A few days ago, I stumbled across an influential tome written two decades earlier by Taggart Murphy, a journalist-cum-banker, called The Weight of the Yen. It is wryly relevant today – though not in the way Murphy might have thought.
When Murphy wrote his book, what was worrying many American policymakers – and some Japanese – was the weakness of the yen; most notably, during the 1970s and early 1980s the yen had been kept artificially low by government controls, running at around Y300 to the dollar. As a result, the Japanese export machine boomed, undercutting American industry; and Japanese investors gobbled up American debt, keeping US Treasury yields artificially low. Or as Murphy wrote: “The causes of the imbalances were twofold: first the US Federal Deficit, which the Reagan Revolution had structurally embedded into the US body politic; and secondly the Japanese ‘development state’ system of national leverage, centralised credit allocation and credit risk socialisation.”
These days, of course, the story has moved on – at least as far as Japan is concerned. This week the Tokyo government has been busily intervening to weaken its excessively strong currency, which hit Y82.88 earlier in the week. Meanwhile, American pundits are no longer fretting about “unfair” Japanese exports or bond purchases; instead, the country has largely moved off the US political radar screen.