Table Of ContentPRINCES
YEN
OFTHE
Comments on the Japanese edition of Princes of the Yen:
"A powerful work."
-Eisuke Sakakibara, ex-Vice Minister of Finance
Weekly Economist, Tokyo
"This is no ordinary economics book. Readers will find the curtains pulled
away from their eyes. Given the time scale covered-the whole of the
twentieth century-and its broad scope-looking at central bankers' actions
worldwide-this superb book will make you marvel at how fascinating
economics really is. Richard Werner could see through the Bank of Japan's
smokescreens. The process of disclosing all these facts step by step is as
gripping as a thriller. His analysis has been highly appraised internationally,
being prominently covered in the Economist and read by Federal Reserve
chairman Alan Greenspan."
- Takashi Tachibana, author of Shukan Bunshun
"This thought-provoking book sheds light on the masterminds of Japan's
economic policies. The author gives stunning accounts of how a handful
of the BoJ's elite distorted the nation's financial policies with a view to
reforming the country's economic structure."
-TheAsahiShimbun, Tokyo
''The book deals not just with economic problems, but also unmasks the true
causes and power brokers behind those very problems .... It depicts the BoJ
princes' clandestine battle to revive the' American-sty Ie liberalized economy,'
as it existed in the Japan of the 1920s, and to dismantle the controlled war
economy, which enabled the post-war high growth."
-The Mainichi Newspaper, Tokyo
"This book makes for a fascinating read. Werner says the claims by the BoJ
that they are doing all they can to stimulate a recovery by lowering interest
rates are 'just not true.' He goes as far as including a mafia-like list of names
and provides evidence about how Sasaki, Maekawa, Mieno and soon-to-be
installed Toshihiko Fukui have in an unbroken line been trying to control
Japan. I first met the author of this thought -provoking book eleven years ago.
He already was a famously accurate strategist, using his analysis to forecast
stock market movements with a high degree of precision."
-Kiyoshi Imai, Professor of Economics, Tokyo
"Legitimate criticism of the Bank of Japan."
-Kazuo Ijiri, Voice, Tokyo
"We are all baffled at why on earth Japan's recession has continued for over
ten years. Countless scholars have come and gone explaining the causes
and remedies for the recession. We should seriously heed this author's
warnings."
- Yoichi Masuzoe, Member of the House of Councilors,
Professor of International Politics
Denki Shinbun, Tokyo
PRINCES
OFTHE YEN
Central Bankers
Japan1s
the Transformation
and
of the Economy
Richard A. Werner
AN EAST GATE BOOK
(cid:77)
An East Gate Book
First published 2003 by M.E. Sharpe
Published 2015 by Routledg e
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
711 Third Avenue, New York, NY 10017, USA
Routledge is an imprint of the Taylor & Francis Group, an informa business
Copyright © 2003 Taylor & Francis. All rights reserved.
No part of this book may be reprinted or reproduced or utilised in any form or by
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Notices
No responsibility is assumed by the publisher for any injury and/or damage to
persons or property as a matter of products liability, negligence or otherwi se,
or from any use of operation of any methods, products, instructions or ide as
contained in the material herein .
Practitioners and researchers must always rely on their own experience a nd
knowledge in evaluating and using any information, methods, compounds, or
experiments described herein. In using such information or methods they shou ld
be mindful of their own safety and the safety of others, including parties for
whom they have a professional responsibilit y.
Product or corporate names may be trademarks or registered trademarks, an d
are used only for identification and explanation without intent to infring e.
Library of Congress Cataloging-in-Publication Data
Werner, Richard A., 1967 –
Princes of the Yen : Japan’s central bankers and the transformation of the economy / by
Richard A. Werner.
p. cm.
“An East Gate Book.”
Includes bibliographical references and index.
ISBN 0-7656-1048-5 (alk. paper); ISBN 0-7656-1049-3 (pbk. : alk. paper)
1. Banks and banking, Central—Japan. 2. Monetary policy—Japan. 3. Japan—Economic
policy—1945- I. Title.
