Sunday Mainichi, 17 June 2001, Tokyo

By Kiyoshi Imai, Professor of Economics, Hakuo University

Sunday Library - Book Review: Fascinating Accusations against the BoJ

For the past years, the opinion among foreign institutional investors that the Bank of Japan has been uncooperative in bringing Japan out of deflation and in stimulating economic recovery has become an accepted one. The central bank has unfailingly adopted the wrong policies at critical periods. But this book goes even further. It states that the bubble of the 1980's was really the work of a handful of BoJ career 'Princes' whose goal has been to gain power and push through structural reforms in Japan.

The basis of this strategy can be found in a report prior to the 1980s, the victims of which have been the Ministry of Finance bureaucracy - which even lost its name (in Japanese) - and the vast numbers of people who have lost their jobs. I first met the author of this thought-provoking book, Richard Werner, 11 years ago when I was working as consultant to Nippon Credit Bank. He was a famously accurate strategist, using his analysis to forecast both the quantitative supply of money by the BoJ and stock market movements with a high degree of accuracy. A considerable amount of the content in his latest book consists of these same theories, to which he has added factual information gathered internally at the BoJ.

Werner was born in 1967 in Germany; he did postgraduate study at Oxford University and Tokyo University and has worked for periods at Deutsche Bank, Nomura Research Institute, Japan Development Bank and the Bank of Japan. Currently he works independently as Economist and is a familiar face on TV.

It's not that there is no demand for money, the BoJ is the problem Now to the book.

It makes for a fascinating read. Werner goes as far as including a mafia-like list of names and giving 'proof' that Sasaki, Maekawa, Mieno and soon-to-be installed Masahiko Fukui have, in an unbroken line, been trying to control Japan. In particular, the strong claims by the BoJ that they are doing all they can to stimulate a recovery by lowering interest rates, Werner says are "just not true". "Small and medium-sized firms are struggling with a lack of funds" so it is not that there is no demand for money. It is the Bank of Japan that is being the obstacle. Upon examination, this is a forceful argument. Werner says the BoJ uses a credit control tool called 'window guidance'. This was the tool they used during the bubble to force city banks to expand their loans. And similarly, it was the tool that bullied small and medium sized companies as land prices plummeted and asset deflation took hold. Werner says this was operated by the BoJ banking department.

Personally, I share Werner's feelings to a large degree. 30 years ago, the BoJ emphasized an appropriate level of money supply. But somewhere along the way, they have changed their tune and now say "the money supply is not something the Bank of Japan can control; it is a result". I asked BoJ staff whether they are not trying to evade their responsibilities, but I could not get an acceptable answer from anyone. However, I feel that it was the yen strength after the Plaza Accord that created the bubble, and monetary tightening coming one step too late, brought about by Black Monday.

Further, there is something wrong with the media and the administration at the time, which hailed then BoJ Governor Mr Mieno as the 'Robin Hood' of the 1990s for his sudden interest rate rises to lower land prices, and his delay in switching monetary policy back to stimulation.

This is an enjoyable and thrilling read of the accusations directed at the inner chambers of the free mason-like world of the BoJ. I recommend it.

Kiyoshi Imai, international economist, was born in 1935 and graduated from Keio University. He is currently Professor at Hakuo University. Well-known as international finance experts in the financial community, the author of numerous books is also known under the nickname 'Dr. Money'.