CENTER ON JAPANESE ECONOMY AND BUSINESS AND ECONOMY JAPANESE ON CENTER

Center on ANNUAL REPORT 2017–2018 REPORT ANNUAL Japanese Economy and

475 Riverside Drive Room 312F New York, NY 10115 Email: [email protected] Business Phone: 646-745-8569 Web: www.gsb.columbia.edu/cjeb ANNUAL REPORT 2017–2018 (JULY 2017–JUNE 2018) CJEB Representative Office in Japan c/o Terumi Ota 1-19-18-1003 Shibuya Shibuya-ku, Tokyo 150-0002 Phone/Fax: 03-5467-6012 Table of Contents

Letter from the Directors 2 Lunchtime Seminars 41 A Family Business: Tsuchiya’s Strategy and History 41 CJEB Team 4 How Medical Insurance Works in Japan in Comparison Leadership and Staff 4 with the U.S. 41 Core Faculty 7 Japan’s Economy and Monetary Policy: Research and Faculty Engagement 10 20 Years of Unconventional Monetary Policy 42 “Japan’s Economy: Stable, with Sustained Modest The Trump Administration’s Asia Policy 42 Design/Production: Change” by Hugh Patrick 10 Japan’s Roles in East Asian Financial Cooperation 43 Columbia Creative Current Research Highlights 24 Challenges and Prospects for Japanese Monetary Policy 43 Office of Communications and Public Affairs Faculty Engagement 26 Japanese Harmony between Nature and People: Suntory’s Corporate Values, Marketing Strategy, Editors: Research Paper Series 28 and Sustainable Development Philosophy 43

CJEB Programs 30 Fighting to Raise Japan’s Inflation Rate 44 Ryoko Ogino Program on Public Pension and Sovereign Funds 30 Workshop 45 Michelle Tam Corporate Governance and Stewardship Program 30 Demystifying Blockchain and Cryptocurrencies 45 Assistant Editors: The New Global Financial Architecture 31 Resources 46 Taylor Cook Events 32 Faculty Advisory Committee 46 Emiko Mizumura Conferences 32 2017–2018 Visiting Fellows 47 Shoko Nakamoto Conference on Public Pension and Sovereign Funds 32 2018 Visiting Fellow Reunion Reception 48 Japan as a Leading Power: Trade and the Fintech 2018 Annual Visiting Fellow Business Field Trip 48 Revolution 33 Research Associates 49 Photography: The Japan Project Meeting with Joint ESRI International Professional Fellows 50 Eileen Barroso Conference 34 International Advisory Board 51 Michael DiVito ESRI International Conference: “Better Measurement Taichi Okeda for Better Policy Formation” 35 Promoting Exchange of Ideas 52 Symposia 36 CJEB in the News 52 Shoko Nakamoto Power to the Pensions! Japanese and NYC Pension Enhancing the MBA Experience 53 Funds as a Force for Good Governance 36 Enhancing the Columbia Experience 54 Japan and the Leadership of the World Trading System 37 Visits from Japan to Columbia 55 Trump’s Economic Policies and Their Implications for Fellowship and Scholarship Programs 56 Japan and Asia 37 Library and Data Resources 57 A Tale of Two Systems: What Went Wrong at Toshiba and Wells Fargo 37 Discussion Groups 58 Changing the Game in Japan’s Equity Markets: An Update Japan Economic Seminar 58 on Corporate Governance Reforms 38 U.S.-Japan Discussion Group 58 Central Bank International Cooperation and Coordination 38 Financial Support 59 Lectures 39 Sponsorship Program 59 His Excellency Tarō Kōno, Japan’s New Foreign Minister: A Dialogue with Columbia Students about Diplomacy 39 The Intergenerational War in Japan: Macroeconomic Burdens of the Demographic Change 39 Japan’s General Election: What Happened and What It Means 40 Special Lecture with the Honorable Yasuhisa Shiozaki 40 Special Lecture with Ambassador Reiichiro Takahashi 40 Center on Japanese Economy and Business The preeminent academic center in the United States on Japanese business and economics

Established at Columbia Business School (CBS) in 1986 under the direction of Professor Hugh Patrick, the Center on Japanese Economy and Business (CJEB) pro- motes knowledge and understanding of Japanese business and economics in an inter- national context. CJEB is a research organization widely recognized for its symposia, conferences, and lectures held both in New York and Tokyo, which provide prominent speakers from the public and private sectors a forum for collaboration and reflection on Japan, the United States, and the global economy.

With the leadership of Professors David E. Weinstein, director of research, and Takatoshi Ito, director of the Program on Public Pension and Sovereign Funds and asso- ciate director of research, CJEB supports research projects, student and faculty schol- arship, and library and computer-based resource initiatives. Other CJEB core faculty members are Japan specialists drawn from Columbia’s Business School, Law School, School of International and Public Affairs, Department of Economics, and Department of Political Science. While CJEB is an independent and nonpartisan research cen- ter which takes an objective stance on political or economic policies, we encourage our researchers and scholars to hold their own individual perspectives. Funding and resources are provided by corporate sponsors, foundations, individuals, CBS, and Columbia University.

Since its founding, CJEB has developed, grown, and evolved in order to carry out its mission effectively in a changing Japan and a changing world. In this way, CJEB has been able to build and maintain its status as the preeminent academic center in the United States on Japanese business and economics.

Further information about CJEB can be found on the Center’s website: www.gsb.columbia.edu/cjeb.

CJEB Annual Report 2017–2018 | 1 LETTER FROM THE DIRECTORS

Letter from the Directors

Dear Friends,

Since its founding in 1986, the Center on Japanese Economy and Business (CJEB) has made its mission promoting knowledge and understanding of the Japanese economy and business systems in U.S., Asian, and global contexts. Looking back over this past year, CJEB has continued to accom- plish this through a wide range of public symposia, conferences, research projects, paper series, and visitor programs. Japan’s economy has steadily recovered over the last several years and will con- tinue to comfortably grow for the next couple of years. Inevitably, long-term prospects are uncertain.

Over the past academic year, CJEB continued to address and examine several key challenges and prospects for Japan’s economy and business systems through a series of public programs. On Hugh Patrick, Director September 21, 2017, CJEB cosponsored a lecture at Columbia featuring Tarō Kōno, foreign minister of Japan, together with the APEC Study Center, the School of International and Public Affairs (SIPA), and Weatherhead East Asian Institute (WEAI) of Columbia University (p. 39). During his lecture, Foreign Minister Kōno addressed diplomatic and economic issues related to North Korea, China, the United States, and the Middle East. CJEB once again organized and collaborated with NHK (Japan Broadcasting Corporation) in the fall for another broadcasted program, which featured several of CJEB’s distinguished core faculty members discussing President Trump’s economic policies and their implications for Asia. On November 21, 2017, the panel again relied upon Glenn Hubbard, Dean and Russell L. Carson Professor of Finance and Economics at Columbia Business School; Joseph E. Stiglitz, University Professor; David E. Weinstein, Carl S. Shoup Professor of the Japanese Economy; and Takatoshi Ito, professor at the School of International and Public Affairs at Columbia University, on NHK’s debate program, Global Agenda (p. 37). The Honorable Yasuhisa Shiozaki, member of the David E. Weinstein, Director of Research House of Representatives of Japan and former Minister of Health, Labour and Welfare of Japan, gave a special lecture on February 27, 2018, to the Columbia community, sharing his perspective on Japan’s challenges on the country’s changing demographics, increased health care system costs, and needed improvements to corporate governance (p. 40).

CJEB held its highly successful annual conference in Tokyo on May 28, 2018. The conference, “Japan as a Leading Power: Trade and the Fintech Revolution,” featured a keynote address by Wendy Cutler, vice president and managing director of Asia Society Policy Institute, Washington, D.C. Office, and former major U.S. trade policymaker. Ms. Cutler discussed the challenges and opportu- nities in U.S.-Japan trade relations. The conference featured two major panels. The first panel held a discussion on the international trade system, specifically the U.S. administration tariff impositions and trade issues, and the Trans-Pacific Partnership (TPP), now led by Japan following President Trump’s U.S. withdrawal. In the second panel, the panelists deliberated on Fintech as a disruptive innovation, and also discussed the increasing use of blockchain technology, cryptocurrency, and cen- tral bank digital currencies. More details about the Tokyo Conference can be found on p. 33.

CJEB continues to successfully host its zadankai lunchtime lectures. Glen S. Fukushima, senior fellow at the Center for American Progress, spoke on the Trump administration’s Asia Policy (p. 42), while Reiichiro Takahashi, ambassador of the Consul-General of Japan in New York, provided insights into the international issues that Japan faces in a changing global economy (p. 40). Hiroshi Nakaso, immediate past deputy governor at the Bank of Japan (BOJ), spoke about his experience at the BOJ and his involvement in attempting to raise the country’s inflation rate (p. 44). To read about our other zadankai seminars, please see p. 41.

2 | CJEB Annual Report 2017–2018 CJEB also organized several events as part of its two research programs, the Program on Public Pension and Sovereign Funds (PPPSF) and the Corporate Governance and Stewardship Program. On February 26, 2018, CJEB held its annual Conference on Public Pension and Sovereign Funds, led by Takatoshi Ito, featuring keynote speeches by Jacob J. Lew, former secretary of the Treasury and visiting professor of international and public affairs at SIPA, and Yasuhisa Shiozaki. The conference had three sessions. The first was on the macro environment and challenges to long-term investors, the second covered environmental, social, and governance (ESG) investments, and the third investigated infrastructure and real assets (p. 32). Two symposia were held in conjunction with CJEB’s Corporate Governance and Stewardship Program, led by Alicia Ogawa: “Power to the Pensions! Japanese and NYC Pension Funds as a Force for Good Governance,” with Michael Garland, assistant comptroller of the Corporate Governance and Responsible Investment at the Office of NYC Comptroller; and Ken Hokugo ’93, director and head of Corporate Governance and director of hedge fund investments at the Pension Fund Association of Japan, on November 9, 2017 (p. 36). The second was “A Tale of Two Systems: What Went Wrong at Toshiba and Wells Fargo,” with Bruce Aronson, professor at the Business Law Department of Hitotsubashi University; Shane Goodwin, senior fellow and project director at the Richard Paul Richman Center for Business, Law, and Public Policy at Columbia University; and Josh Rosner, managing director at Graham Fisher & Co., on March 22, 2018 (p. 37).

CJEB invests in developing the next generation of academic leadership on the Japanese economy and its business systems by offering a variety of fellowship and scholarship opportunities for students interested in studying and specializing in Japan. In the past year, CJEB’s first PhD fellow, Jackson Lu of Columbia Business School, completed his PhD program and was appointed to the MIT Sloan School faculty. You can read more about our initiatives, fellowships, and scholarships offered over the past academic year on p. 56.

Every year, we consider how to enhance and expand on our Visiting Fellows Program (p. 47). CJEB Visiting Fellows are selected from Japanese companies, academia, and the government and come to Columbia, nor- mally for a year, to pursue independent study and research. CJEB Visiting Fellows have access to many of Columbia’s rich resources, including the University’s libraries and public events; the opportunity to engage with students and faculty of the Columbia community; and the ability to audit a wealth of courses at Columbia. It is important that our Visiting Fellows acquire necessary cross-cultural substantive and communicative skills in an increasingly global landscape and changing world economy. CJEB hosted several communication work- shops and provided individual coaching sessions for our Visiting Fellows to improve their presentation skills. Our Visiting Fellows had the opportunity to put all of this knowledge into practice by presenting their research to CJEB directors and their peers in monthly seminars. CJEB has proudly hosted more than 260 Visiting Fellows since the Center’s establishment in 1986.

The Center will continue to thrive as a distinguished academic and research center under the shared leadership of us both, Hugh Patrick and David Weinstein. Eventually, David will assume sole leadership, but not in the near future.

The Center’s accomplishments are made possibly only through the dedication and energy of the faculty and staff directly involved, the resources provided by the Business School and the University, and, notably, the generous funding provided by our corporate sponsors, foundations, and individuals. We thank all our supporters deeply.

With warm regards,

Hugh Patrick David E. Weinstein Director Director of Research July 15, 2018 CJEB Annual Report 2017–2018 | 3 CJEB TEAM

Leadership and Staff

Hugh Patrick is the awarded an honorary doctorate of Social Takatoshi Ito is founder and director Sciences by Hong Kong’s Lingnan University the director of of the Center on in 2000 and the Eagle on the World award the Program on Japanese Economy by the Japanese Chamber of Commerce and Public Pension and and Business Industry of New York in 2010. Sovereign Funds (CJEB) and R. D. and associate Calkins Professor director of research David E. Weinstein of International at CJEB. He is also is the Carl S. Shoup Business Emeritus a professor at the Professor of the at Columbia Business School, as well as School of International and Public Affairs Japanese Economy codirector of Columbia’s APEC Study Center. (SIPA) at Columbia University. He has at Columbia He joined the Columbia faculty in 1984 after taught extensively both in the United University. He is some years as professor of economics and States and Japan since finishing his PhD in also the director of director of the Economic Growth Center at economics at Harvard University in 1979. research at CJEB, Yale University. He completed his BA at Yale He was an assistant and tenured associate director of the Japan University (1951), obtained MA degrees in professor (1979–1988) at the University of Project at the National Bureau of Economic Japanese studies (1955) and economics Minnesota, an associate and full professor Research (NBER), executive director of (1957), and earned a PhD in economics at at Hitotsubashi University (1988–2002), the Program for Economic Research in the the University of Michigan (1960). He has a professor at the Graduate School of Department of Economics at Columbia, and been a visiting professor at Hitotsubashi Economics at the University of Tokyo a member of the Federal Economic Statistics University, the University of Tokyo, and the (2004–2014), and dean of the Graduate Advisory Committee. Previously, Professor University of Bombay. Professor Patrick School of Public Policy at the University of Weinstein was chair of the Department of has been awarded Guggenheim and Tokyo (2012–2014) before assuming his Economics and a senior economist as well Fulbright fellowships and the Ohira Prize. current position in 2015. In spring 2016, as a consultant at the Federal Reserve Bank His professional writings include 18 books he received a courtesy appointment in the of New York, the Federal Reserve Bank of and some 60 articles and essays. His most Finance and Economics Department at San Francisco, and the Federal Reserve recent books are How Finance Is Shaping Columbia Business School. He held visiting Board of Governors. Prior to joining the the Economies of China, Japan, and Korea professor positions at Harvard University, Columbia faculty, Professor Weinstein (Columbia University Press, 2013), coedited Stanford University, and Columbia Business held professorships at the University of with Yung Chul Park; and Reviving Japan’s School and was Tun Ismail Ali Chair Michigan and Harvard University. He also Economy: Problems and Prescriptions (MIT Professor at the University of Malaya. Press, 2005), coauthored and coedited served on the Council of Economic Advisers He has held distinguished academic and with Takatoshi Ito and David E. Weinstein. from 1989 to 1990. His teaching and research appointments such as president Professor Patrick served as one of four research interests include international of the Japanese Economic Association in American members of the binational Japan– economics, corporate finance, and the 2004–2005, fellow of the Econometric United States Economic Relations Group Japanese economy. Professor Weinstein Society since 1992, research associate at appointed by President Carter and Prime earned his PhD and MA in economics from the National Bureau of Economic Research Minister Ohira from 1979 to 1981. He has the University of Michigan and his BA at since 1985, faculty fellow at the Centre been a member of the Council on Foreign Yale University. He is the recipient of many for Economic Policy Research in London Relations since 1974. He was a member of grants and awards, including five National since 2006, research associate of the the Board of Directors of the Japan Society Science Foundation grants, an Institute for Tokyo Center for Economic Research since for seven three-year terms. In November New Economic Thinking grant, a Bank of 1990, and faculty fellow of the Research 1994, the Japanese Government awarded International Settlements Fellowship, and a Institute of Economy, Trade and Industry him the Order of the Sacred Treasure, Gold Google Research Award. Professor Weinstein since 2004. He was editor-in-chief of the and Silver Star (Kunnitō Zuihōshō). He was is the author of numerous publications and articles. Journal of the Japanese and International

4 | CJEB Annual Report 2017–2018 Economies and is coeditor of the Asian U.S.- based macro hedge funds in the United Officers Economic Policy Review. In an unusual States and an adjunct associate professor Taylor Grace Cook move for a Japanese academic, Professor at SIPA. Until 2006, she was managing Ito was appointed senior adviser in the director at Lehman Brothers, where she was Program Manager Research Department at the International responsible for managing the firm’s global BA, English Monetary Fund (1994–1997) and Deputy equity research. Prior to joining Lehman University of Pennsylvania Vice Minister for International Affairs at the Brothers, she spent 15 years in Tokyo, MA, Higher and Postsecondary Education Ministry of Finance of Japan (1999–2001). where she was a top-rated bank analyst Teachers College, Columbia University He also served as a member of the Prime and director of research for Nikko Salomon Emiko Mizumura Minister’s Council on Economic and Fiscal Smith Barney, having managed the original Policy (2006–2008). Salomon Brothers Research Department Assistant Director for Programs through three mergers. She is a member of BA, American and English Literature In 2010, Professor Ito was a coauthor the board of directors of the Maureen and Otsuma University of a commissioned study of the Bank of Mike Mansfield Foundation, a member of the MS, Information and Knowledge Strategy Thailand’s 10th-year review of its inflation investment committee of the Association Columbia University targeting regime. He frequently contributes for Asian Studies, and a member of the op-ed columns and articles to the Financial Shoko Nakamoto President’s Circle of the All Stars Project, a Times and Nihon Keizai Shinbun. He is development program for inner city young Senior Administrative Manager the author of many books, including The people, which was recently launched in BA, Law Japanese Economy (MIT Press, 1992), The Tokyo. She graduated from Barnard College Okayama University Political Economy of Japanese Monetary and earned a master’s degree in international MA, Diplomacy and International Relations Policy (1997), and Financial Policy and affairs at SIPA. She is a member of the Seton Hall University Central Banking in Japan (2000, both with International Corporate Governance T. Cargill and M. Hutchison, MIT Press); Network. Michelle Tam An Independent and Accountable IMF Program Manager (with J. De Gregorio, B. Eichengreen, and BA, Economics C. Wyplosz, 1999); and more than 130 Ryoko Ogino is Binghamton University academic (refereed) journal articles and the director for State University of New York chapters in books on international finance, administration at monetary policy, and the Japanese economy. CJEB. She officially His research interests include capital flows Japan Representative, joined the Center as and currency crises, microstructures of associate director Tokyo the foreign exchange rates, and inflation for administration Terumi Ota targeting. He was awarded the National in September 2010 BA, Tsukuba University Medal with Purple Ribbon in June 2011 for after successfully his excellent academic achievement. managing the Center’s Tokyo conference in spring 2010. Prior to that, she held positions Student Casuals at Shiseido Americas Corporation and Sony Alicia Ogawa is Karen Chen Corporation of America, bringing a wealth is the director of MA, International Finance and Economic of experience in product development, the Project on Policy PR, international marketing, and staff Japanese Corporate School of International and Public Policy management. She graduated magna cum Governance and Columbia University laude from the State University of New York, Stewardship at Buffalo, with a major in human relations CJEB. She is also Shoko Hirose in multinational organizational settings a consultant to MA Candidate, Social-Organizational sponsored by the Department of Psychology one of the largest Psychology and Management. Teachers College, Columbia University

CJEB Annual Report 2017–2018 | 5 Julian Radice Nana Uehara BS, Industrial Engineering and Operations MA Candidate, Social-Organizational Research Psychology Columbia University Teachers College, Columbia University

Achenyo Otigba Jade Ke Wang MBA Candidate, Technology MPA Candidate, International Finance and Columbia Business School Economic Policy School of International and Public Affairs Xochitl Honoria Romo Columbia University JD Candidate Columbia Law School

Riku Tabata BA Candidate, Economics and Computer Science Columbia University

6 | CJEB Annual Report 2017–2018 Core Faculty

CJEB’s eight core faculty members provide Parliamentary Exchange Program, special finance, Dean Hubbard is the author of three the Center’s intellectual foundation and adviser to Newsweek for Newsweek Japan, popular textbooks, as well as coauthor of are drawn from Columbia University’s columnist for the Tokyo/Chunichi Shimbun The Aid Trap: Hard Truths About Ending Business School, Law School, Department of and member of the International Advisory Poverty, Balance: The Economics of Great Economics, Department of Political Science, Board of the Asahi Shimbun and the Powers from Ancient Rome to Modern and School of International and Public Advisory Council for the Japan Foundation America, and Healthy, Wealthy, and Wise: Five Affairs. In addition to Hugh Patrick, David Center for Global Partnership. His articles Steps to a Better Health Care System. His E. Weinstein, and Takatoshi Ito, CJEB’s core and commentaries appear frequently in commentaries appear in Business Week, The faculty members are as follows: newspapers and magazines in Europe, Wall Street Journal, The New York Times, the Japan, and the United States. Professor Financial Times, the Washington Post, Nikkei, Curtis is a member of the Board of Directors and the Daily Yomiuri, as well as on television Gerald L. Curtis is of the Japan Society, the Japan Center for and radio. From 2001 until 2003, he was Burgess Professor International Exchange, and the Mansfield chairman of the U.S. Council of Economic Emeritus of Political Foundation and serves as councilor to Advisers. In the corporate sector, he is on the Science at Columbia the U.S.-Japan Council. He has served as boards of ADP, BlackRock Closed-End Funds, University and consultant and adviser to numerous public and MetLife. Dean Hubbard is cochair of the former director of the and private organizations in the United States Committee on Capital Markets Regulation; he Weatherhead East and Japan. is a past chair of the Economic Club of New Asian Institute. He York and a past cochair of the Study Group on Professor Curtis is the recipient of numerous received his PhD from Corporate Boards. prizes and honors, including the Masayoshi Columbia University in 1969 and was on the Ohira Memorial Prize, the Chunichi Shimbun Columbia University faculty from 1969 until Special Achievement Award, the Japan December 2015. He is a professor emeritus, Merit E. Janow is Foundation Award, the Marshal Green Award a senior research scholar at the Weatherhead dean of Columbia of the Japan-America Society of Washington, East Asian Institute, and director of University’s School and the Eagle on the World award from the Columbia’s Toyota Research Program. He is of International Japanese Chamber of Commerce in New the author of numerous books and articles and Public Affairs. York. He is a recipient of the Order of the published in both English and Japanese Dean Janow is Rising Sun, Gold and Silver Star, one of the on Japanese politics, government, foreign an internationally highest honors awarded by the Japanese policy, and United States–Japan relations. He recognized expert in government. divides his time between Columbia University international trade and Tokyo, where he is active as a columnist, and investment, with extensive experience speaker, and writer. in academia, government, international Glenn Hubbard is organizations, and business. In addition, she Professor Curtis has held appointments at dean and Russell L. has had a lifelong involvement with Asia and the Royal Institute of International Affairs, Carson Professor is an expert on that region. Dean Janow has Chatham House, London; the College de of Finance and been a professor of practice at Columbia France, Paris; the Lee Kwan Yew School of Economics at University’s School of International and Public Policy, Singapore; and in Tokyo at Keio, Columbia Business Public Affairs (SIPA) and affiliated faculty Tokyo, and Waseda Universities, the Research School. Dean at Columbia Law School since 1995. She Institute for Economy, Trade and Industry, Hubbard received his teaches graduate courses in international the Graduate Research Institute for Policy BA and BS degrees trade/WTO law, comparative antitrust law, Studies, and the International Institute for summa cum laude from the University of China in the global economy, and international Economic Studies. Central Florida and also holds AM and trade and investment policy, among others. PhD degrees in economics from Harvard In addition to his academic work, he has She has held a number of leadership positions University. In addition to writing more than served as director of the U.S.-Japan at the University. Currently, she is codirector 100 scholarly articles on economics and

