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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

WHAT NEXT JAPAN?

The fall of the central bank chief damages the bureaucrats -- and boosts the power of politicians

By Jonathan Sprague


Go to a list of arrests in the last year of businessmen and financiers

FIRST IT WAS THE SIGHT OF an apologetic Mitsuzuka Hiroshi resigning as finance minister in January. Last week Japan got another jolt with the humbling of a second top finance official. Matsushita Yasuo is stepping down as governor of the Bank of Japan to take responsibility for alleged wrongdoing at the central bank, following the arrest of an official there on bribery charges. Prime Minister Hashimoto Ryutaro acted quickly to fill the vacuum. The nation's new top banker, Hayami Masaru, who takes office March 20, is a trading-company executive with a reputation as a reformist and internationalist. He will join Hashimoto and Finance Minister Matsunaga Hikaru in the drive to revitalize the sagging economy and open up the financial system.

Are they up to the job? The new finance and banking chiefs will have their hands full just rallying a once-respected bureaucracy that is reeling from multiple arrests and suicides. In themselves, the scandals are unrelated to economic fundamentals, but they are a damaging drain on policy makers' attention. "When the senior management at any institution is diverted from thinking about the key policy issues, response time can get longer, and in that sense the difficulties have made the Japanese economy more vulnerable to any other shocks that might come along," says Robert Feldman, chief economist for Japan at Morgan Stanley. Japanese are bracing themselves. Given the zeal of Tokyo's prosecutors, new arrests are likely in the next few weeks.

The besmirching of the Bank of Japan is particularly demoralizing. The reputation of the Ministry of Finance has been tarnished by bureaucratic involvement in a long string of financial scandals during the 1990s, culminating in the arrest of four officials for corruption in January and March. The 116-year-old central bank had seemed above reproach -- until March 11, when dozens of grim-faced prosecutors marched to its Tokyo headquarters to examine stacks of documents. Under the gaze of television cameras, Yoshizawa Yasuyuki, the 42-year-old head of the Bank of Japan's capital-markets division, was driven away in a black sedan. He was charged with receiving more than $33,000 worth of entertainment -- dinners and nightclub treats -- from the Industrial Bank of Japan and Sanwa Bank in return for feeding them sensitive information.

To repair the loss of confidence, Hashimoto accepted Matsushita's resignation. The prime minister came under immediate pressure to appoint an outside broom to sweep the bank clean. But he also was urged to name an experienced hand in this time of uncertainty. The result is Hayami, in many ways the ideal compromise because he combines private-sector and government experience. Hayami is an advisor at Nissho Iwai, one of Japan's top five trading companies, having served as its president and chairman. Before that, he spent 34 years at the Bank of Japan, working mostly on international affairs, including time in New York and London. A fluent English speaker, Hayami also built up international exposure and a reputation as an advocate of reform as head of the Japan Association of Corporate Executives, a major corporate lobby group.

"I wanted someone who is well versed in international finance as well as the real economy [who] can deal with any debates ranging from international currency markets to the real economy," said Hashimoto. Private economists are also generally impressed by Hayami's resume. The main concern is his age, 72, which puts him in the same generation as the outgoing Matsushita. "He's a man of the past," says SBC Warburg associate director for political research Okazaki Shigenori. "Maybe he's experienced, but to me the choice suggests the lack of alternatives." Hayami steps in at a crucial time -- on April 1, a revised law will make the central bank more independent of the Ministry of Finance. His appointment, without the parliamentary approval that would be needed under the new law, could mean Hayami is seen by the ruling party as its man, says Okazaki.

The incoming governor has made his priorities clear. "It is important to increase transparency and brighten the mood inside the central bank," he says. In terms of policy, analysts don't expect any major initiatives, if only because there is little he can change. Given Japan's weakened economy, credit cannot be tightened, but with the discount rate already at a record low 0.5%, there is little scope to loosen either. The markets barely reacted to his appointment. "The current Bank of Japan policy has more to do with the consensus about the economy in policy circles than it does with a specific governor," says Morgan Stanley's Feldman.

Hayami has said little since his appointment, mentioning only that stable currencies are important. On the Asian crisis, he told the Asahi Shimbun newspaper in November that Japan needs to stimulate its economy and boost imports to help its neighbors recover. He laid the blame for the crisis on poor government policies, and insisted that any aid to stabilize the region's currencies should be channeled solely through the International Monetary Fund. "It is said that IMF macro-economic conditions are too strict," he said. "But you should not make easy money available -- under the pretext of helping Asia -- to governments that have managed their economies in a sloppy manner."

In any case, the primacy of the bureaucracy may be waning. Within the traditional triumvirate of politicians, bureaucrats and businessmen that runs Japan Inc., the Ministry of Finance has generally been in charge of coming up with basic policy directions. Even the once-powerful Bank of Japan was considered its handmaiden. "I believe that politicians, who have long been dependent on MOF officials in their decision-making, will use the current heat to boost their power," says Kobayashi Yoshiaki, a political scientist at Keio University. Adds analyst Okazaki: "The bureaucracy is in chaos, so the [ruling] Liberal Democratic Party has to come up with their own ideas and policies." So what else is new? Corporate entertainment budgets may shrink in the wake of the scandals, but many observers are pessimistic about more wholesale changes. "The arrests are just ripples in the firmly entrenched system," says Robert Orr, a businessman and analyst at electronics company Nippon Motorola. "There has to be bigger bombshells before this system crashes." Tokyo's gung-ho prosecutors may yet oblige.n

-- With reporting by Suvendrini Kakuchi/Tokyo


A YEAR OF SLEAZE

IN TIMES PAST, APOLOGIES AND RESIGNATIONS were enough to resolve Japan's scandals. Now, the law is catching up with businessmen and the bureaucrats who colluded with them. Here's what the past 12 months look like:

In March 1997, two managers at food giant Ajinomoto were arrested for paying off sokaiya, racketeers who intimidate shareholders to stop them from asking awkward questions

Two months later, a former president of Nomura Securities was booked on similar charges. Another brokerage, Yamaichi Securities, was raided in July. Officials of department-store Takashimaya were found guilty of paying off racketeers in August

In September , prosecutors swooped on the offices of Daiwa Securities and Nikko Securities. Six current and former Yamaichi executives, including a former president, were arrested on sokaiya-related charges. The next month, executives of retailer Matsuzakaya and Mitsubishi Motors were also arrested

Accused sokaiya Koike Ryuichi pleaded guilty in December to extorting millions of dollars from Nomura, Daiwa, Nikko and Yamaichi and squeezing loans out of Dai-Ichi Kangyo Bank

The new year opened with the arrest of two finance ministry officials for allegedly accepting bribes in return for disclosing the timing of banking inspections. Two other bureaucrats killed themselves. Finance Minister Mitsuzuka Hiroshi resigned

In February, a former Industrial Bank of Japan executive was arrested for allegedly bribing bureaucrats. Legislator Arai Shokei hanged himself over charges he asked for special favors from a securities house

Two more finance-ministry officials and a central-bank bureaucrat were arrested in March. Bank of Japan Gov. Matsushita Yasuo resigned. A third civil servant committed suicide


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