I have long warned against Japan’s political leadership shortcomings, expressed doubt about a real economic recovery and predicted the yen will be weak this year.

But recent woes have come not from within but from the U.S.

Recent scandals, including the Enron debacle and the WorldCom fiasco, have triggered distrust in U.S. corporate accounting. The stock market has been seriously affected, and the dollar is rapidly depreciating.

While consumer spending and housing sales remain steady, the current situation comes especially as a shock as midterm stock market and dollar strength has been supported by excessive trust in the U.S. economy. The impact may be immeasurable.

The recent instability has rekindled questions about the capabilities of U.S. President George W. Bush’s staff dealing with economic issues.

In fact, top U.S. economic officials continue to sound like analysts, and fail to provide any clue as to concrete policies. And efforts to stimulate the economy through further monetary easing will be limited, and Fed chief Alan Greenspan now appears to have too few options.

Recent economic instability in Latin America may impose added burdens on the U.S.

There are too many uncertainties, ranging from fears of another wave of terrorism to revelations of fresh accounting misdeeds. The dollar may be headed for a midterm fall.

Japan’s current account surplus reaches 12 trillion yen a year. Under natural conditions, this will prompt yen-buying of a corresponding volume, thus pushing the yen higher. The yen will again decline if excess dollars are absorbed in capital transfers, but such a scenario is unlikely as long as the U.S. financial markets remain unstable.

The currency market will stabilize if the dollar excess is absorbed by the central bank. Since May, Japan has intervened to support the dollar to the tune of over 3 trillion yen — roughly the same as in the intervention carried out following the Sept. 11 attacks.

With several trillion yen more, the central bank will have purchased dollars equivalent to several years’ worth of excess. This will bring some stability, but only temporarily, and people must remember that the dollar will be in oversupply before long.

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