'Mr. Yen' sees U.S. policy makers as behind the curve
Former Japan official Sakakibara says American authorities need to rapidly infuse a significant amount of public money to stem the financial crisis.
TOKYO — He was known as "Mr. Yen." As Japan's deputy minister of finance for international affairs in the late 1990s, Eisuke Sakakibara had a stomach-turning insider's view of an economic meltdown.
With Japan's economy crushed by the collapse of a financial bubble, he became the champion of the low-yen policy. By intervening in currency markets to depress the yen's value, the aim was to help marquee exporters like Sony and Toyota lower the cost of their goods abroad and generate more sales, thereby kick-starting a recovery.
Now a professor at Tokyo's Waseda University, Sakakibara thinks the U.S. faces its worst financial crisis since World War II. In an interview, Sakakibara discussed the similarities between Japan's 1990s collapse and the current U.S. situation and offered advice on how Americans might avoid a similar long-term nightmare.
Many people have drawn a parallel between conditions in the U.S. today and the implosion of the Japanese bubble in the 1990s. Do you agree with the comparison?
Yes. There are differences, but essentially they both began as non-performing asset problems in the mortgage sector. Japanese financial turmoil in the '90s started in the mortgage sector and spread to commercial banks and security firms. This is pretty much what is happening in the U.S.
Given your experience with this kind of crisis, what is the greatest danger facing American policy makers?
You tend to implement policies piece-by-piece, and you tend to be behind the curve. In financial markets, things spread very rapidly. So you have to overtake the speed of the markets, especially in a crisis when the speed really accelerates. In hindsight, we were always behind the curve. And although it may look like American authorities are moving very fast, they are also behind the curve.
When it comes to bailing out the financial services industry, have we passed the point of worrying about "moral hazard"--that is, whether a rescue lets bad performers off the hook and encourages more risky behavior?
If you insist on moral hazard, you have to let all those financial institutions go down. That will eventually develop into systemic risk. You have to protect the financial markets at some point. The U.S. has come to the stage where authorities have to defend the financial system as a whole.
So a taxpayer bailout is inevitable?
