Okay so the US doesn't like something about how Japan's economy was doing in the 90s, what was the beef? I know Japan was manufacturing a ton of stuff, but I thought the US wanted consumer products manufactured overseas.
So they're not happy with this, so they do a run on Japan's currency. What does this mean? Like how do they do it?
The run on the currency causes the value of the Yen to go up. This is bad for some reason, even though your currency is worth more? Like can't you get more for a Yen? But clearly it's bad because it destroyed their economy, I'd like to understand why or how.
Because right now the best I was able to explain it to someone was "America did some money magic bullshit and destroyed Japan's economy", but I would like to be able to answer some follow up questions.
Okay this is v interesting and I have some follow up questions
Why does the dollar being worth more mean that it's more expensive to buy from the US? If one dollar goes further than it did before, it seems like that would be the opposite. Because other countries are still trading to the US in USD right? Or no?
On the opposite side, how did Japan's currency becoming worth more cause inflation? I thought inflation was when the money is worth less.
The value of a currency in relation to other currencies doesn't have one-to-one relationship to prices of goods in that currency. So if a pound is worth more euros than before, it doesn't mean that the price of a good in pounds will adjust to reflect that, and certainly not right away or in a way that cancels things out. So if a UK football is £20 and the exchange rate is €2 to £1, a UK football costs €40 in Germany (simplifying costs of import and export, tax, etc.) If the exchange rate changes to €2.5 to £1, the UK football now costs €50. The price of the football may change somewhat in response to this, but domestic markets for footballs, market lag, and the value of a pound domestically being tied to more than just the prices of export goods mean that it will ultimately still settle at a higher price in euro than before the change in exchange rate.
Wow. This is crazy to me. But it kind of makes sense.
So money being worth more doesn't actually meant I can buy more things with it????
Yes, since the exchange value of the money as it relates to another currency isn't the same as its exchange value as it relates to goods priced in the first money. It should ultimately clear at a price that equalizes things, but that's hindered by multiple currencies exacerbating the chronic inability for markets to perfectly account for all externalities, future pricing, etc. Economics is a really interesting field! I wish more people on the left didn't just dismiss it out of hand, because problems like this calculation problem are enormous hindrances to the accurate estimation of the real value and cost of things.
Okay ty, this has given me a lot to think about. I think I have a somewhat clearer picture now.
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The other poster answered the first part so we're good on that. Now, on to your second question.
You're right in that inflation is when the purchasing power of money is lessened. Japan's yen appreciation didn't directly cause inflation or the asset bubble; what happened is the yen being worth more meant exports from Japan starting falling because Japanese goods were now more expensive for the rest of the world to buy. This meant factories started to have to lay off workers, business slowed down, and Japan's economy began tipping into a recession. As a result the Japanese government turned on the spigot for mass amounts of stimulus and easy money to try and stop Japan from falling into recession. This worked, but the stimulus started overheating the economy to the point where the stock market and real estate market were vastly overvalued, everybody was way overconfident, and things ran too hot until they all burst about 6 years later in 1991. Incidentally this is like exactly what happened after covid in the United States; the Fed keeps easy money going, everybody gets overconfident, asset prices of everything swell to insane figures, then it all explodes.