Center on Japanese Economy and Business and Economy Japanese on Center

CENTER ON JAPANESE ECONOMY AND BUSINESS AND ECONOMY JAPANESE ON CENTER

Center on Japanese Economy and ANNUAL REPORT 2016–2017 REPORT ANNUAL 2M9 Uris Hall, 3022 Broadway New York, NY 10027 Phone: 212-854-3976 Fax: 212-678-6958 Business www.gsb.columbia.edu/cjeb ANNUAL REPORT 2016–2017 CJEB Representative Office in Japan c/o Terumi Ota (JULY 2016–JUNE 2017) 1-19-18-1003 Shibuya Shibuya-ku, Tokyo 150-0002 Fax: 03-5467-6012 Table of Contents

Letter from the Directors 2 Lunchtime Seminars 38

CJEB Team 4 Will TPP Cause the Fall of Japan’s Powerful Agricultural Cooperatives? 38 Leadership and Staff 4 The Evolution of Bank Regulation and Supervision After Core Faculty 7 the Recent Global Financial Crisis 38 Research and Faculty Engagement 10 Has There Really Been a Japanese Corporate Governance “Japan’s Economy: Pursuing Its Modest Sustainable Revolution? 39 Growth Path” by Hugh Patrick 10 U.S. Presidential Election: The View from Japan— Current Research Highlights 20 Implications for Asian Security 39 Faculty Engagement 22 U.S. Presidential Election: The View From Japan— Research Paper Series 24 The Impact on Japanese Politics 39 CJEB Programs 27 U.S. Presidential Election: The View From Japan— The Future of the U.S.-Japan Alliance 40 Program on Public Pension and Sovereign Funds 27 Design/Production Will New Governance Rules Change the Japanese Corporate Governance and Stewardship Program 27 Columbia Creative Boardroom? 40 The New Global Financial Architecture 28 Office of Communications and Public Affairs Tokio Marine Group’s Corporate Strategy: The Future Events 29 Direction of Japan’s Leading Insurance Company 41 Conferences 29 Household Asset Diversification for Japan’s Economic Editors: Conference on Public Pension and Sovereign Funds 29 Growth 41 Ryoko Ogino Japan’s Global and Domestic Futures: The U.S. Recent Developments in the Global Markets 41 Michelle Tam Relationship and FinTech 30 Resources 42 The Japan Project Meeting with Joint ESRI International Faculty Advisory Committee 42 Assistant Editors: Conference 31 2016–2017 Visiting Fellows 43 Taylor Cook ESRI International Conference: “The Global Decline in Growth Rate and Possible Policy Responses” 32 2017 Visiting Fellow Reunion Reception 44 Emiko Mizumura

Symposia 33 2017 Annual Visiting Fellow Business Field Trip 44 Shoko Nakamoto Andy Wanning Private Views on Japanese Government Corporations 33 Research Associates 45

Is the Glass Ceiling Dented, Cracked, Broken, or Professional Fellows 46 Firmly in Place? 33 International Advisory Board 47 Photography: Social Innovation with Innovative Cybernic Systems: Promoting Exchange of Ideas 48 Eileen Barroso Challenges to Shape the Future “Society 5.0” 34 CJEB in the News 48 Michael DiVito Lectures 35 Enhancing the MBA Experience 49 Taichi Okeda Brewing Success: Secrets of a Japanese Sake Business 35 Enhancing the Columbia Experience 50 Shoko Nakamoto Moving Beyond Money Capitalism: Japan’s Alternative Visits from Japan to Columbia 52 Michelle Tam Economic Model of Satoyama Capitalism 35 Fellowship and Scholarship Programs 53 Alfred Tsai Powers of Nominal Variables—Japan’s Experiences of a Andy Wanning Quarter Century Deflation 35 Library and Data Resources 54 Daphne Youree The Invisible Arrow of Abenomics: Structural Reform Discussion Groups 54 and Innovation 36 Japan Economic Seminar 54

The History and Business Trends of Matcha Green Tea 36 U.S.-Japan Discussion Group 55 Bank of Japan’s Business Operations and Financial Support 56 Functions 37 Corporate Sponsorship Program 56 Special Lecture with Minister Aso 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 knowledge and understanding of Japanese business and economics in an international context. CJEB is a research organization widely recognized for its symposia, conferences, and lectures held both in New York and Tokyo, which provide prominent speakers from the public and private sectors a forum for collaboration and reflection on Japan, the United States, and the global economy.

With the leadership of Professors David E. Weinstein, director of research, and Takatoshi Ito, director of the Program on Public Pension and Sovereign Funds and associate director of research, CJEB supports research projects, student and faculty scholarship, and library and computer-based resource initiatives. Other CJEB core faculty members are Japan specialists drawn from Columbia’s Business School, Law School, School of International and Public Affairs, Department of Economics, and Department of Political Science. Funding and resources are provided by corporate sponsors, foundations, individuals, CBS, and Columbia University.

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

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

CJEB Annual Report 2016–2017 | 1 LETTER FROM THE DIRECTORS

Letter from the Directors

Dear Friends,

Columbia Business School’s Center on Japanese Economy and Business (CJEB) has had another outstanding and eventful year. Over the past twelve months, we have worked diligently to develop the Center’s programs and resources, including our two newest programs—the Program on Public Pension and Sovereign Funds (PPPSF) and the Corporate Governance and Stewardship Program. CJEB remains the premier U.S. academic research center committed to understanding the Japanese economy and its business systems. It continues to thrive as the main platform for leading scholars and practitioners around the globe to come for resources, discussion, and an exchange of ideas on Japan’s current economy, policies, and business developments in domestic, Asian, and global, as well as U.S.-Japan contexts. Hugh Patrick, Director

During the 2016–2017 academic year, CJEB hosted a number of prominent and well-attended events examining crucial and current topics on Japan’s economic and political climate. For example, on October 6, 2016, CJEB held a special symposium, “Private Views on Japanese Government Corporations,” which featured Masatsugu (Mat) Nagato, president and CEO of Japan Post Holdings Co., Ltd., and Yasushi Kinoshita, deputy president of the Development Bank of Japan, Inc. Nagato and Kinoshita shared their experiences and views on the privatization of their respective institutions, which were formally owned by the Japanese government (see p. 33). On April 11, 2017, CJEB held its 18th Annual Mitsui USA Symposium, where Yoshiyuki Sankai, CEO and president of Cyberdyne Inc., shared his vision on the utility of Cybernic systems and the challenges in developing these systems for social innovation (see p. 34). Taro Aso, deputy prime minister, minister of finance, and minister of state for financial services of Japan, gave a special lecture at Columbia on April 19, 2017, David E. Weinstein, Director of Research where he discussed the current state of the Japanese economy and the progress Japan has made in recent years (see p. 37).

Another main CJEB highlight was its annual conference in Tokyo, which was held on May 25, 2017. The conference, “Japan’s Global and Domestic Futures: The U.S. Relationship and FinTech,” featured keynote addresses by Nobuchika Mori, commissioner of the Financial Services Agency, and Alan Wm. Wolff, chairman of the National Foreign Trade Council, former U.S. deputy trade representative, and senior counsel at Dentons US LLP. Mori and the first panel focused their discussion on how FinTech is shaping the future of the financial services industry. Wolff and the second group of panelists shared their thoughts on the U.S.-Japan economic relationship under America’s current trade policy and its new administration. To read more about this conference, see details on pp. 30–31.

In addition to our primary public programming, CJEB continues to host several zadankai lunchtime lectures, featuring major current topics on Japan’s economy and business systems. Satoru Murase, partner at Morgan, Lewis & Bockius LLP, spoke on the current state of Japanese corporate governance and whether it had been revolutionized under Abe’s administration (see p. 39). Satoru Komiya, then CJEB Visiting Fellow and managing executive officer of Tokio Marine Holdings, Inc.’s R&D department, gave insights on how Japanese corporations should develop new corporate strategies to compete in a changing world economy (see p. 41). Hiroshi Watanabe, president of the Institute for International Monetary Affairs, spoke on the recent development of the global markets (see p. 41). For our other zadankai seminars, you can read more starting on p. 38.

2 | CJEB Annual Report 2016–2017 Last year, CJEB launched two new programs as part of its growing research initiatives. For 2016–2017, the Program on Public Pension and Sovereign Funds, led by Takatoshi Ito, held its inaugural conference on April 12, 2017. The conference was divided into three sessions, each including a panel of renowned scholars and experts who spoke on investment challenges, best practices, and alternatives to asset allocations in relation to public pension funds (see p. 27). CJEB’s Corporate Governance and Stewardship Program, led by Alicia Ogawa, featured two zadankai lunchtime seminars: “Will New Governance Rules Change the Japanese Boardroom,” with Arthur M. Mitchell, senior counsel of Tokyo, White & Case LLP on February 27, 2017 (see p. 40); and “Household Asset Diversification or Japan’s Economic Growth,” with Tetsuya Kubo, chairman of the board at SMBC Securities Inc., on April 6, 2017 (see p. 41). More details on both these programs can be found on p. 27.

As a fundamental part of its research agenda, CJEB offers a variety of fellowship and scholarship opportunities for students interested in studying and specializing in the Japanese economy and its business systems. Through these initiatives, CJEB is actively engaged with the Columbia student community and strives to nurture the next generation of experts in this field. You can read more about this important initiative and the types of fellowships and scholarships offered by CJEB on p. 53.

CJEB’s Visiting Fellows Program (see p. 43) has also had another successful year. CJEB Visiting Fellows are selected from various backgrounds in the corporate, academic, and government sectors and come to Columbia with the intention of pursuing independent research and honing their professional skillset. As CJEB Visiting Fellows, they have access to many of Columbia’s rich resources, such as the University’s libraries and public events, and have the opportunity to engage and interact with many in the Columbia community, including faculty and students. Other opportunities also include attending an annual business field trip, auditing a wealth of courses at Columbia, and participating in workshops with individual consultation to improve their presentation skills. Visiting Fellows then put into practice their presentation skills through monthly seminars, where they present their research among CJEB directors and their peers. CJEB has proudly hosted more than 250 Visiting Fellows since the Center’s establishment.

For more than 30 years, the Center has succeeded as a preeminent academic and research center under our joint leadership. And with the eventual transition to David Weinstein’s sole leadership, we will continue to strive for success and move forward to keep pace with Japan’s ever-changing economy.

The foundation of CJEB’s continued success is the commitment, capability, intelligence, and energy of the Center’s core faculty and staff; to the resources provided by the Business School and the University; and, especially, to the funding provided by corporate sponsors, foundations, and individuals. Our deep thanks to them all.

With warm regards,

Hugh Patrick David E. Weinstein Director Director of Research

July 20, 2017

CJEB Annual Report 2016–2017 | 3 CJEB TEAM

Leadership and Staff

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

4 | CJEB Annual Report 2016–2017 Economies and is coeditor of the Asian U.S.- based macro hedge funds in the United Officers Economic Policy Review. In an unusual move States and an adjunct associate professor Emiko Mizumura for a Japanese academic, Professor Ito was at SIPA. Until 2006, she was managing appointed senior advisor in the Research director at Lehman Brothers, where she was Assistant Director for Programs Department at the International Monetary responsible for managing the firm’s global BA, American and English Literature Fund (1994–1997) and deputy vice minister equity research. Otsuma University for International Affairs at the Ministry of MS, Information and Knowledge Strategy Prior to joining Lehman Brothers, Professor Finance of Japan (1999–2001). He also Columbia University Ogawa spent 15 years in Tokyo, where she served as a member of the Prime Minister’s was a top-rated bank analyst and director of Shoko Nakamoto Council on Economic and Fiscal Policy research for Nikko Salomon Smith Barney, Senior Administrative Manager (2006–2008). having managed the original Salomon BA, Law In 2010, Professor Ito was a coauthor Brothers Research Department through Okayama University of a commissioned study of the Bank of three mergers. She is a member of the MA, Diplomacy and International Relations Thailand’s 10th-year review of its inflation- board of directors of the Maureen and Mike Seton Hall University targeting regime. He frequently contributes Mansfield Foundation, a member of the op-ed columns and articles to the Financial investment committee of the Association Michelle Tam Times and Nihon Keizai Shinbun. He is for Asian Studies, and a member of the Coordinator the author of many books, including The President’s Circle of the All Stars Project, a BA, Economics Japanese Economy (MIT Press, 1992), The development program for inner city young Binghamton University Political Economy of Japanese Monetary people, which was recently launched in State University of New York Policy (1997), and Financial Policy and Tokyo. She graduated from Barnard College Central Banking in Japan (2000, both with and earned a master’s degree in international Andy Wanning T. Cargill and M. Hutchison, MIT Press); affairs at SIPA. Senior Program Officer An Independent and Accountable IMF BA, Anthropology and Sociology (with J. De Gregorio, B. Eichengreen, and Lafayette College C. Wyplosz, 1999); and more than 130 Ryoko Ogino is MS, Sustainability Management academic (refereed) journal articles and the director for Columbia University chapters in books on international finance, administration at CJEB. She officially monetary policy, and the Japanese economy. Japan Representative, His research interests include capital flows joined the Center as and currency crises, microstructures of associate director Tokyo the foreign exchange rates, and inflation for administration Terumi Ohta targeting. He was awarded the National in September 2010 BA, Tsukuba University Medal with Purple Ribbon in June 2011 for after successfully his excellent academic achievement. managing the Center’s Tokyo conference in spring 2010. Prior to that, she held positions Student Casuals at Shiseido Americas Corporation and Sony Karen Chen Alicia Ogawa is Corporation of America, bringing a wealth MA Candidate, International Finance and the director of of experience in product development, Economic Policy the Project on PR, international marketing, and staff Columbia University Japanese Corporate management. She graduated magna cum Governance and laude from the State University of New York, Sara Hirade Stewardship at Buffalo, with a major in human relations BA Candidate, Mathematics-Statistics CJEB. She is also in multinational organizational settings Columbia University a consultant to sponsored by the Department of Psychology one of the largest and Management.

CJEB Annual Report 2016–2017 | 5 Julian Radice BS, Industrial Engineering and Operations Research Columbia University

Riku Tabata BA Candidate, Economics and Computer Science Columbia University

Yurie Takeuchi BA, Political Science Columbia University

Alfred E. Tsai BA, Economics and Political Science Columbia University

Sharleen Yu BS Candidate, Financial Engineering and From left to right: Yurie Takeuchi, Julian Radice, Emiko Mizumura, Andy Wanning, Michelle Tam, Ryoko Economics Ogino, Shoko Nakamoto, Alfred Tsai Columbia University

6 | CJEB Annual Report 2016–2017 Core Faculty

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

CJEB Annual Report 2016–2017 | 7 at the University. Currently, she is codirector serves on the Board of Directors for several of Chicago Press, 2008), and Transforming of the APEC Study Center. Previously, she corporations, financial services, technology Corporate Governance in East Asia was director of the Master’s Program in companies, and not-for-profit organizations. (Routledge Press, 2008). His research has International Affairs and chair of Columbia In 2009, she became a charter member of been profiled in The Economist, the Financial University’s Advisory Committee on Socially the International Advisory Council of China’s Times, and The Wall Street Journal and has Responsible Investing. Her research interests sovereign wealth fund, China Investment been widely translated. Professor Milhaupt focus on international trade and investment, Corporation. Early in her career, Dean lectures regularly at universities and think Asia, competition law, economic globalization, Janow was a corporate lawyer specializing tanks around the world. Representative digital trade, internet governance, and in cross-border mergers and acquisitions appointments include visiting professor at cybersecurity. She has written several with Skadden, Arps, Slate, Meagher & Flom Tsinghua University, Paul Hastings Visiting books and numerous articles and frequently in New York. Before becoming a lawyer, she Professor in Corporate and Financial Law speaks before business, policy, and academic worked at a think tank, where she focused at Hong Kong University, and Erasmus audiences around the world. on U.S.-Japan trade and economic relations. Mundus Fellow in Law and Economics at She grew up in Tokyo, Japan, and is fluent in the University of Bologna. He was named While at Columbia University, Dean Janow Japanese. She has a JD from Columbia Law Teacher of the Year in 2012 and 2010 at the was elected in December 2003 for a four- School, where she was a Stone Scholar, and Duisenberg School of Finance, University year term as one of the seven members of the received a BA in Asian studies with honors of Amsterdam, where he taught from 2008 World Trade Organization’s (WTO) Appellate from the University of Michigan. She is a to 2015. Professor Milhaupt has been a Body, which is the court of final appeal for member of the Council on Foreign Relations member of several international project teams adjudicating trade disputes between the and the Trilateral Commission. focused on policy issues in Asia, including 161 members of the WTO. She was the one charged with designing an “institutional first woman to serve on the Appellate Body. blueprint” for a unified Korean peninsula. Prior She was involved in more than 30 appeals. Curtis J. Milhaupt is to entering academia, Professor Milhaupt While on the Appellate Body, she organized the Parker Professor practiced corporate law in New York and a series of global conferences with leading of Comparative Tokyo with a major law firm. He holds a JD experts and senior government officials Corporate Law, from Columbia Law School and a BA from the that focused on the Appellate Body, the director of the Parker University of Notre Dame. He also conducted international trading system, and economic School of Foreign and graduate studies in law and international globalization. From 1997 to 2000, Dean Comparative Law, relations at the University of Tokyo. Janow served as the executive director of Fuyo Professor of the first international antitrust advisory Japanese Law, and committee of the U.S. Department of Justice director of the Center for Japanese Legal Joseph E. Stiglitz that reported to the attorney general and the Studies, all at Columbia Law School. He was born in Gary, assistant attorney general for antitrust. Her is also a member of Columbia University’s Indiana in 1943. A report recommended the creation of a global Weatherhead East Asian Institute. Professor graduate of Amherst network of enforcers and experts, which is Milhaupt’s research and teaching interests College, he received now the International Competition Network. include the legal systems of East Asia his PhD from MIT in Prior to joining Columbia’s faculty, Dean (particularly Japan), comparative corporate 1967, became a full Janow was deputy assistant U.S. trade governance, law and economic development, professor at Yale in representative for Japan and China (1989– and state capitalism. In addition to numerous 1970, and in 1979 1993). She was responsible for developing, scholarly articles, he has coauthored or was awarded the John Bates Clark Award, coordinating, and implementing U.S. trade edited seven books, including U.S. Corporate given biennially by the American Economic policies with Japan and China. She negotiated Law (Yuhikaku, 2009, in Japanese), Law Association to the economist under 40 who more than a dozen trade agreements with and Capitalism: What Corporate Crises has made the most significant contribution Japan and China during a period of intense Reveal about Legal Systems and Economic to the field. He has taught at Princeton, economic and political tension. Dean Janow Development around the World (University Stanford, and MIT and was the Drummond

