Koizumi hated everything about money politics. He was influenced by Takeo Fukuda, an upright politician he had served as political secretary after his return from London. Fukuda was Tanaka’s political arch-enemy and he taught Koizumi to dislike everything about the way the party sloshed money around. ‘Koizumi knew back then that Japanese finances were going nowhere, that the government was spending too much on bridges and rice fields,’ Ohara said. Perhaps because he came from a comfortable background – in contrast to Tanaka, who grew up with six sisters and a drunken father – Koizumi had little taste for the perks of political life. ‘As far as I know he has only one house. He doesn’t have golf membership. He doesn’t own land. He doesn’t own stocks,’ said Yasuhiro Tase, a journalist who followed Koizumi’s career for decades.10 Years later, on the twenty-fifth anniversary of his election to parliament, Koizumi became entitled to a stipend, a chauffeur-driven car and a portrait of himself by a master. He turned down all three state-funded privileges. ‘Before he was prime minister, he lived in the politicians’ dormitory. He still lives a humble life,’ said Tase. ‘That’s the samurai in him, I think.’ Takenaka too recalled Koizumi returning gifts, including a bouquet of flowers and a necktie. Koizumi’s ethics also put Ohara in mind of the austere bushido code. ‘He is a samurai,’ he said. ‘A samurai with a quiff.’11
Koizumi was hard to fathom. Even his closest colleagues admit to not knowing what he was thinking. Sadako Ogata, whom Koizumi appointed as Japan’s special representative on Afghan assistance, was one of many thrown off by his behaviour. Once, she had just returned from Kabul and was summoned to the prime minister’s office to relate her findings. Koizumi simply sat there with his eyes closed. When she had finished, he thanked her and she left without a clue as to what he thought.12 Takenaka remembered similar encounters, including a time before Koizumi became prime minister when he briefed him on the Japanese economy. ‘He listened to my speech this way,’ Takenaka told me, cocking his head to one side and closing his eyes tightly shut. ‘He didn’t take any memo. I thought he must be sleeping, that he wasn’t listening to what I was saying.’ Later he recognized that this was simply Koizumi’s way of doing things. ‘He is cutting out the minor issues and thinking about the main points,’ was how Takenaka explained it. ‘This is his main style as a leader.’ Isao Iijima, Koizumi’s loyal political secretary over many years, attributed his boss’s style to a calculated ambiguity designed to unsettle those around him. ‘No matter how many times you meet the prime minister, you will never find out what he is really thinking,’ he boasted.13
If the man known as Japan’s great communicator was silent for much of the time, that was not the only paradox. His status as a maverick outsider was belied by the fact that both his father and grandfather had been cabinet ministers. Koizumi’s grandfather, Matajiro, was a stevedore who became a powerful labour organizer rounding up people to work on the docks unloading ships. His back was tattooed with a large red dragon of the sort usually favoured by yakuza gangsters. He became known as the irezumi minister after the word for tattoo. Matajiro parlayed his various influences into a parliamentary seat. In government, he was put in charge of the post office, an entity that his grandson would later seek to privatize in dramatic fashion. Matajiro’s adopted son, Koizumi’s father, was elected to the same Yokosuka seat. In time he rose to become director-general of the defence agency. It was quite a pedigree for a self-styled political outcast.
