Why The Japanese Yen Is Collapsing (And How This Affects You)
Summary
TLDRThe video discusses the economic history of Japan, focusing on the current low value of the Yen against the US dollar, which has made Japan an attractive travel destination. It explores Japan's economic boom in the 1980s, the subsequent 'Lost Decades', and the impact of the Plaza Accord. The script also delves into Japan's current economic challenges, including an aging population and the recent interest rate increase by the Bank of Japan.
Takeaways
- đ The Japanese yen is currently at a 38-year low against the US dollar, making Japan a more attractive destination for American tourists, with a 17.4% increase in visitors in the first five months of 2024.
- đ The weakened yen has led to a surge in Japan's popularity on social media, as $1 now equates to roughly 160 yen, a rate last seen in May 1986.
- đïž In the 1980s, Japan was the one buying up US assets, including famous properties like Pebble Beach Golf Resort and major entertainment companies, due to its booming economy and land values.
- đŒ The high land values in Japan, such as the Ginza district, led to an economic bubble where the value of the Imperial Palace in Tokyo was hypothetically more than the entire real estate of California.
- đ Japan's economic growth in the 1950s to the 1980s was fueled by ultra-low interest rates, making Japanese products highly competitive and desirable globally.
- đŠ The Plaza Accord of the 1980s aimed to devalue the US dollar and involved Japan deregulating its economy, which led to a surge in investment and the creation of an economic bubble.
- đž The Japanese stock market's rapid growth in the 1980s was partly due to corporations making more money from capital gains on real estate and stock holdings than their actual businesses, leading to excessive borrowing and speculation.
- đ The collapse of the Japanese property and stock market in the early 1990s led to the 'Lost Decade,' characterized by low economic growth, high unemployment, and a stagnant stock market.
- đ The Bank of Japan's response to the economic crisis included slashing interest rates to nearly zero, creating zombie companies that could not repay their debts and had no money for capital investment.
- đĄ The script suggests three lessons learned from Japan's economic history: tighter monetary policy, stronger regulatory oversight, and a more diversified economy could have mitigated the effects of the economic downturn.
Q & A
Why is the Japanese yen trading at a 38-year low against the US dollar?
-The script does not provide a specific reason for the yen's decline, but it implies that the weakened yen has made Japan more attractive for tourists and investment, which could be a result of economic policies and global economic trends.
What was the impact of the weakened yen on the number of American tourists visiting Japan?
-The weakened yen has led to a significant increase in the number of American tourists visiting Japan, with over 900,000 people coming in the first five months of 2024 alone, marking a 17.4% increase from the previous year.
What was the situation in the 1980s when Japan was buying assets in the United States?
-In the 1980s, Japan's economy was booming, and Japanese investors were buying significant assets in the United States, including the Pebble Beach Golf Resort, Firestone Tire Company, CBS Records, Columbia Pictures, MGM, the Chrysler Building in New York City, and Universal Studios.
How did land values in Japan contribute to the economic boom in the 1980s?
-Land values in Japan, particularly in the Ginza district, skyrocketed during the 1980s. An office space in Ginza sold for 1.5 million yen per square meter, equivalent to over $139,000 per square foot, which contributed to the overall economic boom and the perception of Japan's wealth.
What was the role of the Plaza Accord in the economic history of Japan?
-The Plaza Accord was an agreement among the G5 nations to devalue the US dollar, which led to Japan deregulating and stimulating private sector growth. This deregulation, however, contributed to the creation of an economic bubble that eventually burst, leading to Japan's economic stagnation.
How did Japan's economic policies in the late 1980s contribute to the creation of an economic bubble?
-Japan adopted a loose monetary policy, expanding credit and making it cheap to borrow money. This led to excessive speculation in the stock market and real estate, creating a bubble that eventually burst in the early 1990s.
What was the impact of the economic bubble bursting on Japan's economy in the 1990s?
-The bursting of the economic bubble led to a period known as 'The Lost Decade' or 'The Lost Decades,' characterized by economic stagnation, high unemployment, and a significant drop in stock and real estate prices.