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

CJEB Annual Report 2016–2017 | 9 RESEARCH AND FACULTY ENGAGEMENT

Japan’s Economy: Pursuing Its Modest Sustainable Growth Path

By Hugh Patrick

Japan’s economy continues to chug along Japan major economic challenges—and Political turmoil has not significantly well, with above-potential GDP growth in opportunities. hampered global economic performance. the first half of 2017 that will continue The system thus far has dealt quite well with On September 26 Prime Minister Shinzo Abe for the coming year or two. In longer-term volatility in financial and commodity markets announced he will dissolve the Diet’s Lower perspective, the economy is continuing and protectionist pressures, despite Trump’s House and hold a snap election October patterns established several years ago. This rhetoric. 22, 14 months earlier than required. He will is not surprising. Above all, Japan’s economic continue to give priority to Abenomics. He did The IMF estimates world GDP in 2016 success is founded on its well-educated, announce a change in fiscal policy following grew at 3.1 percent, slightly less than in industrious labor force, high savings and the increase in the consumption tax to 10 2015. It projects growth increasing to 3.5 investment rates, and good economic percent in October 2019. The government percent in 2017, and to 3.8 percent in institutions. Its only significant natural will no longer aim to achieve a budget primary 2022. The precipitous decline in oil and other resources are land and a four-season climate. balance by fiscal 2020. That would not have commodity prices over the past two years Similar to other developed economies, Japan been achieved anyway. Instead, rather than have dampened global inflationary pressures, faces a wide range of economic challenges. using the new revenues from the consumption but the leveling off of commodity prices Its most important long-run economic tax increase primarily to reduce government means that global deflation has been avoided. challenge is demographic. Japan must debt, the government will use at least 40 The IMF projects that consumer prices in adjust to the consequences of low fertility percent on child welfare, education, and other advanced countries, though not Japan, will rates since 1974; a decrease in the size social services. The debate on the specifics is increase at about 2 percent annually over the of the potential working force since 1995; just under way. next five years. absolute, albeit small, annual decreases in Japan faces a host of domestic economic The world trading system is relatively market- the population since 2008; and a rising share issues. These include the failure to achieve oriented, liberal, and open, despite ongoing of the population that is 65 and older, now at price stability, defined as a 2 percent annual protectionist and mercantilist forces. The 27 percent. These trends are well-understood increase in the core CPI (Consumer Price growth in the volume of global trade in goods and will persist at least to 2050. Index); the puzzle so far of the combination and services slowed to 2.7 percent in 2015 Abenomics is an enduring label for a of full employment and only low wage and to 2.2 percent in 2016, but it is picking package of fundamental macroeconomic increases; very long working hours and other up significantly to 3.8 percent this year and and structural reform policies. Although not labor market issues; company management, next. Services comprise about a fifth of as successful so far as had been hoped, including corporate governance; energy total trade, and has been increasing slightly Abenomics is not a failure. Its policies strategy in a rapidly changing global energy more rapidly than merchandise trade. The of monetary and fiscal stimulus have system; and how Japan is taking care of its growth of trade in current prices has been contributed significantly to current low poor. These topics are considered in following significantly affected by the gyrations in unemployment and good growth. Structural sections. energy and other commodity prices. Since in reform takes considerable time to implement almost all economies the share of domestic and be effective. services in GDP is increasing while the share of manufacturers is decreasing, it is not The main shocks to the economy over this The International Context surprising that trade increases less-rapidly past year have been foreign. The biggest The global economy continues to perform than world GDP. single shock has been the election of U.S. reasonably well, though subject to heightened president Donald Trump and the uncertainties We live in a world of incremental technological geopolitical uncertainties. How will Brexit about his administration’s presumed foreign change, not only in manufacturing and play out? What will happen in the Middle security, trade, and related economic medicine but in a wide range of services, East, notably Syria? How to deal with the policies. So far, Japan has fared well in its as well as agriculture and mining. Much is nuclear and missile threat from North Korea? relationship with the Trump administration. a rather quiet process, but a significant In what ways and how effectively will the China’s economic and political rise is an element has been the development of United States and China both compete and ongoing process; over time China provides the internet and the smartphone. Almost cooperate? What effect will Trump have?

10 | CJEB Annual Report 2016–2017 everyone in the developed world has access not want war, as that would result in its United States withdraw from the 12-nation to near-instant communications; social media destruction by U.S. military forces. I have Trans-Pacific Partnership (TPP) agreement have proliferated. Japanese are major users long held that North Korea will never give up on his third day in office. This was a blow of Facebook, LINE, YouTube, and many other its nuclear weapons capabilities and goals. to Japan, since Abe had assiduously and apps. That is its strongest card. However, the U.S. successfully pushed Japan’s participation government policy mindset, at least formally, in TPP through the Diet in December 2016. Rakuten is an economic leader in is to seek North Korean denuclearization as Trump is committed to bilateral rather than e-commerce. Retail sales have been shifting its ultimate objective. multilateral deals, but so far the Japanese to online orders and direct delivery by government appropriately has been reluctant Amazon, Yamato Transport in Japan, and A major new uncertainty is U.S. global to negotiate a U.S.-Japan bilateral trade and others. This innovative process is taken leadership—security and political as well economic agreement. Japan will pursue a for granted by young people, and many as economic—following the election of TPP-11 agreement. older people are adapting well to the new Donald Trump as president. Much has to do opportunities. with Trump’s persona, style, and rhetoric, The Trump administration, with considerable exemplified by his off-the-cuff, colorful, bipartisan political support, intends to Even with major ongoing technological provocative, sometimes inconsistent tweeted pursue a tough trade policy, thus far mainly change, productivity growth—output per comments. Fortunately, there are significant by enforcing existing anti-dumping and worker per hour—has slowed significantly differences between Trump’s rhetoric and countervailing duty laws in response to in the developed world, including Japan. the policies his administration have actually foreign unfair trade practices. However, I do This is despite measurement problems, been pursuing so far, and the policies that not expect the United States to impose direct particularly in estimating productivity Congress will endorse. protectionist actions such as comprehensive increases in services. For example, the increases in tariffs or quotas. Japan will quality of service in Japanese restaurants, The U.S.-Japan economic relationship is benefit from U.S. government corporate tax retail establishments, and other personal very good at the government policy level, as cuts and major infrastructure investments services are among the world’s highest, but well as in business and personal dimensions. which stimulate U.S. growth. Japanese the market does not value it highly because Prime Minister Shinzo Abe has been manufacturers have substantially invested Japanese culture imbues most workers extraordinarily effective in developing a good, in Mexican factories to produce automobile with internal high performance standards. close, personal relationship with Trump, with components and other products for export Ironically, increasing measured productivity in positive results. Abe was the first foreign to the U.S. markets; not surprisingly, such establishments by reducing the number leader to meet Trump after his election. The they are concerned about the specifics of workers often reduces the quality of the relationship deepened in their meeting on of the forthcoming Mexico-U.S. NAFTA service. February 10–11, 2017, in Washington and negotiations. is being sustained by frequent phone calls. North Korea has become a security threat not Despite earlier critical remarks about Japan, In this era of anxious geopolitical only in Japan and South Korea but the United following the summit, Trump stated the U.S.- uncertainties, with both global and regional States. Under the leadership of Kim Jong-Un, Japan relationship is “very, very deep.” They challenges, it is important to remember how North Korea has been vigorously expanding are scheduled to meet again in November. much the global economy has accomplished its nuclear weapons and missile delivery and continues to accomplish. The developed capabilities, with 28 missile tests in the past The two countries set up the high level US- world, of which Japan is an outstanding year alone. It has an estimated 21 nuclear Japan Economic Dialogue chaired by Vice example, has achieved high standards of weapons at least. North Korea’s missile test President Mike Pence and Deputy Prime living, low unemployment, and no inflation. on July 28 has been perceived as meaning a Minister Taro Aso following the summit. The The developing world, led by China and India, nuclear warhead could soon reach the lower first meeting was held in Tokyo on May 9–10; is on a sustainable path of good ongoing 48 U.S. states. This is not yet the case, but while positive, it dealt mainly with overall economic performance. Of course major clearly this has become a dangerous game. general policies rather than specific issues. economic problems persist—poverty-stricken North Korea believes becoming a nuclear One big issue for Japan is how Trump countries (notably in Africa) and poverty- power is essential for its defense and to administration trade and foreign economic stricken persons and families in all countries, sustain the regime in power. It surely does policy will evolve. Trump summarily had the including Japan. Japan’s economic history is

CJEB Annual Report 2016–2017 | 11 one of major economic success domestically place. But the wave will subside, not crash. Japan came out of World War II with a strong and in the global economy. Japan’s challenge Indeed, a more optimistic growth scenario pacifist commitment, supported legally and is to sustain that success into its future. is feasible. Since the mid-1990s Japan’s morally by Article 9 of the Constitution. productivity has been about three-quarters Defense expenditures are only 1 percent of The Japanese Economy of the U.S. level. It should be possible to GDP. Japan’s national security is guaranteed Japan, the world’s third largest economy, narrow that gap. Some slack remains both by its deep alliance with the United States, is a major global player as trader, foreign in the way labor is allocated, and in how including the U.S.-Japan Security Treaty. direct investor, global capital market service and white-collar employees work. The Despite its postwar Occupation origins, participant, and stalwart supporter of the government could support more research the Japanese have strongly supported the open international economic system. Its fiscal and development, improve the quality Constitution. It has never been revised and, 2016 real GDP growth rate, 1.3 percent, of preschool and tertiary education, and despite Abe’s goals, is unlikely to be in the was the same as 2015, but the composition implement enforcement of social security foreseeable future—unless North Korea was significantly different. The decline in contributions by SMEs and individuals, does something overwhelmingly provocative. domestic demand of 0.3 percent was entirely among other methods. It’s not that Japan Japan has sent its Self-Defense Forces, due to inventories, which swung from plus does badly; it just could do better. mainly engineering units, overseas under 0.4 percent to minus 0.4 percent. This was UN-based humanitarian programs, but they good news because Japan’s investment and Factors Shaping the have always been protected by the military consumption increased a bit more rapidly, Economy forces of other countries. In light of North and inventories will almost certainly become Korea’s nuclear and missile development, a Fundamental shapers of the Japanese a normal positive figure this year and next. major defense policy issue is whether Japan economy are its demographic trends, its Half of Japan’s 2016 growth was due to the should revise its self-defense policy to include ethnic homogeneity, and its pacifist-oriented positive 0.6 percent contributions of exports preemptive strikes. national security strategy. and a slight decrease in imports. Even though the economy is doing well, With fertility since 1974 below the GDP surpassed its 2007 peak in 2013 Abenomics, now beginning its fifth year, has replacement rate, the working-age population and the economy is recovering well from its not yet achieved its three major goals: price has been decreasing since 1995, its total downturn in 2014 following the consumption stability as defined by 2 percent annual population (now 126.8 million) since 2008, tax increase to 8 percent. Employment is increases in the CPI; fiscal stability as and the share of population 65 and over high; the unemployment rate is only 2.8 defined by shifting from central government (now 27 percent) increasing. The trends percent. GDP growth has been above the budget deficits to surpluses, specifically in of declining labor force and population will potential rate, and accelerated in the first the budget primary balance; and structural persist for at least the next 20–30 years. half of 2017 to about a 2 percent annual reforms through deregulation and other Given Japanese preferences, it is unlikely that rate, since there was a good, though revised measures to enhance wide-ranging market immigration will be large-scale, certainly not down to 2.5 percent, growth surge in the competitiveness. In particular, regulatory enough to affect population size. Accordingly, April–June 2017 quarter. This has been reform has been strongly opposed by vested in the coming decades, a major generational the result of widespread rises in household interests, and is proceeding slowly. income distribution challenge is how fewer consumption and in housing, business, and Despite recurring political difficulties, Abe workers will support the increasing proportion government investment. Mild but persistent will win the forthcoming election and continue of elderly. deflation has been brought to an end. The as prime minister until after the 2020 Tokyo core consumer price index rose at an annual One of Japan’s strengths—and weaknesses— Olympics, and he will continue Abenomics, rate of 0.5 percent in July. is its ethnic homogeneity, epitomized by the since it is the basis of his political support. Japanese language, which few foreigners In 2017 Japan is at a peak of its current Since there are fundamental objectives, no know. Social coherence is strong, with a deep growth wave. Labor is no longer in ample matter who the prime minister is, government sense of Japanese uniqueness. At the same supply; labor shortages are a major business policy will always pursue full employment, time, within Japan, people are significantly concern. A productivity growth resurgence price stability, and good growth. differentiated by the quantity and quality of will be difficult, even though the government’s education, income and wealth, and family revitalization plan assumes that will occur Fighting Deflation history. Substantial relative poverty persists. as major structured reforms somehow take The Bank of Japan’s easy money policy

12 | CJEB Annual Report 2016–2017 with very low interest rates under Governor administration and procedures, encouraging Small and Medium Haruhiko Kuroda since 2013 has been financial institutions now to become less risk- appropriate. While deflation has been averse. Enterprises halted, the price stability effects have been Small and medium business enterprises disappointingly slow; the 2 percent CPI Fiscal Policy (SMEs) are an important, and very target has not been achieved. The target The macroeconomic function of fiscal policy heterogeneous, part of the manufacturing date has been postponed six times. In is to assure sufficient aggregate demand for and service sectors. They employ about 70 September 2016, the Bank of Japan (BOJ) sustained full employment, price stability percent of all employees, generate about 55 strengthened its ongoing monetary policy and good growth. Despite the sustained percent of the economy’s gross value added, with direct measures to widen the interest easy money policy, Japan’s private sector— and comprise 99.7 percent of all enterprises. rate term structure (capital market yield) by notably corporations—continue to save more They are defined differently by industry: purchasing 10-year and longer-term JGBs than it invests. To offset this, the central SMEs in manufacturing have paid-in capital (Japanese government bonds); it now holds government has run budget deficits for the of ¥300 million or less, or 300 or fewer some 40 percent of outstanding JGBs. BOJ last two decades. The Abe administration’s employees; for wholesale trade the cut-off is has successfully prevented the 10-year JGB policy, reaffirmed on June 9, is to reduce the ¥100 million and 100 employees,; for retail market rate from remaining slightly negative budget deficit and achieve a primary balance 50 and 50; and for other services 50 and by targeting a zero percent market yield. In (excluding government interest payments) 100. shifting from its direct quantitative easing by fiscal 2020. That is unlikely, and, indeed, policy of annual purchases of ¥80 trillion, The government defines small (also termed should not be unless private consumption and BOJ is now purchasing about ¥60 trillion. micro) enterprises as those with 5 or fewer investment increase substantially more than In September 2016, BOJ also committed employees (20 in manufacturing). These micro is likely. to overshoot the 2 percent CPI target in a enterprises, including sole proprietorships, large enough amount, and for long enough, to Fiscal policy faces two key issues. One is constitute almost a quarter (23.5 percent) assure that market expectations would stably whether to have a stimulative supplementary of total private sector employment and 16 support CPI 2 percent annual increases in the budget for 2017. Economic and Fiscal Policy percent of gross value added. Much of an longer term. Minister Toshimitsu Motegi in August stated ongoing decline in micro enterprise numbers that there is no need this year for further is because owners retire due to age or illness. That the CPI target has not yet been reached fiscal stimulus, so many observers expect On the other hand, many micro enterprises has been a dismaying surprise. The policy was only a normal, small, supplementary budget. are run by new, young entrepreneurs and and is correct, but engendering sufficiently The other issue, now that Abe has stated he freelance designers, software engineers, and positive market expectations has turned out plans to have the consumption tax raised to others with special skills. to be much more difficult than anticipated. 10 percent as scheduled in October 2019, is The annual rate of CPI increase as of July Most nonmicro SMEs are incorporated and what to do with the additional tax revenues. 2017 was only 0.5 percent. BOJ expects the most report corporate losses so do not pay In his September 26 election announcement, rate to be 1.1 percent by the end of this fiscal corporate income taxes, either because at as already noted Abe stated that much year (March 2018), 1.5 percent by March one extreme the owners pay themselves high will be spent for social service purposes 2019, and reach the 2 percent target by wages, or at the other extreme, they are close rather than government debt reduction. 2020. However, market consensus continues to bankruptcy. The 3 percentage point consumption tax to be less optimistic. Successful SMEs are the backbone of the increase in 2014 resulted in a 7.6 percent Japanese economy, especially outside the While some financial institutions have GDP drop in April–June 2014 and a further major metropolitan areas. Most provide become more willing to lend to small 2.4 percent decline the next quarter before services for their local communities, but some businesses, many more have remained growth resumed. Japanese expectations and are globally successful export manufacturers, cautious; holding more money than they the economy’s performance probably will be as well as competitive suppliers of goods and know what to do with, they simply build more significantly affected by the consumption services to the 11,000 large firms that hire excess reserves at BOJ. The consolidation of tax decision. At the least the tax increase will 30 percent of employees and generate 45 small local banks proceeds. With the balance slow growth significantly for a year or so. sheets and administration of the major banks percent of gross value added. in good shape, the Financial Services Agency Japan’s zombie enterprises are a drain on (FSA) is easing its tight regulatory oversight its economy. There are two types of zombie

CJEB Annual Report 2016–2017 | 13 firms: small loss-making companies (such that Japanese are well-educated. Some in which basic governance principles are as Mom and Pop stores) with elderly owners 88 percent of 3–4 year olds go to nursery laid out. The Tokyo Stock Exchange, with who hang on by slowly drawing down school. Of the 1.195 million Japanese junior 3,530 companies listed on its first and family assets, and loser firms that are not high school graduates in 2015, almost all second sections, plays a major governance competitive enough to stay alive but banks continued their education; 89 percent in role. By 2016 year end, 85 percent had and other creditors provide enough loans so 2015 graduated from a regular high school complied with at least 90 percent of the they do not have to take bankruptcy losses. and 2 percent from vocational high schools, Governance Code’s 73 principles. However, Most zombie firms are SMEs, probably with while others attended international schools while complying formally, many have yet older workers, older owner-managers, and or other not-accredited institutions. Among to embrace the spirit of the principles. outdated facilities and technologies. Labor 2011 high school graduates, 52 percent Pressure from investors and media coverage market shortages now provide alternative graduated from a regular college in 2015, is putting pressure on pension funds to sign opportunities for zombie firm workers, and and 26 percent had graduated from a the stewardship agreement and to list their banks and other lenders are strong enough to specialized training college or junior college. holdings. write them off rather than allowing the losses With decreasing numbers of young people The Stewardship Code was amended in May to continue to expand. It is time for Japan’s wanting to attend colleges, a number of 2017 to call for institutional investors to low corporate exit rate to rise significantly, privately owned colleges are being pushed by report how they voted on company proposals thereby freeing labor, capital, and land for financial losses into merger or closure. at shareholder meetings and their reasons. more productive uses. Corporate Governance and It continues to be a major challenge for Labor Productivity management in many companies to engage Structural Reform substantially and constructively with its With human resources quite fully utilized, investors, external auditors, credit providers, Despite vigorous governmental regulatory growth depends primarily on improving and other in order to learn new information, reform efforts, Japan is making only modest labor productivity. Labor productivity annual ideas, and ways of thinking. progress on corporate governance reform, a growth in the 1990s was 2.3 percent, but major Abe economic policy objective. Senior The government is not pushing structural slowed to 1 percent during 2000–2009 management continues to be staffed by reform—the third arrow of Abenomics— because of the 2008–2009 great recession, long-term, promoted employees. In more as much as it should. Major structural and to an average 1.2 percent over 2010– than half of the 3,555 listed companies, reforms are under way—in agriculture and 2016. Much depends on the substitution retired chairmen or presidents stay on in cozy healthcare—but they represent a piecemeal of capital for labor, exemplified by business positions as advisers. The strength of this approach. Comprehensive regulatory reform investment in robotics and other labor- system is their expertise; the weakness is the has yet to take place. It is unfortunate that saving innovations. The government’s “Basic company’s conservative, inadequate pace in Abe has not so far been willing to push Policy on Economic and Fiscal Management adjusting to new circumstances. Boards of structural reform hard. Reform, 2017” announced on June 9, directors, mainly promoted from within, are places emphasis on government preschool both a main source of change and of inertia. Labor Markets and tertiary education and other programs The more entrenched the board, the lower to improve the quality of Japan’s human With 2.8 percent unemployment, Japan’s the profit performance and dividend payout resources. labor markets are the tightest in four ratios. This corporate management system decades, yet substantial increases in wages The government, companies, and educational is changing in response to the mandate to are just beginning. Part of the reason is institutions actively engage in research. have at least two independent directors and that there was considerable slack as more This includes artificial intelligence (AI), to increasing activism, albeit still modest, by Japanese entered labor markets, including connectivity, and robotics, in which Japan is domestic and especially foreign institutional married women and older workers. Total a world leader. An important focus is on stem investors. employment in 2016 was 65.6 million, and cells and regenerative medicine. In energy, The Financial Services Agency took the unemployment was 1.9 million. The number there are programs to reduce CO and 2 initiative in establishing for companies, of workers increased 1.85 million between other noxious emissions, and to slow global pension funds, and other asset managers 2012 and 2016; 1.74 million were women or warming. a voluntary Stewardship Code in 2014 65 or older. One of the country’s great strengths is and Corporate Governance Code in 2015,

