The Asian Wall Street Journal, Tuesday, 25 June 1996

By George Melloan


Who's Right? Greenspan, Matsushita or Both?

Alan Greenspan got a rousing vote of confidence from Congress last Thursday, and hence a third four-year term as Federal Reserve chairman. It seems that inflation-fighting has become a popular cause, perhaps a sign of a rise in political maturity in the U.S.

In the same week, headlines announced that Japan is bouncing off the ropes. Tokyo reported that in the first quarter this year, the Japanese economy grew at an annual rate of 13%, the highest in 23 years.

At first glance, these two events might seem unrelated. In fact, they are linked: both are the seeming consequences of successful monetary policies.

What is odd, however, is that these winning policies of the Fed and Bank of Japan are headed in precisely opposite directions. That both are winning praise, and legitimately so, suggests caution in generalizing about what is good, or bad, monetary policy. Both the BoJ and the Fed may be right and not out of harmony with what seems to be a very hopeful trend, the desire of many nations around the globe, including some unlikely ones, to protect their national currencies from the temptations of inflation.


In a June 13 article on this page, Richard A. Werner asked why the BoJ didn't launch its easy-money policy sooner. The German-born Mr Werner is chief economist of Jardine Fleming Securities Tokyo and well positioned to offer an intriguing answer to his own question. In his view, the BoJ purposely prolonged Japan's recession to force the structural changes that it felt were necessary to revitalize Japan's economy. Whether he is right or not, Japan did indeed, under the pressure of recession and a major banking crisis, begin the first steps toward dismantling Japan, Inc., that cosy government-industry partnership that led Japan to the brink of economic disaster in 1991. Among those steps: removing government protections for distribution cartels, clipping the wings of the economic micro-managers at the Ministry of Finance and moving toward greater independence from political pressure for the BoJ.