Nor was Koizumi’s popularity with women entirely logical. After his divorce, Koizumi was awarded custody of his two sons, but famously did not allow them to have contact with their mother. His wife, who was pregnant at the time of the separation, had a third son whom Koizumi never tried to meet and who was, it was reported, turned away from his grandmother’s funeral. It was an acrimonious, if not altogether untypical, end to a marriage that had been celebrated with a wedding cake carved into the shape of Japan’s ornate parliament. As one journalist commented about the politician who had stolen Japan’s heart, ‘Touchy-feely? Not in his private life he isn’t.’14
Iijima, who spent much of his career by Koizumi’s side, knows him better than most. As his political fixer, he was also the man who helped make him. When Koizumi was in power, I went to see Iijima a couple of times at the Kantei, the prime minister’s official workplace. It is a beautifully designed minimalist building, decorated with bamboo and with something about it of an upmarket Ikea showroom. Once Iijima called me in because he was furious about an article I had written in which I had painted a rather unflattering portrait of Koizumi’s ‘guard-dog-in-chief’. I had suggested that Iijima – a stocky chain smoker with a taste for chunky jewellery – had carefully crafted Koizumi’s media image by working his relationships with the staff of Japan’s weekly magazines, salacious publications that combine soft-porn and scandal with investigative reporting. Although these magazines make Britain’s tabloids look like choirboy song-sheets, they apparently found no dirt on Koizumi. Instead, they turned him into a household name. Iijima had helped create Japan’s first truly media-savvy politician, one who owed his position not to the favours he had done colleagues, the palms he had greased or the years of political drudgery he had put in, but rather to the popularity he enjoyed with ordinary people. One of Koizumi’s press secretaries once told me, half in admiration and half in disgust, ‘Iijima is a top-class salesman and Koizumi is his number one brand.’
As I went to sit down on a chair in the small meeting room, Iijima shooed me out of the seat usually reserved for guests. That was the only time in my seven years in Japan that such a standard courtesy was so deliberately flouted. Iijima was shaking with pent-up anger and he embarked on a twenty-minute tirade about my offending article. The one indubitable mistake was that he could not, as I had described, have been wreathed in plumes of smoke as he sat at his desk. As he pointed out, his office had been designated a non-smoking area, obliging him to step outside whenever he needed to light up.
Once Iijima had calmed down, he began to talk freely about Koizumi, the ‘thin and stylish’ man he had met all those years ago. Initially, he confessed, he thought Koizumi lacked the guts to take on those he called the ‘big frog’ politicians squatting on power. But Koizumi surprised him. He proved more than a match for the political amphibians, shunning factional politics and sticking to his convictions. That style influenced the way Koizumi’s cabinet functioned, Iijima said. Previous administrations had worked bottom up, with legislation filtering upwards through the party’s Byzantine structures, agreed at every stage through a complex process of consensus-building known as nemawashi, or digging around the roots. In Koizumi’s case, the process was the exact reverse. Koizumi would decide what he wanted to do and give orders that it be implemented. One of the mechanisms he used to enforce his agenda on bureaucrats, who were used to having things their own way, was the Council on Economic and Fiscal Policy. Although the body, designed to bring decision-making more firmly into the cabinet, had been established a few years earlier, neither his predecessors nor his successors knew how to use it to full effect. Koizumi attended almost every meeting of the council, which Takenaka managed and which included a few heavyweight members of business and academia. During Koizumi’s tenure, the council became a focus of policymaking. The bureaucrats often had to do what they were told.
‘The reason he is top down is because he doesn’t have any followers,’ Iijima said. ‘He is not at the top of any faction. He is his own man.’ As a result, he could pursue a radical agenda of the sort implemented by ‘Satcha san’, he said, referring to Margaret Thatcher, the revered former British prime minister credited by Koizumi’s followers with shaking her country from its ‘British disease’. Japan had had a Meiji Restoration and a Showa Restoration, Iijima said, the latter referring to its rise from the cinders of war under the Showa emperor, Hirohito. The name of the current emperor’s reign was Heisei. Koizumi would, Iijima said with a triumphant flourish, lead Japan’s Heisei Restorat
ion.
• • •
Invocation of the Meiji Restoration, one of the most dramatic transformations in modern history, was bound to end in disappointment. Sure enough, nothing nearly so momentous took place. Those who had taken Koizumi at face value as a man who could revolutionize Japan and put it back on a vigorous growth path were to be disappointed. Even if Japan could kick-start its economy, its demographics and relative wealth meant there would be no return to the fast-growth years. Yet such language was symptomatic of the hype surrounding Koizumi throughout much of his premiership.