14 | CJEB Annual Report 2016–2017 Not much labor supply slack remains. The two-thirds of nonregular workers are women, push up the CPI. number of employed persons increased including many married housewives. Most Management-track regular employees in both 570,000 in the year to July 2017, even as nonregular workers choose this labor market, the private sector and the government work the labor force decreased by 440,000 (both but survey data indicate about one-fifth of the long hours, which is an important part of their seasonally adjusted). The seasonally adjusted males would like a full-time regular position, corporate culture. The suicide on December job openings to job seeker ratio in August as would about a tenth of the females. Some 25, 2016, of a young management-track 2017 was 1.54, the highest in 43 years, and young workers successfully transition to employee in a major firm, classified as “death for permanent positions the ratio was 1.01, being regular workers, but the probability by overwork” (karoshi), raised the issue of the highest since this record keeping began in declines significantly with age. Survey data excessive hours worked to a new level, though November 2004. for 2015 estimate that 9.6 percent of male data are limited. Japan, with 9.2 percent of workers 34–44 years old are nonregular its employees reported as usually working 60 Segmented Labor Markets employees. The ratio for spouseless females plus hours a week, ranks second only to Korea (never-married, divorced, or widowed) is 41.6 Japan’s labor markets are multisegmented, among OECD members; the U.S. rate was 3.8 percent. and complex. Most workers are hired percent. In a Japanese government survey, employees; self-employed and family workers Earning differences are large: in 2015 full- more than a fifth of Japanese companies are 11 percent of the total. The major divide time regular workers averaged more than 50 acknowledged that some staff members is between the rigid markets for full-time percent full-time nonregular workers, and worked more than 80 hours a week. Firms are regular employees and the fluid markets benefit differences are substantial. These reducing overtime hours somewhat, despite for nonregular (fixed-term, contract, part- reflect differences in position and job, but labor shortages. One of Abenomics’ structural time, and temporary) workers who are now generally only regular employees have access reforms is to enact legislation this fall limiting 37 percent of the labor force. Markets are to the better-paying positions. Nonregular the amount of overtime. Better work-life shaped by firm size, gender, age, education, employees (especially females) are treated as balance will encourage the employment of location, and citizenship. Large listed firms marginal in many senses of the term. women. are leaders in establishing labor market The limited steps taken by employers to Adjusting to Labor practices and trends, and accordingly reduce differences are perceived as a analysis and policy focuses on them. Gender fundamental challenge by Rengo and other Shortages discrimination persists in career opportunities unions; they are giving higher priority to Companies are adjusting to labor shortages and wages. Japan allows relatively few assuring regular workers’ job security than to and higher wages in various ways. Delivery foreign workers. wage increases. services are reducing the number of daily Regular employees have guaranteed full- Seniority (age) increments in wages are deliveries. Fast food chains are ending 24 time positions with annual seniority wage important primarily for regular workers in hour service. Some firms are experimenting increases until retirement, typically still at large firms, and much less so for regular with 4-day work weeks, with longer hours age 60, when many companies rehire their workers in SMEs, and not much at all for each day. From April 2018, by law employees employees with lower wages and status until nonregular workers. Wages almost triple from who have been on fixed term contracts 65. Almost two-thirds of regular workers are hiring date to a peak at age 50–54 for regular for five years must be made permanent male. Regular employment has increased male employees in firms with a thousand employees when they ask. The government every year since 2003, even though the total or more employees, and double for regular and Keidanren have proposed that companies labor force did not change. It declined in female employees. close at 3 p.m. on the fourth Friday of every manufacturing, but was more than offset by Even though Abe has urged firms to boldly month, but that has not caught on—and it regular employment increases in the service pay higher wages, the 2017 shunto (spring) is not likely to. A new category—restricted sector. However, with slower growth and wage negotiations of major firms and regular employees—with limited working greater market uncertainties, companies companies resulted in increases of 2.02 hours and relocation assignments—is are exploring ways to lay off workers with a percent, slightly lower than in 2016. Summer emerging; they receive somewhat lower mandatory compensation package. bonuses in June were smaller than in 2016. wages and fewer fringe benefits. Nonregular workers receive lower These are macroeconomic disappointments, Labor market reforms, including womenomics, compensation, have less job security, and less since rising wages increase consumption and are an important component of Abenomics opportunity for development of skills. Some

CJEB Annual Report 2016–2017 | 15 structural reforms, but politically sensitive. Foreign Trade Pacific Partnership (TPP) and ongoing Effective implementation has been slow. uncertainties about its foreign trade policy, Abe’s grand “equal pay for equal work” In fiscal 2016 merchandise exports were Japan has become a major leader of the open statement implies that the wage and fringe 13.1 percent of GDP, while imports were international economic order. Economically benefit gaps between regular and nonregular 12.1 percent. Japan’s trade pattern combines TPP is not a make-or-break trade deal, but workers, and between male and female absolute natural resources disadvantage is symbolically important. The Japanese workers, are too wide, and the government and market-based competitive advantage. government is taking the initiative in pursuing should develop policies at least to narrow Almost 40 percent of merchandise imports an 11-member TPP, even though its impact them. However, “equal work” will probably are essential food, energy, and other natural will be substantially reduced without U.S. be defined narrowly so that even small resources. Most of Japan’s exports are high- participation. Equally important, the 2012 differences in jobs will mean they are not tech manufactured goods. As a high-saving stalled Japan-EU negotiations to eliminate equal. economy with limited profitable domestic tariffs and undertake other liberalizing investment opportunities, Japan has measures were revived in the wake of Trump’s Despite labor market tightness for both maintained a balance of payments current TPP withdrawal. In July 2017, Japan and skilled and unskilled workers, Japan maintains account surplus for more than two decades, the EU agreed to a major trade agreement, a highly restrictive policy in the use of all but increasing cyclically in 2016 to 3.8 percent though important specific issues still have to highly skilled foreign workers. Japan accepts of GDP. Concomitantly, the government be negotiated. The EU is Japan’s third-largest only minuscule numbers of permanent has accumulated official foreign exchange trading partner. immigrants, so almost all new foreign workers reserves of $1,230 billion. entering have to leave eventually. In 2016 Japan’s most troubling trade policy there were just over 1 million foreign workers Japanese companies are major foreign direct issue is how to deal with the Trump in Japan, 1.6 percent of the total labor force. investors. Firms have developed extensive administration. Given Trump’s preferences, About 38 percent are Taiwanese, Korean, foreign production chains, particularly to the U.S. presumably will seek a strong, tough and other permanent residents who are not supply overseas assembly operations, bilateral agreement which goes beyond Japanese citizens. The others work on a notably in the United States and China. The the commitments Japan had with the TPP, range of projects of up to five years, such automobile industry is a prime example. For particularly in agriculture. Of course, Japan as a technical specialists or trainees, and the past few years Japanese companies has its own opportunities. For instance, Japan 19 percent are foreign students working have engaged in foreign M&A (primarily could press the United States to eliminate the part-time. The foreign trainees category is acquisitions), but thus far with only about 25 percent tariff on pick-up and other trucks. important, though essentially they learn to a one-third success rate. Among the major work for Japanese companies. Even some economies, Japan is not as deeply integrated Energy foreign farmers are now allowed in special internationally as European countries. Indeed, Japan’s greatest economic vulnerability economic zones as specialists. the stock of inward foreign direct investment is that it has to import essentially all of its in Japan is the lowest of the 35 OECD One government goal is to have 10,000 primary energy sources. Japan is the world’s countries. elite, highly skilled foreign workers by 2020, fifth largest energy consumer, fourth largest though in 2016 there were 4,732. Similarly, Japan’s two-way trade is significantly larger oil importer, and (with a 31 percent share the government wants to attract 10,000 new with China than any other country, comprises in 2016) by far the largest LNG (liquefied Asian interns in nursing care, but they have 17.7 percent of its exports and 25.8 percent natural gas) importer. Accordingly, Japan is to pass tough Japanese language tests, and of its imports. The United States is second. a major player in global energy markets. The only 2,777 were recruited over nine years However, bilateral trade balances are an good news for Japan is that new sources through October 2016. There are a small inadequate measure. Japanese companies of supply are being developed. Fracking number of illegal foreign workers in Japan; export to China through Hong Kong and from and other technological innovation mean most probably overstayed their visas. At the operations in Southeast Asia, and to the rigidities in global energy markets and prices end of 2016 there were only 65,270 cases United States from Mexico. U.S. companies are breaking down. Successful energy of known illegal aliens. All this indicates that own some Australian iron, coal, and other conservation and population decline have Japanese policy favors Japanese female and natural resource companies exporting to been dampening demand, especially for older workers and robots to all but a small Japan. electricity. number of elite or specialized foreign workers. Given the U.S. withdrawal from the Trans- In 2015 fossil fuels provided 94 percent of

16 | CJEB Annual Report 2016–2017 Japan’s total primary energy supply: oil 43 after Saudi Arabia and Russia, shipping maintenance investment requirements means percent, coal 28 percent, and natural gas costs will not make the United States a they are not commercially feasible. As of 23 percent. Nuclear was only 0.6 percent. commercially attractive source for Japan. July 2017, 5 reactors have been restarted, Japan’s fully developed hydropower system LNG is another story. Japan’s LNG market and another 21 are under review. Experts provided 1.7 percent; solar and wind, is undergoing a major transformation in estimate it is technically possible to reopen 0.9 percent; biofuels, 2.7 percent; and response to the U.S. becoming a major LNG another 12 by 2019. However, the Abe geothermal 0.5 percent. Electricity is 28 producer through fracking. U.S. producers administration probably does not have the percent of total energy consumption, higher can efficiently export to Japan with large political will to reopen plants that rapidly. than most countries. The percentages for tankers utilizing the expanded Panama Canal. Even if Japan reopens 18 reactors by 2025, electricity generation are: natural gas 39 that would generate only 10 percent of Japan faces major energy conundrums in percent, coal 34 percent, oil 8 percent, Japan’s projected electric power demand, electric power generation. Coal is cheap but, nuclear 0.9 percent, hydro 8.4 percent, solar substantially below its 25.3 percent share in despite technological improvements, still 3.6 percent, wind 0.5 percent, biofuels 4.1 2010. significantly polluting. Reopened nuclear percent, and geothermal 0.3 percent. power plants are the most inexpensive source In addition to providing the services

Given Japan’s unrelenting dependence of electricity, with no CO2 emissions, but they required to reopen plants, Japan’s on fossil fuel imports, Japanese energy face strong opposition. The government’s nuclear power industry has other major strategy involves a complex set of trade-offs 2015 strategy realistically projected that business opportunities, Toshiba’s among security of supply, prices and costs, by 2030 the share of oil would decline from travails notwithstanding. Dismantling of environmental protection, and safety of 13.7 percent to 3 percent while solar and decommissioned plants is expensive and will operations. Since some electric power plant wind rise from 10.7 percent to 24 percent. take decades. Japanese companies export investments have 40 to 60 year lives, policy However, the government optimistically nuclear power plants and technology to makers face not only decisions about current and unrealistically assumed nuclear would China and Europe. They have joint ventures prices and supplies, but also about the much dramatically increase from 1 percent to 20– with foreign companies which operate longer run. Policy aims to determine the 22 percent as existing reactors reopened. nuclear power plants in their own countries; appropriate energy mix among coal, oil, gas The projections of LNG use to drop from 43.2 so far Japanese power companies do not (mainly LNG), nuclear and renewables (mainly percent to 27 percent and coal from 30.3 operate nuclear facilities abroad. Japanese solar and wind). Put simply, coal is cheap percent to 26 percent, are accordingly too companies have the commercial development but environmentally dirty; oil is essential for low. of the ESBWR (economic simplified building transportation and heating; LNG is not easy water reactor) under way and are developing Nuclear power plants are Japan’s electric to transport; existing nuclear is safe and a next-generation boiling water reactor. It is power industry’s great economic opportunity clean with no CO emissions but following unclear how competitive they will be in the 2 and major political challenge. Existing Fukushima perceived to be very risky; longer run. reactors are Japan’s cheapest source of hydropower is already well developed; solar electric power. No Japanese have died from The dynamic LNG market is a major driver and wind are still costly but are expected Fukushima radiation, while hundreds die of the global energy revolution. Large new to achieve lower costs, subject to land every year from air pollution. Reactor plant supply sources are now being developed availability. safety standards in Japan are among the in the United States, Australia, and Papua While coal and LNG are abundant and widely highest in the world. Expert consensus is New Guinea, resulting in a supply glut and dispersed globally, that is not true of oil. In that nuclear power is and will be very safe in low LNG prices for the next several years. To 2016, 86.6 percent of Japan’s oil came from Japan. But that does not allay the concerns ensure the security of supply, LNG projects the Middle East; Saudi Arabia is the main of a vocal part of the public. Political and historically have been developed under source. This oil has to be transported though legal objections to reopening plants are long-term contracts, with specific tankers vulnerable sea lanes and chokepoints. Japan substantial. transporting only to a specific, specialized is the world’s largest LNG importer; almost LNG facility, and with prices linked to oil The ongoing issue is how many of Japan’s 63 percent is imported from Australia and prices. nuclear reactors will be reopened. Fifteen Southeast Asia. have already been decommissioned, and Some 80 percent of Japan’s LNG imports Even though the United States in 2018 will another one or two will be every year. Others in 2016 were still under such long-term become the world’s third largest oil producer, may be operational, but current safety and contracts. METI’s strategy is to create a

CJEB Annual Report 2016–2017 | 17 much more flexible LNG market, including indicates that Japan is about average in 35–44. For spouseless women, they are 30 spot markets, and to develop Japan as an income, wealth, jobs, community, education, percent and 52 percent, respectively. LNG trading hub. Japan fully deregulated its and safety, but below average in housing Poverty is a complex interaction among industrial gas market in April 2017, including for developed countries. Japanese are economic, social, family, and personal residences and SMEs. It remains to be seen less optimistic than people in many other considerations, with no single predominant whether an LNG trading hub will develop. OECD countries. Only 35 percent say they cause. The UK-based Community Carte LNG prices are no longer linked to oil, and are in good health, even though they have System (CCS) survey provides annual socio- countries have more flexible terms, including a comprehensive health system and the economic information for nine of Japan major destinations and opportunities for resale. world’s second-highest life expectancy. On districts (small cities and poor Tokyo wards) This is important because from 2017 until a scale from 0 to 10, Japanese grade their for 2011–2016. The detailed survey covers 2021 Japanese companies apparently have life satisfaction as 5.9, below the OECD 6.5 more than 40 risk factors and 30 resilience contracted for more LNG purchases than average. Japan’s income inequality is about factors to escape from poverty. Being raised demand forecasted in Japan. Also, demand in the OECD middle. In 2015 the income of in a poor family is important, particularly for LNG will be dampened to the extent the top 20 percent of its population was 6.1 without positive involvement by parents; even nuclear plants come back on line. times that of its poorest 20 percent; the Gini more important is the difficulties in learning coefficient was 0.33. In June 2017, the government accelerated at school, due to native ability and motivation, its ongoing program to upgrade dams to While Japan is a prosperous country, poverty as well as an inhospitable school and social increase electric power generation, control continues to be a significant reality. Japan environment. Personal depression or anxiety floods, and further improve water resource uses the OECD definition of poverty: those significantly reduces the chances of escape management. Projects include significantly whose income is less than one-half the from poverty. Being withdrawn and socially increasing the height of some dams, reducing national median income. The OECD estimates incompetent are further characteristics of and controlling accumulating sediments for that 16.1 percent of Japan’s population poor people—and, of course, others as well. water flowing to dams, and other operational lived in relative poverty in 2016, the seventh Japan’s social security system is activities. Nonetheless, new hydropower will highest in the OECD some 20.4 million. Given comprehensive, but focused on the elderly. not be sufficient enough to replace old fossil that Japan has a standard of living close to Japanese poor participate in the universal fuel plants. the OECD average, and per capita income healthcare system, and those over 65 receive that has increased over time, the incomes of Japanese companies, with the support of a central government pension. All children are many poor Japanese have risen. Poverty is an METI, have 10 major coal power plants required to attend school until age 15, and all important but partial measure of Japanese scheduled to open in 2020 to replace their parents receive government support of well-being, which also depends on sense of old facilities. The new plants use cleaner ¥5,000 to ¥15,000 monthly depending on personal identity, health, wealth, education, technologies. In April 2016, the government family income. Single parents also receive a family relations, and the degree of social decided that all new major coal power monthly child-raising allowance ranging from support among and other determinants. plants must use ultra-supercritical (USC) ¥10,000 to ¥42,330, with smaller amounts technology. However, even this method Japanese poverty ranges from, at one for each additional child, depending upon generates about twice as much C02 and other extreme, the small number of homeless income. However, fees make high school pollutants as comparable LNG plants. Carbon (mostly older men) to families (often single expensive, offset only in part by zero-interest capture and storage technologies are being mothers) with children barely able to scrape loans. developed, but remain too expensive to be by. Public policy focuses mainly on the rising Government social security expenditures used commercially. Despite objections from numbers of elderly, especially those living were 21.6 percent of GDP. Almost half the Ministry of the Environment since 2015, alone, and on children in poverty-stricken (16.3 percent of GDP) was payment of more new coal power plants will be built families. Survey data indicate that for regular pensions to those 65 and older. A third (7.1 during the next two decades. workers aged 25 to 44, about 6 percent percent of GDP) was in support of Japan’s of males and 7 percent of females live in universal healthcare system. The government Well-being and Poverty poverty. For nonregular workers the situation budgeted about a fifth of its social security is much worse, especially for spouseless Most Japanese have safe, comfortable lives. expenditures (4.2 percent of GDP) for its women. For men aged 25–34, 23 percent The average per capita income in 2016 Basic Livelihood Protection (seikatsu hogo) live in poverty, rising to 32 percent for those was $27,323. The OECD Better Life Index program. Of the 1.65 million households

