This category focuses largely on matters pertaining to Japan
This weekly report will provide some insights into life for a westerner (me) who is working for an extended period at Kyoto University in Japan but who over the years of working here has increasingly began to understand the language and local cultural traditions.
I am currently working on developing models that help evaluate the constraints on fiscal expansion in Japan arising from the ageing workforce in the construction sector. The current government under Ms. Takaichi is pursuing what they call a “responsible proactive fiscal policy” that aims to utilise large-scale public investment spending to crowd-in private investment expenditure and create a high-pressure economy, where productivity growth is enhanced. The strategy also involves significant fiscal reform – moving away from single-year fiscal cycles (obsessing about primary surpluses) to a long-term, multi-year spending plan that provides certainty to the non-government sector. The combined public-private investment blueprint proposes to spend ¥370 trillion in the period to 2040 across 17 strategic sectors. Most mainstream commentary is focused on the implications of the increase in public debt arising from the proposals (given that the government still unnecessarily matches net spending increases with debt issuance) for bond market yields and whether the government will run out of money. An irrelevant focus! However, the intent of the plan can be contested given the need to reduce the ecological footprint of all nations. But even if we ignore that issue, the practicalities of the proposal can be contested within a Modern Monetary Theory (MMT) framework based on resource availability.
This weekly report will provide some insights into life for a westerner (me) who is working for an extended period at Kyoto University in Japan but who over the years of working here has increasingly began to understand the language and local cultural traditions.
On September 28, 1976, then British PM gave an historic speech at the Annual Labour Party Conference held in Blackpool. The speech was written by his son-in-law, one Peter Jay, who himself was mired in scandals throughout his career. For example, the nepotism allegations after he was appointed British Ambassador to the US, his wife’s extra-marital affair with Carl Bernstein, his own affair with the family nanny at the embassy and the resulting paternity lawsuit that Jay initially denied but was found to be the father, not to mention his demeaning relationship with Robert Maxwell. A good candidate for a speech write. In that speech, Callaghan more or less claimed that the Keynesian consensus up to that point (from the Great Depression) was dead and that the fiscal tools that had delivered prosperity in the post WW2 period were no longer effective and should fiscal deficits should be abandoned. How exactly when the non-government sector as a whole desired to spend less than they earned overall was not specified because the lie that cutting government spending was a growth tool dominated. This narratives that Callaghan introduced have been repeated many times since that time when conservative commentators and economists seek attention. The latest appeared in the Financial Times (September 5, 2026) in the form of an article by former Bank of England board member Andy Haldane – Is Keynesianism dead?. He says yes, I say no!
In recent months, the mainstream media commentators have been issuing increasing lurid predictions of how the ‘out of control’ fiscal situation in Japan is killing the yen and a full-scale currency crisis was imminent, after the yen moved across the ‘fabled’ 160 mark against the US dollar. What is ‘fabled’ about that threshold is anyone’s guess, but mainstream economists and their mouthpieces in the press love to come up with disaster thresholds that generate headlines. There is nothing significant about 160. Last Tuesday (September 1, 2026), the yen reached 160.20. At the time of writing, the yen was sitting on 155.95 to the US dollar. Why is the yen appreciating again? And why have the short-sellers become very wary? Especially, as the Takaichi government is clearly intent on pushing ahead with the rather significant fiscal expansion, which the mainstream think will kill the currency. This post argues that the yen dynamics have little really to do with fiscal policy settings. Other factors are more significant and often reflect the skittishness of the financial markets chasing profit wherever they can find it. The commentators and the financial market spokespersons might claim the dynamics are all about excessive government debt and all that political stuff, but the reality is very different. As you were!
Most of the economics commentary in the last few weeks about Japan has been about the need for higher interest rates or, relatedly, the ‘desperate’ foreign exchange intervention where the US allegedly bailed out Japan to prevent currency failure. All side issues really. The forex intervention said more about US paranoia than anything about Japan’s challenges. The US clearly doesn’t want Japan to sell off its stock of US Treasury bonds and cause yields to rise (not that that would matter anyway) and it also knows that Japanese manufacturers have become very competitive (and are booming) in the US market. That is what that is all about. But the real news, in my view, is the decision by the Japanese Cabinet to cut the sales tax on food from 8 per cent to 1 per cent, even if the cash registers in the big retail stores would have needed massive upgrades to accommodate the planned zero sales tax. A 1 per cent compromise solved that piece of archaic infrastructure. But the sales tax proposal, which will see the first cut since the tax was introduced in April 1989 is a significant plank in the current government’s desire to shock the economy out of its damaging deflationary mindset. While I support the move, it would have been better for the government to scrap the sales tax completely. But the current proposal is a small but significant step in the context of Japanese politics and the surrounding economic commentariat. So we should be thankful for small mercies.
