The thermostats in office buildings in Tokyo these days are set to 28° C —or a balmy 82.4°F . You walk into a building and get hit with heat—a little bit unsettling given the blast of cold air I expect in a New York City skyscraper. But in the aftermath of a tragic earthquake, tsunami, and nuclear plant meltdown that has left this country short of electricity, corporations have been asked to reduce power consumption drastically. Lights in lobbies and hallways have been drastically cut back or turned off. Throw in some absolutely oppressive weather and I feel like I’m walking around in some sort of underlit steambath. Men have abandoned suit jackets and ties and stream to the office in their white shirts. Bottled water is an essential for any meeting. Everyone is reporting to work an hour early, when it’s slightly cooler; the air conditioning shuts off at 6 p.m. If you are working late, bring a towel.
Japan is not only short of energy, it’s also short of leadership and ideas. Prime Minister Naoto Kan is set to resign soon, his approval rating so low that the only friend he has left is his dog, and the dog is waffling. Kan paying the price for the government’s flawed handling of the natural disaster and nuclear one that followed.
A number of candidates have stepped up to succeed him and they will face not only the task of rebuilding not only the earthquake damaged parts of the country but also Japan’s flailing economy. There’s no real growth in sight. Japan’s public debt to GDP ratio of about 200% is off the charts; it’s twice America’s ratio —although we’re the ones in a panic about unsustainable levels of debt.
So it was more understandable when Moody’s Investors Service downgraded Japan’s debt a notch to Aa3 than when S&P pulled the rug out under the U.S.’s triple A rating. Funny, the reaction in one area has been about the same: investors continued to pile into the yen, just as they did the dollar—although the Japanese stock market didn’t tank. The difference is that the yen has been on a long run against the dollar and the euro. It’s trading around ¥77 /$1, which is driving up my hotel bill among other things. In 2007, by comparison, the rate was about ¥120/$1. But the government has been unable to stop the run by conventional means. Japan’s economy may stink, but compared with some faltering European countries such as Spain or Italy, it looks a surer bets. That’s a problem because Japan’s mighty export firms are being handicapped by the high exchange rates, which makes their goods more expensive.
The government has announced yet another tactic to bring the yen lower—make $100 billion in funds available for Japanese companies to buy their way out of trouble. By underwriting acquisitions overseas, and driving the yen out of the country, the theory is that the yen will weaken. But trying to buy your way out of trouble is sometimes trouble itself. Japanese companies went a buying spree in the 1980s, and ended up with some prized U.S. real estate, such as the Pebble Beach golf club and Rockefeller Center. They overpaid for drastically.
Maybe there’s something to this. We’ve got tons of unsold housing in the U.S. Japan has money to burn. Maybe there’s a deal to be made here—we’ll even throw in the air conditioning.