Japan's anticorruption campaign has put another head on the block, but this is no ordinary head.
Bank of Japan (BOJ) Gov. Yasuo Matsushita tendered his resignation to Prime Minister Ryutaro Hashimoto yesterday, one day after the arrest of a senior bank official on bribery charges.
The resignation of the head of Japan's central bank in a scandal is unprecedented in postwar Japan and represents a deepening of the growing entertainment-for-favor crisis, which is shaking Japan's banking and financial sector to the core.
This week's events renew concern over Japan's economic health and its plans for financial deregulation - issues that resonate far beyond its shores. But some say progress, or at least the appearance of progress, will only be possible once the old guard that Mr. Matsushita represents is gone.
"Japan has no time left for the old system," says Susumu Takahashi, chief economist of the Japan Research Institute. "It's time to start seeking a new [business] model with new morals and ethics."
The resignation was prompted by the arrest of Yasuyuki Yoshizawa for accepting some $33,000 worth of entertainment from two private banks since 1993 in return for sensitive information.
The news sounds like an echo of four recent arrests at the Ministry of Finance. But Mr. Yoshizawa represents a stepping up of the anticorruption campaign because of the influence he wielded. Yoshizawa headed a BOJ office that sets short-term interest rates that affect everything from mortgages to bonds. He had access to the contents of a closely watched survey of business confidence that influences financial markets. He reportedly leaked both the survey and information on money market operations to the two banks that wined and dined him.
Matsushita pledged in a press conference to "regain the confidence of the public," but this latest debacle is likely to deepen pessimism.
Acidic, skeptical reaction
The news of Matsushita's resignation in order to take "grave responsibility" prompted acidic comments from one Fuji TV commentator on an afternoon broadcast. "He's receiving a [$2 million] retirement payment for stepping down," said announcer Tsurumaru Sakai. "This is taking responsibility? Is he kidding?"
The turmoil is also raising questions about the planned financial market deregulation and restructuring, especially a planned overhaul of the Ministry of Finance.
In January, shortly before a new wave of arrests at the finance ministry, the government dealt reformers a blow by allowing the ministry to keep the authority to regulate and monitor financial markets, leaving it basically untouched.
US needs a stable Japan
While all this sounds like so much inside baseball, it matters outside Japan's borders, and particularly in the US. America needs an economically stable Japan to shepherd southeast Asia through its financial turmoil. Without a strong Japan, the ripples of the financial crisis could reach US shores if troubled Asian countries such as Indonesia and Thailand decide to export their way out of trouble. And if Japan's economic situation remains rocky, it might use the same export strategy.
Current account figures released Wednesday are sure to heighten US concerns: Japan's January overall trade surplus doubled from a year ago due to pumped up ship and car exports and declining imports. While Prime Minister Hashimoto mulls Matsushita's resignation offer, analysts are also divided over what difference, if any, it would make to the long-standing business practices that have prompted the arrests and resignations.
In the past, close ties between bureaucrats and businessmen were seen as a strength of the Japanese system. Some feel public raids won't change the system and that the chain of arrests and resignations are gestures aimed at creating a clean slate before the "Big Bang" economic reforms debut April 1.
"Nothing is going to change despite Matsushita's resignation," says Yasunari Ueno, chief economist at Fuji Securities. The only thing that might make a difference, he suggests, is if the wining and dining were somehow banned.
That might be the only answer, because otherwise companies are caught between a rock and a hard place. Bureaucrats have a great deal of discretion over how to implement law and rules, and firms say entertaining officials is the only way to gain information in order to remain competitive, and to conform to their industry's regulations.