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How Did Politics Respond to the Occurrence and Collapse of The Inquiry 11 Inquiry 11 Japan over the years. It is possible that not only time and assets, but also human Politics After the Collapse of the Bubble Economy resources and trust were lost. Another issue is that the Japanese economy and politics during these years were comparable to the essence of failure(3) which revealed the former Japanese forces’ organizational flaws. Not only was it common to avoid taking responsibility for decisions, but also to postpone important decisions. Similar to How Did Politics Respond To the organizational theory in the essence of failure before the war, the leading figures Occurrence and Collapse of the Bubble of financial institutions, the Ministry of Finance, and the government that were Economy? involved in making decisions during the collapse of the bubble economy were the best and the brightest,(4) just like those involved in the essence of failure and the Vietnam War. As they were considered elites according to their alma mater Yasunori Sone and career, one has to wonder what problem these elites could not deal with. In Political Scientist, Professor, Graduate School of Media and other words, from the perspective of the theory of decision making, why did they Governance, Keio University choose to postpone response (even if they did not do so consciously)? Also, from the perspective of epistemology, why did no one recognize the seriousness of the bubble economy’s collapse? 1. Problem Identification: The Essence of Failure and the Best and While these are issues common among individual companies and financial Brightest institutions, this chapter examines these issues on a political level. This is because The occurrence and progress of a bubble economy is said to be difficult to recognize these should be dealt with as a matter of politics, including the process of decision precisely. In general, a bubble is recognized in hindsight.(1) While recognition of a making, rather than as a matter of the qualities of individual politicians alone. bubble economy’s collapse can be shared relatively easily, unlike the recognition Furthermore, did they remain idle spectators during the Lost Decade that a bubble is occurring, there are difficult questions regarding the response and the Lost Two Decades? In fact, it was the 1990s when various reforms to the collapse of a bubble economy.(2) While judgement and response are were implemented one after another. It may well have been called the Decade usually left to individual companies and financial institutions, in some cases of Reforms. However, it is necessary to examine the relationship between these the government has to intervene. Also, it is a matter of macro-policy decisions reforms and the cleanup of the bubble economy. In other words, the question of regarding general fiscal and monetary policies, as well as micro-judgement on whether this led to systemic reform that ensured the governance of finances. individual cases, which sometimes require the government to order companies Timewise, the world experienced the end of the Cold War in 1990 and financial institutions to make their exit. How did politics respond to these following the fall of the Berlin Wall the previous year. However, this also marked problems? In other words, it should be asked now, twenty-five years after the the end of the Japanese economy’s continuous growth.(5) After all, as it was the collapse of the bubble economy, how politics responded to its occurrence, its period when the business model of a growth phase lost currency, there was a collapse, and its management. limit if one tried to deal with the collapse of the bubble economy using the Lost Decade and Lost Two Decades are terms that have been used to describe conventional method of policy making.(6) 258 259 Inquiry 11 Following the drop of stock prices to their lowest at 7,670.88 yen on April stated, “When I read it,(9) I became aware of monetary issues for the first time.” 28, 2003, Junichiro Koizumi’s cabinet decided to inject public funds on the scale Seiroku Kajiyama, the former Chief Cabinet Secretary said, “The Ministry of two trillion yen into Resona Bank on May 17, 2003. The author perceived that of Finance explained to me that I didn’t have to worry about anything as long as the response to the collapse of the bubble economy was settled then for the time the issue of housing loan companies was dealt with. However, in fact, all messy being. In other words, in terms of periodical division, it took a long time between stuff other than the issue of housing loan companies were postponed.”