Australian Financial Review Wednesday, March 17, 1999

The strengths of maverick Mr Yen

By Tony Boyd

When Eisuke Sakakibara was in the early days of his fast track through the ranks of Japan's powerful Ministry of Finance his black, government-owned limousine was regularly being followed.

According to one version of events, Sakakibara became fed up and ordered his driver to pull over so that he could confront the occupants of the car behind.

It turns out that Sakakibara was being tailed by another car from the MoF, an exercise that apparently stemmed from a factional power play within the ministry.

The anecdote says a lot about the Machiavellian machinations within Japan's most powerful bureaucracy. Also, it says a lot about Sakakibara, his willingness to confront his attackers and his position as an outsider in the world's most homogenous society.

Now, after two years as vice-minister for finance for international affairs at the Ministry of Finance, speculation is rising that Sakakibara, who is known as Mr Yen, will step down in June at the age of 58.

Sakakibara, who obtained his doctorate at the University of Michigan, will not confirm that he is leaving but he has told the Nikkei newspaper that it is a bureaucratic custom for vice-ministers to move on after two years. Such customs can be overridden if there is the political will to make it so.

Toyoo Gohten, one of the handful of Japanese who moves with ease in international financial circles and commands the attention of influential policymakers in the United States, was vice-minister of finance for international affairs from June 1986 till July 1989.

Like Gohten, Sakakibara has the fluency in English to sit on any international panel and defend a Japanese view of the world.

The waning of the Sakakibara star has coincided with his loss of credibility in financial markets.

Over the past three years as Japan slid into its worst recession in 50 years, Sakakibara regularly lashed Western commentators for their pessimism.

In 1996 and 1997 Sakakibara defended the over optimistic growth figures issued by the government of prime minister Ryutaro Hashimoto. More recently, he prematurely called a recovery under the government of Prime Minister Keizo Obuchi.

But Sakakibara was not alone in his misreading of the economy. He was only slightly more optimistic than government officials from other countries.

The Australian Treasury remained bullish on Japan in 1996 and 1997 and in 1998 was slow to adjust downwards its Japanese growth forecasts from an over-optimistic 2.5 per cent.

Sakakibara's political fortunes began to wane early last year after he called for a rewriting of the Japanese Constitution to put an end to what he called "50 years of Americanisation". He also suffered from his involvement in an entertainment scandal at the Ministry of Finance.

Despite upsetting some members of the ruling Liberal Democratic Party, Sakakibara has not stopped contributing articles to the right- wing magazine Hatsu Genshu, which has an anti-American editorial line.

Unlike bureaucrats from the Ministry of Foreign Affairs who follow whatever policy line is given them by Washington, Sakakibara has not been scared to challenge the US economic orthodoxy.

He was the only leading figure from the Group of Seven to challenge the International Monetary Fund's neo-classical economic solutions proffered in response to the Asian financial crisis. He gave an early warning of the dangers of short-term capital movements in Asia in May 1997.

Sakakibara fought hard for the creation of an Asian monetary fund to assist the Asian crisis countries. In hindsight, it was a good idea that was killed by US resistance.

It was Sakakibara's influence, along with urging from Australia, which convinced the IMF to reconsider the tough package it had framed for Indonesia.

He reminded the IMF and the Americans that the Asian financial crisis was "not just a regional issue but an issue of global capitalism".

Although Sakakibara had limited success in achieving wider use of the yen in Asia, his support for reform and internationalisation of the Japanese banking system will have a lasting impact.

Former Liberal leader John Hewson, a friend of Sakakibara since the 1970s when both men worked at the IMF in Washington, says Sakakibara "is one of the few Japanese with the personality, the intellect and the profile to argue Japan's case to the West".

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