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Noriaki IMAI in FT

Lunch with the FT: Noriaki Imai
By David Pilling
Published: July 16 2004 19:49 | Last Updated: July 16 2004 19:49

The first time I saw Noriaki Imai was in a hotel room in Osaka in April when I switched on the television to watch the evening news. There, on top of the polished drinks cabinet where the television rested, were the fuzzy images of an 18-year-old Japanese boy cowering on the ground. Next to him were two equally terrified Japanese people, a young man and woman. All three were blindfolded. Behind them stood Iraqi militiamen, brandishing guns and knives. A message in Japanese moved slowly across the screen: unless Tokyo pulled its troops from Iraq within three days, Imai and the two other "children of Japan" would be burned alive.

Unlike Kim Sun-il, the 33-year-old South Korean beheaded by Iraqi militiamen a few weeks later, the death sentence on Imai and his fellow hostages was never carried out. For days, the hostages' families appeared on television, pleading for their children's lives. All three had gone to Iraq for humanitarian reasons, they said. None supported the dispatch of Japanese troops. Eight excruciating days later, the hostages were released unharmed.

It was then that the trouble really started. Japanese public opinion, which at first had rallied in sympathy, turned against the three. They were blamed for recklessly going to Iraq and dragging their government into negotiations with armed lunatics. The phrase jiko sekinin, roughly "self-responsibility", sprang from television news discussions into daily parlance. It meant the three had struck out alone, and should face the consequences.

Families of the hostages were bombarded with hate mail. The government flew the three back to Tokyo, but billed them for the airfare. Arriving at Haneda airport, their heads bowed low in shame, they shuffled past hostile placards including one that read simply: "You got what you deserve."

A few weeks later, Imai agreed to meet for lunch. After a period in virtual hiding in his native Hokkaido, he was in the process of recovering his self-composure and sorting out what had happened - both in Iraq and in Japan. Boyish and handsome, he apologised for being late. Actually, he was five minutes early.

Standard Japanese etiquette aside, Imai was no longer the meek, harrowed-looking boy I had seen at a press conference after his return. Then, he had fled the cameras after mumbling a few short answers to written questions.

Now, dressed in a cycling top and jeans, he has an aura of confidence. "I'm recovered now. I'm not going to bend low anymore," he says. At the time of the press conference he hadn't been coping well. "One of my biggest fears was that the flash of the camera would bring everything back. The flash makes you lose the will to live."

I turn the menu around to face him. By Tokyo standards, this is not a particularly expensive restaurant, but his eyes widen at the prices and he selects the cheapest option. He has chosen an upscale version of the bento lunch boxes filled with savouries that children carry to school and salarymen eat at their desks. As is common in Japan, I order the same as my guest.

Imai asks for ice coffee and exhibits some amazement that I - a journalist at an upstanding newspaper - should have ordered a lunchtime beer. "Sugoi", he says, employing the overworked word for "amazing".

As he pours liquid sugar into his tall glass of coffee, I ask him what he made of the public hostility. "It was a huge surprise. People were saying I needed to take responsibility for my own actions," he says. "But it sounded to me as if they were saying they wished I'd died. To my mind, the meaning was: 'You should have died in Iraq and come back a corpse.'"

The food arrives in three neatly stacked lacquer boxes. The waitress, dressed in a simple kimono, slides in and out of the room, bringing separate bowls of thick red miso soup and white rice. "Sugoi," says Imai, surveying the ornate arrangement: tiny portions of raw fish, steamed vegetables and meat, grilled eel, pickles and tofu. "I've never eaten anything so luxurious in my life."

As he prods at a succulent piece of raw sea bream and mixes a little green wasabi mustard in soy sauce with the end of his chopsticks, I tell him that a version of events is circulating that the hostages faked their own kidnapping to force Tokyo to withdraw its troops. "Why do people say such things? I can't believe it," he says, losing his composure for an instant.

