value and crisis essays on marxian economics in japan

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Value and Crisis: Essays on Marxian Economics in Japan Paperback – 1 Jan. 1980

• Print length 194 pages
• Language English
• Publisher monthly review press
• Publication date 1 Jan. 1980
• Dimensions 13.97 x 1.91 x 20.96 cm
• ISBN-10 0853455570
• ISBN-13 978-0853455578
• See all details

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About the author.

Makoto Itoh Makoto Itoh is Professor Emeritus at the University of Tokyo and a member of the Japan Academy. He taught at the New School, New York University, Harvard University, Cambridge University, the University of London, York University in Canada and University of Sydney. His books include The Basic Theory of Capitalism , The World Economic Crisis and Japanese Economy, Political Economy for Socialism, Political Economy of Money and Finance , and The Japanese Economy Reconsidered.

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• Publisher ‏ : ‎ monthly review press (1 Jan. 1980)
• Language ‏ : ‎ English
• Paperback ‏ : ‎ 194 pages
• ISBN-10 ‏ : ‎ 0853455570
• ISBN-13 ‏ : ‎ 978-0853455578
• Dimensions ‏ : ‎ 13.97 x 1.91 x 20.96 cm
• Best Sellers Rank: 3,877,092 in Books ( See Top 100 in Books )

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The ‘Uno” school of Japanese Marxist economics (Makoto Itoh, reviewed in Counterfire)

Value and Crisis: Essays on Marxian Economics in Japan, second edition By Makoto Itoh 296 pages / $29 paperback / 978-1-58367-898-5

Reviewed by Phil Armstrong for Counterfire

Makoto Itoh has had a long and distinguished career as a Marxist economist and is one of the leading thinkers of the Uno School of Marxism. He is one of a select group of Japanese scholars of Marx who have published widely in English, both in books and journals. One of his major concerns has been Marx’s value theory and the first edition of this book (1980) had a global impact on the field. Itoh is particularly well known for his collaborations with Costas Lapavitsas, especially their jointly authored work, Political Economy of Money and Finance (1999). This volume has been influential on my own thinking, especially on the nature and development of banking.i

Itoh divides this work into four parts. In the first, ‘Marxian Economics in Japan’, he begins by considering the significance of Marxism in Japan. He points out that the relative importance of Marx vis-a-vis the mainstream has been much greater in Japan than in the US and Europe, but expresses concern for the future as many of Japan’s leading Marxists are ageing in an environment characterised by falling university recruitment of Marxist economists. Itoh provides an introductory section on the history and development of Marxism in Japan which is very valuable and successfully sets the scene for narrative of the book. He looks at three epochs specifically, the pre-First-World-War period, the inter-war period and the post-war period and examines their notable characteristics, particularly with regard to developments in Marxist theorising.

Itoh introduces, compares and contrasts the development of the two most historically significant branches of Japanese Marxism, the ‘Rōnō-ha’ and ‘Kōza-ha’ schools. He then goes on to discuss the particular approach he favours, the ‘Uno’ school. This school follows from the work of Kōzo Uno (1897-1977); Itoh (pp.52-3 and p.58) notes that this is characterised first, by making a clear distinction between ‘socialist ideology’ and ‘Marxian economics as an objective social science’ and second, by a reliance on ‘stage-based’ analysis.ii This approach involves basic level research based on developing an understanding of the laws of motion of a capitalist economy; a second level which examines the historical stages of the development of capitalism, specifically, mercantilism, liberalism and imperialism; and a third level which considers the features peculiar to individual capitalist economies moving through historic time against a global economic backdrop.

Itoh also contrasts the development of Marxian economics in Japan with that of Western capitalist countries, noting that in the former, Marxian economists have been more able to develop an independent ‘scholarly tradition while concentrating on deepening Marxian economics itself’, whereas, in the latter, Marxists ‘have had to devote themselves far more to tackling the overwhelmingly dominant neoclassical tradition’….

….A fourth part, ‘Contemporary capitalism in crisis’, concludes the volume. The penultimate section of this part is the intriguing titled, ‘Spiral reversal of capitalist development: What Does it Imply for the Twenty-First Century?’ Here, Itoh argues convincingly, with the provision of evidence, that from the late nineteenth century, ‘the capitalist world system reversed the direction it took during the stage of liberalism in a spiral way, tending to restrict free market competition’ (p.225). However, Itoh then notes that there has been a ‘spiral historical reversal backward’, and that in the neoliberal period, ‘individualism and competitive freedom in the market order, not concerns for substantial economic equality or fraternity, have become the dominant ideology in the world’ (p.234). However, Itoh concludes on an optimistic note, arguing that this is not the end of the story and that nations can find alternative economic pathways to the US neoliberal model.

