borrow money in Japan at low interest rates and then buy U.S. bonds to make a profit. In order to avoid fluctuations in the exchange rate , large funds will convert their Japanese yen into US dollars, which is equivalent to shorting the Japanese yen.
As the Federal Reserve raises interest rates and funds return to the United States, the Japanese yen faces sharp depreciation. In particular, this year's Federal Reserve significantly raised interest rates at its June meeting and the European Central Bank's June meeting announced that it will raise interest rates for the first time. International funds are betting that the Bank of Japan is likely to abandon its low interest rate policy.
As a result, market funds and the Bank of Japan started a "long-short war." On June 15, Japan's 10-year Japanese bond futures suffered the largest single-day drop since 2013, triggering the exchange's circuit breaker mechanism twice, and finally closed at 0.271%, higher than the 2.1 basis point target set by the Bank of Japan.
Bank of Japan President Kuroda Haruhiko quickly hit back. He made it clear on the morning of June 17 that he would continue to buy 10-year Treasury bonds without an upper limit on the yield benchmark of 0.25%. The central bank finished flexing its "muscles", and the 10-year Japanese bond interest rate soon fell back below 0.25%.
Japan, a manufacturing powerhouse, focuses on export data. The economic policies of low interest rates and a "weak yen" in Abenomics can boost export trade, which is particularly beneficial to large consortiums holding large amounts of overseas assets.
For example, Japan's Sony Group. According to its 2021 financial report (as of March 2022) released in May 2022, the group's operating profit increased by 26% year-on-year to 1.2023 trillion yen, which was the first time in history that it exceeded 1 trillion yen. Yuan mark.
there is also Toyota Automobile. In fiscal year 2021, its operating profit increased by 36% year-on-year to 2.9956 trillion yen, setting a new record in the history of Japanese companies. Toyota explained in its financial report that in addition to factors such as the recovery from the epidemic and increased production, the surge in profits in 2021 will also be boosted by the depreciation of the yen, absorbing part of the profit decline caused by the appreciation of raw materials.
These large companies will exchange overseas profits back for Japanese yen. The greater the depreciation of the Japanese yen, the more Japanese yen they will eventually receive in exchange, which is enough to cover the increase in raw material imports caused by the depreciation.
These funds can further improve employee benefits, which is expected to boost consumption. According to the Nihon Keizai Shimbun report, Japan's largest economic group "Keidanren" announced the first statistical results of summer bonuses for Japan's large companies in June 2022. The average agreement amount for 105 companies in 16 industries was 929,259 yen (approximately (total RMB 45,700), a year-on-year increase of 13.81%, which was the first time in four years that this number turned from negative to positive.
Energy is facing a bottleneck
However, the depreciation of the yen is a "double-edged sword", which will also increase companies' import costs, raise prices, and intensify financial market fluctuations, especially after the Russia-Ukraine war.
Since early March, large trading companies have advocated to the Japanese government the benefits of retaining rights and interests in energy cooperation with Russia. Japanese Prime Minister Fumio Kishida finally made it clear at the House of Representatives meeting on March 31 that he "does not intend to withdraw", which is a completely different stance from the United States and the United Kingdom, which have withdrawn from Russian business.
Japan's current energy investments in the Russian Far East include the "Sakhalin 1" project and "Sakhalin 2", both of which involve the export of crude oil and liquefied natural gas (LNG). Japanese investors in the Sakhalin No. 1 project include the Japanese Ministry of Economy, Trade and Industry, Itochu Corporation and Marubeni Corporation, while the No. 2 project is invested by Mitsui & Co., Ltd. and Mitsubishi Corporation. After the Russo-Ukrainian war, British Shell and ExxonMobil successively decided to withdraw from the Sakhalin 1 and 2 projects, leaving only Russia and Japan as shareholders.
Japan’s energy has long relied on imports. According to Nihon Keizai Shimbun, Japan’s LNG imports from Russia accounted for 8.2% of total imports in 2020, and crude oil accounted for 4.1%. Among Russian energy supplies to Japan, about half of the crude oil imports come from Sakhalin 1 and 2, and all LNG imports come from the Sakhalin 2 project.
Sakhalin No. 1 and No. 2 provide Japan with low-price energy, especially LNG. It is almost an energy line "tailor-made" for Japan. Its annual output is 10 million tons, of which 6 million tons are supplied to Japan. , and the purchase cost is a fraction of the market spot price. Once Japan withdraws, electricity and gas prices, which are already tending to rise, will rise further, raising inflation.
The Japanese government has decided not to withdraw from the above-mentioned projects for the time being, but still stated that it will reduce Russian coal imports.Until June 27, at the G7 summit in Germany, Fumio Kishida said on the issue of food security: "Russian President Putin claimed that the cause of the world food crisis is due to the G7 sanctions on Russia. This is completely full of lies."
