Japanese corporate savings-found money?

An excellent analysis of possible solutions to Japan’s domestic consumption conundrum has been written by Claus Vistesen:  – Alpha.Sources – Paging Martin Wolf – A Detailed Look at Savings in Japan

The gist is that possibly the accumulated profits of Japanese corporations could be taxed and distributed to the population to trigger domestic demand. I am skeptical of that argument. It seems to me that one possible offset to the retained earnings on corporate balance sheets might be cross shareholdings which may not be marked to realistic values; due to either not marking them to exchange prices or simply the fact that Nikkei share prices are actively propped up by Japan’s financial authorities.

If a substantial portion of Japanese corporate assets are invested in US Treasuires, for example, which seems quite likely, this tax proposal would trigger sales of those Treasuries which would have the effect of strengthening the yen relative to the dollar. This is a result that the finance authorities would clearly rather not see. I suppose that corporations could simply hand over the actual securities as payment for such a tax, but then the Ministry of Finance would need to sell those to allow for distribution of the proceeds.

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1 Comment »

  1. Hey Scott,

    Thanks for the backline comment on AS.

    Claus

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