If one man was supposed to implement this radical agenda, certainly in the field of economics where Japan needed it most, it was Takenaka, the academic who ended up with not one but two cabinet posts. The newspapers called the round-faced professor Koizumi’s ‘economic tsar’. Crucially, in the second year of his premiership, with the stock market falling precipitously and frightened talk of financial meltdown, Koizumi gave Takenaka the job of salvaging the teetering banking system. Takenaka had long ago raised the issue of Japan’s banks, weighed down with bad loans left over from their exuberant lending in the 1980s. Before Koizumi became prime minister, he had invited Takenaka to his study group, which took place at the Royal Park Hotel, an anonymous brick structure in Hakozaki, a little way outside central Tokyo. Takenaka, a man of strong conviction, gave his diagnosis of what he called Japan’s ‘economic pathology’. Since the bubble had burst in 1990, Japan had gone through three recessions and had grown at an average rate of only 1 per cent a year. Nothing could be done to revive the economy, he said, until the banks were purged of bad loans. If banks did not function properly, by lending money to promising businesses, the entire economy would remain sick. Banks had not dealt with their problems aggressively enough, he said. The strong continued to prop up the weak. There were such tight links between banks and corporations, which held a web of cross-shareholdings in each other’s shares, that banks could not afford to deal too harshly with debtors. If too many companies went bust or if the value of their equities dropped beneath a critical level, they could drag the banks down with them.15 So intimate were the connections between corporate and financial Japan that some banks even lent to struggling companies so they could maintain the fiction of paying interest on the debts they owed.
No one knew the precise value of bad loans. By the time Koizumi set about seriously tackling the problem in 2003, non-performing loans were officially recognized at Y43 trillion, some $355 billion at prevailing exchange rates.16 Some economists put the number far higher, with one controversial estimate placing it at a horrendous Y237 trillion, some $2 trillion, or nearly half of Japan’s entire economic output.17 Takenaka suspected that the Financial Services Agency, which was supposed to be regulating the banks, was in collusion with the financial institutions. There were even stories of bank inspectors tipping off bank managers before each visit so they could hide incriminating evidence in secret vaults. In 1998, a finance ministry official had hanged himself after prosecutors found evidence pointing to collusion. Inspectors had been lavishly entertained, sometimes at outrageously expensive no-pan shabu shabu restaurants, where waitresses (minus their pan, short for ‘panties’) served preparations of extortionately priced beef to goggle-eyed customers.18 At one point, before regulatory changes split bank supervision from the finance ministry, banks and brokers had whole departments dedicated to building cosy relationships with bureaucrats. Known as MoF-tan – or those in charge of looking after the Ministry of Finance – they specialized in entertaining bureaucrats at restaurants and hostess clubs. Takenaka was scathing about such links. Later he would write contemptuously of bank presidents as ‘a bunch of incompetents’ and buddy-buddy friends propping up the ‘old convoy system’.19
After he was put in charge of financial regulation in 2002, Takenaka swiftly set about taking on the banks. Koizumi’s role was to provide political cover as flak rained down on his economic tsar, particularly when Takenaka let slip to one interviewer that he considered no company ‘too big to fail’.20 The phrase became notorious, used to summon up a vision of the ruthless free-market monster that Koizumi was seeking to let loose. Takenaka compared the constant criticism to ‘lying on a mat of needles’.21 He ordered banks to halve the amount of bad loans on their books in two-and-a-half years. Then he forced them to comply by strengthening the way they accounted for capital. The aim was to push them into a corner. Either they would get rid of bad loans faster and bolster their capital – no easy task – or they would expose themselves as needing government help. If the government injected capital, it would be able to sack the management and take charge of a speedier bad-loan resolution itself. That is precisely what happened with Resona, the country’s fifth-biggest bank, when auditors discovered in May 2003 that it was short of capital.22 The government swiftly injected $17 billion of public money and installed new managers to run the bank. This was a foretaste of what was to happen in the US and Europe where, in 2008, authorities bailed out some of the world’s biggest financial institutions to forestall a systemic meltdown.
