Japan May Create Many New Jobs in the U.S.

Japan, the world’s third-largest economy, is one that’s been “stuck” fiscally with mountains of bad debt for nearly the last two decades as the country’s birth rate has gone negative and prospects for growth have slowed. But intrepid Prime Minister Shinzo Abe has been attempting to take significant steps to reverse Japan’s course in this regard.

One of these steps he’s taken has been to have his country’s Government Pension Investment Fund (GPIF) — the world’s largest by value — invest in risky vehicles such as junk bonds and “high beta” stocks. This has created large quarterly volatility for the GPIF as well as major downsides if global markets crash.

Another step has been to print more money through the process known as Quantitative Easing (QE), which followers of America’s Federal Reserve are probably familiar with, as our own country has been enamored with this process as well.

Prime Minister Abe met with U.S. President Donald Trump over the weekend in Mar-A-Lago and is expected to announce in the upcoming days or weeks major Japanese investment — worth as much as half a trillion dollars — in U.S. infrastructure projects, including rail networks, robotics technology and artificial intelligence.

It’s also possible Japan may invest in American space exploration and cyber security, among other initiatives. It’s assumed that this investment would generate at least 700,000 American jobs, which is music to the American people’s ears, just as talk of new jobs in the American Midwest from Chinese billionaire Jack Ma was in early January of this year.

For Japan, this is a way to take pressure off accusations that the island nation is manipulating its currency, as Trump has accused China of doing for some time. The fact of the matter is that Japan has been manipulating its currency, and if one looks at exchange rates, one can see that the Japanese yen has decreased in value relative to the American dollar by 6.5 percent in the last year, with a 2.76 percent decrease occurring in January 2017 alone.

This gives Japan an unfair advantage in trading with the United States, making exports to the U.S. cheaper while increasing the prices of American goods for the Asian nation.

At the beginning of his term in office, President Trump loudly proclaimed the dissolution of the Transpacific Partnership (TPP) free-trade agreement to which both Japan and the U.S. were signatories. Prior to the meeting with Japanese Prime Minister Abe, Trump hadn’t directly mentioned anything about the Far Eastern nation manipulating its currency to affect trade.

But at the same time, Trump has highlighted trade imbalances in the context of speaking about exchanges with numerous other nations such as China and Mexico. But he hasn’t singled out Japan specifically, except in one speech where he derided the country for the one-sidedness of America’s defense treaty with it.

This treaty obligates the United States to come to Japan’s aid militarily in case of conflict (as Secretary of State Rex Tillerson has vowed to do in the South China Sea if tensions between China and Japan heat up). But if the United States were attacked — for instance, by China — Japanese citizens would likely do nothing but “sit home and watch Sony television,” as Trump put it.

Another area where Trump has mentioned Japan, at least tangentially, is in talking about his anticipated border tax, saying that if carmaker Toyota wanted to build its auto factories in Mexico instead of in the United States, it would be subject to this tax, which will likely be implemented in the near future.

The day that Trump mentioned Toyota by name, the stock prices of all Japanese car manufacturers fell. But Prime Minister Abe shored up support for his nation’s car companies by releasing a statement which said in part, “Toyota itself has tried to be a good corporate citizen in the U.S. to date.”

For Abe, it’s essential to avoid a currency and/or trade war with the U.S., so investing in American infrastructure using his country’s GPIF may not simply be a question of economics; it could be perceived as a shrewd move public relations-wise as well.

“I wish to discuss [Japanese] contributions toward improved productivity and competitiveness in the entire U.S. industrial sector, or a large framework that includes aid for infrastructure development,” Abe told his country’s lower house of parliament.

Specifically, the Japanese investment would likely come in the form of buying U.S. corporate debt using the $1.14 trillion GPIF; up to 5 percent of the GPIF may be used for that purpose. Some of the funds may be allocated through financial concerns such as the Japan Bank for International Cooperation.

However, left out of Abe’s remarks is that returns on infrastructure projects are historically low and can often be negative; but probably, the average Japanese pensioner is less aware of this than many government officials.

Still, this meeting comes at an opportune moment for Japan, which has been embarrassed by reports that its Fukushima nuclear reactor has a larger hole beneath it than had previously been suspected and is leaking lethal radiation in larger-than-expected amounts.

The nation will be hosting the 2020 Summer Olympic games in Tokyo, so making sure the situation in Fukushima is safe is one of the country’s highest priorities. Dealings with President Trump’s administration would likely take attention away from this matter for the time being and may at least partially placate both internal and external investors in the Land of the Rising Sun.

Regards,

Ethan Warrick
Editor
Wealth Authority


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