Why did the Bank of Japan implement negative interest rates in 2016?
-The Bank of Japan implemented negative interest rates to encourage commercial banks to lend out money rather than hold onto it, in an attempt to stimulate borrowing and spending in the economy.
What are the three lessons economists have learned from Japan's economic history that could have prevented or lessened the effects of the Lost Decades?
-The three lessons are: 1) The Bank of Japan should have adopted a tighter monetary policy sooner to prevent excessive speculation; 2) Stronger regulatory oversight over financial institutions could have prevented sketchy lending practices; and 3) A more diversified economy, less dependent on exports, could have made the Japanese economy more resilient to currency fluctuations.
What is the current situation with the Japanese yen and the US dollar, and how does it affect tourism and investment?
-The yen is currently trading at a 38-year low against the US dollar, making Japan an attractive destination for tourists and investors due to the favorable exchange rate. This has led to a significant increase in tourism and potentially investment opportunities.
Outlines
đ Economic Shifts: Yen's Decline and Japan's Global Influence
The script begins by highlighting the Japanese yen's significant devaluation against the US dollar, reaching a 38-year low. This economic shift has led to a surge in American visitors to Japan, with a 17.4% increase in the first five months of 2024. The weakened yen makes Japan an attractive tourist destination, reminiscent of the 1980s when Japan was a major player in international investments, acquiring significant assets in the US. The narrative delves into Japan's economic history, particularly the land value explosion in the 80s, which led to an economic boom and a perception of Japan as a global economic powerhouse. The script also touches on the economic policies that contributed to Japan's rise and eventual bubble burst, setting the stage for a deeper exploration of Japan's economic trajectory.
đ The Plaza Accord and Japan's Economic Bubble
This paragraph discusses the impact of the Plaza Accord, an agreement among the G5 nations to devalue the US dollar, which inadvertently led to the strengthening of the yen. This economic policy change made Japanese products less competitive internationally, prompting Japan to focus on stimulating its domestic economy. The Japanese government adopted a loose monetary policy, making it easy to borrow money and leading to a speculative bubble in the stock market and real estate. The script illustrates the frenzy of investment during this period, with average returns on IPOs reaching 32% and companies valued at astronomical multiples of their earnings. The bubble was not only driven by individual investors but also by corporations, which were more focused on capital gains from real estate and stocks than their core businesses, leading to the eventual burst of the bubble in the early 1990s.
đ The Lost Decades: Japan's Economic Stagnation and Recovery
The script continues by detailing the aftermath of the economic bubble burst, known as the Lost Decades. The collapse of property values and the stock market led to a severe economic downturn, with Japan's central bank intervening by slashing interest rates to nearly zero. This period saw the creation of 'zombie companies' that survived on government support but lacked the ability to invest and grow. The script also discusses the challenges posed by China's economic rise and the impact on Japan's export-driven economy. The narrative then shifts to Japan's recent economic policies, including negative interest rates and quantitative easing, aimed at stimulating the economy. The paragraph concludes with a reflection on the lessons learned from Japan's economic history and the potential strategies that could have mitigated the effects of the Lost Decades.
đ Japan's Resurgence: Lessons Learned and Future Prospects
The final paragraph wraps up the discussion by examining the current state of the Japanese yen and its implications for the global economy. The script notes the recent increase in interest rates by the Bank of Japan, marking the end of a long period of negative rates. It also explores the relationship between the yen's value and the strength of the US dollar, emphasizing the importance of interest rates in determining currency strength. The narrator shares personal insights from a visit to Japan, highlighting the cultural richness and economic opportunities presented by the current exchange rate. The script concludes with a call to action for viewers to consider visiting Japan and a reminder of the broader economic lessons that can be drawn from Japan's economic history.
Mindmap
Keywords
đĄJapanese Yen
đĄPlaza Accord
đĄEconomic Bubble
đĄLand Values
đĄStock Market
đĄNon-Performing Loans (NPLs)
đĄInterest Rates
đĄDeregulation
đĄLost Decades
đĄQuantitative Easing
đĄAging Population
Highlights
The Japanese yen is trading at a 38-year low against the US dollar.
