Continuing on a documentary spree in the world of finance, on the role of central banks on the Japanese economy….and for much of the world…..filled up much of my mind. Unfortunately, I will need to watch it again because I don’t think I was able to fully comprehend everything. 

Financial/monetary policy had never been a strong spot for me. Debt/credit in general hasn’t. Probably why I try my best to avoid it entirely where I can….and quite honestly….debt is the cause of every crisis. Sure, one can say the recent economic crisis (are people calling it that or is it just me?) is because of COVID but really….the pandemic was just the outgoing tide that revealed who was actually swimming naked. 

Debt obligations are generally what cause the cash crunch for companies and people alike. 

Putting that aside….Japan has been the poster child for an economy in long-term recession and stagnation. Usually, most discussions of our recent low-interest-rate environments lead to finger-pointing at Japan and their so-called “lost 20 years”…….it used to be called the lost decade from the 1990s to 2000s but now it includes up to the 2010s. I wonder if it will be called the lost 30 years another 10 years from now.

But truth be told, I wasn’t always fully aware of what the issue was. I was relatively familiar with the Asian Financial Crisis in the late 1990s because that destroyed South Korea’s economy. But Japan’s crisis had happened earlier. I just assumed it was a crisis led on with an unsustainably high currency. Alas, that was merely one fact of an economic situation at the time. It didn’t explain much. 

Then there was the other thought. Why Westerners were so obsessed with Japanese management techniques. I will admit that the people who recommend/obsess over Japanese management/organization techniques like Kaizen tend to always be Europeans. Oh in-case you don’t know, I try to refer to all Caucasians as Europeans. Seems more logical than using colour. 

Maybe it’s because most of my bosses were Europeans? Maybe that’s the true correlation? Or maybe it is that there has been a well-entrenched narrative fallacy in North America of how Japanese management techniques are superior because the recency bias of the 1980s/90s has them remembering how large the Japanese economy got and how they bought up a lot of American real estate as a result. 

Japan also was a trade surplus nation with much of their exports going to the U.S. as well… so that could be part of the recency bias. But when I studied Japanese companies…I could not find many examples of innovative organizations where companies thrived on the ingenuity of its people. Not saying there aren’t any innovations from Japan, they have many remarkable companies but nothing that told me a culturally unique advantage existed. 

Given how Japanese and Korean business cultures are quite similar, my understanding was the culture continued to be a limiting factor to companies doing well. Though there are pros to the ’society above the individual’ mindset around these cultures, there is also a very ironclad rule of hierarchical respect that kills any kind of individuality that could lead to collective improvement for the society. 

I mean….Korean pilots now speak to each other in English because they crashed too often because our language doesn’t really allow a junior to talk back/disagree with a senior. That’s just one extreme example but it’s like how when I talk about overwork or mistreatment of employees to my parents they used to look at me quizzically and say….what’s the problem? It’s the duty of the juniors to take on such mistreatment… Now, they see the world more with the dual east/west lens. But the point being….given what I know of the culture…it was odd it’s management tactics would be celebrated here. 

Naturally, I always pushed back on the Westerner’s over glorification of Japanese culture. Just because much wasn’t unique to a country….but there also is that loser’s mindset from the colonization of Korea by the Japanese. I admit this will inadvertently sway my views unconsciously. 

But, the documentary revealed rather how much of the economic boom in Japan up to the 90s was manufactured by the Bank of Japan (BOJ = their central bank). Though there may have been innovation in companies…the BOJ…though it was under the jurisdiction of the Ministry of Finance (aka Japanese government)….set their own guidance where they created quotas for banks to give out loans. 

These quotas were set to extremely high rates where Japanese banks were incentivized to loan out more and more money to companies and people at looser and looser credit requirements. The reason? To manufacture an economic crisis. 

The BOJ was intending to use a total meltdown of the Japanese economy to create structural reform to change the economy from what it was (one with cartels that limited competition…where there was arguably more equality among citizens and overall prosperity) to what they thought to be the U.S. system of free markets (a stock-market led economy instead of one led by banks/industries). 

So….a ton of cheap debt….led to the phenomenon where young people in their 20s were buying 2-3 properties….where the garden around the imperial palace was worth more than the state of California… and Japanese real estate was worth 4x that of the U.S. An even more fascinating phenomena is that despite all the cheap debt and constant money printing… the currency was not devalued. Just like Canadian dollars being pegged to oil prices - despite Canada not being an oil dominant economy….contrary to popularly incorrect opinion - because currency traders use oil prices as signals for the CAD exchange rates….the Japanese exchange rate was not pegged to lot’s of cheap debt but consumer trade surplus….which didn’t decline from all the cheap debt. 

So, you end up having a situation where companies like Nissan make more money stock trading than making cars. I am going to assume that every other industrial growth was fuelled by cheap capital. It’s like venture capital funding all kinds of shitty businesses. Yes, they will get market share because they will undercut everyone…but that doesn’t mean it’s sustainable. Well, the same can be said about an entire country’s export-based economy being fuelled by cheap debt…with a central bank non-stop printing money because it wants to bring its own economy to a crisis. 

Yet…from the outside….the U.S. think their businesses are losing…because of some foreign…advanced…management tactic. Not to overgeneralize… but one really has to consider how impactful such narrative fallacies have been over the ensuing decades in Western industrialization as well. 

Just like how some companies in hot sectors like e-commerce will succeed despite having shitty management practices purely because of a rising tide lifting all boats…. the same could be said for Japanese businesses from the 80s that a rising tide of cheap money lifted all boats despite shitty management practices. 

Not saying Japanese management practices are bad. But, it’s worth examining whether they actually are something superior or great. The same arguments can be made of models like lean startup (as there are folks on either side of the argument) and those who study Jack Welch’s GE (this was utter trash….an awful structure of fear and short term quarterly -isms). 

The greater revealing part of the documentary was on the power of central banks…how the U.S. possibly abused their position to induce the Asian Financial Crisis….and how the central banks might just be legal thugs. What I also left thinking about is what financial and monetary policy can actually do….and maybe…..these guys should be getting just as much attention as the Big Tech companies on talks of monopoly and anti-competitive behaviour.