“Chūō Ginkō” (The Central Bank), by Shirakawa Masaaki
Former Bank of Japan Governor Shirakawa Masaaki had shunned all media interviews since leaving his post in March 2013. With the release of his book, we now know the reason for his silence. His three-part work, spanning nearly 800 pages in Japanese, covers his 39 years at the bank in extensive detail, starting from his days as a new graduate hire to the culmination of his career as governor of the institution.
Shirakawa’s aim in writing his book—available in Japanese now, with an English translation slated for publication in the future—was to deepen discussion of the role of central banks, but it can also be read as a memoir. This is especially true of Part 2, which covers his time as governor.
The five years that Shirakawa served as BOJ governor, from 2008 to 2013, were especially tumultuous. The period saw the collapse of the Lehman Brothers brokerage in September 2008, precipitating a global recession, the ongoing European debt crisis, which started in Greece in October 2009, and closer to home, the Great East Japan Earthquake of March 2011. In the chaos generated by those events, Shirakawa had a difficult course to navigate.
As Shirakawa recalls, one of the key events of September 2008 was a telephone conference among the G7 finance ministers and central bankers concerning leading US brokerage firm Lehman Brothers. During the conference call, US Treasury Secretary Henry Paulson affirmed that the firm’s prospects looked dire but promised that the US government would do all it could. In Shirakawa’s words, “We all knew that if Lehman went, it was highly likely there would be severe disruption to global financial markets . . . I believed that the US authorities would not, in fact could not, allow a disorderly dissolution of the firm.”
But to Shirakawa’s surprise, Lehman Brothers filed for bankruptcy just two days later. Its collapse pushed the global financial system to the brink. Demand evaporated everywhere, and a worldwide recession set in, including in Japan.
The Japanese government announced in November 2009 that the economy had entered a deflationary phase, and on the foreign exchange markets rapid yen appreciation ensued. Shirakawa was subsequently dogged by pressure to take steps to reflate the economy and ward off further yen appreciation.
Financial policy cannot accomplish miracles, but countries all over the world looked to their central banks for some kind of solution. The same mood peaked in Japan with the advent of the second administration of Prime Minister Abe Shinzō following the December 2012 general election.
Shirakawa agonized over the way forward. There was pressure on the bank to follow through on the government’s promise to adopt bold monetary easing policies, and revisions to the Bank of Japan Act giving the prime minister the authority to sack the governor seemed likely. Threats were being directed to the BOJ every day.
If the bank adopted a different tack than the government and the rift became public, the lack of consensus would affect the markets. Would the public allow the BOJ to refuse democratically elected politicians’ demands? On the other hand, could the bank opt for a policy which risked, in the eyes of financial experts, leaving lasting scars? Shirakawa was truly on the horns of a dilemma.
Although the author describes the issue diplomatically, he expresses wariness toward the logic behind the Abe administration’s monetary easing policies in Part 2’s chapter 17, which covers the joint statement issued by the government and the bank on January 22, 2013.
Shirakawa’s afterword opens with the words “Central banks are strange institutions.” They work together with government but are independent from it at the same time. The government can collect taxes by fiat, but the bank can only pursue its goals indirectly, through cumbersome procedures seeking to influence the markets.
What precisely is a central bank, then, and how can it function closer to the ideal? Shirakawa proceeds to logically unravel the mystery. Welcome to the “logical mystery tour.”
(Originally written in Japanese by Tani Sadafumi, director and editorial department head, Nippon.com, and published on November 26, 2018.)
Chūō ginkō: Sentoraru bankā no keiken shita sanjūkyū nen (The Central Bank: My 39 Years as a Central Banker)
By Shirakawa Masaaki
Publisher: Toyo Keizai Shinpōsha
Price: ¥4,500 plus tax