CJEB Annual Report 2017–2018 | 7 of the APEC Study Center. Previously, she corporations, financial services, technology around the World (University of Chicago was director of the Master’s Program in companies, and not-for-profit organizations. Press, 2008), and Transforming Corporate International Affairs and chair of Columbia In 2009, she became a charter member of Governance in East Asia (Routledge Press, University’s Advisory Committee on Socially the International Advisory Council of China’s 2008). His research has been profiled in Responsible Investing. Her research interests sovereign wealth fund, China Investment The Economist, the Financial Times, and focus on international trade and investment, Corporation. Early in her career, Dean The Wall Street Journal and has been Asia, competition law, economic globalization, Janow was a corporate lawyer specializing widely translated. Professor Milhaupt digital trade, internet governance, and in cross-border mergers and acquisitions lectures regularly at universities and think cybersecurity. She has written several with Skadden, Arps, Slate, Meagher & Flom tanks around the world. Representative books and numerous articles and frequently in New York. Before becoming a lawyer, she appointments include visiting professor at speaks before business, policy, and academic worked at a think tank, where she focused Tsinghua University, Paul Hastings Visiting audiences around the world. on U.S.-Japan trade and economic relations. Professor in Corporate and Financial Law She grew up in Tokyo, Japan, and is fluent in at Hong Kong University, and Erasmus While at Columbia University, Dean Janow Japanese. She has a JD from Columbia Law Mundus Fellow in Law and Economics at was elected in December 2003 for a four- School, where she was a Stone Scholar, and the University of Bologna. He was named year term as one of the seven members of the received a BA in Asian studies with honors Teacher of the Year in 2012 and 2010 at the World Trade Organization’s (WTO) Appellate from the University of Michigan. She is a Duisenberg School of Finance, University Body, which is the court of final appeal for member of the Council on Foreign Relations of Amsterdam, where he taught from 2008 adjudicating trade disputes between the and the Trilateral Commission. to 2015. Professor Milhaupt has been a 161 members of the WTO. She was the member of several international project teams first woman to serve on the Appellate Body. focused on policy issues in Asia, including She was involved in more than 30 appeals. Curtis J. Milhaupt one charged with designing an “institutional While on the Appellate Body, she organized was the Parker blueprint” for a unified Korean peninsula. Prior a series of global conferences with leading Professor of to entering academia, Professor Milhaupt experts and senior government officials Comparative practiced corporate law in New York and that focused on the Appellate Body, the Corporate Law, Tokyo with a major law firm. He holds a JD international trading system, and economic director of the Parker from Columbia Law School and a BA from the globalization. From 1997 to 2000, Dean School of Foreign and University of Notre Dame. He also conducted Janow served as the executive director of Comparative Law, graduate studies in law and international the first international antitrust advisory Fuyo Professor of relations at the University of Tokyo. committee of the U.S. Department of Justice Japanese Law, and director of the Center for that reported to the attorney general and the Japanese Legal Studies, all at Columbia Law assistant attorney general for antitrust. Her School before joining the faculty at Stanford Joseph E. Stiglitz report recommended the creation of a global Law School in 2018. He was also a member was born in Gary, network of enforcers and experts, which is of Columbia University’s Weatherhead East Indiana, in 1943. A now the International Competition Network. Asian Institute. Professor Milhaupt’s research graduate of Amherst Prior to joining Columbia’s faculty, Dean and teaching interests included the legal College, he received Janow was deputy assistant U.S. trade systems of East Asia (particularly Japan), his PhD from MIT in representative for Japan and China (1989– comparative corporate governance, law and 1967, became a full 1993). She was responsible for developing, economic development, and state capitalism. professor at Yale in coordinating, and implementing U.S. trade In addition to numerous scholarly articles, 1970, and in 1979 policies with Japan and China. She negotiated he has coauthored or edited seven books, was awarded the John Bates Clark Award, more than a dozen trade agreements with including U.S. Corporate Law (Yuhikaku, given biennially by the American Economic Japan and China during a period of intense 2009, in Japanese), Law and Capitalism: Association to the economist under 40 who economic and political tension. Dean Janow What Corporate Crises Reveal about Legal has made the most significant contribution to serves on the Board of Directors for several Systems and Economic Development the field. He has taught at Princeton, Stanford,

8 | CJEB Annual Report 2017–2018 and MIT and was the Drummond Professor and “The Economics of Information,” exploring the would lead to robust recovery, and correctly a fellow of All Souls College, Oxford. He is now consequences of information asymmetries predicted that if these policies were not University Professor at Columbia University and pioneering such pivotal concepts as pursued, it was likely that we would enter in New York, where he is also the founder and adverse selection and moral hazard, which an extended period of malaise. The Three copresident of the University’s Initiative for have now become standard tools not only of Trillion Dollar War: The True Cost of the Iraq Policy Dialogue. He is also the chief economist theorists, but also of policy analysts. He has Conflict (2008, with Linda Bilmes of Harvard of the Roosevelt Institute. In 2001, he was made major contributions to macroeconomics University) helped reshape the debate on awarded the Nobel Prize in economics for and monetary theory, to development those wars by highlighting the enormous costs his analyses of markets with asymmetric economics and trade theory, to public and of those conflicts. His most recent books are information, and he was a lead author of the corporate finance, to the theories of industrial The Price of Inequality: How Today’s Divided 1995 Report of the Intergovernmental Panel organization and rural organization, and to Society Endangers Our Future, published by on Climate Change, which shared the 2007 the theories of welfare economics and of W.W. Norton and Penguin/Allen Lane in 2012; Nobel Peace Prize. In 2011, Time named income and wealth distribution. In the 1980s, Creating a Learning Society: A New Approach Stiglitz one of the 100 most influential people he helped revive interest in the economics of to Growth, Development, and Social Progress, in the world. R&D. with Bruce Greenwald, published by Columbia University Press in 2014; The Great Divide: Professor Stiglitz was a member of the His work has helped explain the circumstances Unequal Societies and What We Can Do About Council of Economic Advisers from 1993 in which markets do not work well, and how Them published by W. W. Norton and Penguin/ to 1995, during the Clinton administration, selective government intervention can improve Allen Lane in 2015; Rewriting the Rules of the and served as CEA chairman from 1995 their performance. American Economy: An Agenda for Growth to 1997. He then became chief economist In the last fifteen years, he has written a series and Shared Prosperity published by W. W. and senior vice president of the World Bank, of highly popular books that have had an Norton in 2015; The Euro: How a Common from 1997 to 2000. In 2008, he was asked enormous influence in shaping global debates. Currency Threatens the Future of Europe, by the French president Nicolas Sarkozy to His book Globalization and Its Discontents published by W. W. Norton and Penguin/Allen chair the Commission on the Measurement of (2002) has been translated into 35 languages, Lane in 2016; and Globalization and Its Economic Performance and Social Progress, besides at least two pirated editions, and in Discontents Revisited: Anti-Globalization in which released its final report in September the nonpirated editions have sold more than the Era of Trump, published by W. W. Norton 2009 (published as Mismeasuring Our Lives). one million copies worldwide. In that book and Penguin/Allen Lane in 2017. He now chairs a High Level Expert Group at he laid bare the way globalization had been the OECD that is attempting to advance these Professor Stiglitz’s work has been widely managed, especially by the international ideas further. In 2009, he was appointed by recognized. Among his awards are more financial institutions. In two later sequels, the president of the United Nations General than 40 honorary doctorates, including from he presented alternatives: Fair Trade for All Assembly as chair of the Commission of Cambridge and Oxford Universities. In 2010, (2005, with Andrew Charlton) and Making Experts on Reform of the International he was awarded the prestigious Loeb Prize Globalization Work (2006). In The Roaring Financial and Monetary System, which also for this contributions to journalism. Among Nineties (2003), he explained how financial released its report in September 2009 the prizes awarded to his books have been the market deregulation and other actions of (published as The Stiglitz Report). Since the European Literary Prize, the Bruno Kreisky the 1990s were sowing the seeds of the crisis, he has played an important role in the Prize for Political Books, and the Robert F. next crisis. Concurrently, Towards a New creation of the Institute for New Economic Kennedy Book Award. He is a fellow of the Paradigm in Monetary Economics (2003, Thinking (INET), which seeks to reform the National Academy of Sciences, the American with Bruce Greenwald) explained the fallacies discipline so it is better equipped to find Academy of Arts and Sciences, the American of current monetary policies, identified the solutions for the great challenges of the 21st Philosophical Society, and the Econometric risk of excessive financial interdependence, century. Society, and a corresponding fellow of the and highlighted the central role of credit Royal Society and the British Academy.He Professor Stiglitz serves on numerous boards, availability. Freefall: America, Free Markets, has been decorated by several governments, including the Acumen Fund and Resources for and the Sinking of the World Economy (2010) including Colombia, Ecuador, and Korea, and the Future. traced in more detail the origins of the Great most recently became a member of France’s Recession, outlined a set of policies that He helped create a new branch of economics, Legion of Honor (rank of Officier).

CJEB Annual Report 2017–2018 | 9 RESEARCH AND FACULTY ENGAGEMENT

Japan’s Economy: Stable, with Sustained Modest Change*

By Hugh Patrick

Japan is a safe, comfortable, well-to-do, Revolution.” Characterized by a fusion and an opportunity. North Korea’s nuclear peaceful democracy with a homogenous, of technologies that is blurring the lines weapons and missiles are a newer challenge. socially cohesive society. Domestically, it is between the physical, digital, and biological For its security Japan depends basically socially, politically, and economically stable. spheres, it builds and extends the impact of on the U.S.-Japan Security Treaty and its In an uncertain world, it is a safe haven in digitization in new and unanticipated ways. close alliance with the U.S., and on its Self- which to hold assets. Prime minister since Defense Forces. Japan has to deal with many of the same 2012, Shinzo Abe was reelected president of structural economic issues as other Japan now faces a major challenge from its the Liberal Democratic Party on September advanced countries, including rural decline, closest ally and friend, the United States. 20 and will continue in office until after the work-life balance, significant income inequal- U.S. president Donald Trump has embarked 2020 summer Olympics in Tokyo. The oppo- ity, and persistent poverty for some 15 on a foreign policy that assails the market- sition parties, in shreds, are having a difficult percent of its people. Two notable economic oriented, rules-based international economic time rejuvenating themselves. issues are the role of and discrimination order dominant since World War II, attacking Overall, the Japanese economy continues against women, and the lagging increases in regional trade agreements in which Japan to do well, despite a blip in the first quarter regular worker wages despite labor market plays a major role, and applying tariffs of 2018. There have been no big domestic tightening. An ongoing concern is that gross against trading partners with which the U.S. surprises, and none are likely. In 2017, government debt is 253 percent of GDP, has a bilateral trade deficit. The U.S.’s sec- GDP increased 1.7 percent, greater than uniquely high among advanced countries. ond-largest trade deficit is with Japan. estimated potential or projected. GNP per However, much is held by Japanese govern- capita, in some ways a better measure than ment institutions, so the net debt is nonethe- GDP growth since Japan’s population is less a relatively high 130 percent of GDP; it declining, increased by almost 1.9 percent. is mostly held by the Japanese private sector. The International Context Unemployment continued to decline to 2.5 Despite ongoing issues and challenges, the Japan is the world’s third largest economy, percent in July. Deflation has ended, but the world economy is doing quite well, with a after the United States and China, with a per major macroeconomic shortfall is that the 2 general improvement in the global economic capita GDP in 2017 of $43,876, about the percent consumer price index (CPI) annual outlook. This has been in large part because middle of the advanced OECD economies. increase target has not been achieved. And it countries, despite political difficulties and This is 74 percent of the U.S. level and 87 is not likely to be achieved any time soon. At tensions, have adhered pretty well to the percent of Germany’s. Japan is the world’s the macro level, improvement is incremental rules-based, market-oriented WTO system second largest investor, with foreign assets and gradual. Indeed, this reads very much like and norms for international economic rela- of $2.98 trillion (at 110 yen per dollar). In my essay a year ago. tions. contrast, the U.S. is the world’s largest net Japan continues its long-run transformation, debtor, at $8.05 trillion. The global economy continued to achieve which is driven by two major forces. One is healthy, better-than-expected GDP growth Japan now has had leadership thrust upon it demographics. Japan’s aging and decreasing of 3.1 percent in 2017 and possibly better for regional trading agreements with Asia and population and labor force are ongoing and in 2018, according to the June 2018 World Europe. Japan is relatively predictable; the predictable; Japanese live longer and better. Bank forecast. world is much less so, particularly regarding The other is Japan’s active participation in geopolitical and national security matters. the ongoing global technological change Growth is expected to slow to 3.0 percent The ongoing rise of China is both a challenge that has been dubbed the “Fourth Industrial in 2019 and to 2.9 percent in 2020. Almost

* Japan produces excellent statistics, data, and analysis on the Japanese economy, including those provided by the government’s Cabinet Office, Ministry of Economy, Trade, and Industry (METI), Ministry of Finance, and the Bank of Japan. The World Bank, the International Monetary Fund, and the Organisation for Economic Co-operation and Development (OECD) produce excellent comparative data and analysis. They provide the basics for a great deal of good academic and private market research.

10 | CJEB Annual Report 2017–2018 every country has achieved, and will continue It is incorrect to think of Trump simply as The rules-based international economic sys- to achieve, increases in real GDP. As labor an idiosyncratic, unique phenomenon. He tem does need updating, particularly in light and other resources become more fully uti- was elected because his anti-free trade, of digital technology and e-commerce, but it lized, world growth will gradually slow, but anti-Washington establishment, anti-diver- is basically sound. Trump’s attacks are under- it is forecast to be about 2.5 percent 10 sity, anti-immigrant views are supported by mining it, and in the process they are calling years from now. However, real wages have many Americans. Many feel the benefits of into question the reliability and vitality of been relatively stagnant in the advanced U.S. global leadership do not outweigh the U.S. leadership of the international economic countries and have lagged behind increases costs. This is a difficult reality that everyone order. While the direct effects of the U.S. tar- in productivity, increasing income inequality. has to deal with. iffs so far are not severe, if they are applied This, and the continuation of low interest to automobiles and auto parts, the adverse Trump’s policies, in attacking open trade, rates, suggests remaining labor slack as consequences will be major. Not only will multilateral trade agreements, the WTO, and potential workers reenter the labor force. trade be directly affected, but currently good other international institutions, are a mistake. Japan is an outstanding example of these international production supply chains will be His strategy is to force trade concessions trends. This disjunction in East Asia between restructured in less efficient ways. country by country, by unilateral impositions good economic growth and ongoing political of tariffs on substantial imports, starting Trump has importantly pursued his bilateral challenges, both domestic and international, with 25 percent on steel imports and 10 approach in developing new negotiations is noteworthy. percent on aluminum based on the Section with China and, separately but interestingly, East Asia, excluding Japan, is the most rap- 232 national security clause, and by direct with North Korea. The Trump-Kim meeting in idly growing region in the world, at about 6 bilateral negotiations with allies, as well as Singapore in June has broken the long stale- percent annually, led by China and Indonesia. with China. mate in U.S.-North Korean relations, with the China’s GDP grew 6.9 percent in 2017, possibility of eventual North Korean denucle- Trump’s major instrumental economic goal is slowing gradually but, will probably be arization, its focus on economic development, is to reduce the U.S. trade deficit to zero, better than 6 percent annually for the next and the ending of U.S., Japanese, and other even though it is a reasonable 2.5 percent several years. A major long-run challenge sanctions in North Korean trade and eco- of GDP, down from a peak of 5.8 percent in for Japan, the U.S., and indeed everyone, is nomic interactions. However, I do not expect 2006. The dollar is the major international how to deal with China, both as an aspiring significant results from the off-and-on dis- currency, so the U.S. needs to run modest regional hegemon and as a global economic cussion anytime soon, if at all. current account deficits (goods and services) competitor in trade and foreign direct invest- in its balance of payments in order to supply The evolving U.S.-China relationship is the ment. Increasing access to China’s restricted the international financial system the dollars most important issue, not only for both coun- domestic markets provides opportunities. needed to finance trade and foreign direct tries, but for Japan and the global order as With good growth and trade, some commodity investment (FDI). well. China is the globe’s rising superpower, prices have increased, but inflation is not a with an authoritarian political system, and Bilateral trade balances are a bad objective; global problem. Crude oil prices, a significant a protected domestic economy. The ways in in an effective international trading system, indicator substantively and symbolically, rose which China obtains foreign commercial tech- countries desirably will have trade deficits 6.5 percent in the first half of 2018, averag- nology is a major issue. One way is simply with some countries and surpluses with oth- ing $65 per barrel. The World Bank forecasts theft without compensation; that is subject to ers. $69 per barrel in 2019. Other commodities legal and other proceedings. More important are relatively stable, too. Still, all sorts of Trump apparently narrowly evaluates the for firms doing business with and investing events can undermine these and other fore- effectiveness of his trade policy. He con- in China are requirements that they have casts. siders himself a winner in negotiations with Chinese corporate partners with which they South Korea, the European Union, Mexico, must share valuable technology. It is important to focus on the Trump adminis- and Canada—all have made modest conces- tration’s policies and actions and not become Trump has focused on the reality that by far sions. sidetracked by Trump’s tweeting and rhetoric. the biggest U.S. bilateral trade deficit is with

CJEB Annual Report 2017–2018 | 11 China, some $375.4 billion in 2017. Trump alliance with the U.S. It has little to contrib- Kim stated the other 12 were deceased, has imposed 25 percent tariffs on $50 billion ute independently to security in East Asia, but without further information or return of of imports from China, based on intellectual even though it is a major economic player. remains. In his last election campaign, Abe property violations. Starting on September This will not change significantly, even if Abe stated that North Korea should carry out a 24, Trump directed the United States Trade succeeds in revising Article 9 of the Japanese fully transparent resolution of the fate of Representative to impose a 10 percent tariff Constitution. these abductees. Abe then succeeded in hav- on a further $200 billion of imports from ing Trump announce in June that North Korea The U.S.-Japan relationship is multidimen- China, and to increase it to 25 percent begin- should fully address the abductees issue. It sional, close, strong, very good, and taken for ning January 1, 2019. If China retaliates, is not clear how the issue can be resolved to granted by both countries. The U.S.-Japan the U.S. will impose tariffs on a further $269 Japan’s satisfaction. One proposal is for a Security Treaty is the foundation of the alli- billion of imports from China. China has retal- delegation of Japanese officials to conduct a ance. Most media coverage focuses on offi- iated, but U.S. imports from China in 2017 fact-finding mission in North Korea. This com- cial bilateral economic negotiations. of $505.5 billion are almost four times as plicates Japan’s participation in the U.S.-led much as China’s $129.9 billion imports from Japan is America’s third largest trading regional negotiations to denuclearize North the United States. This is the world’s biggest partner. The U.S. is Japan’s second largest, Korea. trade issue in late 2018. These skirmishes after China. Japanese company direct invest- At their summit meeting in April, Abe and could lead to a trade war. ments in the U.S. totaled $449 billion as of Trump agreed to hold new high-level dis- 2017, and Japanese asset managers hold cussions on trade. To the surprise of its much more in American financial assets. And negotiators, Japan was included in the group American institutions are major holders of U.S.-Japan Economic of countries subject to the U.S. steel and Japanese stock and other financial assets, aluminum tariffs. They apparently believed Relations though it is difficult to estimate the actual the good Abe-Trump relationship would offset amounts. In 2017 about 3.8 million Japanese Prime Minister Abe and President Trump Trump’s focus on the trade deficit. American visited the U.S. (including 1.5 million going to met on September 27, 2018, and agreed to companies hurt by tariff-induced rising costs Hawaii) as tourists or for business reasons, enter negotiations for a United States-Japan can appeal for exceptions, and on June 20 and 1.4 million U.S. residents visited Japan. Trade Agreement. This was a major change. the Commerce Department exempted some Americans and Japanese are friendly with For two years the U.S. had pressed for a limited Japanese steel products from the tar- each other. bilateral agreement and Japan had strongly iffs at the request of seven American company resisted, pursuing its multilateral policy. Abe has assiduously developed a good users. Trump’s threat to impose tariffs on imports personal relationship with Trump, with reg- Beef is a good example of the specifics of of Japanese motor vehicles apparently ular meetings and frequent phone calls. U.S.-Japan trade negotiations. Japanese carried the day. Ongoing negotiations have Nonetheless, Abe’s September 27 capitula- consumption of beef is increasing about 6 now entered a new phase, as they continue tion to open bilateral trade negotiations casts percent a year, as incomes rise and tastes at the highest bureaucratic level, with U.S. their relationship in a new light. Until now, evolve. Japanese farmers produce about 40 Trade Representative Robert Lighthizer and much has apparently been on security issues, percent of this, but the share and amount will Japanese Economic Revitalization Minister particularly maintaining sanctions against continue to decline as elderly farmers retire Toshimitsu Motegi handling this negotiation. North Korea. In addition to North Korean and domestic herds shrink. Australia provided The U.S.-Japan Economic Council committee denuclearization, in their discussions, Abe about 32 percent and the U.S. 25 percent of meets regularly with its Japanese business has succeeded in obtaining Trump’s support Japanese beef consumption in 2017. Japan counterpart, the Japan.-U.S. Economic for Abe’s politically important North Korean is the largest importer of U.S. beef. However, Council. abductee issue. with the U.S. withdrawal from TPP, the cur- Trump’s international economic policies have In the 1970s and 1980s, 17 or so Japanese rent import tariff of 38.5 percent will con- put Japan in a bind and have created new were abducted from Japan by North Korea, tinue, while Australia’s membership in CPTPP opportunities and responsibilities as well. as admitted by North Korea’s premier Kim means that Japan’s tariff on Australian beef For its security, Japan relies on its tight Jong-Il in 2002. Five were soon returned; will very gradually decrease to 9 percent.

