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Macroeconomics


crisis - through deregulation, taxes, spending , and equipment leasing deals. But most Japanese firms have no need to invest additionally as manufacturing capacity utilization has been stagnant and plagued by excess investment. Consider that over the past decade, gross fixed investment in the US averaged about 10.5% of GDP.


A


c om p ara b l e figure for Japan is almost 13.0%. Abe’s growth strategy is likely to magnify excess i nv e s tm e n t problem, lead to higher defl a t io n p re ss u re s and lower c o r p o r a t e profits. The problem is not too little i nv e s tm e n t in Japan but really the opposite; too much investment.


investment. Savings in the


household sector have generally fallen below 2% of GDP, as one would expect, given the unfavorable demographic trends characterized by shrinking and aging population. In contrast,


the corporate sector


accumulated savings of 7.5% of GDP.


FX seem to compound the problem.


As Martin Wolf of the Financial Times argued recently, corporate savings in Japan are too high relative to the plausible investment opportunities. This problem of surplus savings is incomprehensible to Japanese policy makers. They continue to insist on understanding the problem in traditional terms of b o o st ing i nv e s tm e n t to increase emp l o ymen t and consumpt ion.


Most Japanese firms have no need to invest additionally as manufacturing capacity utilization has been stagnant


The ultimate goal of Abenomics should be to revitalize the Japanese economy by freeing up the vast savings amassed in the Japanese corporate sector rather


than expanding private


Data from Lombard Street Research shows that combination of depreciation and retained earnings amount to 29.5% of Japan’s 2011 GDP. In the US, where corporations also enjoy a financial surplus, it is closer to 16%. Boosting the wherewithal


to invest would


In the early 1900s, a US journalist and p r eside n t ia l ad v iso r C h a


, r les


C on an t , was the first American to conceive of


the problem of surplus savings and he gave it a deep think. He argued there are finite numbers of ways to address the issue of the surplus. Wars destroy capital, but Conant argued against such a course. Redistribution was another strateg y, but Conant was


no socialist. Conant FX TRADER MAGAZINE July - September 2013 19


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