'Mr. Yen' predicts economic rebound

By Edward Neilan

TOKYO (JP): The man they call "Mr. Yen" sees the Japanese economy rebounding around the middle of this year and a genuine yen bloc emerging in about 10 years.

Eisuke Sakakibara, Vice Minister of Finance for International Affairs and a leading proponent of boosting the use of the yen's status as a global currency, says he doubts that the U.S. dollar will retain the dominance it now has as the world's leading currency.

But he added that Japan will not increase the amount of euros in the central bank's foreign exchange reserves anytime soon. "We do not have any immediate intention of shifting our portfolio in foreign reserves,"he said.

Sakakibara turns 58 next month, slightly graying, and with a raspy laugh which he invokes often.

One reason for his popularity is his sharp English-language delivery of a high-substance, intellectual line.

There are only a handful of Japanese officials who can do this. There are no Americans -- as in "none" -- who can deliver a world-class speech in Japanese and then ad-lib answers from questions tossed by veteran journalists.

Of course, "Mr Yen" has an "unfair" advantage. He was groomed from the start to be an upper-echelon bureaucrat representing "Japanese capitalism."

He joined the Ministry of Finance in 1965 and was shipped off to study at the University of Pittsburgh and then earned a doctorate at the University of Michigan. Back to Japan briefly he was dispatched for a four-year assignment at the International Monetary Fund (IMF) in Washington.

Then back to Japan for a teaching assignment at the government's Saitama University and then a teaching stint at Harvard. All this while continuing his link to the Ministry of Finance.

He "grew up" in U.S. academic circles with names like Paul Krugman, Stanley Fisher and Lawrence Summers.

Asia is a nice neighborhood in which to nurture a yen bloc.

Asia's top countries in terms of foreign exchange holdings are Japan (US$213.04 billion, October, also first in the world), China ($145.02 billion, September), Taiwan ($90.34 billion, December), Hong Kong ($69.25 billion, September), Singapore ($68.03 billion, August), and South Korea ($48.77 billion, October).

The greater China -- China, Taiwan, Hong Kong -- total of $304.61 billion would spell some leverage if Taiwan were a political part of China.

Japan's domination in Asia is shown in another set of figures, total market capitalization.

The New York market shows $10,380 billion, with Tokyo next at $2,416 billion followed in Asia by Hong Kong ($380 billion), Sydney $308 billion), Taipei ($244 billion), China ($181 billion), Singapore ($128 billion), Bombay ($121 billion), Kuala Lumpur ($101 billion) and Seoul ($82 billion).

Considering the length of time it took to fashion the euro, Japanese opinion vaguely says "about 10 years" to form a yen bloc.

Addressing the Foreign Correspondents' Club of Japan in late January, Sakakibara was cagey about the "yen bloc" idea.

"An excessively weak yen is not desirable as well as an excessively strong yen," he said,

As one analyst put it, Japan would enjoy substantial benefits if a "yen zone" was created in Asia.

For example, if yen-based trade increases, Japanese companies would be less likely to lose profits due to fluctuating exchange rates. They would know at the beginning of a deal the exact amount of profit they could expect.

Sakakibara quoted American Daniel Yergin's pitch that the post-World War II process was the battle between government and the marketplace, the theme of Yergin's book Commanding Heights.

"Is this really true? To me it is intellectually more satisfying to see government and the market as complements rather than substitutes."

On the controversial issue of controls versus absolute deference to market forces, Sakakibara comes down on the side of some controls because "global capitalism has turned out to be inherently unstable."

There are four requirements:

First, there need to be some global rules and regulations.

Second, these common international rules need to be established both in financial and trade areas.

Third, the coordination of policies should be done on the political level as much as possible with "effective technocratic advice from domestic and international bureaucracies."

Fourth, differences among national capitalist structures should be recognized to achieve effective coordination. That's coordination, not coercion.

Sakakihara, who is the only genuine celebrity in the Japanese bureaucracy, says "What I aspire to in the 21st century is a global world system that interconnects each region and country with their unique culture and socioeconomic regime."

The writer is a Tokyo-based veteran analyst of Northeast Asian affairs and a media fellow a Hoover Institution, Stanford University.