July 2025 Monthly: July 20th House of Councillors Election - What Should We Choose?

 

 

Monday, July 7, 2025

 

What is "national interest"? Beyond the deception of maintaining the status quo

 

"Protect national interest" - Prime Minister Ishiba repeats this.

 

However, the reality is nothing more than maintaining the status quo and prolonging the life of the vested interests structure.

 Currency and trade are two sides of the same coin.

 Despite this, Japan has led a policy of currency depreciation for 13 years since Abenomics, leaving the yen weak at around 145 yen, well below purchasing power parity (1 dollar = about 108 yen). This is actually a depreciation of the yen and a strong dollar of more than 34%.

 Ishibanomics is a rehash of Abenomics - and a rehash at that.

 Meanwhile, in the United States, the Trump administration has restarted a protectionist policy of mutual tariffs, backed by a strong dollar. The Japanese government calls itself the "flagship of free trade," but it is too arbitrary to make that claim while continuing to depreciate the currency.

 The attitude of the domestic media, which does not report such contradictions and instead just spouts the government's claims, is reminiscent of the "Imperial Headquarters Announcements" during the war. We are now once again facing the prolongation of the "1940 system" - a structure dominated by hereditary succession, privilege, and vested interests.

 

The difference between Ishiba and Harvard-style negotiation techniques

 Even so, with the end of the Trump reciprocal tariff grace period looming on July 9, I cannot help but smile wryly at the attitude of Japan and the United States clinging to their mutual positions rather than their mutual interests.

I can't help but ridicule this as "Ishiba-style diplomacy," which is like a failed example of "Getting to Yes."

Harvard-style negotiation techniques advocate sharing interests, not exchanging positions.

In other words, negotiation is not about "what to assert" but about "why to assert it", and it is there that creative solutions can be found.

However, Ishiba's diplomatic style is like a Cold War battle for territory, and is limited to asserting one's position from start to finish. There is no room to accept the other party's logic, and negotiations degenerate into an exchange of speeches rather than dialogue.

In domestic politics, this attitude may be seen as "unwavering conviction". However, in the field of diplomacy, it appears rigid and becomes an obstacle to building trust. International negotiations are intellectual work to understand the other party's logic and find common interests.

There, flexibility in building relationships and solving problems is required rather than asserting one's position.

I'm sure I'm not the only one who hopes that a "logical" politician like Ishiba will embody the essence of Harvard-style negotiation techniques - "building a win-win situation". However, in reality, there seems to be a deep gap between ideals and reality.

Inflation is not "temporary" - a structural crisis

By the way, a Nikkei editorial (dated July 5th) stated that "measures against high prices require targeted wisdom." While this is certainly true, it is not the essence of the problem.

Current inflation is no longer temporary, but structural and sustainable.

Since the spring of 2022, the inflation rate has exceeded 2% for four consecutive years, and has been in the 3% range for the past three years. This is a clear deviation from the Bank of Japan's "price stability target."

What is needed in this situation is the normalization of monetary policy - that is, an interest rate hike.

Even in light of the Taylor principle, a basic principle of macroeconomics, a policy interest rate that exceeds the inflation rate is required.

Despite this, Japan is leaving significant negative real interest rates unattended and is trying to further impose fiscal stimulus. If this continues, inflation will become an uncontrollable "fireball" and may turn from the "Reiwa rice riots" to "random inflation."

The fiction of Ishibanomics - "A 50% increase in income by 2040" is an illusion

Prime Minister Ishiba pledged to "increase average income by 50% by 2040" in his campaign for the House of Councillors election. However, this is an empty theory that ignores reality.

Over the past three years, the nominal wage growth rate has not kept up with the CPI, and real wages have fallen by about 2% per year on average. In the 14 years since Abenomics began, the nominal GDP growth rate has been only 1.3% per year on average. Given this track record, a "50% increase" based on a growth rate of 2.8% is extremely unlikely to be realized.

Moreover, no concrete path to achieving this has been shown.

The "Fivefold Worry" Facing Japan

Japan is currently facing the following structural challenges:

1. Accelerating declining birthrate

2. Long-term economic stagnation

3. Currency depreciation (weak yen)

4. High prices putting pressure on people's lives

5. Mutual tariffs due to the reappearance of Trump - a modern version of the "Black Ships"

Despite this, Ishibanomics has inherited the three arrows of Abenomics -

① Bold monetary easing, ② Spending money, and ③ A "friends favor" growth strategy - and has not shown any signs of policy change.

 

The rise in long-term interest rates is mainly due to "inflation expectations"

Major media outlets report that "fiscal deficits lead to higher interest rates," but what is more serious in Japan today is the rise in long-term inflation expectations.

Core CPI for May 2025 is +3.8% year-on-year and +0.5% month-on-month. Annualized at +6.2%, it is becoming established. According to a Bank of Japan survey, consumers' expected inflation rate one year from now is over 10%.

In this environment, it would be counterproductive from the perspective of price stability for the Bank of Japan to ease the tapering of its government bond purchases.

