Japanese economists urge Obama to put a financial gun to America’s head

Kosuke Takahashi, ATimes:

Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen….

“There is no wonder the dollar will weaken,” said Eisuke Sakakibara, Japan’s former top currency official and now a professor at Waseda University. “The dollar now looks strong for a technical reason. The money the US financial firms had invested in the world is being repatriated into the homeland, causing dollar-buying. But once this conversion into the dollars is done, the currency will head south,” Sakakibara said at a forum in Tokyo on Sunday….

The yen has advanced 15% versus the dollar this year, 33% against the euro and 53% against the pound sterling. The yen may rise to 85 per dollar this year, predicted Masaki Fukui, senior market economist in Tokyo at Mizuho Corporate Bank Ltd, a unit of Japan’s second-largest financial group by market value.

The US has issued bonds denominated in foreign currency before, during the Carter Administration. The problem is that when a currency falls, payments rise. It’s this kind of thing that sent Argentina over the edge. For Obama to, so to speak, put this nation’s family jewels in a vise while we’re in the middle of the worst crisis in memory would be unwise. He might end up having to do it.

A much better solution would be for the Japanese to allow the Yen to strengthen and for the Chinese to allow the Yuan to strengthen. This would slow their export industries, but would allow them to build a stronger consumer culture. In the case of Japan, it might mean more leisure, better medicine, and broader access to education. In the case of China, it might mean improved infrastructure and higher wages.