Dr. Lee Myung-chan: Japan Faces Crisis

Most analysts assess that the foreign exchange intervention undertaken by the Japanese government to defend the yen's value is merely a short-term measure to 'buy time.' Experts point out that cash intervention alone cannot be a fundamental solution to the weak yen phenomenon.

Dr. Lee Myung-chan compared cash intervention to 'pouring water into the desert,' explaining that while it might have short-term effects, it holds little significance in the long run.

An analysis suggests that the most fundamental cause of the weak yen phenomenon stems from the large interest rate difference between the United States and Japan. While Japan maintained negative interest rates and low interest rates of around 0.1%, the U.S. dollar interest rates soared to 5.5%, creating a massive interest rate differential.

This interest rate gap triggered 'yen carry trade,' becoming a major factor in exacerbating the yen's weakness. Investors borrow yen at low interest rates to invest in dollar-denominated assets with high interest rates, leading to an abundance of yen in the market and a relative shortage of dollars.

Furthermore, Japan's trade balance has turned into a deficit, and despite a current account surplus, structural problems preventing capital inflow into the country are also accelerating the weak yen.

As Japan's aging population deepens, domestic consumption continues to decline, leading to an overall weakening of the Japanese economy. Dr. Lee Myung-chan expressed concern, stating, "Ultimately, Japan's strength continues to decline, and look at the domestic situation; consumption is also continuously decreasing."

Additionally, Japan is experiencing a deficit in the digital sector, and the recently introduced new NISA (Nippon Individual Savings Account) is analyzed to be exacerbating the lack of domestic investment by leading to an outflow of Japanese capital into overseas stock markets.

Although Japan is attempting foreign exchange intervention to defend against the weak yen, it faces limitations in selling a large volume of U.S. Treasury bonds. The U.S. is reportedly requesting Japan to refrain from selling Treasury bonds, fearing a rise in its own Treasury yields.

Dr. Lee Myung-chan mentioned, "The U.S. says, 'Don't sell Treasury bonds.' Why? Because the moment you sell, U.S. Treasury yields go up," explaining that these restrictions are hindering Japan's foreign exchange intervention. Therefore, intervention using Japan's holdings of U.S. Treasury bonds is practically difficult, and intervention by selling euros is also expected to be limited to one or two times due to the scale of funds.

An analysis suggests that even if Japan raises interest rates, it is unlikely to lead to an abrupt unwinding of yen carry trades. Dr. Lee Myung-chan explained, "It's difficult to see yen carry trades unraveling immediately just because Japan's interest rates went up by 1%."

As long as the interest rate difference between the U.S. and Japan remains at around 2.5%p, investors have a strong incentive to maintain yen carry trades. For yen carry trades to visibly shift, a combination of U.S. interest rate cuts and additional Japanese interest rate hikes would likely be required.

Despite the release of secret documents related to Dokdo, Japanese public opinion showed almost no reaction. Dr. Lee Myung-chan analyzed that the general Japanese public has little interest in the Dokdo issue.

Furthermore, right-wing factions within Japan also failed to logically respond to the document release, resorting instead to specious arguments. This suggests that the Dokdo issue is a low-priority matter for the Japanese public.

A personal information leak incident involving 7.1 million records occurred at Line Yahoo. It was revealed that this incident was not due to external hacking but rather internal management failures within Line Yahoo. Dr. Lee Myung-chan pointed out, "It wasn't even hacked from outside; it leaked because of internal mismanagement. In short, there was no management capability."

This leak demonstrates a severe lack of management capability, as it went undetected for years. Compared to the justification given during the past Naver management takeover controversy, the actual scale of damage from this Line Yahoo leak is more than 10 times greater, indicating its significantly higher severity.

Japanese manufacturing lags in innovation due to its slow decision-making 'unanimous meeting culture.' Dr. Lee Myung-chan explained, "Decisions are very slow. They always hold many meetings with a unanimous system. By the time they get all the stamps and make a decision to implement it, the market is already taken by Korea or China," pointing out that delayed decision-making prevents them from responding to market changes.

Furthermore, a shortage of skilled personnel for digital transformation, coupled with a seniority-based compensation system, accelerates the outflow of young talent and discourages motivation. This analysis suggests that these structural limitations are fueling the decline of Japanese manufacturing.

Concerns about structural vulnerability are rising as Japan's major industrial hubs are concentrated in earthquake-prone areas. Dr. Lee Myung-chan pointed out the overall instability of Japanese industry, stating, "These industrial problems are strangely coinciding with an earthquake cycle. Until it's swept away and cleared, isn't all of Japan's power supply unstable?"

