Asia Times: History according to Sakakibara



	September 01 1999	atimes.com

Editorials

EDITORIAL: History according to Sakakibara

We had a foreboding when ''Mr Yen'', Eisuke Sakakibara, retired as Japanese vice minister of finance for international affairs in July that it wasn't the last we'd heard of him. He's been in Japanese papers and on television commenting on current economic and financial issues and in a series of interviews has told the business daily Nihon Keizai Shimbun the story of his life. And now as a guest research fellow at the Yomiuri Research Institute he has taken to writing - or rewriting as it were - the history of world capitalism in the 1990s.

In an August 21 Special to The Yomiuri Shimbun (Japan's largest daily) titled ''Early economic recovery stifled by US policies'', he revisits some key political-economic events since the 1990/91 collapse of the Japanese economic bubble, in an attempt to account for the country's economic malaise ever since. His recollections and explanations are worth a brief review - if only because there's something quite scary about them. Throughout the period under consideration, Sakakibara was a leading Ministry of Finance bureaucrat involved in most major policy decisions and international negotiations. In retirement, he remains an influential figure with much to say about Japanese economic policy directions. Should the views expressed in his Yomiuri piece be representative of present policymakers' thinking, prospects for Japan's economic recovery are bleak indeed.

In a way, the very first sentence in his article (after an introductory paragraph) says it all: ''It is said that Japan's economy has been stagnant for the past eight years since the economic bubble burst, but this is incorrect,'' writes Sakakibara. What follows is a litany of complaints (focusing on the 1993/94 period) about Clinton administration trade policies time and again leading to untimely and unreasonable degrees of yen appreciation against the dollar and time and again nipping Japanese recovery in the bud. ''We [Japanese negotiators] were unhappy that populist US officials had used foreign exchange rates as leverage in trade negotiations . . . Because of relentless market pressure raising the value of the yen against the dollar, the annual dollar-yen exchange rate average for 1994 stood at 102.26 yen. As a result, prospects for a Japanese recovery were dashed as the strong yen canceled out the initially favorable signs of an upturn in domestic demand,'' is Mr Yen's conclusion.

So, are we to believe then that if it hadn't been for US trade negotiators Mickey Kantor and Bo Cutter and their unreasonable demands, the Japanese economy would decisively have pulled out of recession in 1994? That the deep structural defects of the near-bankrupt Japanese financial system and of most of the country's industries revealed over the past two to three years would not have mattered or have been resolved in benign fashion?

That's such utter nonsense that not even the truest believer in a special Japanese model of capitalism, indeed not even the author of ''Beyond Capitalism: The Japanese Model of Market Economics'' (1993), Mr Yen himself, could be seriously propounding it at this point. But what then could be Dr Sakakibara's purpose in penning that Yomiuri special?

For one, it's obviously intended as a warning to the financial authorities that the current high yen endangers recovery and that appreciation needs to be reined in. It's also, we suspect, his way of saying, ''well, yes, we need reform and restructuring, but let's not go overboard, let's not throw out the Japanese system altogether, let's not fall for the 'bubble.com' illusion the Americans are peddling now.''

But that would be nearly as wrong and destructive to future Japanese economic prospects as the notion that a more benign exchange-rate regime in the early 1990s could have spared Japan its current troubles. While the US built a new economy over the past decade, Japan increasingly lost its earlier competitive edge. Sakakibara is wrong when he thinks that a bit of imaginative tinkering with the ''Japanese system'' will allow the country to catch up ''in two to three years'' as he told the Australian Financial Review recently; that ''Japan does not lack fundamentals in that [IT] area''; that excelling ''in new game software'' will do the trick.

Japan DOES lack the fundamentals in ''that area''. It can NOT afford mere tinkering. It cannot and WILL not be able to export itself out of trouble this time around with old-style manufactures. Listen to the not exactly wild-eyed radical Koichi Kato, Mr Yen, who a few months ago told the Japan Echo that Japan needs ''Thatcher-style'' reform of its businesses and an education system to meet the manpower demands of the future. It may even need English as an official language, as an Asahi Shimbun writer suggested last week.