He says the government, aided by much of the media, deliberately discredited the hostages. True enough, a close adviser to prime minister Junichiro Koizumi had told me privately that the hostages' families were communists and had sullied their case by pressing for the withdrawal of troops. Koizumi's government is extremely prickly about criticism of the deployment, which is an open challenge to Japan's pacifist constitution. "They did not want us to be heroes," says Imai.

He had gone to Iraq, over the initial objections of his parents, to study the effects of depleted uranium shells on the health of civilians. Over the internet, he had made contact with Nahoko Takato, a 34-year-old Japanese volunteer working with Iraqi street children. She was to become a fellow hostage.

I wondered what had made him political when so many Japanese are wary of expressing opinions. "Up until third grade, I had never even read a book. I was a gamer," he says, surveying the lacquered boxes for the next delicacy. But September 11 and its aftermath was a turning point. "From October 7, the bombing of Afghanistan started and I felt very empty and useless." He wandered the internet in search of answers. He researched the Balkan and Rwandan wars to determine when outside intervention might be justified; studied depleted uranium; read up on the arms industry; and looked into the scramble for coltan metal, used in Japan's ubiquitous mobile phones and blamed by some for fuelling conflict in the Congo.

"I'd like to find out more about these things," he says, momentarily choking on some wasabi. "But in Japan, people don't know much about such topics," he continues when he has recovered. "We don't know anything about Angola or Sudan. Most young people are losing interest in social affairs."

Imai set out to explore things for himself, but within days of leaving the safety of Japan he was being bundled into a car by armed men. "These guys were carrying rocket launchers and Kalashnikovs," he recalls. "They had a hand-grenade right in front of my face in the car and I thought: 'Oh no, these guys are suicide bombers.'"

When the kidnappers discovered their captives were not soldiers but a motley crew of aid worker, photo-journalist and depleted-uranium researcher, they promised not to kill them. They asked the three to cry as they filmed a video later released to the al-Jazeera network, a fact seized on by sceptics as proof that the whole kidnapping was a set-up.

Imai says there was nothing fabricated about their fright. At one point during the filming a knife was put to his throat. "It was terrifying. It's true that [later] they promised, many, many times we would be freed. But it kept not happening, and so mentally we became worn down."

Yet he does have sympathy for his kidnappers. "Although they had weapons in their hands, some of them became close with us. They dealt with us sincerely," he says. Captors and captives talked over tomato and cucumber salad, chicken and sickly orange pop. When they were released, they shook hands. "We had had many discussions about whether there is a way to fight without weapons. They really weren't altogether happy about fighting like that. They even said: 'We want to find another way. What should we do?'"

Now back in Japan and dashing out a book on his experiences, he is often stopped in the street. "Sometimes people criticise me, saying mean things straight to my face," he says, repeating a Japanese word that my dictionary translates as "pert, sassy boy". (My friends say it's more like: "You little shit.") But Imai says that for every person who swears at him, several more express support.

Finishing his grapefruit, he makes ready to leave. "Look me up next time you're in Hokkaido," he says, heading for the door. He turns to bow. Not the low bow of contrition or regret. But the polite bow of a Japanese boy taking his leave, and venturing out into the world beyond.

David Pilling is the FT's bureau chief in Tokyo

david.pilling@ft.com

Wadakura, Palace Hotel, Tokyo

Cheese sponge cake

Conger eel

Corn cake

Konyakku in miso sauce

Bonito and bream sashimi

Boiled taro, beef and carrot

Grilled bream

Fried crab and tofu, soya beans and lotus root

Rice, pickles and red miso soup

Grapefruit

1 x ice coffee

1 x beer

Total: ¥14,519 (£72.20)

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FT on Krugman

The Performance: Don't mention the war
By James Harkin
Published: July 16 2004 19:42 | Last Updated: July 16 2004 19:42

Paul Krugman's terse opening transparency on the overhead projector looks more like a private aide-memoire than material for a public address: "Like Basil Fawlty, don't mention the war. Talk instead about political economy."

Krugman has been invited to the London School of Economics, a bastion of liberal Americans abroad, to deliver a lecture entitled, "Whither America?"

