Are the Weak Yen and Inflation a Government Conspiracy? The Public Gets Poorer While the Government’s Coffers Grow

Lately, I have been seeing YouTube videos claiming that the government is deliberately causing both the weak yen and inflation.

That strikes me as a conspiracy theory.

I cannot imagine senior government officials gathering in a dimly lit conference room and saying, “Let’s make life a little harder for the public.”

For that matter, if the Japanese government had the power to control both exchange rates and prices at will, I would prefer it to use that ability for something else.

However, just because something is not a conspiracy does not mean it is inconvenient for the government.

The public sighs at the price tags in supermarkets while the government announces record-high tax revenue.

Seeing that contrast, it is understandable that people feel something is wrong.

Inflation Makes the National Debt Lighter

Whenever Japan’s fiscal problems are discussed, its enormous debt inevitably comes up.

Once the figures reach hundreds of trillions—or even quadrillions—of yen, they no longer feel real.

But the effect of inflation on debt is simple.

When prices rise, the value of money falls. If wages and prices double, the real burden of repaying one million yen borrowed years ago is cut in half.

Anyone with a fixed-rate mortgage will find this easy to understand.

The same applies to a country.

For many years, Japan accumulated debt while prices remained flat. When inflation arrives, the real weight of that old debt diminishes.

Of course, higher interest rates create the separate problem of increasing the interest payments on new debt. Even so, inflation still reduces the real value of existing debt.

The public’s living expenses rise, while the national debt becomes relatively lighter.

It is a remarkably convenient arrangement.

“While life is becoming harder for all of you, the real value of the national debt is declining.”

The government would never offer that explanation. It would only lower its approval ratings.

Who Loses and Who Benefits from a Weak Yen?

People debate whether a weak yen is good or bad for the Japanese economy, but the more basic question is: good for whom?

It benefits exporters and people who own assets overseas. Profits earned in foreign currencies swell when converted into yen.

Meanwhile, imported energy and food become more expensive.

People with overseas assets grow wealthier as the yen weakens, while those who live only on yen-denominated wages and savings lose purchasing power.

And the government gains another advantage.

When prices rise, consumption tax revenue tends to increase even if the tax rate remains unchanged. If companies’ nominal profits and workers’ nominal wages rise, corporate and income tax revenue also increases.

The government can collect more tax revenue without raising tax rates.

The public says, “Life is getting harder,” while the government proudly announces, “Tax revenue is strong.”

They are looking at the same economy, yet the view is remarkably different.

Tax Hikes Make People Angry, but Inflation Has No Culprit

If the government announces a tax increase to repair its finances, the public will naturally be angry.

It is also clear who made the decision. The responsible minister and political party cannot escape blame.

Inflation is different.

Oil prices, international affairs, the weak yen, labor shortages, companies passing on higher costs—the list of causes can go on indefinitely.

No single person is held responsible.

Meanwhile, purchasing power gradually disappears from people’s wallets.

Taxes appear on a statement, but no payment notice arrives for the loss caused by inflation.

You simply pay a little more each time you reach the supermarket checkout.

Few mechanisms blur political accountability so effectively.

That is why I do not believe the government deliberately caused inflation.

But it does not look as though the government is determined to stop it at any cost, either.

Just Move Abroad? The People Who Can Leave Are Not the Ones in Trouble

Whenever this subject comes up, someone says, “If you do not like Japan, just move abroad.”

What a wonderfully simple solution.

All you have to do is learn English, obtain a visa, and find a high-paying job overseas.

Anyone capable of doing all that could probably manage reasonably well in Japan too.

Even if your salary doubles in the United States, it means little if your rent and medical costs more than double as well.

Moving abroad is not like boarding a lifeboat from a sinking ship. It is like jumping onto another ship.

And that ship may have holes of its own.

Not a Conspiracy, but a Remarkably Convenient System

In the end, there is no need to believe that either the weak yen or inflation is a government conspiracy.

The government wants to maintain public finances. Companies want to protect their profits. The public wants to protect its standard of living.

But each has different weapons.

The government can change the tax system. Companies can raise prices. About all an ordinary salaried employee can do is choose a slightly cheaper restaurant for lunch.

Inflation reduces the real value of the national debt. Government tax revenue rises in nominal terms. Meanwhile, the real value of the public’s savings declines in exactly the same way.

What impresses me once again is that no one has directly withdrawn any money from people’s bank accounts.

Your bankbook shows the same balance as yesterday. The only thing that has declined is what the money can buy.

People become angry at a tax increase. Confiscating their savings would cause riots. But when the value of those savings merely disappears little by little, people simply go to work as diligently as ever.

There is no need to devise a conspiracy.

A system this convenient already exists.