Bending Adversity: Japan and the Art of Survival (44 page)

6. AFTER THE FALL

1
. For newspaper accounts of Mrs Inoue and her remarkable ceramic toad, see David Ibison, ‘What Happened to the Gifted Toad?’,
Financial Times
, 30 September 2002; and Steve Burrell, ‘How a Lucky Toad Spawned a Bank Scam’,
Australian Financial Review
, 19 August 1991.

2
. http://www.savills.co.uk/_news/newsitem.aspx?intSitePageId=72418&intNewsSitePageId=116038-0&intNewsMonth=10&intNewsYear=2011

3
. Bill Emmott,
The Sun Also Sets
, p. 120.

4
. Correspondence with Clyde Prestowitz.

5
. In the eighteen years to 2008, all the extra spending combined amounted to around 28 per cent of GDP. Markus Bruckner and Anita Tuladhar, ‘Public Investment as a Fiscal Stimulus: Evidence from Japan’s Regional Spending During the 1990s’, International Monetary Fund (IMF) Working Paper, April 2010.

6
. Richard Lloyd Parry, ‘Found in Translation’,
The Times
, 22 January 2005.

7
. Haruki Murakami,
After the Quake
, p. 116.

8
. Interview with author, Tokyo, June 2003.

9
. David Pilling, ‘Doomsday and After’,
Financial Times
, 19 March 2005.

10
. Interview with author, Tokyo, January 2003.

7. JAPAN AS NUMBER THREE

1
. Calculation provided by Masaaki Kanno of JP Morgan, Tokyo. The 1995 Nikkei average was 17,355.34. By June 2012, it had fallen to 8,638.08. To find out how much Y100,000 would be worth in today’s purchasing terms, one needs to apply a value of the GDP deflator, which measures inflation (or deflation) over time. Kanno suggests using the GDP private consumption deflator, which makes Y100,000 in 1995 worth Y112,000 today. If a broader measure of the GDP deflator is used, it would be worth Y122,000.

2
. Akio Mikuni quoted by David Pilling in ‘Heads Down’,
Financial Times
, 17 May 2003.

3
. Martin Wolf, ‘Japan on the Brink’,
Financial Times
, 14 November 2001.

4
. Telephone conversation with author, 2011.

5
. Measured in purchasing power parity terms, which takes into account the cost of goods in different countries.

6
. A value not adjusted for inflation (or deflation).

7
. Calculations based on figures from the International Monetary Fund, World Economic Outlook Database, April 2012.

8
. Figures provided by Masaaki Kanno of JP Morgan, Tokyo.

9
. In purchasing power parity terms, China’s economy had been bigger than Japan’s for many years before 2010.

10
. According to the ‘Urban Land Price Index’ published by the Japan Real Estate Institute, national average land prices in March 2011 were 62 per
cent below their 1991 peak, with commercial land down 76 per cent and residential land down 48 per cent.

11
. Teizo Taya, special counsellor to Daiwa Institute of Research and a former Bank of Japan board member, estimated that total outstanding loans shrank from Y600 trillion in 1995 to Y400 trillion a decade later.

12
. Interview with author and Michiyo Nakamoto, a
Financial Times
colleague, Tokyo, March 2012.

13
. Nicholas Eberstadt, ‘Demography and Japan’s Future’, in Clay Chandler et al. (eds.),
Reimagining Japan: The Quest for a Future that Works
, pp. 82–7.

14
. Jesper Koll, director of equity research at JP Morgan. Even with their high yen, many Japanese find cities such as London and Singapore very expensive, yet offering lower-quality goods and services.

15
. International Monetary Fund, World Economic Outlook Database, April 2012.

16
. If we want to compare average real per capita annual growth rates since 2002, Switzerland grew at 1 per cent, Germany at 1.3, Brazil at 2.7 and China at 9.8.

17
. Organisation for Economic Co-operation and Development, ‘Harmonised Unemployment Rates’, March 2012.

18
. Organisation for Economic Co-operation and Development, ‘Divided We Stand: Why Inequality Keeps Rising’, 2011.

19
. Ibid.

20
. Yoshio Sugimoto,
An Introduction to Japanese Society
(2nd edn), p. 57.

21
. Peter Hessler, ‘All Due Respect, an American Reporter Takes on the Yakuza’,
The New Yorker
, 12 January 2012.

