As the yen strengthened in those early years, along with general global economic problems, Japan developed a rare trade deficit, which is unusual in its multi-decade history.

When the Bank of Japan began massive QE in late 2012, it began sharply weakening the yen vs other currencies throughout 2013. And then, in 2014, the US Federal Reserve ended

While the US runs persistent current account deficits, Japan runs persistent current account surpluses, which is how these substantially different NIIPs were built.

This will be interesting for the United States over the next decade. Unlike Japan, which funds its own fiscal deficits domestically, the United States has historically been partially

which of the following advanced currency areas had the fastest rate of broad money supply increase per capita over the past twenty years? The United States, Euro Area, or Japan?

Most people would probably guess Japan, since their central bank has been the epic printer.

The answer is actually the opposite. Japan grew their broad money supply far more

In contrast, during the three decades prior to 2020 (pre-pandemic), Japan never ran a budget deficit larger than 8.3% of GDP. Their deficits were big and persistent, but gradual:

Basically, we engineered a way for the whole world to need dollars (most major oil producers would only sell oil in dollars), and as a result, the forces of supply and demand hold open our trade deficit to provide the rest of the world with dollars.

Export-driven countries like Germany and Japan were able to rise to the occasion on the other side of

expanding the monetary base is very different than expanding the broad money supply. Many people think that QE alone is inflationary, but it’s not. At most, QE alone is anti-deflationary, or inflationary for asset prices in particular. On its own, QE doesn’t result in more money in peoples’ pockets chasing more goods, or higher commodity prices.

A

When Paul Volcker became the chairman of the US Federal Reserve in 1979, after years of the United States being unable to control its worsening inflation problems, he proceeded to sharply increase interest rates to approximately 20%, which is associated with finally quelling inflation. The inflation-adjusted yield on bank accounts was very high at

Follow the (Broad) Money

There are two primary ways to increase the broad money supply significantly.

The first method is that banks have to lend more, which increases the “money multiplier”, or in other words makes the broad money supply many times larger than the base money supply. Inversely, if debts are paid off, that destroys broad money.

The

in the latter half of the 1980s, as their currency rapidly strengthened against the dollar. While a strengthening yen would benefit Japanese consumers, the products of various Japanese exports became a bit less competitive. Fortunately, their quality-to-cost ratio was very high.

Japan responded with monetary easing, fiscal stimulus, and financial