Center on Japanese Economy and Business

Annual report 2014–2015 Table of Contents

Letter from the Directors 2 Gyoza, Rice and Noodles for the U.S. Mainstream Market 38

CJEB Team Resources 39 Leadership and Staff 4 Faculty Advisory Committee 39 Core Faculty 6 Visiting Fellows 40

Research and Faculty Engagement 9 2015 CJEB Visiting Fellow Reunion Reception 41 2015 Annual Visiting Fellow Business Field Trip 41 “Japan’s Abenomics Bumps Along” by Hugh Patrick 9 Research Associates 42 Current Research Highlights 21 Professional Fellows 43 Faculty Engagement 23 International Advisory Board 44 Research Paper Series 24 Promoting Exchange of Ideas 45 The New Global Financial Architecture 28 CJEB in the News 45 His Excellency Shinzo Abe, Prime Minister of Japan, 29 Enhancing the MBA Experience 46 Addresses the World Leaders Forum Enhancing the Columbia Experience 47 Events 30 Fellowship and Scholarship Programs 48 Conferences 30 Visits from Japan to Columbia 48 Challenges Facing the World Trade System 30 Library and Data Resources 49 Japan’s Changing Corporate Governance 30 Discussion Groups 50 The Japan Project Meeting with Joint ESRI Japan Economic Seminar 50 International Conference 31 James Nakamura Fund 50 Symposia 33 Monetary Policy Discussion Group 50 Abenomics, TPP, and the Future of Japan’s Agriculture 33 U.S.-Japan Discussion Group 50 “The Revival of Japan in the Global Economy,” Financial Support 51 Columbia Business School’s Pan-Asian Reunion 2014 in Singapore 33 Corporate Sponsorship Program 51 M&A in Japan: Reenergized 33 Letter from the Directors (in Japanese) 52 How Supply Chains Respond to Crises: The Japanese Experience 34 “Japan’s Abenomics Bumps Along” by Hugh Patrick 54 Abenomics in the New Stage 34 (in Japanese) Japan and the World Economy: Challenges Over the Coming Decade 34 Lectures 35 New Directions in Japanese Politics and Foreign Policy 35 Challenges of Womenomics: Enhancing Women’s Leadership in Japan 35 Lunchtime “Zadankai” Seminars 36 Lessons from Japan: How Abenomics Can Provide Solutions for Advanced Economies 36 Japanese Corporate Governance: A Report from the Front Lines 36 Strategy, Investment Opportunities, and Management Principles of Sumitomo Corporation of Americas 36 The Seventh Sense: East Meets West in the Executive Mind 37 The Three-Year Itch: Can PM Abe Maintain the Honeymoon with Abenomics? 37 Aflac Global Investments: Insights into a Unique U.S.-Japanese Insurance Investment Department 37 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) promotes knowl- edge and understanding of Japanese business and economics in an international con- text. 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, associate director of research, CJEB supports research projects, student and faculty scholarship, and library and computer-based resource initiatives. Other CJEB core fac- ulty 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. Funding and resources are provided by corporate sponsors, founda- tions, individuals, CBS, and Columbia University.

Since its founding, CJEB has developed, grown, and evolved in order to carry out its mis- sion 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 2014–2015 | 1 letter from the directors

Letter from the Directors

Dear Friends,

Over the past 29 years, the Center on Japanese Economy and Business (CJEB) has actively tackled its mission to provide a significant understanding of the Japanese economy, its businesses, and financial markets in a global context. Since its establishment in 1986 at Columbia Business School (CBS), the Center has flourished with growing networks, research initiatives, and programs. Through our extensive network, the Center has organized stimulating conferences and research activities, pioneering the exchange of knowledge and ideas related to Japanese business systems and economic issues, while also successfully preserving its efforts to build on the U.S.-Japan relationship. We are proud of CJEB’s accomplishments, and are committed to building upon its history to achieve even more in the future.

Hugh Patrick, Director As Japan enters the third phase of Prime Minister Abe’s three-arrow strategy, the world is watching its development closely. CJEB aims to clarify the many current economic and social topics that Japan is facing, and will face over time. Columbia University remains the only major institution with a center that has a core focus and specialization in the Japanese economy. We will continue to be committed to this focus.

Our 2014–2015 academic year has been active, filled with exceptional lectures, symposia, and conferences. CJEB held its annual conference in Tokyo on May 21, 2015, with keynote speeches by Yasuchika Hasegawa, chairman of Takeda Pharmaceutical Company Ltd., and Bruce Greenwald, Robert Heilbrunn Professor of Finance and Asset Management at CBS. Titled “Japan’s Changing Corporate Governance,” this conference also featured a number of distinguished panelists who shared their perspectives as board members for Japanese corporations. For a summary and more details on this David E. Weinstein, Director of Research conference, please refer to p. 30.

Other highlights from our 2014–2015 program calendar included a symposium on “M&A in Japan: Reenergized” in December; Professor Gerald Curtis’s tenth annual lecture on Japanese politics, “New Directions in Japanese Politics and Foreign Policy,” in February; the 16th Annual Mitsui USA Symposium, “How Supply Chains Respond to Crises: The Japanese Experience,” in March; a symposium cosponsored with NHK, “Japan and the World Economy: Challenges Over the Coming Decade,” in April; and a lecture on “Challenges of Womenomics: Enhancing Women’s Leadership in Japan,” in May 2015.

CJEB also continues to host a successful lunchtime zadankai seminar series, providing a platform for distinguished business, government, and academic speakers to share their insights with the Columbia and New York communities. The 2014–2015 zadankai speakers included Yasushi Kinoshita, former administrative vice minister of the Ministry of Finance and a 2014–2015 CJEB Visiting Fellow; Christina Ahmadjian, a professor at the Graduate School of Commerce and Management of Hitotsubashi University; Toshikazu Nambu, executive vice president and CFO (until April 2015) of Sumitomo Corporation of Americas; William Duggan, senior lecturer of Columbia Business School; Takatoshi Ito, professor at the School of International and Public Affairs (SIPA) at Columbia University, and associ- ate director of research at CJEB; Eric Kirsch, executive vice president and global chief investment officer of Aflac Global Investments; and Hiroshi Kaho, general manager of the Business Strategy and Development Department of Ajinomoto Co., Inc. Summaries of our zadankai and other events can be found starting on p. 36.

2 | CJEB Annual Report 2014–2015 CJEB is an active member of Columbia’s research community, and its core commitment has always been to actively contribute, support, and circulate research, particularly with emphasis on the Japanese economy and its business and management systems in a comparative context. David E. Weinstein, whose own research you can learn about starting on p. 21, leads CJEB’s strong research program, the results of which are reflected in our projects, seminars, discussion groups, public programs, and library and computer-based resource initiatives. In addition, the Center provides a Working Paper and an Occasional Paper series (p. 24), with contributions made by various leading experts on Japan. CJEB will continue to provide the necessary platform and resources to further our research initiatives.

As part of CJEB’s growing research program, we offer CJEB Doctoral Fellowships for PhD students at CBS and the Economics Department who have dissertation projects relating to the Japanese economy or business. We also offer research grants and summer stipends to graduate students interested in Japan. Through these initiatives, the Center is able to build the foundation and prepare the next generation of specialists on the Japanese econ- omy and business and management systems, while also providing support to students at Columbia. The Center is actively fundraising in order to facilitate the continuance and development of this initiative. More information on our doctoral fellowships, research grants, and stipends are on p. 48.

This was another excellent year for our Visiting Fellows Program. As part of our growing network and supporters, CJEB has had Visiting Fellows from various backgrounds in the corporate, academic, and government sectors. Through our program, Visiting Fellows are provided the opportunity to pursue their own independent research while also developing their professional skills. As in the past years, the 2014–2015 Fellows (p. 40) participated in CJEB research gatherings, presented their research at seminars, attended and participated in lectures and public events, and audited courses. The Visiting Fellows play a significant role in the CJEB and CBS dynamic, and this will continue to hold true in the upcoming years.

CJEB’s growing presence in the Columbia community, the United States, and globally has become more well known over time. This past fall, we were fortunate to have Prime Minister Abe give an address at Columbia’s World Leaders Forum, and are pleased to report that during his address, he acknowledged and praised CJEB for all that we have accomplished over the years (p. 29). Under the joint leadership of us both, and with the eventual transition to the sole leadership of David Weinstein, the Center will strive to move forward and grow in ways to ensure we remain a leading academic and research center.

This year we happily welcomed Takatoshi Ito as CJEB’s associate director of research. With an illustrious career and background in Japan and the United States and now professor of Columbia’s School of International and Public Affairs, Professor Ito is already contributing significantly to the Center, and we are delighted to have him as a core CJEB member.

As always, the Center’s ongoing success is due to the dedication, hard work, intelligence, and energy of the Center’s core faculty and staff; the resources provided by the Business School and the University; and especially to the funding provided by corporate sponsors, foundations, and individuals. We thank them all.

With warm regards,

Hugh Patrick David E. Weinstein Director Director of Research

CJEB Annual Report 2014–2015 | 3 CJEB Team

Leadership and Staff

Hugh Patrick is the by the Japan Chamber of Commerce and taught extensively both in the United States founder and director Industry of New York in 2010. and Japan since finishing his PhD in econom- of the Center on ics at Harvard University in 1979. He was an David E. Weinstein Japanese Economy assistant and tenured associate professor is the Carl S. Shoup and Business (CJEB) (1979–1988) at the University of Minnesota, Professor of the at Columbia Business an associate and full professor at Hitotsub- Japanese Economy School, codirector ashi University (1988–2002), a professor at Columbia Univer- of Columbia’s APEC at the Graduate School of Economics at the sity. He is also the Study Center, and University of Tokyo (2004–2014), and dean director of research R. D. Calkins Professor of International of the Graduate School of Public Policy at at CJEB, director of Business Emeritus. He joined the Columbia the University of Tokyo (2012–2014), before the Japan Project at faculty in 1984 after some years as assuming his current position in 2015. He the National Bureau of Economic Research professor of economics and director of the held visiting professor positions at Harvard (NBER), a member of the Federal Economic Economic Growth Center at Yale University. University, Stanford University, and Columbia Statistics Advisory Committee, and a mem- He completed his BA at Yale University Business School and was Tun Ismail Ali Chair ber of the Council on Foreign Relations. Pre- (1951), earned MA degrees in Japanese Professor at the University of Malaya. He has viously, Professor Weinstein was chair of the studies (1955) and economics (1957) and held distinguished academic and research Economics Department, senior economist as a PhD in economics at the University of appointments such as president of the Japa- well as a consultant at the Federal Reserve Michigan (1960). He has been a visiting nese Economic Association in 2004–2005, Bank of New York, the Federal Reserve Bank professor at Hitotsubashi University, the fellow of the Econometric Society since of San Francisco, and the Federal Reserve University of Tokyo, and the University of 1992, research associate at the National Board of Governors. Prior to joining the Bombay. Professor Patrick has been awarded Bureau of Economic Research since 1985, Columbia faculty, Professor Weinstein held Guggenheim and Fulbright fellowships and faculty fellow at the Centre for Economic Pol- professorships at the University of Michi- the Ohira Prize. His professional writings icy Research in London since 2006, research gan and Harvard University. He also served include 18 books and some 60 articles and associate of the Tokyo Center for Economic on the Council of Economic Advisors from essays. His most recent books are How Research since 1990, and faculty fellow of 1989 to 1990. Finance Is Shaping the Economies of China, the Research Institute of Economy, Trade and Japan, and Korea (Columbia University His teaching and research interests include Industry since 2004. He was editor-in-chief Press, 2013), coedited with Yung Chul Park, international economics and the Japanese of the Journal of the Japanese and Interna- and Reviving Japan’s Economy: Problems economy. Professor Weinstein earned his PhD tional Economies and is coeditor of the Asian and Prescriptions (MIT Press, 2005), and MA in economics from the University of Economic Policy Review. In an unusual move coauthored and coedited with Takatoshi Ito Michigan and his BA at Yale University. He for a Japanese academic, Professor Ito was and David E. Weinstein. Professor Patrick is the recipient of many grants and awards, appointed senior advisor in the Research served as one of four American members including five National Science Foundation Department at the International Monetary of the binational Japan United States grants, an Institute for New Economic Think- Fund (1994–1997) and deputy vice minister Economic Relations Group appointed by ing grant, a Bank of International Settlements for International Affairs at the Ministry of Fi- President Carter and Prime Minister Ohira, Fellowship, and a Google Research Award. nance of Japan (1999–2001). He also served 1979–1981. He is a member of the Council Professor Weinstein is the author of numer- as a member of the Prime Minister’s Council on Foreign Relations. He was a member of ous publications and articles. on Economic and Fiscal Policy (2006–2008). the Board of Directors of the Japan Society Takatoshi Ito is the In 2010, Professor Ito was a coauthor of a for seven three-year terms. In November associate director commissioned study of the Bank of Thailand’s 1994 the Japanese Government awarded of research at CJEB 10th-year review of its inflation-targeting him the Order of the Sacred Treasure, Gold and a professor at the regime. He frequently contributes op-ed and Silver Star (Kunnitō Zuihōshō). He was School of Internation- columns and articles to the Financial Times awarded an honorary doctorate of Social al and Public Affairs and Nihon Keizai Shinbun. He is an author of Sciences by Hong Kong’s Lingnan University (SIPA) of Columbia many books including The Japanese Econo- in 2000, and the Eagle on the World award University. He has my (MIT Press, 1992), The Political Economy

4 | CJEB Annual Report 2014–2015 of Japanese Monetary Policy (1997) and Fi- Ryoko Ogino is Japan Representative, Tokyo nancial Policy and Central Banking in Japan the director for (2000) (both with T. Cargill and M. Hutchison, administration at Terumi Ohta MIT Press), An Independent and Accountable CJEB. She officially BA, Tsukuba University IMF (with J. De Gregorio, B. Eichengreen, joined the Center as and C. Wyplosz, 1999), and more than 130 associate director Interns academic (refereed) journal articles and for administration in Chie Hosokawa ’15 chapters in books on international finance, September 2010, MBA, Columbia Business School monetary policy, and the Japanese economy. after successfully His research interests include capital flows managing the Center’s Tokyo conference in Nicolle Aya Konai and currency crises, microstructures of the spring 2010. Prior to that, she held positions MPA, Urban and Social Policy, foreign exchange rates, and inflation target- at Shiseido Americas Corporation and Sony Columbia University ing. He was awarded the National Medal with Corporation of America and brought with her Purple Ribbon in June 2011 for his excellent a wealth of experience in program production, Jared Michael Namba academic achievement. PR, international marketing, and staff BA Candidate, East Asian Languages and management. She graduated magna cum laude Alicia Ogawa is Cultures and Business Management, from the State University of New York, Buffalo, senior advisor at Columbia University with a major in human relations in multinational CJEB, and a consul- organizational settings sponsored by the Moeko Nakada tant to one of the Department of Psychology and Management. BA, Psychology, largest U.S.-based Barnard College macro hedge funds Officers in the United States. Yoshihisa Shiraishi ’15 Until 2006, she was Emiko Mizumura MBA, Columbia Business School managing director at Assistant Director for Programs Lehman Brothers, where she was respon- BA, American and English Literature, Naoko Suga sible for managing the firm’s global equity Otsuma University BA Candidate, Physics, research. She is also an adjunct associate MS, Information and Knowledge Strategy, Columbia University professor at SIPA. Columbia University Alfred E. Tsai Prior to joining Lehman Brothers, Professor Fumiko Nozaki BA Candidate, Economics and Political Ogawa spent 15 years in Tokyo, where she Senior Administrative Manager Science, was a top-rated bank analyst and director of BA, Sociology, Columbia University research for Nikko Salomon Smith Barney, Hosei University having managed the original Salomon Broth- Sayaka Tsuno ers Research Department through three Michelle Tam BA, Chemistry, mergers. She is a member of the board of Coordinator Barnard College directors of the Maureen and Mike Man- BA, Economics, Benjamin Xu sfield Foundation and is a member of the Minor in Japanese, BA Candidate, Economics and Mathematics, President’s Circle of the All Stars Project, a Binghamton University Columbia University development program for inner city young State University of New York people, which has just been launched in Andy Wanning Tokyo. She graduated from Barnard College Senior Program Officer and earned a master’s degree in internation- BA, Anthropology and Sociology, al affairs at SIPA. Lafayette College MS, Sustainability Management, Columbia University

CJEB Annual Report 2014–2015 | 5 Core Faculty

CJEB’s eight core faculty members provide articles and commentaries appear frequently in Post, Nikkei, and the Daily Yomiuri, as well as on the Center’s intellectual foundation and are newspapers and magazines in Europe, Japan, television and radio. From 2001 until 2003, he drawn from Columbia University’s Business and the United States. was chairman of the U.S. Council of Economic School, Law School, Department of Economics, Advisers. In the corporate sector, he is on the Professor Curtis has been or currently is a Department of Political Science, and School boards of ADP, BlackRock, and MetLife. Dean member of the Board of Directors of the Japan of International and Public Affairs. In addition Hubbard is cochair of the Committee on Capital Society, the Japan Center for International to Hugh Patrick, David E. Weinstein, and Markets Regulation; he is a past chair of the Exchange (USA), and the U.S.-Japan Foundation Takatoshi Ito, CJEB’s core faculty members Economic Club of New York and a past cochair and serves as councilor to the U.S.-Japan are as follows: of the Study Group on Corporate Boards. Council. He has served as consultant and Gerald L. Curtis is advisor to numerous public and private organi- Merit E. Janow is dean Burgess Professor of zations in the United States and Japan. of Columbia University’s Political Science at School of International Professor Curtis is the recipient of numerous Columbia University and Public Affairs. Dean prizes and honors, including the Masayoshi and former director of Janow is an internation- Ohira Memorial Prize, the Chunichi Shimbun the Weatherhead East ally recognized expert Special Achievement Award, the Japan Asian Institute. He in international trade Foundation Award, the Marshal Green Award received his PhD from and investment, with of the Japan-America Society of Washington, Columbia University in extensive experience in and the Eagle on the World award from the 1969 and has been on the Columbia University academia, government, international orga- Japan Chamber of Commerce in New York. He faculty since 1968. He is the author of numer- nizations, and business. In addition, she has is a recipient of the Order of the Rising Sun, ous books and articles published in both English had a lifelong involvement with Asia and is an Gold and Silver Star, one of the highest honors and Japanese on Japanese politics, govern- expert on that region. Dean Janow has been a awarded by the Japanese government. ment, foreign policy, and United States–Japan professor of practice at Columbia University’s relations. He divides his time between Columbia Glenn Hubbard is dean School of International and Public Affairs (SIPA) University and Tokyo, where he is active as a and Russell L. Carson and affiliated faculty at Columbia Law School columnist, speaker, and writer and is a distin- Professor of Finance since 1995. She teaches graduate courses guished fellow at the Tokyo Foundation. and Economics at in international trade/WTO law, comparative Columbia Business antitrust law, China in the global economy, Professor Curtis has held appointments at the School. Dean Hubbard and international trade and investment policy, Royal Institute of International Affairs, Chatham received his BA and among others. She has held a number of lead- House, London; the College de France, Paris; BS degrees summa ership positions at the University. Currently, the Lee Kwan Yew School of Public Policy, cum laude from the she is codirector of the APEC Study Center. Singapore; and in Tokyo at Keio, Tokyo, and University of Central Florida and also holds AM Previously, she was director of the Master’s Waseda Universities, the Research Institute and PhD degrees in economics from Harvard Program in International Affairs and chair of for Economy, Trade and Industry, the Graduate University. In addition to writing more than 100 Columbia University’s Advisory Committee on Research Institute for Policy Studies, and the scholarly articles on economics and finance, Socially Responsible Investing. Her research International Institute for Economic Studies. Dean Hubbard is the author of three popular interests focus on international trade and In addition to his academic work, he has served textbooks, as well as coauthor of The Aid Trap: investment, Asia, competition law, and eco- as director of the U.S.-Japan Parliamentary Hard Truths About Ending Poverty, Balance: nomic globalization. She has written several Exchange Program, special advisor to The Economics of Great Powers from Ancient books and numerous articles and frequently Newsweek for Newsweek Japan, columnist Rome to Modern America, and Healthy, Wealthy, speaks before business, policy, and academic for the Tokyo/Chunichi Shimbun, and member and Wise: Five Steps to a Better Health Care audiences around the world. of the International Advisory Board of the Asahi System. His commentaries appear in Business While at Columbia University, Dean Janow was Shimbun and the Advisory Council for the Japan Week, The Wall Street Journal, The New York elected in December 2003 for a four-year term Foundation Center for Global Partnership. His Times, the Financial Times, the Washington as one of the seven members of the World Trade

