An Examination of Japan's New Economic Strategy and the Market Myths of the Mainstream Media

Ahead of the vision of Japan's new leader Sanae Takaichi, which aims for economic revitalization through a "responsible active fiscal policy," there is a major barricade formed by the markets and mainstream media organizations. The traditional economic media insists that Takaichi's expansionary fiscal policies will lead to the depreciation of the yen and rising interest rates. This critical approach emboldens the forces of resistance that advocate for economic contraction and austerity policies. However, the author argues that the concept of the market, so highly exalted by the media and market speculators, is in fact nothing more than an ambiguous and ungraspable illusion. The Takaichi administration, on the other hand, displays a decisive stance to revitalize the country through tax cuts and strategic growth investments.

Looking at the history of economics, the theory of the "invisible hand," conceptualized by Adam Smith in the 18th century, believed that the free market would perfectly balance supply and demand. However, this theoretical approach from the gold standard era changed completely when US President Nixon ended the convertibility of the dollar into gold in 1971. From this turning point onwards, money was no longer backed by gold, and financial asset markets gained incredible potential for rapid expansion. The financial economy, which grew through deregulation policies since the Reagan era, created massive bubbles that led to the 2008 global financial crisis. Today, with the interventions of central banks and technological revolutions such as artificial intelligence, financial markets continue to grow completely disconnected from the real economy.

The article strikingly emphasizes the massive scale difference between the real economy and the financial economy. While the global Gross Domestic Product (GDP), representing the real economy, is around 86 to 100 trillion dollars, the financial economy has reached an enormous volume of hundreds or even thousands of trillions of dollars. This virtual economy, inflated by derivatives and speculative transactions, is dangerous precisely because it appears to be of the same nature as the real money people use in their daily lives. For countries like Japan, which are directly affected by the global hegemony of the US dollar and possess a secondary currency like the Japanese yen, this situation is even riskier. The bursting of any bubble in the financial markets has the potential to leave irreparable and devastating damage on the Japanese real economy.

At the core of the decade-long struggle Japan endured following the bursting of the bubble in the 1990s lies the collapse of the real economy and the insufficient circulation of money within the system. The traditional economic media continues to hold an unshakable belief that markets are always rational and disparages the bold steps taken by the Japanese government. For instance, the media fiercely criticizes the Takaichi administration's VAT cuts on food and beverages and its growth-oriented spending policies, citing reasons such as the depreciation of the Japanese yen or possible US interest rate hikes. However, looking at the actual data, Japan's fiscal balance is in a very healthy position compared to other G7 countries. Even the government's primary budget balance has achieved a surplus, and the Takaichi administration is drawing a clear roadmap for reducing the state's debt stock relative to GDP.

The trend of increasing tax revenues and shrinking fiscal deficit in Japan is actually the result of the unprecedented active fiscal policies implemented by then-Prime Minister Shinzo Abe in 2020. Direct cash aid to the public and massive support given to small businesses during the pandemic stimulated domestic demand and ensured a rapid economic recovery. In this new era, where companies have been able to pass on price increases to consumers, a positive cycle between wages and prices has begun to form, bringing Japan to the threshold of exiting its "lost decades." The implementation of Takaichi's growth strategy at this juncture offers a rare opportunity for the country's economy; however, the media's insistence on past failed prescriptions such as austerity and interest rate hikes creates a significant danger. The success of this new vision, which will redirect companies that have been investing abroad back to the domestic market, will bring stability to the Japanese yen; however, for this to happen, it is essential that the mainstream media quickly abandons its deep dogmatic beliefs in the market.