Posted originally on Dec 26, 2025 by Martin Armstrong |  

QUESTION: Mr. Armstrong, I understand the previous Japanese government did to you with the letter asking to confirm $10 billion when it was $1 billion and they never explained how they could make such a mistake. Here in Japan, we are still struggling as you had warned would be the case with the collapse of the bubble economy 36 years ago. The recently elected Japanese Prime Minister Sanae Takaichi has proposed an ambitious 21 trillion yen ($135 billion) spending program that puts new stresses on already heavily overdrawn government coffers. Would you ever consider coming to Japan to advise the new government?

TK

ANSWER: Thank you for the offer, but I do not believe that the new government would want to hear anything I had to say. The plan fulfills Takaichi’s campaign promise to bring yet another “proactive fiscal policy” that she thinks would bring Japan out of its long economic decline since the collapse of the bubble economy back in 1989. She is tackling a new approach to spend with the intention to help people cope with higher prices through various subsidies rather than taking more painful steps to control inflation itself, which has failed. When inflation is caused globally that began with the lockdowns of COVID instigating shortages, no single country can defeat inflation that is not caused domestically alone.

Next year will be critical for Japan. This will be our long-term target object – 43 years from the 1989 peak. Japan is the textbook case of how aggressively targeting inflation can fail when CONFIDENCE, demographics, and debt dynamics overwhelm monetary tools. Those who create these theoretical economic solutions assume they can manipulate people and never grasp that the core issue remains CONFIDENCE. People must believe that there is a future. Until the government understands that, it will fail continually. This is why some academics hate my guts because the reality is that their schemes to manipulate society fail and they prefer to blame others for their failed theories.

In 2013, under Abenomics, the Bank of Japan (BoJ) formally adopted a 2% inflation target. Inflation never reached that level because there was no CONFIDENCE in the future. People hoarded their cash and did not spend. Households and firms did not believe inflation would last.

Massive QE beginning in the early 2000s, expanded after 2013. The BoJ balance sheet grew to over 130% of GDP (largest in the world). Money did not circulate. Banks parked liquidity back at the BoJ or bought JGBs. Corporations hoarded cash instead of investing except for US Treasuries and the hoard resulted in the collapse of the Velocity of money.

You can print money, but you cannot force CONFIDENCE or risk-taking when the people are uncertain about the future. People MUST have CONFIDENCE in the future. Failing that, they will hoard money and refuse to invest. This is well established even with all the hoards of Roman coins from the 3rd Century AD. This is why there are many Roman coins that have survived because people burred their cash during the 3rd century when the CONFIDENCE in Rome surviving collapsed especially after Emperor Valerian I was captured in battle by the Persians exposing the weakness of Rome.

From 2016 onward, the BoJ capped the 10-year JGB yield near zero. Bond market liquidity evaporated. Investors exited the market entirely. Because of the rising debt, stimulus spending was offset by future tax fears. The people did not trust the FUTURE!

Japan is a mess. The academics have been totally wrong and Japan is on the edge of default. I do not think I can solve the problems of Japan with just one meeting. This is a very complex crisis compounded by so many mistakes it will take a serious reset. I do not believe that it can be turned until they come to realize that their theories are just wrong and that typically necessitates the crash. The academics rejected Keynes until after the Great Depression when all their previous theories failed. Unfortunately, the same will be true with the ECM. They will cling to Keynesianism until it all comes crashing down.

What politicians and academic economists refuse to look at, is that it is impossible to create social justice without the loss of individual liberty and economic efficiency. Just look at communism and the slow decay of Europe as the EU tries to create social justice at the expense of everything else. They confound civil rights and equality with material equality and that has failed every single time.