Over 900,000 Americans visited Japan in the first five months of 2024, a 17.4% increase from the previous year.
The weakened yen has made Japan an attractive destination for tourists, with $1 now equivalent to about 160 yen.
In the 1980s, Japan was buying significant assets in the United States, including Pebble Beach Golf Resort and major entertainment companies.
Land values in Japan exploded in the 1980s, with some areas in Ginza selling for over $139,000 per square foot.
The Imperial Palace in Tokyo was hypothetically worth more than the entire real estate of California at its peak.
Japan's stock market was valued at more than four times the value of US real estate at its peak in 1995.
The Plaza Accord in the 1980s aimed to devalue the US dollar and led to Japan's deregulation, stimulating private sector growth.
Deregulation in Japan led to an economic bubble, with the yen strengthening and making Japanese products less competitive internationally.
Japan's economy focused on strengthening its domestic market by expanding credit and adopting a loose monetary policy.
The Japanese stock market saw average returns of 32% on the first day of IPOs between 1981 and 1991.
The Japanese stock market hit an average PE of 225 times in 1989, indicating a significant bubble.
The property and stock market collapse in the early 1990s led to Japan's 'Lost Decade' with high unemployment and economic stagnation.
The Bank of Japan's response to the economic crisis included slashing interest rates to nearly zero and injecting money into failing banks.
Japan's economy suffered from stagflation in the 2000s, with rising prices and stagnant incomes.
The Bank of Japan adopted negative interest rates in 2016 to stimulate borrowing and spending.
Japan's aging population and declining workforce have put a strain on economic growth and contributed to low interest rates.
The Bank of Japan raised interest rates in 2024 for the first time in 17 years.
The strength of the US dollar and the weakness of the yen are tied to economic performance and central bank policies.
Three lessons learned from Japan's economic history could have prevented or lessened the effects of the 'Lost Decade': tighter monetary policy, stronger regulatory oversight, and a more diversified economy.
The current weak yen makes Japan an ideal destination for tourists, especially from the US, due to the favorable exchange rate.
Transcripts
the Japanese yen is now trading at a
38-year low against the US dollar that's
why the number of Americans coming to
Japan has skyrocketed with more than
900,000 people coming in the first 5
months of 2024 alone a 17.4% increase
from last year that's also why you might
be seeing Japan everywhere on social
media right now the weakened Yen has
made Japan an even more attractive place
to visit because $1 will now get you
roughly 160 Yen and the last time that
was the case was around May of 1986 or
almost 40 years ago everyone is trying
to get a piece of Japan right now but
what's interesting is that not that long
ago in the80s it was Japan that was
buying the United States some of the
things Japan bought included the famous
Pebble Beach Golf Resort in California
the Firestone Tire Company Japan's Sony
Corporation was able to buy CBS records
columia pictures MGM United Artists the
IC Chrysler Building in New York City
and Universal Studios Japan's economy
got so big that people started to worry
Japanese investors were buying too much
of everything Japan got really close to
overtaking the US economy and how they
were able to do all that is a super
interesting story one of the things that
made this possible is land values in
Japan started to explode a small office
space in the district of Ginza for
example sold for 1.5 million million for
1 square meter and that works out to a
little over
[Music]
$139,000 per square foot just for
comparison last year the US national
average was about
$23 a square foot but a more apples to
apples comparison would be an area in
San Francisco which right now is valued
at
$5,450 a square foot which is outrageous
but still a far cry away from
$139,000 that also meant the Imperial
Palace in Tokyo was hypothetically worth
about $852 billion which at the time was
worth more than the entire real estate
of California it was said that Japan's
land value and the office spaces in it
in the most expensive District the
District of Ginza were valued at $5.1
trillion which was about the size of
Japan's entire GDP in 1989 and remember
that's for a country that's 26 times
smaller than the United States and
that's just real estate Japan's stock
market was worth more than the entire
value of US real estate times 4 the
Japanese economy was on such a role that
in the year
1995 the Chicago Tribune wrote Japan may
still surpass the United States to
become a leading economic power by the
year 2 000 and that's not that long ago
but that didn't end up happening instead
what happened was arguably one of the
biggest bubbles to ever pop in economic