A new policy mix: "monetary tightening + fiscal expansion"

What Japan needs now is a strategic policy shift that includes the following:

• The Bank of Japan raises the policy interest rate to a positive real rate

• The government permanently lowers the consumption tax rate to 5%

• Emphasis on expanding domestic demand and market freedom, not on growth strategies

• Focus on increasing tax revenues through economic revitalization, not on funding

This seemingly paradoxical policy mix of "monetary tightening + fiscal expansion" is the only way to simultaneously curb inflation, correct the weak currency, and expand domestic demand.

Election as a watershed in history: Beyond the "1940 system"

Now, at the turning point of 80 years since the end of the war, Japan is once again facing the extension of the "1940 system," a wartime system dominated by privileges and vested interests.

The July 20 House of Councillors election is not just a choice of government.

It is a watershed in whether we will renew this system and open up the future.

Our choices will change the future

A simple binary choice of "cash handouts or consumption tax cuts" will not be enough to address this structural crisis.

What is needed is a normalization of monetary policy and permanent tax cuts to support domestic demand.

And above all, the "choices" each of us makes will determine the future.

July 20th is the day to change the future.

Tomo Nakamaru,

A former World Bank economist

  

Supplementary Note: The Mystery of Japan Preaching the Geocentric Theory in the 7th Year of Reiwa, 80 Years after the War

 

The Black Humor of the World Economy: Japan as the "Four Economies"

 In recent years, the following black humor has been whispered.

 "There are four economies in the world: developed countries, developing countries, Argentina, and Japan."

 This ironic classification is said to have been proposed in the 1960s by Simon Kuznets, a former Nobel Prize winner in economics. It is a metaphor to show the uniqueness of each country's economic development, and initially positioned Japan as a "miraculous success story" and Argentina as a "symbol of decline."

 • Argentina: A "lesson of failure" that fell from former prosperity

• Japan: A "symbol of success" that grew rapidly from the ruins of the postwar period

However, times have changed. Japan, once known as "the sun also rises," is now being ridiculed as "the sun also sets."

 From "exceptional success" to "exceptional stagnation" -- a reversal of meaning

 Japan was once called the "miracle of the Orient" due to its high economic growth and was seen as a model of hope for developing countries. However, after the "lost 30 years" since the 1990s, its meaning has darkened.

 • Long-term deflation and low growth

• Stagnation of real wages

• Fiscal deficit and aging

• Declining international competitiveness and stagnation of innovation

 

In this reality, the black humor of the name "Japan" is no longer an "exception to success" but is being reinterpreted as an "exception to stagnation".

 

The "geocentric theory" of Reiwa -- Japan losing sight of the reality of the world

As the "land of the rising sun," Japan was once ahead of the changes in the world. However, today's Japan seems to be turning a blind eye to the reality of the world, as if it is clinging to the "geocentric theory."

The geocentric theory is a symbol of thinking that places itself at the center and does not acknowledge other movements.

The "geocentric tendency" seen in Japan today is manifested in the following ways:

• Clinging to past successes and postponing structural reforms

• Calling itself a "flagship of free trade" while continuing to induce a weak yen and implement quantitative easing

• Slow adaptation to globalization (weak English language skills, immigration policies, and startup support)

• Divergence from the "heliocentric" reality of the international community

This attitude is nothing more than a "stagnation of thinking" that believes that only one country is at the center, even though the world is moving.

The Black Ship of Reiwa - Trump's Reciprocal Tariffs and Japan's Currency War

 In 2025, 80 years after the war, a "black ship" appeared again in Japan. That was the "mutual tariffs" by the Trump administration.

 Trump's protectionism is certainly heretical. However, Japan has also been pursuing a currency depreciation policy against the world for the past 13 years.

 It can be said that calling itself a "flagship of free trade" while leaving the yen depreciating well below purchasing power parity is a "geocentric self-awareness."

 Such a perverse position is likely to undermine trust from the international community and even risk isolation. 

Will history repeat itself? Lessons from the end of the Edo period

 During the end of the Edo period, Japan leaned toward the inward-looking ideology of "Sonno Joi." However, it ultimately chose to open its borders and embarked on the path to modernization.

 However, 77 years later, Japan once again leaned toward inward-looking nationalism, and plunged into war and self-destruction.

 And now, in 2025, 80 years after the war, Japan is once again at a crossroads.

 • External pressure (the Black Ships of Reiwa)

 • Inward-looking policies (currency depreciation, fiscal handouts)

 • Dissociation from the world (geocentric thinking)

 If things continue this way, the fear that "the sun will never rise again" may become a reality.

 

Will the sun still rise again?

 The answer to this question depends on our own choices.

 • A "heliocentric perspective" that breaks away from past successes and faces reality

 • Invest in structural reform and innovation

 • Human resource development and system design with a global perspective

 • Breaking away from nationalism and rebuilding international cooperation

 Whether or not we can implement these measures will determine Japan's future.

 History repeats itself - but it is not inevitable.

 If we have the will to change, the sun will rise again.