6 On March 30, Russian President Vladimir Putin signed a presidential decree, ordering the transfer of the operation of the Sakhalin 2 project to a newly established legal person in Russia and the transfer of the assets of the current operating company free of charge. Mitsui & Co., Ltd. and Mitsubishi Corporation, which are Japanese companies involved in this business, may be excluded from the operating framework in the future.
"There is a high probability that the assets and operating rights of the two companies will be cancelled." Zhao Hongwei, a professor at Japan's Hosei University and a senior researcher at the Renmin University Chongyang Institute of Finance, pointed out to Southern Weekend reporters that although among developed countries such as the G7, Japan's sanctions on Russia The will is relatively "negative", but Fumio Kishida lacks certain experience in dealing with international issues.
"Kishida Fumio has made certain misjudgments on this issue." Jinan University professor and researcher at the International Think Tank (CCG) Wu Fei also pointed out, "Kishida Fumio and his predecessor Abe have adopted different positions. Abe A more balanced approach has been adopted in relations between the United States and Russia. "
He explained to Southern Weekend reporters that even during the Cold War and the collapse of the Soviet Union, the Soviet Union and Russia did not stop the supply of natural gas to European and other countries. . After the 1973 oil crisis , Japan gradually realized the importance of importing energy from Russia. In addition, the unresolved issue of the four northern islands between Japan and Russia eventually led to the development of the Sakhalin project.
"Russia's move is quite 'clever.'" Zhao Hongwei described that according to the equity structure of both parties, Japan accounts for a total of 22.5% of the investment ratio, and the Russian majority shareholder Gazprom is 50% + 1 share. After Russia establishes a new company, foreign companies need to make it clear to Russia within one month whether they agree to the acquisition. If they do not agree, they must sell their original shares to Russia.
Japanese media commented on this move as a "disturbance plan." If Japan agrees to participate in the new enterprise, Russia will break through the economic sanctions policy of G7 and other countries that "not invest in Russia" in disguise.
At present, Russia will still maintain the purchase contract with Japan Electric Power (until 2029). If it loses the right to operate the joint venture, Japan will only be able to purchase spot natural gas at high prices from the market starting from 2030. The worst-case scenario may be that Russia directly breaks the purchase agreement and Japan falls into an energy crisis.
Tatsuki Terasawa, chairman of the Japan Energy Research Institute, wrote in an article that "taking the Russia-Ukraine war as an opportunity, the reorganization of energy trade will accelerate decoupling. Japan, which relies heavily on overseas energy, is more vulnerable than Europe in terms of energy security."
Energy shortage Side effects have already appeared. According to data released by Japan's Ministry of Internal Affairs and Communications, Japan's consumer price index (CPI) composite index in May was 101.6, an increase of 2.1% from May last year, and an increase of more than 2% for two consecutive months. Energy purchases alone pushed CPI up by 1.26 percentage points. Electricity bills nationwide rose 18.6% that month, while gasoline prices rose 13.1%.
Inflation Dilemma
The growth in export volume driven by the depreciation of the yen is being eroded by rising raw material prices and imported inflation.
Since the successive bankruptcies of Japanese financial institutions in the 1990s, Japanese society has been experiencing deflation for a long time. The low temperature economy has caused companies to stagnate in investment in equipment and talents. Low growth, low consumption, and low inflation have become the norm in society.
In order to restore economic vitality, Japan became the first developed country to try zero interest rates and quantitative easing in 2001, but the economy has always struggled to improve.
After taking office as Prime Minister of Japan for the second time in 2012, Abe officially proposed his own "Abenomics".
"Abenomics" is summarized as the three-arrow theory. The first arrow refers to loose monetary policy , which is intended to solve the problem of deflation. The second arrow points to flexible fiscal policy aimed at adjusting public debt. The third arrow is structural reform, which aims to improve social productivity and promote the development of the private economy.
Abe’s primary goal is to transform “deflation” into “inflation.” Inflation is not a completely derogatory term. Although inflation points to rising prices, it also has a positive side - increasing market vitality.
Starting in 2013, the Bank of Japan decided to significantly increase its purchases of Japanese government bonds and risky assets through quantitative easing. In early 2016, some banks began to implement negative interest rates, and the government gradually became the largest buyer of financial assets such as debt and stock markets. In September 2016, the Bank of Japan launched the "Yield Curve Control (YCC)" policy, which fixed the 10-year government bond yield near 0% and did not set a government purchase limit to adjust the intensity of currency injection.
The above-mentioned series of measures once transformed the economy from deflation to close to the 2% inflation target. Japan's nominal GDP has also continued to grow since 2012, which is the first time since the mid-1990s.
Behind deflation is the public's reduction in consumption and the difficulty in selling goods, which has caused companies to reduce production and even cut wages and layoffs. "If a country's inflation rate does not reach 2%, it means that things cannot be sold and companies cannot make much money. Deflation is more terrifying than inflation." Zhao Hongwei, who has lived in Japan for more than 36 years, feels deeply.
He once served as a China investment consultant for a large Japanese trading company. The company originally wanted to invest in an industrial park in China. It negotiated with the local government and the bank was even willing to grant low-interest loans. However, in the end the project failed, even though the company was in the bank account at the time. There is also more than 200 billion yen in cash lying on it.