18 | CJEB Annual Report 2016–2017 receiving this support, almost half (803,000) enter into the debate over future government per hour depends in part on increases in were elderly, 253,000 were infirm, 150,000 budget deficits and further consumption capital and labor skills, the key in advanced handicapped, and 104,000 single-parent tax or other tax increases. It is noteworthy countries is total factor productivity (TPF). households. While the number of households that Abe is proposing the 2019 tax increase The government’s revitalization plan is based receiving this assistance increased in the two revenues be used for childcare and related on the assumption that TFP can be increased years to May 2017 by 17,000, the number social services. from a fiscal 2016 rate of 0.6 percent to of individual recipients decreased by 31,000. about 2.2 percent, the 1983–1993 rate, Elderly single households are an increasing Conclusion generating real GDP of 2 percent growth share of the poor. by 2020. I am skeptical that such high TFP Japanese have excellent education, and growth rates can be achieved. Despite Japan is ranked 34th of 41 developed transportation, and other infrastructure substantial R&D expenditures, there are not countries in UNICEF’s child poverty index, facilities. By far most are in good health; enough profitable investment opportunities released in April 2016, with a child poverty Japanese life expectancy is the second being created. With a declining and aging rate of 15.8 percent in 2012. About half of highest in the world. Yet, Japan ranks only in population, achieving annual GDP growth those children lived in poor households with about the middle of the 35 OECD advanced of about 1 percent would constitute good two or more adults. Single-parent (91 percent country member economies on the OECD performance, not sluggishness. That would the mother) comprise 1.6 percent of all Better Life Index both because it began from be consistent with historically good GDP households; about half are poverty stricken. a lower base, and a Japanese modesty in per capita growth of about 1.5 percent. It is assessing their own health and happiness. Education is the main escape route from important to remember that the measure of poverty. Poor children go to compulsory Japan has recovered from the media-hyped economic well-being is GDP per person. school through 15, and most continue on “Japan disease” of slower than potential To my surprise, on net balance I think the through regular high school or technical growth, small but persistent deflation, and rising percent of the labor force of nonregular (vocational) high school. Most drop-outs a rapidly increasing rate of government employees is probably good, not bad. Most, remain in relative poverty throughout their debt to GDP. Indeed, output per worker per including married women and older workers, lives. The government’s program begun in hour (labor productivity) since 2000 was do not want to work full time. The number 2015 to help poor people become self- 1.36 percent, above the G7 average. More of full-time regular workers is not declining; reliant handled 60,892 cases in fiscal importantly, the economy has recovered from their positions are not disappearing. The 2016. The program provides job training, the 2008-09 Great Recession and the 2014 real problem is the large wage gap between housing assistance, financial advice, and increase in the consumption tax. The growth regular and nonregular workers doing education assistance for children. As the rate in 2017 will be higher than fiscal 2016’s essentially the same job. CCS survey indicates, it is the degree of good 1.3 percent. Not only is the unemployment performance in school and then in occupation rate a low 2.8 percent, most potential female I have confidence in the Japanese people, the and lifestyle that shapes whether Japanese and older workers are now employed. Wages country’s institutions, and its fundamentally escape poverty. are beginning to increase, although less and good policies. They face many challenges. And they will prevail. A major ongoing political issue concerning at a slower pace than I expected. government welfare payments is the future Japan’s fundamental challenge is size for pensions of all older citizens and of demographic. Most young Japanese want September 29, 2017 what age they become eligible for pensions. two children, but when a stable population The elderly are everywhere and likely to size will be achieved is a long-run issue. Until vote. Poverty-stricken children are not very then, the population will age and decrease. noticeable, especially since their parents These projections are well understood. Their typically ensure their kids are dressed as well resolution will necessitate major social and as others. The media continue to point out economic adjustments that are only beginning that as the working-age population decreases to take place. and the share of the elderly increases, the The slowdown in labor productivity growth burden on taxpayers will rise; current pension throughout the advanced economies is a levels will not be sustainable. This is not a major challenge. While output per worker near-term budget issue, but inevitably it will

CJEB Annual Report 2016–2017 | 19 Current Research Highlights

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

Promoting research related to the Japanese with the Bank of International Settlements on United States, Australia, China, Korea, and economy, businesses, management systems, the global demand and supply of bank credit, Europe, and is a participant in numerous and financial markets is crucial to CJEB’s which uses confidential banking data to track two policy dialogues with and in Japan, mission. Typically, the Center’s core faculty understand the global transmission of bank- China, Taiwan, Korea, and the United States. members obtain funding individually through ing system shocks. In addition to his academic writings, he reg- competitive outside grants, and the Center ularly publishes op-eds for The Wall Street In addition, Professor Weinstein has been also provides additional financial and admin- Journal, the Financial Times, and numerous working on understanding the fiscal problems istrative support in order to facilitate their publications in Japan and elsewhere. He is that Japan is facing and why they have not research. a frequent guest on Japan’s Sunday morn- resulted in a crisis. This research aims to bet- ing news programs and is widely quoted by David E. Weinstein leads the Center’s ter understand how Japan has managed its international media outlets on issues relating research activities and has several individ- demographic transition. to Japanese politics and society and U.S. ual projects under way supported in part by Professor Weinstein has also been working foreign policy. the National Science Foundation (NSF), the with data from Rakuten to analyze the impact Institute for New Economic Thinking (INET), Takatoshi Ito contributes to the Center’s of ecommerce on prices and employment in and a Google Research Grant. Professor research activities and has several individual Japan. In addition, Professor Weinstein has Weinstein’s research and teaching focus on ongoing research projects. Professor Ito’s been working on how barcode and other big international economics, macroeconomics, research and teaching focus on international data sources can be used to understand firm, corporate finance, the Japanese economy, finance, foreign exchange market micro- price, and macroeconomic dynamics. He has and industrial policy. In addition to his role as structure, Asian financial markets, inflation a project that uses confidential Census trade CJEB’s director of research, he is the director targeting, and the Japanese economy. transactions data to understand trade pat- of the NBER Japan Project, cosponsored Professor Ito also maintains a teaching and terns in general and the sources of Chinese by CJEB. Professor Weinstein was also the research position during the summer at the success in international markets. chair of Columbia University’s Economics National Graduate Institute for Policy Studies Department. Professor Weinstein’s research is often cited in Tokyo. His research focuses on three broad and discussed in the media, and he is a fre- themes: international finance, the Japanese In 2016–2017, Professor Weinstein contin- quent commentator on Japan. economy, and the Asian financial markets. He ued his research on systemic financial risk in has carried out a series of research projects Japan. He has a major project under way that Gerald L. Curtis’s main research includes on the dynamics of the exchange rates in aims to illustrate how banking crises affect the evolution of and future prospects for various time spans and frequencies. He has aggregate investment. This paper, which Japan’s political system and foreign policy. done macroeconomic analysis of the yen/ is forthcoming in The Journal of Political In this regard, he has traveled extensively dollar exchange rates after the rate floated in Economy, shows how problems in individual throughout East and Southeast Asia. He is a 1973. Currently, he is examining the micro- banks result in aggregate loan volatility and frequent speaker at think tanks, universities, structure of the foreign exchange markets investment. He is also working on a project business and financial organizations in the using a tick-by-tick dataset, which contains

20 | CJEB Annual Report 2015–2016 all firm quotes and deals in a computerized policy advice related to, economic and finan- Hugh Patrick continues his study of Japan’s order-matching engine. He is researching cial issues in Southeast Asia, in particular current economic performance, monetary how particular institutions and rules in the Thailand, Indonesia, Korea, and Myanmar. He policy, and institutional changes. His most market influence pricing and deal activities. continues to visit these countries to engage recent paper is his annual essay on the in academic and policy discussions. He has current Japanese economy, included in this His work on the Japanese economy includes been doing research, as well as teaching, annual report, starting on p. 10. He is an both macro- and microeconomic aspects of on inflation targeting and exchange rate active participant in a range of conferences the economy. On monetary policy, he was a regime and financial and capital markets about Japan and Asia. He made trips to proponent of inflation targeting in Japan, long development in the Asian emerging market Japan in fall 2016 and spring 2017, and to before the Bank of Japan finally adopted it in economies. Korea in spring 2017, and had meetings with 2013. He is investigating transmission chan- senior policy advisors and business leaders. nels and the effects of quantitative easing Merit E. Janow, appointed dean of the adopted by the four major central banks. On School of International and Political Affairs fiscal policy, he has been analyzing the debt (SIPA) in 2013, researches financial regula- sustainability of Japanese government debts. tory reform as well as international trade and He has been conducting a simulation analysis investment. Over the past two years, she has of a menu of fiscal consolidation with varying spoken to international corporate, academic, degrees and speeds. On growth strategy, he and policy audiences on topics including investigates various reform plans in regulated financial regulatory reform in the United industries from agriculture and education to States, developments in international trade medical and health care. He combines theory and investment, comparing Chinese and and empirical research and derives policy Japanese industrial policies, and corporate implications. governance issues. As dean, she also has initiated a number of new initiatives around He belongs to a research group at the the intersection of technology and policy, Research Institute of Economy, Trade, and the development of sound capital markets, Industry on Japanese exporters’ decisions and global urban policies. She is continuing to pass through the exchange rate changes a research project on China that focuses on on export and destination prices. He is sources of tension and opportunity in China’s also a special member of the Council on external economic relations. Customs, Tariff, Foreign Exchange, and other Transactions at the Ministry of Finance, Curtis J. Milhaupt’s most recent publica- Japan. Professor Ito organizes internationally tions are “Bonded to the State: A Network acclaimed seminars, such as the NBER East Perspective on China’s Corporate Debt Asian Seminar on Economics in June 2016. Market” (Journal of Financial Regulation); “Governance Challenges of Listed State- He served as chair to the study group on Owned Enterprises Around the World” reforming public pension funds in Japan. A (Cornell International Law Journal); and report from his group, recommending port- “Evaluating Abe’s Third Arrow: How folio rebalance away from Japanese govern- Significant are Japan’s Recent Corporate ment bonds and toward more risk assets, Governance Reforms?” (forthcoming in the has been very influential in the subsequent Journal of Japanese Law). change of the Government Public Investment Fund. Alicia Ogawa continues her private consulting work on Japan’s politics and econ- Professor Ito’s involvement in Southeast omy, teaching at SIPA, and working at the and East Asian economies dates from the Maureen and Mike Mansfield Foundation. time of Asian currency crisis in 1997–1998. She continues to be in high demand as a pub- He has done research on, as well as given lic speaker.

CJEB Annual Report 2016–2017 | 21 Faculty Engagement

David E. Weinstein speaking at CJEB Tokyo Conference

CJEB actively supports Columbia University CJEB cosponsored a symposium with CBS’s Japanese teachers on youth development faculty members who are not formally asso- Richard Paul Richman Center for Business, and the Japanese economy. This lecture, ciated with the Center by promoting dialogue Law, and Public Policy, titled “Is the Glass cosponsored by Teachers College, helped between the business, professional, aca- Ceiling Dented, Cracked, Broken or Firmly in promote and exchange ideas on the American demic, and cultural communities in the United Place?” (more details on p. 33). This sympo- education system and the reforms being States and Japan. CJEB funds Japan-related sium presented a discussion on the barriers made to prepare youth for the 21st century. research and explores ways to incorporate women have overcome in the workforce, the In fall 2016, CJEB hosted two lunches the study of the Japanese economy and challenges that still remain, and what compa- where Columbia faculty members discussed business systems into faculty research and nies and individuals can do to resolve these monetary and fiscal policies with two mem- teaching. We foster collaboration and use our challenges. CJEB also held its annual Japan bers from the Bank of Japan (BOJ). The first extensive network of Japanese professional Economic Seminar (see p. 54) on February faculty lunch was held on September 12, contacts to arrange for speakers from the 10, 2017, highlighting several paper topics 2016, and featured Sayuri Shirai, a Columbia private, academic, and government sectors on the Japanese economy. CBS associate University PhD and former member of the to give lectures to the Columbia community. professor of business and economics Emi policy board at the BOJ, who shared her CJEB faculty have access through CJEB to Nakamura was a discussant for the paper thoughts on the Bank’s decision to move various Japan-related databases for use in “Estimating Japan’s Gross Domestic Income toward negative interest rates. Columbia their research. Additionally, where appropri- Based on Taxation Data,” presented by faculty members included Emi Nakamura ate, CJEB can fund and arrange faculty trips Hiroyuki Fujiwara, director of the Research and Patricia Mosser, senior research scholar to Japan. and Statistics Department at the Bank of at the School of International and Public Japan. Affairs (SIPA). CJEB held the second faculty CJEB often cosponsors programs with other lunch on November 10, 2016, where Yutaka Columbia Business School (CBS) centers CJEB’s support and collaboration for fac- Harada, member of the policy board at the and invites faculty members to participate ulty research also extends outside the BOJ, discussed the effects of deflation on as speakers or panelists for our various Business School faculty. On August 4, 2016, Japan’s economy and how the Bank’s mone- public programs. On November 29, 2016, Professor Hugh Patrick gave a lecture to 30 tary expansion will recover from stagnation.

22 | CJEB Annual Report 2016–2017 Columbia professor Patricia Mosser was also Associate Professor of Modern Japanese present at this faculty lunch. Politics and Foreign Policy at Columbia University, served as moderators for these On November 29, 2016, CJEB hosted a lectures. zadankai seminar, “The Evolution of Bank Regulation and Supervision After the Recent CJEB continues to work with the Jerome Global Financial Crisis” (see p. 38), featur- A. Chazen Institute for Global Business ing Masamichi Kono, who is senior advisor and CBS’s student-run Japan Business at KPMG AZSA LLC; executive fellow at Association (JBA) to support the annual Japan Securities Research Institute; for- travel of a CBS faculty leader on the Chazen mer vice minister for International Affairs International Study Tour to Japan. In spring at the Financial Services Agency in Japan; 2017, CBS faculty members Marilena and adjunct research scholar at Columbia Botoulas, assistant dean for financial aid, University’s SIPA. This event was cospon- and Christopher Castiglione, adjunct assis- sored by SIPA’s Initiative on Central Banking tant professor of business, led the study and Financial Policy, and Christine M. tours. Cumming, central banker in residence and adjunct professor at SIPA, served as the discussant. CJEB and the Weatherhead East Asian Institute (WEAI) of Columbia University also cosponsored three lectures encom- passing discussions on the U.S. election outcome and the implications on the impact on Japanese politics and the U.S.-Japan relationship (see pp. 39–40) in December 2016 and January 2017. Gerald L. Curtis, Burgess Professor Emeritus of Political Science, and Takako Hikotani, Gerald L. Curtis Visiting

Alicia Ogawa, David E. Weinstein, Patricia Mosser, Emi Nakamura, Sayuri Shirai, Hugh Patrick, Takatoshi Ito

CJEB Annual Report 2016–2017 | 23 Research Paper Series

CJEB fosters dissemination of research optimally select the uninformed board if on products and exports from the Japanese on Japan’s economy and business within the CEO is reluctant to communicate with Census of Manufactures. The data are more Columbia and in the broader academic, busi- the informed board for fear it will reject disaggregated than comparable U.S. data ness, professional, and public policy commu- the CEO’s decision. The uninformed board and available at the annual frequency (while nities. While much of the research produced is also optimal when the board has a suffi- U.S. product-level data are only available at by scholars affiliated with the Center ulti- ciently large private benefit of monitoring five-year intervals), which makes their data mately appears in scholarly books and pro- the CEO, the shareholders feel burdened more suitable for examining the interaction fessional journals, early drafts of the work by any conflict between the CEO and the between the business cycle and firm-prod- and research results can be found in CJEB’s board, or the firm is involved in many unre- uct dynamics. The paper demonstrates find- Working Paper (WP) Series. We also accept lated businesses, especially when the inside ings where positive macroeconomic shocks interesting, topical papers not slated for information is valuable and the firm needs in total factor productivity, government eventual publication in our Occasional Paper many outsiders to observe useful outside demand, and real exchange rates strongly (OP) Series. Papers in both series are avail- information. Professor Isaka uses some of increase the number of products. able for free download through our website these implications and casual observation of at www.gsb.columbia.edu/cjeb/research, real-world data to discuss recent trends in which links to the Columbia University the board structure of Japanese firms. WP 355 Libraries’ Academic Commons website. In the Eye of the Storm

WP 354 William Rapp, Henry J. Leir Professor of International Business, New Jersey Institute 2016–2017 Product Dynamics and Aggregate Shocks: of Technology Working Papers Evidence from Japanese Product and Firm-Level Data October 2016 WP 353 Robert Dekle, Professor of Economics, There is considerable angst today about the When Are Uninformed Boards Preferable? University of Southern California U.S. trade deficit and challenges to the U.S. Atsushi Kawakami, Associate Professor Naoto Isaka, Professor, Sophia University position centers on China. It is notable that Teikyo University many of these issues echo concerns about July 2016 Nobuhiro Kiyotaki, Professor of Economics, Japan in the early 1980s. An analytic review Princeton University of U.S. negotiations with Japan during the In this paper, Naoto Isaka analyzes the Tsutomu Miyagawa, Professor, Gakushuin critical period from January 1981 through optimal choice of board of directors using University and Faculty Fellow, RIETI the Plaza Accord in September 1985 the dual-role model of boards in Adams and offers a useful reminder of unintended con- Ferreira (2007). In his model, shareholders July 2016 sequences, and of how events can evolve choose either an informed board that brings Conceptually linking product adding and within a context of both micro decisions and additional private information to the firm or dropping to business cycles goes back to at larger political and economic forces. This is an uninformed board that merely considers least Shumpeter. In this paper, the research- an insider’s view, as the author was commer- the inside information already available ers examine the effects of shocks to aggre- cial counselor at the U.S. Embassy in Tokyo within the firm. The board then randomly gate productivity, foreign demand, govern- from 1983 to 1985. chooses a good chief executive officer (CEO) ment expenditures, and demand for foreign with inside information or a bad CEO with- liquidity on the dynamics of products of het- out such information, and the CEO decides erogeneous firms. Their structural empirical WP 356 whether to consult with the board when specifications connecting macroeconomic making a project decision. Professor Isaka shocks to product dynamics are based on Lessons From Koizumi-Era Financial shows that shareholders generally choose a neoclassical dynamic general equilibrium Services Sector Reforms the informed board to maximize firm value model (Dekle, Kiyotaki, and Jeong, 2014). Naomi Fink, CEO, Europacifica Consulting by utilizing the private information available They first constructed unique firm-level data to the board. However, the shareholders and RMIT University

