Nikkei BP, Book News, 12 June 2001 (No 51), Tokyo

By Fuyuki Keisuke, business writer

A Noteworthy Book: Princes of the Yen, by Richard A. Werner, Soshisha, Tokyo

"Japan could have enjoyed high-level growth during the 1990s - if only the Bank of Japan (BoJ) had wanted it". This is the opening of the book, "Princes of the Yen". The author writes that the BoJ rejected the calls of the Minister of Finance and the Prime Minister to create more money and bring an end to the long-term recession. Furthermore, it actively interfered with the government's attempt to restore the business cycle through the 1990s. And in the beginning of 1995 and for the most part of 1997 and 1999 - major turning points - the BoJ even decreased the amount of money circulating in the economy, thus canceling the effect of the government's foreign exchange intervention policy and crushing the beginnings of an economic recovery because of the strong yen.

Why didn't the BoJ make plans to create a recovery by injecting more money into the system? In 1992, one executive of the BoJ explained to the author, who at that time was a member of the BoJ Institute for Monetary and Economic Studies, in the following way: "If we create more money, the economy will probably recover. But then nothing will change. Japan's structural problems won't be solved".

At first Werner couldn't believe this. After many years of research, however, he came to the conclusion that the remark by the BoJ's executive was true, and that the people who created the bubble in the 1980s were the very same players responsible for prolonging the recession. According to the author, those who controlled the currency in postwar Japan and held on to the helm of the economy are the 'princes' at the very heart of the BoJ. The princes believed that the only way to overturn the mighty legal power of the Ministry of Finance was with an extensive crisis, responsibility for which would be heaped at their door. They went on to set up the secret "10 year-plan" to remodel Japan and executed it from 1986. As a result, the Ministry of Finance was held responsible for creating the bubble and was broken up, while the BoJ, on the other hand, became independent and thus its mighty power lawful.

The secret plan was the famous "Maekawa report" which was called the "10-year plan" within the BoJ. But the author emphasizes that the structural reform the princes plotted was not necessarily profitable for the people; had the princes had acted in a fair and straightforward manner, Japan would not have lost the many merits of its economic system.

Although Werner's claims are likely to raise dispute in some areas, Okazaki Tetsuji, a professor of the economics department at Tokyo University, says the book written by the young German economist is of value as the first book to take up the history of the BoJ from a current viewpoint. No doubt, there will be many people who will lend their ears to the author's remark: "I hope that this book will open up a broad range of discussions concerning the role of the BoJ and that there will be an investigation by an independent committee including legal professionals about past BoJ decisions".