history so in today's video I want to
show you how Japan almost took over the
entire world why they didn't and how the
Yen has been collapsing over the last
few decades and what we can learn from
it and how all of this affects us so
with that said let's get into it hi my
name is Andre J hope you're doing well
come for the finance and stay for
macroeconomic history so
understand Japan and the decline of the
Yen we have to rewind and talk about how
Japan became so powerful because after
World War II Japan experienced something
people call the economic miracle and how
the world saw Japan changed a lot in the
1950s for example if someone picked
something up and they saw it was made in
Japan they would have automatically
assumed it was bad quality and you
probably knew that but maybe you forgot
unless you recently watched Back to the
Future No Wonder this C fail it says
Made in Japan what do you mean doc all
the best stuff is made in Japan
unbelievable that's because Japan made a
lot of progress by the time of Marty's
1985 and that was thanks to Tak Henry
Saku ultra low interest rates between
the 1950s to the 1980s Japan's economy
grew like crazy and Japan became an
extremely wealthy country Japan invested
into its own growth focusing on creating
high tech like VCRs the Walkman
companies like Sony Honda and all their
super reliable cars started to transform
the global economy everyone wanted to
own a product from Japan by the 1980s
made in Japan was associated with
highquality cuttingedge technology that
was actually affordable and one of the
biggest reasons for this change in
perception is because the Central Bank
of Japan was strategically keeping the
Yen weak a weak Yen made Japanese Goods
cheaper for other countries to buy and
When stronger currencies were buying
Japanese companies could convert those
foreign profits like US dollars for a
lot more Yen and that created a lot of
wealth especially for the companies
making all that stuff and that's why the
Japanese stock market went way up which
also resulted in Full Employment and
good wage increases Japan's economy was
on a roll but then the president of the
US Ronald Reagan Ronald Reagan the actor
Ronald Reagan decided to devalue the
dollar in order to make the us more
competitive as well and that was the
birth of something called The Plaza
Accord because Jesus also had a Honda
for he did not speak of his own accord
just kidding seeing if you're still
awake now the G5 Nations which included
Japan the United States the UK France
and Germany all got together to agree to
this Plaza Accord and the goal was to
devalue the US dollar and one of the
ways they did that was by forcing Japan
tend to deregulate in order to stimulate
private sector growth now whenever you
hear the word deregulation just remember
that investers will probably be printing
10d soon AKA they're going to make a lot
of money but it can also mean that if
people are not careful it's one of the
special ingredients for creating an
economic bubble because what
deregulation eventually did was it made
the Yen so strong that it made Japan
less competitive on the international
market Market their products became more
expensive in relation to other
currencies so Japan started to make less
money and that created recessionary
pressures for Japan So to avoid a
possible recession Japan focused on
strengthening its domestic economy in
other words they wanted to make sure
that people had an opportunity to make
more money at home since they were
making less money overseas and the way
they did that was by increasing the
marketability of Securities by creating
as many investors as possible and the
way they did that was by adopting what's
called a loose monetary policy and
expanding credit Japan made it really
cheap to borrow money by dropping the
discount rate from 5% in 1985 to 2 1/2%
by 1987 the amount of money in the
system as measured by M3 went up by 141%
from 1980 to 1990 and with all this
money in the system and easy access to
cheap credit and low interest rates
meant people started to leverage or
borrow money so that they could invest
and that's what created a giant bubble I
realize it's kind of complicated so if I
put you to sleep here's a visual analogy
of what the plaza Accord really did the
Japan hey look what I found more
pancakes let's speed it up pancake
pancake eat little buddy eat eat
[Music]
eat you get the idea it created a peak
for Japan's economy if you wanted to
make money fast you had to invest your
money in the market and it was in the
market where you could not lose let me
just show you how thick some of these
pancakes were because from the year 1981
to
1991 whenever a company would launch or
IPO the first day's average returns in
that 10year span was
32% remember the stock market today like
right now returns anywhere between 7 to
10% per year on average not 32% every
time a company IPOs for 10 years
straight so people started buying
blindly in 1987 for example literally