24 | CJEB Annual Report 2016–2017 November 2016 on the relative impacts on subsequent firm by another related policy (a scrap-and- viability of loans by bank types with differ- build constraint on investment) was also Japan’s “lost decades of growth” owe to ent incentives to evergreen loans. observed. As a result, this skillfully-designed insufficient countermeasures to address policy scheme was, on the whole, far from a (a) demographic changes and (b) belated welfare-enhancing scheme. and incomplete adaptation of the services WP 358 sector in particular to globalization. The combination of a strong bureaucracy, a high Are Picked-up Losers Really Losers? WP 359 level of per-capita GDP at the outset, and Evidence from Scrapping Policies in the redistributive dynamics between industrial Japanese Spinning Industry, 1965–79 A New Governance Framework for Global sectors have softened the impact of defla- Financial Regulation? Takafumi Korenaga, Associate Professor, tionary shocks but allowed policy immobil- Senshu University; Visiting Fellow, CJEB Masamichi Kono, Adjunct Research Scholar, ism to flourish. The Koizumi reform agenda School of International and Public Affairs, was successful in resolving Japan’s banking May 2017 Columbia University crisis and endeavored to capitalize on this Scrapping policy induces or forces firms success to go beyond financial services June 2017 to dismantle and dispose of “excessive” reform, as well as to implement capital mar- machines and was a typical policy tool for Nearly 10 years since the outset of the ket reform. depressed or declining industries in postwar global financial crisis, it is high time to Japan. This paper examines the effects of take stock of the progress made in terms this policy on the Japanese spinning indus- of global financial regulatory reform and to WP 357 try from 1965 to 1979 using firm-level assess the overall, cumulative effects of Lending to Unhealthy Firms in Japan data. After clarifying features in the policy reform. This article, after providing a brief During the Lost Decade: Distinguishing scheme, Professor Korenaga first calculated overview of the history of post crisis reform, between Technical and Financial Health the productivity and (capital) profitability presents a set of principles to be followed of a specified machine targeted by the in regulatory reform for the financial sector, Suparna Chakraborty, Associate Professor scrapping policy by estimating the produc- going forward. It puts forward some ideas of Economics, University of San Francisco tion function with data from the production for improving the organizational structure Joe Peek, Vice President and Economist, stage. Then, several forms of (dis)investment and governance of the global regulatory the Federal Reserve Bank of Boston, and Research Associate, CJEB functions were estimated to examine the reform process, stressing the importance direct effect on investment under policy of global standards as developed by stan- February 2017 implementation and the indirect effect on dard-setting bodies such as the Basel post policy investment through the firm’s Committee, IOSCO and IAIS, with the G20/ This paper investigates the misallocation of revelation of the expected long-term return FSB leading and coordinating the process. credit in Japan associated with banks’ ever- on investment. The former effect crucially It goes on to suggest providing a stronger greening loans, distinguishing between two depended upon whether scrapping was legal foundation for the entire process by types of firm distress: (perhaps temporary) compulsory or voluntary, as well as on the making use of a treaty-based regulatory financial distress and technical distress, coverage of targeted machines. Compulsory framework, while retaining sufficient flex- which reflects weak operational capabilities, scrapping distorted a firm’s investment ibility at the national level. It proposes to as indicated by low total factor productivity. decisions more than voluntary scrapping. achieve this goal by combining a princi- It shows that previous evidence related to Regarding the latter effect, firms picked up ples-based legal framework with a set of firms’ financial health is problematic due to by voluntary scrapping in a certain period technical standards that supplement and the mixing of loan-demand and loan-supply were shown to be losers still investing less augment the principles and provides some effects. Using a direct measure of opera- or disinvesting in the post treatment period. practical ideas to facilitate international tional health, the paper provides unambigu- Firm exits also had a certain role in cutting agreement in the current political environ- ous, direct evidence of evergreening behav- down the unprofitable machines. Distortions ment. ior, as well as confirming evidence based

CJEB Annual Report 2016–2017 | 25 2016–2017 Program on At the end, the paper brings all of these sep- contributions. Pension financing models arate strands together, with a view to for- differ internationally, reflecting differences Public Pension Working mulating some general observations about in individual countries’ attributes such as Papers how the best-in-breed public pension and population composition, social solidarity, sovereign wealth funds within our universe and national attitudes toward risk-sharing, WP 1 have evolved with respect to governance social insurance programs, and entitlement Public Sector Investment Funds: How the and investment strategy. Specifically, the to retirement income. This report leaves the Best-in-Breed Evolved paper tries to determine whether the 10 issue of institutional design to other papers funds in question have been converging onto and mainly examines public pension plan Andrew Rozanov, Associate Fellow, Chatham one model, or whether their experiences governance and investment, two areas in House suggest increasing divergence. This section which global consensus on best practices February 2017 can effectively be viewed as a distillation exist to at least some extent. of some preliminary recommendations for This paper looks at the evolution of 10 pub- the less advanced funds, based on what lic pension and sovereign wealth funds that the researchers believe to be an emerging have been on the cutting edge of innovation consensus around best practices in public 2016–2017 Occasional and best practice with respect to gover- sector fund management. Papers nance and investment management. The analysis is based on an inductive approach, OP 74 proceeding from specific observations to WP 2 Review of Yoshio Suzuki’s Difficulties and general principles. In particular, the paper Challenges, Japan’s Post-War History of reviews 10 case studies of individual funds Public Pension Fund Governance and Monetary Policy and Economic Trends from three regions—Northern Europe, Investment: Update and Critique Canada, and Australasia. The researchers Comparing Japan’s GPIF with Foreign Hugh Patrick, R. D. Calkins Professor of look at three funds in Canada and one each Peers International Business Emeritus; Director, in Australia, the Netherlands, Denmark, CJEB Sadayuki Horie, Senior Researcher, Nomura Norway, New Zealand, Singapore, and Research Institute June 2017 Sweden, using the same template for each entity. February 2017 This is a book review edited by Hugh Patrick of a significant book in Japanese on postwar Public pension fund management has under- The paper starts with a brief description monetary policy by Dr. Yoshio Suzuki, who gone major changes globally over the past of the fund and explicates its liability pro- for many years played a leading intellectual two decades. Pension fund management file, covering the source of funding and role at the Bank of Japan. The review is mainly involves (1) institutional design, (2) the intended use for the assets. It then based on a substantive summary provided governance, and (3) investment. Approaches reviews the fund’s current governance by Dr. Suzuki. The book discusses the post- to institutional design, the main focus of arrangements, with a particular emphasis war economic performance of Japan in the which is pension finance, differ internation- on how these may have helped or hindered context of monetary policy and its imple- ally. The two main models of public pension the fund’s investment professionals in their mentation. For the Bank of Japan, these 70 finance are prefunding and pay-as-you-go. activity. It then looks at the evolution of the years are indeed a repetitive succession of Japan has adopted a predominantly pay-as- fund’s investment strategy, focusing in par- difficulties and challenges, and of resulting you-go model, where current labor force particular on asset allocation and portfolio con- successes and failures. The book has three ticipants essentially fund retirees’ pension struction. The paper concludes each case sections: “Japanese Economy and Monetary benefits. However, in anticipation of chang- by highlighting a feature unique to the fund Policy in the Developing Period”; “Setbacks ing demographics, namely the change in the in question, which the researchers believe of the Japanese Economy”; and “New elderly dependency ratio, Japanese public is worthy of further study and emulation by Challenges of Monetary Policy.” their less advanced peers. pension plans have prefunded reserves to cover benefit payments in excess of

26 | CJEB Annual Report 2016–2017 CJEB PROGRAMS

Program on Public Pension and Sovereign Funds

With imposed stress on public pension systems across advanced economies due to the growth in aging populations, many countries have created or reformed public pension funds to finance future shortfalls in pension contributions. Under the guidance of Professor Takatoshi Ito, CJEB established this program in order to examine and conduct extensive research on how public pension funds and sovereign wealth funds should be structured, both in portfolio and governance. The program evaluates public pension fund reforms across Japan and other global economies, with an aim toward deriving lessons for Japan to enhance its Government Pension and Investment Fund (GPIF). Similarly, the GPIF can serve as a model for structuring Panelists speaking at CJEB’s Conference on Public Pension and Sovereign Funds other public and quasi-public pension funds in Japan and other emerging market economies with the intention of setting up or reforming sessions: “Investment Challenges in the Best-in-Breed Evolved” by Andrew Rozanov its own funds. Environment of Secular Stagnation”; “Best (p. 26); and “Public Pension Fund Governance Practices: The Case of GPIF”; and “Seeking and Investment: Update and Critique This year, the PPPSF program held its inau- Alpha—The Role of Alternatives in Asset Comparing Japan’s GPIF with Foreign Peers” gural conference on April 12, 2017, titled Allocation.” The PPPSF program also pro- by Sadayuki Horie (p. 26). “Conference on Public Pension and Sovereign duced two working papers in February 2017: Funds” (see p. 26), which encompassed three “Public Sector Investment Funds: How the

Corporate Governance and Stewardship Program

As a major policy to promote structural invested companies, in order to guide and In 2016–2017, CJEB held two zadankai reforms, Prime Minister Abe introduced accelerate the evolution of Japan’s corporate seminars for its Corporate Governance and the Corporate Governance Code and the culture. Through a series of public programs Stewardship Program: “Will New Governance Stewardship Code in order to encourage and papers led by Alicia Ogawa, this pro- Rules Change the Japanese Boardroom?” (p. Japanese firms to innovate and invest, gram initially focuses on an analysis of the 40) and “Household Asset Diversification for and for shareholders to actively monitor governance structure of the most innovative Japan’s Economic Growth” (p. 41). and promote those efforts. The Corporate Japanese companies and how it has contrib- Governance Code is designed to increase uted to their status as leading competitors in transparency and accountability in Japanese the global market. The program’s mission is corporate management, and the Stewardship to inspire best practices among other firms Code is designed to encourage investors in Japan as they consider new approaches to to engage in active discussion with their governance.

CJEB Annual Report 2016–2017 | 27 The New Global Financial Architecture

Building on CJEB’s “Program on Alternative the broader context of the global financial This year, CJEB held a number of NGFA Investments,” which ran successfully from system and all of its major players. Topics events, including seven at Columbia 2002 to 2009, the Center established a include, but are not limited to, financial sys- University: “Private Views on Japanese program in July 2009 titled “The New Global tem restructuring; development of national Government Corporations” in October Financial Architecture” (NGFA). The purpose and international regulatory systems; effec- 2016; “The Evolution of Bank Regulation of the NGFA program is to engage in analyt- tive governance, supervision, and monitoring; and Supervision After the Recent Global ical and policy-oriented evaluations of major the operations of and interactions among Financial Crisis” in November 2016 (p. 38); global financial and economic issues and reg- specific financial markets; the relationships “Will New Governance Rules Change the ulatory changes through conferences, brain- between finance and the performance of the Japanese Boardroom?” in February 2017 (p. storming sessions, and research activities, economy; and the nature and role of govern- 40); and, in April 2017, “Household Asset with a major emphasis on Japan. ment and monetary policies. Diversification for Japan’s Economic Growth” (p. 41), “Special Lecture with Minister Aso,” The program brings together distinguished The NGFA program began with CJEB’s seed and “Recent Developments in the Global finance and economics professors at funding, and in 2011, Aflac Japan became Markets” (p. 41). Finally, “Japan’s Global and Columbia Business School (CBS) and other the first sponsor. The Center continues to Domestic Futures: The U.S. Relationship and parts of the University with scholars and seek a small number of appropriate sponsors FinTech” (p. 30) was held as part of the NGFA financial market participants in the United inclined to make significant annual commit- program in Tokyo in May 2017. States, Japan, Europe, and China. While ments for three years. We encourage anyone emphasis is placed on Japan and the United interested in becoming involved in the NGFA States, the program also concentrates on program to contact us.

28 | CJEB Annual Report 2016–2017 Each year, CJEB organizes and hosts numerous major conferences, symposia, lectures, seminars, and workshops EVENTS that feature distinguished speakers. These programs provide an important educational platform for students, academics, members of the private sector, and policymakers from Japan and the United States. The 2016–2017 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

Front row, left to right: Hugh Patrick, Takatoshi Ito; second row: PPPSF advisor Don Allison, Kevin Bong, Richard Clarida, John Gandolfo, Joyce Chang, Fiona Stewart, Sadayuki Horie, Hilda Ochoa-Brillembourg, Bob Prince; back row: Geoffrey Rubin, Andrew Rozanov, Norihiro Takahashi, Chris Schindler, William Kinlaw

Conference on Public panel session, “Seeking Alpha—The Role of School of International and Public Affairs, Alternatives in Asset Allocation,” the panel- Columbia University; Global Strategic Pension and Sovereign ists discussed and identified optimal asset Advisor, PIMCO Funds mix and how these alternatives would fair in Geoffrey Rubin, Managing Director and Head today’s environment. April 12, 2017, The Italian Academy, of Portfolio Construction and Research, Columbia University Welcoming Remarks Canada Pension Plan Investment Board

This was the inaugural conference of CJEB’s Hugh Patrick, Director, CJEB, Columbia Session 2: Best Practices: The Case of Program on Public Pension and Sovereign Business School GPIF Funds (PPPSF). CJEB director Hugh Patrick Takatoshi Ito, Professor, School of Moderator: Takatoshi Ito gave opening remarks and briefly intro- International and Public Affairs, Columbia duced the program. The director of PPPSF, Panelists: University, and Director, Program on Public Takatoshi Ito, who is also a professor at the Pension and Sovereign Funds, CJEB School of International and Public Affairs Sadayuki Horie, Senior Researcher, Nomura Research Institute (SIPA) at Columbia University, followed with Session 1: Investment Challenges in an more details about the program and its find- Environment of Secular Stagnation Andrew Rozanov, Associate Fellow, Chatham ings so far and then went on to introduce the House three panels. In the first panel, “Investment Moderator: Lawrence Summers, Charles W. Challenges in an Environment of Secular Eliot University Professor, Harvard University Fiona Stewart, Lead Financial Sector Specialist, Finance and Markets, the World Stagnation,” the panelists discussed the cur- Panelists: rent investment environment and the main Bank challenges with portfolio management. The Kevin Bong, Senior Vice President, second panel, “Best Practices: The Case Economics and Investment Strategy, GIC of GPIF,” featured a dialogue on Japan’s Joyce Chang, Global Head of Research, JP Government Pension Investment Fund Morgan Chase & Co. (GPIF), the major reforms that took place, and how the GPIF can serve as a model for Richard Clarida, C. Lowell Harriss Professor other countries’ pension funds. In the final of Economics and International Affairs,

CJEB Annual Report 2016–2017 | 29 Lawrence Summers Left to right, top: David Asher, Takatoshi Ito, Yuko Kawai, Masaaki Tanaka Left to right, bottom: Merit E. Janow, David E. Weinstein, Nobuchika Mori, Hugh Patrick, Alan Wm. Wolff, Gerald L. Curtis

Norihiro Takahashi, President, Government Japan’s Global and Deputy Trade Representative, and senior Pension Investment Fund counsel at Dentons US LLP, also delivered Domestic Futures: The U.S. the keynote address on the political and Session 3: Seeking Alpha—The Role of Relationship and FinTech economic relationship between the U.S. and Alternatives in Asset Allocation Japan. Ambassador Wolff expressed cautious May 25, 2017; Otemachi Financial City Moderator: Hilda Ochoa-Brillembourg, optimism that this close trade relationship Conference Center, Tokyo, Japan Founder and Chairman, Strategic Investment would continue under the current adminis- Group CJEB presented its annual Tokyo half-day tration. He noted that there is no strong indi- conference featuring business, government, cation as to what the Trump administration Panelists: and academic leaders from Japan and the will do when it comes to trade relations with Scott Evans, Deputy Comptroller for Asset United States. Japan. However, if bilateral negotiations are Management and Chief Investment Officer, to begin, Japan would have to address the Nobuchika Mori, commissioner of Japan’s New York City Retirement Systems U.S. deficit with Japan in merchandise trade, Financial Services Agency and a long-time as well as other trade issues. Ambassador John Gandolfo, Chief Investment Officer, friend of the Center, delivered the keynote Wolff reiterated his firm belief that the United the World Bank Group Staff Retirement and address on financial technology (FinTech) States and Japan can form a unique and Benefit Plans innovations in Japan and beyond. Mr. Mori remarkable partnership. first addressed the recent and potential William Kinlaw, Senior Managing Director and developments in FinTech by posing six major Welcoming Remarks Global Head, State Street Associates questions. Then, Mr. Mori stated that there Hugh Patrick, Director, CJEB Bob Prince, Co-Chief Investment Officer, were many other questions that needed to Bridgewater Associates be addressed as the development of FinTech Keynote: Will FinTech Create Shared Values? progresses. He reaffirmed that the attitude Speaker: Nobuchika Mori, Commissioner, Chris Schindler, Managing Director, Portfolio of the Japan Financial Services Agency Financial Services Agency Management and Asset Allocation, Ontario should be as innovative as the industry play- Teachers’ Pension Plan ers, and that one must not be averse to ask- Moderator: David E. Weinstein, Director of ing questions that cannot yet be answered. Research, CJEB Ambassador Alan Wolff, chairman of the National Foreign Trade Council, former U.S.