12 | CJEB Annual Report 2017–2018 Moreover, in retaliation against U.S. protec- agreed to continue as the Comprehensive on labor and environmental protection. tionist tariff measures, China and Canada and Progressive Agreement for Trans-Pacific RCEP negotiations have been bumpy, with have imposed additional tariffs on U.S. beef. Partnership (CPTPP). Two-thirds of the no settlement since discussions first began Trump is trying to mollify the dissatisfaction CPTPP’s 30 chapters are identical to TPP, but in 2011. The policy positions reflect the of U.S. beef producers by providing up to 22 provisions that were important primarily overwhelming diversity of policies among $12 billion in aid to farmers hit by retaliatory to the U.S. were suspended or changed. On its members. Australia and New Zealand tariffs. July 6, Japan became the second country to propose high levels of liberalization; India ratify CPTPP; once six members do so, the strongly opposes. As the two leaders, Japan agreement will go into effect, presumably in and China will have to work together to sup- early 2019. A major objective of Japan is to port RCEP. The ASEAN members are also Free Trade Agreements persuade the U.S. to rejoin. That is unlikely pushing for acceptance as one means of Free trade agreements (FTAs) reduce tariffs under the Trump administration. holding ASEAN together. and other import barriers but do not eliminate The CPTPP partners are interested in accept- them. They typically embody a wide range of ing new members, not just other Asian coun- regulatory rules and harmonization efforts tries, but also from elsewhere. Japan has The Economy to reduce trade costs, including intellectual welcomed the United Kingdom, which has property rights, dispute settlement mech- Japan’s GDP for fiscal 2017 was ¥548.7 expressed its desire to become a member; anisms, labor standards, health and safety trillion ($4,988 billion at 110 yen/dollar). that presumably would take place only after rules, and direct investment measures. The share of consumption in GDP continued the Brexit process is worked out. To a considerable degree, they reflect the to decrease slightly to 55.4 percent from interests of multilateral organizations, large In reaction to Trump’s trade policy, the Abe its 59.1 percent peak in 2013. Led by the pharmaceutical companies and other intel- administration’s trade negotiations with the private sector, investment continues to be lectual property owners (especially “content European Union took on a new importance important; the gross fixed capital formation providers” and entertainment-related firms), and urgency. On July 17, Japan signed the share was 24.1 percent, having changed little international financial institutions, and other Japan-EU Economic Partnership Agreement, over the past decade. And Japan is an even powerful organizations. which eliminates most tariffs, including greater net saver, providing 4.0 percent of its Japanese tariffs on European cheese, wine, GDP in 2017 to the rest of the world in loans On net balance, most trade agreements and several other agricultural products. The and investments. Japan has persistently run are good—they enhance the welfare of the EU eliminated its import tariffs on Japanese a current account surplus, supported by the participating countries. However, Trump automobiles and reduced tariffs on auto substantial increase in dividends and interest champions an extreme version of “fair trade,” parts to 3 percent. At the signing ceremony from its foreign assets. Japan is the world’s deeming existing trade agreements to be bad in Tokyo Abe stressed the role of Japan and largest holder of net foreign assets at $3 tril- and thus to be done away with. This is not the EU as “champions of free trade at a time lion, making the government’s official foreign surprising, given his strong preference for when protectionism has spread,” a nice dig at exchange reserves $1.259 trillion. bilateral trade negotiations and deals, exem- U.S. protectionist policies. plified by his withdrawal of the United States After eight quarters of real GDP growth, in from the TPP agreement as one of his first The U.S. withdrawal from TPP has given the first quarter of 2018, a slump in per- acts as president, and now the bilateral trade new impetus for Japan to take an active role sonal consumption and housing investment negotiations. in negotiating the ASEAN-initiated, rules- resulted in a decline of 0.9 percent in GDP based Regional Comprehensive Economic (seasonally adjusted annual rate), because of Trump’s withdrawal from TPP (originally the Partnership (RCEP). The 16 members of heavy snows, slower housing investment, and 12-member Trans-Pacific Partnership) put RCEP importantly include China, India, and initial consumer reactions to business efforts Japan in a bind. Despite its large share of South Korea, in addition to the 10 Southeast to raise prices. This decline occurred despite world trade, Japan has not been a “leader.” Asian nations, Australia, and New Zealand. small increases in business investment and Now, from being a somewhat reluctant late RCEP is less stringent than the CPTPP and government demand, and a rise in exports member of TPP-12, Japan has been suddenly focuses more narrowly on market access and and the balance of payments current account called on to take leadership of the partner- rules for trade, excluding CPTPP’s standards surplus. The second quarter performance, ship. In March, the remaining 11 members

CJEB Annual Report 2017–2018 | 13 however, did even better than expected, sug- restore power to most users. It was a misera- their disintegrating buildings. About a quarter gesting the first quarter was only a one- ble summer for all too many Japanese. of the 8 million unoccupied properties has quarter blip. GDP grew at 1.9 percent in been deserted, neither for sale nor for rent. The official and private sector forecasts the April-June quarter, led by a 2.8 percent Often the ownership cannot be determined; expect growth to continue but slow down increase in consumption and 5.2 percent in the earlier owners are dead, with no heir, or to a more normal rate. The Bank of Japan business investment. heirs that cannot be reached. Even in Tokyo, (BOJ) forecast continues to be at about 0.8 where 70 percent live in apartments, one in Demography, urbanization, and evolving percent for fiscal 2019 and fiscal 2020, the ten houses are empty, a higher ratio than in values have substantially changed the way Ministry of Finance (MOF) at 1.1 percent. New York, London, or Paris. The best thing Japanese live. Of the 53.3 million households (The fiscal year ends in March of the fol- would be for local urban governments to in 2015, 28.9 percent were married with lowing calendar year.) The World Bank more tear these structures down and use the land children, down from 37.3 percent in 1990; cautiously forecasts 2020 growth at only as small parks or other public spaces, but 20.1 percent were married couples without 0.5 percent, the lower band of the estimated the legal system does not make that readily children, up from 15.5 percent; 7.6 percent potential growth rate. There are two major possible. were mothers with children, up from 5.7; concerns. The first is about the effect of the and 34.6 percent were one-person house- legislated increase in the consumption (value holds, up from 23.1 percent. One of the added) tax from 8 percent to 10 percent in biggest changes is that more married women October 2019. The Abe administration has Productivity and Innovation have been reentering the labor force, hiring already begun the process of spending two- The key to per capita GDP growth and to eco- domestics, and relying a bit on husbands, thirds of this forthcoming revenue increase nomic well-being is productivity, the increase a significant lifestyle change in more highly on new children and welfare programs, rather in real output of goods and services (GDP) educated, better-off families. than paying down the high government debt, per hour worked. Productivity growth has as envisaged earlier. The second major con- Nature mostly is kind, but in summer 2018 slowed in the past two decades in Japan and cern is how seriously Trump’s protectionist it was unkind to Japan, with earthquakes, in most developed countries, although the trade and other economic policies will hurt typhoons, and bad weather. In early July, degree of slowdown has been overestimated Japan. western Japan was flooded by unprec- because of measurement difficulties. In the edented torrential rains, causing major Urban real estate prices rose about 3 per- longer run, productivity growth depends on landslides and killing 225 people, and had cent in 2017. Tokyo is enjoying a boom in investment, including both physical capi- significant household and infrastructure dam- commercial properties and hotels. Foreign tal and improvements in skills, as well as age. It was the worst weather disaster in 36 tourism is one driver. Foreign businesses changes in technology. years. That disaster was followed by a deadly invested an estimated $12 billion in Japan’s labor productivity in 2017 was record-high heat wave lasting for several Japanese real estate. Rents in Tokyo’s five only about 65 percent that of the U.S. and weeks, which caused about 160 deaths, par- central wards are the highest since the boom Germany, and 10 percentage points below ticularly of older Japanese. Electricity prices ending in 2009. The 2020 Olympics and the U.K., Italy, and Canada. Japan’s labor shot up because air conditioning is now com- Paralympics are additional generators of real productivity growth rate between 2000 and mon, and thousands were taken to hospitals estate projects. 2017 was 1.26 percent, equal to that of for heat-related reasons. On September 4, In contrast, one dismaying reality is that Germany and more than the U.S., and sub- Typhoon Jebi hit western Japan, with high Japan has so many empty, uninhabited, stantially better than the other countries. winds and further flooding, including the deteriorating houses and properties, not only Japan has a well-educated and skilled labor Kansai International Airport, which had to in regard to farms, but also notably in urban force, a substantial stock of machinery, close down, stranding 3,000 travelers. And areas. Early postwar regulations to stimulate equipment, and other capital goods. Gross then on September 6, Hokkaido suffered its construction by taxing unused urban land fixed capital formation has increased since strongest earthquake since 1996. Electricity without a structure at six times the rate 2010 and in 2017 was 23.9 percent of GDP. was cut to all 2.95 million households. of land with a house or building now are a Its technology capabilities are strong. Backup generators maintained power at severe disincentive for owners to demolish 250 hospitals, since it took several days to Why Japan’s productivity is not higher is a

14 | CJEB Annual Report 2017–2018 puzzle. Only part of the answer lies in mea- they create. In July, the Japanese govern- companies that own buildings and other real surement problems. The output of services is ment released a new strategy to strengthen estate. measured to a substantial degree by prices. Japan’s cybersecurity. Given Japan’s perfor- Even though it is changing, one traditional Japanese have high quality services in retail mance over the past 150 years, I am optimis- stereotype is that of the Japanese salaryman. trade and in restaurants and accommoda- tic about Japan’s ability to incorporate these He is hired by his company on graduation tions, but their labor skills are ubiquitous technologies, to continue to improve its eco- from school as a full-time regular employee among Japanese, so wages are low, and nomic situation, and to make further improve- for his entire career until retirement at age prices are low. And when low-skilled, foreign ments in its regulatory apparatus. 60. He participates in the company’s senior- workers take these kinds of jobs at even ity-based system of compensation and pro- lower wages, measured output and produc- motion. He marries and has two children. His tivity fall. The Corporate Sector wife does not work at all, or only part-time. Innovation is the key to Japanese future Implicitly, most are hired for the management Japan has 958,292 incorporated business productivity growth. Japan ranks sixth in the track, though male clerks are salarymen too. enterprises. Many own subsidiaries, so there Bloomberg 2018 Innovation Index, behind Though they have similar job security and are 3.3 million corporate entities, which South Korea, Sweden, Singapore, Germany, other conditions, blue-collar workers are not employ 51.0 million people, about 91 percent and Switzerland, but ahead of the United part of the salaryman image. In fact, this of those working. Another 5.7 million are indi- States (11th). Japan ranks high in R&D salaryman stereotype never applied to more vidual proprietorships, many in agriculture. expenditures and marketing value-added, than a small proportion of the labor force, and Almost all corporate enterprises are small, but low (34th) in services sector efficiency its fundamental features have evolved. Now with paid-in capital of 10 to 100 million yen. and productivity (24th). In the multicountry women graduates are salarymen. Permanent There are 27,215 medium-sized enterprises system of protecting patents, Japan had the employment is no longer perceived as abso- (capital of 100 to 1,000 million yen), and third largest filings for patents, 48,208 in lutely guaranteed. The retirement age is 5,929 large enterprises (capital of 1 billion 2017, slightly below China; the U.S. was being increased. Nonetheless, this view of the yen or more). One-third of large enterprises first, with 50,624 filings. Of the 917,725 structure of large-firm employment persists, are in manufacturing. The corporate sector persons engaged in research, 60 percent are and so does the reality. produces the most output and provides the in companies and 36 percent in universities. most jobs; it excludes most agriculture and Corporate profits have increased significantly Japanese productivity will rise as advances some professionals, such as doctors and from 48.5 trillion yen in fiscal 2002 to 83.6 in artificial intelligence (AI), machine learning, consultants, and unincorporated small enter- trillion in fiscal 2017, and corporate cash and the use of the huge amounts of informa- prises. holdings from retained earnings are huge. tion in the Big Data sector continue. Japan Listed companies have responded to pres- As of August 2018, 3,628 Japanese compa- has near universal cell-phone coverage—the sure to increase return on equity (ROE), now nies were listed on a stock exchange, 2,103 World Bank estimates 133 phones per 100 about 9.2 percent, but they are still below on the first section of the major exchanges, persons. Virtually all Japanese between 13 their counterparts in the U.S. and Europe. and 500 on the second section. Listed firms and 50 years old use the internet. It starts One of the responses of entrenched man- produce about 45 percent of total output and with first graders entering school. Perhaps agement has been to increase dividends and provide 30 percent of employment. Listed not surprisingly, less than half of those 70 payout ratios. Another has been to sell still- companies have to make public a great deal and older use the internet. large cross-share holdings with affiliates. A of information. They are the focus of corpo- third has been to divest noncore activities. The range of effects and implications of con- rate governance and other policy concerns. Both Japanese and foreign capital manage- temporary technological change are almost They provide useful, albeit partial, stereo- ment firms are active buyers in this growing overwhelming—robotics, fintech, analysis types of ownership, management autonomy market, including such well-known American of human genomes, cybersecurity, and (loss and behavior, and terms of employment. One firms as KKR and Elliot Management Corp. of) privacy. Some Japanese companies have surprise is that only three-fifths of the large been lagging in adjusting to these realities enterprises with capital of at least 1 billion Given the employment system, senior man- and in taking advantage of the opportunities yen are listed. My guess: many are private agement in large firms is deeply entrenched.

CJEB Annual Report 2017–2018 | 15 In a February 2018 survey, a METI report not complying with specific principles. Not they are. They pay their owner-managers high suggests that in many companies, board of surprisingly, compliance is higher for compa- wages and bonuses. Most small enterprises director committees do not play a major role. nies listed on the TSE first section than on do not pay corporate profit taxes. Half (52 percent) of the compensation com- the second section, which consists of smaller The most comprehensive data on enterprise mittees meet only once or twice a year, as do companies. To what extent these principles entry and exit are for establishments with almost half (46 percent) of the nominations are being applied in practice is not clear. employees, identified as paying employee committees. A usual board meeting lasts SMEs (small and medium enterprises) are a insurance. During fiscal 2016, 119,780 less than two hours (90 percent of meetings); fundamental strength of the Japanese econ- enterprises were established, and 75,307 55 percent take an hour or less. The biggest omy. (There are statutory definitions of what exited. This is presumably comparable to the change in the male-dominated management an SME is. The criteria relate to employment 5.2 percent entry rate and 3.8 percent exit system is the hiring of female college gradu- size and capital and vary by industry, with rate in fiscal 2015 of all establishments. ates into the management-track cohort and trade and services having lower upper limits Only 8,446 firms in 2016 went through for- their promotion to higher positions, but this is than manufacturing and other activities.) mal bankruptcy. A different source indicates a slow process. SMEs are in all sectors, industries, and that profitable enterprises closed (or were Corporate governance reform, an Abe occupations. They generate 55 percent of sold) because of the owner-managers’ age, of objective, has made gradual progress. It is corporate output and provide 70 percent of whom four-fifths were 60 or older. impressive how companies have responded employment. They encompass a wide vari- The founders of successful SMEs that are to pressures to have at least two indepen- ety of firms and activities in manufacturing 5 to 10 years old typically had substantial dent outside members of the board. In 2011, and services. They provide goods and ser- work experience before establishing their only 15 percent of first section companies vices in supply chains to larger companies, company: 30 percent are in their 50s and had two or more independent directors. As of including exports; they engage in major retail 26 percent in their 40s. SMEs have greater 2017, only 12 of the 2,610 companies on and wholesale activities; and they provide difficulty in hiring than large enterprises, and the first and second sections had no outside professional services. SMEs have their less they rely more on women and older workers. directors; 90 percent had two or more. Not obvious weaknesses. A hard-to-estimate but They have benefitted from the increases in all outside directors are independent, but significant number are zombie firms, avoiding the numbers of married women returning to 86.4 percent have two or more independent bankruptcy only because their banks and the labor market, and older workers continu- directors. The 2014 Stewardship Code, other creditors do not want to record losses, ing after their retirement from larger com- revised in 2017, which embodies principles or the elderly owner-managers are hanging panies. But as slack is more fully absorbed, for corporate governance reform, continues on by slowly drawing down family assets. SMEs suffer labor shortages, already a major to have more institutions signed on, and they It is difficult to know much about SMEs complaint. do so with FSA and stock exchange encour- because they are privately owned. It is rel- agement. One hundred sixty-six asset man- A major problem for successful SMEs is atively easy for them to provide misleading agement companies have signed on, 6 trust succession of leadership. Many are led by data. Cash is still widely used in Japan; banks, 22 insurance companies, and now 32 their now-elderly founder or his elderly suc- currency in circulation in March was 19.8 pension funds and corporate pension plans, cessor. Particularly in small towns and local percent of GDP, higher than most advanced breaking through earlier resistance. areas, ambitious young people leave to take countries. The financial statements of small advantage of opportunities in the Tokyo or The Japan Exchange Group (JPX), which enterprises, both in manufacturing and Osaka areas. With no heirs to take over the owns the Tokyo Stock Exchange (TSE) and services, indicate they always have been company, current top management has to other major Japanese exchanges, strongly substantially less profitable than similar large train a worthy successor, sell to a large firm encourages its listed companies to comply firms. This is partly because they are less or another SME, or close. with the 2015 Corporate Governance Code. efficient and do not achieve economies of As of July 2017, 26 percent of the compa- scale. They often do not have access to, and To survive, SMEs must adjust to changes in nies complied with all 73 principles, and 63 cannot afford to hire, the best workers. Very the nature and structure of their economic percent with 90 percent or more; 74.1 per- good SMEs typically are quiet about their environment. Small mom-and-pop retail cent of the companies provided reasons for success, though locally everyone knows who stores and restaurants are being replaced by

16 | CJEB Annual Report 2017–2018 chains of convenience stores and fast-food age females rose from 76.4 percent in 2010 discrimination has been gradually lessening. chains. Domestic supply chains are being to 80.2 percent in 2016. With more mar- Thus, wages and incomes in the same spe- replaced by foreign supply chains. Large firms ried women soon reentering the labor force cific profession or job apparently are not invest more abroad than at home. after their children are born, the traditional very different by gender; at this fundamental M-shaped participation rate by age—in which micro level, the labor market apparently Twice a year I go to Japan and spend several there is a significant drop between ages 25 works relatively effectively. However, women days in some local area, meeting with local and 40—has almost disappeared. do not have equal access to high-income companies. Many robustly provide services occupations; working long hours until late in specific to their local customers; others Japanese men on average earn about 25 per- the evening has been a predominant feature have a strong technology or a very specific cent more than women, substantially greater of the male-oriented, managerial culture of product, even leading to significant global than the average for OECD countries of just large firms. market share. Yet many are led by strong under 15 percent. In part this is because entrepreneurs. All have very good, extensive 77.6 percent of men are regular employ- One of Japan’s surprises is that wages and relationships with their local business and ees, while only 44.8 percent of women are. cash earnings until recently have barely risen, broader community. They are respected. They Regular full-time employees receive signifi- only 0.4 percent in 2017, less than the 0.6 will persevere. cantly higher wages than nonregular workers, percent increase in the CPI. The spring 2018 especially part-time workers. Work/nonwork wage offensive negotiations resulted in an patterns are different for most men and increase for all enterprises as of July of 2.07 women at all working ages. percent, slightly better than the 1.98 percent Labor in 2017; the increase for SMEs was 2.02 Women much more than men have the As of June 2018, Japan’s labor force was percent, up from 1.87 percent. responsibility of being the caregivers for their 68.6 million, of whom 66.9 million were children, as well as caring for both their own Aggregate data always mask differences working, primarily as employees. Males num- and their husbands’ parents. Accordingly, by industry, location, and a range of other bered 34.3 million (97.4 percent employed), they seek employment with shorter working specific variations. With tight labor markets, females 30.2 million (97.6 percent hours, limits on overtime, and greater flexibil- some companies have promoted some con- employed). Major concerns are differences in ity in their time off from work to handle family tract employees to regular staff, although at specific labor markets for regular and nonreg- emergencies. lower wages than other regular employees. ular employees and for males and females. A 2017 survey indicates that 14.3 percent Men are paid more and treated better than As a result, women are often in low-paying of nonregular workers want full-time regular women. The 35.0 million regular employees occupations and jobs. They comprise half positions. So the supply of regular workers is have substantially higher wages and better of workers in the service sector. In 2017, not tight. Regular employees are concerned benefits than the 21.0 million nonregular females were 75 percent of the labor force about the long-run survival of their company, employees who are contract, part-time, or in medical, health care and welfare; 61 per- and even the unions and their voice, RENGO, temporary workers. cent in accommodation and restaurants; 59 have not pushed for wage increases. percent in the charmingly-titled living-related Between 2012 and 2017, the number of and personal business and amusement ser- The hourly wages for nonregular workers Japanese of standard working age (15–64) vices; 58 percent in education; and 51 per- are market and location sensitive. In 2017, decreased by 4.5 million, but the labor force cent in wholesale and retail trade. They were the average hourly wages were ¥1,154 for increased by 1.6 million and those working by only 27 percent of workers in government. men, an increase of 1.8 percent, and for 2.5 million. Some 8.1 million Japanese, 23 Women comprised 68 percent of service women ¥1,074, a 1.9 percent increase. Age percent of those 65 and over, continue in the workers, 60 percent of clerical workers, and counts more for men than for women. Men labor force. The participation rate of those (to my surprise) 47 percent of professional aged 40–44 were paid 21 percent more in the working age group, notably among and engineering workers. than men aged 20–24; for women the peak women, has risen. was at 35–39, 12 percent higher than the Although Japanese women continue to Almost 71 percent of married women are 20–24 group. At their respective peaks, men be discriminated against by the way spe- working. The participation rate for working were paid 11 percent more than women, cific labor markets are structured, the

