Title: Supply Capacity and Inflation Control in Large-Scale Block Economies— Verification of the Japan-U.S. Friend-shoring Framework and Chinese Currency Risks Based on Population Scale and Real Yields —
Title: Supply Capacity and Inflation Control in Large-Scale Block Economies
— Verification of the Japan-U.S. Friend-shoring Framework and Chinese Currency Risks Based on Population Scale and Real Yields —
Author: Hideo Kajino
Abstract
This paper redefines the mechanisms of inflation generation and the conditions for maintaining optimal inflation rates through the lenses of population scale and real financial yields. This model is constructed under the indispensable prerequisite that private property rights over all assets, including land and buildings, are fully protected by law in a free market economy. Pointing out the divergence between conventional "2% annual inflation targets" and actual after-tax real yields, this paper proposes an original population-buffering theory stating that "an annual inflation rate of 1% per 100 million people represents the practical control ceiling."
Based on this theory, we propose a global growth model that complements Japan’s demographic scale and structural limitations by integrating with the United States and trusted allies to build a 400-500 million-person economic sphere (the Japan-U.S. Friend-shoring Sphere). High-value-added products manufactured within this sphere are then deployed to massive growth markets in Southeast Asia (approx. 690 million people) and India (approx. 1.44 billion people). Furthermore, this paper demonstrates that exceptional nations (Switzerland and Singapore), which maintain low inflation despite small populations, are "structural outliers" within the population correlation model, establishing a theoretical basis for explicitly excluding them from the friend-shoring supply chain network.
Chapter 0: Basic Prerequisites of the Theory (Protection of Private Property Rights)
0.1 Protection of Private Property Rights: Complete legal recognition of private ownership over land, real estate, and capital assets.
0.2 Free Price Formation: Prices are determined organically by market supply and demand without state intervention.
0.3 Rule of Law and Financial System Stability: Absolute enforcement of contracts and free cross-border capital flow.
Chapter 1: Inflation Mechanisms and Real Yield Analysis
1.1 The Pitfall of the Nominal 2% Inflation Target
Under a 20% financial income tax regime, if nominal yields fail to sufficiently outpace inflation, real purchasing power erodes.
1.2 Formula for After-Tax Real Yield
R_{\text{real}} = R_{\text{nominal}} \times (1 - 0.20) - i \ge 0
R_{\text{real}}: Real Yield
R_{\text{nominal}}: Nominal Yield
i: Inflation Rate
To achieve a positive real return (R_{\text{real}} \ge 0) under a 2.0% inflation target (i = 2.0\%), a nominal yield of at least 2.5% is mathematically required:
2.5\% \times (1 - 0.20) - 2.0\% = 0.0\%
Chapter 2: Population Scale and Optimal Inflation Correlation Model
2.1 Definition of the 1% Inflation Ceiling per 100 Million Population Theory
i_{\text{max}}(P) = 1.0 \times \left( \frac{P}{1.0} \right) \quad [\%]
The maximum annual inflation rate that a social system of 100 million people can safely absorb under normal conditions without structural friction is 1.0%. Controlling inflation below this ceiling (e.g., under 1.8%) is an absolute condition for social stability.
2.2 Analysis of "Structural Outliers" in Empirical Data: Switzerland and Singapore
Switzerland and Singapore maintain low inflation rates around 1% despite populations under 10 million, appearing as statistical outliers. This divergence does not invalidate the model but stems from unique economic policies:
Zero-Tariff Regimes: Industrial tariffs are eliminated (Switzerland) or virtually zero (Singapore), removing tariff-driven inflation.
Intentional Strong Currency Policies: Both nations maintain strong currencies (e.g., Singapore's S$NEER framework) to insulate against imported inflation.
Thus, these nations rely on strong currencies and tariff elimination rather than population buffers, representing structural outliers distinct from standard manufacturing-driven economies.
Chapter 3: Selection Criteria for Friend-shoring and Market Expansion
3.1 Structure of the Japan-U.S. Friend-shoring Sphere
Australia: Primary resources (iron ore, lithium, rare metals).
Taiwan & South Korea: Advanced semiconductors and electronic components.
Key ASEAN Nations (Vietnam, Indonesia, etc.): Low-cost manufacturing and primary processing.
3.2 Theoretical Justification for Excluding Outlier Nations (Switzerland & Singapore)
Reason 1 (High Cost & Currency Appreciation Risks): Integrating high-cost, strong-currency economies inflates supply chain costs, undermining the sub-1.8% inflation target.
Reason 2 (Lack of Physical Supply Capacity): Specialized in finance and pharmaceuticals, they cannot supply physical manufacturing labor or raw materials.
Reason 3 (Geopolitical Stance): Swiss neutrality and Singaporean non-alignment clash with a security-integrated supply chain framework.
These nations are excluded from manufacturing networks and utilized strictly as external financial and asset management hubs.
3.3 Export and Reinvestment Model for Southeast Asia and India (2.1 Billion People)
High-value products manufactured within the verified friend-shoring sphere are exported to Southeast Asia (approx. 690 million) and India (approx. 1.44 billion), fostering sustainable global wealth circulation.
Chapter 4: Verification of "RMB Risk" and Asset Non-Repatriation in China
4.1 Structural Risks of the Chinese Economy
Absence of private land ownership (state-owned land use rights).
Strict capital controls preventing free capital outflow.
4.2 Conclusion on RMB Assets
Assets denominated in RMB cannot be freely repatriated, creating severe liquidity and capital preservation risks. Consequently, economic operations must adhere strictly to USD-based transactions outside the Chinese financial sphere.
Chapter 5: Conclusion
Prerequisite of Private Property Rights: The theory holds exclusively in market environments with fully guaranteed property rights.
Outlier Filtering and Supply Chain Efficiency: Switzerland and Singapore are structural outliers excluded from supply chains to prevent cost-push inflation.
Population-Inflation Laws: The Japan-U.S. friend-shoring network (460M population) serves as an optimal supply engine for expanding Asian markets (2.1B population).
Mitigation of RMB Risk: Complete exclusion of Chinese financial mechanisms via USD settlement and supply chain independence remains the only viable structural solution.
