“There are two trains running in East Asia, each fueled by hollow rhetoric and propelled by dangerous, self-deluding myths. Each of these locomotives heeds only its own signal, and the danger grows by the season that, if there is no coordination, a huge wreck might one day ensue.
“The two trains are, of course, China and Japan. The former, long decrepit, its wheels rusted by decades of Communist mismanagement of the economy, has lately worked up a huge head of steam. China surprised the world by announcing it had “discovered” previously unaccounted-for economic production equivalent to the output of entire countries, say, Austria, for example. Whoops: “Off the tracks! We’re coming through!”
“The other country, Japan, a longtime economic superstar, had been in the doldrums for over a decade, a victim of high costs, excessive regulation and a slow-to-adapt mentality in a fast-changing world. Japan is enjoying something of a revival, at least in a near-term economic sense, and today, the country’s conservative leadership is feeling its oats, evidently in no mood to play second fiddle to an accelerating China.
“Competition exists between these two countries on many levels, as do animosities both recent and old.” – Howard French
Commentary & Analysis
Collision course: China and Japan…Starring the Eurozone, with US in a cameo
Countries have interests. Most have allies. All have enemies (real, perceived, and of the manufactured variety). In times of economic turmoil enemies appear more menacing. The normal jockeying for position by a country during the good times, may often be perceived as a threat (or opportunity to manufacture a threat) by another during the bad times. It seems China and Japan, because of the inordinate impact of global rebalancing on current account surplus countries, may be locked into this game of “perceived or real” threat for some time. Interestingly, the key global economic policy choice being made inside the Eurozone could grease the slides along a collision course for China and Japan. The impact of such a collision would likely lead to an end of the euro currency regime as we know it, but the potential impact on the global economy would be even worse.
Read on …Currency Currents 24 July 2013