Today in "war on the young" news: Japan, monetary policy, and deflation

The strong yen helps the elderly in Japan at the expense of everyone else.

Martin Fackler of the Financial Chronicle:

As Japan has ceded its dominance in industry after industry that once lifted it to economic greatness, there has been plenty of blame to go around. A nuclear disaster that raised energy costs. A lack of entrepreneurship. China's relatively low-cost work force.

Increasingly, however, business leaders point to what they call a more immediate threat and one that is at least partly within the government's power to control: a punishingly high yen that has made Japanese exports, whether televisions or memory chips, prohibitively expensive abroad. The government is doing almost nothing to try to rein in the yen, despite general alarm that the record-high currency is dealing crippling blows to the country's once all-important export machine.

One big reason, analysts and some politicians say, is simple, if generally left unsaid: A high yen benefits Japan's rapidly expanding population of elderly residents, even if it is hurt[ing] other parts of the country.

A strong yen makes imports cheaper, and for a country which has to export a huge amount annually, that is a big contributor to deflation. That deflation helps stretch savings and pension pots, while increasing the indebtedness of the young. Additionally, by damaging the competitiveness of the country's exports, it makes it harder than ever to escape from the stagnation it has experienced for much of the last two decades.

As Tyler Cowen, to whom I owe the pointer for this story, says:

How many major political battles do the elderly actually lose?

An elderly woman sits in front of an anti nuclear banner during a demonstration in a street in Tokyo on June 23, 2012. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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