CJEB Annual Report 2017–2018 | 17 presumably because of job differences. directed at them by the media, has been overtime hours at a lenient 100 a month, and reflected in the embarrassing disclosure on 80 hours on an average of several months. The monthly starting salaries for new August 2 that Tokyo Medical University had male university graduates in 2017 was Foreign workers play a limited role in Japan. been systematically discriminating against ¥207,800, 3.0 percent higher than in In 2017, Japan had 1.279 million foreign female applicants to keep their level at about 2012. Female graduates in 2017 started workers, an increase of 18 percent over 30 percent, probably since 2010. at ¥204,100, 3.9 percent above 2012. 2016, but only 2.0 percent of the total labor Over the past two decades, the male-female Abe’s target of increasing the share of force. About 497,000 foreign workers are starting-wage gap has narrowed slightly, women in leadership positions to 30 percent permanent residents or spouses of perma- but it has always been small. These gender by 2020 is unrealistically ambitious for posi- nent residents. From 2012 to 2017, Japan differences in starting wages are also true tions even in government and politics. Only had an inflow of 2.5 million foreign workers. for new high school graduates. Educational 10 percent of Diet members are women, Most returned home after their contracts attainment is important. In 2017, the male and the level is similarly low in local elective expired. Seventy-one percent were students, high school graduate’s starting wages was bodies. There are no women in 32 percent of in intern training programs, or professional 79.0 percent of a male university graduate; town and village assemblies. Only 10.3 per- and technical specialists. Almost all foreign for females 77.5 percent. As length of ser- cent of section managers in Japanese com- workers are Asian—29 percent from China, vice increases, the gender-wage differential panies are women, primarily in family-owned 19 percent from Vietnam, and 11 percent widens significantly. corporations. Only 3.7 percent of executives from the Philippines. Brazilians of Japanese in listed companies are female, far below extraction, more important earlier on, are Summer and winter bonuses are a major other OECD countries. now 9 percent of the total. component of total remuneration of employ- ees, particularly in large enterprises, but One notable aspect of Japanese male- Most foreign workers are not immigrants. in SMEs as well. The bonus is calculated in based corporate work culture has been the They are on three- to five-year contracts that terms of the number of months of scheduled very long hours white-collar workers spend can be extended, but they cannot readily wages it relates to. The general level is tradi- at work, often to 9:00 p.m. or later. While become permanent residents. Of Japan’s tionally formulaic, but there is some flexibility declining over time, in 2016 some 15 per- total population of 126.7 million, 2.6 million based on a company’s current performance. cent of men in their 30s and 40s worked (2.0 percent) are foreign residents. Japanese The winter 2017 bonuses for major enter- more than 60 hours a week. Bringing an end realize they need foreign workers, especially prises was equal to 2.43 months of salary; to such overwork, as it is termed, has become for low-skilled, low-wage jobs, and they are the summer 2018 bonus was 2.44 months, an important issue in the current labor generally accepted, if not warmly welcomed. essentially unchanged from the previous year. market environment. Young men think quite However, as an ethnically homogenous differently from their grandfathers. Working people with their own language and a deep Japan ranks 21st of 159 countries in the late is inconsistent with womenomics; and it culture, Japanese are not willing to accept UN gender inequality index, and a startling probably is not very productive. Indeed, firms large numbers of foreigners as permanent 114 of 144 in the World Economic Forum’s that have regular white-collar workers leave residents. The immediate challenge of labor gender gap index. Abe has addressed this work some two hours earlier than before have shortages can be handled by encouraging in his program of womenomics, to increase apparently not suffered a decline in output. even more elderly and married women to Japanese female labor force participation Shorter hours have presumably led employ- work, and by continuing the policy of moder- and to increase the very low numbers of ees to work a bit harder and more efficiently, ate increases in foreign workers. women in responsible positions in both and to spend less time in meetings. These the private and public sectors. As part of increases in productivity per hour are real this program, there is even a minister for but difficult to determine, in part because gender equality. However, the womenomics white-collar output is difficult to measure. Government Economic policy aims to get more women to work and Policy increase the GDP growth rate. It does not I do not expect the hours Japanese are at focus on gender discrimination and equal- work will decrease to U.S., much less to By many measures, the Japanese economy is ity. How deeply rooted Japanese behavior European, levels, legally or de facto. The Diet doing well: full employment, reasonably good and institutions are, and the attention now in June passed legislation capping allowable growth, and an ending of deflation. However,

18 | CJEB Annual Report 2017–2018 Abenomics, now in its sixth year, has yet Monetary Policy (capitalization-weighted, it includes all com- to achieve its three ambitious major goals. panies listed on the first section of the Tokyo Price stability, defined as a 2 percent annual That the BOJ’s sustained extraordinary easy Stock Exchange in its purchase of ETFs). increase in the CPI, remains far more difficult monetary policy has yet to succeed in raising Governor Kuroda at the press conference fol- to achieve, despite the continuation of the the CPI to a 2 percent rate has been a dis- lowing the meeting indicated the upper limit Bank of Japan’s very easy monetary policy as maying reality. At least it has succeeded in to the 10-year JGB yield will be about 0.2 Governor Haruhiko Kuroda began his second bringing CPI decreases to an end. Monetary percent. five-year term in 2018. Fiscal stability, mea- policy has been steady, strong, and reliably sured as ending deficit spending and achiev- predictable. However, Japanese expecta- Japan’s super-easy monetary policy will per- ing a government’s budget primary balance tions, based on surveys of financial market sist so long as consumer prices do not rise. of zero, has been further postponed to 2025 participants, firms, economists, and house- The great uncertainty is when labor markets at the earliest. Structural reforms through holds, are that prices will increase only about will become sufficiently tight that firms will deregulation and other measures proceed, 1.2 to 1.3 percent annually over the next 5 to raise wages and prices. This continues to be but slowly due to the opposition of powerful 10 years. Probably the scheduled increase in Japan’s great macroeconomic challenge. vested interests. The 2 percent GDP growth the consumption tax from 8 to 10 percent in target by 2025 is unrealistically optimistic; October 2019 is one reason for the low fore- The sustained low interest rate policy the baseline case projects growth at about cast. Another is global price stability, rather adversely affects Japanese banks. Banks 1.2 percent to 2025 and 1.1 percent in than inflation. A third may be lack of optimism have substantially more deposits than they 2027. The government optimistically contin- about Japan’s economic future. can lend, even at very low rates; and despite ues to pursue price and fiscal stability, while their low rates, they do not have enough The BOJ, which for some years had repeat- developing a focus on achieving faster growth creditworthy domestic borrowers. They are edly announced that its 2 percent target through continued technological advance. In gradually relaxing their credit criteria, and would be achieved within two years, no longer November 2017, the government announced loans are now increasing. Many inefficient sets a date. The forecast of its Monetary its New Economic Policy Package, with a local banks have merged; those remaining Policy Board for 2020 is 1.6 percent, with major focus on productivity improvement continue to adjust their business models in four members forecasting a rate below that though further regulatory changes, and the order to survive. and only one above at 1.9 percent. promoting of knowledge (a wonderfully vague Now-rising U.S. interest rates mean that pur- term). In May 2018, METI presented its inter- The BOJ’s basic implementation of its very chase of U.S. Treasuries and other financial nal policy proposal to the Industrial Structural easy monetary policy with negative short- assets are attractive. It is notable that Japan Council general meeting, focusing on open term interest rates and very low longer-term Post Bank, the world’s largest deposit-taker, innovation, a rules-based leading strategy to rates has not changed. Its negative interest from March 2007 to March 2018 reduced its oppose protectionist measures (in reaction to rate since January 2016 on a limited pro- holdings of JGBs from 88 percent of its port- Trump), and revitalization of SMEs (domestic portion of commercial bank deposits in the folio to about 30 percent, and its investment policies, including inbound tourism). Flagship BOJ has sustained the overnight call rate at a in foreign securities went from 0.1 percent to projects include driverless cars by 2020 and minus 0.07 percent in June, and three-month 28.5 percent. a nationwide health care information network and six-month treasury bill rate at minus 0.13 to make available individual health records percent. Newly issued 20 year Japanese gov- The major commercial banks and regional and medical histories. It will take some years ernment bonds (JBGs) in June yielded 0.495 banks during this period also purchased for these policies to be accepted and imple- percent. foreign financial assets, notably bonds. mented. Key will be constructive business However, as the U.S. Federal Reserve Board The BOJ tweaked its policy in its July responses to the challenges and opportuni- implements its policy of increasing interest 30–31 meeting by slightly widening the ties of the digital revolution. rates, Japanese (and all) holders of U.S. range of fluctuations in 10-year JGB Treasury and other financial claims are sub- yields, and by increasing the weight of ject to paper losses as bond prices decline. stock market exchange traded funds (ETFs) Selling to take smaller losses now on some to include the TOPIX stock market index foreign bonds, as Japanese regional banks

CJEB Annual Report 2017–2018 | 19 did in the second quarter of 2018, reflects for the past two decades has been that but that will not happen, since the labor sup- an ongoing portfolio composition challenge private sector demand has fallen well short ply will decrease. for asset managers. of private savings, so the government has The high government debt ratio will persist, had to provide fiscal stimulus through deficit but I optimistically believe that well before financing. The fiscal 2018 budget is for 97.7 it becomes an insurmountable problem, the trillion yen expenditures and 64.1 trillion yen government will adjust its economic policy. Fiscal Policy of tax and other revenues. The shortfall is This is the view reflected in Japanese financial Central and local government expenditures covered by new government bond issue of markets. The interest rate in JGBs continues were 39.5 percent of GDP in fiscal 2017. 33.7 trillion yen, only slightly less than in the to be below that of U.S. Treasuries. Japan is a This figure includes social security expendi- 2017 budget. safe haven. It will continue to be so. tures equal to 23.8 percent of GDP and inter- Accordingly, the budget primary balance est costs on 2.9 percent. is a negative 2.9 percent of GDP in 2018. The central government has a strong bureau- While the Abe administration had projected Foreign Economic Relations cracy that budgets the funding for the wide the budget primary balances deficit to be range of standard services—education, reduced to zero by 2020, that target has Japan is necessarily a major player in the the national health system, welfare, and been delayed to 2025, using very optimistic world economy, given its size, virtual absence national security. Defense expenditures will assumptions about nominal GDP growth. The of natural resources other than agricultural continue to be about 1 percent of GDP as target will not be reached. land, and saving higher than domestic invest- Japan depends on its alliance with the United ment. It is the world’s fifth largest importer One group of specialists is deeply concerned States. Of the government’s fiscal 2018 of goods and services, and fourth largest that Japan will have a fiscal crisis because general accounts budget of 97.7 trillion exporter. Japan’s largest trading partner, gross government debt is 253 percent of yen (17.5 percent of projected GDP), one- with $129 billion in total trade, is the United GDP, far higher than that of other advanced third (33.7 percent) is for social security, States. Japan’s second largest, at $120 bil- countries, and because fiscal deficits and fur- mainly pensions, medical care, and long-term lion, is China. Japan is the second largest for- ther government bond issues persist. In their care. The assumption (value-added) tax will eign direct investor in the U.S., after the U.K. view, Japanese and other holders of JGBs will increase in October 2019 from 8 to 10 per- Japanese automobile firms produce twice as come to believe that the government will not cent, as already legislated. However, food many cars in the U.S. as they export to the be able to service its debt, much less pay it is excluded from the increased tax, so the U.S. from Japan. down. In contrast, another group argues that actual tax increase on consumption will be Japan needs more fiscal stimulus to achieve Merchandise exports increased 10.8 percent about 1.5 percent. more rapid growth, since the high government in fiscal 2017, contributing 14.4 percent to Increases in welfare costs are a major con- debt ratio is not a serious problem. GDP. Though slightly less at 14.0 percent of cern. With an increasing elderly population, GDP, imports increased even faster at 13.7 There are four ways for Japan to reduce its particularly with a significant increase in percent. Reflecting foreign growth, machinery ratio of government debt to GDP. Two will those 75 and older starting in 2022, by and other capital goods exports increased not happen in Japan: very high inflation to 2025 medical care costs are projected to significantly. About 40 percent of merchan- reduce the real value of JGBs and govern- rise by 50 percent and long-term health care dise imports are food, energy, and other natu- ment default. The other two are to run a fiscal by 140 percent, resulting in a projection that ral resources. surplus and to raise real GDP growth. To run total social security expenditures will account a fiscal surplus makes sense only if private As already discussed, Japan is playing a for 24.4 percent of GDP. Either welfare aggregate demand is so strong that fiscal leadership role in a number of free trade benefits will have to be reduced, or taxes stimulus is no longer necessary. However, a agreements, notably TPP-11 and RCEP. Much increased beyond the consumption tax hike in fiscal surplus can only be achieved if taxes depends on the course of Trump’s trade policy October 2019. This intergenerational policy are increased. With increasing social security toward Japan. challenge will not be resolved soon. expenditures, some tax hikes are necessary, Japanese companies, with huge cash hold- Japan’s key macroeconomic policy challenge but always are politically difficult. Increasing the GDP growth rate is certainly desirable, ings, have invested more abroad than at

20 | CJEB Annual Report 2017–2018 home. They have developed extensive pro- Most of the foreign visitors are Asian, since it takes years for the distribution of sources duction supply chain operations, notably they are relatively nearby and may have rel- to change significantly, and in the shorter to the U.S. and China. Automobiles are the atives living in Japan. That is probably why term the process is erratic. prime example. Japan outward FDI in 2017 visitors from South Korea were 24.9 per- Japan is the world’s third largest consumer of was the second largest (after the U.S.), cent of the total, and Taiwan 15.9 percent. oil, but far smaller than the U.S. and China; amounting to $160 billion (up from $145 Nonetheless, visitors from China continue to its global share was 4.1 percent in 2017. Oil billion in 2016). Cumulative investment in the be the most, at 25.6 percent. Japan, partic- consumption decreased 2.5 percent annu- U.S. is valued at $469 billion, 11.6 percent ularly the ski slopes in Hokkaido, attracted ally over 2006–2016. In contrast, natural of the total; in China the total is $118 billion, 33,900 Australians; while they were only 1.7 gas (LNG) consumption has increased at a plus another $29 billion in Hong Kong. percent of the foreign visitors, they were the 2.5 percent annual rate; Japan globally is biggest spenders per capita. Chinese were Investing has its challenges. In the U.S., the sixth largest consumer, at 3.2 percent second; in addition to gifts to take home, they Trump’s protectionist actions and threats in 2017. Coal is dirty but cheap for electric bought high-quality rice and other foodstuffs, raise the costs of Japanese individual goods power generation, and higher quality coal is since these are even more expensive in suppliers in Mexico, Canada, or elsewhere. In essential for steel production. Coal consump- China. However, when the yen strengthened China, it is a combination of rising labor costs tion between 2006 and 2016 increased at in 2016, foreign spending, not surprisingly, and more-intrusive Chinese government poli- a 0.6 percent annual rate, despite environ- temporarily declined. cies that make it a less attractive location for mental policies. In 2017, Japan was the third new FDI. Working with local government, the central largest coal user, but its 3.2 percent global government actively promotes foreign tour- share was eclipsed by China at 50.7 percent Japan’s stock of FDI in 2017 was 30.1 ism, with a target of 40 million by 2020. and the U.S. at 8.9 percent. However, Japan percent of its GNP. Given its early history Japan now hosts a wide range of business is the only G-7 country planning new coal- of restrictions, the stock of foreign direct and other international conferences. Tourist based power plants, with 15 under construc- investment in Japan is 4.1 percent of its visas have become easier to obtain, and the tion and 17 in the planning stages; its new GDP. Japan is not among the top 20 recip- Japanese travel agency business is buoyant. technology substantially reduces but does ients of FDI inflows. The U.S. is the largest not eliminate CO emissions. recipient, but flows dropped 40 percent from 2 2016 to 2017. OECD data indicate a global While oil consumption by vehicles is a major fall in FDI of 18 percent, and 24 percent Energy energy consumer, attention appropriately from the 2015 postrecession high. focuses on electric power, since it can be Energy has long been Japan’s greatest eco- generated by every energy source. Rapidly Japan has a well-developed tourist indus- nomic vulnerability. It has to import all its oil changing technologies and costs put pres- try, with a wide range of good hotels, other and natural gas. In 2017, these comprised sure on electricity producers and government accommodations, restaurants, and other 89.7 percent of Japan’s total energy con- policymakers. facilities, and excellent trains and other travel sumption. services throughout the country. Two-thirds While Japanese electricity consumption Hydroelectric provided 3.9 percent, other of the tourists in Japan are Japanese visiting increased 2.0 percent in 2017, it decreased renewables (solar and wind predominantly) other parts of their own country. I focus here at a 1.5 percent annual rate between 2008 continue to increase, and together were 4.9 on foreign tourists coming to Japan, since the and 2016, attesting to conservation by percent. Nuclear is only 1.4 percent. Japan is numbers have increased dramatically: 27.8 users. In 2017, 39.4 percent of Japan’s elec- the world’s fifth largest consumer of energy, million in 2017, up from 5.2 million in 2003. tricity was generated by LNG, 33.6 percent but 32nd on a per capita basis. Oil is the larg- Tourists will increasingly flow into Japan for by coal, 7.8 percent by hydroelectric, and 9.7 est energy source (41.3 percent in 2017), the 2020 Tokyo Olympics. percent by other renewables combined. followed by coal (26.4 percent) and natural For foreigners visiting Japan for the first time, gas (22.1 percent). Rapid technological Nuclear energy is a major political issue, it can be a good, eye-opening experience, change is a key feature of the energy indus- particularly following the earthquake in helping to improve bilateral relations at a per- try. However, because installed capacity has 2011 that severely damaged the Fukushima son-to-person level, despite language barriers. such a long life, under normal circumstances nuclear plant, leading to the closing of all

CJEB Annual Report 2017–2018 | 21 nuclear reactors. Nuclear power is relatively batteries will presumably replace lithium-ion Almost all poverty-stricken women with efficient, and it does not emit carbons, but batteries. children were once married but are now many Japanese fear other accidents. New, spouseless—divorced or abandoned. Most stringent safety rules were established, and work. About 7 percent of women with regular 9 of the 40 commercially operable nuclear jobs live in poverty, and 6 percent of men. Of plant centers have been relicensed. Nuclear Poverty women in nonregular jobs, 30 percent in the power operation increased in 2017 once six Most Japanese have safe, comfortable, 25–34 age group are in poverty, rising to 52 plants resumed operations. Two and possibly stable lives. They live in a prosperous coun- percent for those 30–44. three more plants are scheduled to resume try, ranking in the middle of the 34 OECD Food insecurity is a problem for pover- operations by the end of 2018. Over the next advanced countries. Still, poverty continues ty-stricken people. In a 2012 survey, 14.8 few years, the major question is how many to be a significant reality. Data on poverty are percent of respondents indicated that in the more of the existing plants will be approved less comprehensive than for most other eco- past year there had been times when they and reopened. The long-run issue is whether nomic topics, and, as in all types of estima- were unable to provide food for their family. to install the new nuclear technologies that tions, there are measurement issues. Poverty The private food bank Second Harvest Japan are smaller scale and more efficient, or to is the consequence of complex interactions estimates that of the 2.3 million they deal forgo the use of nuclear power. among economic, social, family, and personal with who are worried about having sufficient circumstances. There is no single major Renewables are increasing rapidly, at a 12.5 food, the elderly comprised 70 percent, sin- cause. Having been raised in a poor family percent annual rate since 2016, but still con- gle-mother households 20 percent, foreign is one factor, especially if parents have not stitute only a minor share of Japan’s energy households 9.8 percent, and 0.2 percent been positively involved. Native ability and consumption. Costs have continued to drop homeless. motivation are important. As our emphasis significantly, and they are becoming compet- on education suggests, not much attention Private charitable contributions supplement itive with building new coal and gas electric is paid to those Japanese who do poorly in government welfare programs in a range of power plants. Technology improvements have school, or do not complete high school. They fields. Japan has 40 food banks, which col- cut solar costs by 28.5 percent for every are the marginal, the powerless, the ignored. lect food from corporations to distribute to doubling of PV (photovoltaic) capacity, and orphanages and other welfare institutions, wind costs have been going down at about In its economic as well as other dimensions, individual programs for poor mothers and 10 percent annually. poverty is relative; only a small number of their children. Another type of volunteer Japanese are absolutely destitute. An esti- Within a decade, wind and solar are expected program makes free or inexpensive children’s mated 16 percent of Japan’s population to be a cheaper source of electricity than meals available, mostly once or twice a (about 20 million) are in relative poverty, existing plants, and sooner than that for older month, and some daily on school days. There using the OECD definition of having an plants. Solar and wind will eventually play a are more than 2,200 such local organiza- income less than half the national median major, but not overwhelming, role in Japan’s tions. income. Most in relative poverty are either energy future unless inexpensive energy elderly individuals or single women with chil- Early in the postwar period, Japan estab- storage systems become available. Japanese dren. lished what came to be termed the Six electricity consumption is greater in the eve- Welfare Laws: helping the physically disabled, ning than in daytime, but the sun is down, and The elderly in rural areas have better social the mentally disabled, the elderly, children, winds are erratic. safety nets than those in large urban areas. single parents (mostly mothers) with children, Those living in small rural villages can move So far, lithium-ion batteries are the main way and those widowed. The Abe administration to retirement housing and related facilities, to store electricity generated by renewables. has sustained government welfare programs, including medical care, in nearby towns. Poor Significant improvements in technology and Abe has committed the 2019 expected elderly single or widowed men in cities are a have reduced their cost by 80 percent since revenue increases to nursery school and particularly at risk. Government programs, 2010, and their costs will continue to drop. other child welfare programs. National health including free medical care and long-term Within another decade or so, small, efficient care and education programs are inclusive; care, help make their lives better. solid-state batteries or other new types of they are central in alleviating poverty.