A small, bearded man with a glint in his eye, he is dwarfed by the imposing lectern on the stage of the LSE's Old Theatre. In front of him, undergraduates in sweatshirts and trainers sit alongside middle-aged men in pinstriped suits who have just arrived from the office.

This 51-year-old former staff economist on Ronald Reagan's Council of Economic Advisers made his name in international trade theory and seemed destined for a remote but rewarding career as an academic economist at Princeton University. But the economist began turning his hand to part-time journalism. After September 11, Krugman's column in The New York Times was one of the first to poke its head above the parapet and lay into the conduct of the Bush administration's "war on terror". Since then, the left has elevated Krugman to hero, an eloquent and apparently unimpeachable critic of Bush's tax-cutting and of his stewardship of the American economy.

He begins diligently, all graphs and bar charts. The Bush administration's series of tax cuts, he announces, are not a temporary stimulus to the economy, but a "structural reduction in government revenue". "You deprive the government of the revenue," he says, outlining what he takes to be the strategy of Bush's circle. "You simply say the revenue is not there." Since most government spending is "incompressible", he forecasts the shortfall can only be made good by cutting social insurance programmes in half.

Who benefits? "We can be pretty clear on the math," says Krugman, pulling up another transparency. This one shows the bottom fifth of American wage earners have been spared a mere 0.4 per cent of their income by Bush's tax cuts, while those in the top 1 per cent have benefited from a 6.1 per cent cut in their taxes.

If there was a budget surplus, says Krugman, showing us what a reasonable man he can be, then there would be a case for tax cuts which are proportional to income. "But we are cutting taxes into a deficit," he fumes. "For those in the middle of society, it is like being given a lavish gift, but one which is paid for on your credit card." This is a wry economist's joke and it gets a muffled laugh from his scholarly audience.

The fact that the majority of Americans are prepared to go along with such a state of affairs, he says, is a "political puzzle" that his graphs and bar charts are at a loss to solve. So Krugman takes a different approach. Scribbling furiously on a blank transparency, he tells a story of three men, one of whom earns more than the others, who are all asked to contribute to a commonly beneficial public project through a tax proportional to their income. If we go on to assume that the income of the highest earner rises and that the tax project is proposed again, he argues, then at some point we find that the highest earner will get less out of the project than he puts in. What emerges from his elementary maths, Krugman reckons, is logical proof that as the economic elite begins to amass more of the national income and becomes remote from the rest of society, it has a diminishing incentive to spend on projects funded through a tax that is proportional to income. "I am not a Marxist," he says, to another indulgent laugh from his audience, "but I do believe that economic interests matter."

Now Krugman the painstaking number cruncher is beginning to jostle for position with Krugman the political agitator. There is a whiff of intrigue in his telling of the story of contemporary American politics, the suggestion of men in the dark plotting strange, millennial occurrences. But he makes no apologies. "Last year's crazy conspiracy theory," he says, "is this year's established wisdom."

Someone asks how the situation can be turned around. The fallout from "you know where", says Krugman, "has a chance of undoing the pendulum and causing it to swing in the other direction". So, it's not about the economy after all, stupid, but about the war. And, as Krugman playfully implies, Bush's mainstream opponents are reserving a tactical silence.

A young woman in the audience wonders whether Bush's victory has created an ideological wave that is now washing over the fiscal policy of governments in western Europe. But Krugman cannot see it. What is happening now in Europe, he says, is mild in comparison to anything in the US. "If I was in Germany," he says, "I'd be reviled as a rightwing, laissez-faire economist." A middle-aged man wants to know why more academics and intellectuals have not spoken out against the Bush administration. "It is difficult for some academics to grapple with the fact that budget projections are blatantly, sneeringly dishonest," Krugman admits. "But actually university professors got a lot noisier recently." They certainly did.

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Anil Kashyap's View on Japanese Banking Problem (FT)

Size is not the answer for Japan's banks
By Anil Kashyap
Published: July 18 2004 20:56 | Last Updated: July 18 2004 20:56

Yet another megabank is about to be born in Japan. The UFJ Group and the Mitsubishi-Tokyo Financial Group (MTFG), two of the four biggest financial groups in Japan, have announced their intention to merge. The assets of the combined bank would make it the largest in the world. The share prices of both banks rose substantially on the news.

