Japan’s economy is on its path to collapse
The stable and continuous decrease in real wages and real consumer spending shows no sign of stopping this month, and Japan’s economy continues on its path towards collapse. There seems to be no need to change the long-term scenario outlined below this month.
The Bank of Japan should have kept inflation rates in check with some adjustments in monetary policy, but the current Bank of Japan is far too incompetent, and there is no hope for appropriate adjustments in monetary policy. If inflation were to exceed 2%, significant monetary policy adjustments would be required, and it is expected that future government bond expenses would increase significantly.
Government bond interest payments already account for 7.4% of the general account budget and 22.1% of total government expenses. If the need for price control arises, as one cannot help but recognize the achievement of a 2% inflation rate, and if it is coupled with a substantial increase in government bond yields and continuous massive issuance of government bonds, it would not be strange for interest payments to make up almost 20%.
In such a scenario, government bond expenses alone could account for around 40% of the budget, and when combined with the explosively increasing social insurance premiums, it wouldn’t be strange for more than 80% of the budget to be consumed.
Who would want to hold the currency of a country that has become so immobilized? In such a situation, the Japanese yen would be in freefall, rapidly depreciating. Imported prices would also rise sharply as a result, and there would be no way to stop the increase in prices. The rising import prices would chronically create a huge trade deficit and lead to a currency depreciation on the international balance of payments front. Furthermore, high prices would worsen the Japanese economy, accompanied by a decrease in real wages and sluggish real consumer spending.
To cope with the increasing social security and government bond expenses, tax and social insurance premium increases would also be implemented, resulting in a significant reduction in disposable income. In such a scenario, gradually, households would lose the means to pay for skyrocketing energy and food prices, leading to the demise of healthy consumption activity.