I certainly agree with this expression of the need for diversity and the presence of the potential to achieve it. Itoh concludes by considering the Japanese experience of the sub-prime crisis. After discussing the background to the crisis, Itoh contrasts the UK and US financial system, particularly its ‘originate-to-distribute credit through securities’ model with the Japanese (and German) ‘originate-to-hold’ approach. Under the influence of the so-called ‘Efficient Markets Hypothesis’ the former approach was considered superior. Such a view was based upon the – unfounded, from my perspective – assumption that markets can correctly price risk and were more ‘transparent, rational and efficient’ in allocating money funds than indirect banking credit that relies on personal relationships…’ (p.246).

Itoh argues that such a view is not supported by the evidence and, after a detailed discussion of the events of the period, goes further and argues that ‘neither the Japanese type of indirect finance, nor the US type of direct finance were able to prevent the disastrous swell and burst of huge bubbles’ (p.257). The author finishes with a call to arms, arguing that Marxist political economy can provide an alternative vision for the future and a platform on which to build an approach designed to enhance the quality of life for working people.

Makoto Itoh’s impressive knowledge and long experience as a Marxist economist allow him to produce this commendable work which combines detailed historical descriptions with thoroughly researched technical expositions. This work is a worthy addition to the literature and will be particularly appreciated by those unfamiliar with the history and contribution of Japanese scholarship of Marx. Itoh does not shy away from some of the key controversies involved in interpreting Marx’s work and this book thus provides a great opportunity, particularly for specialist scholars of Marx, to both widen and deepen their knowledge of Marx’ value theory and crisis theory. The extensive referencing is a treasure trove of potential pathways to further study and provides a great springboard for further research.

You can read the full review at Counterfire

Comments are closed.

Value and Crisis: Essays on Marxian Economics in Japan

Makoto itoh.

194 pages, Paperback

First published January 1, 1980

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Value and Crisis Essays on Marxian Economics in Japan, second edition

• Author(s) Makoto Itoh
• Publisher Monthly Review Press

Print ISBN 9781583678985, 1583678980

Etext isbn 9781583679005, 1583679006.

• Copyright 2020
• Available from $ 18.64 USD SKU: 9781583679005

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Value and Crisis: Essays on Marxian Economics in Japan, second edition is written by Makoto Itoh and published by Monthly Review Press. The Digital and eTextbook ISBNs for Value and Crisis are 9781583679005, 1583679006 and the print ISBNs are 9781583678985, 1583678980. Save up to 80% versus print by going digital with VitalSource. Additional ISBNs for this eTextbook include 9781583678992.

Value and Crisis: Essays on Marxian Economics in Japan – book review

Makoto Itoh’s Value and Crisis provides a valuable exposition of a school of Japanese interpretation of Marxist economics, finds Phil Armstrong

Makoto Itoh has had a long and distinguished career as a Marxist economist and is one of the leading thinkers of the Uno School of Marxism. He is one of a select group of Japanese scholars of Marx who have published widely in English, both in books and journals. One of his major concerns has been Marx’s value theory and the first edition of this book (1980) had a global impact on the field. Itoh is particularly well known for his collaborations with Costas Lapavitsas, especially their jointly authored work, Political Economy of Money and Finance (1999). This volume has been influential on my own thinking, especially on the nature and development of banking. i

Japanese schools of Marxism

Itoh divides this work into four parts. In the first, ‘Marxian Economics in Japan’, he begins by considering the significance of Marxism in Japan. He points out that the relative importance of Marx vis-a-vis the mainstream has been much greater in Japan than in the US and Europe, but expresses concern for the future as many of Japan’s leading Marxists are ageing in an environment characterised by falling university recruitment of Marxist economists. Itoh provides an introductory section on the history and development of Marxism in Japan which is very valuable and successfully sets the scene for narrative of the book. He looks at three epochs specifically, the pre-First-World-War period, the inter-war period and the post-war period and examines their notable characteristics, particularly with regard to developments in Marxist theorising.