22 | CJEB Annual Report 2017–2018 In its meritocratic society, education is the advanced countries to an aging and declining enough, flexible enough, and able to organize major way by which Japanese can become population. Perhaps most importantly, East themselves well enough that our great-, more successful. Education is the main Asia’s political and security uncertainties and great-, great-grandchildren will thrive. escape route for poor children. Education is anxieties—the rise of North Korea as a secu- October 8, 2018 compulsory through age 15, and most con- rity threat and the implications of the rise of tinue in regular or technical (vocational) high China as a regional hegemon—appropriately schools. But to escape, poor children have to warrant more attention and concern than do reasonably well. Subsequent formal and Japan’s economy. informal on-the-job programs help. Ability, The Japanese economy has four puzzles that occupation, and lifestyle also determine I have not fully addressed. Why is Japanese whether young Japanese escape poverty. productivity only 65 percent of that in the Nonetheless, since poverty is a relative U.S.? How do we accurately measure output concept, it may decline in absolute severity and productivity in a service-based internet, but will not disappear, as even the most smartphone, digitalized economy? Why is welfare-advanced Scandinavian countries there full employment, yet wages for regular demonstrate. workers are barely increasing? Why, despite many years of effort, the extraordinarily easy monetary policy, and ongoing govern- Conclusion ment budget deficits, has the targeted 2 percent annual increase in the CPI not been Japan has a strong, well-performing econ- achieved? omy in a domestic environment that is both safe and economically, politically, and cul- In the foreseeable future, Japan’s greatest turally stable. Its basic assets are its people challenge is how to adjust well to its demo- and its accumulated capital. Japanese are graphic transition to a smaller and older well-educated, skillful, diligent, hardworking, population. So far it has done pretty well. pragmatic, and comfortably ambitious. They Two foreign challenges are how to deal with make me optimistic about Japan’s future. a rising China and an ongoing reduction of Japan has a large capital stock. Physical the hegemonic power of the U.S. Yet Japan’s capital includes housing, fixtures, buildings, greatest threat is the risk of a massive roads, and other infrastructure. More broadly earthquake destroying much of the Tokyo or defined, capital includes Japan’s high level of Osaka areas. This has been true throughout technology and its strong economic, social, Japanese history, and the country has recov- and other institutions. ered in every instance. Climate change poses new challenges—the millennia of warming Japan is the world’s third-largest economy, a since the last ice age, which helped make major trader and investor in the international modern civilization possible, is now seen as economic system, and a model of success- a threat, as well as an abuse of human stew- ful economic performance. Why does its ardship to the extent it is produced by human economy no longer attract so much general activity. interest? This is partly because it is politically and economically stable and relatively pre- In the very long run, Japanese, like most dictable, particularly in contrast to the dra- humans, will live longer and better because matic rise of China. Another is because not of improvements in medical and other tech- enough attention is paid to Japan as a leader nologies. I optimistically believe humans— in the inevitable demographic transition in Japanese, Americans, everyone—are smart

CJEB Annual Report 2017–2018 | 23 Current Research Highlights

From left to right: David E. Weinstein, Gerald L. Curtis, Merit E. Janow, Takatoshi Ito

CJEB places high priority in promoting in individual banks result in aggregate loan frequent speaker at think tanks, universities, research related to the Japanese economy, volatility and investment. He is also working business and financial organizations in the businesses, management systems, and on a project with the Bank of International United States, Australia, China, Korea, and financial markets. Typically, the Center’s core Settlements on the global demand and sup- Europe, and is a participant in numerous faculty members obtain funding individually ply of bank credit, which uses confidential track two policy dialogues with and in Japan, through competitive outside grants, as well banking data to understand the global trans- China, Taiwan, Korea, and the United States. as additional financial and administrative mission of banking system shocks. In addition to his academic writings, he reg- support from the Center in order to facilitate ularly publishes op-eds for The Wall Street In addition, Professor Weinstein has been their research. Journal, the Financial Times, and numerous working on understanding the fiscal problems publications in Japan and elsewhere. He is David E. Weinstein leads the Center’s that Japan is facing and why they have not a frequent guest on Japan’s Sunday morn- research activities and has several individ- resulted in a crisis. This research aims to bet- ing news programs and is widely quoted by ual projects under way supported in part by ter understand how Japan has managed its international media outlets on issues relating the National Science Foundation (NSF), the demographic transition. to Japanese politics and society and U.S. Institute for New Economic Thinking (INET), Professor Weinstein has also been working foreign policy. and a Google Research Grant. Professor with data from Rakuten to analyze the impact Weinstein’s research and teaching focus on Takatoshi Ito contributes to the Center’s of ecommerce on prices and employment international economics, macroeconomics, research activities and has several individual in Japan and is researching how barcode corporate finance, the Japanese economy, ongoing research projects. Professor Ito’s and other big data sources can be used to and industrial policy. In addition to his role as research and teaching focus on international understand firm, price, and macroeconomic CJEB’s director of research, he is the director finance, foreign exchange market microstruc- dynamics. He has a project that uses con- of the NBER Japan Project, and the exec- ture, Asian financial markets, inflation target- fidential Census trade transactions data to utive director of the Program for Economic ing, and the Japanese economy. Professor understand trade patterns in general and the Research in the Department of Economics at Ito also maintains a teaching and research sources of Chinese success in international Columbia. Professor Weinstein was also the position during the summer at the National markets. chair of Columbia University’s Department of Graduate Institute for Policy Studies in Tokyo. Economics. Professor Weinstein’s research is often cited He has carried out a series of research proj- and discussed in the media, and he is a fre- ects on the dynamics of the exchange rates In 2017–2018, Professor Weinstein contin- quent commentator on Japan. in various time spans and frequencies. He ued his research on systemic financial risk in has done macroeconomic analysis of the yen/ Japan. He has a major project underway that Gerald L. Curtis’s main research includes dollar exchange rates after the rate floated in aims to illustrate how banking crises affect the evolution of and future prospects for 1973. Currently, he is examining the micro- aggregate investment. This paper, which Japan’s political system and foreign policy. structure of the foreign exchange markets was published in April 2018 in The Journal In this regard, he has traveled extensively using a tick-by-tick dataset, which contains of Political Economy, shows how problems throughout East and Southeast Asia. He is a all firm quotes and deals in a computerized

24 | CJEB Annual Report 2017–2018 order-matching engine. He is researching policy advice related to, economic and finan- Governance and Stewardship reforms, avail- how particular institutions and rules in the cial issues in Southeast Asia, in particular able on the CJEB website. She has been a market influence pricing and deal activities. Thailand, Indonesia, Korea, and Myanmar. He featured speaker on corporate governance continues to visit these countries to engage at several NPOs this year, including the His work on the Japanese economy includes in academic and policy discussions. He has American Chamber of Commerce in Japan, both macro- and microeconomic aspects of been doing research, as well as teaching, the Council of Institutional Investors, the the economy. On monetary policy, he was a on inflation targeting and exchange rate Japan Securities Dealers Association, and proponent of inflation targeting in Japan, long regime and financial and capital markets the International Corporate Governance before the Bank of Japan finally adopted it in development in the Asian emerging market Network. The Project on Japanese Corporate 2013. He is investigating transmission chan- economies. Governance and Stewardship organized sev- nels and the effects of quantitative easing eral events at Columbia this year, including adopted by the four major central banks. On Merit E. Janow, appointed dean of the a debate between Michael Garland of the fiscal policy, he has been analyzing the debt School of International and Public Affairs NYC Comptroller’s Office and Ken Hokugo of sustainability of Japanese government debts. (SIPA) in 2013, undertakes research on inter- Japan’s Pension Fund Association on the role He has been conducting a simulation analysis national trade, finance and investment, the public pensions play in promoting better cor- of a menu of fiscal consolidation with varying digital economy, and the intersection of those porate governance. degrees and speeds. On growth strategy, he areas in Japan and China. Over the past investigates various reform plans in regulated three years, she has spoken to international Hugh Patrick continues his study of Japan’s industries from agriculture and education to corporate, academic, and policy audiences on current economic performance, monetary medical and health care. He combines theory topics including financial regulatory reform policy, and institutional changes. His most and empirical research and derives policy in the United States, developments in inter- recent paper is his annual essay on the implications. national trade and investment, comparing current Japanese economy, included in this Chinese and Japanese industrial policies and annual report, starting on p. 10. He is an He belongs to a research group at the policies around high tech and digital, and active participant in a range of conferences Research Institute of Economy, Trade, corporate governance issues. As dean, she about Japan and Asia. He made trips to and Industry, which examines Japanese also has initiated a number of new initiatives Japan in fall 2017 and spring 2018, and to exporters’ decisions to pass through the around the intersection of technology and Korea in spring 2018, and had meetings with exchange rate changes on export and des- policy, notably focusing on cybersecurity, senior policy advisers and business leaders. tination prices. He is also a special member internet governance, and digital economy; of the Council on Customs, Tariff, Foreign a major China/Asia initiative; new initiatives Exchange, and other Transactions at the on central banking and financial policy; and Ministry of Finance, Japan. Professor Ito global urban policy. organizes internationally acclaimed seminars, such as the NBER East Asian Seminar on Curtis J. Milhaupt’s most recent publica- Economics in June 2016. tions are “Bonded to the State: A Network Perspective on China’s Corporate Debt He served as chair of the study group on Market” (Journal of Financial Regulation); reforming public pension funds in Japan. A “Governance Challenges of Listed State- report from his group, recommending port- Owned Enterprises Around the World” folio rebalancing away from Japanese gov- (Cornell International Law Journal); and ernment bonds and toward more risk assets, “Evaluating Abe’s Third Arrow: How has been very influential in the subsequent Significant are Japan’s Recent Corporate change of the Government Public Investment Governance Reforms?” (Journal of Japanese Fund. Law, forthcoming). Professor Ito’s involvement in Southeast and Alicia Ogawa continues her private consult- East Asian economies dates from the time ing work on Japan’s politics and economy. of the Asian currency crisis in 1997–1998. During the past year, she has published He has done research on, as well as given several papers on Japan’s Corporate

CJEB Annual Report 2017–2018 | 25 Faculty Engagement

Richard Clarida speaking at PPPSF conference

CJEB actively supports Columbia University panelists in its various public programs. On perspectives on Japan’s snap election and faculty members who are not formally asso- September 21, 2017, CJEB cosponsored the political and economic implications to ciated with the Center by promoting dialogue a lecture with the APEC Study Center, the follow. between the business, professional, aca- School of International and Public Affairs, On November 21, 2017, CJEB cosponsored demic, and cultural communities in the United and the Weatherhead East Asian Institute a symposium with NHK (Japan Broadcasting States and Japan. CJEB funds Japan-related (WEAI) of Columbia University featuring Corporation) on the topic of the Trump research and explores ways to incorporate His Excellency Tarō Kōno, foreign min- administration’s economic policies and its the study of the Japanese economy and ister of Japan (p. 39). The lecture, titled implications for Japan and Asia (p. 37). business systems into faculty research and “His Excellency Tarō Kōno, Japan’s New This symposium brought together four teaching. We foster collaboration and use our Foreign Minister: A Dialogue with Columbia distinguished economists from Columbia extensive network of Japanese professional Students about Diplomacy,” opened with University, including Glenn Hubbard, dean contacts to arrange for speakers from the remarks by Gerald L. Curtis, Burgess of Columbia Business School and Russell L. private, academic, and government sectors Professor Emeritus of Political Science at Carson Professor of Finance and Economics; to give lectures to the Columbia community. Columbia University and was moderated by and Joseph E. Stiglitz, University Professor CJEB faculty have access through CJEB to Takako Hikotani, Gerald L. Curtis Associate at Columbia University. This symposium various Japan-related databases for use in Professor of Modern Japanese Politics and was later broadcast on NHK World’s Global their research. Additionally, where appropri- Foreign Policy at Columbia University. On Agenda program on December 15, 2017. ate, CJEB can fund and arrange faculty trips November 13, 2017, CJEB also cohosted a CJEB also held its annual Japan Economic to Japan. lecture with WEAI featuring Gerald L. Curtis Seminar (p. 58) on February 16, 2018, and Takatoshi Ito, titled “Japan’s General This past year, CJEB invited several fac- highlighting several papers on the Japanese Election: What Happened and What it Means” ulty members to participate as speakers or economy. CBS professor Patrick Bolton (p. 40). Professors Curtis and Ito shared their

26 | CJEB Annual Report 2017–2018 was a discussant for the paper “The Decline Clarida, C. Lowell Harriss Professor of Tokyo conference, “Japan as a Leading in Bank-Led Corporate Restructuring in Economics and Professor of International Power: Trade and the Fintech Revolution” Japan: 1981–2010,” written by Takeo Hoshi, and Public Affairs at Columbia University, (p. 33). Several notable Columbia faculty Henri and Tomoye Takahashi Senior Fellow moderated the session “Macro Environment members participated in this conference, of the Walter H. Shorenstein Asia-Pacific and Challenges to Long-Term Investors” including Merit E. Janow, dean of SIPA; Research Center at Stanford University. (p. 30). On April 16, 2018, CJEB hosted Shang-Jin Wei, N. T. Wang Professor of Donald Davis, professor at Columbia the symposium “Central Bank International Chinese Business and Economy at Columbia University’s Department of Economics, Cooperation and Coordination,” where University; and R. A. Farrokhnia. also served as a discussant for the paper Patricia Mosser, director of the Initiative CJEB continues to work with the Jerome “Identifying Neighborhood Effects among on Central Banking and Financial Policy at A. Chazen Institute for Global Business Firms: Evidence from Location Lotteries of SIPA, gave opening remarks (p. 38). On May and CBS’s student-run Japan Business the Tokyo Tsukiji Fish Market,” written and 27, 2018, CJEB hosted a special educa- Association (JBA) to support the annual presented by Kensuke Teshima, assistant tional summit for its corporate sponsors and travel of a CBS faculty leader on the Chazen professor at the Centro de Investigación guests, titled “Demystifying Blockchain and International Study Tour to Japan. In spring Económica Instituto Tecnológico Autónomo Cryptocurrencies” (p. 45). The summit was 2018, Brett Martin, adjunct assistant pro- de México (ITAM). taught and designed by R. A. Farrokhnia, fessor of business at CBS, led the study tour. adjunct associate professor at Columbia CJEB hosted its second annual Conference Business and Engineering Schools. On the on Public Pension and Sovereign Funds following day, CJEB also organized its annual on February 26, 2018, where Richard

From left to right: Hugh Patrick, Glenn Hubbard, Joseph Stiglitz, David E. Weinstein, and Takatoshi Ito

CJEB Annual Report 2017–2018 | 27 Research Paper Series

CJEB fosters dissemination of research prewar level of the Japanese economy was WP 361 on Japan’s economy and business within restored in 1953. The successful catch-up The Crisis that Wasn’t: How Japan Has Columbia and in the broader academic, busi- story of extraordinary rapid growth started Avoided a Bond Market Panic ness, professional, and public policy commu- thanks to the Bretton Woods System under nities. While much of the research produced which free trade, capital, and technology Mark T. Greenan, Staff Associate, Columbia by scholars affiliated with the Center ulti- transfer enabled Japan to perform export-in- University Department of Economics mately appears in scholarly books and pro- vestment led high growth and helped the David E. Weinstein, Carl S. Shoup Professor fessional journals, early drafts of the work country to achieve industrialization around of the Japanese Economy, Columbia and research results can be found in CJEB’s 1970. Then three surprise shocks came from University; Director of Research, CJEB Working Paper (WP) Series. We also accept abroad: the so-called Nixon shock followed by interesting, topical papers not slated for the Smithsonian Accord in 1971; the Plaza November 2017 eventual publication in our Occasional Paper Accord and Louvre Accord in 1985–1987; This paper explores the history of Japanese (OP) Series. Papers in both series are avail- and the Lehman shock in 2008. Each shock fiscal policy over the past two decades with able for free download through our website caused sharp appreciation of the yen, but the the aim of understanding better where pre- at www.gsb.columbia.edu/cjeb/research, economic implications from each are differ- vious forecasts have erred. As such, Japan which links to the Columbia University ent. The essence of the first is a correction of provides an important case study of how Libraries’ Academic Commons website. the depreciated yen under the fixed nominal a country facing intense fiscal pressures exchange rate system in which the effective can avoid hyperinflation or financial panic. real rate of the yen had been in a depreciat- We find that there were three key forces ing trend because of the inflation rate differ- that likely improved Japan’s fiscal situation 2017–2018 ential between Japan and abroad. Japan’s relative to more pessimistic predictions. Working Papers policy reaction was so extreme as to cause First, the Japanese government has shown domestic inflation, which further flared in the WP 360 a remarkable ability to hold down per capita first oil crisis. The second shock would have expenditures on social pensions and health Difficulties and Challenges: Japan’s been also smaller if the binding of Japanese care. Second, the Japanese government has Postwar History of Economic Trends and monetary policy by participating in the been able to raise taxes substantially. Third, Monetary Policy so-called “International Policy Coordination” the remarkable monetary policy pursued by program had not caused asset bubbles as Yoshio Suzuki the Bank of Japan has resulted in a dramatic the consequence of an internationally-com- decline in the amount of government bonds August 2017 pelled easy money policy. The third was a held by the private sector. real shock because it spoiled the successful This is a summary paper of Yoshio exit from deflation and turned “the loss of 7 Suzuki’s book in Japanese, Difficulties years” to “15 years.” The story of successful and Challenges, Japan’s Postwar History “Stronger Country” Japan in 1975–1984 and WP 362 of Monetary Policy and Economic Trends the failure of too hasty fiscal consolidation in The Federal Reserve in the Shadow of the (Iwanami Shoten, 2016). For the Bank of 1997, which resulted in extended deflation, Bank of Japan Japan, these 70 years are indeed a repetitive are also discussed. As for today’s monetary succession of difficulties and challenges, and policy, since the final goal of full employment Thomas F. Cargill, Professor of Economics resulting successes and failures. The first dif- is almost achieved, pursuing an intermediate Emeritus, University of Nevada, Reno ficulty was pursuing two contradictory policy target of 2 percent inflation rate is meaning- Gerald P. O’Driscoll Jr., Senior Fellow, Cato purposes, namely stimulating investments less, and the BOJ should start the exit policy. Institute, Washington, D.C. to restore supply capacity and depressing A positive immigration policy to increase hyperinflation more than 300 percent under a Japan’s working population is also proposed November 2017 fixed exchange rate in the Occupation period. to raise the potential growth rate and the Unexpectedly, an enormous increase in exter- Many commentators on Federal Reserve pol- natural rate of interest to recover the effec- nal demand generated by the Korean War icy over the past decade devote little atten- tiveness of monetary policy. in 1950–1951 solved the dilemma and the tion to the experience of other central banks

28 | CJEB Annual Report 2017–2018 and especially the experience of Japan and 2017–2018 Occasional the Bank of Japan. In fact, there is very little that is new in the U.S. situation that had not Papers already been experienced by Japan and the OP 78 Bank of Japan more than a decade earlier. Many commentators view Federal Reserve Japan’s Economy: Moving Along Its Modest Sustainable Growth Path policy as unique and special with regard to other central banks; however, the differ- Hugh Patrick, R. D. Calkins Professor of ences between the financial and economic International Business Emeritus; Director, stress experienced by Japan and the United CJEB States pale in comparison to the similarities. In many respects, the Federal Reserve is in April 2018 the shadow of Bank of Japan, and a better Professor Hugh Patrick’s annual essay on understanding of the comparative records the Japanese economy is published here as of the two central banks offers important a CJEB Occasional Paper. The essay con- insight into central bank policy. The paper siders the full breadth and scope of issues explores three aspects of the relationship facing the Japanese economy today, from between the Bank of Japan and the Federal political stressors to renewable resources Reserve. First, the asset bubbles and to Japan’s aging population to their poverty bursting of those bubbles in Japan (1985 levels. Professor Patrick describes Japan’s to 1991) and the United States (2001 to economy as continuing to chug along well, 2006) were both the result of central bank with above-potential GDP growth in 2017 policy errors, combined with a flawed finan- that will continue for the coming year or two. cial structure. Second, the political economy In longer-term perspective, the economy is of the operating environment of the Bank of maintaining patterns established several Japan and the Federal Reserve ensures con- years ago, which he does not find surprising. tinued suboptimal monetary policy regard- Above all, he believes Japan’s economic suc- less of institutional redesigns of the central cess is founded on its well-educated, indus- bank. Third, the Bank of Japan and the trious labor force, high savings and invest- Federal Reserve together present a serious ment rates, and good economic institutions, contradiction to the conventional wisdom while its only significant natural resources that legal independence is the foundation are land and a four-season climate. for optimal central bank policy outcomes. A concluding section brings together the main points of the discussion. These suggest that a better understanding of Federal Reserve policy since the beginning of the new cen- tury might start with a review of Japan and the Bank of Japan.

CJEB Annual Report 2017–2018 | 29 CJEB PROGRAMS

Program on Public Pension and Sovereign Funds

With imposed stress on public pension sys- tems across advanced economies because of the growth in aging populations, many countries have created or reformed public pension funds to finance future shortfalls in pension contributions. Under the guidance of Professor Takatoshi Ito, CJEB established this program in order to examine and conduct extensive research on how public pension funds and sovereign wealth funds should be structured, both in portfolio and governance. The program evaluates public pension fund reforms across Japan and other global econ- omies, with an aim toward deriving lessons for Japan to enhance its Government Pension and Investment Fund (GPIF). Similarly, the GPIF can serve as a model for structuring From left to right: Takatoshi Ito, Norihiro Takahashi, Carine Smith Ihenacho, Carol Jeppesen, and Lukasz other public and quasi-public pension funds in Pomorski Japan and other emerging market economies with the intention of setting up or reforming (see p. 32). The conference was composed keynote speakers: Jacob J. Lew, former its own funds. of three sessions: “Macro Environment and secretary of the Treasury; and the Honorable Challenges to Long-Term Investors,” “ESG Yasuhisa Shiozaki, member of the House of This year, the PPPSF program held its second Investment,” and “Infrastructure and Real Representatives of Japan. annual conference on February 26, 2018 Assets.” The conference also featured two

Corporate Governance and Stewardship Program

As a major policy to promote structural governance structure of the most innovative reforms, Prime Minister Abe introduced Japanese companies and how it has contrib- the Corporate Governance Code and the uted to their status as leading competitors in Stewardship Code in order to encourage the global market. The program’s mission is Japanese firms to innovate and invest, to inspire best practices among other firms and for shareholders to actively monitor in Japan as they consider new approaches to and promote those efforts. The Corporate governance. Governance Code is designed to increase In 2017–2018, CJEB held three evening transparency and accountability in Japanese symposia for its Corporate Governance corporate management, and the Stewardship and Stewardship Program: “Power to the Code is designed to encourage investors Pensions! Japanese and NYC Pension to engage in active discussion with their Funds as a Force for Good Governance” invested companies, in order to guide and (p. 36), “A Tale of Two Systems: What Went accelerate the evolution of Japan’s corporate Wrong at Toshiba and Wells Fargo” (p. culture. Through a series of public programs 37), and “Changing the Game in Japan’s and papers led by Alicia Ogawa, this pro- Equity Markets: An Update on Corporate A Tale of Two Systems: What Went Wrong at gram initially focuses on an analysis of the Toshiba and Wells Fargo symposium Governance Reforms” (p. 38).

30 | CJEB Annual Report 2017–2018 The New Global Financial Architecture

Building on CJEB’s “Program on Alternative Investments,” which ran successfully from 2002 to 2009, the Center established a program in July 2009 titled “The New Global Financial Architecture” (NGFA). The purpose of the NGFA program is to engage in analyt- ical and policy-oriented evaluations of major global financial and economic issues and reg- ulatory changes through conferences, brain- storming sessions, and research activities, with a major emphasis on Japan.

