The Paul Volcker Of Japan?

For much of his life, Bank of Japan Governor Yasushi Mieno has been fascinated by sumo, Japan's ancient sport of wrestling. As a struggling student at the University of Tokyo in the lean years after World War II, Mieno lived in a wrestlers' lodge run by the father of a friend. Over the ensuing four decades, he rose to become one of sumo's leading movers and shakers, recently joining the prestigious council that picks champions. But while you would never take the 68-year-old Mieno for anything but a ringside observer, a good measure of his revered wrestlers' legendary determination appears to have rubbed off on him.

Mieno is quickly gaining a reputation as the Paul Volcker of Japan. Although the Tokyo stock market is taking gas as Japan undergoes its worst slowdown in nearly two decades, Mieno is standing firm against his greatest fear: inflation. While he has reduced the discount rate by 1.5 percentage points, to 4.5%, since last summer, he has ignored calls to slash rates another point to rev up stocks and growth (charts).

`RISK OF OVERKILL.' Many still expect him to do that at any time. But other than hinting that he feels Japan already may be experiencing a soft landing, Mieno is conceding nothing. "There is very little chance of a quick slowdown in the economy," he insisted to reporters on Mar. 12. Only four days later, the Nikkei Stock Average broke through 20,000 to close at its lowest level in five years.

In fact, Bank of Japan data indicate that the adjustment process isn't as smooth as Mieno suggests. Capital spending is plummeting, profits are flagging, and consumer spending is waning. Even inflation is down to less than 2%, the lowest in three years. Holding firm on interest rates, analysts say, could put pressure on Prime Minister Kiichi Miyazawa to spend more aggressively than he intends. But what if the government doesn't take up all the slack? If rates stay high, says Keikichi Honda, president of Bank of Tokyo Ltd.'s research arm, "there is a risk of overkill."

Although Mieno prides himself on his independence, political concerns are weighing heavily on the BOJ. The ruling Liberal Democrats, weakened by years of financial scandals, face electoral losses this summer if Mieno keeps the economy in check. Doing so could also isolate Japan. With manufacturers pumping up exports to overcome slow spending at home, Japan's monthly trade surplus doubled to a record $10.2 billion in February. More of the same would raise trade tensions with Washington and other allies. "There is room in Japan for an easing of monetary policy," says Assistant Treasury Secretary Olin L. Wethington. "That would improve the prospect for growth."

Japan's elite is also taking potshots at Mieno. With the Nikkei's slide sending shivers through the country's banks, the heads of the Japan Chamber of Commerce and the Keidanren, the country's leading industrial association, are demanding sharp rate cuts. And LDP godfather Shin Kanemaru, who is said to fear that Mieno's stand will make it difficult for the party to raise campaign funds, has even urged Miyazawa to fire the bank chief. "If the Prime Minister felt like cutting Mieno's neck," he suggested, rates would fall faster.

"We listen to these voices very carefully," Mieno responded. But in reality, such calls have only stiffened the banker's resolve--and boosted his popularity with consumers weary of real estate prices continually spiraling beyond reach. With unemployment at a mere 2%, few households are feeling much pain. The major victims of Mieno's campaign so far have been the bankers, brokers, and property and stock speculators who thrived in the easy-money 1980s. Several top bankers and brokers, their institutions rocked by hot-money scandals, already have been forced from office. And residential land prices have actually begun to retreat. Mieno's war on financial speculation has even led one columnist to dub the bank governor Onihei, after a popular TV character who, Robin Hood-style, protects the weak.

BUBBLE BASHER. Mieno's stubborn resistance to calls for action comes as no surprise to BOJ-watchers. Within months of succeeding Satoshi Sumita in 1989, the new central bank chief took off against the inflationary threat looming in the country's surging "bubble economy." Shocking the Ministry of Finance and earning the enmity of powerful stockbrokers, he hiked the discount rate twice, sending the market into a tailspin.

Coming up with quick fixes is a Mieno hallmark. A 45-year career officer whose stints include two years in New York, Mieno played a key role in assembling emergency financing for Yamaichi Securities Co. after it nearly collapsed during a market crash in 1965, and in 1986 he averted a crippling bank failure by helping Sumitomo Bank Ltd. take over the troubled Heiwa Sogo Bank.

Mieno's adaptability to changing situations comes naturally. The son of a railway executive in Japanese-occupied Manchuria, Mieno grew up frequently switching schools and friends as his father was transferred from job to job. After his family lost everything during the war, Mieno quickly learned how to cope on the fly. At Tokyo University, he peddled soap, clothing, and other black-market goods to support his parents and his younger brother and sister, who both suffered from tuberculosis.

Mieno remains fast on his feet. According to one senior Federal Reserve official, the bank governor began a crash course in English soon after taking office. He continues to take daily lessons and is now fairly comfortable speaking English in informal settings.

Whether Mieno will grow comfortable with the idea of lower interest rates is another question. "We don't want a plunge or panic," a BOJ aide suggests. But while the market waits for Mieno to make up his mind, stock trading has ebbed to a trickle. And even if Mieno moves rates lower, don't expect him to restart the money pump with 1980s-style abandon. Mieno, says the Fed official, "is very serious about inflation, and he hasn't flinched." Like the wrestlers he has followed for years, Japan's No. 1 inflation hawk is likely to hold his ground stubbornly for some time to come.