30 | CJEB Annual Report 2016–2017 Nobuchika Mori Alan Wm. Wolff

Panel I: The Future of Japanese Financial Speaker: Alan Wm. Wolff, Chairman, National The Japan Project Services and Industry with FinTech Foreign Trade Council; Former U.S. Deputy Trade Representative; Senior Counsel, Meeting with Joint ESRI Panelists: Dentons US LLP International Conference David L. Asher, Senior Vice President Moderator: Hugh Patrick July 31–August 1, 2017; Asian Development for Strategy and Financial Services, Bank Institute, Tokyo, Japan SparkCognition Inc. Panel II: U.S.-Japan Economic Relations under the New U.S. Administration The Japan Project meeting is held annually by Yuko Kawai, Head of FinTech Center, CJEB in partnership with the National Bureau Payment and Settlement Systems Panelists: of Economic Research (NBER), the Center for Department, Bank of Japan Alan Wm. Wolff Advanced Research in Finance (CARF) at the Yutaka Matsuo, Co-Director, Chair for Global University of Tokyo, and the Australia-Japan Gerald Curtis, Burgess Professor Emeritus of Consumer Intelligence; Project Associate Research Centre (AJRC) at the Crawford Political Science, Columbia University Professor, The University of Tokyo School of Public Policy of the Australian Merit E. Janow, Dean, School of International National University (ANU). Professor Masaaki Tanaka, Senior Global Advisor, PwC and Public Affairs, Columbia University Weinstein organized this two-day academic International conference with Professors Shiro Armstrong Akihiko Tanaka, President, National Graduate Moderator: Takatoshi Ito, Professor, School of ANU, Charles Horioka of the University Institute for Policy Studies of International and Public Affairs, Columbia of the Philippines, Takeo Hoshi of Stanford University, and Tsutomu Watanabe of the University Moderator: David E. Weinstein University of Tokyo. The organizers are grate- Keynote: The U.S.-Japan Relationship and Closing Remarks ful to the Asian Development Bank Institute American Trade Policy for its generous assistance and support. David E. Weinstein The ESRI International Conference, sponsored by the Economic and Social Research Institute (ESRI) of the Cabinet office of the Government of Japan, is held jointly with the

CJEB Annual Report 2016–2017 | 31 Japan Project meeting every year. This year’s Product Turnover and Deflation: Evidence Presenters: Masahiro Hori, ESRI; Tsuruga ESRI Conference was titled “The Global from Japan Takayuki, Kyoto University Decline in Growth Rate and Possible Policy Authors: Kozo Ueda, Waseda University; Commentator: Justin Wolfers, University of Responses.” Kota Watanabe, Meiji University; Tsutomu Michigan Please see below for the agendas for both Watanabe, University of Tokyo Second Session: Japan’s Debt the Japan Project and the ESRI Conference. Discussant: David Atkin, Massachusetts Sustainability Reassessed Institute of Technology and NBER Presenter: David Weinstein, Columbia Outcaste Politics and Organized Crime in University The Japan Project Meeting Japan: The Effect of Terminating Ethnic Commentator: Hisakazu Kato, Meiji Subsidies Welcome Remarks by University Authors: J. Mark Ramseyer, Harvard Naoyuki Yoshino, Dean, Asian Development Third Session: On Womenomics University; Eric B. Rasmusen, Indiana Bank Institute University Presenter: Betsey Stevenson, University of Government Spending Multipliers under Michigan Discussant: Chiaki Moriguchi, Hitotsubashi the Zero Lower Bound: Evidence from University Japan Commentator: Naohiro Yashiro, Showa Women’s University Information Frictions, Inertia, and Authors: Wataru Miyamoto, Bank of Canada; Selection on Elasticity: A Field Experiment Thuy Lan Nguyen, Santa Clara University; Fourth Session: Panel Discussion on Electricity Tariff Choice Dmitriy Sergeyev, Bocconi University Coordinator: Atsushi Seike, ESRI Authors: Koichiro Ito, University of Chicago Discussant: Valerie A. Ramey, University of Panelists: Austan Goolsbee, University and NBER; Takanori Ida, Kyoto University; California at San Diego and NBER of Chicago; Motoshige Itoh, Gakushuin Makoto Tanaka, National Graduate Institute University; Kazumasa Iwata, Japan Center Identifying Neighborhood Effects among for Policy Studies (GRIPS) for Economic Research; Anil Kashyap, Firms: Evidence from Location Lotteries of University of Chicago Discussant: Tatsuo Hatta, Asian Growth the Tokyo Tsukiji Fish Market Research Institute Author; Kentaro Nakajima, Hitotsubashi

University; Kensuke Teshima, Instituto Tecnológico Autónomo de México ESRI International Discussant: Andrew B. Bernard, Dartmouth Conference: “The Global College and NBER Decline in Growth Rate and On Large-Scale Money Finance in the Possible Policy Responses” Presence of Black Markets: A Case of the Japanese Economy During and Keynote: Immediately after World War II Austan Goolsbee, Robert P. Gwinn Professor Author: Makoto Saito, Hitotsubashi of Economics, The University of Chicago University Booth School of Business

Discussant: Raymond Fisman, Boston First Session: “The Expert Survey on the Size of Japan’s Fiscal Multiplier” University and NBER David E. Weinstein speaking at a CJEB lecture and “Fiscal Multiplier Estimated from Prefectural Data”

32 | CJEB Annual Report 2016–2017 Symposia

Masatsugu Nagato Yasushi Kinoshita

Private Views on Japanese Administration to simplify government; the Is the Glass Ceiling Dented, government has found it useful to have a Government Corporations government-controlled organization that Cracked, Broken, or Firmly October 6, 2016; International Affairs keeps the credit markets liquid for long-term in Place? investments. Building, Columbia University November 29, 2016; Uris Hall, Columbia As part of the Center on Japanese Economy Mr. Nagato’s remarks, titled “Japan Post Business School and Business (CJEB)’s 30th anniversary Privatization: The Political Intention and the CJEB hosted this special symposium featur- public program series, CJEB invited two Business Effects,” covered the privatization ing remarks by Jean Afterman, senior vice prominent speakers to share their views of Japan Post Holdings, which oversees president and assistant general manager on former Japanese government corpora- Japan Post Group, which in turn includes of the New York Yankees; Michelle (Mick) tions: Masatsugu Nagato, president and postal service, bank and insurance groups. Lee, CEO and founder of WINiT; and Mary CEO of Japan Post Holdings Co., Ltd., and There are 24,000 post offices in Japan, Harman, managing director of Enterprise Yasushi Kinoshita, deputy president of and its bank is the largest financial institu- Payments of the Bank of America. Jennifer the Development Bank of Japan Inc. Hugh tion in Japan aside from the central bank. Hill, MBA ’94, former chief financial officer Patrick, director of CJEB, introduced the Mr. Kinoshita offered his remarks, titled for Global Banking and Global Markets at speakers and moderated the discussion. “Blending Finance to Grow: The Public- Bank of America, moderated the discussion. Professor Patrick first noted that the pri- Private Partnership in Developed Economies,” All speakers agreed that the glass ceiling vatization of Japan Post Holdings began in describing his experience at the DBJ. The has certainly been dented for women. More 2005 when Junichiro Koizumi was Prime DBJ was created to support Japanese women are on boards, are CEOs of compa- Minister, and its trajectory continues; how- industry rehabilitation after World War II and nies, and involved in all levels of government. ever, due to excessive political pressure by underwent a series of regulatory reforms All shared their views and experiences objec- local postmasters who rejected this change, in recent years. Most recently, to obtain a tively on how far women have really come, it has been a slow process. The Development more profitable asset portfolio, DBJ became what the remaining challenges are, and more. Bank of Japan (DBJ) was also privatized in privatized and invested in high-risk debt They also touched on issues such as work life 2007 as part of an effort by the first Abe products.

CJEB Annual Report 2016–2017 | 33 From left to right: Jean Afterman, Mary Harman, Michelle Lee, Jennifer Hill Yoshiyuki Sankai speaking at annual Mitsui USA symposium

balance, company policies to ensure more the discussion. Dr. Sankai discussed the chal- diverse leaders, and employment laws. The lenges of developing Cybernic Systems for audience joined a lively discussion of these social innovation. He also noted that interna- issues. This symposium was cosponsored tional collaboration has been essential to the by the Richard Paul Richman Center for development and dissemination of Cybernic Business, Law, and Public Policy, Columbia Systems—hybrid technological systems that University. improve, support, expand, and regenerate humans’ brain-neuro-physical functions. A goal of Dr. Sankai’s company is to solve social problems such as aging by creating Social Innovation with innovative devices and systems and also to Innovative Cybernic make them more financially accessible. Dr. Systems: Challenges to Sankai shared a few cases of patient success Shape the Future “Society and demonstrated the Cybernic System, Medical HAL, for the audience. In addition 5.0” to his position at CYBERDYNE, Dr. Sankai holds a professorship at the University of The 18th Annual Mitsui USA Symposium Tsukuba, where he is also the director for the April 11, 2017; Uris Hall, Columbia Business University’s Center for Cybernics Research School (CCR).

At the 18th Annual Mitsui USA Symposium, Yoshiyuki Sankai, president and CEO of CYBERDYNE, Inc., shared his vision for social innovation given his experience in developing and marketing Cybernic Systems. His vision consisted of Cybernic interface devices including the world’s first cyborg- type robot, “HAL.” Hugh Patrick, director of CJEB, introduced Dr. Sankai and moderated

34 | CJEB Annual Report 2016–2017 Lectures

Kosuke Motani, Photo © Japan Society/Daphne Youree Takatoshi Ito

Brewing Success: Secrets Moving Beyond Money implementing satoyama capitalism in Japan. Shawn Escoffery, director of Strong Local of a Japanese Sake Capitalism: Japan’s Economies at the Surdna Foundation, pre- Business Alternative Economic sided over this program. The main organizer was the Japan Society, and CJEB was a October 4, 2016; International Affairs Model of Satoyama co-organizer. Building, Columbia University Capitalism

JASSA and the Center on Japanese Economy Japan Society Corporate Program Powers of Nominal and Business hosted a sake lecture and October 5, 2016; Japan Society, New York, Variables—Japan’s tasting event featuring Yoshihisa Kita MPA NY ’17. Faced with a declining population and Experiences of a Quarter overall decreasing demand for sake in Japan, Japan is facing unprecedented and extraordi- Century Deflation many companies are seeking opportunities to nary challenges: Japan’s massive government November 10, 2016; Schermerhorn Hall, expand their products into the global market. debt, slow economic growth rate, demo- Columbia University Mr. Kita’s family has operated a traditional graphic shifts, and deadly earthquakes and sake brewery for almost 200 years, spanning tsunamis. In the midst of all this, satoyama Yutaka Harada, a member of the policy board more than 10 generations. He shared details capitalism, an alternative economic model at the Bank of Japan, was a special guest lec- of his experience in his family’s brewery that focuses on fostering self-sustaining local turer for David Weinstein’s course, “Economic through a series of sake-related events in the economies, has been attracting immense Developments of Japan.” Dr. Harada opened New York area. He explained the hidden his- attention in Japan. In particular, rural areas his lecture on Japan’s economy and monetary tory of sake brewing and business in Japan. are embracing this new concept by utilizing policy since the 1980s and how its economic Various types of sake were also available for locally available resources, technology, and growth rate has fallen to the lowest among tasting for all attendees. infrastructure to restore their vitality. In this other advanced economies since the 1990s. program, Kosuke Motani ’94, chief research He then went on to discuss if deflation economist at the Japan Research Institute caused the decline in real GDP growth rate and author of the best-selling book Satoyama and Japan’s economic developments after the Capitalism, discussed the paradigm shift introduction of QQE. He concluded his lec- toward satoyama capitalism and the concept ture by stating the economy will likely recover behind this economic model. He also shared from stagnation due to Japan’s current mone- best practices and examples of communities tary policy. This lecture was specifically open

CJEB Annual Report 2016–2017 | 35 Rona Tison Minister Taro Aso with Columbia University students to students of Professor Weinstein’s course reform, though the third arrow’s policies also The History and Business and a great opportunity for students inter- include various reforms in capital markets ested in the Japanese economy to learn more and education. As a result of the current Trends of Matcha Green Tea about the Bank of Japan’s policies. growth rate, many economists, who include December 2, 2016; International Affairs Professor Ito, do not suggest a continuation Building, Columbia University of massive fiscal stimulus. Instead, this low, but steady, growth rate could be the new nor- Rona Tison, senior vice president of cor- The Invisible Arrow of mal for the Japanese economy unless labor porate relations and PR at ITO EN (North Abenomics: Structural input—employment and hours—increases America) INC., gave an informative and Reform and Innovation dramatically. Improving labor market condi- educational presentation on ITO EN’s history tions are telling us that the economy is near and business, especially focusing on Matcha November 30, 2016; International Affairs full employment and entering a stage of labor green tea in the U.S. market. ITO EN is a Building, Columbia University shortage. A labor shortage would constrain multinational beverage company from Japan the economy from growing faster and thus specializing in tea production and distribu- Takatoshi Ito, professor at SIPA and direc- must be addressed. Professor Ito concluded tion and sales of innovative beverages and tor of the Program on Public Pension and by expressing the hope that women, the is a global leader in premium green teas. Ms. Sovereign Fund at CJEB, gave a review of elderly, and foreign workers will rescue Japan Tison’s lecture was followed by the tasting the state of Abenomics, and particularly, from labor shortage and slow growth. David of some of their green tea products. This lec- the uncertainty surrounding its “third arrow,” E. Weinstein, CJEB’s director of research ture was organized by JASSA (Japan Study in his second annual lecture at CJEB. and Carl S. Shoup Professor of the Japanese Student Association) at SIPA in cooperation Professor Ito began by noting that, of the Economy at Columbia, opened and moder- with ITO EN. CJEB also cosponsored this three arrows—monetary easing, fiscal stim- ated the event. This was Professor Ito’s third event. ulus, and structural reforms—many people annual lecture on the Japanese economy. are skeptical of the third: that it may never be fired at all. He noted that the third arrow is not the only one with troubles: the first arrow has not raised the inflation rate to 2 percent yet, and the first and second arrows have resulted in a labor shortage. Professor Ito focused his remarks on labor market

36 | CJEB Annual Report 2016–2017 Minister Taro Aso speaking at a CJEB lecture From left to right: David E. Weinstein, Takatoshi Ito, Taro Aso, Hugh Patrick

Bank of Japan’s Business Special Lecture with than ever, U.S.-Japan economic ties are important. The day before his lecture at Operations and Functions Minister Aso Columbia, Minister Aso met with Vice April 7, 2017; Uris Hall, Columbia Business April 19, 2017; International Affairs President Mike Pence in Tokyo to launch the School Building, Columbia University U.S.-Japan economic dialogue and further deepen the economic ties between the two Mr. Hiroyuki Kanno, a CJEB Visiting Fellow Minister Taro Aso, deputy prime minister, countries. Minister Aso is confident about and associate director-general and head of minister of finance, and minister of state for working with Vice President Pence on this the Planning and Coordination Division at the financial services of Japan, discussed the initiative and cited the automobile trade Operations Department of the Bank of Japan, current state of the Japanese economy, his between the two countries as an example. gave a private lecture to Columbia students role in guiding the economy, and the progress He concluded his speech by stating that he is to discuss the Bank of Japan’s mission, its Japan has made in recent years. He began optimistic about Japan’s future. Hugh Patrick role as a central bank in Japan, and how it the lecture by stating Japan did not lose two provided opening remarks, and Takatoshi Ito works in conjunction with the current govern- decades to stagnation but instead gained served as moderator. David E. Weinstein gave ment administration to implement monetary two decades. For the past 20 years, while closing remarks and thanked Minister Aso policies. This lecture provided a great intro- Japan’s economy did not grow, it underwent for an engaging discussion that gave new duction to the Bank of Japan and how it oper- a quiet revolution. According to Minister Aso, insights into Japan’s future. ates. Students from CBS, SIPA, Columbia the way the Ministry of Finance operates has Japan Society (CJS), and those who have changed significantly, as it holds no say over demonstrated interest in the Bank of Japan’s the financial industry, since the Financial operation attended this lecture and took this Services Agency now exists. In terms of as an opportunity to connect with the BOJ its budgeting process, the power is shared executive. between the Ministry of Finance and the Prime Minister’s Cabinet Office, and adding the operation independence of the Bank of Japan into the picture, the Japanese government is in a much different place from what is was 25 years ago.

Minister Aso is determined to push for reform, and progress is being made. More

CJEB Annual Report 2016–2017 | 37 Lunchtime Seminars

Kazuhito Yamashita Masamichi Kono

CJEB organizes a series of lunchtime sem- According to Dr. Yamashita, Japan’s agricul- Masamichi Kono, Senior Advisor, KPMG inars on campus for students, faculty, and ture policy needs major restructuring and AZSA LLC; Executive Fellow, Japan members of the Columbia and New York reform in order to stimulate Japan’s economic Securities Research Institute; Former Vice community. These include zadankai, or infor- growth. The current agriculture policy has Minister for International Affairs, Financial mal discussions, which involve lengthy ques- led to the development of many inefficient, Services Agency, Japan tion-and-answer periods with the audience small-scaled, and part-time farmers in the Discussant: Christine M. Cumming, Central and are geared toward presenting new and rice industry and are heavily protected by Banker in Residence and Adjunct Professor, insightful angles for understanding Japanese the JA (Japanese Agricultural Cooperatives). School of International and Public Affairs, business and economic issues; and brown Given recent developments with the Trans- Columbia University; Former COO and First bags, in which CJEB collaborates with other Pacific Partnership (TPP), JA and many farm- Vice President, Federal Reserve Bank of New organizations on campus to sponsor talks ers oppose TPP in fear that it will damage the York featuring a diverse range of topics related Japanese agriculture industry. This caused to Japan. Seminars held in 2016–2017 the Abe administration to partially reform the Moderator: Takatoshi Ito, Professor, School included: JA and reduce its political influence, which of International and Public Affairs, Columbia Dr. Yamashita suggested by restructuring JA University; Director of the Program on Public as joint stock companies or by eliminating the Pension and Sovereign Funds, CJEB high rice price. Will TPP Cause the Fall Mr. Kono presented his views on the recent of Japan’s Powerful evolution of financial regulation and super- Agricultural Cooperatives? vision based on his experience in working The Evolution of Bank with the Minister for Financial Services at Zadankai Regulation and Supervision the Financial Services Agency (FSA). He discussed the progress of regulatory reform, September 27, 2016; Uris Hall, Columbia After the Recent Global shaped by the recent global financial crisis, Business School Financial Crisis and the challenges faced in implementing greater transparency and accountability in Kazuhito Yamashita, Ph.D., Research Zadankai Director, The Canon Institute for Global financial institutions. He then addressed the Studies November 29, 2016; Warren Hall, Columbia G20 countries’ commitment to enhancing Business School supervision on financial institutions in order Moderator: Hugh Patrick, Director, CJEB to prevent future crises and concluded the

38 | CJEB Annual Report 2016–2017 Satoru Murase Hitoshi Tanaka

lecture by giving his perspective on how to to consider alternative strategies to attract Moderator: Takako Hikotani, Gerald L. Curtis increase investment growth and development more investors and compete globally. Despite Visiting Associate Professor of Modern in Asia. its successes, there are still many challenges Japanese Politics and Foreign Policy, that prevent the reform from being fully Columbia University effective, such as the weak enforcement This lecture was the first of three lectures of the Corporate Governance Code and focused on how the U.S. presidential elec- Has There Really Been Stewardship Code and the difficulty in funda- toral process was viewed from Japan. a Japanese Corporate mentally restructuring a company in Japan. Hitoshi Tanaka, chairman of the Institute for Mr. Murase concluded that Japanese corpo- Governance Revolution? International Strategy at the Japan Research rations, shareholders, and investors need to Institute, Ltd., spoke about how Japan’s Zadankai take the initiative instead of relying only on security will be affected under Trump’s pres- the government to devise policies to improve December 1, 2016; Uris Hall, Columbia idency. Professor Takako Hikotani, Gerald corporate governance in Japan. Business School L. Curtis Visiting Associate Professor of Modern Japanese Politics and Foreign Policy Satoru Murase, Partner, Morgan, Lewis & at Columbia University, moderated this Bockius LLP U.S. Presidential Election: event. This event was also cosponsored by Moderator: Hugh Patrick, Director, CJEB the Weatherhead East Asian Institute at The View from Japan— Columbia University. A key component of the Abenomics plan Implications for Asian to revitalize economic growth in Japan is corporate governance reform. According to Security Mr. Murase, while the change in Japanese Brown Bag U.S. Presidential Election: corporate governance has not been revolu- The View from Japan—The tionary, there has been a tremendous evolu- December 13, 2016; International Affairs tionary change in its system and practices. Building, Columbia University Impact on Japanese Politics The current reform has had a number of Brown Bag Hitoshi Tanaka, Chairman, Institute for successes, including the increase in return International Strategy, The Japan Research on equity (ROE) and the number of outside January 19, 2017; International Affairs Institute, Ltd. directors within companies, and a positive Building, Columbia University change in attitude from corporate leadership

