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JAPAN:
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BUSINESS | March 23, 1998 VOL. 151 NO. 11 |
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Ministries of Shame Fresh scandals discredit Japan's top institutions. But why did authorities wait so long to crack down? By Donald Macintyre  t's tough being a mandarin these days. Just ask Yasuo Matsushita, governor of Japan's central bank. Dozens of Tokyo prosecutors wearing dark suits and grim expressions marched into his bank last week to arrest a senior official suspected of trading inside information for $33,000 worth of fine dining and golf. While investigators loaded evidence into cardboard boxes, Matsushita initially resisted calls to step down. But with the public increasingly fed up with serial corruption among Japan's top officials, he finally agreed to take the fall. It's far rougher treatment than Japan's elite used to face. In 1979, when the press caught mid-level Finance Ministry officials taking goodies, the ministry's top two bureaucrats were reprimanded but went on to dazzling careers anyway. One became president of the Tokyo Stock Exchange. The other was Matsushita.
The prosecutors' raid was unprecedented in the Bank of Japan's 116-year history. And it came less than two months after authorities raided another pillar of the world's second-largest economy, the Finance Ministry. Four of its bureaucrats are now languishing in jail, accused of doing favors for banks in exchange for lavish entertainment. This time prosecutors netted Yasuyuki Yoshizawa, 42, head of a division that guides short-term interest rates in Japan's money markets. He is accused of leaking sensitive information to two of the country's biggest private financial institutions, Industrial Bank of Japan and Sanwa Bank. Japanese media reports say he was also wined and dined by Sakura Bank, which Matsushita headed before he joined the Bank of Japan. What's going on? Cozy ties between banks and bureaucrats are nothing new in Japan. But the country's once-sleepy prosecutors have decided things have gotten out of hand. The crackdown started last year with a sweeping investigation of banks and brokerages linked to racketeers. When that probe turned up evidence of corruption in high places, the prosecutors followed the paper trail right to the Finance Ministry and the central bank. "The corruption is too glaring for the prosecutors to ignore" says Kazuo Kawakami, a lawyer and former prosecutor. The backdrop to the prosecutors' new gung-ho attitude is the waning power of the Finance Ministry, long considered Japan's "ministry of ministries." Think of the U.S. Treasury Department, Securities and Exchange Commission and Internal Revenue Service rolled into one. The superministry also acts as a shadow Federal Reserve, effectively controlling the Bank of Japan: Matsushita was handpicked by the ministry. But after badly fumbling the economy and embroiling itself in one scandal after another during the 1990s, the ministry has been under increasing attack from politicians, the press and irate citizens. The prosecutors swung into action once the public mood was on their side. Finance Ministry bureaucrats "have lost a lot of prestige and respect and influence, and that has made them vulnerable," says Peter Harcher, author of a new book on the ministry. "If the stakes weren't so high, it would be comical." The latest corruption charges may be the most serious. Yoshizawa had huge clout: his directives on interest rates influenced the cost of everything from government bonds to bank loans. He also no doubt had a preview of the Tankan, the bank's widely watched economic indicator. Market players have long complained that bond and currency prices sometimes move ahead of the Tankan's release, suggesting a high-level leak. Anyone getting tips from Yoshizawa's division stood to make a killing in financial markets. For global investors already vexed by Japan's lack of transparency, the arrest was alarming. "The scandals have totally discredited Japan's financial markets in the eyes of the world," says Koji Morioka, professor of economics at Kansai University. At the central bank, accepting free nights out on the town was so commonplace that bureaucrats even had their own argot for it, according to Masayuki Ishii, the arrested official's former boss. One code word was dobon, literally the sound of a heavy object plopping into the water, which referred to a night out for the bank's heaviest hitters at restaurants where dinner might cost $400 a head and attractive kimono-clad women serve the sake. "Getting entertained wasn't considered a problem," Ishii told the Mainichi Shimbun. But, he said, his former subordinate "may have gone too far." Since the Bank of Japan is so badly tarnished, the institution's next head may well be an outsider. But the real question is whether he will have enough clout to clean up the bank. While Prime Minister Ryutaro Hashimoto has promised new laws to improve ethical conduct in the bureaucracy, he hasn't talked about prohibiting nights of wine, women and karaoke. What's really needed is a thorough overhaul of the system-banning such practices as allowing retiring bureaucrats to parachute into cushy posts in the companies they have spent their careers regulating, a practice known as amakudari, or "descent from heaven." So far, the Finance Ministry has resisted such drastic steps. "The first inclination of everyone involved is to circle the wagons," says Ron Bevacqua, an economist at Merrill Lynch in Tokyo. The ministry of ministries may be down, but it's far from out. -With Reporting by Hiroko Tashiro/Tokyo
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