What is going on this time when gold prices have plummeted and the yen has fallen? At a time when global investors are wondering about the uncertain future, various reasons and hidden dangers hidden behind the appearance of the Japanese economy have quietly surfaced.
This is not only about the transformation dilemma of a once scientific and technological powerhouse, but also a portrayal of the current turbulent world economic pattern. Once upon a time, Japan was an economic pearl made with great craftsmanship; Now they have to deal with the changes in this global tide. Let's go back to the roots and find out.
In fact, the reason is simple, and much of it can be attributed to its long-term export-oriented development strategy.
As an island economy, Japan's industry has limited room for development and can only rely on exports as the main driving force for economic growth for a long time. Once upon a time, Japan's manufacturing products such as electronics and automobiles accounted for half of the global market. This model of development can be described as a fish in water during the period of rapid economic development, and overcapacity and export dividends have combined to inject a steady stream of wealth into Japan.
However, when global markets fluctuate wildly and domestic demand plummets, the drawbacks of the export-led development model are exposed. Sluggish domestic demand means that the domestic market is unsustainable, and exports are constrained by the ups and downs of overseas demand. As a result, Japan's economy has fallen into the predicament of internal and external troubles.
According to the latest data, Japan's GDP grew by only 0.3% year-on-year in the second quarter of 2023, well below expectations of 1.0%, with exports and domestic demand being the main factors. This situation of domestic and foreign difficulties is reflected in the sluggish performance of Japanese manufacturers and the decline in domestic consumption intentions. Market analysts point out that Japan is currently in the midst of the longest period of economic weakness since the end of the war.
This is undoubtedly a heavy blow to the once technological powerhouses of the past.
So how did all of this lead to a rare plunge in the price of gold, which should not have been associated with the ups and downs of the Japanese economy? On the surface, the price movement of gold, a traditional safe-haven asset, should have been positively correlated with economic turmoil. But reality gives a surprising counterexample.
The main reason for this is the current complex global economic situation.
On the one hand, the Fed's continued interest rate hikes have kept the dollar index higher, which has had a significant impact on other asset classes. Global investors generally tend to acquire dollar-denominated assets to avoid exchange rate risks during the US dollar interest rate hike cycle, and gold demand naturally plummets.
On the other hand, the slowdown in growth in emerging economies such as China has also worsened Japan's economy, which was already dependent on export-oriented development. With sluggish domestic demand and slowing exports, it's not hard to imagine how severe the plight of Japanese companies is. In this situation, companies have sold gold and other financial assets in order to maintain cash flow, and the demand for safe haven has dropped significantly.
The energy crisis in Europe and the intensification of geopolitical risks have led to a general subduit in investor sentiment. The gold market was not immune to the flood of safe-haven funds into the US bond market, triggering a global repricing of assets.
So we can see that although the trigger for the collapse of gold prices seems simple, the complex causes of this phenomenon actually encapsulate the various difficulties of the current volatile world economy. Japan is just one of the hardest hit by this global economic boom.
Faced with this situation, the Bank of Japan has made a number of responses, such as expanding fiscal spending and promoting structural reforms in the economy. But the overall effect remains to be seen.
This turbulent world economic map has taught many economies, including Japan, a heavy lesson. In the future, how to reshape their competitive advantages and achieve sustainable development will be a topic that they all need to face squarely.