HG3326 .W476 2003
332.1’1’0952—dc21 2002030900
ISBN 13: 9780765610492 (pbk)
ISBN 13: 9780765610485 (hbk)
To Romi
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Contents
List of Tables and Figures Vlll
Preface ix
Acknowledgments xviii
Acronyms and Abbreviations, Note on the Representation of
Personal Names xx
1. Japanese Lesson 1
2. The Total War Economy 9
3. Winning the Peace: An Economy at War 23
4. The Alchemy of Banking 38
5. Credit: The Economic High Command 48
6. The First Bid for Central Bank Independence 57
7. Japan's First Bubble Economy 73
8. Mysterious Money: The Ebb and Flow of the Yen 82
9. The Great Yen Illusion: Credit Bubble and Bust 89
10. How to Prolong a Recession 103
11. The Battle of the Yen 114
12. At the Trigger of the Gun 126
13. The Princes of the Yen 140
14. The Goal of Monetary Policy 157
15. Back to the Future: The Return of U.S.-Style Capitalism 179
16. Reflation: Another Miracle in the Making 199
17. The Asian Crisis and the Central Bankers 208
18. More Power to the Princes 222
19. The Revival of the Reichsbank 232
Appendix: Japanese Fiscal and Monetary Policies in the 1990s 249
Notes 281
Bibliography 331
Author Index 351
General Index 355
About the Author 363
vii
List of Tables and Figures
Tables
12.1 Window Guidance Loan Growth Quota (WG) versus Actual
Loan Growth, 1974-1991 134
13.1 Bank of Japan Governors and Deputy Governors 147
13.2 The Six Postwar "Princes" 148
Al Estimation Results of GDP Model 267
A.2 Estimation Results of Private Demand Model 270
Figures
9.1 Bank Lending to the Real Estate Sector and Land Prices 100
9.2 Credit Creation Used for GDP Transactions and Nominal
GDPinJapan 100
9.3 Net Long-Term Capital Flows and Bank Lending to
Real Estate Firms 102
10.1 Bank of Japan Credit Creation 112
11.1 Yen/U.S.$ Rate and U.S.-Japan Interest Differential 120
11.2 Relative Credit Creation by Federal Reserve and Bank of
Japan and the Yen/U.S.$ Rate 122
11.3 Credit Creation by Bank of Japan and Federal Reserve 122
12.1 Bank of Japan Window Guidance and Actual Bank Lending
Three Months Later 133
15.1 Japanese Real GDP Growth 183
15.2 Import Share of Manufactured Goods 186
15.3 Articles with Keyword "Amakudari" in the Nikkei Newspapers 192
15.4 Articles with Keyword "Foreign-Domestic Price Differential" in
the Nikkei Newspapers 192
15.5 Articles with Keyword "Deregulation" in the Nikkei Newspapers 193
16.1 Japanese Banks' "Other Assets" 205
Al Ten-Year Government Bond Yield and Call Rate 252
A2 Credit in the "Real Circulation" and Nominal GDP 267
A3 Private and Government Demand 269
A4 Bank of Japan Credit Creation and Call Rate 272
A5 Fiscal Stimulation Funded by Bond Issuance 275
A6 Fiscal Stimulation Funded by Bank Borrowing 275
viii
Preface
In January 2001, the ambassador to Japan of a European country told me about his
recent New Year's Eve party at his residence in Tokyo. Among the guests was a high
ranking official from Japan's Ministry of Finance (MoP). Most guests were in a
joyful mood. They looked forward to the dawn of the twenty-ftrst century. Cham
pagne was flowing and the party was in full swing. But not everyone was happy:
"I noticed," the ambassador told me, "as the clock approached midnight, this
gentleman seemed to be getting sadder and sadder. He was from the Ministry of
Finance, and he looked really down. I wondered what the problem was. It was
most unusual, I thought. Finally, as the clock struck midnight, he came up to me
and told me, in a very sad voice:
'''Now ... it's all over. ... '
'''What do you mean?' I asked him.
'''We lost our name,' he replied. 'It's over. ... From January 2001, Okurasho
[the Japanese name for Ministry of Finance] is gone.'
"I tried to console him by saying, 'Well, but it's just the name. You shouldn't
worry too much about a name. The ministry is still there. You still have power and
influence.'
"But he said: 'If they at least had left us the name ... They had already taken
away our power. It's gone .... But that they would also take away our name ... ' He
shook his head despondently."
Not noticed by many English-speakers, to whom the old OkurashO was simply
known as the Ministry of Finance, a long and illustrious history ended abruptly in
January 2001. For much of the past century, at least according to the letter of the
law, the Okurasho had been the most powerful institution in Japan. Its grand old
name is more correctly translated as "Great Storehouse Ministry" or "Great Trea
sury Ministry" and its history goes back to the time when taxes were paid in kind
and the ministry literally was the storehouse of the rice that would arrive from all
over the country.
Structural Change
The general public has not shed any tears over the demise of OkurashO. MoF, the
Finance Ministry, is generally held responsible for the most flagrant economic
mismanagement in modern peacetime Japanese history: the creation of the bubble
of the 1980s and the long recession that followed in the 1990s.
ix