6 | CJEB Annual Report 2014–2015 Organization’s (WTO) Appellate Body, which is Curtis J. Milhaupt is a BA from the University of Notre Dame. He the court of final appeal for adjudicating trade the Parker Professor of also conducted graduate studies in law and disputes between the 161 members of the Comparative Corporate international relations at the University of Tokyo. WTO. She was the first woman to serve on Law, director of the Joseph E. Stiglitz was the Appellate Body. She was involved in more Parker School of Foreign born in Gary, Indiana, than 30 appeals. While on the Appellate Body, and Comparative Law, in 1943. A graduate she organized a series of global conferences Fuyo Professor of of Amherst College, he with leading experts and senior government Japanese Law, and received his PhD from officials that focused on the Appellate Body, director of the Center MIT in 1967, became the international trading system, and economic for Japanese Legal Studies, all at Columbia a full professor at globalization. From 1997 to 2000, Dean Janow Law School. He is also a member of Columbia Yale in 1970, and in served as the executive director of the first University’s Weatherhead East Asian Institute. 1979 was awarded international antitrust advisory committee of Professor Milhaupt’s research and teaching the John Bates Clark Award, given annually the U.S. Department of Justice that reported to interests include the legal systems of East Asia by the American Economic Association to the the attorney general and the assistant attorney (particularly Japan), comparative corporate gov- economist under 40 who has made the most general for antitrust. Her report recommended ernance, law and economic development, and significant contribution to the field. He has the creation of a global network of enforcers state capitalism. In addition to numerous schol- taught at Princeton, Stanford, and MIT and and experts, which is now the International arly articles, he has coauthored or edited seven was the Drummond Professor and a fellow of Competition Network. books, including U.S. Corporate Law (Yuhikaku, All Souls College, Oxford. He is now University 2009, in Japanese), Law and Capitalism: What Prior to joining Columbia’s faculty, Dean Janow Professor at Columbia University in New York, Corporate Crises Reveal about Legal Systems was deputy assistant U.S. trade representa- where he is also the founder and copresident of and Economic Development around the World tive for Japan and China (1989–1993). She the University’s Initiative for Policy Dialogue. In (University of Chicago Press, 2008), and was responsible for developing, coordinating, 2001, he was awarded the Nobel Prize in eco- Transforming Corporate Governance in East and implementing U.S. trade policies with nomics for his analyses of markets with asym- Asia (Routledge Press, 2008). His research has Japan and China. She negotiated more than metric information, and he was a lead author been profiled inThe Economist, the Financial a dozen trade agreements with Japan and of the 1995 Report of the Intergovernmental Times, and The Wall Street Journal, and has China during a period of intense economic and Panel on Climate Change, which shared the been widely translated. Professor Milhaupt political tension. Dean Janow is on the Board 2007 Nobel Peace Prize. In 2011, Time named lectures regularly at universities and think tanks of Directors of several corporations and not- Stiglitz one of the 100 most influential people around the world. Representative appointments for-profit organizations. In 2009, she became in the world. He is now serving as president of include visiting professor at Tsinghua University, a charter member of the International Advisory the International Economic Association. Paul Hastings Visiting Professor in Corporate Council of China’s sovereign wealth fund, China and Financial Law at Hong Kong University, and Professor Stiglitz was a member of the Council Investment Corporation. Early in her career, Erasmus Mundus Fellow in Law and Economics of Economic Advisers from 1993 to 1995, Dean Janow was a corporate lawyer specializing at the University of Bologna. He was named during the Clinton administration, and served in cross-border mergers and acquisitions with Teacher of the Year in 2012 and 2010 at as CEA chairman from 1995 to 1997. He Skadden, Arps, Slate, Meagher & Flom in New the Duisenberg School of Finance, University then became chief economist and senior vice York. Before becoming a lawyer, she worked at of Amsterdam, where he teaches annually. president of the World Bank from 1997 to a think tank, where she focused on U.S.-Japan Professor Milhaupt has been a member of 2000. In 2008, he was asked by the then trade and economic relations. She grew up in several international project teams focused on French President Nicolas Sarkozy to chair the Tokyo, Japan, and is fluent in Japanese. She has policy issues in Asia, including one charged with Commission on the Measurement of Economic a JD from Columbia Law School, where she was designing an “institutional blueprint” for a unified Performance and Social Progress, which a Stone Scholar, and a BA in Asian studies with Korean peninsula. Prior to entering academia, released its final report in September 2009. honors from the University of Michigan. She is Professor Milhaupt practiced corporate law He now chairs a High Level Expert Group a member of the Council on Foreign Relations in New York and Tokyo with a major law firm. at the OECD attempting to further develop and the Trilateral Commission. He holds a JD from Columbia Law School and these ideas. In 2009, he was appointed by

CJEB Annual Report 2014–2015 | 7 the president of the United Nations General Andrew Charlton) and Making Globalization the American Philosophical Society, and the Assembly as chair of the Commission of Experts Work (2006). In The Roaring Nineties (2003), Econometric Society, and a corresponding on Reform of the International Financial and with some clairvoyance, he explained how finan- fellow of the Royal Society and the British Monetary System, which also released its report cial market deregulation and other actions of Academy. He has been decorated by several in September 2009. Since the crisis, he has the 1990s were sowing the seeds of the next governments, including Colombia, Ecuador, and played an important role in the creation of the crisis. Concurrently, Towards a New Paradigm Korea, and most recently become a member Institute for New Economic Thinking (INET), in Monetary Economics (2003, with Bruce of France’s Legion of Honor (rank of Officier). which seeks to reform the discipline so that it Greenwald) explained the fallacies of current is better equipped to find solutions for the great monetary policies, identified the risk of exces- challenges of the 21st century. Stiglitz serves sive financial interdependence, and highlighted on numerous boards, including the Acumen Fund the central role of credit availability. Freefall: and Resources for the Future. America, Free Markets, and the Sinking of the World Economy (2010) traced in more detail the Professor Stiglitz helped create a new branch origins of the Great Recession, outlined a set of economics, “The Economics of Information,” of policies that would lead to robust recovery, exploring the consequences of information and predicted correctly that if these policies asymmetries and pioneering such pivotal were not pursued, it was likely that we would concepts such as adverse selection and moral enter an extended period of malaise. The Three hazard, which have now become standard Trillion Dollar War: The True Cost of the Iraq tools not only of theorists, but also of policy Conflict (2008, with Linda Bilmes of Harvard analysts. He has made major contributions to University) helped reshape the debate on those macroeconomics and monetary theory, devel- wars by highlighting the enormous costs of opment economics and trade theory, public those conflicts. His most recent books are and corporate finance, theories of industrial The Price of Inequality: How Today’s Divided organization and rural organization, and theories Society Endangers Our Future (W. W. Norton and of welfare economics and of income and wealth Penguin/Allen Lane, 2012); The Great Divide: distribution. In the 1980s, he helped revive Unequal Societies and What We Can Do About interest in the economics of R&D. Them (W.W. Norton and Penguin/Allen Lane, His work has helped explain the circumstances 2015); and, with Bruce Greenwald, Creating a in which markets do not work well, and how Learning Society: A New Approach to Growth, selective government intervention can improve Development, and Social Progress (Columbia their performance. In the last sixteen years, he University Press, 2014). has written a series of highly popular books Professor Stiglitz’s work has been widely recog- that have had an enormous influence in shaping nized. Among his awards are more than 40 hon- global debates. His book Globalization and Its orary doctorates, including from Cambridge and Discontents (2002) has been translated into Oxford Universities. In 2010 he was awarded 35 languages, besides at least two pirated the prestigious Loeb Prize for his contributions editions, and the nonpirated editions have sold to journalism. Among the prizes awarded to his more than one million copies worldwide. In that books have been the European Literary Prize, book he laid bare the way globalization had been the Bruno Kreisky Prize for Political Books, managed, especially by international financial and the Robert F. Kennedy Book Award. He is institutions. In two later sequels, he presented a fellow of the National Academy of Sciences, alternatives: Fair Trade for All (2005, with the American Academy of Arts and Sciences,

8 | CJEB Annual Report 2014–2015 Research and faculty Engagement

Japan’s Abenomics Bumps Along Center on Japanese Economy and Business Columbia Business School By Hugh Patrick

Japan now again seems to be breaking out The next two sections are a brief review of early September, were a negative 1.2 percent of the doldrums it has been in since the the economy and the international context. I despite inventory build-up, as consumption early 1990s. Even though the daily news then take up various aspects of Abenomics, decreased. Even with the yen/dollar depre- makes one wonder, I retain my optimism and including longer-run growth prospects, corpo- ciation from 101 in June 2014 to a 120– faith, based on some six decades of studying rate governance, and Japan’s energy sector, 125 range in summer 2015, export volumes Japan and watching it grow and evolve. I have focusing on electricity. lagged until recently, though of course their addressed this theme in previous essays, and yen values and export profits increased sig- despite the subsequent ups and downs, I The Year in Review nificantly. believe it applies today. Domestic Economic Japan’s unemployment rate, 3.3 percent in Deflation is well on the way to being brought July, is the lowest it has been since April 1997, to an end, but growth has been erratic. GDP Situation and it has been at the low end of the 3.3–3.7 declined by 0.9 percent in fiscal 2014 (ending range since December 2013. However, many The past 18 months have been a process March 31, 2015) because of the recession part-time employees want regular, full-time of implementation of and adjustment to in the first two quarters, but finished strong, positions. In the spring 2015 annual adjust- Abenomics policies, notably the consump- with substantial increases in the last two ments, wages edged up about 2.2 percent, tion tax increase from 5 to 8 percent from quarters. Recovery this year was jolted by a slightly better than 2014. However, this did April 2014. The negative impact on consump- bad April–June quarter with a decline of 1.2 not compensate fully for the consumption tax tion and business investment was deeper percent, and what now appears a tepid and increase, so in real terms wages were flat. and longer lasting than I had expected. With uncertain recovery, and a flat and possibly lagging aggregate demand, GDP dropped by Deflation has probably ended, but price sta- negative summer quarter. Nevertheless, pro- 6.8 percent (at a seasonally adjusted annual bility defined as a 2 percent increase in the jections are that Japan will achieve reason- rate) in the second quarter of 2014, and a CPI net of the consumption tax rise has yet to ably good growth for the next two years. After further 2.0 percent in the third quarter, before be achieved. Corporate profits have soared, that, much depends on the adverse demand rising 1.2 percent in the final quarter, and their highest ever, and business domestic effects of the scheduled further consumption a very good 4.5 percent in the first quarter investment is beginning to pick up. Economic tax increase to 10 percent in April 2017, and of 2015. However, the second preliminary recovery has generated a much more respon- indeed whether that takes place. data for the second quarter, announced in sive increase (higher elasticity) in tax revenue

Professor Hugh Patrick’s 30th anniversary at CBS celebration with colleagues, Visiting Fellows, and the Center staff

CJEB Annual Report 2014–2015 | 9 than in the longer run, 3.97 trillion yen above without amendment. The Obama adminis- will be supportive of the AIIB once it develops budget in 2014, and a further surplus is tration finally succeeded in having fast-track best international practices. projected for 2015. This windfall has given Trade Promotion Authority (TPA) passed in The AIIB is a complex issue for Japan. Japan the government sufficient revenues to delay June. Japan and the U.S. apparently have has major influence over the ADB, whose the difficult process of cutting expenditures reached agreement on most of their major president has always been Japanese. While or raising taxes. However, consumer con- bilateral issues, including tariff reductions competitive overlap is inevitable, both ADB fidence has weakened, and concerns have for beef, pork, dairy products, sugar, and and AIIB propose co-operating on some proj- been voiced that the recovery may be weak rice. On October 5, following intense nego- ects. Given the current disputes between in the last part of 2015. tiations, the 12 countries signed the TPP China and Japan, trust is not high. agreement. It now has to be approved both The Bank of Japan’s very low interest rate by the governments of the other countries The AIIB is scheduled to begin operation policy persists, and financial markets have and by the U.S. Congress. Congress will have by the end of this year. China now well continued to be very easy. The benchmark at least 90 days to review the contentious understands how the AIIB is expected to 10-year government bond (JBG) yield has agreement before accepting or rejecting it. perform. AIIB’s behavior and performance trended down since April 2011, and although over the coming five to ten years will deter- above its low in January has been between Creation of the AIIB, initiated by China, mine whether it will be a success or a weak 0.3 and 0.4 percent in September. The most has been more significant politically than institution foundering because of poor proj- notable change has been in stock prices: economically. The economic justification of ects, perhaps politically chosen, unable to driven by corporate profit increases, the providing more funding for good infrastruc- repay their borrowings. Japan’s decision to Topix index rose 20 percent in the year end- ture projects is straightforward. Two major join would signal a judgment that China is ing August 1. Though it has since backed issues have dominated the debate: how committed to engage in good corporate gov- off, the index has more than doubled from a to deal with the rise of China as a major ernance to make the AIIB an effective global November 2012 low. power creating a new financial institution organization contributing to infrastructure where it will play a dominant role; and how investment. Japanese Trade Policy to ensure that AIIB lending criteria, project evaluation structure, and operational man- Over the course of this past year Japan has agement meet global best practice stan- Domestic Political been constructively involved in two major dards, emulating the World Bank and the Development trade policies: TPP (Trans-Pacific Partnership) Asian Development Bank (ADB). and AIIB (Asia Infrastructure Investment Bank). In November 2014, Abe surprised every- Both have become symbols of Japanese, US, The U.S. government initially opposed the one by calling a snap Lower House election and other countries’ commitment to economic AIIB, and pressured its allies and other for December 2014. In the absence of any openness and to Asia. friends not to become a member. This was serious opposition, the Liberal Democratic a strategic and diplomatic mistake, even Party (LDP) won handily, maintaining a two- TPP goes beyond reduction of tariff and though the government was deeply aware of thirds majority together with its coalition other trade barriers; it establishes new rules narrow-minded Congressional opposition to partner Komeito. With his re-election as LDP and requires significant institutional change, reforming the IMF (International Monetary president in September, I assume Abe will including intellectual property protection, the Fund) and the World Bank, much less the cre- continue as prime minister until 2018, and treatment of state-owned enterprises, and ation of new institutions. However, in March perhaps will revise the rules to enable a third dispute resolution. TPP excludes China and 2015 the United Kingdom decided to join, three-year term as LDP president and prime has flaws and difficulties in implementation, and by the April 15 deadline some 57 coun- minister through the 2020 Olympics. He will but I support it as a realistic way forward. tries had signed on as prospective founding continue to give top priority both to economic The other 11 TPP members were unwilling to members, including 16 European countries. policy (Abenomics) and his national secu- make final offers until they were certain the The United States, Japan, and Canada are rity objectives. With the security legislation proposed agreement would only be subject to the only major countries that have not yet passed, Abenomics will be the top priority in U.S. Congressional acceptance or rejection joined. The United States has now stated it the Diet in the coming months at least.

10 | CJEB Annual Report 2014–2015 The International Context been and will continue to be the major engine because Chinese wage rates and labor costs of global growth. The region will probably con- have been increasing rapidly. It also reflects The World Bank June 2015 forecast was for tinue to grow at a 5 percent to 6 percent rate normal corporate hedging strategy in diver- global growth to increase modestly to 2.8 over the coming decade. China’s growth has sifying production and sources of supply. It percent in 2015, and then to 3.3 percent slowed, but still apparently is on the order of 6 is unclear how much concern about future in 2016 and 3.2 percent in 2017, led by percent to 7 percent. And 5 percent growth is bilateral political relations enters Japanese the now catch-up growth of many developing projected for the 10 ASEAN nations. corporate decisions. Not surprisingly, the U.S. economies, notably China and India with their continues to be Japan’s highest FDI destina- The most important global change has been huge populations. Even though many econo- tion, with Europe not far behind. the dramatic economic and political rise mies are recovering reasonably well from the of China. This has significantly altered the Globalization, a process leading to greater 2008–2009 global financial crisis, these are geo-strategic environment. Japan’s quiet mutual awareness and interdependence disquieting times, with the U.S. and Europe leadership in ASEAN is being undermined by among a nation’s economic, political, and involved in the terrible difficulties emanating China, and China provides many challenges to social entities, is important for Japan. The from the Middle East. historic U.S. leadership in Asia. world is quite open in the flows of trade, The global financial system will continue to capital, tourism, students, and information, Because of its population of 1.4 billion, China be dominated by the dollar and the euro as though much less so for permanent migrants. will eventually become the world’s largest the currencies for transactions, payments, The DHL Global Connectedness Index mea- economy in terms of GDP. However, it will foreign exchange revenues and stores of sures and weighs these indicators; in 2014 not soon be technologically advanced, nor wealth. Regarding discussion of a global role Japan ranked 40 out of 140 countries. Japan highly productive, with a high standard of for China’s renminbi (yuan), the lessons from rates very high in its global reach (breadth), living. In constant purchasing power parity Japan are instructive. Despite its ascent to pretty well on capital and information flows, terms, China’s GDP per capita in constant the world’s second largest economy and the but low (72nd place) in its share of trade in purchasing power parity terms in 2014 was Japanese government’s efforts to promote GDP. Japan does not import and export as $12,609, far below Japan’s $35,635 and the its use, the yen still does not have a signifi- much relative to its size as many other coun- United States’s $52,218. Growth predictions cant third-country role. Indeed, as recently as tries. In comparison, Singapore is the only over the coming decade range widely, from 3 2010 some 60 percent of Japan-China trade non-European country in the top 10. Asia’s percent to 7 percent. The Japan Center for was in U.S. dollars. With the introduction of other entrepôt, Hong Kong, is 11; South Korea Economic Research (JCER) reasonably proj- direct yen-yuan currency trading in 2012, this is 13; the United States is 23. ects a Chinese gradually declining growth rate is changing. to 4.1 percent by 2025. Why is Japan not more connected? Its Asian There never is a simple story for any region of neighbors are not as geographically and politi- Despite political tensions, Japan has sus- the world. The U.S. economy is doing increas- cally close or as rich as Europe. It is an island. tained good economic relations with China, ingly well. Europe continues to go through Japanese refer to their Galapagos syndrome, especially as a trading partner. China is difficult times, not only economically, but a self-centered island interacting little with Japan’s largest export market, and fourth also socially, with the huge influx of migrants the rest of the world. The Japanese language, largest source of imports. In 2014 bilateral and refugees. The Middle East is a quag- which few foreigners know, and the lack of trade amounted to $340 billion, the world’s mire. Russia is Russia. Brazil’s major corrup- widespread command of English in Japan, are third largest bilateral trade relationship. tion scandal involving its giant oil producer significant barriers. Japan is the largest investor in China, with a Petrobras has halted growth. direct investment stock of about $100 billion. These measures fail to capture the reality that Sustained East Asian development is the big However, Japanese foreign direct investment Japan is an open, friendly, comfortable, and economic growth story of the last six decades: (FDI) flows to China, which peaked at 1,076 very safe country. It has a hospitable, well-de- first Japan, then South Korea, Taiwan, billion yen in 2012, declined to 887 billion veloped, burgeoning tourist industry that wel- Hong Kong and Singapore, and now China, yen in 2013, dropped sharply to 542 billion comed some 10.9 million foreign tourists in Indonesia, and the other ASEAN countries. yen in 2014, and dropped by another 16 2014, up from 8.0 million in 2013, spending Developing Asia, notably China and India, has percent the first half of this year. This is partly about $16.7 billion (at 120 yen/dollar). Most

