It was evening by the time Yoshimasa Nishimura, chief of the Japanese Ministry of Finance's banking bureau, left his office, strode down the creaky wood-parquet corridors of his ministry and entered a waiting limousine. He was whisked to Tokyo's Minato ward, where Akira Fujita, then president of Daiwa Bank, awaited him nervously. Fujita, like most bank presidents, was used to being treated with lordly imperiousness by "top MoF" men half his age. Nishimura was in a grim mood--and it was about to get worse.
It was Aug. 8. Everywhere Nishimura looked, it seemed, Japan's already hurting banks were tottering. Osaka's Kizu Credit Union and Hyogo Bank in Kobe were about to collapse -Japan's first postwar bank failures. When Nishimura entered, Fujita bowed. "I have received a shocking letter from our man in New York," the bank president told Nishimura. For 10 years, a rogue bond trader at Daiwa's U.S. office had gone undetected, he said. "We seem to have lost a billion dollars. It's hard to believe."
What Nishimura did next was even harder to believe, at least for Westerners unused to the ministry's highhanded ways. He sat on the information, merely telling Fujita to "investigate." It wasn't until six weeks later that the ministry, sensing that U.S. authorities were on to the cover-up, reported the loss to the New York Fed. The delay infuriated U.S. authorities, who needed to be warned if Daiwa's New York branch was in trouble. They grew angrier still when the Japanese denied knowing about the debacle before informing them-a transparent lie. Last week Tokyo tried to make tentative amends. Daiwa's Fujita resigned, in disgrace, as Tokyo Finance Minister Masayoshi Takemura con-tritely phoned U.S. Treasury Secretary Robert Rubin. "He promised it would not happen again," said a Treasury spokesman.
End of story? Hardly. The very next day, Oct. 12, brought another twist. Apologize, asked the ministry's chief of international finance, Eisuke Sakakibara? "I don't think there was anything improper in what we have done." How could he repudiate his own boss? Simple. Sakakibara is a career MoF elito, in contrast to Takemura, a mere political appointee-and that in itself goes to the heart of a controversy sweeping Japan's hidebound financial establishment.
For decades, Japan's Ministry of Finance has been the most powerful (and least accountable) bastion of financial and political influence in the country. The minions of Finance enjoyed an almost Olympian stature. They answered to no one--not politicians, not to bank presidents, not to U.S. Treasury secretaries--and they feared no one. But lately, for the first time, outside events have made it vulnerable. Five years of recession, unending troubles with the country's major banks, the recent Daiwa scandal--all this has thrown a spotlight the ministry's inner workings. There are critical newspaper editorials; calls for reform from leading politicians; debate on television talk shows. The common theme: rein in the ministry, dilute its power, possibly even break it up.
The problem, critics charge, is a basic conflict of interest. On the one hand, the ministry is Japan's treasury; it issues national bonds, collects taxes, backs Japan's banks in their drive for international clout. On the other hand, it's ostensibly Japan's regulatory watchdog, responsible for policing the banks. Apparently, these roles are clashing with growing frequency. In recent years the ministry has been reluctant to allow Japanese banks to write off what may be up to an estimated $700 billion in bad debt. Reason: though improving the health of the nation's banks, such a move would erode the ministry's tax revenues. Now there's the case of Daiwa Bank. Critics claim it's nothing less than a conspiracy to conceal a major bank's financial weakness.
Ministry officials are trying to stay above the storm. "Accountability? We are very accountable," sniffs a top officer. "We're fiscally prudent; we have the people's best interests at heart." In the end, it's unlikely that the ministry's power will be seriously challenged, for all the heated talk. Says one U.S. expert: "I'd say the MoF and the emperor are equally in danger of being abolished." The difference, though, is that no one is blaming the emperor for Japan's plethora of economic troubles.