Laundering the Trade Surplus

But the banks, which purchased the dollars, just hold on to them, to lend or invest in dollar-denominated financial products. Thus, the exchange rate is stabilized to encourage exports.

I have been waiting for an article worth publishing for this month's update and I finally found it.

A point of view from the other side of the world's global imbalances. This article from Asahi discusses the implications of maintaining a massive trade surplus and its deflationary impact on the Japanese economy.

It correctly asserts (in my view) that the Japanese should be spending their trade surplus to support domestic consumption rather that recycling this money into US treasuries. The reality is that the Japanese holding of US dollars is not convertible at full value and any attempt to do so would likely trigger a precipitous plunge in the value of the USD.


http://www.asahi.com/english/Herald-asahi/TKY200602170164.html