The prophets of doom (Japan division) are back in town predicting the worst for the country. The UK Guardian even is getting in on the act (July 25, 2026) – Can Japan avoid a Liz Truss-style shock as its PM embarks on a giant spending spree?. It is interesting now that the prophets have a new ‘case study’ to provide them with a reference point for their predictions of chaos. I wrote about that in this blog post – Rinse and repeat – Truss chaos – the new benchmark (March 28, 2024) – and gave some Japanese context sometime later in this post – Those who invoke the ‘Truss Moment’ should look at what is happening in Japan (February 12, 2026). Apparently, the plans by the Japanese government to revitalise public infrastructure and crowd in private investment will see the “International investors” will lead to a “Liz Truss-style economic shock”. I wonder every day what these journalists think of their lives when they reflect on what they write. It can’t be a very fulfilling life when it is based on beat-ups, conspiracy-style fictions, and the rest of it. One of the rules of composition that I was taught in university was that an argument had to be internally consistent. These types of articles cannot even get that rule right.
Earlier this year, I analysed how decisions taken by the Japanese Government Pension Investment Fund to speculate in global financial markets have played a significant role in the depreciation of the yen. In this blog post – Japan’s Government Pension Investment Fund and the yen – mainstream macro myths driving bad policy (February 2, 2026) – I demonstrated how massive quantities of workers’ savings held by the GPIF are being channelled into the private, for-profit investment banks and hedge funds, which deliver huge profits to these financial market players. Moreover the GPIF has shifted its investment portfolio significantly towards foreign bonds and shares post 2010, which has seen the GPIF selling large tranches of yen and adding to the excess supply in foreign exchange markets. The Japanese Finance Minister is now pressuring the GPIF to reallocate its portfolio into domestic assets to boost the domestic growth rate. A similar trend is happening in the UK and Australia. What does it mean? The conclusion lets you see that their proposals miss the point.
The editorial in The Japan Times (July 3, 2026) – Little hope for a declining yen amid structural pressures – is an example of how mainstream commentators seize on superficial facts, apply some ideology, and come up with the wrong conclusion. As I have noted many times, the challenges facing Japan are many, not the least being the high savings rate, which is dominated by corporations. After the asset collapse in 1991, Japanese corporations have become large-scale net savers, with strong profits and very weak investment. The corporations are sitting on massive stockpiles of cash and liquid assets, and use on-going financial surpluses (profits greater than costs) to reduce their debt exposure. The 1991 crash (and the massive debt buildup that preceded it) has left a psychological scar on the Japanese firms. The Takaichi strategy is to ‘shock’ the economy into increasing investment rates via a large fiscal injection. This has implications for the currency value, which I will explain.
I saw a clip from John Stewart’s Daily Show yesterday where he showed some Fox News commentators (I think) talking about how they hate ‘woke’ and how they now have to put up with public events featuring “half naked men” (their slight against the gay community). Stewart then showed the next clip – the cage fight at the White House where two half naked men were featured. The way he presented it was (as usual for the show) very funny. Yesterday (June 17, 2026), the leader of the far Right party in Australia (One Nation) gave her first ever – Speech – to the National Press Club in Canberra and apart from several outrageous statements (such as “Businesses also tell me you can’t sack people these days, they’re on their phones, they don’t work, they don’t turn up, they actually are lazy” and the “hoax of global warming”), she announced that Australia cannot be a multicultural society and that “we must be monocultural”. The fact checkers have already exposed her lack of honesty with respect to the actual data surrounding many of her assertions. But the question of culture and national cohesiveness is a subject that I am working on as part of my aim to publish a sequel to my 2017 book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – which I co-authored with Thomas Fazi. The question that the sequel begins with relates to what defines a viable currency area and what legitimates government fiscal policy. I see this issue as a central extension of the work on Modern Monetary Theory (MMT) because it provides a sociological basis for currency sovereignty. One needs to develop a concept of the – Demos – to answer that question. I use that concept in the original sense.