CJEB Annual Report 2014–2015 | 11 (83 percent) came from Asia, notably Taiwan extraordinarily ambitious longer-run targets trillion, up 22 percent from 2014; increased (25 percent), South Korea (21 percent), and and proposing policies to achieve them. fertility so as to achieve a stable popula- China (16 percent). Tourism is an important These include 2 percent real growth and 3 tion of 100 million Japanese; and increased way in which Chinese and Koreans, subject to percent nominal growth, ending deflation social welfare for young as well as old. All of negative media coverage at home, learn more (defined as achieving 2 percent increases in these are restatements, but in more under- about Japan. the core consumer price index), 30 percent standable public terms, of earlier policy of managerial positions filled by women by statements, including the basic Abenomics Abe’s much-anticipated August 14 Cabinet 2020, major reopening of nuclear power three arrows. The statement reinforced the statement on the 70th anniversary of Japan’s plants, and fundamental structural change in government’s intentions, but with no spe- surrender in World War II has received wide- hard-core protected sectors including agri- cifics. The growth target is another way of spread comment, some in terms of missing culture and health care. saying 2 percent real growth and 1 percent an opportunity to have gone further. It was or so increase in the GDP deflator based on carefully constructed in context and tone. The The first arrow (target) in Abenomics is an the 2 percent CPI increase. statement upholds Japan’s commitment to a aggressive monetary policy by the Bank of “free, fair, and open international economic Japan (BoJ) to end deflation. The second arrow, Some progress has been achieved in the three system,” and to “basic values such as freedom, flexible fiscal policy, means stimulus should years of Abenomics, but it has been a bumpy democracy, and human rights.” Abe’s legacy be followed eventually by fiscal consolida- path, with some policy hiccups. will depend on how and in what way these tion. The success depends on Prime Minister broad goals are implemented. Shinzo Abe and his cabinet, with strong input Abenomics: Ending from the Ministry of Finance. The third arrow, Abe’s major policy initiative is to reshape Japan Deflation growth strategy, innovation, and structural as an active, constructive, peace-oriented reform, depends fundamentally on the pos- The most immediate goal (the first arrow) has global leader, not just a major economic power. itive responses of Japanese businesses as been to end the small but persistent deflation His most dramatic and controversial actions investors and innovators, and households that arose some 15 years ago, and to achieve have been in national security. Abe has inter- as consumers and workers. The second and an annual 2 percent increase in the Consumer preted the constitution to allow limited forms third arrows are deeply interrelated since Price Index (CPI). For analytical purposes, of collective self-defense and to an expanded good growth and sufficient private demand considerable emphasis is placed on core CPI, use outside Japan of its Self-Defense Forces are essential to achieve fiscal consolidation. which in Japan excludes fresh food prices and for peaceful purposes. The purpose given is to factors out the one-shot effects of consump- allow Japan to work more closely with allies, Abenomics addresses Japan’s three major tion tax increases. especially the United States, in defending economic challenges: demographic transi- Japan, including protecting shipping lanes. tion, the need to increase labor productivity When Haruhiko Kuroda became the governor Despite public concern and months of delaying growth substantially, and the need to prevent of the Bank of Japan in April 2013, he com- tactics by opponents, the legislation passed a fiscal crisis emanating from the inability mitted to achieving this goal by March 2016 on September 20. I do not think Japan will to deal with the government’s huge debt (the end of fiscal 2015). He has actively become militaristic in the foreseeable future, overhang. That means it is not a quick fix, pursued an easy monetary policy, including and in practice will be quite cautious, not inter- and there is no magic bullet. Good growth is a surprising further easing on October 31, nationally adventurous. While his heart may essential to provide the resources and politi- 2014. This is the correct policy, and Kuroda be in security policy, Abe will have to give eco- cal will to carry out the wide-ranging reforms. has been steadfast despite some opposition. nomic policy major attention, since that is the Abenomics involves improving incentives, CPI became positive once Kuroda’s policy basis of his public support. restructuring institutions, improving the reg- was implemented and rose to a peak of 1.5 ulatory system, and transforming the corpo- percent in April 2014. Less anti-deflation Abenomics rate context of employment. progress has been made than expected. This was evident even before the dramatic decline On September 24 Abe announced his second Abenomics is the government’s major eco- in oil prices introduced a temporary deflation- stage of Abenomics, with three so-called nomic policy program aiming to transform ary blip. the Japanese mindset positively by setting new arrows: a GNP in current prices of ¥600

12 | CJEB Annual Report 2014–2015 By July 2015 the CPI had dropped to zero, Based on the experience of developed coun- A policy to reduce corporate tax rates over and in August was minus 0.1 percent, as tries, my view is that growth is a better path several years continued in April. Japan previ- the sharp drop in oil prices wended its way than austerity to resolve macroeconomic dif- ously had a total statutory rate of 37 percent, through the economy. ficulties. However, strong pressure must be second highest in the industrialized world maintained on policy makers to carry out (behind only the United States). The 2015 However, the coming months will bring bet- necessary yet politically difficult structural effective rate will fall 2.51 percentage points ter performance. CPI will resume an upward reforms so that further increases in the defi- to 32.11 percent. trend as global oil prices eventually stabilize. cit can are minimized and the government Japan’s deflationary mindset has weakened Government revenues increased by ¥4 trillion debt/GDP ratio is stabilized. The high debt significantly, but has not disappeared. Given more than conservatively budgeted for fiscal ratio cannot increase indefinitely; that would the ongoing challenges of achieving adequate 2014, and probably about that much in fiscal eventually create a fiscal crisis as bond- private sector aggregate demand, I expect 2015, thanks in part to the consumption tax holders lose confidence in the government’s Japan’s very low interest rate policy will con- rise. This provides the government leeway to ability to repay. tinue for several years at least. Increases may delay fiscal reform, but eventually that will be reach 1 percent relatively soon, but Kuroda Which government expenditures should be necessary. Akira Amari, minister for economic has had to delay reaching the 2 percent target reduced and by how much, and what taxes and fiscal policy, on September 8 suggested by six months to September 2016, and he will should be increased and by how much, are using ¥2 trillion ($84 billion) of the “surplus” have to announce a further delay. Achieving uncertain and actively debated. Government revenues to finance a demand-stimulus sup- 2 percent will require further BoJ stimulus. welfare expenditures, mainly pensions and plementary budget, in light of China’s slow- Whether and when the target is reached are medical care, are projected to increase about down. This would be less than the ¥3.5 trillion major uncertainties. I had thought this would ¥1 trillion ($8.3 billion) annually as the pop- 2014 supplementary budget, and the ¥5.5 not happen until next year, but with discour- ulation ages. The government has yet to trillion in 2013. I assume Amari’s proposal will aging economic news in early October, it may decide how much to reduce pensions or to be enacted before this fiscal year ends. well take place soon. increase co-payments for medical care. To carry out fiscal reform, Japan must cut Abenomics: Fiscal Policy The 2014 consumption tax increase from welfare expenditures, raise taxes, and reform 5 percent to 8 percent had a deeper and the tax system—and do so without hurting Flexible fiscal policy is the second arrow longer-lasting adverse effect on private con- the poor and middle classes, or the elderly. of Abenomics. In principle, the policy is to sumption and business investment than I and This implies that adjustment costs should fall stimulate until private aggregate demand most commentators expected. Was the tax mainly on households in the top 10 percent generates full employment growth, and then increase an essential first step in averting to 20 percent of income. One approach is to to contract to reduce the government budget a fiscal crisis seven or eight years down reduce their pension benefits and increase deficit and eventually reduce the high gross the road, or was it too costly economically their share of medical expenses. government debt/GDP ratio of 246 percent. in terms of GDP volatility and growth fore- However, Japan has been relying on increases (The net debt ratio is 130 percent.) gone? Many specialists differ, and I don’t in the consumption (value-added) tax rather have a good answer. So much depends on The major policy debate continues to be than in other taxes because it is widely under- Japanese (and foreign) expectations about whether, for the next several years, to give stood, easy to measure, and reluctantly toler- Japan’s future. higher priority to an austere budget policy of ated by the general public, even though it hits reducing pensions and other welfare expen- Abe postponed increasing the consump- poorer people harder. ditures and raising the consumption tax, or tion tax to 10 percent, rescheduling it from My views on tax structure are not widely to follow a full employment growth strategy October 2015 until March 2017, but has accepted in Japan. First, as a partial offset to by maintaining fiscal stimulus to maintain stated it will not be delayed further. This increasing inequality, Japan should consider adequate domestic demand. That is, which implies that whatever growth momentum is a national property tax with exemptions for do Japanese policy makers and the public achieved in the next 18 months will be tem- owners with net assets below a certain level, fear more: stagnation or fiscal crisis? porarily dampened. in addition to the local government property

CJEB Annual Report 2014–2015 | 13 taxes; however, in addition to political dif- transportation systems, energy manage- census of agriculture, the average age of ficulties, the necessary data are not avail- ment, robotics, medical care, 20 million for- Japanese farmers is 66.8 years, with 63 per- able. Second, I favor a progressive income eign tourists, and increased inward foreign cent of farmers above 65. Eventually, they tax. Third, I support a high carbon tax on direct investment. Deregulation to achieve will be replaced by some 200,000 younger

CO2 emissions to reduce their environmental more pro-business, but also more competitive, households with larger farms and greater costs, especially if this can be coordinated markets is stressed, particularly where “bed- productive efficiency. internationally. rock regulations” have remained so strong, It is good news that Japan’s food self-suffi- notably in agriculture, health care, energy, and While it will be necessary to raise taxes fur- ciency rate, at 39 percent in caloric terms, employment. ther after 2017, this will be politically diffi- remains below the government’s target of 45 cult. Japan will face a tough choice between The government has begun to announce, leg- percent. Japan is efficiently relying on inex- government expenditure cuts and further tax islate, and implement policies in these and pensive food imports rather than very ineffi- increases. That is one reason good growth other important areas. Some progress has cient domestic production. Food security is over the next several years is so important been made, but there is a long way to go. provided by assuring adequate inventories of politically as well as economically and socially. Some actions are particularly important sym- grains, soybeans, meat, and other storables. bolically, signaling the cracking of well-estab- The government is pursuing policies to accel- Abenomics: Growth lished economic barriers. erate agricultural adjustment smoothly. In Strategy Agriculture is a prime example. It is economi- February it forced JA-Zenchu to agree to cally insignificant, producing only 1.2 percent limit its control over individual JA coopera- Growth provides the resources to make of GDP and employing only 3.4 percent of the tives at the village level. JA’s special legal adjustment less costly and more flexible. work force. Nonetheless, the 1.3 million com- status will be changed to that of an ordinary Major structural changes are necessary to mercial farming households, while now only incorporated association, and it loses its sole achieve good growth. Thus, the third arrow of 2.6 percent of all households, are the back- power to audit and guide local cooperatives. Abenomics is to “revitalize” Japan’s economy bone for most villages and small towns, and Nonetheless, JA will continue to be influential, to achieve sustained, full-employment, rapid are politically and socially important. JA (the particularly through the credit and other local growth. Japan Agriculture Group) through JA-Zenchu financial associations it continues to con- The third arrow has become a broad label (the short-form Japanese for the Central Union trol. Most farmers grow products under the under which every potential economic pol- of Agricultural Cooperatives, which is JA’s guidance of the JA group and use the group’s icy can find a home. There are three basic organization handling a comprehensive range distribution channels to ship the products to aspects: implementation will take several of farm policy activities, including handling the market. This gives Zenchu a significant influ- years, the private business sector will play the purchase of fuel, seeds, and other inputs and ence on rice prices. With the ending in 2018 dominant role, and the results will be achieved half of rice sales, among other activities), is of the rice production quota program, rice over the longer run. Most third-arrow initia- very powerful. As a result, Japanese farmers prices will become more flexible. tives focus on increasing corporate profitabil- have been heavily protected: average farm This is Japan’s first major agricultural reform ity through better corporate management and household incomes are higher than nonfarm since the 1950s, and has major symbolic governance, more innovation, IT (information households. significance. Substantively it may not achieve technology) promotion, and development of Most farms are so small that they cannot much directly, but it will probably lead to human resources. be competitive for most crops—particularly broader reforms. When TPP is implemented, On June 30 the government issued a revised rice. Nonetheless, Abe has included agri- it will have greater direct substantive impact revitalization and growth strategy. It is a culture in the third arrow strategy, envis- since it will significantly reduce agricultural wide-ranging document, which proposes aging farms growing world-class products tariffs and other import barriers. Rice tariffs both broad policy measures and some spe- for export. Agriculture is a traumatically but currently run more than 700 percent. cific examples. It includes six major projects amicably declining industry, with the number Labor force reforms have been mixed and lim- involving innovative technologies by the time of active farmers falling and the area farmed ited. Japan’s labor force is 66.2 million (June of the 2020 Tokyo Olympics: next-generation decreasing. According to the 2014 Japanese

14 | CJEB Annual Report 2014–2015 2015 seasonally adjusted), down from the workers, 145,000 are technical interns, and in the labor force and its skills, growth in peak of 68.1 million in June 1997; 37.6 mil- 120,000 are foreign students with part-time capital stock, innovations, and other improve- lion (57 percent) are male and 28.5 million are work permits. ments that increase productivity and output. female. The unemployment rate in July was GDP growth is estimated by increases in The main policy initiative is to open Japan to 3.3 percent, and the ratio of positions open labor force (ideally, hours worked), net addi- add about 60,000 foreign skilled workers a to those available is the highest it has been in tions to the capital stock, and innovation year on five-year contracts, lengthened from 23 years. In the two and one-half years since and other measures that increase produc- three years. Indicative of the policy mindset January 2013 male employment increased tivity, namely total factor productivity (TFP, is that in July the government announced by 100,000 and female employment by the Solow residual in growth accounting). In new policies whereby foreigners working in 900,000. The Abe government attributes complex, interactive processes, TFP is deter- one of the national strategic zones (mainly much of this to its “womenomics” policy of mined by R&D, education, inventions, and Tokyo, Yokohama, and Osaka) would be able making it easier for women to work. However, other innovations. to obtain visas for foreign housekeepers. But it was mainly due to increased demand for why are Japanese not allowed to do this, and Japan achieved high productivity growth labor in tightening labor markets. why not anywhere in Japan? This is one way to during the postwar decades to 1990 as Abe’s policy to increase the number of women increase the opportunity for married women companies succeeded in bringing Japan to, in managerial positions to 30 percent by to enter the labor force. and beyond, the global technology frontier in 2020 is dramatically ambitious, and unre- manufacturing. Since then, productivity has Abenomics proposes to strengthen the uni- alistic. One problem is the small number of inevitably slowed. Considerable growth can versity system by creating distinguished women in company or government employee be gained by allocating workers and capital graduate schools and special research insti- cohorts who could be promoted to managerial more efficiently. That is one major focus of tutions. Japan’s university system is strong positions over the next five to ten years. Many Abenomics’ ambitious third arrow reforms. overall, but a significant part is a declining listed companies are now hiring more women sector, namely two-year colleges and local Japan’s labor force will soon decrease entering their management tracks, so in 15 private, low-ranked, four-year colleges. This is about 0.5 percent a year; potential further years or so the 30 percent target may become because of fewer enrollments as the numbers increases in the participation rates of women achievable. of college-age Japanese has been decreasing. and older workers are only a one-shot offset Though it is gradually evolving, Japanese cor- spread over several years. Japan’s growth Undergraduate students peaked at 2.9 mil- porate culture continues to be male-domi- depends essentially on increasing labor pro- lion in 2011, as did graduate students at nated. Women hold less than 9 percent of ductivity, that is, real GDP produced per hour 272,000. Since national and other public uni- managerial positions. Company culture is worked. Japanese labor skills, capital stock, versities are of high quality, decreasing enroll- evolving and probably can cope with relatively and technology levels are already high. But, ments are mostly in private institutions. The small numbers of female managers. However, Japan’s productivity lags seriously behind number of private four-year colleges increased when as many as 30 percent of managers are other G7 countries, and in 2013 was only from 542 in 2004 to a peak of 606 in 2013, women, the management lifestyle and culture 61.6 percent of the U.S. level. and has now begun to decline. This will be will change significantly. a slow, difficult process as weaker colleges In March 2015, McKenzie Global Institute While Japan, like all developed countries, reluctantly merge or close due to lack of stu- published a comprehensive, detailed, ambi- seeks highly skilled foreign professionals, dents. Private junior colleges have decreased tious, optimistic, 128-page study, “The basically its immigration and foreign worker from 451 in 2004 to 334 in 2014 and enroll- Future of Japan: Reigniting Productivity and policies are restrictive and minimal. Japan ments dropped from 214,000 to 129,000. Growth.” It recommends a wide range of spe- would benefit from more foreign workers, cific measures, particularly for the business unskilled as well as skilled, but is liberalizing Growth in the Longer Run sector, to achieve a “broader adoption of best very cautiously. Of the 788,000 legal foreign global practices, a wave of investment in new Optimistically assuming aggregate demand workers in Japan—1.3 percent of the labor technologies, and a greater willingness to try will be adequate, Japan’s growth over the lon- force—339,000 are Brazilian and others bold new business models.” The study aspira- ger run depends on the supply side: changes with Japanese heritage, 147,000 are skilled tionally lays out what Japan should do.

CJEB Annual Report 2014–2015 | 15 The government’s June 30, 2015 growth Corporate Governance some cases retired CEOs continue to exercise strategy states what the government intends strong power in advisory positions. to do over the next five years or so. The ambi- In Japan, as elsewhere, effective corporate Legally, shareholders have more power in tious 2 percent growth target implies that governance is a system in which companies Japan than in the United States, but have not labor productivity will have to increase by 2.2 make good, prompt, fair decisions; engage used it. Most Japanese institutional investors percent annually, and TFP comparably. This in sufficient disclosure to be reasonably accept management control in turn for receiv- is much higher than has been achieved in the transparent; and take into appropriate con- ing stable, gradually increasing dividends last 25 years. sideration the interests of their sharehold- and noninterference in their own businesses. ers, customers, employees, and communities. Cross-shareholdings have helped manage- Like most observers, I do not think Japan will In practice, more so than elsewhere, every ments protect their interests. Earlier, highly achieve sustained 2 percent GDP growth. The Japanese company, large and small, has its publicized hostile takeover efforts by activist government is unlikely to implement its full own, strong, self-replicating corporate culture foreign investors failed, but now activist insti- package of third-arrow structural reforms. based on insiders, often with ambiguous or tutional investors, especially foreign, but also Its baseline projection is more realistic: 1 weak internal checks and balances. Reform some domestic, are pressing companies with percent growth, sustained full employment, is needed because corporate management is huge cash holdings to significantly increase a CPI increase of about 1.5 percent, and a entrenched, autonomous, and powerful. leveling off of the government debt/GDP ratio. dividends and share buy-backs. They also Real GDP growth of 1 percent would be pretty Corporate governance reform of companies press companies to raise their currently low good: GDP/capita would increase about 1.5 listed on the stock exchanges is a major pol- returns on investments and assets. Foreign percent or so, almost double its performance icy objective of the Abenomics growth strat- institutions hold about 32 percent of shares since 1992. egy, and its implementation is making good listed on the TSE. progress. The basic objectives are to make The TSE and the Financial Services Agency, IMF projections are cautious: while the GDP managers of publicly traded company more with public input, introduced the important growth rate will increase from 0.8 percent in responsible to, and responsive to, sharehold- new Corporate Governance Code on June 2015 to 1.2 percent in 2016, the increase ers and potential investors, though not to 1. It focuses on best practices and fol- in the consumption tax to 10 percent in April fundamentally change the existing system lows the OECD (Organisation for Economic 2017 will slow growth to 0.4 percent, and of entrenched management. The focus is on Co-operation and Development) model. from 2018 growth will be 0.7 percent annu- making companies more competitive, more ally through 2020. This reflects IMF concern profitable, and engaging in adequate disclo- Japan’s Code is not legally binding, but has about the still disappointing levels of business sure and transparency. strong reputational force; it is both a symbol investment and slow progress in labor mar- and a driver of corporate change. The Code ket reform, notably the inability of firms to Listed companies (there are about 3,500, establishes five major categories of princi- discharge permanent workers, and the rising including 1,895 on the Tokyo Stock Exchange ples to which listed companies must comply, number of nonregular workers with their rel- [TSE] first section) can be classified into sev- or explain and justify noncompliance. Two atively low wages and limited fringe benefits. eral overlapping models of corporate control major changes are the appointment of at and internally based governance. Founder least two independent, outside directors on The longer-run bottom line: with decreasing family influence continues well after a com- the company’s board, and disclosure of the labor inputs, 2 percent growth would be out- pany is first listed, but over time the com- company’s overall policy and voting criteria for standing, but almost impossible to achieve. pany evolves into control by entrenched pro- cross-shareholding, in order to reduce such Even if Abenomics is very successful in car- fessional management based on permanent holdings. Other principles focus on disclosure rying out major structural reforms and in end- employment, promotion, and internal selec- and transparency, appropriate cooperation ing deflation, achieving growth of about 1.5 tion of the top positions of president, chair- with all stakeholders, and use of stock options percent would be very good. It would mean man, and almost all board members. Some to link compensation of top executives to Japanese GDP growth/capita would be on the companies have developed a strong CEO- company performance. order of 2 percent, high in both historical and based model, making it possible to make and comparative terms. implement strategic decisions more rapidly. In The percentage of all listed companies having