In Japan, the bailout of Resona proved a turning point. Previous governments had been reluctant to inject sufficient state funds for fear of a public backlash against using taxpayers’ money to bail out incompetent bankers. They had preferred to maintain the fiction that the banks were healthy. Under Koizumi, the issue was brought to a head. Investors took comfort from the revelation that, when push came to shove, the government would guarantee the solvency of the financial system. The stock market immediately began to recover. That ignited a virtuous circle in which the shares owned by banks gained in value, improving the banks’ capital position. Three years later, the stock market had more than doubled, albeit from a post-bubble nadir, and bank shares had risen more than threefold.23
Meanwhile, as business conditions improved, the ratio of bad loans to total lending began to edge down in line with Takenaka’s demands. Many of the companies responsible for the bad debts started to recover as a result of strong global demand, particularly from Japan’s booming neighbour, China. Japanese companies had not stood still. From the mid-1990s, they had been quietly restructuring, taking on fewer new recruits, ditching unprofitable lines of business and merging with rivals. The steel sector, for example, written off in the late 1990s as a has-been industry, had consolidated around four big companies and had staged a spectacular recovery by concentrating on specialist, high-grade steel. By 2003, the sector was producing the same amount of steel as in 1998, roughly 110 million tonnes, with a labour force one-third lower at 92,000 people. That revival was mirrored in other industries. As profits increased, companies could more easily repay their debts, normalizing what had previously been categorized as bad loans. By the end of 2004, the Bank of Japan, until then openly alarmed about the state of the banking system, had declared the worst to be over.
By 2006, non-performing loans had dwindled from an alarming 8 per cent of total bank lending to just 2 per cent.24 Corporate balance sheets returned to healthy levels and profits reached a record high. By mid-2006 the Bank of Japan started raising interest rates – prematurely since deflation had still not been fully conquered – nudging them up to 0.25 per cent. (They had been stuck at zero almost constantly since the late 1990s.) Koji Omi, the finance minister at the time, told me, ‘Fundamentally speaking, the state of the economy is very good.’ Compared with the pessimism and self-flagellation of the previous decade, his quiet affirmation was tantamount to a whoop of victory.
• • •
Japan did, indeed, glide to a fairly strong economic recovery under Koizumi. This probably owed more to the efforts of the private sector and the favourable external environment, particularly insatiable demand from China, than to specific government policies. Measures put in place by the Hashimoto government of the late 1990s had also helped, particularly changes to accounting rules that made it harder for companies to hide losses. Whatever the cause, technically Koizumi overs
aw the longest continual period of growth since the war, more than five years of non-stop recovery. The previous longest expansion period, the Izanagi boom – named for a Shinto god no less – was deemed to have ended in 1971, when growth slumped to the then disastrous level of 4.4 per cent from an average 11.5 per cent in the previous five years. Under Koizumi, of course, Japan’s mature economy couldn’t match anything like that. Still, it did grow at a respectable average rate of 2.4 per cent a year in real terms, with productivity gains by some calculations outpacing those of Britain, France, Germany and the US during most of that period.25
For many of the companies that had been paying down their debt and quietly getting in better shape, the Koizumi years were good. Although the consumer electronics industry had become a pale shadow of itself, other businesses were doing well. Car companies continued to go from strength to strength, and were now considered the best in the world. Toyota became a symbol of quality and was fast on the way to selling more cars than General Motors, which would need a government bailout before the decade was out. Exporters were helped by a change of heart at the usually hair-shirt finance ministry, which ordered massive intervention on the currency markets to keep the yen cheap. That helped exporters by making their products more competitive. Companies that had been on their knees only a few years before found themselves shipping steel, chemicals, components, machine tools and construction equipment to China. Koizumi had said ‘No growth without reform’. A more accurate slogan might have been ‘No growth without China’.
Bending Adversity: Japan and the Art of Survival Page 19