Itoh introduces, compares and contrasts the development of the two most historically significant branches of Japanese Marxism, the ‘Rōnō-ha’ and ‘Kōza-ha’ schools. He then goes on to discuss the particular approach he favours, the ‘Uno’ school. This school follows from the work of Kōzo Uno (1897-1977); Itoh (pp.52-3 and p.58) notes that this is characterised first, by making a clear distinction between ‘socialist ideology’ and ‘Marxian economics as an objective social science’ and second, by a reliance on ‘stage-based’ analysis. ii This approach involves basic level research based on developing an understanding of the laws of motion of a capitalist economy; a second level which examines the historical stages of the development of capitalism, specifically, mercantilism, liberalism and imperialism; and a third level which considers the features peculiar to individual capitalist economies moving through historic time against a global economic backdrop.

Itoh also contrasts the development of Marxian economics in Japan with that of Western capitalist countries, noting that in the former, Marxian economists have been more able to develop an independent ‘scholarly tradition while concentrating on deepening Marxian economics itself’, whereas, in the latter, Marxists ‘have had to devote themselves far more to tackling the overwhelmingly dominant neoclassical tradition’ (p.56).

Itoh then examines each of the phases of capitalism from the early twentieth century to the present day and seeks to provide the reader with satisfying explanations of the events by examining the development of capitalism through the lens of the Uno approach. The author is largely successful in this task and does indeed shed light upon the underlying forces at work in the periods he considers. However, I might point out the author puts Italy on the wrong side of the World War One reparations flow! (p.63).

Value Theory

In the second part, ‘Value’, Itoh moves on to one of the complex challenges in Marxism; developing an understanding of the nature and significance of Marx’s value theory. He begins by considering its origins and commonality with earlier classical approaches to value theory before explaining how Marx’s value theory might be distinguished from the work of Smith and Ricardo. The author then introduces and explains the interpretation of Marx’s value theory favoured by the Uno School. This approach is characterised by a radical separation of the theories of the substance of value from theories of the form of value (pp.90-92). I would agree that this separation has the benefit of supporting arguments in favour of conceptualising the form of value as relatively autonomous. This enables explanations of how abstract labour can be allocated according to the law of value with no necessity for the quantity of embodied labour to determine exchange ratio of commodities (Clarke 1989, p.4). I might note that the approach favoured by Itoh has faced criticism, iii but nevertheless, Itoh explains his position well and his analysis is certainly thought-provoking for scholars of Marx’s value theory.

Finally, in this part, Itoh traces the development of the concept of ‘unequal exchange’; he first considers the theoretical approach of Ricardo and goes on to look at John Stuart Mill and the neoclassical school who moved away from the application of the labour theory of value. He contrasts this with the approach of Marx and his followers who maintain the importance of the labour theory of value and endeavour to demonstrate the existence of international unequal exchange of labour (p.133). The author then considers the stages theory advocated by Lenin. According to Itoh, in Lenin’s conception, during the final stage of capitalism, imperialism, capital export forms the basis for a small group of rich countries to exploit poorer nations, but neglects unequal exchange in foreign trade as a source of imperialist exploitation. Itoh also considers both the Japanese contribution to the debate – particularly, contra Mill, the rehabilitation of the labour theory of value – and the significance of ‘dependency theories’ and concludes this highly thought-provoking section with a discussion of the possible effects of international unequal exchange in a contemporary neoliberal setting.

Crisis theory

In the third part of the book, ‘Crisis’, Itoh examines Marx’s crisis theory. He first notes how the ‘crisis theory in Capital was developed to prove the inevitability of cyclical crises at the level of basic principle’ (p.147). Itoh contends that Marx points to two separate crisis theories which he argues ‘coexist so uneasily in Capital’ (p.149), the ‘excess capital theory’ and the ‘excess commodity theory’ (p.148). In this part, Itoh sets out to answer the question, ‘how should Marx’s value theory be completed?’ (p.149) iv and begins by taking considerable care to explain the exegesis of Marx’s crisis theory from the Grundrisse , Theories of Surplus Value and finally, Capital . Many Marxists will be critical of his approach here, and the coherence of Marx’s theory of crisis can certainly be defended vigorously.

Itoh’s analysis is well-researched, and he is able to draw on his long experience as a scholar of Marx to draw the threads of his argument together . There is much of value in this section for readers to ponder as the author compares and contrasts the development and applicability of his posited two overarching crisis theories.

