[How About This Book] A Witness to the Bank of Japan Looks Back on the 'Lost 30 Years'

Memoirs of Former Shirakawa President... Misfortune of Financial Crisis and Midterm Fall
Refuting Political Claims That 'BOJ Money Supply Shortage = Cause of Deflation'
"Nominal Wage Stagnation Is the Main Cause," He Argues

"I thought it was appropriate to downgrade the outlook for the Japanese economy. However, I was reluctant to adopt this view at the first monetary policy meeting held just two weeks after becoming acting governor. Forcing a downgrade at the first meeting risked weakening the camaraderie among the Policy Board members."

This is what Masaaki Shirakawa, former Governor of the Bank of Japan (BOJ), wrote in "What Can We Learn from Japan's 30-Year Experience" as he reflected on the first monetary policy meeting he chaired. The date of the meeting was April 9, 2008. It was less than a month after Bear Stearns, the fifth largest investment bank in the U.S., was acquired by JP Morgan Chase. Bear Stearns was acquired by JP Morgan on March 16 of the same year.

Former Governor Shirakawa was appointed Deputy Governor and Acting Governor of the BOJ on March 21, just five days after Bear Stearns disappeared into history, and became Governor three weeks later. His hesitation at the first monetary policy meeting he chaired gives the impression that, despite a major shock having already passed through the U.S. financial market, the assessment of the economy was still somewhat complacent.

At that time, no one in the global financial market anticipated the storm that would follow Bear Stearns. Masaaki Shirakawa wrote that after the G7 meeting on April 11, many policymakers and bank executives said "the worst is over" during their discussions. Financial market indices were also exuberant. The New York Stock Exchange continued to hit record highs until May, and New York crude oil futures approached $150 per barrel in July of that year. The record high oil price set then has yet to be broken.

About five months later, on Monday, September 15, Lehman Brothers, a larger investment bank than Bear Stearns, filed for bankruptcy protection. Three days before the bankruptcy filing, on the morning of September 12, a remote meeting was held among G7 finance ministers and central bank governors. At that meeting, U.S. Treasury Secretary Henry Paulson reported difficulties in finding a buyer for Lehman. Nevertheless, Masaaki Shirakawa recalled thinking that his American colleagues would never allow Lehman to be liquidated over the weekend.

Contrary to expectations, Lehman went bankrupt, and the global financial market plunged into an uncontrollable abyss. New York crude oil prices fell to around $10 per barrel by the end of that year.

Former Governor Shirakawa is a living witness to the BOJ, having worked there for over 40 years. He joined the BOJ in 1972, during Japan's high-growth period, and stepped down from the governor position in March 2013.

The latter 20 years of Shirakawa’s career at the BOJ overlapped with Japan’s lost decades. The Japanese real estate bubble burst in the early 1990s.

Shirakawa was an unfortunate governor. The global financial crisis broke out just as he took office, and in 2011 he had to deal with the aftermath of the Great East Japan Earthquake. He also did not complete his term and stepped down prematurely. In December 2012, Shinzo Abe returned as Prime Minister after about five years and declared that to overcome over 20 years of deflation, the BOJ would turn on the money printing press and print unlimited amounts of money. He showed an attitude that disregarded the BOJ’s independence. Governor Shirakawa found this unacceptable. Ultimately, he resigned from the governor position in March the following year and left the BOJ after more than 40 years of service.

In this 23-chapter book, former Governor Shirakawa dedicates a chapter to the deflation debate. He points out errors in the political understanding of deflation and argues against the view that deflation is due to the central bank’s failure in monetary policy. He disagrees with the criticism that deflation was caused by a lack of monetary easing and insufficient money supply from the BOJ. Shirakawa also argues that the judgment that deflation is the cause of Japan’s low growth is mistaken. He emphasizes that from 2010 onward, he increasingly raised his voice about issues such as aging population, declining birthrate, and the decline in productivity and competitiveness of Japanese industry. He explains that the biggest cause of Japan’s deflation is that nominal wages did not rise significantly.

During Japan’s economic stagnation, many employers tried to maintain jobs as much as possible, and workers accepted low wage increases to keep their jobs. As a result, Japan experienced a phenomenon where unemployment did not rise during recessions, but prices remained sluggish.

This book, which can be considered Shirakawa’s memoir, spans a massive 744 pages. Considering that he worked at the BOJ for a long time, rising from a junior employee to the top position, he must have had many stories to tell. Although the content dealing with central bank monetary policy is not easy, there are many interesting insights related to central bank responses during repeated global economic crises. Shirakawa analyzes events in Japan and the global economy over the past 40 years and evaluates the successes and failures of responses at the time. It also feels like a white paper analyzing failed policies. Through this process, readers can observe the flow of the global financial market and understand structural differences among central banks of various countries. For example, the European Central Bank (ECB) holds important discussions at a dinner the night before the monetary policy meeting, whereas the BOJ strictly confines policy discussions to the monetary policy meeting itself. Another major difference is whether government officials participate in the monetary policy meetings of the U.S. Federal Reserve (Fed) and the BOJ.

What Can We Learn from Japan's 30-Year Experience | Written by Masaaki Shirakawa | Translated by Park Ki-young and Min Ji-yeon | Bookie | 744 pages | 35,000 KRW

This content was produced with the assistance of AI translation services.