The program brings together distinguished finance and economics professors at Columbia Business School (CBS) and other parts of the University with scholars and financial market participants in the United States, Japan, Europe, and China. While From left to right: David E. Weinstein, Hugh Patrick, Yasuhisa Shiozaki, and Takatoshi Ito emphasis is placed on Japan and the United

States, the program also concentrates on commitments for three years. We encourage Corporate Governance Reforms” (p. 38), the broader context of the global financial anyone interested in becoming involved in the “Central Bank International Cooperation and system and all of its major players. Topics NGFA program to contact us. Coordination” (p. 38), and “Fighting to Raise include, but are not limited to, financial sys- Japan’s Inflation Rate” (p. 44). Finally, “Japan This year, CJEB held a number of NGFA tem restructuring; development of national as a Leading Power: Trade and the Fintech events, including eight at Columbia and international regulatory systems; effec- Revolution” (p. 33) was held as part of the University: in November 2017, “Japan’s tive governance, supervision, and monitoring; NGFA program in Tokyo in May 2018. the operations of and interactions among Economy and Monetary Policy: 20 Years specific financial markets; the relationships of Unconventional Monetary Policy” (p. Corporate Governance and Stewardship Program between finance and the performance of the 42); “Japan and the Leadership of the economy; and the nature and role of govern- World Trading System” (p. 37) and “Trump’s ment and monetary policies. Economic Policies and Their Implications for Japan and Asia” (p. 37); in February The NGFA program began with CJEB’s seed 2018, “Japan’s Role in East Asian Financial funding, and in 2011, Aflac Life Insurance Cooperation,” (p. 43) and “Special Lecture Japan, Ltd. (formerly known as Aflac Japan) with the Honorable Yasuhisa Shiozaki” (p. became the first sponsor. The Center con- 40); and, in April 2018, “Changing the Game tinues to seek a small number of appropriate in Japan’s Equity Markets: An Update on sponsors inclined to make significant annual

CJEB Annual Report 2017–2018 | 31 Each year, CJEB organizes and hosts numerous major conferences, symposia, lectures, seminars, and workshops EVENTS that feature distinguished speakers. These programs provide an important educational platform for students, academics, members of the private sector, and policymakers from Japan and the United States. The 2017–2018 events are listed below and split into the following sections: Conferences, Symposia, Lectures, and Lunchtime Seminars and Workshop. All professional titles listed for participants are accurate for the time of the event. In addi- tion to the descriptions below, videos and reports can be found on CJEB’s website: www.gsb.columbia.edu/cjeb. Conferences

Back row: Christopher Ferrarone, Carine Smith Ihenacho, Lukasz Pomorski, Richard Clarida, Jacob Lew, Yasuhisa Shiozaki, Barry S. Blattman, Carol Jeppesen, Ralph Berg, Norihiro Takahashi. Front row: Takatoshi Ito, Hugh Patrick

Conference on Public surrounding environmental, social, and gover- Session 1: Macro Environment and nance (ESG) investment issues, which include Challenges to Long-term Investors Pension and Sovereign how ESG is defined, attitudes toward it, and Moderator: Richard Clarida, C. Lowell Harriss Funds debates on whether ESG investment returns Professor of Economics and Professor of are sustainable and positive for society. In February 26, 2018, The Italian Academy, International and Public Affairs, Columbia the final panel session, “Infrastructure and Columbia University University Real Assets,” the panelists considered differ- This was the second annual conference ent public pension systems around the world Panelists: of CJEB’s Program on Public Pension and and the way infrastructure investment deci- Christopher Ferrarone, Senior Vice President Sovereign Funds (PPPSF). CJEB director sions play into their implementation. of Economics and Investment Strategy Hugh Patrick gave opening remarks and Welcoming Remarks Department, GIC briefly introduced the program. The direc- tor of PPPSF, Takatoshi Ito, who is also a Hugh Patrick, Director, CJEB, Columbia Jacob J. Lew professor at the School of International and Business School Public Affairs (SIPA) at Columbia University, Maria Vassalou, Partner, Asset Management, Takatoshi Ito, Professor, School of followed with more details about the program Perella Weinberg Partners International and Public Affairs, Columbia and its success in the past year and then University, and Director, Program on Public Session 2: ESG Investment went on to introduce the three panels. Jacob Pension and Sovereign Funds, CJEB J. Lew, former secretary of the Treasury, Moderator: Takatoshi Ito delivered the first keynote speech, which Keynote: Jacob J. Lew, Former Secretary Panelists: was followed by the first panel, “Macro of the Treasury; Visiting Professor of Environment and Challenges to Long-term International and Public Affairs, School of Carol Jeppesen, Senior U.S. Network Investors.” In this session, the panelists dis- International and Public Affairs, Columbia Manager, United Nations Principles for cussed their predictions for what the coming University Responsible Investment year’s macroeconomic trends would look like. Lukasz Pomorski, Managing Director, AQR The Honorable Yasuhisa Shiozaki, member Keynote: The Honorable Yasuhisa Shiozaki, of the House of Representatives of Japan, Member of the House of Representatives of delivered the second keynote, which was Japan; Former Minister of Health, Labour, followed by the next panel, “ESG Investment.” and Welfare of Japan This panel featured a dialogue on the debates

32 | CJEB Annual Report 2017–2018 Wendy Cutler and Merit E. Janow Top row, left to right: R. A. Farrokhnia, Masaaki Tanaka, Shang-Jin Wei, Shujiro Urata, Shotaro Oshima, Naoyuki Iwashita, Noriyuki Yanagawa. Bottom row, left to right: Takatoshi Ito, Merit E. Janow, Hugh Patrick, Wendy Cutler, David E. Weinstein Carine Smith Ihenacho, Global Head Japan as a Leading Power: were growing. She concluded by encouraging of Ownership Strategies, Norges Bank the U.S. and Japan to reassert their partner- Investment Management Trade and the Fintech ship and take joint leadership in global trade Revolution relations. Norihiro Takahashi, President, Government Pension Investment Fund May 28, 2018; Otemachi Financial City Welcoming Remarks Conference Center, Tokyo, Japan Session 3: Infrastructure and Real Assets Hugh Patrick, Director, CJEB CJEB presented its annual Tokyo conference Moderator: John Lipsky, Peter G. Peterson Keynote: Challenges and Opportunities in featuring business, government, and aca- Distinguished Scholar at the Henry A. U.S.-Japan Trade Relations demic leaders from Japan and the United Kissinger Center for Global Affairs, Senior States. Speaker: Wendy Cutler, Vice President and Fellow, Foreign Policy Institute, Johns Managing Director, Washington, D.C., Office, Hopkins University Wendy Cutler, vice president and managing Asia Society Policy Institute; Former Deputy director of the Washington, D.C., office of the Panelists: U.S. Trade Representative Asia Society Policy Institute and former dep- Anne Valentine Andrews, Head of Funds uty U.S. trade representative, delivered the Moderator: Merit E. Janow, Dean, School of Management and Global COO for Real keynote address on U.S.-Japan trade rela- International and Public Affairs, Columbia Assets, BlackRock tions and trade policy developments under University President Trump. Ms. Cutler emphasized the Ralph Berg, Executive Vice President and broad differences in each country’s approach Panel I: Challenges for the International Global Head of Infrastructure, OMERS to trade, contrasting the U.S.’s increasingly Trade System

Barry S. Blattman, Vice Chairman, Brookfield protectionist stance to Japan’s efforts toward Panelists: Asset Management ensuring trade liberalizing measures, such as with the passage of the Trans-Pacific Merit E. Janow Partnership in the Japanese Diet Lower Shotaro Oshima, Chairman, Institute for House. Ms. Cutler described how TPP International Economic Studies became a symbol of the growing tensions in U.S.-Japan trade relations, and how tensions Shujiro Urata, Dean and Professor, Graduate between the two countries over disagree- School of Asia-Pacific Studies, Waseda ments on how to handle trade disagreements University

CJEB Annual Report 2017–2018 | 33 Martin Uribe Cynthia Balloch

Shang-Jin Wei, N. T. Wang Professor of The Japan Project year’s ESRI Conference was titled “Better Chinese Business and Economy, Columbia Measurement for Better Policy Formation.” University; Former Chief Economist, Asian Meeting with Joint ESRI Please see below for the agendas for both Development Bank International Conference the Japan Project and the ESRI Conference David E. Weinstein, Director of Research, July 30–31, 2018; Asian Development Bank CJEB; Carl S. Shoup Professor of the Institute, Tokyo, Japan Japanese Economy, Columbia University The Japan Project meeting is held annually by The Japan Project Meeting Panel II: Is Fintech a Disruptive CJEB in partnership with the National Bureau Welcome Remarks Innovation? of Economic Research (NBER), the Center for Naoyuki Yoshino, Dean, Asian Development Advanced Research in Finance (CARF) at the Panelists: Bank Institute University of Tokyo, and the Australia-Japan R. A. Farrokhnia, Adjunct Associate Research Centre (AJRC) at the Crawford The Neo-Fisher Effect in the United States Professor, Columbia Business and School of Public Policy of the Australian and Japan Engineering Schools; Executive Director, National University (ANU). Professor Author: Martín Uribe, Columbia University Dean’s Office, Columbia Business School Weinstein organized this two-day academic conference with Professors Shiro Armstrong and NBER Naoyuki Iwashita, Professor, Kyoto University of ANU, Charles Horioka of the University Discussant: Kosuke Aoki, University of Tokyo School of Government of the Philippines, Takeo Hoshi of Stanford Land Ownership and Development: Masaaki Tanaka, Senior Global Adviser, PwC University, and Tsutomu Watanabe of the Evidence from Postwar Japan International University of Tokyo. The organizers are grate- ful to the Asian Development Bank Institute Author: Shuhei Kitamura, Osaka University Noriyuki Yanagawa, Professor, Graduate for its generous assistance and support. School of Economics, The University of Tokyo Discussant: David Albouy, University of The ESRI International Conference, spon- Illinois at Urbana-Champaign and NBER Moderator: Takatoshi Ito sored by the Economic and Social Research Institute (ESRI) of the Cabinet office of the Closing Remarks Government of Japan, is held jointly with David E. Weinstein the Japan Project meeting every year. This

34 | CJEB Annual Report 2017–2018 The Samurai Bond: Credit Supply and and Consumption Trends in the United Economic Growth in Prewar Japan States”

Authors: Sergi Basco, Universitat Autònoma Kevin Hassett, Chair of the CEA Barcelona First Session: Has the business cycle John P. Tang, Australian National University changed after the global financial crisis and what does that imply for business cycle Discussant: Stephanie Schmitt-Grohé, dating? Columbia University and NBER Chair: Fumihira Nishizaki, ESRI Inflows and Spillovers: Tracing the Impact of Bond Market Liberalization Presenters: Satoshi Urasawa, ESRI; Makoto Hazama, ESRI Author: Cynthia Balloch, Columbia University Commentator: Mark Watson, Princeton Discussant: Takeo Hoshi, Stanford University University and NBER Second Session: Does the growth of the Matching and Agglomeration: Theory and service sector and the digital economy create Evidence from Japanese Firm-to-Firm new measurement challenges? Trade Chair: Atsushi Seike, ESRI Author: Yuhei Miyauchi, Massachusetts Institute of Technology Presenter: Charles Bean, London School of Economics Discussant: Andreas Moxnes, University of Oslo Commentator: Kiyohiko Nishimura, Chairman of Statistics Commission Free for Children? Patient Cost Sharing and Health Care Utilization Third Session: What can be done to measure productivity better? Authors: Toshiaki Iizuka, University of Tokyo Chair: Anil Kashyap, University of Chicago Hitoshi Shigeoka, Simon Fraser University and NBER Presenter: Chad Syverson, University of Chicago Discussant: Edward C. Norton, University of Michigan and NBER Commentator: Shigeru Sugihara, Graduate Institute of Policy Studies

Fourth Session: Panel Discussion ESRI International Coordinator: Alan Auerbach, University of Conference: “Better California Measurement for Better Panelists: Kevin Hassett, CEA; Motoshige Policy Formation” Itoh, Gakushuin University; Kiyohiko Keynote: “Measurement Challenges in Nishimura, Statistics Commission; Charles Advanced Economies: Learning from Income Bean, London School of Economics

CJEB Annual Report 2017–2018 | 35 Symposia

From left to right: Alicia Ogawa, Michael Garland, and Ken Hokugo

Power to the Pensions! and director of Hedge Fund Investments of increase portfolio diversification to meet the Pension Fund Association of Japan. To obligations to pension holders. Due to this Japanese and NYC Pension illustrate the reach and influence that public investment strategy, Mr. Garland believes, Funds as a Force for Good pension funds can have on shaping corpo- the only way for the New York City pension Governance rate governance practices, both Assistant system to increase the value of its portfolio Comptroller Garland and Director Hokugo is to meaningfully engage with its portfolio November 9, 2017; International Affairs respectively presented details on the struc- companies. According to Mr. Hokugo, there is Building, Columbia University ture and asset allocations of the New York strong cultural resistance, as concepts such City pension system and the Japanese as “sustainable growth” and “corporate gov- On November 9, 2017, CJEB hosted a public Pension Fund Association. ernance” are dismissed by large, traditional event bringing together experts to address Japanese firms that have flourished for more the positive impact that institutional inves- Mr. Garland defined good corporate gover- than two-hundred years. They have a signifi- tors, particularly pension funds, provide for nance as practices that lead to value cre- cantly different perspective on the concept promoting good corporate governance in the ation. He emphasized that, at a minimum, of managing corporations from young firms United States and in Japan. This event was “good corporate governance is risk man- in the United States, for instance, and do not part of the CJEB’s Corporate Governance agement and ensuring you have your rights believe that pension funds have sufficient and Stewardship Program, an initiative that when you need them.” From the perspective experience to provide them with guidance on seeks to analyze the governance structures of Mr. Hokugo, good corporate governance is management. of the most innovative Japanese companies defined by holding a CEO accountable for the and aims to use this research to inspire more return a company earns, a scenario that he firms in Japan to adopt best practices in does not observe often in Japan. Mr. Garland corporate governance. The event featured emphasized the importance of the New Michael Garland, assistant comptroller, York City pension system being a long-term Corporate Governance and Responsible owner in all 10,000 portfolio firms. Nearly Investment, at the Office of the New York 80 percent of New York City Retirement City Comptroller; and Ken Hokugo ’93, Systems funds are invested through indexed director and head of Corporate Governance strategies in order to minimize fees and

36 | CJEB Annual Report 2017–2018 From left to right: David E. Weinstein, Taiji Furusawa, Vinod Aggarwal, and From left to right: Takatoshi Ito, Glenn Hubbard, Hugh Patrick, Joseph Stiglitz, Christina Davis and David E. Weinstein

Japan and the Leadership Trump’s Economic Policies Professor of the Japanese Economy at Columbia University; and Professor Takatoshi of the World Trading System and Their Implications for Ito, director of the Program on Public Pension November 10, 2017; Faculty House, Japan and Asia and Sovereign Funds at the CJEB and pro- fessor at the Columbia University School of Columbia University November 21, 2017; The Italian Academy, International and Public Affairs. The conver- Columbia University Together with the Abe Fellowship Program, sation was wide-ranging, touching on every- a partnership between the Social Sciences CJEB cohosted a symposium on President thing from the crisis in North Korea, to Abe’s Research Council and the Japan Foundation Donald Trump’s economic policies and their policy of “womenomics,” to bilateral free trade Center for Global Partnership, CJEB implications for Japan and Asia with NHK, agreements, to President Trump’s energy hosted this special symposium, featured Japan’s national public broadcasting orga- policy. presentations from and a panel discussion nization. The symposium brought together with former Abe Fellows Vinod Aggarwal four distinguished economists at Columbia (UC, Berkeley), Christina Davis (Princeton University who have been deeply immersed University), and Taiji Furusawa (Hitotsubashi A Tale of Two Systems: in public policy and who continue to actively University). David Weinstein, also a former influence decision making regarding global What Went Wrong at Abe Fellow, moderated the discussion. Each and domestic economic policy. The panelists Toshiba and Wells Fargo speaker offered a different perspective, with featured at the symposium were Professor Professor Furusawa focusing on the conse- Glenn Hubbard, the dean of the Columbia March 22, 2018; Warren Hall, Columbia quences of protectionism on domestic econo- University Graduate School of Business and Business School mies, Professor Aggarwal discussing the TPP the Russell L. Carson Professor of Finance CJEB hosted a panel on corporate gover- free trade agreements, and Professor Davis and Economics; Professor Joseph E. Stiglitz, nance failures, with special attention placed looking at Japan’s role as the de facto leader recipient of the Nobel Prize in Economics and on the cases of Toshiba in Japan and Wells of the TPP in the face of the U.S. withdrawal. University Professor, Columbia University; Fargo in the United States. This event was Professor David E. Weinstein, the director part of the Project on Japanese Corporate of Research at CJEB and the Carl S. Shoup Governance and Stewardship, an initiative

CJEB Annual Report 2017–2018 | 37 From left to right: Hiroshi Nakaso, Guy Debelle, and Simon Potter Bruce Aronson and Josh Rosner

directed by Alicia Ogawa, an adjunct associ- Changing the Game in law, but as the world becomes more compet- ate professor at the School of International itive and stock exchanges compete for IPOs, and Public Affairs. This project is rooted in Japan’s Equity Markets: the speakers hinted that Japan has to evolve. the importance that Prime Minister of Japan An Update on Corporate The challenge, not just for Japan, is in how to Shinzo Abe has placed on corporate gover- Governance Reforms maintain high standards of corporate gover- nance reform as a driving factor for revitaliz- nance without compromising corporate free- ing the Japanese economy. The symposium The 19th Annual Mitsui USA Symposium dom. Another challenge lies in the fact that featured Bruce Aronson, professor of the corporate governance reforms require a more Business Law Department at Hitotsubashi April 3, 2018; Warren Hall, Columbia active engagement, which is the complete University; Shane Goodwin, senior fellow and Business School opposite of the rise in big passive investment project director at the Richard Paul Richman funds. At the 19th Annual Mitsui USA Symposium, Center for Business, Law, and Public Policy Akitsugu Era, director and head of the at Columbia University and former managing Investment Stewardship Team at BlackRock director of investment banking (Southwest Japan, and Ryota Kimura, chief representa- U.S. Division) at Wells Fargo; and Josh Central Bank International tive and general manager of the New York Rosner, managing director at Graham Fisher Cooperation and Representative Office of the Japan Exchange & Co. The panelists each shared their per- Group, Inc., presented individually on the Coordination spectives on what they believed created topic and then participated in a panel discus- the issues that led to the cases of massive April 16, 2018; Uris Hall, Columbia Business sion led by Alicia Ogawa. Ms. Ogawa, director corporate fraud at Toshiba and Wells Fargo, School of CJEB’s Project on Japanese Corporate with answers ranging from the companies’ Governance and Stewardship, introduced the This special panel discussion featured rep- corporate cultures, to overly aggressive goals two speakers and moderated the discussion. resentatives of prominent banks around the of top management, to increased pressures Mr. Kimura connected corporate governance world who convened to discuss the chal- created by sales targets and motivational reforms in Japan with Prime Minister Abe’s lenges and opportunities currently facing mechanisms. They also discussed the goal of revitalizing the Japanese private sec- the international banking community. Hiroshi reforms that were implemented postscandal tor. Mr. Era gave a detailed account of how Nakaso, immediate past deputy governor, and how they believed they would impact the BlackRock engages companies in Japan to Bank of Japan; Guy Debelle, deputy governor, area going forward. push for greater transparency and corporate Reserve Bank of Australia; Simon Potter, governance reforms. In Japan, the corporate executive vice president, Federal Reserve governance code is voluntary under Japanese Bank of New York; and Patricia Mosser,

38 | CJEB Annual Report 2017–2018 Lectures

director, Central Banking and Financial Policy at SIPA, all gave presentations and then joined in for a group discussion that covered a few different topics regarding the central banks, including the consequences and impli- cations of central banks printing currency on money markets, the demand for dollars across the globe and its influence on the U.S. domestic economy, and the regulations and laws within the banking community that aim to prevent scandals and ethics violations. The panel also focused on how the current money markets are changing drastically and how that can be tied to tax reforms that are shap- ing not only domestic but also global financial Tarō Kōno at Columbia University markets. The growing threat of cyberattacks in this information age and strategies to His Excellency Tarō Kōno, The Intergenerational War prevent these emerging risks were also con- Japan’s New Foreign in Japan: Macroeconomic sidered. Minister: A Dialogue with Burdens of the Columbia Students about Demographic Change

Diplomacy October 3, 2017; Davis Auditorium,

September 21, 2017; International Affairs Columbia University Building, Columbia University Takatoshi Ito, professor at SIPA and direc- tor of the Program on Public Pension and In his only public address while in New York Sovereign Funds at CJEB, delivered his for the United Nations General Assembly, annual lecture on the Japanese economy, Foreign Minister Tarō Kōno delivered remarks which was divided in two parts: first, a centered around Japan’s position on the stock-taking of macroeconomic conditions, increasingly turbulent world stage. Overall, and second, the main theme of this “intergen- Minister Kōno emphasized the ways in which erational war.” Macroeconomic conditions can he would push Japan to take a greater posi- be described as “strong real but weak nomi- tion on the world stage, with plans for Japan nal.” On the real side, GDP and employment to help confront global threats of terrorism numbers are very strong. However, nominal and the crisis in the Middle East; turn Asia wages are stagnant and somehow the infla- into a region of peace; and increase institu- tion rate is still far below the 2 percent tar- tion building efforts, such as working with get. The “intergenerational war” is related to failed states. His conclusion offered a posi- the social security system: currently, retired tive outlook, tempered with realism: he noted older generations benefit greatly but at the that blind optimism is dangerous, and pessi- expense of younger generations. Professor mists are usually correct, but optimists are Ito said that he had expected that younger the ones who will bring about change. This Japanese would rebel against the system event was cosponsored by the Weatherhead and complain to the older generation, but East Asia Institute, School of International it seems that they have not noticed how and Public Affairs, and the APEC Study disadvantaged they are at this point in time. Center.

