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Bank of Japan Finds Money Strike Hard to End

NEW YORK (TheStreet) -- Just like the U.S., Japan is facing what I call a "money strike." 

That is, trillions in buying power (yen in this case) are sitting in corporate vaults, gathering dust, while the real economy languishes.

The U.S. money strike has been going on for years. Japan's has been going on for decades. Prime Minister Shinzo Abe and the Bank of Japan have been trying to break the strike by reducing the value of the yen through both fiscal and monetary policy

Abe's hand-picked Bank of Japan governor, Haruhiko Kuroda, has been creating the equivalent of $70 billion per month, but the response has been underwhelming. Growth slowed between the second quarter and third quarter from 0.9% to 0.5%. 

Meanwhile, Japan's total debt dwarfs that of the U.S., at twice the country's gross domestic product, and so tax breaks intended as stimulus have to be matched with unpopular hikes in sales taxes.

The result of a policy involving loose money and stimulus should be inflation, higher profits from exports and ultimately rising wages. It's named after the prime minister, "Abenomics."

But the money strike remains powerful. A Nikkei survey shows Japanese treasurers plan to invest some of their windfalls and conduct research, repay loans, acquire other companies and give payments to shareholders. Only 7% plan to raise salaries.

Wages go back into the economy and are recycled as they're spent. Capital spending is managed by corporate treasurers, who may just import goods and services rather than help workers.

Thus, economists are calling the result "Scroogenomics," after a recent book by Princeton economist Joel Waldfogel. 

The use of the term, however, is a misreading of the book. Waldfogel isn't arguing for doing nothing at Christmas. He's arguing for more charity at Christmas, for giving fewer ties and toys to relatives, for prioritizing people and causes with real need.

If Japan were really practicing Scroogenomics, it would be putting money to work helping people, curing diseases, feeding the poor and building better housing. Instead, Japanese treasurers are giving money to the equivalent of wastrel relatives, to shareholders and bondholders, and the money is winding up in vaults.

One thing this policy has done is make a lot of money for Americans. By buying shares in Japanese companies and shorting the Japanese yen, American investors have made big returns on Japan Inc. this year, and expect to do so again next year.

Over the last year, we've gone from a low of 82 yen to the U.S. dollar to today's rate of about 102.6 yen to the dollar. During the same time even Japanese stocks whose managements are doing poorly, such as Sony (SNE), are providing big gains for U.S. investors -- that stock is up 90% in dollar terms.

But our corporate treasurers seem no more willing to share their wealth than their Japanese counterparts. The St. Louis Fed put out a report early this year showing $5 trillion in cash was being held on U.S. corporate balance sheets, over $1.5 billion of it outside banks and utilities.

Breaking the money strike is obviously a global problem.

At the time of publication, the author had no investments in companies mentioned in this article. 

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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