Japan's mighty Ministry of Finance won't look back fondly on 1995. After spending five years blithely ignoring the post-bubble banking mess, this summer's string of startling failures underscored the fragility of Japan's financial system. MOF's mandarins are also under fire for keeping sensitive information about the recent bond scandal at Daiwa Bank Ltd. in New York from U.S. regulators.
Now comes word that the MOF tried to pressure Shukan Bunshun, a weekly newsmagazine, not to publish incendiary remarks attributed to Eisuke Sakakibara, deputy director general of the ministry's international finance bureau. A sardonic economic nationalist, Sakakibara is quoted as calling Japanese political leaders "idiots" and warning that Tokyo might forge an alliance with Beijing if the U.S. doesn't stop bullying Japan. The MOF denies that Sakakibara ever made such remarks.
What's going on? Few believe Japan will shuck the U.S. security alliance at a time when China is emerging as the region's military powerhouse--and an increasingly belligerent one at that. Yet the MOF's blunders suggest a monolith run amok. Arguably the most powerful bureaucracy in the industrialized world, the MOF combines the power and reach of the U.S. Federal Reserve, Treasury Dept., and Internal Revenue Service. Yet because of Japan's weak tradition of political leadership, the MOF is really accountable to no one.
For decades, the ministry's extraordinary concentration of power worked wonders: When Japan was a developing economy rushing to join the elite of rich industrialized nations, MOF bureaucrats steered immense sums of domestic savings into Japan Inc.'s economic war chest. But after four years of economic stagnation and a full-blown bank crisis, critics are calling for a bust-up of the colossus. Even the respected Nihon Keizai Shimbun, Japan's top economic daily, has started to beat up on the ministry. The long knives are definitely out for the elites at MOF.
The time is right for reform. Japan's sophisticated version of mercantilism, which has long insulated domestic companies from competition, has left many industries foundering in the brutally competitive global economy. Managements are trying to respond by restructuring their companies. A fledgling consumer movement is struggling to make the economy more open. The government is gradually opening its borders and loosening domestic barriers to competition. A fundamental reform--or even breaking up the MOF into several agencies with different responsibilities--would bring the beneficial winds of competition into Japan's government apparatus itself.