22
. European Institute for Crime Prevention and Control, International Statistics on Crime and Justice, 2010.

23
. Given a US population of 315 million and a Japanese one of 127 million, the US prison population is proportionately ten times higher.

24
. Interview with author, Tokyo, July 2011.

25
. Richard Jerram, personal correspondence, January 2013.

26
. Japan’s net debt, which some argue is a better measure, was about half that in 2012, but still an uncomfortably high 113 per cent.

27
. Gavan McCormack,
The Emptiness of Japanese Affluence
, p. xiii.

28
. Botswana has very low debt and is well managed.

29
. Peter Tasker, ‘The Japanese Debt Disaster Movie’,
Financial Times
, 27 January 2011.

30
. Telephone interview with author, May 2011.

31
. There are dangers in inflation too, says Ito. If, for example, prices started rising by 4 or 5 per cent a year, the government would need to pay much
higher interest on its debt. The paradox is that, because of subdued economic activity and therefore rock-bottom borrowing rates, the government can easily manage its debt payments. That makes the Japanese government perversely wedded to low growth. To get out of that fix, it must tread what Ito calls a ‘narrow path’.

32
. Peter Tasker, ‘How to Make Monkeys out of the Ratings Agencies’,
Financial Times
, 11 August 2011.

33
. Richard Koo,
The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession
.

34
. Martin Wolf, ‘Unreformed, But Japan is Back’,
Financial Times
, 7 March 2006.

35
. Some economists argue that private debt should be included and is, perhaps, an even greater vulnerability and predictor of crisis than public debt. By this measure US debt rises to 250 per cent of GDP. Taking into account Japan’s higher savings rate, on this measure, the US debt position is actually worse than Japan’s. See a paper by Steve Clemons and Richard Vague, ‘How to Predict the Next Financial Crisis’, 2012.

36
. ‘Arigato for Nothing, Keynes-san’,
Wall Street Journal Europe
, 24 May 2012.

37
. Peter Tasker, ‘Japan Needs a Radical to Tackle its Godzilla-size Public Debt’,
Financial Times
, 28 June 2012.

38
. Paul Krugman, ‘Nobody Understands Debt’,
New York Times
, 1 January 2012.

39
. Interview with author, Tokyo, November 2006.

40
. In fact, spending on benefits rose substantially because of what are called ‘automatic stabilizers’, including higher unemployment and social security payments when economies are in recession or growing slowly.

41
. Anatole Kaletsky, ‘Britain is Losing the Economic Olympics’, Reuters, 25 July 2012.

42
. Email correspondence, January 2013.

43
. Niall Ferguson, ‘Obama’s Gotta Go’,
Newsweek
, 19 April 2012.

44
. Jon Hilsenrath, ‘Fed Chief Gets Set to Apply Lessons of Japan’s History’,
Wall Street Journal
, 12 October 2010.

8. SAMURAI WITH A QUIFF

1
. ‘Lionheart’ was also the name of his weekly newsletter which at its peak had some 2 million subscribers.

2
. Gregory Anderson, ‘Lionheart or Paper Tiger? A First-term Koizumi Retrospective’,
Asian Perspective
, vol. 28, no. 1, 2004, pp. 149–82.

3
. Hideaki Omura, a junior member of the Hashimoto faction, quoted in the
Financial Times
, 21 April 2001.

4
. Interview with author, November 2003.

5
. Heizo Takenaka,
The Structural Reforms of the Koizumi Cabinet
, p. 7.

6
. She later proved a little too outspoken and became almost comically unpopular with the cautious bureaucrats of the foreign affairs ministry who spent all their time briefing against her. Koizumi fired her in January 2002; Japan’s first female foreign minister had lasted just ten months.

7
. Takenaka,
Structural Reforms
, p. 26.

8
. http://www.kantei.go.jp/foreign/koizumispeech/2001/0507policyspeech_e.html, accessed 1 January 2012.

9
. Interview with author, Tokyo, October 2003.

10
. Interview with author, Tokyo, October 2003.

11
. Takenaka,
Structural Reforms
, p. 17.

12
. Recollection to author, October 2011.

13
. Interview with author, Tokyo, October 2003.

14
. Tim Larimer, ‘Japan’s Destroyer’,
Time
, 17 September 2001.

15
. Shares were treated as part of the banks’ capital.

16
. David Pilling, ‘Advocate of “Hard Landing” May Join Debt Team in Japan’,
Financial Times
, 3 October 2002.

