45 minute version of the documentary Princes of the Yen: Central Banks and the Transformation of the Economy, edited for the Daiwa Foundation screening, which was organised by Richard Werner. There was a a discussion following the screening between Richard Werner and Mr Kawakami of the Ministry of Finance (Japan), the transcript for this is below.
Mr. Kawakami: This film reminds me of Inside Job….but this is a far longer version of what has been happening in global markets since the 1980s. I actually don’t buy into the conspiracy theory proposed by my friend Richard, but I thank you for acquitting the Finance Ministry, but I’m biased because I’m a Finance Ministry Official. I would call myself the servant of the yen, he is probably the high priest, my sister used to work at the Bank of Japan but I still don’t call her the Princess. I don’t think it’s appropriate to point the finger at one specific institution, I think the generation before us they were all unwittingly accomplices to the creation of the bubble because they didn’t know any better. In the 80s I was at the IMF in Washington and I saw the Japanese bubble from 6000 miles away. I can not believe that my superiors that had graduated from the best universities, of course they hadn’t gone to Oxford, but that they could create such a bubble where the Imperial Palace could buy the equivalent of California, where Japan was worth the entire United States, I mean that could not be possible and yet that is what happened. So I’ll stop there, but… all the people were unwilling or unwitting accomplices because they didn’t know any better.
Richard Werner: I should add that we’ve known each other since 1993 when I was also briefly at the finance ministry. I’m very glad that you have agreed to be here, thank you very much. You mentioned the dreaded conspiracy theory, now I consider myself a social scientist and I work empirically, I look at facts, data and observation, one puts forward hypothesis and theories and one tests them and the data will dictate whether you reject them or they cannot be rejected. Now my question is are you then a coincidence theorist, do you think it was a coincidence that Mr. Fukui told the banks to increase bank credit particularly to the real estate sector by vast amounts, and then the same two people Mr. Fukui and his sempai Mr. Mieno, who in the 80s was deputy governor of the Bank of Japan, in the 90s the same two people were still in charge you see, this is why this is a great case study, Mr. Mieno then became governor in the 90s and Mr. Fukui initially deputy governor and then later governor until 2008. So you had the same two people in charge of the key variable, which empirical research tells you is the quantity of credit, because that creates money that is used for transactions and it tells you who receives the money and what it is used for. So, the same two people then from the early 90s onwards kept this same variable very, very tight. And of-course it’s a pattern, then we have Asia, credit boom, credit bust, recession and the demand for structural reform. The book Princes of the Yen is full of quotations about what these people said, they said what they wanted was not a recovery but structural reform, they want to change the system, we need to deregulate liberalize, privatize. It seems as if the same song was being sung at different times by the World Bank, the IMF and central banks in Asia, and yet again we hear it in Europe, the ECB has been saying it, while creating a credit boom in Ireland, Spain, Portugal and Greece, 30% to 40% credit growth in 2004 to 2007. What happens after that, well, we’ve seen it so many times, a crash, a bust banking system and a recession. Before the Japanese story there was also a Scandinavian boom bust cycle, which again was the central bank, you can go to the 20s in the US; it’s always the same story. You are saying this is entirely a coincidence, you have to realize that the probability of this being a coincidence is probably something like 0.001, so it’s quite a theory you know.
Mr. Kawakami: Yes, I won’t call it a coincidence, I would just say that people in the financial markets including central bankers don’t learn from past experience. Mr. Fukui and Mr. Mieno didn’t go to Oxford they only knew what had happened in Japan before; I don’t think they had studied booms, bubbles and busts.
Richard Werner: That’s a good point, but a similar type of bubble occurred in Japan in the early 70s, this is less well known, again window guidance was used. In the book there is a Chapter on this, that was like the test run, window guidance was used in 1972-73 to massively increase bank credit into the housing market, then they tightened the window guidance and they bust the system and you had bankruptcy of banks and a recession. So there was a test run, so all the more they should have known what they were doing.
Mr. Kawakami: The 70s recession that was a much smaller one, so I think they thought they succeeded in creating a mini bubble and then a moderate recovery. The 80s bubble was much bigger, I don’t think that was intended, but of-course the Japanese people were just happy when the party went on, when it stopped it was too big and it’s taken 25 years perhaps even more.
Richard Werner: What do you make of the statements of these central bankers, on the record in speeches, saying we don’t want a recovery, Mr. Fukui, Mr. Mieno, Mr. Maekawa, Mr. Sasaaki, they said they wanted structural reform.
Mr. Kawakami: I don’t think it’s appropriate to take just a sound bite. I don’t think central bankers will intentionally defeat the economy on purpose. They have a mandate to preserve price stability, some people will say that is their only mandate. Structural reform is not their mandate, so I don’t understand why…
Richard Werner: …..they always talk about it?.....(Laughter)
The quality isn't that great, hence I transcribed it.