CJEB Annual Report 2016–2017 | 39 From left to right: Toshihiro Nakayama, Arthur M. Mitchell, Satoru Komiya

Satoshi Machidori, Professor, Kyoto January 23, 2017; International Affairs Will New Governance Rules University Building, Columbia University Change the Japanese Moderator: Takako Hikotani, Gerald L. Curtis Toshihiro Nakayama, Professor, Keio Boardroom? Visiting Associate Professor of Modern University Japanese Politics and Foreign Policy, Zadankai Moderator: Gerald L. Curtis, Burgess Columbia University Professor Emeritus of Political Science, February 27, 2017; Uris Hall, Columbia This lecture focused on how the U.S. elec- Columbia University Business School toral process was viewed from Japan and The Japanese public paid very close attention Arthur M. Mitchell, Senior Counselor, Tokyo, how it will influence Japan’s politics, featur- to what was going on in the U.S. presidential White & Case LLP ing Satoshi Machidori, professor at Kyoto election of 2016, first out of curiosity, then University, as the speaker. After the lecture, Moderator: Alicia Ogawa, Director, Project with growing alarm. Following the unex- JASSA held a workshop on Japanese poli- on Japanese Corporate Governance and pected election result, Prime Minister Abe tics. This event was moderated by Professor Stewardship, CJEB was quick to respond. He had no hesitation Takako Hikotani, Gerald L. Curtis Visiting in meeting President-elect Trump, whereas Associate Professor of Modern Japanese As a non-Japanese board member of a in Europe, leaders were more cautious. Politics and Foreign Policy at Columbia Japanese megabank, Arthur Mitchell shared Professor Toshihiro Nakayama, professor at University. This event was also cosponsored his views on corporate governance reform Keio University SFC and adjunct fellow at the by the Weatherhead East Asian Institute at in Japan and its affect on the Japanese Japan Institute of International Affairs, gave Columbia University. boardroom. According to Mr. Mitchell, out- a presentation focusing on how Japan viewed side directors and corporate boards should the election and how Japan sees Japan-U.S. engage by asking questions to ensure relations in the new administration. Professor accountability and transparency in the com- U.S. Presidential Election: Gerald L. Curtis, Burgess Professor Emeritus pany’s relationship with its stakeholders. The View from Japan—The of Political Science at Columbia University, Financial institutions can play a significant opened and moderated this event. It was Future of the U.S.-Japan role in encouraging this by having more open cosponsored by the Weatherhead East Asian consultation and conversations with outside Alliance Institute at Columbia University. directors regarding corporate strategy, risk management, business planning, and capital Brown Bag allocation.

40 | CJEB Annual Report 2016–2017 compared to other countries such as the U.S. With Japan’s current challenges of a declining birth rate and aging population, expenditures for social security and public pensions are becoming an imminent problem. According to Mr. Kubo, in order to maintain a healthy economy and combat these challenges, it is important to encourage the diversification of individual household assets in investments. The Financial Services Agency introduced plans like NISA, a tax exemption program for small investments, in an effort to encourage the transfer of household assets toward investments. Core securities companies like SMBC Nikko Securities are expanding their Tetsuya Kubo Hiroshi Watanabe businesses to assist in this mission.

Tokio Marine Group’s corporate strategy is to globalize its group management by introducing common policies Recent Developments in the Corporate Strategy: and cross-function systems, developing new Global Markets The Future Direction of products and services, and cultivating human Japan’s Leading Insurance resources and organization. Zadankai Company April 25, 2017; Uris Hall, Columbia Business School Zadankai Household Asset Hiroshi Watanabe, President, Institute for March 23, 2017; Uris Hall, Columbia Diversification for Japan’s International Monetary Affairs Business School Economic Growth Moderator: Hugh Patrick, Director, CJEB Satoru Komiya, Managing Executive Officer, Zadankai Mr. Watanabe explained his position on R&D Department, Tokio Marine Holdings, Inc. the current assessment of the economic April 6, 2017; Warren Hall, Columbia Moderator: Hugh Patrick, Director, CJEB and political developments in Japan as it Business School responds to external turbulence in the United Mr. Komiya shared his views on how Tetsuya Kubo, Chairman of the Board, SMBC State, China, and Europe. He also shared his Japanese companies should develop new cor- Nikko Securities Inc. strategic ideas for Japan to restructure its porate strategies to compete in a changing system and governance toward an increas- world economy. By using Tokio Marine as an Moderator: Alicia Ogawa, Director, Project ingly aging society. Finally, he discussed example, he demonstrated how the company on Japanese Corporate Governance and Japan’s contribution to ASEAN and other transformed itself and succeeded as a lead- Stewardship, CJEB Asian economies, with due consideration of ing non-life insurance company in Japan by More than half of Japan’s household assets supply chains formed in Asia. expanding its global footprint through multi- are held in cash and deposits, making the ple acquisitions across the U.S. and Europe. rate of return extremely low, especially In order for Tokio Marine to further globalize with the introduction of the Bank of Japan’s its business, the company must continue to negative interest rate policy. About 16 per- deliver on its promises to clients, diversify cent of assets are allocated in investments risks, and seek further growth opportunities. or risk money, which is a small percentage To achieve these initiatives, Tokio Marine’s

CJEB Annual Report 2016–2017 | 41 RESOURCES

Faculty Advisory Committee

CJEB’s Faculty Advisory Committee was Fangruo Chen Merit E. Janow formed to provide insight and guidance to MUTB Professor of International Business Dean CJEB’s governance, research, teaching, and Columbia Business School Professor of Professional Practice, outreach activities. The diversity of intellec- International Economic Law and tual focus among the committee members is Wouter H. Dessein International Affairs key to furthering CJEB’s mission of serving Eli Ginzberg Professor of Finance and School of International and Public Affairs as a comprehensive forum for collaboration Economics Co-Director, APEC Study Center and reflection on Japan, the United States, Professor, Heilbrunn Center for Graham and Columbia University and the global economy. CJEB directors Dodd Investing receive valuable advice and recommenda- Columbia Business School tions on potential opportunities to expand Bruce M. Kogut and develop the Center. In addition to Hugh Robert J. Hodrick Sanford C. Bernstein & Co. Professor of Patrick and David E. Weinstein, the mem- Nomura Professor of International Finance Leadership and Ethics bers of the Committee are: Academic Advisory Board Member, Program Director, Sanford C. Bernstein & Co. Center for Financial Studies for Leadership and Ethics Charles W. Calomiris Columbia Business School Columbia Business School Henry Kaufman Professor of Financial Institutions Sheena S. Iyengar Faculty Director, Program for Financial S. T. Lee Professor of Business Studies Columbia Business School Columbia Business School

42 | CJEB Annual Report 2016–2017 2016–2017 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 prestigious business schools in a top-ranking university while experiencing the dynamic Tetsuro Asakawa Tatsuya Goto Satoshi Inoue Naoto Isaka lifestyle of New York City. The 2016–2017 Kyushu Sangyo Nikkei Inc. Sumitomo Mitsui Sophia University Visiting Fellows are: University July 2016–June Trust Bank, Limited August 2015–July August 2016– 2017 June 2016–May 2016 September 2016 2017

Tomohiro Jitsui Yusuke Kataoka Satoru Komiya Takafumi Korenaga Masako Kurosawa Mayuko Morinaga Tokai Tokyo MinebeaMitsumi Tokio Marine Senshu University National Graduate Tokai Tokyo Securities Co., Ltd. Inc. Holdings, Inc. April 2016–March Institute for Policy Securities Co., Ltd. Studies (GRIPS) October 2015– September 2016– April 2016–March 2017 August 2015– February 2017– August 2016 May 2017 2017 March 2017 February 2018

Akiko Osawa Mariko Oyabu Masazumi Wakatabe Kentaro Yajima Yuki Yazumi Ministry of Finance, Sumitomo Mitsui Waseda University Mitsui Sumitomo Hyogo Prefectural Japan Trust Bank, Limited March 2017–April Insurance Co., Ltd. Credit Federation October 2016– May 2017–May 2018 July 2016–June of Agricultural April 2017 2018 2017 Cooperatives May 2017–May 2018

Hiroyuki Kanno Hiroki Koike Bank of Japan National Tax Agency June 2016–May September 2016– 2017 June 2017 Joint Fellow with Joint Fellow with the Weatherhead the Weatherhead East Asian Institute East Asian Institute (WEAI) of Columbia (WEAI) of Columbia University University

CJEB Annual Report 2016–2017 | 43 2017 Visiting Fellow Reunion Reception

CJEB held its annual Visiting Fellow Reunion Reception on May 24, 2017, at the Orizuru Mai Room at the Hotel New Otani in Tokyo. The reunion was cosponsored with CBS Alumni Relations and the Admissions Office, where more than 120 CJEB Visiting Fellows, CBS alumni, and incoming and prospective students attended the reception. The reception commenced with welcoming remarks by CBS Senior Associate Director of Individual Giving Kelly Garvey. She then introduced their Columbia Business School Club of Japan (CBSCJ) representative, Hajime Kosai ’96, who spoke on behalf of Katsuya Takanashi ’69, president of CBSCJ. CJEB’s director, Hugh Patrick, then gave brief remarks, welcoming the CJEB Visiting Fellows and alumni, followed by a toast by Kazuho Tanaka, a former CJEB Visiting Fellow and former administrative vice minister of finance at the Ministry of Finance and Tokio Marine & Nichido Fire Insurance’s current advisor. CJEB’s director of research, David Weinstein, concluded the reception.

Hugh Patrick speaks at CJEB Visiting Fellow Reunion

2017 Annual Visiting Fellow Business Field Trip

On March 3, 2017, CJEB hosted its annual spring business field trip for its Visiting Fellows. The trip started off with a tour of Bloomberg’s unique New York office in the morning. Afterward, the Visiting Fellows took a quick train ride over to Long Island City to hear a presentation hosted by the Long Island City Partnership. The organization shared interesting facts and information about the area and community and its development initiatives and involvement in Long Island City. The Visiting Fellows were then introduced to the local food scene by dining at Oro, an up-and-coming restaurant featuring classic Italian dishes. The trip concluded with a tour of JetBlue Airways Corporation, the iconic U.S. airline company, where our Visiting Fellows had the opportunity to hear about the company’s unique operations, marketing efforts, and history.

CJEB directors, staff, and Visiting Fellows at JetBlue Airways Corporation

44 | CJEB Annual Report 2016–2017 CJEB Annual Report 2015–2016 | 44 Research Associates

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

CJEB Annual Report 2016–2017 | 45 Professional Fellows

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

46 | CJEB Annual Report 2016–2017 International Advisory Board

The International Advisory Board provides overall guidance for CJEB. Members are distinguished leaders in the fields of Japan-U.S. economic, business, and political relations.

Richard Folsom Representative Partner Advantage Partners, Inc.

Shinji Fukukawa Former Vice-Minister Japanese Ministry of International Trade and Industry Senior Advisor Global Industrial and Social Progress Research Institute Chairman Board of Trustees Toyo University

Yasushi Kinoshita Deputy President Development Bank of Japan Inc.

Charles D. Lake II Chairman and Representative Aflac Japan President Aflac International

Yuzaburo Mogi ’61 Honorary CEO and Chairman of the Board, Kikkoman Corporation

Toshikazu Nambu Yasushi Kinoshita speaking at a CJEB symposium Senior Managing Executive Officer, Sumitomo Corporation

Atsushi Saito Chairman, KKR Japan Limited

Taisuke Sasanuma Representative Partner Advantage Partners, Inc.

Joseph G. Tompkins ’67 President, Saga Investment Co., Inc.

CJEB Annual Report 2016–2017 | 47 PROMOTING EXCHANGE OF IDEAS

CJEB in the News

CJEB and its academic directors are regu- Takatoshi Ito Professor Ito Sees Japan Near 2% larly featured in the media, providing their Inflation by End of 2018 The Lessons Learned from Japan’s insights and expertise in Japan-related mat- Bloomberg, May 3, 2017 Economy ters. Highlights for this year include: Bloomberg, September 1, 2016 Professor Ito Says Fed Policy Path Is Best Hugh Patrick Scenario How Long Will Central Banks Remain Close Bloomberg, May 3, 2017 Outlook for Asian Economies 2017 to Zero NHK World, January 11, 2017 Bloomberg, January 31, 2017 Columbia University’s Ito on Fed, BOE, BOJ Inflation From Rival to Ally: Japan’s American DPM Tharman appointed chairman of top Bloomberg, June 15, 2017 Evolution G20 group tasked to review global finan- The Wall Street Journal, March 16, 2017 cial governance Professor Ito Says BOJ Will Keep Yield The Strait Times, April 22, 2017 Near Zero Bloomberg, June 15, 2017

CJEB/CBS-Related News

CJEB hosted a special lecture featuring Japan’s Deputy Prime Minister Taro Aso Japan’s Deputy Prime Minister Aso Says: Japan’s Deputy Prime Minister, Taro Aso, Tells U.S. Audience: “Our Airline Crews “TPP Without the U.S. to Be Discussed in on April 19, 2017. This event was widely Won’t Beat You” May at APEC” covered by several leading news outlets. The Straits Times, April 20, 2017 Featured on: Some of the titles have been translated from Japan’s Deputy Prime Minister Aso Talks Japanese to English. Asahi Shimbun, April 20, 2017 About Japan’s Economic Achievements— Japan’s Aso Pushes Back Against U.S. Columbia University Jiji Press, April 20, 2017 Pressure for Bilateral Trade Deal Bloomberg, April 20, 2017 Reuters, April 19, 2017 NHK, April 20, 2017 Japan’s Deputy Prime Minister Aso Says: Japan Won’t Resort to “Helicopter “Japan Won’t Resort to ‘Helicopter Money’ Nikkei, April 20, 2017 Money”—Finance Minister Aso and Tax Increase and Cutting Down Okinawa Times, April 20, 2017 CNBC, April 20, 2017 Expenditure Are the Key” Reuters, April 20, 2017 TBS News, April 20, 2017 “Our Airline Crews Won’t Beat You,” Japan’s Deputy PM Tells U.S. Audience Japan’s Deputy Prime Minister Aso: Eager Bloomberg, April 20, 2017 to Increase Consumption Tax Yomiuri, April 20, 2017

48 | CJEB Annual Report 2016–2017 Enhancing the MBA Experience

Chazen International Study Tour participants touring Suntory’s Yamazaki distillery Hiroyuki Kanno speaking to Columbia University students

CJEB is a key contributor to the Columbia company visits and on the overall current turnarounds in Japan from the views of Business School’s (CBS) international com- state of the Japanese economy. policymaking. munity and seeks to pursue opportunities to The 2017 Chazen Japan Study Tour took Team B students toured the Omron manu- enhance the MBA student experience. In this place from March 12 to March 19 and was facturing plant and listened to presentations endeavor, CJEB’s major collaborative partner a huge success. Visiting Kyoto, Aichi, and from several companies, including Mitsubishi is the CBS Japan Business Association (JBA), Tokyo, the 80 MBA students met with repre- Real Estate, Hoshinoya, and two Shinise a student-led organization that promotes sentatives from Japanese corporations and (established and long-standing Japanese Japanese business and culture to the CBS immersed themselves in Japanese cultural companies). In Kyoto, they visited Suntory’s community. The Center regularly meets with sights, and experiences. The students were Yamazaki distillery to learn about the produc- JBA officers to exchange ideas on ways to divided into two groups (Teams A and B, tion process of its world-famous whisky. They promote Japanese economy and business-re- 40 students each), and each group had an also visited several historical sites, including lated issues within CBS. independent itinerary. CBS Assistant Dean the Golden Pavilion and the Fushimi Inari As an annual initiative, CJEB assists the JBA for Financial Aid Marilena Botoulas and CBS Shrine. While in Tokyo, the participants vis- in organizing the Chazen International Study adjunct assistant professor of business ited Asakusa and participated in an Urasenke Tour to Japan. Led by the Jerome A. Chazen Christopher Castiglione joined Teams A and tea ceremony and Edo-Kiriko, the traditional Institute for Global Business, the Japan B, respectively. Japanese cut glass–making experience. Study Tour sends a group of students on a Team A visited Taizo-in temple in Kyoto to The visit to the Toyota manufacturing weeklong trip to Japan, providing a unique learn about Zen and its influence in business plant was done jointly with the two teams. opportunity for the students to experience practices. In Tokyo, they were welcomed by Students had a chance to see the world-lead- cultural excursions and visits to Japanese the Cabinet Office and given a lecture on ing production process, which they had corporations. Since the tour’s initiation in Japanese philosophy. Students also learned studied in their core operations class. The 1989, CJEB has helped fund the program about Japan’s monetary policies and gained two teams also stayed in a ryokan (traditional and contributed to its agenda. Before each insights on the Japanese economy at the Japanese inn) in Gamagori and experienced trip, the student trip organizers consult with Bank of Japan. At the alumni reception, Mr. bathing in an onsen and eating a kaiseki din- Professor Hugh Patrick and CJEB’s director Yutaka Yoshimoto, deputy director-gen- ner. for administration, Ryoko Ogino, on possible eral at METI, gave a lecture on corporate