Itoh can also be criticised on other grounds. He stresses the importance of understanding the nature of credit system and its link to competition in commodity markets, his explanation relies solely on mechanisms only relevant to the gold standard (and fixed exchange rate systems) (p.167). Under the gold standard, both central banks and commercial banks were reserve-constrained and required to compete for limited gold reserves and, in this case, we might expect the threat of drain of gold reserves and heightened demand for credit to result in higher interest rates (as argued by Itoh). However, when a nation with its own sovereign fiat currency operates under a floating exchange rate, central banks and banks are not reserve constrained in the same way. As the monopoly issuer of reserves the central bank is necessarily a price-setter and the risk-free rate is always under its control (Mosler 2012; Armstrong 2015). Any attempt at a universal explanation of the origin of crisis must take this into account. Failure to do so means Itoh is unable to explain ‘the inevitability of cyclical crises at the level of basic principle’ and is only able to provide an explanation of restricted applicability.

Varieties of crisis theory

Next, Itoh takes a deeper look at the variety of Marxist crisis theories and the apparent difficulties associated with unifying them (p.173). He retains the dichotomy he introduces earlier; ‘excess commodity’ and ‘excess capital’ theories and argues,

‘the former emphasizes the logical process which creates an excessive supply of commodities in relation to demand and regards the excess of capital evidenced in the falling rate of profit as a product of this. In contrast, the latter stresses the motion towards the excess accumulation of capital which is expressed in the decline in the rate of profit and sees the general overproduction of commodities as a result rather than a cause’ (p.174).

Itoh further subdivides each category; in the case of excess commodity theory, he first examines the ‘disequilibrium variant’ introduced by Tugan-Baranovsky and developed by Hilferding and second, the ‘underconsumptionist variant’ favoured by Rosa Luxemburg and Nikolai Bukharin (pp.174-78). He notes attempts made to reconcile this approach with excess capital theory – notably that of Desai – before considering the subsections of the latter theory. The first of these is described as the ‘labor power shortage theory’, first outlined by Otto Bauer and later developed by Paul Sweezy and Kozo Uno himself.

Itoh then moves on to ‘the rising composition of capital theory’ originating with Preiser and having its most well-known manifestation in the work of Henryk Grossman. This theory places the fundamental cause of crisis in the rising organic composition of capital generating a tendency for the rate of profit to fall (pp.180-81). Itoh notes that this approach has never gained significant support in Japan, in contrast to the West where it has been supported by many well-known Marxist economists including Dobb, Mandel, Mattick and Shaikh.

Itoh then considers if ‘it is possible to construct an approach which can overcome this diversity on scientific grounds’ (p.184). After a detailed discussion, Itoh notes that, in his view, an understanding of cyclical crises requires both ‘the proper excess capital theory’ and the ‘appropriate empirical basis of abstraction…’ (p.192). He rejects the idea of ‘multicausal approaches’ and instead advises that researchers should ‘first attempt to investigate which of Marx’s crisis theories was the most accurate and try to complete it’ (p.192). The author concludes this third part with an examination of the features of the periodic crises of the nineteenth century and the ‘great crisis’ of 1929, and its aftermath, assessing the applicability of the forms of Marx’s crisis theory in the process.

Contemporary crisis

A fourth part, ‘Contemporary capitalism in crisis’, concludes the volume. The penultimate section of this part is the intriguing titled, ‘Spiral reversal of capitalist development: What Does it Imply for the Twenty-First Century?’ Here, Itoh argues convincingly, with the provision of evidence, that from the late nineteenth century, ‘the capitalist world system reversed the direction it took during the stage of liberalism in a spiral way, tending to restrict free market competition’ (p.225). However, Itoh then notes that there has been a ‘spiral historical reversal backward’, and that in the neoliberal period, ‘individualism and competitive freedom in the market order, not concerns for substantial economic equality or fraternity, have become the dominant ideology in the world’ (p.234). However, Itoh concludes on an optimistic note, arguing that this is not the end of the story and that nations can find alternative economic pathways to the US neoliberal model.

I certainly agree with this expression of the need for diversity and the presence of the potential to achieve it. Itoh concludes by considering the Japanese experience of the sub-prime crisis. After discussing the background to the crisis, Itoh contrasts the UK and US financial system, particularly its ‘originate-to-distribute credit through securities’ model with the Japanese (and German) ‘originate-to-hold’ approach. Under the influence of the so-called ‘Efficient Markets Hypothesis’ the former approach was considered superior. Such a view was based upon the – unfounded, from my perspective – assumption that markets can correctly price risk and were more ‘transparent, rational and efficient’ in allocating money funds than indirect banking credit that relies on personal relationships…’ (p.246).

