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On a recent trip to Tokyo, I was surprised at the lack of traffic and emptiness of Ginza, one of Tokyo’s primary retail and entertainment districts. Ginza has always been at the forefront of fashion, economy, and culture in Tokyo. It is a place where the traditional meets the modern, and a melting pot of ideas, trends, information, media, fashion and culture. No longer. Japanese corporations no longer re-imburse “salary men” for their lavish entertainment expenses in Ginza nightclubs. As a result of recent political tensions between China and Japan, Chinese tourists are staying away from Ginza.
Ginza Billboard
At Yen 82/US$1, Japanese consumers are terrified and not spending money. Rather, they are hoarding cash. Sales in upscale retail stores in Ginza have plummeted, formerly crowded sushi bar restaurants are empty, and nightclubs are closing. According to data released by the Japan Chain Stores Association, supermarket sales in Japan fell 1.2% in July. Supermarket sales in Japan have now fallen for 20 consecutive months.
Japanese businesses are not investing in marketing, new product development, or R&D. Despite a strong Yen which makes imports cheaper, they are not importing new products. The reason for the lack of imports in Japan reverts to the sluggish consumer demand. Japanese companies are recalling their expatriate executives to return to Japan in order to reduce costs. Finally, there is no Foreign Direct Investment (FDI), as foreigners see no logic in buying Japanese assets with such a strong Yen.
The Japanese economy, which recently relegated its long-held position as the world’s second largest economy to China, is at a standstill.
Japan’s economic policymakers recently jumped into the currency markets to depress the value of the surging Yen by purchasing 1.7 trillion Yen. It hasn’t worked. The problem with Japan’s yen intervention is the signal it sends to the world. That message is: We want to export to you, not vice versa, for the good of our own recovery, not yours. Statistics confirm that Japanese exports increased for the first 7 months in a row of 2010, up over 20% to both the U.S. and China, Japan’s largest trading partner.
Tiffany & Co. and Prada
One of the potential problems emerging from the Great Recession is that everybody wants to export their way to recovery, the U.S. included (Obama’s recent “National Export Initiative” aims to double U.S. exports in 5 years). China gets routinely criticized for controlling the value of the Yuan to ensure its exports remain competitive in world markets. As long as policymakers around the world expect other consumers to drive their recoveries at home, the risk will remain that the global economy could sink into an era of beggar-thy-neighbor policies that end up hurting everyone.1
Japan, like most of Asia, is placing nearly all their hopes on China. They see China as a means to export their way out of the current deflationary recession. While countries such as Japan and emerging markets formerly looked to the U.S. to help their economies recover, China is now their main concern. It is a dangerous paradigm shift for the former lone super-power.

1 Why Japan’s yen policy is bad for the world, Posted by Michael Schuman,, September 15, 2010