Document: Bank of Japan Adrift—A Quarter Century of Trials and Tribulations

2021/04/09

It was October 1988 when I was assigned as a reporter covering the Bank of Japan at the news agency where I worked. Without knowing left from right, the Heisei era suddenly began two months after I took up my post, and after that, the Japanese economy tumbled from the collapse of the bubble economy into a financial crisis and unprecedented deflation. Even after moving to a broadcasting station in 1996, I continued to be involved in economic reporting, and believing that it is the duty of journalism to record this historical financial upheaval for future generations, I continued intensive investigative reporting. The recently published "Document: Bank of Japan Adrift" is part of that work.

Looking back, the Japanese economy has changed beyond recognition over the past 30 years. As if the days when it was called "Japan as Number One" were a lie, it has struggled in the quagmire of bad debts due to the aftermath of the bubble, carried the world's worst public debt, and suffered from a trend-like decline in the potential growth rate. In such an extreme situation, it was hit directly by the COVID-19 crisis, and the nation's finances are now in a state where the bottom has fallen out. Even so, the economy is somehow managing to function because the Bank of Japan is using the "magic" of "different dimension" easing to distribute massive amounts of currency.

However, because it is "magic," the risks are also great, and many experts worry that it will eventually bring about heavy side effects.

Why was such an unusual and irregular policy introduced? I felt it was necessary to go back to the past and investigate thoroughly. It would be fine if the economy and our lives return to normal in the future, but just in case our children and grandchildren face economic hardships beyond imagination and wonder "how did it come to this?", I thought it would be better to leave a clue to find the answer.

I have written about this in detail in my book, but looking back broadly, there is a strong possibility that the collapse of the bubble and the 1997 revision of the Bank of Japan Act were the starting points of the wandering. A central bank that aimed for political independence following the lessons of history was forced into a "rearguard action" by the financial crisis that occurred at the same time and the subsequent deflation, and was dragged into the world of unintended "different dimension" easing.

To provide for future verification, I refrained from any commentary in my book and concentrated on recording who did what, when, and where. I hope that people will feel the difficulty of central banking and currency management under democracy from these facts and widely discuss what it should be.

Document: Bank of Japan Adrift—A Quarter Century of Trials and Tribulations

Tomohiko Nishino

Iwanami Shoten

360 pages, 2,750 yen (tax included)

*Affiliations and titles are as of the time of publication.