What Japan Needs Now: "Mr. Yen"

The former top financial diplomat has strong ideas about his country's decade of economic darkness

Eisuke Sakakibara, Japan's former top financial diplomat, rarely disappoints visiting reporters. A deep skeptic of free-market purists in the West and a fierce defender of Japan's government-directed style of capitalism, Sakakibara always managed to leave the impression that Japan's economic problems weren't all that bad when he was Vice-Minister for International Affairs. And by the way, "Why don't you guys in the U.S. media lighten up?" he would sometimes add.

But that was when Sakakibara was on the inside. His job for most of the 1990s was to feint left and right to move the stock and currency markets in Japan's favor. Hence, his overused moniker, "Mr. Yen." These days, though still influential, Sakakibara is writing books and working the international-finance speaking circuit. The guy whose every utterance used to rile global currency markets now heads a research institute at Keio University. Still, when I caught up with him last week, he had his eyes glued to a Bloomberg Financial Markets terminal propped on a table near his desk.

The news in Japan isn't good: The Nikkei has been in a tailspin for seven weeks, down 20%. While Sakakibara's intellectual bravado is still there, he displays less of the in-your-face confidence in Japan's recovery. The real mind-blower is that he's now highly critical of his former colleagues at the Finance Ministry, who lately have been sending out signals that Japan's just-keep-spending fiscal policies are coming to an end.

With the Bank of Japan also signaling that it may move away from Japan's ultra-loose monetary policies, the two pillars of the government's plan for boosting Japan's economy could be crumbling. And that's what has Sakakibara fretting. "In this kind of period, when you are recovering from a major recession," he says, "what is extremely importantis confidence."

He thinks that both Bank of Japan Governor Masaru Hayami and Finance Minister Kiichi Miyazawa should not abandon their focus on keeping the recovery moving forward. As for the BOJ, he thinks it should consider expanding the money supply and generating some inflation to heat up the economy. Sakakibara, who has called for Hayami's resignation, is no friend of Japan's 74-year-old central banker.

What most annoys him is that Miyazawa, Hayami, and virtually every other person in Tokyo officialdom do a poor job when it comes to listening to the markets. "In this world of cyber capitalism, you need to massage the markets and monitor their confidence," he says. "Look at Greenspan: That kind of good public relations is not here in Japan." In other words, what Japan needs right now is, well, Sakakibara.

Which kind of makes me wonder whether Sakakibara misses the game. After all, until he left the Finance Ministry last year after finishing his term as a Vice-Minister for International Affairs, Sakakibara was definitely a player among the world's money lords.

During a teaching stint at Harvard University in the early 1980s, he forged a good working relationship with former Harvard professor and now U.S. Treasury Secretary Lawrence H. Summers. He's also friendly with hedge-fund king George Soros. And he has proved time and time again that he has a sense of how to move the currency market. His name was floated as a possible successor to the International Monetary Fund's retiring managing director, Michel Camdessus.

Sure, his once-triumphant views about the superiority of Japanese capitalism look pretty suspect now. But he was probably right about one thing: When a financial crisis broke out in mid-1997 in East Asia, he promoted the formation of an Asian version of the International Monetary Fund. From the beginning, Japan wanted emergency financial aid without shock-therapy reforms. After all, the country has vast economic interests in the region.

The U.S. wanted no part of Sakakibara's power-sharing proposals and threw cold water on the idea. Now, postmortem reviews by the IMF, the World Bank, and assorted economists concede the point that in some cases, especially Indonesia, shock-therapy economic reforms may have made things worse.

It would be a shame if Sakakibara didn't reemerge in some official capacity to help lead Japan out of a decade of economic darkness. He is just too valuable to toil away in the groves of academe or pursue his hobby of scuba diving in the shark-invested waters of the South China Sea. He has been mentioned as a future Bank of Japan Governor--Hayami's term ends in 2003--but he professes not to be interested. Says Sakakibara: "Any central banker is a coordinator, and Greenspan does a superb job, but I'm not good for that kind of position." Sorry, Eisuke--I don't believe that for a nanosecond.