17
. David Pilling and Mariko Sanchanta, ‘Japan Central Bank’s Bad Loan Warnings Fall on Deaf Ears’,
Financial Times
, 25 September 2002.

18
. Gillian Tett, ‘Revealing the Secrets of MoF-tan’,
Financial Times
, 31 January 1998.

19
. Takenaka,
Structural Reforms
, p. 76.

20
.
Newsweek
, October 2002.

21
. Takenaka,
Structural Reforms
, p. 87.

22
. Resona’s capital adequacy ratio, which measures the amount of core capital a bank has against its risk-weighted assets, fell below 4 per cent. The shortfall came about as a result of auditors’ stricter interpretation of how banks should account for deferred tax assets, credits on future tax bills. In Japan, these were considered suspect since there was no guarantee banks could make future profits against which to offset those assets. See ibid., pp. 96–104.

23
. Ibid., p. 109.

24
. David Pilling, ‘Rising Sum’,
Financial Times
, 15 November 2006.

25
. Adam Posen, ‘Send in the Samurai’, in Clay Chandler et al. (eds.),
Reimagining Japan: The Quest for a Future that Works
, p. 104.

26
. Spending on public works had risen to about 6 per cent of gross domestic product in the late 1990s when the government was seeking to use stimulus measures to jolt the economy into life. By the end of Koizumi’s term,
this had fallen to around 3 per cent of GDP. See Peter Tasker, ‘Japan Needs a Radical to Tackle its Godzilla-size Public Debt’,
Financial Times
, 28 June 2012.

27
. David Pilling, ‘Japan’s PM Turns his Back on Big Government’,
Financial Times
, 19 July 2002.

28
. Interview with author, Nagano, July 2002.

29
. David Pilling, ‘Tokyo on Road to Normality as S&P Upgrades Debt Outlook’,
Financial Times
, 24 May 2006.

30
. David Pilling, ‘Japan’s Economy and the Koizumi Myth’,
Financial Times
, 17 October 2007.

31
. Interview with author, Fukuoka, January 2003.

32
. David Pilling, ‘Land of the Rising Inequality Coefficient’,
Financial Times
, 14 March 2006.

33
. Noritmitsu Onishi, ‘It’s a Landslide for Koizumi’,
International Herald Tribune
, 12 September 2005.

34
. Takenaka,
Structural Reforms
, p. 129.

35
. Interview with author, Tokyo, May 2002.

36
. David Pilling, ‘Japan’s Post Office Sell-off Could Prove Hard to Deliver’,
Financial Times
, 20 April 2005.

37
. David Pilling, ‘Storming the Castle, Koizumi Shakes up the World’s Biggest Financial Institution’,
Financial Times
, 13 September 2004.

38
. Patricia Maclachlan, University of Texas at Austin, in remarks to author, April 2005.

39
. Julian Ryall, ‘Ex-LDP Stalwart in Epic Battle’,
South China Morning Post
, 8 September 2005.

40
. Norimitsu Onishi, ‘Koizumi Party, Backing Reforms, Wins by a Landslide’,
New York Times
, 12 September 2005.

41
. Ibid.

42
. David Pilling, ‘Koizumi Expects Speedy Passage of Postal Bills’,
Financial Times
, 21 September 2005.

43
. David Pilling, ‘A Second Chance for Koizumi’,
Financial Times
, 10 September 2005.

44
. David Pilling, ‘Koizumi Vindicated’,
Financial Times
, 13 September 2005.

45
. Interview with author, Nagano, 2006.

46
. By the late 2000s, Japan’s Gini coefficient was 0.329 compared with 0.345 in the UK and 0.378 in the US and an OECD average of 0.314. The higher the number, the greater the inequality, with 0 as perfect equality and 1 as absolute inequality. By contrast, Sweden has a Gini coefficient of 0.259 and Germany of 0.295, making both more egalitarian societies than Japan, although both actually saw a sharper rise in inequality than Japan in recent years. Chile, also an OECD member, has a coefficient of
0.494. See ‘Divided We Stand: Why Inequality Keeps Rising’, OECD, 2011.

47
. Pilling, ‘Land of the Rising Inequality Coefficient’.

48
. Tetsushi Kajimoto, ‘Income Disparities Rising in Japan’,
Japan Times
, 4 January 2006.

49
. Interview with author, Tokyo, March 2007.