(10) 1990 and 2003 to sort the bubble economy out. Ryutaro Hashimoto came forward as a candidate in the April 2001 election In 2008, however, the Lehman’s Collapse, similar to the collapse of the for President of the LDP. While Junichiro Koizumi also announced his candidacy, bubble economy in Japan, occurred on a global scale. In comparison with the the favorite candidate was Hashimoto. When asked about the responsibility of period of bubble economy in Japan, while the methods of securitization and bad loans at a press conference, he answered, “My judgment was clouded because financial engineering have since developed spectacularly, ways of maintaining I didn’t know the actual situation of bad loans,” implying that the Ministry of global financial order are still influenced by the Bretton Woods system (IMF Finance was to be blamed for not informing him properly.(11) system),(7) and Bretton Woods II has yet to be created. Established with the However, politics has to deal with issues at times in specialized areas such leadership of White from the US and Keynes from the UK, the Bretton Woods as nuclear power, energy, and gene therapy. In other words, it can be said that it system, which was the post-war regime itself, ended its role when the conversion is a matter of politicians’ individual qualities as to what extent one can grasp a of the dollar to gold was stopped in 1971. The maintenance of financial order as situation that changes every hour. international public goods and the establishment of a system that prevents a crisis Let’s have a look at an example. The following passages by Chief Cabinet pandemic from spreading globally are challenges yet to be addressed. Secretary Masaharu Gotoda allow us to examine what information politicians at In this chapter, the author would like to describe how Japanese politics the center of government possessed, including the Chief Cabinet Secretary. responded to the bubble economy(8) and its collapse, and, in addition, to discuss the shift of issues to be addressed over twenty-five years, based on the author’s “At the time of the Plaza Accord, participating countries personal experience of being involved in dealing with the issues, approximately appeared to have assumed that the yen-dollar exchange rates would in the same period. be lowered from 250 yen per dollar to 220 yen per dollar. However, it didn’t stop at 220 yen. I think it dropped to around 180 yen 2. Were Politicians Unaware of the Occurrence and Collapse of the over a year. Ultimately, it further dropped to 150 yen. Of course, it Bubble Economy? would bring export to a halt. So Japan was internally driven into the In general, Japanese politicians are not well versed in monetary policy compared recession due to a strong yen. Then the government had to turn to to finances (budgetary process) and individual industrial policies. They tend to economic measures. Nowadays, Nakasone’s cabinet is blamed for the leave it to experts not only because of the general factor of unfamiliarity, but also bubble economy. because it involves technically complex issues. However, politicians make the It is true that economic measures were first taken in the last following remarks either as excuses or facts. In particular, they are resentful of the years of Nakasone’s cabinet, but I would say the problem was that Ministry of Finance regarding housing loan companies. successive cabinets after Nakasone’s cabinet continued monetary Early in the aftermath of the collapse of the bubble economy, Koichi Kato easing, failing to recognize the time to turn to monetary tightening. 260 261 Inquiry 11 I was the Chief Cabinet Secretary for the last two years (Note: should have towards general reports such as monthly economic reports. 1986-87) of Nakasone’s cabinet. A year or so passed in the office, Also, Gotoda intuitively realized the discrepancy between the money and it was when I was listening to monthly economic reports that I flow and stock statistics. In other words, he realized the difference between the realized that M2 (currency in circulation) was increasing in double- stabilization of consumer prices and the occurrence of assets inflation (bubble). digit percentiles for more than a year. It probably continued for From these passages, it should be noted that the Chief Cabinet Secretary about two years. So I asked about it only once during the meeting is receiving quite accurate information. However, usually the Minister of State on monthly economic reports. for Financial Services should be in charge of information about bad loans at ‘I’m a novice in this matter, but it seems strange to me individual financial institutions. that prices are not rising, and economic growth is far below our expectations at around four percent, while prices are rising at a rate Prime Minister Kiichi Miyazawa’s Argument for the Injection of Public of less than two percent, despite there being so much money in Funds circulation. What is happening with the money that has increased While it has been mentioned that politicians in general are not well versed in by ten-odd percent, and where is it going? It must be real estate financial affairs, it is well known that Kiichi Miyazawa, being acquainted with financing, buying real estate and golf courses abroad and investing this area, stated the possibility of injecting public funds as early as 1992.
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