blindly as many as 10 million people
applied to buy shares in a telecom stock
before even knowing what the valuation
would have been that stock went up 200
times price to earnings ratio and was
valued at
$376 billion which at the time meant
that one company was worth more than
Germany's and Hong Kong's entire stock
markets combined stock prices started to
go up three times faster than corporate
profits some stocks started to trade
between 100 to 400 times price to
earnings ratios but then it all reached
a peak in
1989 the Japanese stock market hit 225
times PE on average and that's really
high when you remember a healthy PE
should be 10 times less than what it was
by comparison the highest the US market
ever reached during the financial crisis
was roughly half of that the Japanese
stock market got so big it was worth
about half of the world's entire stock
market about $4 trillion and the
interesting part about it was that it
wasn't just a bubble created by ordinary
people and their greed it was huge
contributed by corporations that adopted
a mentality economists like to call Tina
which stands for there is no alternative
it means companies were making more
money from the capital gains on their
real estate and stock Holdings than they
were from their actual business and that
forced a lot of them to continue
borrowing and buying more it's estimated
that about 38% of real estate was bought
by corporations and by 1980 about 2/3 of
the entire stock market was owned by
corporations and because the plaza
Accord focused on deregulation a lot of
the speculation that fueled all of this
growth was funded by these unregulated
shadow Banks So eventually the party had
to come to an end and when the property
values collapsed when the stock market
bubble popped in the early 1990s the
Central Bank of Japan had to step in and
stop the bleeding and the way they did
that was by slashing interest rates to
nearly zero the bank of Japan started to
inject money into its failing Banks
which created zombie companies that
could not repay their debt and they had
no money for capital investment and the
reason Japan didn't let them fail is
because they didn't want businesses to
close and for people to lose their jobs
so they continued to pump money into the
economy but it was too little too late
the trust was lost and this period of
time became known as The Lost decade now
if you look at Japan's stock market
you'll see that it actually lasted for
three it was three loss decades because
it wasn't until recently that Japan's
stock market recovered to the same level
that it was way back in
1989 money was leaving Japan because
there was no reason to park your money
in a stock market that wasn't performing
and the safe option which was the bond
market wasn't that attractive either
because interest rates were still
extremely low at the same time this was
happening though China's economy was
starting to do some crazy things China
was starting to allow companies to
relocate production to their factories
and that made Japan's economy even worse
that's because China is a lot more
competitive in terms of labor cost it's
a lot lower than anywhere in the world
and although some companies from Japan
took advantage of this cheaper Chinese
labor it still wasn't enough between
1990 and
2003
212,000 companies went
bankrupt in the same period the stock
Market dropped by
80% land prices in the major cities fell
by up to
[Music]
84% when all was said and done it's
estimated that the Lost decades cost
Japan 17 million jobs and that created
Financial inst ility and depression
among the Japanese population the Lost
Decades of Japan created something
called stagflation which is where you
have inflation or Rising prices while
everything else is stagnant or it stays
still like people's incomes so to
stimulate the economy the bank of Japan
dropped interest rates to near zero to
stimulate borrowing and spending but
that didn't end up saving Japan instead
this period of stagflation extended into
the 2000s and it forced the Central Bank
of Japan to do something that was even
more extreme in 2016 the Central Bank of
Japan dropped the key interest rate to
negative NE
.1% now hold on a minute negative
interest rates does that mean that
people then get paid to take out a
loan no but that'd be cool though
instead the negative interest rate was
targeted directly at the commercial
Banks of Japan the idea was if it cost a
bank money to hold their customer
deposits every month they would want to
hold as least amount of money as
possible it was a way of not just
encouraging but forcing those Banks to
lend out that money as much as possible
it was a way for the papa Bank the
Central Bank of Japan to tell the baby
Banks the commercial banks that hey we
have to artificially stimulate borrowing
and spending quantitative easing is the
more technical word for it in economics
and the bank of Japan wasn't the only
one doing it before the bank of Japan
adopted negative interest rates in 2016