Itoh argues that such a view is not supported by the evidence and, after a detailed discussion of the events of the period, goes further and argues that ‘neither the Japanese type of indirect finance, nor the US type of direct finance were able to prevent the disastrous swell and burst of huge bubbles’ (p.257). The author finishes with a call to arms, arguing that Marxist political economy can provide an alternative vision for the future and a platform on which to build an approach designed to enhance the quality of life for working people.

Makoto Itoh’s impressive knowledge and long experience as a Marxist economist allow him to produce this commendable work which combines detailed historical descriptions with thoroughly researched technical expositions. This work is a worthy addition to the literature and will be particularly appreciated by those unfamiliar with the history and contribution of Japanese scholarship of Marx. Itoh does not shy away from some of the key controversies involved in interpreting Marx’s work and this book thus provides a great opportunity, particularly for specialist scholars of Marx, to both widen and deepen their knowledge of Marx’ value theory and crisis theory. The extensive referencing is a treasure trove of potential pathways to further study and provides a great springboard for further research.

Armstrong, P. (2015), ‘Heterodox Theories of Money and Modern Monetary Theory (MMT)’, available at Money-and-MMT.pdf (moslereconomics.com)

Armstrong, P. and Siddiqui, K. (2019), ‘The case for the Ontology of Money as Credit: Money as bearer or basis of “value”’ (2019), with Kalim Siddiqui, Real World Economics Review , Issue 90, December. Available at ArmstrongSiddiqui90.pdf (paecon.net)

Clarke, S. (1989), ‘The Basic Theory of Capitalism: A Critical Review of Itoh and the Uno School’, University of Warwick, Available at itoh.pdf (warwick.ac.uk)

Itoh, M. (1980), Value and Crisis , New York: Monthly Review Press.

Itoh, M. (1988), The Basic Theory of Capitalism , Basingstoke: Macmillan.

Itoh, M. and Lapavitsas, C. (1999), Political Economy of Money and Finance , London: Palgrave MacMillan.

Mosler, W. (2012), Soft Currency Economics II, Us Virgin Islands.

Potts, N. (2011), Marx and the Crisis, Capital and Class, 99: 59-79.

Potts, N. (2014), ‘An Unacceptable Misrepresentation: Dismissing Marx’s Value Theory by Deliberately Distorting the Temporal Single System Interpretation of Marx’, World Review of Political Economy, Vol. 5, No. 1: 96-116.

Potts, N. (2017), ‘Exploring Marx’s Value Theory in Our Inflationary World: Why It Is Not Moseley’s Way Or The Highway!’, Marxism 21 , Vol. 14, No. 2, Summer, pp.198-232.

Potts, N. and Kliman. A. (2015) (eds.), Is Marx’s Theory of Profit Right?: The Simultaneist Temporalist Debate (Heterodox Studies in the Critique of Political Economy) , Washington D.C.: Lexington.

i Although I consider this work provides valuable insights into the nature and development of banking, I argue (Armstrong and Siddiqui 2019, pp.108-11) that it fails to correctly conceptualise the ontology and economic sociology of money. I contend that Itoh and Lapavitsas incorrectly argue that money arises in commodity exchange rather than understanding its ontology as credit (Armstrong 2015).

ii Marxist scholars have criticised the Uno approach, notably (Clarke 1989, p.2) who, although he is generous in his general appraisal of Itoh (1988), nevertheless argues that the Uno approach ‘remains formalistic, since the basis of this abstraction, and the corresponding division of levels between the basic theory, the stages theory, and historical analysis, is essentially arbitrary’.

iii Notably Clarke (1989); see also Potts (2011, 2014, 2017); Potts and Kliman (2015) for a detailed analysis of Marx’s value and crisis theory based on the TSSI (Temporal Single System Interpretation) of Marx.

iv The argument that Marx’s value theory needs to ‘be completed’ is itself controversial, for example, advocates of the TSSI approach argue Marx’s value theory and crisis theory are internally consistent and if the TSSI of Marx enables scholars to recognise this internal consistency, the need for ‘completion’ or amendments is obviated (Potts and Kliman 2015).

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Value and Crisis: Essays on Marxian Economics in Japan

• ISBN-10 0853455562
• ISBN-13 978-0853455561
• Publisher Monthly Review Press
• Publication date January 1, 1980
• Language English
• Dimensions 5.75 x 0.75 x 8.5 inches
• Print length 194 pages
• See all details

Editorial Reviews

About the author.

