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Blanchard's comments came on the same day that the Bank of Japan was widely suspected of intervening in the foreign exchange market to boost the yen. The yen has fallen sharply to a 34 year low against the US dollar this year.
The devaluation of the yen is partly due to Japan's ultra loose monetary policy. Although the Bank of Japan ended negative interest rates in March, Japan's interest rates are far lower than those of other major economies.
"They are in economic trouble," Blanchard said, referring to the decline in real wages of workers and the country's growing deficit.
Blanchard, currently an honorary professor at MIT, addressed the participants at the AIM Summit in London.
Data released earlier this month showed that Japan's inflation adjusted wages fell for the 23rd consecutive month in February, suggesting that rising prices continue to depress consumers' willingness to spend.
Wage trend is one of the key data for the Bank of Japan to study wage and inflation prospects, which is a key factor for the Bank to consider when deciding whether to further relax the stimulus policy.
In addition, the Japanese government is also one of the countries with the highest debt to GDP ratio in the world, more than doubling from 85% in 1994 to nearly 260%.
From a more macro perspective, Blanchard said that the re-election of former President Donald Trump is his biggest concern for the global economy.
Blanchard said that Obama's second term faces greater risks than his first term, because he was prevented from making policy decisions that may have adverse effects on the U.S. economy during his first term.
This time, Blanchard said that he believed Trump would use his more "comfortable" people to form his cabinet and make important political appointments.
Blanchard said: "It will be disastrous for the whole world when he replaces the chairman of the Federal Reserve with a person who allows him to reduce interest rates in order to increase spending."
The current chairman, Jerome Powell, is serving his second four-year term as chairman of the Federal Reserve, which will end in 2026.
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