CJEB Annual Report 2017–2018 | 39 From left to right: Takatoshi Ito, Gerald Curtis, and Hugh Patrick Yasuhisa Shiozaki

The baby boomers are the winning side in to lose 50 or more seats and possibly force manage the increased costs and demands this war: they are reaping all of the benefits Prime Minister Abe to resign. Professor required of the Japanese health care system, before the Japanese economy runs out of Ito then discussed the election’s economic and the improvement of corporate gover- resources. implications. Prime Minister Abe will need nance. He discussed how the Abe administra- Abenomics to counter the unpopularity that tion is pushing for the dynamic engagement his push for constitutional reform will gener- of all Japanese citizens since the economy ate. Professor Ito shared the sentiment that needs diversity to grow, including targeting Japan’s General Election: he is more hopeful that Abenomics, with a demographics like the elderly and working What Happened and What focus on labor reform and free education at mothers. He also underscored the impor- It Means its core, will be pushed to its limits in the next tance of the stewardship code and continued four years. The event was cosponsored by the efforts to reform corporate governance. November 13, 2017; Faculty House, Weatherhead East Asian Institute and CJEB. Columbia University On November 13, 2017, Professor Gerald Special Lecture with L. Curtis, the Burgess Professor of Political Special Lecture with Ambassador Reiichiro Science Emeritus at Columbia University, and the Honorable Yasuhisa Professor Takatoshi Ito, professor of interna- Takahashi tional affairs at the School of International Shiozaki March 20, 2018; Warren Hall, Columbia and Public Affairs and director of the February 27, 2018; Faculty House, Business School Program on Public Pension and Sovereign Columbia University Funds at CJEB, discussed the October 22, Reiichiro Takahashi, ambassador at the 2017, snap election in Japan. Professor Yasuhisa Shiozaki, member of the House of Consul-General of Japan in New York, gave Curtis focused on the political situation and Representatives of Japan and former minis- a lecture titled “Japan in the Changing its outcomes: the LDP won, notwithstanding ter of Health, Labor, and Welfare of Japan, International Community: Challenges and Prime Minister Abe’s low popularity. The gave a special lecture at Columbia Business Opportunities“ at Columbia Business School, LDP won because it called a snap election School on February 27, 2018. He discussed on March 20, 2018. His lecture title well before the Hope Party could get organized the three major challenges that he under- reflected major international issues that and recruit candidates. If the party had been stands the Japanese economy is facing: the Japan faces, and how Japan might deal with more skillful, it could have caused the LDP country’s changing demographics, how to them. As a lifelong diplomat, the ambassador

40 | CJEB Annual Report 2017–2018 Lunchtime Seminars

From left to right: Reiichiro Takahashi, Koichi Ohara, and Shunichi Homma

has a unique perspective on these issues CJEB organizes a series of lunchtime sem- grandfather, Kounosuke Ohara, the small and offered his insights at this off-the-record inars on campus for students, faculty, and family company started as a paint shop and lunchtime seminar. Ambassador Takahashi members of the Columbia and New York blossomed into a principal company in auto- stated that the United States should commit community. These include zadankai, or infor- motive parts and chemical sales after joining to helping Japan and the Indo-Pacific region mal discussions, which involve lengthy ques- forces with DuPont. Mr. Ohara then dis- as a whole through trade, security, and inter- tion-and-answer periods with the audience cussed the development of its R&D depart- national cooperation, because that region is and are geared toward presenting new and ment, core technologies, and various manu- where the future of the world economy lies. insightful angles for understanding Japanese facturing bases, demonstrating the many dif- business and economic issues. Seminars held ferent industries and parts for which Tsuchiya in 2017–2018 included: provides supplies and manufacturing. He concluded the lecture by briefly sharing the company’s strategy for global expansion and A Family Business: its overseas markets. Tsuchiya’s Strategy and History How Medical Insurance Zadankai Works in Japan in October 5, 2017; Uris Hall, Columbia Comparison with the U.S. Business School Zadankai Koichi Ohara ’04, President and COO, October 10, 2017; Uris Hall, Columbia Tsuchiya Co., Ltd. Business School Moderator: Hugh Patrick, Director, CJEB Shunichi Homma, MD, FACC, Margaret Koichi Ohara ’04, president and COO of Milliken Hatch Professor of Medicine; Deputy Tsuchiya Co., Ltd., opened the lecture with Chief, Division of Cardiology, Columbia a short overview of Tsuchiya as a lead- University Medical Center ing chemical manufacturing company in Moderator: Hugh Patrick, Director, CJEB Japan. Founded in 1950 by Koichi Ohara’s

CJEB Annual Report 2017–2018 | 41 Takako Masai Glen S. Fukushima

Shunichi Homma shared his insights on the Japan’s Economy and The Trump Administration’s differences and similarities between the health care systems of the United States Monetary Policy: 20 Asia Policy and Japan. He started off the lecture by Years of Unconventional Zadankai demonstrating the high health care costs in Monetary Policy the U.S. compared to Japan and other OECD February 1, 2018; Warren Hall, Columbia University countries, despite its life expectancy being Zadankai ranked only 27th in the world. According to November 10, 2017; Warren Hall, Columbia Glen S. Fukushima, Senior Fellow, Center for Dr. Homma, U.S. health care system costs Business School American Progress are driven by factors such as absence of commercial guidelines and price controls, Takako Masai, Member of the Policy Board, Moderator: David E. Weinstein, Director for limited competition, and lack of medical ser- Bank of Japan Research, CJEB vice price transparency. Japan, on the other Moderator: Takatoshi Ito, School of Glen S. Fukushima, senior fellow at the hand, has overall lower health care costs, is International and Public Affairs, Columbia Center for American Progress, dissected the ranked second in life expectancy, and is able University; Director, Program on Public first year of Donald Trump’s presidency from to cover all its legal residents with insurance. Pension and Sovereign Funds, CJEB the point of view of his actions toward Japan, This is partially because Japan places strict China, Korea, and Asia at large. The event price control on health care, which is guided Takako Masai, member of the Policy Board was held by CJEB and was cosponsored by by GDP growth, and costs of care are uniform at the Bank of Japan, opened the lecture the APEC Study Center and the Japan Study across providers and locations. Dr. Homma discussing Japan’s current economic outlook, Student Association (JASSA). Mr. Fukushima, concluded by stating that although Japan has including its growth rate, prices, and labor who was an adviser on Hillary Clinton’s Asia an efficient health care system overall, there market conditions. She then explained the Policy Working Group when she was a presi- are still some shortcomings, including rising history of Japan’s monetary policy and the dential candidate, discussed the differences costs for an increasingly aging population, a Bank of Japan’s direction in developing an in Secretary Clinton and President Trump’s declining rate of full-time employees, and the unconventional monetary policy during the stances on East Asia. Mr. Fukushima con- necessity of improving quality care. last 20 years. Ms. Masai concluded by dis- cluded that President Trump has not to this cussing the Bank of Japan’s Quantitative and point displayed a unified, coherent policy Qualitative Monetary Easing (QQE) policy and toward East Asia and predicted that he would its positive effects and challenges. take more action in 2018.

42 | CJEB Annual Report 2017–2018 Yoichi Nemoto Toshihiko “TJ” Kumakura

Japan’s Role in East Asian Japan undertook a leadership role in the Japanese Harmony organization, from introducing a rule-based Financial Cooperation multilateral system to prevent currency crisis, between Nature and Zadankai to starting the precedent of getting treaties People: Suntory’s Corporate approved by national assemblies. Mr. Nemoto Values, Marketing February 20, 2018; Uris Hall, Columbia noted that Japan has achieved, or is in the University process of achieving, most of its goals for Strategy, and Sustainable Yoichi Nemoto, Former Director, ASEAN+3 AMRO. Development Philosophy Macroeconomic Research Office; Former Zadankai Director, Policy Research Institute, Ministry of Finance April 17, 2018; Uris Hall, Columbia Challenges and Prospects University Moderator: Takatoshi Ito, Professor, School for Japanese Monetary Toshihiko “TJ” Kumakura, CEO, Suntory of International and Public Affairs, Columbia Policy University America Inc. (Cancelled due to the University closing in Yoichi Nemoto, former director of the Moderator: Hugh Patrick, Director, CJEB light of the inclement weather) ASEAN+3 Macroeconomic Research Office Toshihiko “TJ” Kumakura, CEO of Suntory (AMRO), spoke about East Asian financial Zadankai America Inc., gave a comprehensive over- cooperation, the evolution of AMRO, and March 21, 2018; Uris Hall, Columbia view of his company’s values, history, and Japan’s role in both. He discussed the pro- Business School goals at a lunchtime discussion at Columbia gression of financial cooperation in the region Business School on April 17, 2018. Mr. from 2004 to 2018, noting that East Asia Ryuzo Miyao, Faculty of Economics, Kumakura described how Suntory grew from was not totally surprised by the global finan- University of Tokyo; Former Member of the a merchant’s store with a single product—a cial crisis in 2008 given its preparedness in Policy Board, Bank of Japan fortified port wine developed in 1907—to a attempting to secure financial safety nets. Moderator: Takatoshi Ito, Professor, School global brand whose holdings include some of Mr. Nemoto described how AMRO spent the of International and Public Affairs, Columbia the biggest names in liquor and soft drinks. years since its inception cultivating trust University These range from Jim Beam to Maker’s Mark in the region, which resulted in its becom- to Orangina, to say nothing of Suntory’s own ing an international organization in 2016. signature whiskies. Suntory’s main goal, Mr.

CJEB Annual Report 2017–2018 | 43 Hiroshi Nakaso

Kumakura explained, is to create long-last- Hiroshi Nakaso, who just concluded 40 years ing, mutually beneficial relationships with of service at the Bank of Japan (BOJ), culmi- their stakeholders and society, which can nating in his role as deputy governor in March be summed up with the phrase “enjoyment 2018, gave a lunchtime talk about his experi- and responsibility.” Suntory believes that it is ence working at the BOJ and, specifically, his responsible primarily to its customers, and to involvement in attempting to raise the coun- nature itself; indeed, the company expends try’s inflation rate. During his tenure at the efforts in protecting the sustainability of BOJ, Mr. Nakaso had firsthand involvement water, which is crucial not only for its busi- in the various financial crises that befell the ness but also for society at large. country in the last 30 years. He discussed the current issues with the Japanese banking system and his opinions on their causes and potential remedies, as well as other factors Fighting to Raise Japan’s that impact the Japanese economy. Mr. Inflation Rate Nakaso discussed quantitative and qualita- tive easing and its relation to helping Japan Zadankai to close the gap toward its 2 percent inflation April 19, 2018; Uris Hall, Columbia Business target. School

Hiroshi Nakaso, Immediate Past Deputy Governor, Bank of Japan

Moderator: Takatoshi Ito, Professor, School of International and Public Affairs, Columbia University

44 | CJEB Annual Report 2017–2018 Workshop

R. A. Farrokhnia speaking at a workshop in Tokyo

Demystifying Blockchain cryptocurrencies, intended for participants with limited or no technical background or and Cryptocurrencies prior knowledge. This highly sought-after An Educational Summit Organized by event was well-received by the attendees. Advanced Projects and Applied Research in Fintech and the Center on Japanese Economy and Business—Columbia Business School

May 27, 2018; Hotel New Otani, Tokyo, Japan

R. A. Farrokhnia, Adjunct Associate Professor, Columbia Business and Engineering Schools; Executive Director, Dean’s Office, Columbia Business School

This was a joint educational summit hosted by CJEB and the Advanced Projects and Applied Research in Fintech, Columbia Business School. The summit was designed and taught by Columbia Business School’s R.A. Farrokhnia, executive director for Advanced Projects and Applied Research in Fintech and a recipient of the Dean’s Award for Teaching Excellence. The sum- mit offered a comprehensive “gentle guide” and introductory primer to blockchain and

CJEB Annual Report 2017–2018 | 45 RESOURCES

Faculty Advisory Committee

CJEB core faculty speaking at NHK symposium

CJEB’s Faculty Advisory Committee was Fangruo Chen Sheena S. Iyengar formed to provide insight and guidance to MUTB Professor of International Business S. T. Lee Professor of Business CJEB’s governance, research, teaching, and Columbia Business School outreach activities. The diversity of intellec- Columbia Business School tual focus among the committee members is key to furthering CJEB’s mission of serving Wouter H. Dessein Merit E. Janow as a comprehensive forum for collaboration Dean and reflection on Japan, the United States, Eli Ginzberg Professor of Finance and Economics and the global economy. CJEB directors Professor of Professional Practice, receive valuable advice and recommenda- Chair of Economics Division International Economic Law and International Affairs tions on potential opportunities to expand Professor, Heilbrunn Center for Graham and and develop the Center. In addition to Hugh Dodd Investing School of International and Public Affairs Patrick and David E. Weinstein, the mem- Columbia Business School Codirector, APEC Study Center bers of the Committee are: Columbia University

Robert J. Hodrick Charles W. Calomiris Nomura Professor of International Finance Bruce M. Kogut Henry Kaufman Professor of Financial Institutions Academic Advisory Board Member, Program Sanford C. Bernstein & Co. Professor of for Financial Studies Leadership and Ethics Faculty Director, Program for Financial Studies Columbia Business School Director, Sanford C. Bernstein & Co. Center for Leadership and Ethics Columbia Business School Columbia Business School

46 | CJEB Annual Report 2017–2018 2017–2018 Visiting Fellows

Each year, a small number of professional and academic fellows are selected to spend a period of time in residence at Columbia Business School. CJEB Visiting Fellows receive a unique research and networking experience at one of the world’s most pres- tigious business schools in a top-ranking university while experiencing the dynamic Masahiro Endoh Yoichiro Hashida Shinichi Hirose Hiroshi Hoshino lifestyle of New York City. The 2017–2018 Keio University Senshu University Tokio Marine Kyushu University Visiting Fellows are: August 2017– April 2018–March Holdings, Inc. August 2017– August 2018 2019 July 2017– September 2017 December 2017

Yoshio Kinoshita Masaki Mitsuishi Mayuko Morinaga Mariko Oyabu Hideaki Sakawa Ayano Sato Suntory Holdings MinebeaMitsumi Tokai Tokyo Sumitomo Mitsui Nagoya City Takasaki City Limited Inc. Securities Co., Ltd. Trust Bank University University of Economics October 2017–May September 2017– February 2017– May 2017–May September 2017– August 2017–August 2018 May 2018 February 2018 2018 September 2018 2018

Junko Shimizu Hiroki Takeuchi Kiyoshi Wada Masazumi Erika Yamada Yuki Yazumi Gakushuin Mitsui Sumitomo Tokio Marine Holdings Wakatabe Hyogo Prefectural Hyogo Prefectural University Insurance Co., Ltd. Inc. Waseda University Credit Federation Credit Federation March 2018–July July 2017–June May 2018–December March 2017– of Agricultural of Agricultural 2018 2018 2018 February 2018 Cooperatives Cooperatives May 2018–May May 2017–May 2019 2018

Naru Hagiwara Susumu Kimura National Tax Agency Development Bank of July 2017–June Japan Inc. 2018 July 2017–June 2018 Joint Fellow with Joint Fellow with the Weatherhead the Weatherhead East Asian Institute East Asian Institute (WEAI) of Columbia (WEAI) of Columbia University University

CJEB Annual Report 2017–2018 | 47 2018 Visiting Fellow Reunion Reception

CJEB held its annual Visiting Fellow Reunion Reception on May 23, 2018, at the Hotel New Otani in Tokyo. The reunion was cosponsored by CJEB, CBS Alumni Relations, and the Admissions Office, which was attended by more than 110 CJEB Visiting Fellows, CBS alumni, and incoming and prospective students. The reception commenced with welcoming remarks by CBS Senior Associate Director of Individual Giving, Kelly Garvey. She then introduced the Columbia Business School Club of Japan (CBSCJ) leader, Yasuo Sento, who made brief remarks. Hugh Patrick also offered brief welcoming remarks to the CJEB Visiting Fellows, followed by a toast by Masayoshi Amamiya, a former CJEB Visiting Fellow and Bank of Japan’s deputy governor. David Weinstein concluded the reception.

Hugh Patrick speaks at CJEB Visiting Fellow Reunion

2018 Annual Visiting Fellow Business Field Trip

On March 13, 2018, CJEB organized its annual spring busi- ness field trip for its Visiting Fellows. The tour started off with a stop at the Columbia Startup Lab, which was hosted by CBS’s Eugene Lang Entrepreneurship Center. At the lab, Visiting Fellows had the opportunity to listen to presentations from three different startup ventures regarding their business mission and initiatives. The first venture to present was the Global Youth Mentorship Initiative, which strives to enhance traditional education with innovative mentoring sessions. The second venture was Stratyfy, which aims to bridge the gap between how businesses make decisions today and how they will make them in the future. The third venture, qLogiX Entertainment, focuses on creating interactive games to make STEM learning fun for children. The Visiting Fellows also took this opportunity to ask questions and network with each organization. Lunch was catered by Eat Offbeat, another startup venture hosted by the Columbia Startup Lab, whose employees are refugees and whose menu features cuisine CJEB directors, staff, and Visiting Fellows at Columbia Startup Lab from their chefs’ countries. The Visiting Fellows then con- cluded with a tour of the Bloomberg Office, where they had the opportunity to see the company’s unique office and learn about its history and business initiatives.

48 | CJEB Annual Report 2017–2018 Research Associates

CJEB benefits from an ongoing collaboration Robert Eberhart Anil Kashyap with Japan specialists from institutions other Assistant Professor Edward Eagle Brown Professor of than Columbia, principally within the United Leavey School of Business Economics and Finance States. Research associates are invited to Santa Clara University The University of Chicago Booth School of communicate their research through partic- Research Fellow Business ipation of the Center’s projects and public Stanford Technology Venture Program Takao Kato programs and by contributing to the Center’s David Flath W. S. Schupf Professor of Economics and Working Paper Series. Professor Department of Economics Far Eastern Studies Ritsumeikan University Department of Economics Christina Ahmadjian Emeritus Professor of Economics Colgate University Professor, Graduate School of Commerce Poole College of Management and Management Kenneth N. Kuttner North Carolina State University Hitotsubashi University Robert F. White Class of 1952 Professor of Koichi Hamada Economics Shiro Armstrong Tuntex Professor Emeritus of Economics Department of Economics Director Department of Economics Williams College Australia-Japan Research Centre Crawford Yale University School of Public Policy Patricia H. Kuwayama Special Adviser to the Cabinet Editor, East Asia Forum Economist The Cabinet of Japan The Australian National University Professional Fellow Yasushi Hamao Center on Japanese Economy and Business Schon L. Beechler Visiting Professor Columbia Business School Senior Affiliate Professor of Organisational Schwarzman College Former Vice President Behaviour Tsinghua University JPMorgan Chase Bank, N.A. INSEAD Masanori Hashimoto Edward Lincoln Lee G. Branstetter Professor Emeritus Professorial Lecturer Professor of Economics and Public Policy The Ohio State University George Washington University Heinz College and Department of Social and Decision Sciences Takeo Hoshi Robert A. Myers Carnegie Mellon University Henri and Tomoye Takahashi Senior Fellow Senior Vice President Nonresident Senior Fellow and Director of the Japan Program Fairfield Resources LLC Peterson Institute for International Economics Shorenstein Asia-Pacific Research Center, Former Director of Technology Freeman Spogli Institute for International IBM Japan Jenny Corbett Studies Rio Tinto Fellow Terutomo Ozawa Professor of Finance (by courtesy) Foundation for Australia-Japan Studies Professor Emeritus of Economics Stanford Graduate School of Business Professorial Fellow, Griffith Asia Institute Department of Economics Stanford University Griffith University Colorado State University

Joe Peek Robert Dekle Vice President and Economist Professor of Economics, Department of Research Department Economics Federal Reserve Bank of Boston University of Southern California Adam S. Posen Peter Drysdale President Emeritus Professor of Economics Peterson Institute for International Head, East Asia Bureau of Economic Economics Research Co-Editor, East Asia Forum Crawford School of Public Policy The Australian National University

CJEB Annual Report 2017–2018 | 49 Professional Fellows

William V. Rapp A professional fellow appointment at the undergraduate studies, he served in the U.S. Henry J. Leir Professor of International Trade Center recognizes former government officials Peace Corps, including three years as a volun- and Business and business leaders who have had distin- teer mathematics teacher at Chanel College School of Management guished careers in economics-related fields. in Western Samoa. Mr. Fallon is chairman Director This position facilitates his or her ongoing of the Council on International Educational Leir Center for Financial Bubble Research involvement with CJEB and its activities. Exchange, Inc., a member of the Asia Society New Jersey Institute of Technology and the Council on Foreign Relations, and a Robert E. Fallon is professional fellow of CJEB. He is a former Frances McCall Rosenbluth president and CEO of director of the Japan Society and of the Korea Damon Wells Professor of Political Science Phosplatin Therapeutics Society, as well as trustee emeritus of the Department of Political Science LLC, a company he Ohio University Foundation. Yale University helped found that is Ulrike Schaede developing a novel class Patricia Hagan Professor of Japanese Business of anticancer chemother- Kuwayama has been Director, JFIT Japan Forum for Innovation apy drugs. From 2008 studying the Japanese and Technology to 2011, Mr. Fallon economy since she was Executive Director, Center on Global was adjunct professor at Columbia Business a graduate student in Transformation School, where he taught international banking. the 1960s, completing School of Global Policy and Strategy (GPS) Prior to his Columbia appointment, Mr. Fallon a doctoral dissertation University of California, San Diego was chairman of Korea Exchange Bank, a pub- on effective tariff pro- licly listed $80 billion institution that is Korea’s tection of the Japanese Michael J. Smitka leading international bank. After taking over industry in 1970. She became a professional Professor of Economics as chairman and CEO in January 2004, he led fellow of CJEB in 2009, after retiring as a Williams School of Commerce a successful reorganization and restructuring vice president and international economist Washington and Lee University that restored the bank’s capital strength and at JPMorgan Chase in New York. Previously, Tsutomu Watanabe achieved record profitability. He is also the she was JPMorgan’s chief economist in Tokyo Professor first non-Korean to chair a public company in and earlier with Chemical Bank in Tokyo. From Graduate School of Economics Korea. Previously, Mr. Fallon was an interna- 1970 to 1986, Dr. Kuwayama was with the University of Tokyo tional banker based in Tokyo with JPMorgan Federal Reserve Bank of New York, serving Chase, where he was Asia-Pacific division in various research and management posts Eleanor Westney head for the Chase Manhattan Bank and a in the International Research, Statistics, and Professor Emeritus of Organization Studies member of the Chase Manhattan Corporation Foreign Exchange Departments. She has The Schulich School of Business Management Committee. He was responsi- been a visiting scholar at the Bank of Japan York University ble, as senior executive in Asia, for Chase’s Institute for Monetary and Economic Research Jiro Yoshida activities in the Pacific Rim located across 13 and visiting consultant at the Bank for Associate Professor of Business different countries. Mr. Fallon has lived in Asia International Settlements in Basel and taught Department of Risk Management for more than 30 years and enjoys a myriad as a visiting professor at Keio University in Smeal College of Business of contacts across a wide spectrum of gov- Tokyo and at Kobe Gakuin University. Dr. The Pennsylvania State University ernment, corporate, and financial institutions Kuwayama has written widely about Japanese Project Associate Professor in the region. He travels widely and speaks macroeconomic policy, balance of payments Graduate School of Economics often on Asian economic and business affairs. issues, and financial institutions, including the University of Tokyo He started his banking career with Citibank postal savings system. She assisted Eleanor in Hong Kong in 1975 and later worked in M. Hadley in writing Memoir of a Trustbuster: investment banking and management posi- A Lifelong Adventure with Japan. She earned tions in Tokyo. Subsequently, he assumed Asia her BA and PhD degrees in economics at regional responsibility with Drexel Burnham Harvard University and the City University of Lambert and Bankers Trust Company before New York, respectively, and did her Japanese joining Chase in 1992. Mr. Fallon holds a language studies at Columbia University. She BA from Ohio University and an MBA from participates actively in the CJEB Visiting Harvard Business School. Following his Fellow Seminars. 50 | CJEB Annual Report 2017–2018 International Advisory Board

David E. Weinstein speaking at a CJEB sponsor dinner

The International Advisory Board provides Yasushi Kinoshita Atsushi Saito overall guidance for CJEB. Members are dis- Chairman Commissioner tinguished leaders in the fields of Japan-U.S. Development Bank of Japan Inc. Nippon Professional Baseball Organization economic, business, and political relations. Senior Fellow to KKR Global Institute Charles D. Lake II KKR Japan Richard Folsom Chairman and Representative Director Representative Partner Aflac Life Insurance Japan Ltd. Taisuke Sasanuma Advantage Partners President Representative Partner Aflac International Advantage Partners, Inc. Shinji Fukukawa Former Vice-Minister Japanese Ministry of Yuzaburo Mogi ’61 Joseph G. Tompkins ’67 International Trade and Industry Honorary CEO and Chairman of the Board President Senior Adviser Kikkoman Corporation Saga Investment Co., Inc. Global Industrial and Social Progress Research Institute Toshikazu Nambu Chairman Senior Managing Executive Officer Board of Trustees Sumitomo Corporation Toyo University

CJEB Annual Report 2017–2018 | 51 PROMOTING EXCHANGE OF IDEAS

CJEB in the News

CJEB and its academic directors are regu- David E. Weinstein Alicia Ogawa larly featured in the media, providing their Bonds ... Japanese Bonds Japan Inc. and the Peril of Inbred insights and expertise in Japan-related mat- NPR Planet Money, March 13, 2018 Management ters. Highlights for this year include: Nikkei Asian Review, January 30, 2018 Hugh Patrick Takatoshi Ito

Professor Hugh Patrick of Columbia Professor Ito on Inflation, BOJ Meeting, University Interviews Local Business ETFs Leaders Bloomberg, July 18, 2017 Nihonkai Shimbun, June 1, 2018 Columbia Professor Ito Says Conditions Warrant No Further BOJ Easing Bloomberg, February 18, 2018