16 | CJEB Annual Report 2014–2015 at least one outside director was 12.9 per- be appropriate, since shame in Japan is often costs and prices are dropping dramatically. In cent in 2010 and 21.5 percent in 2014; 92 more of a motivator than merit. Japan and globally, a myriad of ongoing tech- percent of TSE first section firms have at nological advances, large and small, increase The Toshiba Corporation scandal—using least one outside director. To meet the target the efficiency of energy production, trans- inappropriate accounting to inflate total of at least two outside, independent direc- portation, and distribution to industrial and group operating profits by more than 10 per- tors, TSE first and second section companies household users, and their better use. cent over five years through March 2014—is will need to make 1,848 new appointments. a shock. Toshiba is a globally well-regarded The drop in the world price of oil (Brent More important than sheer numbers will be he brand and a prestigious, innovative company crude) from its last peak of $117 per barrel in quality, knowledge, and, especially, the com- ranked seventh globally in patents received. August 2013 to $42 in August 2015 is cur- mitment to be truly independent and question- With four outside directors, it was presumed rently substantially benefiting Japan through ing. In the past, outside directors have often to embody good corporate governance. improved terms of trade, even as it makes it been marginalized, with basic strategic issues Apparently, Toshiba’s strong leadership set more difficult to achieve the 2 percent CPI decided by management and then simply rati- unrealistically aggressive profit targets that rise target. LNG has been sold globally and to fied by the board. middle management feared to challenge, and Japan under long-term fixed-price contracts Cross-shareholding has been a basic mech- internal checks and balances were inade- linked to the price of oil. Markets have been anism of management control in the postwar quate. While the Olympus scandal a few opaque and only gradually are becoming more period. Banks had to divest major holdings of years ago was an aberration, the Toshiba flexible. Over time Japanese companies have group companies in earlier financial reforms, case raises wider concerns as to how effec- successfully negotiated down the substantial but many companies continue to hold shares tive governance actually is in well-estab- premiums they have paid for LNG. in each other. Many of the holdings are to lished major firms. The greatest achievement of the third arrow maintain business relationships, which can thus far has been in energy policy, implement- mean helping to fend off hostile sharehold- Energy ing major reforms to reduce the monopolis- ers. While the government cannot legally Energy is probably Japan’s greatest vulner- tic power of the 10 regional electric power require companies to end cross-shareholding ability, both in environmental terms and in companies, from Hokkaido to Okinawa. The completely in order to increase transpar- assured sources of supply. Japan’s long-run retail market for electric power is to be fully ency, the Corporate Governance Code now energy policy is simple: to obtain stable sup- liberalized in a year or so, and by 2020 the requires companies listed on the TSE to plies at low cost. Implementation is complex companies have to spin off their generation, explain the rationale for holdings. Some 60 and difficult in what is a global, dynamic, rap- transmission, and distribution businesses percent of the 300 biggest companies have idly changing set of related industries. into separate companies. sold some cross-shareholdings, but it is pre- mature to determine how far and how rapidly Fossil fuels are the predominant energy The Fukushima crisis undermined Japan’s this will proceed. sources for Japan, as for all developed coun- ability to continue as a global path-breaking tries. They are relatively cheap, but create leader regarding climate change. It will fail The government-backed JPX-Nikkei 400 greenhouse gases and pollutants. Having to meet its Kyoto Protocol commitments to Index selects the best-performing compa- mined out all its coal long ago, Japan has to reduce greenhouse gas emissions by 25 per- nies based on three-year average return on import essentially all its oil, LNG (liquefied cent from 1990 levels by 2020, as will many equity, cumulative operating profit, and mar- natural gas), and coal. Security of supply is a other countries. At the G7 June 2015 meet- ket value. In its second annual revision of major geopolitical concern. One issue is how ing, Abe announced a more modest target the index in August, 42 firms were added, to achieve the best mix among fossil, nuclear, of reducing emissions by 26 percent below replacing companies performing less well. and renewable resources. the 2013 level by 2030, equivalent to 18 Since management aspires to have the com- percent less than 1990. Even that will be a pany included, it has incentives to improve. The world is in a disruptive energy revolution substantial achievement. Commentators refer to the JPX-Nikkei 400 based on the rapid development of cheap as the “shame index” since it is shameful for shale oil and gas, as well as ongoing efforts Some three-quarters of Japan’s energy use a large company not to be included. This may to harness solar and wind power. Energy is fuel for motor vehicles and gas for heating,

CJEB Annual Report 2014–2015 | 17 cooling, and cooking. The other quarter is to 20–22 percent. Three aspects of these pro- regulations. As a result, companies have generate electricity. jections are striking. already decided to decommission seven older plants because upgrading costs to meet the Japan is so deficient in natural resources that First is the continued importance of coal, new standards are too high. in 2014 it imported more than 90 percent generating 26 percent of electricity, slightly of its primary energy supply. (Primary energy above the average 24 percent in the 10 years As many as 32 of Japan’s 43 operable plants refers to an energy form found in nature before Fukushima. Japanese companies have are possible candidates to reopen. So far the that has not been subjected to any conver- developed effective clean-coal technology NRA has approved reopening 5 plants and sion or transformation process). Japan is the and are seeking to export it, but it is expen- another 16 are under review. However a 2015 world’s largest LNG importer, second-largest sive and will require strong anti-pollution com- Reuters analysis concludes that only seven coal importer, and third-largest net importer mitments by importing countries. In Japan, are likely to be restarted over the next several of crude oil and oil products. Stability and new, large-scale, coal-based electricity proj- years. Moreover, at least 13 reactors would security of fossil fuel imports, as well as their ects are both clean and apparently cost com- need to have their lifetimes extended beyond prices, appropriately are top-priority foreign petitive, although upfront capital costs are the 40-year normal limit. policy concerns. Japan imports 82 percent of high, interest rates and operating costs are Despite substantial economic benefits, the its oil from the Middle East, 33 percent from low. Existing coal-based plants will be mostly reopening process has been careful and cau- Saudi Arabia alone. LNG imports are consid- replaced by 2030. Coal’s greatest competi- tious. Kyushu Electric Power in Kagoshima erably more diversified. Australia, Malaysia, tive challenge in Japan will continue to be LNG Prefecture has reopened the first nuclear and Qatar are the major suppliers, providing and nuclear power. power plant, restarting operations on August three-quarters of total imports. Domestically, The projected major reliance on nuclear power 14; it took 11 months to reopen after the hydroelectric provides about 3 percent of once again by 2030 implies not only reopen- September 2014 approval, both to ensure total energy supply and about 8 percent of ing many of existing plants, but also building details and overcome regional, if not local, electricity. Before being shut down, nuclear new ones. I am not persuaded this will be opposition. The first plant reopenings will be energy provided about 30 percent of electric- achieved. Given the current adverse views of a critical test as to whether Japanese will ity, and this had been expected to increase to the Japanese public following Fukushima, this accept nuclear power once again and put the at least 40 percent by 2017. will require a major change in the public mind- country on track for the 2030 nuclear target, On June 30, METI (Ministry of Economy, Trade set. Since electricity prices have increased which seems difficult to achieve. and Industry) announced its projection for 29 percent for business and 19 percent Fossil fuels are essential, but they are not 2030 of the mix of sources for primary energy for household since Fukushima, reductions good for one’s health. Air pollution kills peo- and electricity production. The government attributed to cheap nuclear power generation ple quietly. My colleague David Weinstein supports research to achieve energy free of will be important in overcoming Japanese estimates that if Japan had not closed its fossil fuels in the very long run, based on anxieties. Safe nuclear power generation does nuclear plants following Fukushima, and hydrogen and nuclear fusion technologies. not pollute the air, though disposal of radioac- thereby burned less fossil fuel, more than However, for the next 20 to 30 years at least, tive waste and decommissioning of old plants 9,000 Japanese lives would have been saved Japan will continue to rely predominantly on are serious unresolved issues. Security of fuel annually. No one has died from radiation leak- fossil fuels. supply is not a problem; uranium is readily age and the nuclear meltdown at Fukushima, imported from a geographically diversified In 2030, oil, coal, and LNG are projected to though the dislocation costs of those directly range of democracies. provide 75 percent of the primary energy affected were substantial. supply, down from 92 percent in 2013 and All of Japan’s 54 nuclear power plants As noted, renewable energy sources are 82 percent in 2010. Renewables will provide were closed by September 2013 following expected to increase significantly to 22–24 13 to 14 percent, and nuclear power 10 to the Great East Japan Earthquake in March percent of electricity generation. Hydropower 11 percent. The big changes are projected 2011, when three reactors were destroyed in will be about 9 percent. The big renewable for electricity generation: renewables will Fukushima. The Nuclear Regulatory Authority increase will be in solar, to some 7 percent, comprise 22–24 percent and nuclear power (NRA) has developed new, stringent safety

18 | CJEB Annual Report 2014–2015 a consequence of the exuberant corporate and other major new fission technology, and Japan is a comfortable, clean, safe, and response to Japan’s extraordinarily high sub- eventually nuclear fusion. Artificial photosyn- friendly country. One of Japan’s strengths is sidies (feed-in tariffs) for electricity sold to thesis, replacing plants, is being developed to that it adjusts to tremendous demographic Japan’s 10 utilities, initially 42 yen per kilo- produce hydrocarbons to fuel motor vehicles. and economic change in a stable, usually watt hour. Solar power prices and installation NH3 (ammonia) is being proposed as a hydro- rather gradual, nondisruptive way. Even costs have been dropping sharply. Some 82 gen-carrying fuel. though the process may seem inefficiently percent of Japan’s $34.3 billion investment slow, it maintains a high degree of social cohe- For Japan, methane hydrate (natural gas in in renewables in 2014 (second only to the sion, especially important in Japan’s homoge- frozen deposits) could become a major fuel United States’s $36.3 billion) was in small- nous, group-oriented society. source. Japan has found some 750 depos- scale projects, where the feed-in tariff rate its in its coastal waters. Methane hydrate Japan has the same sorts of problems as as of July ranged between 27 and 35 yen per is globally abundant but costly to mine. The other economically advanced democracies. kilowatt-hour. However, the growth of solar government-owned Japan Oil, Gas and Metals Its relative poverty rate, measured as income facilities is constrained by suitable sites and National Corporation has been doing research less than half of median disposable income, access to power grids. on methane hydrate since 1995, and in 2013 is 16 percent, sixth highest of the 34 OECD Biomass burning, considered less polluting its ship Chikyu dug wells and extracted nat- members; the United States is fifth highest. than fossil fuels, will generate 3.7 percent to ural gas samples in the Nankai Trough. The The large and rising proportion of nonregular 4.6 percent of electricity. Since bamboo grows government plans further testing in late 2016 workers, now 37 percent of the labor force, is so rapidly, two new bamboo-based plants are of its methane hydrate well to resolve tech- disquieting. They have lower hourly wages and under construction. Wind will remain costly, so nical difficulties, which cut the 2013 effort fewer fringe benefits, which makes many of is projected to contribute only 1.7 percent. In short. It estimates that it will take at least a them members of the working poor. The low- volcanic Japan, geothermal plants will provide decade before costs can be reduced suffi- est 10 percent of Japan’s income recipients the final 1.0 percent; however, most sources ciently for methane hydrate to be commer- have had an absolute decrease in their income are in national parks, where tourist hot springs cially competitive. This is probably optimistic. since the mid-1980s. businesses resist their intrusion. Nonetheless, methane hydrate may eventually The annual survey on living conditions in 2004 become Japan’s major source of gas. In one One major problem is that solar and wind found 44.2 percent considered their living form or another, gas will increase significantly power are unreliable, since they are inter- conditions as normal or comfortable, and 23.0 beyond the 2030 projection, as the nuclear mittent and volatile. This limits the ability of percent as very hard. In almost every year portion falls short. power grids to handle electricity supply flows since, respondents have been less satisfied, smoothly as daily demand fluctuates. Huge, Conclusion particularly when the consumption tax was efficient storage batteries or new methods for increased. In 2014, 36.8 percent felt their storing electric power cheaply and efficiently In the 70 years since Japan’s surrender in living conditions were normal or comfortable, are essential. Several Japanese and U.S. com- 1945, Japan has done very well economi- but 29.7 percent considered life very hard. panies are leaders in developing large storage cally, politically, and socially. It has achieved a Japan’s first 15 postwar years, to 1960, saw batteries, as well as batteries for electric cars. high standard of living, with high educational demilitarization, Allied Occupation reforms attainment and high levels of technology. It In the coming decades, radically new tech- (to 1952), independence (since 1952), cre- has embodied democratic principles, policies, nologies almost surely will further alter global ation of new institutions, and development of and institutions, with full respect for the rule energy sources and supplies dramatically. new opportunities. The next era of 30 years, of law. It has pursued a peace-oriented, indeed They will involve major breakthroughs to to 1990, provided unprecedentedly rapid, pacifist, international policy, with a small but achieve efficiencies, cost competitiveness, catch-up economic growth, and achievement competent self-defense force, and deep reli- and environmental benefits, as well as social of Japan’s high standard of living. The past 25 ance on its security treaty and close relation- and political acceptance. The most contro- years have been an era of mediocre economic ship with the United States. Life expectancy versial will be nuclear power—the traveling growth, and a modest but rising sense of mal- has increased for women from 54 in 1950 to wave reactor that burns its own nuclear waste aise and decreased optimism about the future. 88 today, and for men from 50 to 80.

CJEB Annual Report 2014–2015 | 19 At the same time, Japan’s broad self-image growth. If Abenomics succeeds in bringing persists as a peaceful, comfortable, insulated about major structural reform, if house- country not much involved in international hold consumption and business investment political, security, or social issues. respond well, and good economic growth is achieved, then tax revenues will grow enough However, today’s world is complicated and dif- that less severe austerity measures will be ficult. Japan’s economic power and its global required. Current economic performance pro- economic breadth are too great to allow Japan vides a couple of years of leeway before the to persist in being insular and passive. At the government will have to confront these issues same time Japan’s leadership in Asia, assidu- head on. ously built up over the postwar period, is now being eroded by a huge, rapidly growing but I continue to worry about inadequate private still poor, resurgent China. demand in Japan. The economy is too big to expect exports to be a main source of stim- Prime Minister Abe is pursuing a very ambi- ulus. Two main challenges are to raise pro- tious long-run policy to redefine Japan not ductivity closer to U.S. levels, and relatedly, just economically but in terms of its appro- to raise wages significantly. To drive growth, priate international role, with the expanded consumption must increase. That means peacekeeping and humanitarian Self-Defense household income must rise, which means Forces. While Abenomics has broad support wages must increase more than they have despite vested interests, Abe’s national secu- this year. It is puzzling that, with labor mar- rity policy has yet to be widely accepted, and kets so tight, wages have not increased more. thus is the major challenge Abe faces. Perhaps labor market pressure will manifest Some commentators have been sharply itself more strongly in the year ahead. critical of the performance of Abenomics. The reality of good Japanese economic per- However, Abenomics is a long-run program to formance from now on reflects the difficulty bring about fundamental economic reform. I of large percentage increases in traditional think monetary policy is successfully bringing measures when the levels are already high. the deflationary mindset to an end. The 2 per- With a declining labor force and population, cent CPI annual increase will not be achieved 1 percent or so real growth actually is pretty any time soon, but the BoJ should persist in good over the longer run. Japan’s standard this very ambitious target. The sustained 2 of living (GDP per capita) would improve at percent growth target probably cannot be a historically good 1.5 percent or so. With achieved. However, in order to overcome pes- continued advances in medical care and tech- simistic expectations, it is important for Abe nology, the quality of life can be expected to to pursue both these targets wholeheartedly. improve even more. This is the reality of good How Japan will deal with its fiscal policy Japanese performance in the longer run, so reform—the second arrow of Abenomics—is the Japanese and those of us who study and the most difficult area of government policy. care about Japan will have to adjust our mind- There is a major policy conflict between fiscal set accordingly. austerity—reducing welfare expenditures and raising taxes—and providing sufficient gov- ernment demand to sustain full employment October 9, 2015

20 | CJEB Annual Report 2014–2015 Current Research Highlights

From left to right: David E. Weinstein , Gerald L. Curtis, Merit E. Janow, Curtis J. Milhaupt

CJEB places a high priority on facilitating financial institutions are for understanding He has also been using these data to under- research related to the Japanese economy, aggregate loan volatility in general and what stand the sources of firm success. businesses, management systems, and finan- impact bank loan supply has on the invest- He is also pursuing a project with the Rakuten cial markets. Typically, faculty members asso- ment of firms. He is also working on a project Institute of Technology focusing on the gains to ciated with the Center individually obtain with the Bank of International Settlements on Japanese consumers from Internet purchases. funding through competitive outside grants, the global demand and supply of bank assets. and CJEB provides additional financial and Professor Weinstein’s research is often cited His work on Japanese inflation involves exam- administrative support. and discussed in the media, and he is a fre- ining how problems in the measurement of quent commentator on Japan. David E. Weinstein leads the Center’s inflation should affect monetary policy. In par- research activities and has several individ- ticular, Professor Weinstein examines whether Gerald L. Curtis’s main research includes the ual projects under way supported in part by central banks should care less about infla- evolution of and future prospects for Japan’s the National Science Foundation (NSF), the tion movements when inflation rates become political system and foreign policy. In this Institute for New Economic Thinking (INET), lower. This research has implications for regard, he has traveled extensively in Asia, and a Google Research Grant. Professor understanding monetary policy in Japan and including Japan, China, Korea, Singapore, Weinstein’s research and teaching focus on much of the developed world. Indonesia, and Vietnam. Although he will retire international economics, macroeconomics, from teaching at Columbia University at the Professor Weinstein has continued his work corporate finance, the Japanese economy, end of 2015, he will continue to serve as on “Prices in Space and Time,” a research proj- and industrial policy. In addition to being director of the Toyota Research Program at the ect using barcode data from the ACNielsen CJEB’s director of research, he is the direc- Weatherhead East Asian Institute of Columbia HomeScan (for purchases in the United tor of the NBER Japan Project, cosponsored University. He was a featured speaker at the States), Nikkei-POS, and ACNielsen Scantrak by CJEB. Professor Weinstein was also pre- Foreign Correspondents Club of Japan, Tokyo (for retail sales in Japan and several other viously the chair of Columbia University’s University, and other numerous universities, countries), and Google’s price and click- Economics Department. think tanks, business organizations, and cor- through information (for all retail products and porations in the United States, Japan, and Professor Weinstein’s research utilizes real estate reported on the Google Product China. Professor Curtis was also the fea- extremely detailed databases on vari- search and Google Maps for several coun- tured speaker at Nikkei Business magazine’s ous aspects of the Japanese economy. In tries). This project aims to measure inflation at 40th anniversary and other high profile events 2014–2015, Professor Weinstein contin- a daily frequency and explore how daily price in Tokyo, Nagoya, and Osaka. He is often ued his research on systemic financial risk and consumption data respond to macroeco- a participant in track two policy dialogues in Japan. He has a major project under way nomic shocks. Professor Weinstein expects with and in Japan, Korea, China, and the that aims to understand how banking cri- that the construction of daily price and con- United States. He recently participated in the ses affect aggregate investment. In particu- sumption indexes for major economies will Shanghai conference on the U.S. rebalance lar, this research will answer the question of alter our understanding of how policy and eco- in Asia, and also welcomed and moderated how important problems in individual large nomic shocks are transmitted to economies.

