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Home > Debates Last Updated: 14:31 03/09/2007
Debate: Comment

On "Princes of the Yen"

Isao KUBOTA (Vice President, Urban Development Corporation)

Some books are worth reading not because what is intended in the book by the author is right, but because some observations in it are stimulating and attractive. The "Princes of the Yen" by Richard. A. Werner is one of these kinds of books.

Indeed, if the book were about nothing but the plot of central bankers and their power struggles vis--vis the Ministry of Finance officials and politicians, as the author proposes, I would not recommend it to read, to say nothing of bothering to write the book review.

Unlike most Japanese authors who often take up the subject of Japanese economic developments before and after the bubble economy of the 80s and 90s, the author of the book has a strong academic background in economics.

He certainly belongs to "monetarists", although his economic analyses are far from dogmatic (which is good). He argues that the management of credit creation (hence money supply) is of paramount importance for running the economy, and hence is the importance of window guidance by the Bank of Japan, through which the Princes have ran the economy at their will. In his view, interest rates are not an important policy instrument. Fiscal policies are less appreciated.

He certainly is a hard worker. The book is a product of ten years' strenuous study. He read essential books for the subject (including my not well-known book!), collected various materials and searched for inside information through personal interviews.

Though there are some factual mistakes, he makes some sharp observations worth noticing. They include those on the reality of "window guidance", though slightly exaggerated, and its implications for the economy, on the relationship between bad bank debts and the sluggishness of the economy, on the necessity of improving the interpretation of "money supply" figures under the present circumstances, and on improper prescriptions of the IMF for the recent Asian Currency Crisis.

However, his main story is far from acceptable. While I agree that there has been a strong sentiment among officials of the Central Bank to be more independent, whatever that may mean, I cannot agree with the assertion of the author that the Princes of the Yen deliberately mismanaged the economy in order to strengthen the power of the Central Bank. Nor can I agree with the assertion that they had analyzed U.S. precedents from the 1920s and 1980s correctly, and had learned important lessons, which they allegedly used for deliberate creation and then bursting of the bubble in this country.

On the contrary, my longstanding suspicion about our central bank officials has been that, at times, their analysis of the on-going economy and prescriptions to deal with economic instability might not be up to the level required.

If they had "managed" the economy in the 1980s and 1990s at their will, I would rather be delighted to know that the monetary policy in this country is run by incredibly wise people.

Finally, on the role of the central banks I can agree with the author that structural reforms, however important they may be for the country, are not policy aims assigned for central banks. Its policy aim is stability of prices. For that purpose, and for that purpose alone, independence of the central bank is warranted.

(The author served at the Ministry of Finance from 1966 to 1997. His career at the Ministry includes Director General of the Customs and Tariff bureau, Senior Deputy Director General of the International Finance Bureau and Director of the Research and Planning Division and the Foreign Exchange and Money Market Division. He obtained his Master's Degree in Economics at Oxford in 1969.)

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