CJEB/CBS-Related News

The following CJEB events and CJEB-related Mainichi Shimbun Joseph E. Stiglitz, University Professor, initiatives were featured on leading news out- Columbia University Asahi Shimbun lets. Some of the titles have been translated The Japan Times David E. Weinstein, Carl S. Shoup Professor from Japanese to English. of the Japanese Economy, Columbia Newsweek His Excellency Tarō Kōno, Japan’s New University; Director of Research, CJEB Foreign Minister: A Dialogue with Columbia Japan Today Takatoshi Ito, Professor, School of Students about Diplomacy Trump’s Economic Policies and Their International and Public Affairs, Columbia Implications for Japan and Asia Featuring: His Excellency Tarō Kōno, Foreign University; Director, Program on Public Minister of Japan Featuring: Pension and Sovereign Funds, CJEB

Featured On (September 22, 2017): Glenn Hubbard, Dean; Russell L. Carson Hugh Patrick, Director, CJEB Jiji Press Professor of Finance and Economics, Featured On (December 15, 2017): Columbia Business School Huffington Post NHK Global Agenda Sankei Shimbun

CJEB with corporate sponsors

52 | CJEB Annual Report 2017–2018 Enhancing the MBA Experience

Shinichi Hirose speaking with Columbia University students Chazen International Study Tour participants at the Golden Pavilion

CJEB is a key contributor to the Columbia The 2018 Chazen Japan Study Tour took experienced bathing in an onsen and eating a Business School’s (CBS) international com- place from May 13 to May 20 and was an traditional kaiseki dinner. munity and seeks to pursue opportunities to enormous success. Visiting Kyoto, Aichi, and At their final stop, Tokyo, the students enhance the MBA student experience. In this Tokyo, the 40 MBA students met with repre- listened to presentations from Mitsubishi endeavor, CJEB’s major collaborative partner sentatives from Japanese corporations and Real Estate and Shiseido, two traditional is the CBS Japan Business Association (JBA), immersed themselves in Japanese cultural Japanese long-lasting companies, and from a student-led organization that promotes sights and experiences. CBS adjunct assis- 500 Startups, which the students enjoyed Japanese business and culture to the CBS tant professor of business Brett Martin joined due to the growing interest in startup com- community. The Center regularly meets with the group. panies. The students also appreciated their JBA officers to exchange ideas on ways to In Kyoto, they toured the Omron manufac- visit to Shiseido as it was the first time the promote Japanese economy and business-re- turing plant to learn about the company’s tour organizers were able to coordinate such lated issues within CBS. advanced initiatives on employment for a visit. One of main highlights of this trip As an annual initiative, CJEB assists the JBA individuals with disabilities, vividly demon- was the impressive presentation and Q&A in organizing the Chazen International Study strating a good example of corporate social by Shiseido’s CEO, Masahiko Uotani, who is Tour to Japan. Led by the Jerome A. Chazen responsibility (CSR). They also visited also a CBS alumnus. After these company Institute for Global Business, the Japan Suntory’s Yamazaki distillery to learn about visits, the participants stopped in Asakusa, Study Tour sends a group of students on a the production process of its world-famous enjoyed watching sumo wrestling in Ryogoku, weeklong trip to Japan, providing a unique whisky. In addition, they enjoyed their visit to and participated in a tea ceremony within the opportunity for the students to experience several historical sites, including the Golden Happo-En in Shirokane, all of which made the cultural excursions and visits to Japanese Pavilion and the Fushimi-Inari Shrine. trip a unique Japanese cultural experience. corporations. Since the tour’s initiation in In Aichi, the tour group had a great experi- JBA also cohosted an “International Week 1989, CJEB has helped fund the program ence visiting Toyota’s manufacturing plant, Food Festival” night on April 4, 2018, with and contributed to its agenda. Before each where the students had an opportunity to see other regional/affinity clubs. At this event, trip, the student trip organizers consult with Toyota’s world-leading production process, which CJEB funded, the JBA officers pre- Professor Hugh Patrick and CJEB’s director about which they had learned in their core pared Japanese food and drinks for the for administration, Ryoko Ogino, on possible operations class. They also stayed in a ryokan Columbia community, introduced Japan’s company visits and on the overall current (a traditional Japanese inn) in Gamagori and food industry, and demonstrated Japanese state of the Japanese economy.

CJEB Annual Report 2017–2018 | 53 Enhancing the Columbia Experience

traditional clothing. This event gave Columbia students an opportunity to learn about vari- ous cultures as well as appreciate and cele- brate the diversity at Columbia.

The CJEB annual welcome reception for CJEB Visiting Fellows, students, and other CBS community members was held on September 26, 2017. CJEB officers and staff welcomed the CBS community to the new academic year, allowing CBS students the opportunity to network with CJEB Visiting Fellows and CBS faculty and staff from other departments.

On December 6, 2017, CJEB organized a special breakfast lecture featuring one of CJEB’s Visiting Fellows, Shinichi Hirose, managing executive officer at Tokio Marine Holdings, Inc. for Columbia students, includ- The audience at Tarō Kōno’s lecture ing those from JBA and the Japan Study Student Association (JASSA). Mr. Hirose shared his views on the current challenges Columbia University offers many resources supporting local businesses, ultimately cre- in the life insurance industry and why enter- and opportunities for students, faculty, and ating a space where the private sector, the prise risk management are essential to his alumni interested in learning more about public, and academia can connect through company’s sustainable growth strategy. Japan outside the Business School. CJEB the celebration of Japanese tradition. contributes to this initiative by assisting CJEB is continually active and committed other organizations on campus that are to promoting Japan-related activities at engaged in Japan-related activities. This Columbia through the support of JASSA includes the Weatherhead East Asian and its initiatives. On September 21, 2017, Institute (WEAI), the APEC Study Center, the CJEB worked with JASSA and other centers East Asian Languages and Cultures (EALAC) to cosponsor a special lecture for Columbia Department, the School of International and students with His Excellency Tarō Kōno, Public Affairs (SIPA), and many others. who is the foreign minister of Japan. On CJEB continues to serve as a contributor February 1, 2018, CJEB and JASSA also to the Columbia Japan Society (CJS), a stu- cosponsored a zadankai titled “The Trump dent-run organization that focuses on edu- Administration’s Asia Policy,” featuring Glen cating the University community as well as S. Fukushima, senior fellow at the Center the greater New York City public on Japanese for American Progress. In spring 2018, culture, history, and language. In 2018, JASSA also planned a lunch session, funded CJEB provided a generous sponsorship that by CJEB, featuring two Japanese diplomats allowed CJS to organize and partially fund its who shared their experience working at a annual Matsuri event, a Japanese-style festi- Japanese embassy in Uganda and at the val, held on Low Plaza at Columbia University. Permanent Mission of Japan to the UN. The festival serves as a way to celebrate JASSA held four cultural events and two Japanese history, food, and culture, while language table sessions in the spring, which

54 | CJEB Annual Report 2017–2018 Enhancing the Visits from Columbia Experience Japan to Columbia

CJEB also funded. Their cultural events included a PyeongChang Winter Olympics celebration gathering for students, a Lunar New Year celebration, which included a joint food tasting event, an origami workshop, and a sake tasting event. The language tables provided an opportunity for native Japanese and individuals interested in Japan-related careers or research to network and commu- nicate.

Aside from funding and programming, CJEB engages with the student community by pro- viding opportunities for Columbia students to work at the Center as student casuals. They are selected from a number of applicants, and their contribution to the CJEB team is invaluable, as they are deeply involved in the day-to-day operations of the Center. The Center is committed to developing our stu- Hugh Patrick with TOMODACHI Sumitomo Scholars dent workers professionally while providing Groups of Japanese undergraduate and for one year. This year Sumitomo visited a unique learning opportunity. Our student graduate students often visit CJEB during CJEB on January 9, 2018, and March 26, casual program is open to high-perform- their tours of the East Coast. In 2017–2018, 2018, where Professor Hugh Patrick and ing and proactive students with relevant student groups from Meiji University, Bunkyo CJEB’s director for administration, Ryoko backgrounds and interests from across the University, and Wako University came to Ogino, welcomed students and executives University. Columbia University. Each group met with from Sumitomo and engaged with them in a Professor Patrick, who gave a brief intro- lively discussion on Japan, the world econ- duction and fielded questions. Discussion omy, and the students’ future prospects. topics included U.S.-Japan relations; U.S. Students were given the opportunity to meet trade policies; tensions in East Asia; Japan’s and exchange ideas with, and receive career workplace challenges, especially for women, advice from, CBS and SIPA graduate stu- and related policies; challenges presented dents. by Japan’s aging population; and attitudes toward foreign study and employment.

In spring 2018, the New York office of CJEB’s longtime lead corporate sponsors, Sumitomo Corporation of Americas, vis- ited CJEB and Columbia twice as part of its TOMODACHI Sumitomo Corporation Scholars Program. Through this program, scholarship recipients, who come from Japanese universities, are given the oppor- tunity to study abroad in the United States

CJEB Annual Report 2017–2018 | 55 Fellowship and Scholarship Programs

From left to right: Hugh Patrick, Jackson Lu, and David E. Weinstein

CJEB provides select fellowships for fellow, obtained his PhD in management The Sumitomo Fellowship Program was Columbia University students who demon- from CBS in 2018 and will be teaching at established by the Center as part of an initial strate outstanding academic ability and MIT in fall 2018. His research focused on operating grant from Sumitomo Corporation a specific interest in Japan and the Asia- the benefits and risks of globalization for of Americas. The program has provided sup- Pacific economies. These fellowships sup- individuals, groups, and organizations. On port to various Japan-related research initia- port research and participation in academic April 27, 2018, he gave a lecture for our tives, and the fellowship recipients engage programs related to Japanese economic and Visiting Fellows and CJEB directors to share in their own research as well as participate business fields. Further information on these his findings on the concept of the “bamboo in CJEB programs. Misaki Matsumura, PhD opportunities is available at www.gsb.colum- ceiling,” which discussed how Asians struggle candidate in the Department of Economics, bia.edu/cjeb/resources/fellowships. to achieve leadership roles in society. CJEB was this year’s recipient. Doctoral Research Grants and Summer The CJEB Doctoral Fellowship was estab- The Mitsubishi UFJ Trust Scholarship Stipends are also available to PhD students lished in 2013 to support PhD students Foundation provides one Columbia at CBS or the Department of Economics at CBS and/or Columbia’s Department of University student each year with tuition who wish to pursue Japan-related research Economics who intend to develop Japan and living expenses for a program of either projects or language training programs. The expertise, culminating in dissertations undergraduate or graduate study in Japan. Center also awarded a stipend in spring focused primarily on Japan. Our CJEB CJEB conducts a University-wide compe- 2018 to Cameron LaPoint, another PhD Doctoral Fellowship recipients include tition on behalf of the Foundation to nomi- candidate in the Department of Economics, Guannan (Jackson) Lu in the Management nate a student. The award was granted to to further his research on the Japanese Division of CBS and Shogo Sakabe in the Spencer Cohen of Columbia University for economy. Department of Economics of Columbia 2018–2020. University. Jackson, who is our first PhD

56 | CJEB Annual Report 2017–2018 Library and Data Resources

Columbia University is home to one of the CJEB’s databank includes: Daily Price Index project in May 2013, which largest collections of Japanese- and English- measures and publishes the consumer infla- • Time-series and cross-section data on finan- language materials in the United States. tion rate on a daily basis. cial markets, institutions, and the macroeco- CJEB evaluates Columbia University library nomy from Nikkei NEEDS Financial QUEST resources and commits funding to procure 2.0 and the Development Bank of Japan’s new materials on Japan and the Asia-Pacific Industrial Financial Database. economies. CJEB also maintains a small work- ing collection of materials on the Japanese • An online news and data retrieval system and Asia-Pacific economies, including sta- that provides essential corporate and eco- tistical resources, academic journals, and nomic data as well as leading newspaper periodicals. and journal articles on Japanese and other Asia-Pacific economies from Nikkei Telecom, which is accessible via Columbia University Data Resources Libraries (CLIO)

The Center continues to develop its major computer-based databank on the Japanese Other data resources: economy, with an emphasis on financial mar- kets, under the direction of Professor David CJEB Research Associate Professor Tsutomu Weinstein. The databank is a compilation of Watanabe of the University of Tokyo (along statistical resources for faculty members and with Kota Watanabe of Chuo University and students conducting relevant research. the University of Tokyo) launched the UTokyo

CJEB Annual Report 2017–2018 | 57 Discussion Groups

Japan Economic Seminar Identifying Neighborhood Effects among U.S.-Japan Discussion Firms: Evidence from Location Lotteries of The Japan Economic Seminar (JES) was the Tokyo Tsukiji Fish Market Group founded in 1966 by the late Professor James Shortly after CJEB was founded, the then- Presenter: Kensuke Teshima, Assistant Nakamura of Columbia and Professors Hugh CEO of Sumitomo Corporation of Americas Professor, Centro de Investigación Patrick (then at Yale) and Henry Rosovsky and Professor Patrick took the initiative to Económica Instituto Tecnológico Autónomo of Harvard. With a membership of up to one organize, on a private and individual basis, de México (ITAM) (co-authored with Kentaro hundred individuals, it originally was an inter- an evening discussion group attended by Nakajima, Hitotsubashi University) university forum for faculty, other profes- senior Japanese and American businessmen sionals, and advanced graduate students to Discussants: Donald Davis, Professor, and professionals living in the New York discuss ongoing research in preliminary form Columbia University; Jessie Handbury, area. The group continues to convene to by specialists on the Japanese economy. JES Assistant Professor, The Wharton School, discuss frankly and informally—and off the now meets once a year, sponsored by CJEB, University of Pennsylvania record—issues and prospects in U.S.-Japan and is held at Columbia in the spring semes- business, economic, and political relations. ter under the leadership of Takatoshi Ito, pro- Shingo Ueno, the current CEO of Sumitomo fessor at Columbia’s School of International Secular Stagnation under the Fear of a Corporation of Americas, and Hugh Patrick and Public Affairs and director of the Government Debt Crisis are the co-organizers of this group. The mem- Program on Public Pension and Sovereign bers come from the business and financial Funds at CJEB. Special arrangements have Presenter: Kozo Ueda, Professor, Waseda communities, together with several special- been made to include economists from Japan University (co-authored with Keiichiro ists on Japan from the Columbia University as paper authors and discussants. Kobayashi, Keio University) faculty. The group avoids identification with This year, the JES was held on February Discussants: Gauti Eggertsson, Professor, any particular companies or groups and 16, 2018, and had four sessions. These Brown University; Etsuro Shioji, Professor, meets twice in the fall and spring for dinner sessions were moderated by Professors Ito Hitotsubashi University and discussion. The discussions naturally and Weinstein. The Japan Economic Seminar focus on the wide-ranging political economy thanks the James Nakamura Fund for its and how Japanese and American corpora- support. The Decline in Bank-Led Corporate tions operate domestically, abroad, and with Restructuring in Japan: 1981–2010 each other. Topics discussed in 2017–2018 included the implementation of Abenomics, Presenter: Takeo Hoshi, Henri and Tomoye TPP, political stability with Abe in Japan, The following papers were discussed: Takahashi Senior Fellow, Walter H. Trump’s election, Trump’s economic policy Enjoying the Quiet Life: Corporate Shorenstein Asia-Pacific Research Center, pronouncements, and his administration’s Decision-Making by Entrenched Managers Stanford University (co-authored with initial policy proposals. Satoshi Koibuchi, Chuo University, and Ulrike Presenter: Kotaro Inoue, Professor, Tokyo Schaede, University of California, San Diego) Institute of Technology Discussants: Masami Imai, Professor, Discussants: Konari Uchida, Professor, Wesleyan University; Patrick Bolton, Kyushu University and Visiting Scholar, Professor, Columbia Business School, University of Utah; Tokuo Iwaisako, Professor, Columbia University Hitotsubashi University

58 | CJEB Annual Report 2017–2018 FINANCIAL SUPPORT

Financial Support

Columbia University and Columbia Business was delighted to hold a special luncheon at MinebeaMitsumi Inc.* School (CBS) give basic support for the the Hotel New Otani Tokyo for our corporate Mitsui Sumitomo Insurance Co., Ltd.* Center by providing faculty salaries and sponsors in Japan to demonstrate our deep Mitsui USA Foundation office space, library and administrative sup- appreciation for their continued support. Mori Building Co., Ltd. port, and other essential services. However, Professor Weinstein presented his paper at Nikkei Inc.* the Center relies on external sources of this luncheon as well. Nomura America Foundation financial support from foundations, corpo- Saga Investment Co., Inc. rations, and individuals for its programs and Sumitomo Mitsui Trust Bank, Ltd.* Suntory Holdings Limited research activities. Income is derived from Tokio Marine & Nichido Fire Insurance Co., the Center’s endowment, operating and proj- Sponsorship Program Ltd.* ect grants, and, especially, from its Corporate Sponsors for the year 2017–2018 are as TV TOKYO Holdings Corporation Sponsorship Program, which was established follows: Yaskawa Electric Corporation in 1995. Academic independence has not Lead Corporate Sponsor been an issue, as there are no special restric- ($100,000+ annually) Lead Individual Sponsor tions attached to any of these gifts. Sumitomo Corporation of Americas ($30,000 + annually) The Sponsorship Program has been instru- Makoto Takano Senior Corporate Sponsors mental in expanding the Center’s activities ($50,000+ annually) and guaranteeing their long-term financial Individual Sponsors Advantage Partners, Inc. support. The companies listed below support ($10,000+ annually) Daiwa Capital Markets America Inc. Robert Alan Feldman CJEB through funding to help establish an Effissimo Capital Management Pte Ltd Robin and Brian Kelly endowment or provide funding on an annual Mitsubishi UFJ Trust and Banking Shigeru Masuda basis. Sumitomo Corporation of Americas Corporation made an initial significant contribution Mizuho Bank, Ltd. Friends of the Center that enabled the Center to be established SMBC (up to $9,999 annually) in 1986 and has continued to be a major Tokai Tokyo Securities Co., Ltd.* Miyoko Davey Center donor. The Center also greatly appre- Hiroko and Satoru Murase ciates and benefits from the income derived Major Corporate Sponsors Tsunao Nakamura from the generous endowments funded by ($25,000+ annually) Hugh Patrick Kikkoman Corporation Fuji Xerox Co., Ltd., Sanken Industrial Policy Sadao Taura Mitsubishi Corporation (Americas) Research Institute, the Marine and Fire Michael D. Van Zandt Insurance Association, the Federation of Ricoh Co., Ltd. Tsuchiya Co., Ltd. Bankers Association, the Security Dealers * Regularly sends visiting fellows Association, the Life Insurance Association, and Mitsubishi UFJ Trust and Banking Corporate Sponsors Corporation during the first years of the ($10,000+ annually) Aflac Life Insurance Japan Ltd. Center’s establishment at CBS and now. ANA HOLDINGS INC. On April 26, 2018, Professor David E. Canon U.S.A., Inc. Weinstein, CJEB’s director of research, pre- Fuji Xerox Co., Ltd. sented his paper “The Crisis That Wasn’t: Hyogo Prefectural Credit Federation of How Japan Has Avoided a Bond Market Agricultural Cooperatives* Panic” over dinner with a small group of CJEB Imuta and Associates sponsors and other guests at Faculty House, ITO Corporation Columbia University. This was a great oppor- ITO EN (North America) INC. tunity for our guests to discuss and exchange Japan Industrial Partners, Inc. ideas on the current Japanese economy in J.C.C. Fund of the Japanese Chamber of Commerce and Industry of New York, Inc. a private setting. On May 26, 2018, CJEB

CJEB Annual Report 2017–2018 | 59 Table of Contents

Letter from the Directors 2 Lunchtime Seminars 41 A Family Business: Tsuchiya’s Strategy and History 41 CJEB Team 4 How Medical Insurance Works in Japan in Comparison Leadership and Staff 4 with the U.S. 41 Core Faculty 7 Japan’s Economy and Monetary Policy: Research and Faculty Engagement 10 20 Years of Unconventional Monetary Policy 42 “Japan’s Economy: Stable, with Sustained Modest The Trump Administration’s Asia Policy 42 Design/Production: Change” by Hugh Patrick 10 Japan’s Roles in East Asian Financial Cooperation 43 Columbia Creative Current Research Highlights 24 Challenges and Prospects for Japanese Monetary Policy 43 Office of Communications and Public Affairs Faculty Engagement 26 Japanese Harmony between Nature and People: Suntory’s Corporate Values, Marketing Strategy, Editors: Research Paper Series 28 and Sustainable Development Philosophy 43

CJEB Programs 30 Fighting to Raise Japan’s Inflation Rate 44 Ryoko Ogino Program on Public Pension and Sovereign Funds 30 Workshop 45 Michelle Tam Corporate Governance and Stewardship Program 30 Demystifying Blockchain and Cryptocurrencies 45 Assistant Editors: The New Global Financial Architecture 31 Resources 46 Taylor Cook Events 32 Faculty Advisory Committee 46 Emiko Mizumura Conferences 32 2017–2018 Visiting Fellows 47 Shoko Nakamoto Conference on Public Pension and Sovereign Funds 32 2018 Visiting Fellow Reunion Reception 48 Japan as a Leading Power: Trade and the Fintech 2018 Annual Visiting Fellow Business Field Trip 48 Revolution 33 Research Associates 49 Photography: The Japan Project Meeting with Joint ESRI International Professional Fellows 50 Eileen Barroso Conference 34 International Advisory Board 51 Michael DiVito ESRI International Conference: “Better Measurement Taichi Okeda for Better Policy Formation” 35 Promoting Exchange of Ideas 52 Symposia 36 CJEB in the News 52 Shoko Nakamoto Power to the Pensions! Japanese and NYC Pension Enhancing the MBA Experience 53 Funds as a Force for Good Governance 36 Enhancing the Columbia Experience 54 Japan and the Leadership of the World Trading System 37 Visits from Japan to Columbia 55 Trump’s Economic Policies and Their Implications for Fellowship and Scholarship Programs 56 Japan and Asia 37 Library and Data Resources 57 A Tale of Two Systems: What Went Wrong at Toshiba and Wells Fargo 37 Discussion Groups 58 Changing the Game in Japan’s Equity Markets: An Update Japan Economic Seminar 58 on Corporate Governance Reforms 38 U.S.-Japan Discussion Group 58 Central Bank International Cooperation and Coordination 38 Financial Support 59 Lectures 39 Sponsorship Program 59 His Excellency Tarō Kōno, Japan’s New Foreign Minister: A Dialogue with Columbia Students about Diplomacy 39 The Intergenerational War in Japan: Macroeconomic Burdens of the Demographic Change 39 Japan’s General Election: What Happened and What It Means 40 Special Lecture with the Honorable Yasuhisa Shiozaki 40 Special Lecture with Ambassador Reiichiro Takahashi 40 CENTER ON JAPANESE ECONOMY AND BUSINESS AND ECONOMY JAPANESE ON CENTER

Center on ANNUAL REPORT 2017–2018 REPORT ANNUAL Japanese Economy and

475 Riverside Drive Room 312F New York, NY 10115 Email: [email protected] Business Phone: 646-745-8569 Web: www.gsb.columbia.edu/cjeb ANNUAL REPORT 2017–2018 (JULY 2017–JUNE 2018) CJEB Representative Office in Japan c/o Terumi Ota 1-19-18-1003 Shibuya Shibuya-ku, Tokyo 150-0002 Phone/Fax: 03-5467-6012