Makoto Itoh Makoto Itoh is Professor Emeritus at the University of Tokyo and a member of the Japan Academy. He taught at the New School, New York University, Harvard University, Cambridge University, the University of London, York University in Canada and University of Sydney. His books include The Basic Theory of Capitalism , The World Economic Crisis and Japanese Economy, Political Economy for Socialism, Political Economy of Money and Finance , and The Japanese Economy Reconsidered.

Product details

• Publisher ‏ : ‎ Monthly Review Press (January 1, 1980)
• Language ‏ : ‎ English
• Hardcover ‏ : ‎ 194 pages
• ISBN-10 ‏ : ‎ 0853455562
• ISBN-13 ‏ : ‎ 978-0853455561
• Item Weight ‏ : ‎ 12 ounces
• Dimensions ‏ : ‎ 5.75 x 0.75 x 8.5 inches

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Value and Crisis: Essays on Marxian Economics in Japan, second edition

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Makoto Itoh Makoto Itoh is Professor Emeritus at the University of Tokyo and a member of the Japan Academy. He taught at the New School, New York University, Harvard University, Cambridge University, the University of London, York University in Canada and University of Sydney. His books include The Basic Theory of Capitalism , The World Economic Crisis and Japanese Economy, Political Economy for Socialism, Political Economy of Money and Finance , and The Japanese Economy Reconsidered.

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Why Japanese markets have plummeted

The global rout continues, with the topix experiencing its worst day since 1987.

A s fears of an American recession spread, stockmarkets around the world have suffered. But none has taken as severe a beating as Japan’s. On August 5th the Topix plunged by 12% in its worst performance since 1987, compared with falls of 2-3% in America, Britain and Europe. The index is now almost a quarter below its peak, reached barely a month ago. The yen, meanwhile, is snapping back: it is up 13% from less than a month ago, when it was at its weakest in 37 years. These sharp moves carry implications not just for Japanese investors and firms. The country’s financial heft means that they could become a source of further volatility in nervous global markets.

Topsy-turvy markets reflect changes in monetary policy. Over the past 18 months the yen sank as America’s Federal Reserve raised interest rates and the Bank of Japan stood still. The “carry trade”, where investors borrow cheaply in yen to make higher-yielding investments in dollars or euros, flourished, sending the Japanese currency lower still. The weaker currency then enhanced the foreign earnings of Japanese firms, and enticed foreign investors into the Japanese stockmarket. In 2023 and the first half of 2024, they snapped up ¥9trn ($60bn) in stocks.

Now things are unwinding. The Bank of Japan has taken baby steps to tighten policy. On July 31st it raised its benchmark rate from around 0.1% to around 0.25%. The Fed, by contrast, is expected to begin cutting rates soon. Anticipation grew on August 2nd after the release of America’s jobs report, which showed the economy had added 114,000 jobs in July, below the 175,000 expected by investors.

A modest move in rate differences has been amplified by a rapid turnaround in speculative bets. Investors had crowded into short yen trades—bets on a further depreciation in the Japanese currency—according to data from the American Commodity Futures Trading Commission. Such one-way traffic can cause sudden shifts in the other direction, as speculators abandon their trades and cover their losses, bidding up the yen in the process.

The spiking yen has, in turn, fuelled a stockmarket collapse. The rally had been led by Japan’s exporters, which benefit almost mechanically from a weaker currency, as they make most of their money overseas but report earnings in yen. Now they are suffering. Margin bets on Japanese stocks—trades made with borrowed money—had reached the highest level since 2006 before the sell-off began. These leveraged investments now appear to be being unwound at pace, explaining why market darlings are suffering some of the biggest falls. The share price of Tokyo Electron, a vital supplier of semiconductor kit, fell by 18% on August 5th. Japanese banks are down by 27% in the space of two trading days.

For now, the slump appears to be driven by this unwinding of speculative bets. Few analysts think Japanese firms are in deep distress, or fear for the stability of the country’s financial system. Nonetheless, rapid changes in Japan can have knock-on consequences. As interest-rate moves make the carry trade less viable, they could fuel a sell-off in far-flung corners of foreign markets. Japan is also the largest creditor in the world. The country’s investors owned $10.6trn in foreign assets at the end of last year. They have become big buyers of American and Australian collateralised-loan obligations, for instance. If the stronger yen means these investors need to dump foreign holdings to meet liabilities at home, that could weaken asset prices while driving the yen still higher. Just how much further the yen has to rise, and Japanese stocks to fall, remains to be seen. But until investors’ speculative bets fully unravel, expect choppy market conditions. ■

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