If Japan Crashes...

Wouldn’t the US follow suite and American markets will crash. Are we heading to a new depression? If so, do you think the Canadian dollar will rise? If not, why?

You haven’t been watching the news for the last decade have you? Japanese markets crashed in 1990 and are still going down.


I know they’ve crashed, I meant if they continue to crash into the depths of hell. My bad, I should have mentioned that.

Don’t think so. The Japanese market needs to reach clearing levels, which it would have done way back in IIRC '92. Back then the Japanese government embarked on a “PKO” or “price keeping operation” to support share prices. This involved a partial nationalization of the stock market via government pension funds buying stocks. It also involved the government announcing every six months from 1992 until last year a “pump priming” load of government spending to “boost” the economy.

End result, is that the Japanese have really messed up their economy for at least the next 10 years. Now they have a massive government deficit.

More appropos your question, generally speaking, the large holdings that Japanese corporates had in US stocks was liquidated long ago to pump up either their own stock price or prevent bankruptcy.

I do believe the American (including Canadian) west-coast import/export business has hurt a bit. Japan has a very strong economy, but the U.S. still trades more with Canada. A big problem for Japan is that their imports aren’t that cheap anymore, and they are getting more comlpetition from younger asian countries. The big Japanese corporate conglomerates, mainly auto and technology, will outsource work to cheaper asian or Mexican labor forces. Japan is becoming post-industrialist to a degree. The rapid growth Japan experienced from the 50’s to 90’s slowed down, as it does in all countries.

Japan also is suffering from some of the very policies that may have caused it to grow. Japan is reluctant to import. We have for a long time lobbied to open its markets. This is why in Japan a hamburger can cost 3-4 times more than in the U.S.

Japan has been good in the past about getting its people to save money with outrageous sales taxes (up to 15/% or more), which does well building an infrastructure, but the market thrives on the small stuff, and people spending money on the small stuff. Japanese consumers would greatly benefit from opening their market. I believe it is starting to happen as well.

Don’t sweat it. The US economy is fairly self-contained; consequently, the US tends to have a bigger effect on (smaller) foreign economies than they have on it. The US was able to withstand a stangnant Japan in the early 90s and “Asian flu” in the late 90s without toppling. Japan has far more to fear from a US slowdown than vice-versa.