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Japan Political Pulse: Is another economic 'bubble' approaching?

"Bubble / Nihon Meiso no Genten" (Bubble / The origin of Japan's straying), released by Shinchosha Publishing Co. in November last year, starts with an objection to Prime Minister Shinzo Abe's declaration that the rise in Japanese stocks is due to the "success of 'Abenomics.'"

    In December 2013, one year after Abe's return as prime minister, the Nikkei Stock Average was up to over 15,000 yen, nearly 1.5 times what it had been when he took office. At a social gathering with economic specialists, Abe spoke proudly of the effects of his stock market policies.

    The author of the book, Kenji Nagano, 67, an adviser to newspaper company Nikkei Inc., saw this as dangerous.

    As a reporter for the Nikkei Shimbun's securities section, Nagano reported in depth on the economy and on the incidents that occurred during Japan's economic "bubble" years from the late 1980s to the early 1990s, gaining a reputation for skillful reporting. His firm belief was that in the long-term, "the market cannot be controlled."

    When I read an article on the prime minister's policy speech on Jan. 20, the first day of the current Diet session, my biggest impression was the difference in tone between Abe's diplomatic and economic policies. While he sounded confident on diplomatic policy, when it came to Abenomics he went on unnaturally about its successes and smoothness by citing many specific figures. This is why, when I started reading "Bubble," I was soon drawn into it. Why was the author warning the prime minister for complimenting himself over the bullish stock market? Why was he talking about an economic bubble when we are in deflation? I met Nagano for the first time in over a decade to ask him.

    "Capitalism is a history of the cycle of bubbles and deflation," he said. "Bubbles create the causes for deflation, and anti-deflation policies create bubbles. Bubbles don't come around again looking the same as last time."

    But people feel like a bubble will never come to Japan again, I said to him.

    "It depends on whether you look at bubbles in the form of rises in consumer prices and property values, or whether you look at them in the form of a warp somewhere in the machinery of capitalism, and indexes reaching levels they shouldn't normally be at. Right now there are bubbles in finance and interest (in the form of abnormally low interest rates), but we aren't at the stage yet where it shows up in prices," he said.

    He continued, "And if you look on a global scale, globalism and financialization aren't stopping, and regardless of deflation or inflation, somewhere a new bubble will form. We have entered an age where we cannot live while avoiding that."

    In fact, capitalism around the world has been rupturing bubbles around once a decade, and capitalism is becoming more unstable. In 1987 there was the major stock collapse in New York, in 1997 there was the currency crisis in Asia, in 2008 there was the global financial crisis triggered by the failure of Lehman Brothers, and in 2016 there was the United Kingdom vote to leave the European Union and a collapse of Chinese stocks.

    Japan faces the possibility of a bubble bursting as well, says Nagano.

    There has been news that last year, the value of real-estate-oriented loans made by financial institutions exceeded the amount at the height of the economic bubble in the late 1980s to the early 1990s. The earthquake and tsunami disasters of some years ago are now far from people's minds. People compete for high-floor condominiums so much that the tax system has been amended to increase fixed property taxes the higher a condominium floor is located.

    Since November last year, the book "Bubble" has had 43,000 copies printed across six runs. Nagano writes in his work, "I sense in the high-stock policies of the Abe administration something like the behavior of the financial institutions in the 1980s that relentlessly pursued high stocks and high property values. Lately, I've come to hear from officials in charge of investing pension premiums and other public money, and from the heads of venture companies, the same type of lack of risk-awareness that I heard from banks in the 80s."

    "As gambling capitalism spreads through the world, we must apply the lessons learned from the bubble of 1980s Japan to the policies of Japan and the world."

    It is a powerful work, made through the full efforts of this legendary reporter, who was once consulted about buying Trump Tower by a Japanese entrepreneur who had become the third richest person in the world during the bubble years. (By Takao Yamada, Special Senior Writer)

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