CJEB Annual Report 2016–2017 | 49 Enhancing the Columbia Experience

JBA also cohosted an “International Happy Columbia University offers many resources and its initiatives. On October 4, 2016, Hour—Festival of Nations” night on April 13, and opportunities for students, faculty, JASSA cohosted a sake tasting and lecture 2017, with other regional/affinity clubs. At and alumni interested in learning more with CJEB, featuring Yoshihisa Kita MPA this event, which CJEB funded, the JBA offi- about Japan outside the Business School. ’17, who discussed his family’s traditional cers prepared Japanese food and drinks for CJEB contributes to this initiative by sake brewery and the history of sake brew- the Columbia community, introduced Japan’s assisting other organizations on campus ing and business in Japan. Various types of food industry, and demonstrated Japanese that are engaged in Japan-related activi- sake were also available for tasting by the traditional clothing. This event gave Columbia ties. This includes the Weatherhead East audience. On December 2, 2016, JASSA students an opportunity to learn about vari- Asian Institute (WEAI), the Donald Keene organized an event that was cosponsored by ous cultures as well as appreciate and cele- Center, the APEC Study Center, the East CJEB and hosted in cooperation with ITO EN. brate the diversity at Columbia. Asian Languages and Cultures (EALAC) This event featured a lecture and tasting on Department, the School of International and the history and business trends of matcha The CJEB annual welcome reception for Public Affairs (SIPA), and many others. green tea, with a guest speaker, Rona Tison, CJEB Visiting Fellows, students, and other senior vice president of corporate relations For 2016–2017, CJEB was proactive and CBS community members was held on and PR of ITO EN. CJEB also continues to engaged with the Columbia community in September 21, 2016. CJEB officers and fund JASSA’s language table sessions, which various initiatives. In one initiative, the Center staff welcomed the CBS community to the help promote understanding of and interest in provided sponsorship to Columbia Japan new academic year, allowing CBS students Japan and provides opportunities to network Society (CJS), an undergraduate organization the opportunity to network with CJEB between native Japanese and those who at Columbia University run by and composed Visiting Fellows and CBS faculty and staff have interest in living or working in Japan. In entirely of students, where the organization’s from other departments. spring 2017, JASSA also planned a series mission is to introduce and spread aspects of of lunch sessions, funded by CJEB, featur- On April 7, 2017, CJEB organized a lecture, Japanese culture to the Columbia community. ing key experts on the Japanese economy, titled “Bank of Japan’s Business Operations On November 11, 2016, CJEB funded CJS business, and politics. Key speakers included and Functions,” featuring one of CJEB’s for its Sushi Night 2016 event, which intro- Jun Makihara, a partner at Goldman Sachs; Visiting Fellows, Hiroyuki Kanno, associate duced the business aspects of sushi and the Mio Yamamoto, president of World in Tohoku director-general and head of the Planning industry’s impact on the Japanese economy. (WIT); and Columbia faculty members Hugh and Coordination Division in the Operations In another initiative to promote Japan to the Patrick, Gerald Curtis, and Merit Janow. Department at the Bank of Japan. Columbia Columbia community, CJEB’s director, Hugh students, including those from JBA, Japan Patrick, met with SIPA students January 25, JASSA continues to organize its 11th annual Study Student Association (JASSA), and 2017, to discuss the Japanese economy and student–led trip to Japan, which is similar Columbia Japan Society (CJS), were invited business and exchange ideas on possible to the Chazen International Study Tour to to listen and connect with Mr. Kanno. He solutions to Japan’s current economic and Japan, and partially funded by CJEB. This shared his views on the Bank of Japan’s busi- social issues. CJEB also sponsored the 26th year, 47 students, including 13 organizers, ness operations and functions (see p. 37 for Annual Graduate Student Conference on from 15 countries participated in the trip more details). East Asia, a conference hosted by EALAC. and traveled to Tohoku (Miyagi or Fukushima), This conference, held from February 24 to Kyoto, and Tokyo. The trip commenced in the 25, 2017, invited graduate students to sub- Tohoku region, where students were divided mit abstracts on research topics related to into two groups and visited either the Miyagi East Asia and connect and share research prefecture or Fukushima prefecture. with students from institutions around the In the Miyagi prefecture, students visited world. Asuenokibou, an NGO focused on the recov- CJEB is continually active and committed ery of this region; Agriead Naruse, an agri- to promoting Japan-related activities at cultural production corporation; and JICA Columbia through the support of JASSA Tohoku, an organization dedicated to the

50 | CJEB Annual Report 2016–2017 Enhancing the Columbia Experience

JASSA Japan Study Tour participants visiting Tohoku, Kyoto, and Tokyo Hugh Patrick and Ryoko Ogino discuss leadership with Japanese female student population at Columbia

rebuilding effort in Tohoku after the March Hagiuda, deputy chief Cabinet secretary. Mr. population from a cross-section of Columbia 2011 tsunami and earthquake. The students Hagiuda explained Japan’s foreign policy and schools, including CBS, SIPA, Columbia Law learned how people, especially in private sec- the general policy of the Abe administration. School, Teachers College, and the School of tors, are now trying to reconstruct their daily They also talked with the first female gover- Arts. This lunch is part of an ongoing CJEB lives and community from the devastation nor of Tokyo, Ms. Yuriko Koike, to discuss the initiative to promote career and leadership caused by the tsunami. In Fukushima, partic- improving developments of Tokyo and how development among women in the interna- ipants went inside the nuclear power station Tokyo is preparing for the 2020 Olympic and tional community and had a discussion with executives from Paralympic games. In addition, they visited Aside from funding and programming, CJEB the Tokyo Electric Power Company (TEPCO). the Bank of Japan, Sanrio Company, Recruit engages with the student community by pro- They also met with Mr. Masao Uchibori, the Holdings, and Hamano Factory to understand viding opportunities for Columbia students to governor of the Fukushima prefecture. There, how monetary policy is strategized, how work at the Center as student casuals. They students learned about the damages caused Japan’s “Kawaii” culture was created, how are selected from a number of applicants, by the 2011 tsunami and earthquake and Japan’s social entrepreneurs are facilitated, and their contribution to the CJEB team is how the local government and engineers are and how high technology products are made. invaluable, as they are deeply involved in the struggling to bring back the original environ- Lastly, students visited central ministries day-to-day operations of the Center. The ment. and discussed with policymakers Japan’s Center is committed to developing our stu- future policies, such as its reconstruction After visiting the Tohoku region, both groups dent workers professionally while providing and energy policies. They visited the Ministry traveled to Kyoto, where students partici- a unique learning opportunity. Our student of Education, Culture, Sports, Science, and pated in cultural activities, including wearing casual program is open to high-perform- Technology, Ministry of Foreign Affairs, and kimonos and experiencing a tea ceremony. ing and proactive students with relevant Ministry of Health, Labour, and Welfare. The participants also visited the beautiful backgrounds and interests from across the Through this one-week trip, the students Fushimi Inari Shrine and Kiyomizudera Temple University. gained a better understanding of the “real and enjoyed traditional Kyoto cuisine, all of Japan” as they gathered insights from diverse which fascinated the students. In their final perspectives in politics, business, and cul- destination, Tokyo, they had a lot of opportu- ture. nities to exchange opinions and discussions with leaders in both the public and private On October 3, 2017, Professor Hugh Patrick sector. In one instance, they visited the and Ryoko Ogino organized a lunch to engage Office of the Prime Minister and met Koichi with the Japanese female graduate student

CJEB Annual Report 2016–2017 | 51 Visits from Japan to Columbia

Groups of Japanese undergraduate and graduate students often visit CJEB during their tours of the East Coast. In 2016–2017, student groups from Meiji University, Bunkyo University, and Wako University came to Columbia University. Each group met with Professor Patrick, who gave a brief introduction and fielded questions. Discussion topics included U.S.-Japan relations, Abenomics, trade policies, women’s workplace challenges and related policies, challenges presented by Japan’s aging population, and attitudes toward foreign study and employment.

In spring 2017, the New York office of one of CJEB’s longtime Hugh Patrick with TOMODACHI Sumitomo Scholars in January lead corporate sponsors, Sumitomo Corporation of Americas, visited CJEB and Columbia twice as part of its TOMODACHI Sumitomo Corporation Scholars Program. Through this program, scholarship recipients, who come from Japanese universities, are given the opportunity to study abroad in the United States for one year. This year Sumitomo visited CJEB on January 10, 2017 and March 31, 2017, bringing five students for each visit to engage in a conversation with Professor Hugh Patrick and CJEB’s director for administration, Ryoko Ogino. Both welcomed Ryoko Tsukada, Emi Hayano, Mitsuhiko Tomita, Noriko Hagiwara, Masumi Abe, Daichi Meguro, Ryu Nagae, Aimi Bessho, Hotsuki Hayama, and Naoki Tokunaga, as well as executives from Sumitomo, to engage in a lively discussion on Japan and the world economy and the students’ future prospects. For the group who visited on March TOMODACHI Sumitomo Scholars meet with CBS and SIPA students 31, 2017, the students had the opportunity to meet with graduate students from CBS and SIPA to receive advice and exchange ideas on job hunting and career development.

On April 10, 2017, Dr. Haruo Shimada, president of the Japan Forum of International Relations, arranged a group visit to CJEB, where the group of 10 professionals and entrepreneurs met with Professor Patrick to discuss the economic, diplomatic, and defense policies under the Trump administration. The group was first given a campus tour of Columbia, which was followed by a frank and informative discussion with Professor Patrick on President Trump’s policies and their impact on the U.S.-Japan relationship.

Haruo Shimada and Hugh Patrick

52 | CJEB Annual Report 2016–2017 Fellowship and Scholarship Programs

Hugh Patrick meeting SIPA students

CJEB provides select fellowships for and Summer Stipends are also available to support to various Japan-related research ini- Columbia University students who demon- PhD students at CBS or the Department of tiatives, and the fellowship recipients engage strate outstanding academic ability and Economics who wish to pursue Japan-related in their own research as well as participate a specific interest in Japan and the Asia- research projects or language training pro- in CJEB programs. Misaki Matsumura, PhD Pacific economies. These fellowships sup- grams. This year CJEB awarded two summer candidate in the Department of Economics, port research and participation in academic stipends to PhD candidates in Columbia was this year’s recipient. programs related to Japanese economic and University’s Department of Economics: The Mitsubishi UFJ Trust Scholarship business fields. Further information on these Shogo Sakabe and Tatyana Avilova. Shogo is Foundation provides one Columbia opportunities is available at www.gsb. using his stipend to research discount sales University student each year with tuition columbia.edu/cjeb/resources/fellowships. and life cycle prices, and Tatyana is using and living expenses for a program of either her stipend to work on a proposal related to The CJEB Doctoral Fellowship was estab- undergraduate or graduate study in Japan. the Japanese pharmaceutical industry. The lished in 2013 to support PhD students CJEB conducts a University-wide compe- Center also awarded a doctoral research at CBS and/or Columbia’s Department of tition on behalf of the Foundation to nomi- grant to Cameron LaPoint, another PhD Economics who intend to develop Japan nate a student. The award was granted to candidate in the Department of Economics, expertise, culminating in dissertations Deanna Nardy of Columbia University for on his research on the Japanese consumer focused primarily on Japan. Our CJEB 2016–2018. response to public benefit payments. Doctoral Fellowship recipients include Guannan (Jackson) Lu in the Management The Sumitomo Fellowship Program was Division of CBS and Shogo Sakabe in established by the Center as part of an initial the Economics Department of Columbia operating grant from Sumitomo Corporation University. CJEB Doctoral Research Grants of Americas. The program has provided

CJEB Annual Report 2016–2017 | 53 Discussion Library and Data Resources 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 hundred individuals, it originally was an inter- university forum for faculty, other professionals, and advanced graduate students to discuss ongoing research in preliminary form by specialists on the Japanese economy. JES now meets once a year, sponsored by CJEB, and is held at Columbia in the spring semes- ter under the leadership of Takatoshi Ito, professor at Columbia’s School of International and Public Affairs and director of Program on Public Pension and Sovereign Funds at CJEB. Special arrangements have been made to include economists from Japan as paper authors and discussants.

This year, the JES was held on February 10, Columbia University is home to one of the macroeconomy from Nikkei NEEDS 2017, and had four sessions. These sessions largest collections of Japanese- and English- Financial QUEST 2.0 and the Development were moderated by Professors Ito, Patrick, language materials in the United States. Bank of Japan’s Industrial Financial and Professor Tokuo Iwaisako of Hitotsubashi CJEB evaluates Columbia University library Database University and Mr. Naohiko Baba of Goldman resources and commits funding to procure Sachs. The Japan Economic Seminar thanks • An online news and data retrieval system new materials on Japan and the Asia-Pacific the James Nakamura Fund and the Sasakawa that provides essential corporate and eco- economies. CJEB also maintains a small work- Peace Foundation for their support. nomic data as well as leading newspaper ing collection of materials on the Japanese and journal articles on Japanese and other The following papers were discussed: and Asia-Pacific economies, including sta- Asia-Pacific economies from Nikkei Telecom, tistical resources, academic journals, and Fiscal Theory of Inflation: The Great which is accessible via Columbia University periodicals. Depression and Contemporary Japan Libraries (CLIO) Data Resources Presenter: Eric Leeper, Rudy Professor, Other data resources: Indiana University Bloomington (written The Center continues to develop its major • CJEB Research Associate Professor Tsutomu with Margaret Jacobson, Indiana University computer-based databank on the Japanese Watanabe of the University of Tokyo (along Bloomington and Bruce Preston, Professor, economy, with an emphasis on financial mar- with Kota Watanabe of Chuo University and University of Melbourne) kets, under the direction of Professor David the University of Tokyo), launched the UTokyo Weinstein. The databank is a compilation of Discussants: Tsutomu Watanabe, Professor, Daily Price Index project in May 2013, which statistical resources for faculty members and The University of Tokyo; Christopher Sims, measures and publishes the consumer infla- students conducting relevant research. John J. F. Sherrerd ’52 University Professor tion rate on a daily basis. of Economics, Princeton University CJEB’s databank includes:

• Time-series and cross-section data on financial markets, institutions, and the

54 | CJEB Annual Report 2016–2017 Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan

Presenter: Wataru Miyamoto, Senior Analyst, Bank of Canada (written with Thuy Lan Nguyen, Assistant Professor, Santa Clara University and Dmitriy Sergeyev, Assistant Professor, Bocconi University)

Discussants: Takeo Hoshi, Henri and Tomoye Takahashi Senior Fellow, Stanford University; Etsuro Shioji, Professor, Hitotsubashi University

Estimating Japan’s Gross Domestic Income Based on Taxation Data

Presenter: Hiroyuki Fujiwara, Director, Japan Economic Seminar participants Research and Statistics Department, Bank of Japan (written with Yasutaka Ogawa, Bank of Japan) U.S.-Japan Discussion corporations operate domestically, abroad, and with each other. Topics discussed in Discussants: David E. Weinstein, Director of Group 2016–2017 included the implementation of Research, CJEB; Emi Nakamura, Associate Shortly after CJEB was founded, the then- Abenomics, TPP, political stability with Abe Professor of Business, Columbia University CEO of Sumitomo Corporation of Americas in Japan, Trump’s election, Trump’s economic policy pronouncements, and his administra- Spillover Effect of Japanese Long-Term and Professor Patrick took the initiative to tion’s initial policy proposals. Care Insurance as an Employment organize, on a private and individual basis, Promotion Policy for Caregivers an evening discussion group attended by senior Japanese and American businessmen Presenter: Haruko Noguchi, Professor, and professionals living in the New York Waseda University (written with Rong Fu, area. The group continues to convene to Akira Kawamura, Hideto Takahashi, and discuss frankly and informally—and off the Nanako Tamiya) record—issues and prospects in U.S.-Japan

Discussants: Emiko Usui, Associate business, economic, and political relations. Professor, Hitotsubashi University; Heidi Shingo Ueno, the current CEO of Sumitomo Allen, Assistant Professor, School of Social Corporation of Americas, and Hugh Patrick Work, Columbia University are the co-organizers of this group. The members come from the business and financial communities, together with several specialists on Japan from the Columbia University faculty. The group avoids iden- tification with any particular companies or groups and meets twice in the fall and spring for dinner and discussion. The discussions naturally focus on the wide-ranging political economy and how Japanese and American

CJEB Annual Report 2016–2017 | 55 FINANCIAL SUPPORT

Financial Support

Columbia University and Columbia Business Corporate Sponsorship Nikkei Inc. * School (CBS) give basic support for the Program Nomura America Foundation Center by providing faculty salaries and Saga Investment Co., Inc. office space, library and administrative sup- Sponsors for the year 2016–2017 are as Sumitomo Mitsui Trust Bank, Ltd. * port, and other essential services. However, follows: Suntory Holdings Limited the Center relies on external sources of Lead Corporate Sponsor Takata Corporation financial support from foundations, corpo- ($100,000+ annually) Tokio Marine & Nichido Fire Insurance Co., rations, and individuals for its programs and Sumitomo Corporation of Americas Ltd.* research activities. Income is derived from TV TOKYO Holdings Corporation the Center’s endowment, operating and proj- Senior Corporate Sponsors Yaskawa Electric Corporation ect grants, and, especially, from its Corporate ($50,000+ annually) Sponsorship Program, which was established in 1995. Academic independence has not Advantage Partners, Inc. Lead Individual Sponsor been an issue, as there are no special restric- Daiwa Capital Markets America Inc. ($30,000 + annually) tions attached to any of these gifts. Effissimo Capital Management Pte Ltd Makoto Takano Mitsubishi UFJ Trust and Banking The Sponsorship Program has been instru- Corporation Individual Sponsor mental in expanding the Center’s activities SMBC ($10,000+ annually) and guaranteeing their long-term financial Tokai Tokyo Securities Co., Ltd.* Robert Alan Feldman support. The companies listed below support CJEB through funding to help establish an Shigeru Masuda Major Corporate Sponsors endowment or provide funding on an annual basis. Sumitomo Corporation of Americas ($25,000+ annually) Friends of the Center made an initial significant contribution Kikkoman Corporation (up to $9,999 annually) that enabled the Center to be established Mitsubishi Corporation (Americas) Miyoko Davey in 1986 and has continued to be a major Ricoh Co., Ltd. Hiroko and Satoru Murase Center donor. The Center also greatly appre- Tsuchiya Co., Ltd. Tsunao Nakamura ciates and benefits from the income derived Hugh Patrick from the generous endowments funded by Corporate Sponsors Takayuki Tamura Fuji Xerox Co., Ltd., Sanken Industrial Policy ($10,000+ annually) Sadao Taura Research Institute, the Marine and Fire Aflac Japan Insurance Association, the Federation of ANA HOLDINGS INC. * Regularly sends visiting fellows Bankers Association, the Security Dealers Canon U.S.A., Inc. Association, the Life Insurance Association, Fuji Xerox Co., Ltd. and Mitsubishi UFJ Trust and Banking Hyogo Prefectural Credit Federation of Corporation during the first years of the Agricultural Cooperatives * Center’s establishment at CBS. Imuta and Associates On May 26, 2017, CJEB was delighted to ITO Corporation hold a special luncheon at the Hotel New ITO EN (North America) INC. Otani Tokyo for our corporate sponsors to Japan Industrial Partners, Inc. demonstrate our deep appreciation for their J.C.C. Fund of the Japanese Chamber of continued support. Commerce and Industry of New York, Inc. MinebeaMitsumi Inc. * Mitsui Sumitomo Insurance Co., Ltd. * Mitsui USA Foundation “The Invisible Arrow of Abenomics” lecture dinner Mori Building Co., Ltd.

56 | CJEB Annual Report 2016–2017 Table of Contents

Letter from the Directors 2 Lunchtime Seminars 38

Symposia 33 2017 Annual Visiting Fellow Business Field Trip 44 Shoko Nakamoto Andy Wanning Private Views on Japanese Government Corporations 33 Research Associates 45

The History and Business Trends of Matcha Green Tea 36 U.S.-Japan Discussion Group 55 Bank of Japan’s Business Operations and Financial Support 56 Functions 37 Corporate Sponsorship Program 56 Special Lecture with Minister Aso 37 CENTER ON JAPANESE ECONOMY AND BUSINESS AND ECONOMY JAPANESE ON CENTER