CJEB Annual Report 2014–2015 | 21 Prime Minister Abe’s address at Columbia’s central banks. On fiscal policy, he has been reform in the United States, developments in World Leaders Forum in September 2014. In analyzing the debt sustainability of Japanese international trade and investment, compar- addition to his academic writings, he regularly government debts. He has been conducting ing Chinese and Japanese industrial policies, publishes op-eds for The Wall Street Journal a simulation analysis of a menu of fiscal con- and corporate governance issues. As dean, and numerous publications in Japan. He often solidation with varying degrees and speeds. she also has initiated a number of new initia- makes frequent television appearances on On growth strategy, he investigates various tives around the intersection of technology Japanese Sunday morning news programs reform plans in regulated industries from and policy, the development of sound capital and is widely quoted by international media agriculture and education, to medical and markets, and global urban policies. She is outlets on issues relating to Japanese politics health care. He combines theory and empir- continuing a research project on China that and society and U.S. foreign policy. ical research and derives policy implications. focuses on sources of tension and opportunity in China’s external economic relations. Takatoshi Ito contributes to the Center’s He belongs to a research group at the research activities and has several individ- Research Institute of Economy, Trade and Curtis J. Milhaupt will publish an edited vol- ual ongoing research projects. Professor Ito’s Industry on Japanese exporters’ decisions to ume titled Regulating the Visible Hand? The research and teaching focus on international pass through the exchange rate changes on Institutional Implications of Chinese State finance, foreign exchange market microstruc- export and destination prices. He is also a spe- Capitalism with Oxford University Press in ture, Asian financial markets, inflation target- cial member of the Council on Customs, Tariff, fall 2015. He is also preparing an analysis ing, and the Japanese economy. In addition to Foreign Exchange, and other Transactions at of changes to Japan’s corporate governance being CJEB’s associate director of research, the Ministry of Finance, Japan. environment. Professor Ito is a professor at the School He was a chair on the study group on reform- Alicia Ogawa continues her private consult- of International and Public Affairs (SIPA) at ing public pension funds in Japan. A report ing work on Japan’s politics and economy, Columbia University. He also maintains a from his group, recommending portfolio rebal- teaching at SIPA, and working at the Maureen teaching and research position during the ance away from Japanese government bonds and Mike Mansfield Foundation. She has summer at the National Graduate Institute for and toward more risk assets, has been very continued to be in high demand as a public Policy Studies in Tokyo. influential in the subsequent change of the speaker. Professor Ogawa is also a consul- Professor Ito’s research focuses on three broad Government Public Investment Fund. tant on Japanese financial markets to two themes: international finance, the Japanese of the largest U.S.-based macro funds. She Professor Ito’s involvement in Southeast and economy, and the Asian financial markets. continues to work closely with CJEB Visiting East Asian economies dates from the time of He has carried out a series of research on the Fellows by assisting them with their research Asian currency crisis in 1997–1998. He has dynamics of the exchange rates in various time and seminar presentations. conducted research and given policy advice spans and frequencies. He has done macroeco- on economic and financial issues in Southeast Hugh Patrick continues his work on Japan’s nomic analysis of the yen/dollar exchange rates Asia, in particular Thailand, Indonesia, Korea, current economic performance, monetary after the rate floated in 1973. Most recently, and Myanmar. He continues to visit these policy, and institutional changes. His most he is examining the microstructure of the countries to engage in academic and policy recent paper is his annual essay on the current foreign exchange markets using a tick-by-tick discussions. He has been doing research, as Japanese economy, included in this annual dataset, which contains all firm quotes and well as teaching, on inflation targeting and report, starting on p. 9. Professor Patrick gave deals in a computerized order-matching engine, exchange rate regime and financial and capi- policy-oriented talks based on his research at and how particular institutions and rules in the tal markets development in the Asian emerg- conferences and private meetings. He is an market influence pricing and deal activities. ing market economies. active participant in a range of conferences His work on the Japanese economy includes about Japan and Asia. He participated in con- Merit E. Janow, appointed dean of the School both macro and microeconomic aspects of ferences in Singapore and Tokyo in both the of International and Political Affairs (SIPA) in the economy. On monetary policy, he has fall and spring, and had meetings with senior 2013, researches financial regulatory reform been a proponent of inflation targeting in policy advisors and business leaders in Tokyo as well as international trade and investment. Japan, long before the Bank of Japan finally and Seoul during both trips as well. He was Over the past year, she has spoken to interna- adopted it in 2013. He is investigating trans- featured widely in the media, including in such tional corporate, academic, and policy audi- mission channels and the effects of quan- outlets as Nikkei, Jiji News Bulletin, and NHK’s ences on topics including financial regulatory titative easing adopted by the four major “Global Agenda” program.

22 | CJEB Annual Report 2014–2015 Faculty Engagement

Apart from our support to core faculty, CJEB also actively supports Columbia Business School (CBS) faculty members who are not formally associated with the Center by fos- tering dialogue among the business, profes- sional, academic, and cultural communities in the United States with those of Japan. The Center funds Japan-related research and seeks ways for CBS professors to incorporate the study of Japan’s economy and business systems into their research and teaching. The Center uses its extensive network of Japanese corporate contacts to arrange for speakers from the private sector to give lec- tures to the CBS community. Our access to various Japan-related databases is also From left to right: Hugh Patrick, Glenn Hubbard, Joseph E. Stiglitz, David E. Weinstein, Takatoshi Ito available for faculty to use for their research, and, where appropriate, CJEB can fund and 6, 2015 (details on p. 34). Panelists included CJEB continues to work with the Jerome A. arrange faculty research trips to Japan. Glenn Hubbard, dean and Russell L. Carson Chazen Institute of International Business Professor of Finance and Economics of CBS, and CBS’s student-run Japan Business and Joseph E. Stiglitz, University Professor Association (JBA) to support the annual of Columbia University. CJEB’s annual Tokyo travel of a CBS faculty leader on the Chazen conference titled “Japan’s Changing Corporate International Study Tour to Japan. For spring Governance,” was held on May 21, 2015, and 2015, Eva Ascarza, assistant professor at featured Bruce Greenwald, Robert Heilbrunn CBS, led the study tour. Professor of Finance and Asset Management CJEB’s support for faculty research is not of CBS, as the keynote speaker (details on p. limited to the Business School faculty. The 30). As an expert in value investing, he shared Center also supports the research of Kay his thoughts on how Japan fits into value Shimizu, assistant professor of political sci- investing on a global scale. Hugh Patrick and Bruce C. Greenwald ence at Columbia University, who has been As a preeminent research academic center, conducting studies on Japan’s regional econo- CJEB often cosponsors programs with other CJEB enthusiastically supports other faculty mies and central-local relations. On October 3, centers at CBS and invites CBS faculty mem- to engage in Japan-related research through 2014, CJEB provided administrative support bers to participate as speakers or panelists for the use of our large collection databank, for Professor Shimizu’s Chubu Keizai Doyukai our various public programs. William Duggan, as well as providing funding for research. (Chubu Association for Corporate Executives) senior lecturer at CBS, was a guest speaker One of our databank resources includes the lecture. Fifty members of the Chubu Keizai for one of CJEB’s informal lunchtime semi- Nikkei NEEDS Financial QUEST 2.0. This Doyukai visited Columbia to attend a lecture nars, “The Seventh Sense: East Meets West year, we sponsored Professor Urooj Khan and led by Professor Shimizu. After the lecture, in the Executive Mind,” on December 2, 2014 Professor Nallareddy Suresh, both assistant CJEB gave the members a tour of Columbia’s (more details on p. 37). This year, we held a professors of CBS, to purchase data from our Morningside campus in Japanese. symposium featuring a panel of distinguished Nikkei NEEDS database. Through our funding, speakers from Columbia, “Japan and the they were able to obtain data on the aggregate World Economy: Challenges Over the Coming Japanese corporate profit on a quarterly basis Decade,” cosponsored with NHK, Japan’s pub- to support their hypothesis on the relation lic broadcasting television network, on April between corporate profits, GDP, and taxes.

CJEB Annual Report 2014–2015 | 23 Research Paper Series

CJEB fosters dissemination of research coverage of the Nikkei to 29 years and create Peter Drysdale, Emeritus Professor of on Japan’s economy and business within variations of their original sentiment index. On Economics, Crawford School of Public Policy, Columbia and in the broader academic, busi- the basis of 29 years’ worth of daily sentiment The Australian National University; Director, ness, professional, and public policy communi- indexes, we thoroughly examine the predict- East Asian Bureau of Economic Research ties. While much of the research produced by ability of Japanese stock prices. The findings and East Asia Forum scholars affiliated with the Center ultimately of our year-by-year analysis are twofold: (1) October 2014 appears in scholarly books and professional sentiment indexes created from all of Nikkei’s journals, early drafts of the work and research articles persistently predict the Nikkei 225 The economic rise of Japan in the 1980s results can be found in CJEB’s Working Paper stock prices, in both in-sample and out-of- was underpinned by a commitment to catch- (WP) Series. We also accept interesting, sample bases, and (2) these periods can be ing up through domestic reform and accom- topical papers not slated for eventual publi- interpreted using business cycles defined by modated externally within the framework of cation in our Occasional Paper (OP) Series. Japan’s Cabinet Office. the postwar multilateral institutions like the Papers in both series are available for free GATT/WTO. Regional cooperative processes WP 339 download through our website at www.gsb. like APEC later complemented that frame- columbia.edu/cjeb/research, which links to Japanese Monetary Policy and Internation- work, encouraging unilateral reform across the Columbia University Libraries’ Academic al Spillovers the region. Following the bursting of the asset Commons website. bubble in the early 1990s and the onset of Robert Dekle, Professor, Department of the Asian financial crisis, Japan turned from Economics, Dornsife College of Letters, reliance on the multilateral system to policies Arts and Sciences, University of Southern 2014–2015 based on preferential bilateralism in trade California Working Papers policy to secure its regional trading interests. Koichi Hamada, Tuntex Professor Emeritus of Japan’s bilateral trade agreements have been WP 338 Economics, Yale University largely ineffective in supporting the kind of deep-seated reform to regulatory institutions Quantifying Sentiment for the Japanese October 2014 and competition policies needed to sustain Economy as Predictors of Stock Prices The Japanese currency has recently weak- long-term productivity growth. The evidence Hiroshi Ishijima, Professor, Graduate School ened past 100 yen to the dollar. The reason suggests that Japanese productivity has of International Accounting, Chuo University; for the recent depreciation of the yen is the underperformed against its peers in the indus- Visiting Fellow, CJEB expectation of higher inflation in Japan, owing trial world and Asia. Instead of using foreign economic policy as an instrument of domestic October 2014 to the rapid projected growth in Japanese base money, the sum of currency, and com- reform and productivity enhancement, Japan This paper quantifies market sentiment as mercial banking reserves at the Bank of Japan. has used bilateral deals largely as political and four indexes and examines whether they can We show through our empirical analysis that strategic tools. Reestablishing a link between help predict stock prices in Japanese mar- recent expansionary Japanese monetary pol- Japan’s domestic reform agenda and its eco- kets. Sentiment analysis is gaining increas- icies have generally helped raise U.S. GDP, nomic diplomacy is important for structural ing interest in both academia and business. despite the appreciation of the dollar. reform and national economic success, as is Previously, Ishijima et al. (2014) created a a more sure-footed engagement with China. sentiment index that quantified the positive WP 340 WP 341 or negative emotions that might appear in the Japan’s Foreign Economic Policy Strategies Nikkei, which is the most popular business and Economic Performance Absence of Safe Assets and Fiscal Crisis newspaper in Japan. They concluded that the Masaya Sakuragawa, Professor, Department sentiment index significantly predicts stock Shiro Armstrong, Codirector and Editor, East of Economics, Keio University prices three days in advance. We reexamine Asia Forum; Crawford School of Public Policy, their recent five-year-worth results by extend- The Australian National University Yukie Sakuragawa, Associate Professor, ing in two dimensions; that is, we extend the Faculty of Management, Atomi University

24 | CJEB Annual Report 2014–2015 April 2015 in economy and business. It is also the largest as choice of invoicing currency, and finan- vendor of Japanese financial and economic cial and operational hedges. The firm’s expo- This paper provides a fiscal crisis model that databases. During earnings announcement sure to the exchange rate risk is estimated explains the low interest rates of Japanese season, the Nikkei morning edition often pub- by comovements of the stock prices and government bonds. The key ingredient is the lishes “preview” articles that are about compa- exchange rates, following Dominguez (1998) absence of safe assets in the sense that nies’ sales and earnings. However, these pre- and others. Data on risk management mea- investors have no access to any asset that date the actual company announcements and sures—financial and operational hedging, the hedges fiscal risk. The interest rate is insen- forecast more accurately the actual results choice of invoice currency, and the price revi- sitive to any change in fiscal conditions and than the existing forecasts, making the Nikkei sion strategy (pass-through)—were collected does not fully reflect the risk premium. This forecasts value-relevant information. We iden- from a questionnaire survey covering all Tokyo finding explains the low interest rates of tify 2,899 preview articles in the newspaper Stock Exchange-listed firms in 2009. Results Japanese government bonds even though the from 2000 to 2010. We examine the circum- show the following: First, firms with greater risk of fiscal default looks fairly high. The poor- stances under which these preview articles dependency on sales in foreign markets have ly-functioning bond market created in this way were written and the impact they have had on greater foreign exchange exposure. Second, contributes to the low interest rate followed the market. Our (preliminary) findings show the higher the U.S. dollar invoicing share, by a low default probability, and allows the that the market reacts to the information the greater the foreign exchange exposure; government to sustain its large debt. This even before the preview articles are printed, however, risk is reduced by both financial finding explains the mechanism under which suggesting some leakage of the information and operational hedging. Third, yen invoicing the low interest rate coexists with Japan’s to market participants. The costs and bene- reduces foreign exchange exposure. These large outstanding debt. Welfare implications fits (or incentives) for companies,Nikkei , and findings indicate that Japanese firms use a are mixed. The well-functioning bond mar- investors are investigated using changes in combination of risk management tools to miti- ket does not always contribute to welfare returns and information content around the gate the degree of exchange rate risk. enhancement because the market makes it events. difficult to sustain the debt. We show the implications for fiscal sustainability of some WP 343 2014–2015 policies, such as financial market reforms and Exchange Rate Exposure and Risk Man- growth enhancement policies. Occasional Papers agement: The Case of Japanese Exporting WP 342 Firms OP 67

Selective Disclosure: The Case of Nikkei Takatoshi Ito, Professor, School of Japan’s Abenomics: So Far So Good, But Preview Articles International and Public Affairs, Columbia Will It Prevail? University; Associate Director of Research, William N. Goetzmann, Edwin J. Beinecke Hugh Patrick, R. D. Calkins Professor of CJEB Professor of Finance and Management International Business Emeritus; Director, Studies, Director, International Center for Satoshi Koibuchi, Associate Professor, CJEB Finance, Yale School of Management Faculty of Commerce, Chuo University October 2014 Yasushi Hamao, Professor of Finance and Kiyotaka Sato, Professor, Department of The 2012 election gave Japan’s LDP con- Business Economics, Marshall School of Economics, Yokohama National University trol of both houses of the Diet, with Shinzo Business, University of Southern California Junko Shimizu, Professor, Faculty of Abe as the new leader promising to provide Hidenori Takahashi, Professor, Kobe Economics, Gakushuin University decisive and energetic leadership out of the University malaise of the past two decades. The vision April 2015 incorporated in his economic policy program, April 2015 Abenomics, is to end two decades of eco- This paper investigates the relationship nomic stagnation and resignation, revitalize Nihon Keizai Shinbun (Nikkei for short) is a between Japanese firms’ exposure to the Japanese enterprise, and halt population leading Japanese daily newspaper specializing exchange rate risk and risk management, such

CJEB Annual Report 2014–2015 | 25 decline; these go hand in hand with his polit- provides a variety of special bus services, OP 70 ical/security desires to restore Japanese such as to hospitals and for major Nagasaki Kamotsuru Sake Brewing Company self-confidence and national pride, and make companies. Furthermore, it has extensive— Japan an internationally-respected country. and quite profitable—real estate holdings Hugh Patrick, R. D. Calkins Professor of The three arrows of Abenomics—fiscal policy that are being developed into urban shop- International Business Emeritus; Director, (the government’s purview), monetary pol- ping centers, office buildings, condos, and CJEB icy (Bank of Japan), and structural reform hotels. The company’s challenge is that its (private sector and government)—have had bus service loses money, despite providing March 2015 some initial success, but implementation will an essential public service making 4,000 Hiroshima-based Kamotsuru Sake Brewing take years. Monetary policy has successfully trips a day, along with regular service to Company not only has a long history but is halted deflation, but achieving and then sus- Osaka and to Nagoya, amounting to sales of also a successful producer in a slowly declin- taining an annual 2 percent increase in con- $95.8 million in 2013. Moreover, the num- ing industry. It has a well-known brand, which sumer prices will be a major challenge. Fiscal ber of passengers has been declining ever Prime Minister Abe served President Obama policy’s major challenge persists: achieving since the 1980s, when young people began in Tokyo. This essay looks at the company and sufficient private consumption and invest- buying cars, and will continue to decline, as at the challenges it and its industry face from ment demand growth so that fiscal con- the Nagasaki City population, now 440,000, the changing nature of the beverage market solidation can be implemented. Structural may decline to about 300,000 in the next 20 generally and the alcoholic beverage market reform to achieve growth requires a wide years. The company is attempting to address in particular. range of policies, so it is a thousand darts, this challenge by developing special bus ser- not a single arrow. Abe’s immediate chal- vices for the elderly to hospitals, shopping, OP 71 lenge is how rapidly and how well the econ- and tourist trips. For now, the company is Rethinking the Growth Strategy: Compe- omy rebounds from the consumption tax profitable on the strength of its real estate tition is the Way toward Strengthening increase, as he faces major policy decisions holdings, but given these budgetary and Agriculture by year end or early next year. Perhaps the demographic realities, the future is unclear. most important are whether to pursue the 2 Takatoshi Ito, Professor, School of OP 69 percentage point consumption tax increase International and Public Affairs, Columbia scheduled for October 2015, the planned Oshima Shipbuilding Company University; Associate Director of Research, cut in the corporate income tax rate, and CJEB whether an agreement can be reached in the Hugh Patrick, R. D. Calkins Professor of Masayoshi Honma, Professor, Graduate Trans-Pacific Partnership (TPP) free trade International Business Emeritus; Director, School of Public Policy, The University of agreement negotiations. CJEB Tokyo OP 68 January 2015 March 2015 Nagasaki Jidousya Co., Ltd. Oshima Shipbuilding is one of many mid-size Japanese companies that are major global Japan’s dairy industry is under heavy govern- Hugh Patrick, R. D. Calkins Professor of players in niche markets. This essay tells the mental regulation. This has serious conse- International Business Emeritus; Director, Oshima story in the context of the global ship- quences; for instance, controls on the imports CJEB building industry’s cycles, changing competi- of butter lead to periodic butter shortages. tors, and evolving technologies. The industry The collection of raw milk from farmers is January 2015 is subject to wide, rapid swings in demand monopolized by agricultural cooperatives in Professor Hugh Patrick visited the head and pricing, primarily for exogenous reasons. the region, which blend the raw milk from office of the Nagasaki Bus Company in Oshima, a builder of mid-size bulk carriers, many farmers and sell it to dairy processing Nagasaki City in May 2014. The company’s has survived, and even prospered, through firms. Therefore, there is no opportunity for main business is providing regular bus ser- productivity growth, technological innovation, farmers to save money, increase quality, and vices both within Nagasaki City and from the and earning a reputation for quality. reap the benefits of a higher-quality prod- city throughout Nagasaki Prefecture. It also uct. Regarding pork, Japan’s tariffs are highly

26 | CJEB Annual Report 2014–2015 irregular. Japan imposes a specific tariff of locking in China as the undisputed leader; the ¥482 per kilogram on inexpensive pork parts lack of a Board of Directors in residence; the imported at a CIF price less than ¥64.53 per potential for a conflict of interest if the AIIB kg. For imported pork at the CIF import price, funds projects within China; the potential of which is between ¥64.53 and ¥524 per kg, China to use AIIB for political purposes; the Japan uses a “gate price system” in which relationship the AIIB will have with already-ex- the tariff equals the difference between the isting international financial institutions; and benchmark price of ¥546.53 and the CIF the potential for a weakening of “best prac- import price. Imported pork products that tices” in order to compete against the other are more expensive than the ¥524 per kg international finance institutions. For these (expensive pork parts) are subject to a con- reasons, it was the right decision for Japan ventional ad valorem tariff of 4.3 percent. not to join as a charter member in order This system maintains a domestic price of at to negotiate the MOU; nevertheless, Japan least ¥524/kg, regardless of quality. It also should maintain the option of joining the AIIB produces a huge incentive to lie about the in order to have leverage over the architecture true import price. Another incentive is to mix of the AIIB. expensive and cheap pork parts to reduce the average import price to ¥524 per kg in order to minimize tariffs to be paid. This system dis- courages Japanese farmers from producing high-quality pork, since expensive imports may be sold cheaper as part of the mixed pork shipment. Agricultural reform should be fundamental, not cosmetic, since the whole system needs to be overhauled. The realiza- tion of “Strengthening Agriculture” through Abenomics depends on the success or failure of these reforms.

