Japan's Policy Trap: Dollars, Deflation, and the Crises of Japanese Finance [Paperback]

Akio Mikuni (Author), R. Taggart Murphy (Author)

Book Description

Publication Date: December 2003

Until the beginning of the 21st century, the Japanese inspired a kind of puzzled awe. They had pulled themselves together from the ruin of war, built at breakneck speed a formidable array of export champions and emerged as the world's number two economy and largest net creditor nation. And they did so by flouting every rule of economic orthodoxy. Now only the puzzlement remains - at Japan's inability to arrest its economic decline, its festering banking crisis, and the dithering of its policymakers. Why can't the Japanese government find the political will to fix the country's problems? This book offers a provocative analysis of the country's protracted economic stagnation. Japanese insider Akio Mikuni and long-term Japan resident R. Taggart Murphy contend that the country has landed in a policy trap that defies easy solution. The authors, who have together spent decades at the heart of Japanese finance, expose the deep-rooted political arrangements that have distorted Japan's monetary policy in a deflationary direction.

Editorial Reviews

About the Author

Akio Mikuni is one of the most universally respected analysts of the Japanese economy in the global financial community. He is the president and founder of Mikuni & Co. Ltd, Japan's leading independent, investor-supported bond-rating agency. Mikuni was named one of the fifty most influential individuals in Asia by Business Week in 1999. He also has been the subject of profiles in the Financial Times and Fortune.

R. Taggart Murphy, a former investment banker, is foreign professor, College of International Studies, Tsukuba University, Japan, and a nonresident senior fellow in the Foreign Policy Studies program at the Brookings Institution. --This text refers to the Hardcover edition.

Product Details

• Paperback: 304 pages
• Publisher: Brookings Inst Pr (December 2003)
• Language: English
• ISBN-10: 081570223X
• ISBN-13: 978-0815702238
• Product Dimensions: 9 x 6.1 x 0.8 inches
• Shipping Weight: 15.2 ounces (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars  See all reviews (8 customer reviews)
• Amazon Best Sellers Rank: #522,981 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

13 of 14 people found the following review helpful:

5.0 out of 5 stars Manufactured Problems, December 5, 2002

By 

Michael J Matuschka (Yamagata, Yamagata Japan) - See all my reviews

This review is from: Japan's Policy Trap: Dollars, Deflation, and the Crisis of Japanese Finance (Hardcover)

Akio Mikuni & R. Taggart Murphy have produced an excellent critical piece on the multiple troubles that Japan now finds itself, as well as realistically outlining how the elites are still very much unaware of the full consequences of their actions, and indeed inaction. This book also raises a number of interesting indepth parallels in Japanese history, illustrating that Japan has been in similar waters before and like the past, cannot adapt and change policy before disaster causes havoc. It is furthermore explained that, like all previous merchantile and/or socialist regimes, Japan's production capacity approach to trade is of little use unless profits and risk management are approached seriously. There is some hope for Japan, but the authors wisely find that Japan's war production approach (which is indeed ancient), coupled with its ministerial fiefdoms (whom act like warlords of old.....and control things like banks and until recently the Japanese equity markets), weak liberal democratic structures, non-guilded unions, and lambish populous, coupled with a mountain sized foreign (US$) currency reserve, {which as they argue convincingly, cannot ever really be swapped for Yen....it would destroy Japan (and cause much angst elsewhere)}, all need fundamental revision. Fundamentally, this book highlights the enigma of Japanese power. It should be read along with books like Cartels of the Mind (Ivan Hall); Japan's Big Bang (Declan Hayes); Dogs and Demons (Alex Kerr);The Enigma of Japanese Power (Karel van Wolferan); and Hirohito and the Making of Modern Japan (Herbert P. Bix). Having lived in Japan for four years, I would highly recommend this book.

1 of 1 people found the following review helpful:

4.0 out of 5 stars Useful study of Japan's slump, January 12, 2009

By 

William Podmore (London United Kingdom) - See all my reviews
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This review is from: Japan's Policy Trap: Dollars, Deflation, and the Crises of Japanese Finance (Paperback)

Akio Mikuni, president of Japan's leading bond-rating agency, and R. Taggart Murphy, a professor at Tsukuba University, relate how Japan, the world's second largest economy, became trapped in deflation.

Japan is the world's top creditor nation with huge holdings of bonds, equity, loans and foreign investments. It has vast trade and current account surpluses with most countries in the world. The floating exchange rate is supposed to adjust automatically to prevent such payment imbalances, but these are now far greater than they ever were under the fixed rate system.

In the 1980s, Japan's landowners and speculators used huge real estate and equity market bubbles to take wealth from the working class. In the early 1990s, the bubbles burst, and the largest pile of non-performing loans ever seen buried much of Japan's banking system. Every monetary and fiscal policy failed, including a 72-trillion-yen reflation and bank bail-out package in 1998.

During the US state's postwar occupation of Japan, it had seized control of Japan's currency. As the authors point out, "No matter how much capacity you have accumulated, no matter how many claims you have the theoretical right to exercise, unless you control the currency of your international trade, investments, and finance, you are at the mercy of those who do control that currency."

So Japan accepts payments for its exports, and returns from its investments abroad, in the dollar. It keeps its ever-growing hoard of dollars in the USA, which transfers buying power to the USA, funding, for example, Silicon Valley. The US state's control of the yen is the key to the dollar's strength, allowing the USA to depend on imports and to run huge trade and current account deficits. It also fuelled the US bubbles in credit, bonds and equity markets.

Japan has paid a huge price for this special relationship with the USA, because the dollar has lost two-thirds of its value against the yen since 1972. Now the falling dollar is hurting Japan even more.

5.0 out of 5 stars Fantastic book!, January 14, 2012

By 

Kenneth (AUSTIN, TX, United States) - See all my reviews
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This review is from: Japan's Policy Trap: Dollars, Deflation, and the Crises of Japanese Finance (Kindle Edition)

This book seemingly answers a lot of question I had about the Japanese governmental system. For example, how could a functioning government have 5 different prime ministers in 4 years. Furthermore, this got me thinking about China as well.

Anyways, this book is excellent. I enjoyed the detail in which the authors explained the intricate web that exists between the Ministry of Finance (MOF), the Liberal Democratic Party (LDP), the Shogunate past, and the various other bureaucratic organizations. The detail about how the liquidity trap works and the benefits the U.S. reaps from the Japanese policymaker's addition to the American currency is also telling.

I look forward to reading Red Capitalism by Carl E. Walter in the future to learn about Chinese monetary policy. I believe China's system will be similar to the Japanese system as portrayed in this great book. I think in the long run both of their respective policies are tenuous at best.

Thanks,
Kenneth