In the past, during the Kumamoto earthquake, major factories like TSMC and Sony suspended operations, and numerous earthquake prediction reports exist for Hokkaido and other regions. This industrial park strategy, coinciding with the earthquake cycle, could deepen the instability of the entire Japanese economy.

An analysis suggests that the Japanese government is highly likely to intervene to protect Kioxia's management rights. News of SK Hynix's investment in Kioxia shares has spread vigilance within Japan regarding the loss of control over a key semiconductor company.

Dr. Lee Myung-chan stated, "They would want to keep at least something of semiconductors in Japan. In that sense, I don't think the Japanese government will just sit by unless Kioxia decides to sell while its value is high." Kioxia is considered a key symbol of Japan's semiconductor industry revival, so even if it is a transaction between private companies, the Japanese government is expected not to overlook it at a national level.

Korea's share of exports to Japan has fallen to the 3% range, the lowest in 37 years, significantly reducing economic dependence on Japan. This signifies a shift in the trade structure, which previously relied on Japan, due to successful efforts in localizing materials, parts, and equipment (MPE).

Dr. Lee Myung-chan explained, "In the past, when we sold products, it was a 'Kamoja' economy where all the materials, parts, and equipment came from Japan, so even if we sold finished products, the actual profit largely went to Japan." He pointed out that in the past, even when Korea sold finished products, Japan reaped the profits from core components. However, he now gives a positive assessment, stating that Korea is improving its trade deficit structure by achieving technological self-reliance and substituting imports.

It is argued that Korea no longer needs to maintain the subservient attitude towards Japan that it had in the past. Dr. Lee Myung-chan emphasized overcoming psychological intimidation, stating, "In that sense, I always say that we can be completely confident with Japan. That old habit of feeling small in front of Japan... it wasn't like that in the Presidential Office."

As Korea's trade deficit with Japan decreases and the economic gap narrows, there is a growing recognition that it is time to assert diplomatic demands from an equal footing.

It has been pointed out that Japanese companies have accumulated approximately 600 trillion yen in internal reserves without adequately raising workers' wages, despite improvements in labor productivity. Dr. Lee Myung-chan raised the issue of corporate wage exploitation, stating, "Japan's labor productivity has improved quite well, but wages have barely increased. That is exploitation."

This stagnation in wage growth has neglected household income increases, and the reduction in household consumption due to the expansion of irregular employment has become a major factor in deepening Japan's domestic economic slump.

An analysis suggests that the increasing phenomenon of prostitution among young women in Japan stems from structural social problems such as economic hardship and the spread of non-regular employment. The proportion of non-regular workers in Japan is close to 40%, and a significant portion of these are young women.

Dr. Lee Myung-chan explained, "They greatly increased non-regular employment, by nearly 40%, and those primarily affected are young women. Surprisingly, many young women are also heads of households. They often resort to this for economic reasons..." He pointed out that young women are being driven into economic isolation when they have to act as providers.

As a result, more women are resorting to prostitution for a living, and there's also an increase in the 'tachi-bo' phenomenon, where women engage in street prostitution, seeking personal freedom outside of establishments.

This is interpreted not merely as an individual problem but as a result of the complex interplay of economic inequality and labor market vulnerabilities in Japanese society.

The privatization of electricity infrastructure and the shutdown of nuclear power plants after the Fukushima disaster are cited as major reasons for the surge in electricity prices in Japan. Dr. Lee Myung-chan explained, "The reason electricity prices are high is because it's privatized. Electricity is fundamentally somewhat insufficient, and it's hot. So what happens? They tell people to save electricity, save electricity, and the rates go up."

After the Fukushima nuclear accident, the shutdown of approximately 15 nuclear reactors exacerbated electricity shortages, and the import of expensive fuel to compensate for this led to rising electricity rates. The privatized electricity market structure functions by passing these increased costs onto consumers.

It has been pointed out that there is a significant difference in building insulation standards between Korea and Japan, resulting in relatively poor housing conditions in Japan. Dr. Lee Myung-chan explained that in Korea, there is a clear legal obligation to use thermal insulation materials when constructing apartments, ensuring a certain level of thermal performance.

In contrast, Japan lacks sufficient legal standards to mandate the installation of thermal insulation devices in buildings. Dr. Lee Myung-chan emphasized, "In Korea, the law explicitly stipulates that a certain amount of thermal insulation material must be used in apartments. But Japan doesn't have that."

Due to these legal and institutional differences, Japanese buildings have low energy efficiency from the design stage, leading to high heating and cooling costs and difficulties in creating comfortable living environments.

Consequently, Japan's residential environment is vulnerable to external temperature changes, and this is pointed out as a structural problem that can directly affect residents' health and daily lives during summer heatwaves or winter cold spells.