it was the Danish Central Bank that set
negative rates in 2012 then the European
Central Bank did it in 2014 to fight
against deflation and then later that
year the Swiss National Bank did it to
prevent excessive appreciation of the
Swiss frank and then in 2015 Sweden's
Central Bank did it to boost inflation
and economic growth but here's the thing
it still didn't really work because
Japan has one major problem their aging
population Japan has one of the highest
life expectancy rates in the world and
one of the lowest birth rates in the
world Japan has one of the fastest
declining populations in the world from
the current 124 million the number is
expected to drop below 100 million by
2056 by 2,100 the population will likely
be half of what it is now according to
the world economic Forum as many as one
in 10 people in Japan are over the age
of 80 Japan's Workforce is getting
smaller that puts a strain on its
economic growth because the more old
people you have that are not working it
means higher health care and pension
costs and that makes it harder for the
bank of Japan to justify increasing
interest rates when the population is
already having a hard time that's why
rates were negative for 8 years straight
the bank of Japan just raised interest
rates in 2024 which was the first rate
increase in 17 long years well the bank
of Japan the boj is Raising interest
rates for the first time in 177 years
today making it the last major Central
Bank to exit the world's negative raid
policy the question is how does all of
this tie into the collapsing Yen and the
strength of the US dollar so typically
the Yen goes up in value when people are
worried of a recession happening but so
far we've seen the opposite because the
US economy has been really strong even
though we have high interest rates which
has also had the effect of attracting a
lot of money into the US economy which
has helped boost the strength of the US
dollar and weakened the Yen Japan right
now is criticized for not doing enough
to convince people to park their money
in the Yen since rates are still close
to basically zero which means there's no
incentive to and according to Sachs the
outlook for the yen is weak for at least
a little while longer just remember that
how strong a money or a currency is
depends a lot on the central bank's
interest rate the more expensive it is
to borrow money the more valuable it
tends to be and the cheaper it is to
borrow it the less valuable it tends to
be right now the US dollar is pretty
expensive to borrow at
52% whereas the yen is really cheap but
looking back at history history my
personal question is what were the
lessons that we learned what could we
have done different to prevent the Lost
Decades of Japan and it turns out
there's actually three lessons that
economists have learned that could have
maybe prevented or lessened the effects
of it first the bank of Japan should
have adopted a tighter monetary policy
sooner meaning they should have been
afraid to increase interest rates and
make it more expensive for corporations
to speculate on real estate the way they
did two if Japan had stronger regulatory
oversight over its financial
institutions it would have really
lessened the sketchy lending practices
of Shadow Banks and if they restructured
the npls or non-performing loans of the
banks that failed they would have really
restored the confidence of investors to
start borrowing and investing money
again and three if Japan's economy
wasn't so initially dependent on exports
from the beginning if it was a little
more Diversified towards the domestic
side of things then the strength or the
weakness of the Yen maybe wouldn't have
mattered as much to the Japanese economy
so those three things could have
probably lessened or even prevented the
effects of the L decade now if you made
it this far into the video here's my
personal opinion of the weaker Yen and
how it all affects us I visited Japan
earlier this year and without any kind
of expectation it became my favorite
place that I've ever been to especially
Tokyo and Kyoto I just love the food the
culture and the people everything was
clean Super were respectful I felt safe
and it was just incredible I'm super
excited to actually go back probably
sometime in October and to top it off
everything was insanely cheap because of
how strong the US dollar is against the
Yen so if you're planning on traveling
overseas right now is arguably the best
time in 38 years to visit Japan so if
you do plan on going please be
respectful stay safe have fun and as
always I hope you have a wonderful rest
of your day smash the like button
subscribe if you haven't already don't
forget to to grab your free stocks links
are down below go track them
automatically with a spreadsheet link
Down Below in my patreon thank you so
much for watching this video I'd love to
see you back here next week I'll see you
soon bye-bye
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