OP 72

The Future of the Asian Infrastructure In- vestment Bank: Concerns for Transparency and Governance

Takatoshi Ito, Professor, School of International and Public Affairs, Columbia University; Associate Director of Research, CJEB

June 2015

China has proposed the Asian Infrastructure Investment Bank (AIIB), initiating a key turn- ing point in the international finance system. Unfortunately, its design at present is quite problematic, for several reasons: it limits par- ticipation by Western countries, effectively

CJEB Annual Report 2014–2015 | 27 the new Global Financial Architecture

The New Global Financial Architecture

Building upon CJEB’s “Program on Alternative on Japan and the United States, the program three years. We encourage anyone interested Investments,” which ran successfully from also concentrates on the broader context of in becoming involved in the NGFA program to 2002 to 2009, the Center established a the global financial system and all of its major contact us. program in July 2009 titled “The New Global players. Topics include, but are not limited to, This year, CJEB held a number of NGFA events, Financial Architecture” (NGFA). The purpose financial system restructuring; development including those in which two of the three of the NGFA program is to engage in analyt- of national and international regulatory sys- major NGFA events were held at Columbia ical and policy-oriented evaluations of major tems; effective governance, supervision, and University: “M&A in Japan: Reenergized” global financial and economic issues and reg- monitoring; the operations of and interactions in December 2014 (p. 33), “Japan and the ulatory changes through conferences, brain- among specific financial markets; the relation- World Economy: Challenges Over the Coming storming sessions, and research activities ships between finance and the performance Decade” in April 2015 (p. 34), and one in Tokyo, with, of course, a major emphasis on Japan. of the economy; and the nature and role of “Japan’s Changing Corporate Governance” in government and monetary policies. The program brings together distinguished May 2015 (see p. 30). finance and economics professors at The NGFA program began with CJEB’s seed Columbia Business School and other parts of funding, and in 2011, Aflac Japan became the the University with scholars and financial mar- first sponsor. The Center continues to seek a ket participants in the United States, Japan, small number of appropriate sponsors inclined Europe, and China. While emphasis is placed to make significant annual commitments for

28 | CJEB Annual Report 2014–2015 His Excellency Shinzo Abe, Prime Minister of Japan, Addresses the World Leaders Forum

His Excellency Shinzo Abe, Prime Minister of 「また日本研究は、両国の深遠な理解の出発点であります。この分野でコロンビ Japan, at World Leaders Forum ア大学は優れた業績があり、日本との特別なつながりがあります。大学には、 1980年代に設立された、日本経済経営研究所、日本法学研究所があり、長らく日 September 22, 2014; Columbia University 本研究に携わられてきた素晴らしい教授陣という資産があるからであります。特 にここにおられます、ジェラルド・カーティス教授、ヒュー・パトリック教授の長年に Organizers: Columbia University Programs わたる日本研究の功績を改めて称えたいと思います。 and Events and Weatherhead East Asian 今後とも、コロンビア大学を含め、世界の各拠点における日本研究の進展を強く Institute, Columbia University 期待し、私もできる限りの協力を行っていきたいと考えています。」

安倍晋三 内閣総理大臣 年 月 日のコロンビア大学でのスピーチより On September 22, 2014, Columbia wel- 2014 9 22 comed His Excellency Shinzo Abe, Prime Minister of Japan, as a speaker at the World “For Japan and the U.S., Japanese studies is the starting point for establishing a deep mutual Leaders Forum. This special event took understanding between the two countries. Columbia University is well recognized in this field place at Low Memorial Library’s Rotunda at and has many special ties with Japan. This is because Columbia University has institutes like Columbia’s Morningside campus. The 400 the Center on Japanese Economy and Business and The Center for Japanese Legal Studies, seats were claimed within minutes, and on the where both were founded in the 1980s and have outstanding professors who have been day of the event, a long line assembled on Low involved in Japanese studies for a long time. I would like to take this opportunity to honor Plaza as hundreds more people hoped to gain especially two professors, Professor Gerald Curtis and Professor Hugh Patrick, for what they entrance. His address was very well received have achieved over the years. by the Columbia community. I strongly hope Japanese Studies will continue to flourish in every part of the world as well as Prime Minister Abe gave special recognition within Columbia University, and I hope to continue to support this field for as much as I can.” to Professor Patrick and CJEB while deliver- ing his address. We are honored to receive —His Excellency Shinzo Abe, Prime Minister of Japan, September 22, 2014, at Low such a commendation from the prime minister Memorial Library, Columbia University himself. An excerpt from his address can be Translated by CJEB found on the right in Japanese and English.

CJEB Annual Report 2014–2015 | 29 Each year, CJEB organizes and hosts numerous major conferences, symposia, lectures, seminars, and workshops events that feature many distinguished speakers. These programs provide a platform for the students, academics, members of the private sector, and policymakers from Japan and the United States. The 2014–2015 events are listed below and split into the following sections: Conferences, Symposia, Lectures, and Lunchtime Seminars. All professional titles listed for participants are accurate for the time of the event. In addition to the descriptions below, videos and reports can be found on CJEB’s website: www.gsb.columbia.edu/cjeb. Conferences

Keynote: Productivity Change and Corporate Governance: Japan and the United States

Speaker: Bruce Greenwald, Robert Heilbrunn Professor of Finance and Asset Management, Columbia Business School

Moderator: Hugh Patrick, Director, CJEB

Panel I: Role of Corporate Governance

Panelists:

Nicholas E. Benes, Representative Director, The Board Director Training Institute of Japan

Takatoshi Ito, Professor, SIPA; Associate Director of Research, CJEB

From left to right: Kazuhiko Toyama, Bruce C. Greenwald, Nicholas E. Benes, Alicia Ogawa, Hugh Patrick, Kazuhiko Toyama, CEO, Industrial Growth George C. Olcott, David E. Weinstein, Takatoshi Ito, Yasuchika Hasegawa Platform, Inc.

Moderator: Alicia Ogawa, Senior Advisor, advisor to the second Abe cabinet, and SIPA Challenges Facing the CJEB Dean Merit E. Janow also joined this panel. World Trade System Keynote: New Dawn of Corporate The Center on Global Economic Gover- Japan’s Changing Governance in Japan nance and the Program on Indian Economic Corporate Governance Speaker: Yasuchika Hasegawa, Chairman, Conference CJEB Tokyo Conference Takeda Pharmaceutical Company Ltd. September 30, 2014; Columbia University May 21, 2015; Otemachi Financial City Moderator: Hugh Patrick This conference brought together leading Conference Center, Tokyo, Japan Panel II: Views of Outside Directors trade economists and legal experts special- izing in trade, as well as practitioners from Presented by CJEB with the cosponsorship of Panelists: various international institutions including the the Development Bank of Japan, this half-day Sakie T. Fukushima, President, G&S Global WTO and the OECD, to shed light on the conference in Tokyo featured leading scholars Advisors, Japan future of the global trading system. It was from Japan and the United States and business leaders from Japan. The panelists discussed sponsored by Columbia University’s School Gen Isayama, Cofounder & CEO, WiL LLC of International and Public Affairs (SIPA), the how the Abe administration has made corporate Center on Global Economic Governance, the governance a top priority and has announced a George C. Olcott, Guest Professor, Faculty of Program on Indian Economic Policies, and the wide-ranging series of proposals to significantly Commerce, Keio University change the way Japanese corporations are run. School of Advanced International Studies at Moderator: David E. Weinstein Johns Hopkins University. CJEB served as Welcoming Remarks an outreach partner. Professor Hugh Patrick Closing Remarks participated as a panelist and a moderator David E. Weinstein, Chair, Department of Hugh Patrick in Panel IV, “TPP: Perspectives from Japan.” Economics and Carl S. Shoup Professor of Professor Koichi Hamada, professor emeritus the Japanese Economy, Columbia University; of economics, Yale University, and special Director of Research, CJEB

30 | CJEB Annual Report 2014–2015 From left to right: Bruce C. Greenwald, George C. Olcott, Gen Isayama, Sakie T. Fukushima, David E. Weinstein, Yasuchika Hasegawa

The Japan Project Institute (ESRI) of the Cabinet office of the Discussant: Katharine Abraham, University of Government of Japan, is held jointly with Maryland and NBER Meeting with Joint ESRI the Japan Project meeting every year. This The Effect of Family Friendly Regulation International Conference year’s ESRI Conference was titled, “To Ensure on Fertility: Evidence from Japan Using Japan’s Economic Growth” and included July 30–31, 2015; Asian Development Bank Natural Experiments the participation of several distinguished Institute, Tokyo, Japan Columbia faculty members such as David E. Author: Nobuko Nagase, Ochanomizu The Japan Project meeting is held annually Weinstein, Takatoshi Ito, and Jeffrey Sachs. University by CJEB in partnership with the National Please see below for the agendas for both the Discussant: Karen Eggleston, Stanford Bureau of Economic Research (NBER), the Japan Project and the ESRI Conference. University and NBER Center for Advanced Research in Finance (CARF) at the University of Tokyo, and the Lunch Speech Australia-Japan Research Centre (AJRC) The Japan Project Meeting at the Crawford School of Public Policy of Masako Mori, Member of the House of the Australian National University (ANU). American vs Japanese Procurement: Councillors, Japan Professor Weinstein organized this two-day Evidence from Transaction-Level Trade Data Japan’s Diversification Discount academic conference with Professors Shiro Authors: Sebastian Heise, Yale University; Armstrong of ANU, Charles Horioka of the Authors: Christina Atanasova, Simon Fraser Justin Pierce, Federal Reserve Board; Georg University of the Philippines, Takeo Hoshi of University; Jess Diamond, Hitotsubashi Schaur, University of Tennessee; and Peter Stanford University, and Tsutomu Watanabe University Schott, Yale University and NBER of the University of Tokyo. The organiz- Discussant: Pierre Yared, Columbia University ers are grateful to the Asian Development Discussant: Hiroshi Ohashi, The University of and NBER Bank Institute, the Shorenstein Asia-Pacific Tokyo Research Center at Stanford University, and Selective Disclosure: The Case of Nikkei Miki Futagawa of the European Institute of Career of Married Women and the Nature Preview Articles Japanese Studies for their generous assis- of Husbands’ Work: Evidence from Japan Authors: William Goetzmann, Yale University tance and support. Authors: Yukiko Asai, The University of Tokyo; and NBER; Yasushi Hamao, University of The ESRI International Conference, spon- Ryo Kambayashi, Hitotsubashi University; Southern California; Hidenori Takahashi, sored by the Economic and Social Research Takao Kato, Colgate University Kobe University

CJEB Annual Report 2014–2015 | 31 From left to right: Jeffrey Sachs, Maurice Obstfeld

Discussant: Tatsuyoshi Okimoto, The Hosono, Gakushuin University; Hirofumi Session III: Female Labor Supply: Short-run Australian National University Uchida, Kobe University; Taisuke Uchino, Daito and Long-run Trade-offs Bunka University; Iichiro Uesugi, Hitotsubashi The Economics of Attribute-Based Chair: Anil Kashyap, The University of Chicago University Regulation: Theory and Evidence from Presenter: Masahiro Abe, Chuo University Fuel-Economy Standards Discussant: David E. Weinstein, Columbia University and NBER Discussant: Katharine G. Abraham, University Authors: Koichiro Ito, Boston University of Maryland and NBER; James Sallee, The University of Chicago and NBER ESRI International Session IV: Exchange Rate and Japanese Firms Discussant: Tomohiko Inui, Gakushuin Conference: “To Ensure University Japan’s Economic Growth” Chair: Anil Kashyap, The University of Chicago Do Risk Preferences Change? Evidence Presenter: Masahiro Hori, ESRI Session I: Doing Business in Japan from Panel Data Before and After the Great Discussant: Michael Devereux, University of East Japan Earthquake Chair: Kenji Umetani, ESRI British Columbia Authors: Chie Hanaoka, Kyoto Sangyo Presenter: Takeo Hoshi, Stanford University University; Hitoshi Shigeoka, Simon Fraser Panel Discussion: To Ensure Japan’s Discussants: Jun Saito, Keio University; University; Yasutora Watanabe, Hong Kong Economic Growth Koichi Hamada, Yale University University of Science and Technology Moderator: Kenji Umetani, ESRI Session II: Japan’s Growth Based on Discussant: Michael Callen, Harvard Panelists: Motoshige Itoh, Member, Council International Sustainable Development University on Economic and Fiscal Policy; Takatoshi Chair: Kenji Umetani, ESRI Transaction Partners and Firm Relocation Ito, Columbia University; Anil Kashyap, The University of Chicago; and Maurice Obstfeld, Choice: Evidence from the Tohoku Presenter: Jeffrey Sachs, Columbia University Earthquake Member, U.S. Council of Economic Advisers, Discussant: Kazumasa Iwata, Japan Center Chief Economist, IMF Authors: Arito Ono, Chuo University; Daisuke for Economic Research Miyakawa, Hitotsubashi University; Kaoru

32 | CJEB Annual Report 2014–2015 Symposia

From left to right: Heizo Takenaka, Henny Sender, Hugh Patrick, Dan Chamby; Hugh Patrick, Jonathan Rouner, Hidemi Moue, Curtis J. Milhaupt

Abenomics, TPP, and “The Revival of Japan in M&A in Japan: Reenergized the Future of Japan’s the Global Economy” December 4, 2014; Columbia Law School Agriculture Columbia Business School’s A panel consisting of Hidemi Moue, CEO September 16, 2014; International Affairs Pan-Asian Reunion 2014 in of Japan Industrial Partners (JIP); Jonathan Building, Columbia University Singapore Rouner, head of international M&A of Nomura Securities International; Curtis Milhaupt, This event featured Kay Shimizu, assistant October 11, 2014; Ritz-Carlton, Millenia Parker Professor of Comparative Corporate professor of political science at Columbia Singapore Law and director of the Center for Japanese University; Patricia Maclachlan, associate pro- Columbia Business School (CBS) held its Pan- Legal Studies (CJLS) at Columbia Law School; fessor of government and Asian studies at the Asian Reunion 2014, a two-day reunion and and Hugh Patrick, director of CJEB discussed University of Texas at Austin; Richard Katz, symposium about investment, innovation, and the current state of M&A in Japan for domes- editor-in-chief of The Oriental Economist; impact in Asia at the Ritz-Carlton, Millenia tic and foreign transactions. Mr. Moue traced and Sheila Smith, senior fellow for Japanese Hotel, in Singapore. More than 500 CBS the development of the industry to its current studies at the Council on Foreign Relations. alumni gathered and participated in social state and discussed why activity in Japan Professor Gerald L. Curtis, Burgess Professor and networking events as well. CJEB director, is lower than that in Western countries. He of Political Science at Columbia University, Professor Hugh Patrick, moderated the panel, cited case studies, some involving JIP, and moderated a lively discussion. The two-hour “The Revival of Japan in the Global Economy,” said that opportunity exists for private equity conversation, which included presentations by featuring Ernest Higa ’76, chairman and CEO firms to have greater involvement in domes- each panelist followed by questions from the of Higa Industries; Yuzaboro Mogi ’61, hon- tic M&A transactions. Mr. Rouner echoed audience, was cosponsored by the Columbia orary CEO and chairman of the board of Mr. Moue’s comments about the history of University’s Weatherhead East Asia Institute Kikkoman Corporation; and Kosuke Motani Japanese M&A. He discussed how the indus- (WEAI). The panel addressed the political, ’94, chief senior economist at the Japan try has experienced a shift, as many Japanese social, demographic, and business aspects of Research Institute. Other featured speakers firms have focused on outbound M&A, and agriculture in Japan. at the reunion included Dean Glenn Hubbard; described aspects that make the process in Professor Joseph Stiglitz; Henry Kravis Japan unique. Professor Milhaupt followed ’69, cofounder, cochairman, and co-CEO of with a discussion of the legal mores in Japan Kohlberg Kravis Roberts & Company; and as they pertain to M&A. He opined on where Charles Li, CEO of Hong Kong Exchanges and change is occurring and how successful it Clearing. has been. Professor Patrick moderated this symposium, which was cosponsored by CJLS.

CJEB Annual Report 2014–2015 | 33 From left to right: Albert Matias, Fangruo Chen, Robert Young, Jonathan Rouner

How Supply Chains tsunami that struck Japan in March 2011. effective, many have expressed their skepti- Professor Fangruo Chen, MUTB Professor of cism of the third arrow. Professor Takenaka Respond to Crises: The International Business at CBS, moderated the said that the third arrow’s growth strategy Japanese Experience event, which was cosponsored by The Mitsui will need more time to develop, as it is a long- USA Foundation. WEAI’s Toyota Research term strategy. He then went on to discuss the The 16th Annual Mitsui USA Symposium Program served as outreach partner. significance of deregulating special economic March 3, 2015; Columbia University zones, reducing the corporate tax rate, and Abenomics in the New opening the Japanese employment market The 16th Annual Mitsui USA Symposium Stage to foreign workers. Other panelists included featured Robert Young, vice president pur- Dan Chamby of BlackRock and Hugh Patrick chasing at Toyota Motor Engineering and Japan Society Corporate Program of CJEB, each of whom expressed their views Manufacturing North America, Inc., and Albert on Abenomics. Henny Sender of the Financial March 24, 2015; Japan Society Matias, vice president and chief procurement Times moderated the discussion. This sym- officer for the Americas at Hitachi America, Heizo Takenaka, professor of Keio University posium was co-organized by Japan Society, Inc. Both speakers gave an overview of how and renowned scholar on structural reforms, JETRO New York, and CJEB. their respective firms approach risk manage- shared his view on the development of ment for complex global supply chains, and Abenomics during Prime Minister Abe’s admin- Japan and the World discussed the lessons learned in response to istration. In Abe’s “Three Arrows” agenda, natural disasters such as the earthquake and Economy: Challenges Over while the first two arrows have been mostly the Coming Decade

April 6, 2015: Columbia University

A panel consisting of Glenn Hubbard, dean of CBS, Joseph E. Stiglitz, University Professor at Columbia University, David E. Weinstein, director of research at CJEB, and Takatoshi Ito, associate director of research at CJEB, discussed the current state and future outlook of fiscal and monetary policy and structural reform in both Japan and the United States. Hugh Patrick, director of CJEB, moderated the symposium. The event, which was cospon- sored by CJEB and NHK, aired on NHK World’s “Global Agenda.” From left to right: Hugh Patrick, Glenn Hubbard, Joseph E. Stiglitz, David E. Weinstein, Takatoshi Ito

34 | CJEB Annual Report 2014–2015 Lectures

From left to right: Gerald L. Curtis, Hugh Patrick; Takatoshi Ito, Masako Mori

New Directions in Japanese Challenges of Womenomics: ultimately leading her to focus her efforts on women’s empowerment. She remarked on Politics and Foreign Policy Enhancing Women’s Prime Minister Abe’s current efforts to create February 5, 2015; Columbia University Leadership in Japan equal opportunities for both men and women in Japan. According to Ms. Mori, women’s May 1, 2015; International Affairs Building, Gerald L. Curtis, Burgess Professor of Political empowerment plays a key role in Japan’s Columbia University Science at Columbia University, gave his strategy for economic growth. She then Tenth Annual Lecture on Japanese Politics. This event featured Ms. Masako Mori, mem- addressed nine obstacles that hinder career Professor Curtis emphasized two major ber of the House of Councillors and former opportunities for women in Japan as well as themes during his discussion of the current minister in charge of the Support for Women’s the solutions and plans of action the govern- state of Japanese foreign and security pol- Empowerment and Child-Rearing. After open- ment plans to take on in order to overcome icy. The first theme focused on Japan’s shift ing and introductory remarks made by Merit E. these obstacles. This lecture was cospon- toward greater foreign engagement because Janow, dean of SIPA, and Professor Takatoshi sored by SIPA. of changes in the structure of the international Ito, associate director of research of CJEB, system. He emphasized that, since external Ms. Mori began the lecture by sharing her factors are driving the policy changes, Japan own experiences as a woman who strug- would embark on a similar trajectory regard- gled to pursue her career goals in Japan, less of its leadership. However, Professor Curtis’s second theme emphasized Prime Minister Abe’s role in the recent policy shift. Abe currently enjoys a unique position of power that affords him the opportunity to influence Japan’s policy and future. Yet, he also faces difficult decisions regarding his personal ideology that will affect Japan’s relationship with its neighbors. Professor Curtis concluded that Abe’s goal is to improve Japan’s standing in the international system. Professor Hugh Patrick moderated the event, From left to right: David E. Weinstein, Gerald L. which was cosponsored by WEAI. Curtis, Hugh Patrick

