An Informal Discussion with Professor Naoyuki Yoshino Shari Cooperman, MBA ‘09 On March 2, 2009, the Center on Japanese Economy and Business (CJEB) and the Japan Business Association of Columbia Business School hosted a zadankai (informal discussion) titled "Current Economic Conditions in Japan and Asia." Naoyuki Yoshino, professor of economics at Keio University in Tokyo and a member of Japan’s Ministry of Finance, led the conversation; Professor Hugh Patrick, director of CJEB, served as the moderator.
Although Professor Yoshino covered a broad array of topics in his presentation, he focused most heavily on the Japanese bubble economy of the past, as well as the current industry and policy shifts that will shape the future of the Japanese economy. Yoshino explained that during the 1980s in Japan, as in so many other countries at different points in time, easy monetary policy led to excess liquidity, which in turn led to a rise in asset prices. The wealth effect then kicked in, leading to higher consumption, expansion of sales and increases in investment. This is typically a difficult process for central banks to stop, as people tend to think when times are good that their country’s economic growth is "fundamental," as opposed to being a bubble, and that the growth therefore is not dangerous. Several common bubble indicators emerged in Japan by 1989: first, banks’ real estate loans as a percentage of overall loans increased significantly, from 16 to 32.6; second, growth in banks’ real estate lending grew disproportionately to the real economic growth rate; third, housing prices increased disproportionately with the average income of workers. When the Japanese bubble burst, share and land prices decreased as bank lending continued to increase. However, it took too long for the government to inject enough desperately needed capital into the banking system – thus resulting in Japan’s "lost decade." During this time, manufacturing and industrial production, upon which Japan’s economic structure previously relied, picked up in China and India. Today, there has been a large decline in Japanese industrial production as corporations are investing in less expensive Southeast Asian countries. Professor Yoshino said that Japan’s future economic success depends upon whether the country can develop a robust services and financial market – areas which require foreign language skills and a larger appetite for risk in a traditionally inwardly-focused, fiscally conservative country.
In particular he urged further steps to be taken towards the development of the Asian Bond Market, and he encouraged the inclusion of securitized loans to small and medium enterprises. Further, venture capital, which has not previously existed because Japanese lenders traditionally only accept tangible collateral, presents a substantial financial services opportunity. To support a strong economic future, Professor Yoshino also said that the Japanese government should define a level of government responsibility for investment into services such as education, water supply, transportation, etc. He said that local governments, banks and private investors should issue revenue bonds for infrastructure investment. Tax revenues should then be allocated to incentivize public officials to successfully complete projects, ensuring the transparent and corruption-free system that is necessary for Japan to regain its pre-lost decade strength.