After Hiroshima you’d think we’ve inflicted enough damage on Japan, but now we are trying to force them to abandon their attempt to climb out of deflation:
The Obama administration used new and pointed language to warn Japan not to hold down the value of its currency to gain a competitive advantage in world markets, as the new government in Tokyo pursues aggressive policies aimed at recharging growth.
I’m sure the administration defenders will insist that the target is not monetary stimulus, but rather “competitive devaluation.” But of course there’s no way Japan can escape from deflation without a large currency depreciation. Even after cutting the yen from 76 to 99, their long term bond yields still suggest lower NGDP growth expectations than almost anywhere else in the world. They need significant further currency depreciation.
BTW, Lots of people confuse policies aimed at nominal exchange rate depreciation (monetary stimulus) with policies aimed at real exchange rate depreciation (high government saving.) The two policies are so different that they ought not even be covered in the same course. To say the Japanese government is not engaged in excessive saving would be an understatement.
PS. I may not have any time for comments over the next week.