"Japan also has the same disease of big companies, which are risk-averse and don't like to spend money." The result is that if the company does not expand or expand its employees, employee wages cannot be increased, let alone investment in talents and new technologies. The reality is that large companies have invested their money overseas, and the domestic economy has still not improved despite rounds of monetary easing.
This extreme aversion to risk is called a "balance sheet recession" by Nomura Securities Chief Economist Koo Chaoming , who once served as an economic adviser to the Abe government.
He pointed out that in Japan, it is precisely because everyone uses funds to repay debts and is unwilling to lend money even if there is an opportunity, or to use funds to expand production. As a result, the central bank's quantitative easing cannot be effective, and a large amount of funds are hoarded in Japan. In the financial system, there is no way to enter the real economy.
Abe wants to drive private economic development (third arrow) through quantitative easing (first arrow) and government borrowing (second arrow), but he cannot solve the demographic problems caused by aging and low birthrate and enterprises The question of willingness to invest in .
However, what is worse is that with the above-mentioned energy crisis and the depreciation of the yen, consumer prices for companies and residents have risen first. According to data released by the Bank of Japan, the import price index in May increased by 43.3% year-on-year, of which the contract trade part, mainly energy and raw material prices, increased by 26.3%.
Today, Abe’s first arrow has lost its usefulness, and the third arrow is also difficult to work.
The future of "Abenomics" remains a mystery
According to data from the Japanese Cabinet Office in May, Japan's GDP once again experienced negative growth in the first quarter, down 1% on an annual basis, and has continued to decline since the third quarter of 2021.
Due to the epidemic and regional conflicts, the GDP performance of most developed countries has been unsatisfactory. However, Credit Suisse Managing Director Tao Dong wrote that in the past ten quarters, the Japanese economy has experienced negative growth in six quarters. Japan The economic recovery after the epidemic recession lags far behind the European and American economies. "The deterioration of the trade balance and stagnant consumption are the main reasons." Specifically, the current account balance of trade has turned from a surplus to a deficit.
Tao Dong analyzed that the primary reason was the skyrocketing energy prices, which brought Japan the largest current balance of payments deficit since the oil crisis; the second reason was the chaos in the supply chain, which affected production and exports. Finally, the Japanese yen exchange rate depreciated significantly and import costs increased significantly.
Nonetheless, overall, Abenomics was quite effective when it was first launched.
According to Nihon Keizai Shimbun statistics, before the implementation of Abenomics, the CPI growth rate from 2008 to the first quarter of 2013 was -0.3% on average. After its implementation, it rose to a positive value from the spring of 2013 to the autumn of 2020, with an average of +0.5%. (Excluding the impact of consumption tax), the economy has recovered to a certain extent.
Employment also increased. When Abe took office, the number of domestic employees was 62.63 million, which increased by more than 4 million when he left office in September 2020.Employment increased especially for women and the elderly. During the same period, Japan's unemployment rate fell from 4.3% to 3.0%.
In order to cope with the aging population and optimize the government's revenue structure, Abe withstood the pressure of public opinion and raised the consumption tax twice. In April 2014, the tax rate was raised from 5% to 8%, and then to 10% in October 2019.
"The current Japanese trade agreement FTA is basically negotiated by Abe." Zhao Hongwei added that Abe not only established the world's first high-standard regional trade agreement (CPTPP) with the United States, the European Union and other countries, but also did not forget to Join the regional agreement RCEP led by ASEAN and China and other countries.
"It can be said (economically) that Abe is quite pragmatic. Japan's current opening-up framework is basically built by him."
After the new Prime Minister Fumio Kishida took office, the Japanese economy has suffered from multiple reasons such as the new crown and regional conflicts. Once again, prices were stagnant and prices were rising. Kishida Fumio proposed the concept of "new capitalism" in the economic aspect, intending to carry out further reforms in improving distribution.
On July 11, the results of the Japanese Senate election were announced, the Liberal Democratic Party alone won more than half of the seats. This means that Fumio Kishida will complete the cabinet reorganization and the appointment of senior officials from the Liberal Democratic Party within the next two months.
Whether Abe’s younger brother, Japanese Defense Minister Nobuo Kishi, and Economy, Trade and Industry Minister Hagi Ikuta Koichi, who belongs to the Abe faction of the Liberal Democratic Party, can stay in office will become the focus. Haruhiko Kuroda, President of the Bank of Japan, will also leave office when he expires in April 2023. The position of President must be approved by the Japanese Congress and formally appointed by the Cabinet. As Prime Minister, Fumio Kishida has the right to nominate .
If Koichi Hagi Ikuta and Haruhiko Kuroda leave one after another, it is still a mystery whether "Abenomics" can be inherited, considering the depreciation of the yen and the pressure of rising energy.
(Chen Bin is a pseudonym at the request of the interviewee)
Southern Weekend reporter Xu Tingfang