CJEB Annual Report 2014–2015 | 35 Lunchtime “Zadankai” Seminars

From left to right: Yasushi Kinoshita, Christina Ahmadjian, Toshikazu Nambu

CJEB organizes a series of lunchtime sem- includes fiscal stimulus and structural reforms then discussed some of the challenges out- inars on campus for students, faculty, and as core measures taken to mitigate the fiscal side directors may face as non-natives, while members of the Columbia and New York com- crisis. He then highlighted reforms in the also explaining the positive role they play in munity. These zadankai, or informal discus- social security system and cuts in costs as Japanese companies. sions, involve lengthy question-and-answer measures aimed to address the long-term periods with the audience and are geared economic challenges presented by Japan’s toward presenting new and insightful angles aging society. In order to achieve these goals, Strategy, Investment for understanding Japanese business and he emphasized, the government and its poli- Opportunities, and economic issues. Seminars held during cies must maintain stability, its fiscal consoli- 2014–2015 included: dation program must retain its credibility, and Management Principles of the nuclear energy issues resulting from the Sumitomo Corporation of 2011 earthquake must be resolved. Americas Lessons from Japan: How Abenomics Can Provide November 20, 2014; Columbia University Japanese Corporate Solutions for Advanced Toshikazu Nambu, Executive Vice President Governance: A Report from and CFO, Sumitomo Corporation of Americas Economies the Front Lines Moderated by Hugh Patrick November 11, 2014; Columbia University November 18, 2014; Columbia University Mr. Nambu first provided a brief history of his Yasushi Kinoshita, Former Administrative Vice career path at Sumitomo and how he ended Minister, Ministry of Finance, Japan; Visiting Christina Ahmadjian, Professor, Graduate up in the tubular steel industry. Under his Fellow, CJEB School of Commerce and Management, Hitotsubashi University leadership, the Tubular Products Group of Moderated by David E. Weinstein Sumitomo thrived and expanded. He also dis- Moderated by Hugh Patrick cussed the origins of Sumitomo Corporation Mr. Kinoshita provided a detailed overview of and how the founder’s Buddhist values trans- how Prime Minister Shinzo Abe’s “Abenomics” Professor Ahmadjian discussed the progress formed the company into what it is today. Mr. policies can address some of the main chal- and movement of corporate governance in Nambu concluded by explaining the values lenges that Japan and other advanced econ- Japan. Recounting her own personal expe- and lessons that Sumitomo must incorporate omies currently face. First, he discussed rience, she described how many Japanese in order to continue to grow successfully in a the role of the Quantitative and Qualitative companies have opted for more diversification constantly changing market. Monetary Easing (QQME) program, which and change in their boards of directors. She

36 | CJEB Annual Report 2014–2015 From left to right: William Duggan, Takatoshi Ito, Eric M. Kirsch

The Seventh Sense: The Three-Year Itch: Aflac Global Investments: East Meets West in the Can PM Abe Maintain Insights into a Unique Executive Mind the Honeymoon with U.S.-Japanese Insurance

December 2, 2014; Columbia University Abenomics? Investment Department

William Duggan, Senior Lecturer, CBS February 12, 2015; Columbia University February 24, 2015; Columbia University

Moderated by Ko Kuwabara, Associate Takatoshi Ito, Professor, SIPA Eric M. Kirsch, Executive Vice President, Professor, CBS Associate Director of Research, CJEB Global Chief Investment Officer, Aflac Global Investments Professor Duggan discussed strategic intu- Moderated by Hugh Patrick ition, a concept he has coined as the “Seventh Moderated by Hugh Patrick Prime Minister Abe was reelected after a Sense.” This practice can be exercised by snap election in December, extending his term Mr. Kirsch began the seminar by sharing anyone by taking the following four steps: (1) from two to four years. Professor Takatoshi his personal experience and journey from taking examples from history; (2) employing Ito examined whether Abe’s political agenda Deutsche Bank and Goldman Sachs to Aflac. presence of mind; (3) using flashes of insight; will stall the original economic agenda set He went on to discuss the unique business and (4) resolve. He believes this practice is the out by Abenomics during his extended term. model and culture Aflac upholds, as many of key to innovation and creativity. He demon- He discussed the skeptical perspectives of its services are based in Japan. Leading the strated how strategic intuition can be used in Abe’s political agenda and addressed the low Global Investment team, Mr. Kirsch collabo- any situation, drawing examples from histori- expectations for the success of Abenomics. rates heavily between his New York team and cal and current distinguished individuals who Concurrently, he provided possible actions the Japan-based team. He highlighted the have used their “Seventh Sense” to develop Abe and his cabinet could take to stay on track importance of cultural understanding, as the groundbreaking and innovative products or with Abenomics. two offices have different cultural values and plan out tactical military strategies to conquer practices. He explained the services that his their enemies. team provides to Aflac Japan and concluded the seminar by discussing the challenges and differences in the business process and cul- ture of Aflac Japan.

CJEB Annual Report 2014–2015 | 37 Hiroshi Kaho

Gyoza, Rice and Noodles for the U.S. Mainstream Market

April 23, 2015; Columbia University

Hiroshi Kaho, General Manager, Business Strategy and Development Department, Ajinomoto Co., Inc.

Moderated by Hugh Patrick

In order to develop Ajinomoto’s core business, Mr. Kaho indicated the importance of becom- ing a global specialty company through the implementation of a global growth strategy. In order to achieve this and expand its products into the mainstream market, he stressed the particular importance of product adaptation based on the local region, as well as the neces- sity for M&As. Using “gyoza,” or Japanese pot stickers, as an example, Mr. Kaho discussed how the number one frozen food product in Japan can be expanded into the North American market through the partnership of Windsor, a U.S.-based manufacturer of frozen foods. Through Windsor’s branding and large sales channel in the United States, Ajinomoto can accelerate the retailing of its high-quality products and company’s global growth. Mr. Kaho then went on to discuss the opportuni- ties and challenges of M&A in Ajinomoto. From left to right: Fumiko Nozaki, Michelle Tam, Ryoko Ogino, Andy Wanning, Emiko Mizumura

38 | CJEB Annual Report 2014–2015 resources

Faculty Advisory Committee

CJEB’s Faculty Advisory Committee was Charles W. Calomiris Sheena S. Iyengar formed to provide insight and guidance to Henry Kaufman Professor of Financial S. T. Lee Professor of Business CJEB’s governance, research, teaching, and Institutions Columbia Business School outreach activities. The diversity of intellectual Columbia Business School Merit E. Janow focus among the committee members is vital Fangruo Chen Dean to furthering CJEB’s mission to serve as a MUTB Professor of International Business Professor of Professional Practice, comprehensive forum for collaboration and Columbia Business School International Economic Law and reflection on Japan, the United States, and International Affairs the global economy. In addition to Hugh Wouter H. Dessein School of International and Public Affairs, Patrick, David E. Weinstein, and Takatoshi Eli Ginzberg Professor of Finance and Columbia University Ito, the members of the committee are: Economics Columbia Business School Bruce M. Kogut Sanford C. Bernstein & Co. Professor of Robert J. Hodrick Leadership and Ethics Nomura Professor of International Finance Columbia Business School Columbia Business School

CJEB Annual Report 2014–2015 | 39 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 presti- gious business schools in a top-ranking univer- sity while experiencing the dynamic lifestyle Takeshi Daido Toshihiko Tsuyoshi Hasebe Tomohiro Hirano of New York City. The 2014–2015 Visiting Mitsui Sumitomo Fukumoto Nikkei Inc. The University Fellows are: Insurance, Co., Ltd. Nikkei Inc. July 2014–October of Tokyo July 2014– October 2014– 2014 August 2014– June 2015 December 2014 September 2014

Kei Hiraoka Michito Hirota Hiroshi Ishijima Ryuta Kani Takeshi Kawanami Yasushi Kinoshita Nikkei Inc. The Research Institute of Chuo University Ricoh Co., Ltd. Nikkei Inc. Ministry of Finance January 2015–May Public Management, Ltd. September 2013– July 2014–August April 2015– October 2014– 2015 September 2013– August 2014 2015 September 2015 March 2015 September 2014

Tomokazu Kubo Satoshi Narawa Takezo Oda Futoshi Oguri Ryo Saiki Keisuke Takeguchi Chuo University Minebea Co., Ltd. Sumitomo Mitsui Nikkei Inc. Tokai Tokyo Hosei University September 2013– July 2014–May Trust Bank, Limited September 2013– Securities Co., Ltd. April 2014–March August 2015 2015 May 2015–May August 2014 September 2013– 2015 2016 August 2014

Yuji Takenaka Katsumi Tanabe Masazumi Mariko Yaku Kengo Yasui Naoki Matsuda Minebea Co., Ltd. Keio University Wakatabe Tokai Tokyo Financial Ritsumeikan Ministry of Finance July 2014–May April 2014–March Waseda University Holdings, Inc. University September 2013– 2015 2016 August 2014– September 2014– September 2013– July 2015 September 2014 August 2015 September 2014 Joint Fellow with the Weatherhead East Asian Institute (WEAI) of Columbia University 40 | CJEB Annual Report 2014–2015 2015 CJEB Visiting Fellow Reunion Reception

CJEB’s Visiting Fellow Program continues to grow, with more than 210 Visiting Fellows from the academic, government, and private sectors throughout the years. After a successful turnout last year, CJEB decided to host a second reunion in Tokyo on May 20, 2015, where several dozen former Visiting Fellows attended. Professor Bruce Greenwald, Robert Heilbrunn Professor of Finance and Asset Management, gave a short speech as a guest speaker, while Mr. Yasushi Kinoshita, former administrative vice minister at the Ministry of Finance and also one of CJEB’s 2014-2015 Visiting Fellows, gave the toast.

Bruce Greenwald speaks at Visiting Fellow Reunion 2015 Annual Visiting Fellow Business Field Trip

In late March, our Visiting Fellows had the wonderful opportunity to tour Bloomberg’s state-of-the-art New York office in the morning, followed by a delectable lunch meeting with two Sony executives at the Sony Club, located on the top floor of Sony Corporation of America’s U.S. headquarters building. The Visiting Fellows then enjoyed a special guided tour at the Sony Wonder Technology Lab and concluded the trip by visiting the NASDAQ MarketSite to witness the closing bell ceremony.

Visiting Fellows at Sony Wonderlab CJEB Annual Report 2014–2015 | 41 Research Associates

CJEB benefits from ongoing collaboration with Robert Dekle Takatoshi Ito Japan specialists from institutions other than Professor of Economics Professor Columbia, principally within the United States. Department of Economics National Graduate Institute for Policy University of Southern California Research associates are invited to communicate Studies their research through participation of the Project Professor Peter Drysdale Center’s projects and public programs and by Graduate School of Public Policy Emeritus Professor of Economics The University of Tokyo contributing to the Center’s Working Paper Series. Head, East Asia Bureau of Economic (Became CJEB core faculty member in Research and East Asia Forum January 2015) Christina Ahmadjian Crawford School of Public Policy Professor, Graduate School of Commerce The Australian National University Anil Kashyap and Management Edward Eagle Brown Professor of Hitotsubashi University Robert Eberhart Economics and Finance Assistant Professor The University of Chicago Booth School of Masahiko Aoki Leavey School of Business Business Henri and Tomoye Takahashi Professor Santa Clara University Emeritus of Japanese Studies Research Fellow Takao Kato Department of Economics Stanford Technology Venture Program W. S. Schupf Professor of Economics and Senior Fellow, Stanford Institute of Far Eastern Studies Economic Policy Research David Flath Department of Economics Senior Fellow, Freeman Spogli Institute of Professor Colgate University International Studies Department of Economics Stanford University Ritsumeikan University Kenneth N. Kuttner (Passed away in July 2015) Professor Emeritus of Economics Robert F. White Class of 1952 Professor Poole College of Management of Economics Shiro Armstrong North Carolina State University Department of Economics Codirector Williams College Australia-Japan Research Centre Koichi Hamada Crawford School of Public Policy Tuntex Professor Emeritus of Economics Patricia H. Kuwayama Editor, East Asia Forum Department of Economics Economist The Australian National University Yale University Professional Fellow Special Advisor to the Cabinet Center on Japanese Economy and Schon L. Beechler The Cabinet of Japan Business Senior Affiliate Professor of Columbia Business School Organisational Behaviour Yasushi Hamao Former Vice President INSEAD Associate Professor of Finance and JPMorgan Chase Bank, N.A. Business Economics Lee G. Branstetter Marshall School of Business Edward Lincoln Professor of Economics and Public Policy University of Southern California Adjunct Professor of Economics Heinz College and Department of Social Department of Economics and Decision Sciences Masanori Hashimoto Columbia University Carnegie Mellon University Professor of Economics Emeritus Professorial Lecturer Nonresident Senior Fellow Department of Economics George Washington University Peterson Institute for International Economics The Ohio State University Robert A. Myers Jenny Corbett Takeo Hoshi Senior Vice President Pro Vice-Chancellor (Research and Henri and Tomoye Takahashi Senior Fellow Fairfield Resources LLC. Research Training) and Director of the Japan Program Former Director of Technology Professor of Economics Shorenstein Asia-Pacific Research Center, IBM Japan Executive Director, Australia-Japan Freeman Spogli Institute for International Research Centre, Crawford School of Studies Public Policy Professor of Finance (by courtesy) The Australian National University Stanford Graduate School of Business Stanford University

42 | CJEB Annual Report 2014–2015 Professional Fellows

Terutomo Ozawa A professional fellow appointment at the and Bankers Trust Company before joining Professor Emeritus of Economics Center recognizes former government offi- Chase in 1992. Mr. Fallon holds a BA from Department of Economics cials and business leaders who have had Ohio University and an MBA from Harvard Colorado State University distinguished careers in economics-related Business School. Following his undergraduate fields. This position facilitates his or her ongo- studies, he served in the U.S. Peace Corps, Joe Peek Vice President and Economist ing involvement with CJEB and its activities. including three years as a volunteer mathe- Research Department matics teacher at Chanel College in Western Robert E. Fallon is Federal Reserve Bank of Boston Samoa. Mr. Fallon is chairman of the Council president and CEO of on International Educational Exchange, Inc., Phosplatin Therapeutics Adam S. Posen a member of the Asia Society and the Council LLC, a company he President on Foreign Relations, and a professional fellow Peterson Institute for International helped found that is of CJEB. He is a former director of the Japan Economics developing a novel class Society and of the Korea Society, as well of anticancer chemo- William V. Rapp as trustee emeritus of the Ohio University therapy drugs. From Henry J. Leir Professor of International Foundation. 2008 to 2011, Mr. Trade and Business School of Management Fallon was adjunct professor at Columbia Patricia Hagan Kuw­ Director Business School, where he taught interna- ayama has been study- Leir Center for Financial Bubble Research tional banking. Prior to his Columbia appoint- ing the Japanese econ- New Jersey Institute of Technology ment, Mr. Fallon was chairman of Korea omy since she was a Exchange Bank, a publicly listed $80 billion graduate student in the Frances McCall Rosenbluth institution that is Korea’s leading international 1960s, completing a Damon Wells Professor of Political Science bank. After taking over as chairman and CEO doctoral dissertation on Department of Political Science effective tariff protec- Yale University in January 2004, he led a successful reorga- nization and restructuring that restored the tion of the Japanese industry in 1970. She Ulrike Schaede bank’s capital strength and achieved record became a professional fellow of CJEB in Professor of Japanese Business profitability. He is also the first non-Korean to 2009, after retiring as a vice president and Director, JFIT Japan Forum for Innovation chair a public company in Korea. Previously, international economist at JPMorgan Chase and Technology Mr. Fallon was an international banker based in New York. Previously, she was JPMorgan’s Executive Director, Center for Emerging in Tokyo with JP Morgan Chase, where he chief economist in Tokyo and earlier with and Pacific Economies was Asia-Pacific division head for the Chase Chemical Bank in Tokyo. From 1970 to 1986, School of Global Policy and Strategy (GPS) University of California, San Diego Manhattan Bank and a member of the Dr. Kuwayama was with the Federal Reserve Chase Manhattan Corporation Management Bank of New York, serving in various research Michael J. Smitka Committee. He was responsible, as senior and management posts in the International Professor of Economics executive in Asia, for Chase’s activities in Research, Statistics, and Foreign Exchange Williams School of Commerce the Pacific Rim located across 13 different Departments. She has been a visiting scholar Washington and Lee University countries. Mr. Fallon has lived in Asia for more at the Bank of Japan Institute for Monetary than 30 years and enjoys a myriad of contacts and Economic Research and visiting consul- Tsutomu Watanabe Professor across a wide spectrum of government, cor- tant at the Bank for International Settlements Graduate School of Economics porate, and financial institutions in the region. in Basel and taught as a visiting professor at The University of Tokyo He travels widely and speaks often on Asian Keio University in Tokyo and at Kobe Gakuin economic and business affairs. He started University. Dr. Kuwayama has written widely Eleanor Westney his banking career with Citibank in Hong about Japanese macroeconomic policy, bal- Scotiabank Professor of International Kong in 1975 and later worked in investment ance of payments issues, and financial insti- Business banking and management positions in Tokyo. tutions, including the postal savings system. Schulich School of Business She has coauthored the book titled York University Subsequently, he assumed Asia regional Memoir responsibility with Drexel Burnham Lambert of a Trustbuster: A Lifelong Adventure with

CJEB Annual Report 2014–2015 | 43 International Advisory Board

Japan, with Eleanor M. Hadley. She earned her BA and PhD degrees in economics at Harvard University and the City University of New York, respectively, and did her Japanese language studies at Columbia University. She participates actively in the CJEB Visiting Fellow Seminars.

CJEB core faculty members and audience at the “Japan and the World Economy: Challenges Over the Coming Decade” Symposium

The International Advisory Board provides Yuzaburo Mogi ’61 overall guidance for CJEB. Members are dis- Honorary CEO and Chairman of the Board, tinguished leaders in the fields of Japan-U.S. Kikkoman Corporation economic, business, and political relations. Toshikazu Nambu Shinji Fukukawa President and CEO, Sumitomo Corporation Former Vice Minister, Japanese Ministry of of Americas (April 2015–Present) International Trade and Industry Atsushi Saito Senior Advisor, Global Industrial and Social Group CEO, Japan Exchange Group, Inc. Progress Research Institute Chairman, Board of Trustees, Toyo University Kazuhiro Takeuchi President and CEO, Sumitomo Corporation of Yotaro Kobayashi Americas (August 2014–March 2015) Former Chairman and CEO, Fuji Xerox Co., Ltd. Joseph G. Tompkins ’67 Charles D. Lake II President, Saga Investment Co., Inc. Chairman and Representative, Aflac Japan; President, Aflac International

44 | CJEB Annual Report 2014–2015 promoting exchange of ideas

CJEB in the News

CJEB’s academic directors are regularly Japan and the World Economy: Japan’s GPIF to Reach New Asset Goal in featured in the media, providing their Challenges Over the Coming Decade Year or Two, Ito Says insights and expertise in Japan-related NHK World, Global Agenda, May 1–2, 2015 Bloomberg, June 9, 2015 matters. Highlights for this year include: Takatoshi Ito Special Issue: The Future of the China- Hugh Patrick Economic Outlook 2015: US U.S. Competition over Economic How Finance Is Shaping the Economies NHK World News, January 16, 2015 Hegemony: Five Problems of AIIB of China, Japan, and Korea Chuo-Koron, June 10, 2015 The World Financial Review, July 28, 2014 Mitigation Due to Lower Oil Price Is Unnecessary Greece’s Euro Exit Appears Inevitable Special Program on the Japan Election: Asahi Shimbun Digital, January 22, 2015 Morning Satellite, TV Tokyo, June 23, How Will the World View the Japanese 2015 Direction? Rethinking the Growth Strategy: Global Debate WISDOM, NHK BS1, Competition Is the Way to Strengthening Some of the titles have been translated from December 14, 2014 Agriculture Japanese to English. Nikkei Shimbun, January 23, 2015 “If You Get a Raise This Year, Thank a Politician” Consumption Tax Rate Should be More Visible Hands, March 6, 2015 than 15% in Order to Achieve Fiscal Surplus Japan and the World Economy: J Money Winter Issue, January 28, 2015 Challenges Over the Coming Decade NHK World, Global Agenda, May 1–2, 2015 The Effect of the Low Oil Price Morning Satellite, TV Tokyo, February 11, David E. Weinstein 2015 “Abenomics”: Moving in the Right Direction–After the 2014 General Professor Ito on Japan’s Tasks for Election, Some Structural Reforms Are Economic Growth Needed Morning Satellite, TV Tokyo, February 16, Jiji Press, December 6, 2014 2015

Prime Minister Abe Has the Right The Future of the Asian Infrastructure Intuition Investment Bank: Concerns for Jiji Press, December 15, 2014 Transparency and Governance Nikkei Shimbun, April 30, 2015 David Weinstein: Weak Yen Is Japan’s Best Bet for Growth Japan and the World Economy: Nikkei Asian Review, December 29, 2014 Challenges Over the Coming Decade NHK World, Global Agenda, May 1–2, 2015 Brand-loyal Japan a Hotspot for Age-old Companies That Have Flexibly Adapted Kuroda’s Former Ally Ito Sees Little to the Times Downside Now for Yen U.S. News & World Report, April 12, 2015 Bloomberg, June 8, 2015

The Myth of Japan’s Debt Newsweek Japan, April 25, 2015

CJEB Annual Report 2014–2015 | 45 Enhancing the MBA Experience

Chazen International Study Tour at Fast Retailing (UNIQLO)

As a top global university, Columbia University visits and on the overall current state of the CBS community and give the CJEB Visiting provides many resources and opportunities Japanese economy. Fellows, faculty, and staff an opportunity for its international community. CJEB con- to network with their fellow peers in other The 2015 Chazen International Study Tour tributes to this international dimension by departments. to Japan took place from March 15 to 22, enhancing the MBA student experience at with 40 MBA student participants visiting In addition, CJEB hosted an executive break- Columbia Business School (CBS). One of our Tokyo, Kyoto, and Aichi. Joined by CBS assis- fast lecture featuring one of CJEB’s Visiting main collaborative partners is the student-led tant professor Eva Ascarza, the students met Fellows, Mr. Tsuyoshi Hasebe, managing Japan Business Association (JBA). CJEB often with representatives from Japanese corpo- director of Nikkei Inc., on September 24, meets with JBA officers to exchange ideas on rations and immersed themselves in various 2014. During this private meeting, the MBA ways to promote the Japanese economy and Japanese cultural sights and experiences. The students had a rare opportunity to connect business related issues within CBS. students toured a Toyota manufacturing plant with a high-profile executive from one of As an annual initiative, CJEB helps JBA orga- and listened to presentations at Rakuten, Fast Japan’s leading media companies. Mr. Hasebe nize the Chazen International Study Tour to Retailing (UNIQLO), ANA, and DeNA. In Kyoto, discussed Nikkei’s strategy to compete Japan. Led by the Jerome A. Chazen Institute they visited Taizo-in to experience Zen and against its competitors while thriving under of International Business, the Japan Study historical sites including the Golden Pavilion a global market. Tour sends a group of students for a weeklong and Sanju Sangendo. They enjoyed a night in CJEB also helped fund JBA to obtain a booth trip to Japan, which provides extraordinary a traditional Japanese inn with hot springs in at CBS’s Festival of Nations on September opportunities including cultural excursions Aichi. In Tokyo, the CBS group attended an 18, 2014. This event was organized by CBS’s and visits to Japanese corporations. Since the alumni reception, where they listened to a pre- international student groups and provided a tour’s inauguration in 1989, CJEB has helped sentation given by Mr. Masahiko Uotani (CBS chance for the affinity clubs to showcase var- fund the program and provide contributions ’83), who is now the CEO of Shiseido Co., Ltd. ious cultures, food, and beverages from their to its agenda. Prior to each year’s trip, the While in Tokyo, the participants also visited the home countries to celebrate and promote student trip organizers consult with Professor Tsukiji fish market, Asakusa, and Akihabara. mutual understanding. Hugh Patrick and CJEB’s director for admin- The CJEB Welcome Reception was held istration, Ryoko Ogino, on possible company on September 23, 2014, to welcome the

46 | CJEB Annual Report 2014–2015 Enhancing the Columbia Experience

The Columbia University community pro- vides many resources for students, faculty, and alumni interested in learning more about Japan. CJEB is committed to supporting this initiative by assisting other organizations on campus that are engaged in Japan-related activities. This includes the Weatherhead East Asian Institute (WEAI), the Donald Keene Center, the APEC Study Center, the Consortium for Japan Relief (CJR), the East Asian Languages and Cultures (EALAC) Department, the School of International and Public Affairs (SIPA), and many others.

