Asia expert Ezra Vogel published his influential book “Japan as Number One” 40 years ago. At the time, he argued that the U.S. needed to adopt aspects of Japan’s supposedly superior economic system if it wanted to compete with the East Asian powerhouse. Policymakers in Washington were wise to ignore him. While Japan sank into a financial crisis and three decades of malaise, the U.S. has continued to prosper.
Trump’s protectionist bent also mirrors Japan’s historically insular attitude. The consequences for Japan have been dire. Over the years, its government’s defense of certain sectors — most of all agriculture — dampened productivity gains and punished households with higher prices. Even Trump’s recent hounding of the Federal Reserve bears parallels to the path of Japan’s monetary policy. Frustrated by current Fed management, whom he blames for threatening growth by hiking benchmark interest rates, Trump is now trying to pack the board with loyalists, at least one of whom shares his easy-money views.
Nor did Kuroda’s frothy wave of yen boost inflation to the bank’s 2 percent target or stir wages, which were flat in real terms last year. Meanwhile, the low borrowing costs have allowed a spendthrift state to dodge fiscal reality. Over the past two decades, Japan’s government debt relative to national output has doubled to almost 240 percent, according to the International Monetary Fund. Perhaps matters would have been worse without the BOJ’s largesse.