CJEB provided financial support for EALAC’s conference, “24th Annual Graduate Student Conference on East Asia,” which took place February 20–21, 2015. The conference was well attended, with 168 participants from a wide range of national and international uni- versities, half of whom came from Columbia. JASSA Japan Study Tour participants at the Golden Pavilion Temple, Kyoto Faculty participants included Haruo Shirane, Shincho Professor of Japanese Literature and Culture, EALAC; Lydia Liu, the Wun Tsun Japan’s nuclear policy. Speakers included CJEB funded JASSA’s “Workshop on Ikebana,” Tam Professor in the Humanities, EALAC, Jun Makita, political science researcher, where participants learned of the origin and and the Institute for Comparative Literature Tsukuba University, and policy planner, Japan tradition of ikebana and other activities, led by and Society; Gray Tuttle, Leila Hadley Luce Association of New Economy; Aki Mori, Headmaster Hiroki Ohara of the Ohara School. Associate Professor of Modern Tibetan assistant professor, Tsukuba University; and CJEB also sponsored a cultural event where Studies, EALAC; and Jue Guo, assistant pro- Shinsuke Tomotsugu, associate professor, JASSA board members described several fessor of Asian and Middle Eastern Cultures, Hiroshima University. Attended by mostly Japanese cultural activities, such as playing Barnard College. Columbia undergraduates, this was a wonder- the Japanese drums and introducing different CJEB also continues to support EALAC’s lan- ful opportunity for students to connect with types of Japanese foods to other Columbia guage course. This year, CJEB’s director for Japanese scholars and learn more in depth University students, at the Brooklyn Botanical administration, Ryoko Ogino, participated in about Japan’s current issues. Garden’s annual Sakura Festival. the fourth year students’ Japanese language CJEB continues its efforts to promote Japan- JASSA also organizes an annual student–led class as a discussion partner for their taiwa related activities by supporting Columbia trip to Japan that is partially supported by project, where students and partners held a University’s Japan Study Student Association CJEB funds, similar to the Chazen International discussion in Japanese on the current social (JASSA) and its initiatives. CJEB-funded Study Tour to Japan. This year, 32 students issues in Japan such as gender inequality and JASSA activities included a series of forums from various countries participated in the trip homelessness. such as the “Career Forum for the University and traveled to Kyoto, Hiroshima, Tokyo, and the This year, CJEB organized a new initiative, of Tokyo” and the “Career Forum for Gifu High Tohoku region. The students started in Kyoto, the “New Voices from Japan: Young Japanese School,” in which Japanese SIPA students held where they participated in cultural activities Scholars/Experts U.S.-Visit Program,” with opportunities for Tokyo University students such as a traditional tea ceremony, followed by Columbia’s Japan Society, an undergradu- and Gifu High School students to discuss eco- visits to the Golden Pavilion, Kiyomizu Temple, ate organization of Columbia University run nomic and political issues in Japan. CJEB also and Fushimi Inari Shrine. In Hiroshima, the stu- entirely by students. The panel consisted of funded the “United Nations Career Forum,” dents visited the Itsukushima shrine, a World three Japanese scholars and experts who where the audience listened in on a lecture dis- Heritage site in the Miyajima islands, and discussed various issues, including the rise cussing the career path, recruiting methods, Hiroshima Peace Memorial Park, where they in e-commerce business in Japan, Japan’s and requirements for UN workers, followed learned of the history of the first city in the perspective on AIIB, and the evolution of by a Q&A session. In addition to the forums, world to suffer a nuclear attack and honored (cont. on bottom of p. 48)

CJEB Annual Report 2014–2015 | 47 Visits from Fellowship and Scholarship Japan to Programs Columbia

The CJEB Doctoral Fellowship was estab- The Sumitomo Fellowship Program was lished in 2013 to support PhD students at CBS established by the Center as part of an initial and/or Columbia’s Department of Economics operating grant from Sumitomo Corporation who plan to develop Japan expertise, culmi- of Americas. The program has provided sup- nating in dissertations focused primarily on port to various Japan-related research initia- Japan. Our past CJEB Doctoral Fellowship tives, and the fellowship recipients typically recipients include Guannan (Jackson) Lu in spend a period in residence at the Center to the Management Division of CBS and Misaki engage in their own research as well as par- Matsumura in the Economics Department. ticipate in CJEB programs. CJEB Doctoral Research Grants and Summer Stipends are also available to PhD students The Mitsubishi UFJ Trust Scholarship at CBS or the Department of Economics who Foundation provides one Columbia University student each year with tuition and living wish to pursue Japan-related research proj- Hugh Patrick with TOMODACHI Sumimoto Scholars ects or language training programs. In recent expenses for a program of either undergradu- years, the Center has awarded Graduate ate or graduate study in Japan. CJEB conducts Groups of Japanese undergraduate and grad- Research Grants to Sungyong Chang of CBS a University-wide competition on behalf of the uate students often visit CJEB during their and Sakai Ando, Misaki Matsumura, and Yoon Foundation to nominate a student. tours of the east coast. For 2014–2015, two Joo Jo of the Economics Department of student groups from Meiji University and Wako Columbia University. University came to Columbia University. Each group met with Professor Patrick, who gave a brief introduction and fielded questions. Enhancing the Columbia Experience (cont. from p. 47) Discussion topics included Abenomics, TPP negotiations, women’s workplace challenges the memories of the bomb’s direct and indi- and recovery efforts taking place there. They and related policies, challenges presented rect victims. In Tokyo, the students met and spoke with the founders of the social entrepre- by Japan’s aging population, and attitudes spoke with Yoshimasa Hayashi, minister of neurship nonprofit organization Peace Boat, toward foreign study and employment. agriculture, forestry, and fisheries; Takatoshi as well as the local government officials of On January 8, 2015, the New York office of Ito, professor at SIPA and associate director Ishinomaki City. of research at CJEB; and Naruki Mori, asso- one of CJEB’s longtime lead corporate spon- During Prime Minister Shinzo Abe’s address at ciate director-general of the Monetary Affairs sors, Sumitomo Corporation of Americas, the World Leaders Forum (see p. 29), he invited Department of the Bank of Japan. Participants brought three students from its TOMODACHI Columbia students to visit Japan. Inspired visited Google Japan for the first time since Sumitomo Corporation Scholars Program by his speech, Columbia University students JASSA initiated this annual trip nine years to CJEB. The scholarship recipients, from took the opportunity to participate in the gov- ago and connected with an entrepreneur who Japanese universities, had studied abroad for ernment-led “KAKEHASHI Project” by visiting launched “Innovation Tohoku,” a platform that one year in the United States. Professor Hugh Tokyo, Osaka, Kyoto, and Shiga, where they mobilizes human resources, technologies, and Patrick and Ryoko Ogino welcomed Kazunari toured local governments and companies while experiences toward the reconstruction of the Tanabe, Yukako Hirakawa, and Ayaka Ogita, as also interacting with people from the local Tohoku region following the Great East Japan well as executives from Sumitomo, to engage community and universities. This trip provided Earthquake and tsunami in 2011. Students in a lively discussion on Japan and the world the students with an opportunity to gain a also had the opportunity to see the Japan economy, recoveries in the Tohoku area, and wider knowledge of Japan, from the latest in Railway Shinkansen Control Center, where the students’ future prospects. advanced technology to traditional culture. The they learned about the operations behind its “KAKEHASHI Project” provided rare opportu- CJEB provides select fellowships for Columbia famous high-speed bullet trains. Participants nities for Columbia students to deepen their University students who demonstrate out- interacted with students from the University understanding of Japanese culture as well as standing academic ability and a specific of Tokyo’s Graduate School of Public Policy, its diplomatic policies. On April 23, 2015, interest in Japan and the Asia-Pacific econo- one of SIPA’s partner schools, and with SIPA Professor Hugh Patrick and Ryoko Ogino mies. These fellowships support research and alumni in Tokyo. They also discussed various attended the pretrip informational session for participation in academic programs related issues such as Abenomics, monetary policy the participating students, at which Professor to Japanese economic and business fields. in Japan, and Japan’s role in the international Patrick gave an introductory lecture on Japan, More information on these opportunities is community. Finally, participants traveled to the followed by a Q&A session with the students. available at www.gsb.columbia.edu/cjeb/ Tohoku region to observe the reconstruction resources/fellowships.

48 | CJEB Annual Report 2014–2015 Library and Data Resources

Columbia University is home to one of the Data Resources • An online news and data retrieval system largest collections of Japanese- and English- that provides essential corporate and eco- The Center continues to develop its major language materials in the United States. nomic data as well as leading newspaper computer-based databank on the Japanese CJEB evaluates Columbia University library and journal articles on Japanese and other economy, with an emphasis on financial mar- resources and commits funding to procure new Asia-Pacific economies from Nikkei Telecom, kets, under the direction of Professor David materials on Japan and the Asia-Pacific econ- which is accessible via Columbia University Weinstein. The databank is a compilation of omies. CJEB also maintains a small working Libraries (CLIO). statistical resources for faculty members and collection of materials on the Japanese and students conducting relevant research. Other data resources: Asia-Pacific economies, including statistical resources, academic journals, and periodicals. CJEB’s databank includes: • CJEB Research Associate, Professor Tsutomu Watanabe of the University of Tokyo (along In 2015, CJEB sponsored Professors Urooj • Time-series and cross-section data on finan- with Kota Watanabe of Chuo University and Khan and Nallareddy Suresh of CBS to pur- cial markets, institutions, and the macroeco- the University of Tokyo), launched the UTokyo chase data on aggregate corporate profits for nomy from Nikkei NEEDS Financial QUEST Daily Price Index project in May 2013, which Japan from Nikkei for their research to support 2.0 and the Development Bank of Japan’s measures and publishes the consumer infla- their hypothesis on the relation among corpo- Industrial Financial Database tion rate on a daily basis. rate profits, GDP, and taxes.

CJEB Annual Report 2014–2015 | 49 Discussion Groups

Japan Economic Seminar

The Japan Economic Seminar (JES) was founded in 1966 by the late Professor James Nakamura of Columbia and Professors Hugh Patrick (then at Yale) and Henry Rosovsky of Harvard. With a membership of up to one hun- dred individuals, it originally was an interuni- versity forum for faculty, other professionals, and advanced graduate students to discuss ongoing research in preliminary form by spe- Japan Economic Seminar cialists on the Japanese economy. JES now Discussants: Naohiko Baba, Chief Japan Washington University); Kim Schoenholtz (NYU meets once a year, sponsored by CJEB, and Economist, Goldman Sachs & Co.; Serena Stern); Jennifer Dwyer (Hunter College, CUNY); is held at Columbia in the early/mid-spring Ng, Professor, Department of Economics, Patricia Kuwayama (CJEB professional fellow); semester under the leadership of Takatoshi Ito, Columbia University Richard Katz (The Oriental Economist); and professor at Columbia’s School of International Frances Rosenbluth (Yale University). and Public Affairs and associate director of James Nakamura Fund research at CJEB. Special arrangements have U.S.-Japan Discussion Group been made to include economists from Japan James Nakamura, emeritus professor of eco- as paper authors and discussants. nomics at Columbia University, was one of Shortly before CJEB was founded, the then- the leading postwar scholars on the Japanese CEO of Sumitomo Corporation of Americas This year, JES was held on February 20, economy and its modern development. and Professor Patrick took the initiative in 2015, and was moderated by Professor Together with Henry Rosovsky at Harvard and organizing, on a private and individual basis, an Tokuo Iwaisako of Hitotsubashi University and Hugh Patrick, then at Yale, he founded the evening discussion group attended by senior Professor Weinstein. The following papers were Japanese Economic Seminar series in 1966 Japanese and American businessmen and pro- discussed: and warmly hosted the regular JES meetings at fessionals living in the New York area. The Employment and Hours over the Business Columbia, even after his retirement. Jim earned group continues to convene to discuss frankly Cycle in a Model with Search Frictions both his bachelor of science and PhD degrees and informally—and off the record—issues and at Columbia. prospects in U.S.-Japan business, economic, Presenter: Hiroaki Miyamoto, Professor, and political relations. Toshikazu Nambu, the Graduate School of Public Policy, The University After his passing in February 2015, CJEB current CEO of Sumitomo Corporation of of Tokyo (coauthors: Noritaka Kudoh, Hokkaido established the James Nakamura Fund in honor Americas, and Hugh Patrick are the co-organiz- University, and Masaru Sasaki, Osaka University) of his contribution throughout his career and ers of this group. The members come from the his warm friendship to support the ongoing business and financial communities, together Discussants: Daiji Kawaguchi, Professor, JES program of meetings. We are grateful for with several specialists on Japan from the Department of Economics, Hitotsubashi all he did for JES and CJEB. Of course, contri- Columbia University faculty. The group avoids University; W. Bentley MacLeod, Sami Mnaymneh butions are welcome. identification with any particular companies or Professor of Economics, Professor of International groups and meets twice in the fall and spring and Public Affairs, School of International and Monetary Policy Discussion for dinner and discussion. Topics of discussion Public Affairs, Columbia University Group for 2014–2015 included Japanese monetary and fiscal policies and the gradual implementa- Construction of Stock Market–Based Daily This discussion group includes specialists on the tion of the third arrow of Abenomics; the U.S. Index of Fiscal News for Japan Japanese financial system and meets several government’s leadership in approving TPA and times a year. The participants are Hugh Patrick, Presenter: Etsuro Shioji, Professor, Graduate dealing with AIIB; the implications of Japanese David E. Weinstein, Takatoshi Ito, and Alicia School of Economics, Hitotsubashi University demographic changes; the ongoing recoveries Ogawa (CJEB); Michinobu Kishi and Takeshi (coauthor: Hiroshi Morita, Japan Society for of both the Japanese and American economies; Kato (Bank of Japan); Edward Lincoln (George the Promotion of Science) and management and corporate governance.

50 | CJEB Annual Report 2014–2015 Financial Support

Columbia University and Columbia Business Trust and Banking Corporation during the first Takata Corporation School (CBS) give basic support for the Center years of the Center’s establishment at CBS. Tsuchiya Co., Ltd. by providing faculty salaries and office space, The Center was delighted to hold a spe- library and administrative support, and other Corporate Sponsors cial luncheon for our Corporate Sponsors to essential services. However, the Center relies ($10,000+ annually) demonstrate our deep appreciation for their on external sources of financial support from Aflac Japan continued support on Friday, May 22, 2015, foundations, corporations, and individuals for ANA HOLDINGS INC. at the Hotel New Otani Tokyo. its programs and research activities. Income Canon U.S.A., Inc. is derived from the Center’s endowment, Fuji Xerox Co., Ltd. operating and project grants, and, especially, Corporate Sponsorship Imuta and Associates from the Corporate Sponsorship Program, Program ITO Corporation which was established in 1995. Academic J.C.C. Fund of the Japanese Chamber of Sponsors for the year 2014–2015 are as independence has not been an issue, as there Commerce and Industry of New York, Inc. follows: are no special restrictions attached to any of Minebea Co., Ltd.* these gifts. Mitsui Sumitomo Insurance Co., Ltd.* Lead Corporate Sponsor Mitsui USA Foundation The Sponsorship Program has been instru- ($100,000+ annually) Mori Building Co., Ltd. mental in expanding the Center’s activities Sumitomo Corporation of Americas Nikkei Inc.* and guaranteeing their long-term financial Nomura America Foundation support. The companies listed below give Senior Corporate Sponsors Saga Investment Co., Inc. to the Center on an annual basis. Sumitomo ($50,000+ annually) Sumitomo Mitsui Trust Bank, Ltd.* Corporation of Americas made an initial Advantage Partners, LLP Tokio Marine & Nichido Fire Insurance Co., significant contribution that enabled the Daiwa Capital Markets America Inc. Ltd. Center to be established in 1986 and has Effissimo Capital Management Pte Ltd Yaskawa Electric Corporation continued to be a major Center donor. The Mitsubishi UFJ Trust and Banking Corporation Center also greatly appreciates and benefits Tokai Tokyo Securities Co., Ltd.* Lead Individual Sponsor from the income derived from the generous ($30,000+ annually) endowments funded by Fuji Xerox Co., Ltd., Major Corporate Sponsors Makoto Takano Sanken Industrial Policy Research Institute, ($25,000+ annually) the Marine and Fire Insurance Association, Kikkoman Corporation Individual Sponsor the Federation of Bankers Association, Mitsubishi Corporation (Americas) ($10,000+ annually) the Security Dealers Association, the Life Ricoh Co., Ltd.* Robert Alan Feldman Insurance Association, and Mitsubishi UFJ SMBC

Friends of the Center (up to $9,999+ annually) Miyoko Davey Hiroko and Satoru Murase Tsunao Nakamura Hugh Patrick Sadao Taura

* Regularly sends Visiting Fellows

From left to right: Tsunao Nakamura, Hugh Patrick, Susumu Fujimoto, Ryota Yoshimura

CJEB Annual Report 2014–2015 | 51 52 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 53 54 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 55 56 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 57 58 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 59 60 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 61 62 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 63 64 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 65 66 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 67 68 | CJEB Annual Report 2014–2015 CJEB Annual Report 2014–2015 | 69 Design/Production

Columbia Creative Office of Communications and Public Affairs

Editors:

Ryoko Ogino

Michelle Tam

Assistant Editors:

Emiko Mizumura

Fumiko Nozaki

Andy Wanning

Contributor:

Koji Hirao

Photography:

Eileen Barroso

Diane Bondareff

Michael Dames

Hideo Hoshino

Alan Klein

Andy Wanning 2M9 Uris Hall, 3022 Broadway New York, NY 10027 Phone: 212-854-3976 Fax: 212-678-6958 Web: www.gsb.columbia.edu/cjeb

CJEB Representative Office in Japan c/o Terumi Ota 1-19-18-1003 Shibuya Shibuya-ku, Tokyo 150-0002 Fax: 03-5467-6012