The optimism is puzzling in light of the long-standing problems that Japanese banks face. The four main ones - as I have argued in a recent paper with Takeo Hoshi - are insufficient capitalisation, low core profitability, backward business models and continued lending to insolvent companies*. All are clearly present at UFJ.

The merger was triggered by UFJ's need to find more capital. MTFG, the healthiest of the large Japanese banks, can certainly provide it - but it is not clear how the merger will overcome UFJ's other problems. For one thing, UFJ's lending practices need to change, so that its "zombie" clients - businesses such as Daiei, the retailer, that would go bankrupt but for repeated bank loans and debt forgiveness - do not keep receiving credit. MTFG has been better about avoiding such lending but it has just led a bail-out of Mitsubishi Motors, another zombie.

In assessing the merger, one should also bear in mind that the most successful large banking mergers are those that create value through attempting to reduce costs rather than through trying to enhance revenue. This is not surprising, given that whenever two large organisations are combined, cost savings are easy to identify and straightforward to achieve. It is much harder to figure out how to cross-sell products.

These facts imply four conclusions about the proposed UFJ-MTFG merger. First, there is no particular reason to believe that simply creating a larger organisation will solve UFJ's long-standing structural problems. UFJ needs to cut loans to non-viable borrowers and its balance sheet should be thoroughly cleaned up, with bad credits offloaded to the government's asset management companies. Presumably UFJ could take these steps unilaterally, although it may lack the capital to absorb the losses on the dud loans. MTFG's better capital position could help - but only if its management is willing to take on these problems.

Second, if it wants to compete with other global banks, the new giant will need to upgrade its business model to compensate for the declining demand for traditional banking business. The managements reportedly believe the combined bank makes sense because the branch networks are centred in different parts of Japan. This ignores the fact that these branches are not particularly profitable and that in many areas there is overlap. The largest bank in the world is not going to succeed if all it aspires to is taking deposits and recycling them as low-margin consumer loans.

Third, for the merger to make sense, there will have to be big cost-savings. Especially around Tokyo, there is a lot of overlap between UFJ and MTFG, so this is possible.

Unfortunately, the final conclusion is that past experience gives little hope that cost-savings will be realised. When UFJ was formed three years ago there were similar opportunities to cut costs. Yet since then UFJ has trimmed only Y50bn ($46m) in expenses, less than 20 per cent of the expense base of Tokai bank (the smaller of the merging partners). In comparable US deals, savings of 30 per cent a year are common.

One might hope that MTFG could provide leadership in trimming costs but it has little experience in this regard. The 1995 merger that created Bank of Tokyo Mitsubishi, the core of MTFG, was brilliant precisely because the two merging banks had amazingly little overlap. As a result the merger did not pose especially challenging integration issues.

A simple merger with MTFG does not seem to be the way to address the serious structural problems at UFJ. If it is to succeed, the management will have to focus on implementing massive cost-cuts, making better lending decisions and developing new revenue sources. It will also have to carry out tasks - integrating computer systems and bridging the pre-merger culture gap - that other large Japanese banks have struggled to achieve. Japan's new giant will not have an easy birth.

* 'Solutions to Japan's Banking Problems', http://gsb.uchicago.edu/fac/anil.kashyap

The writer is professor of economics and finance at the University of Chicago's Graduate School of Business

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田谷審議委員、釧路講演

今年度の実質経済成長率を、4月の「展望レポート」における大勢見通しの3.1%とすると、GDPギャップは1.1%縮小することになります。GDPギャップとコアCPIの関係を、過去20年間のデータを用いて経済構造に変化がないという前提で計算すると、ギャップが1%縮小した場合、平均して0.42%物価が上がる関係がみられました。ただ、この関係はかなり幅を持って見なければならないもので、統計上の概念である信頼区間がかなり広いのが特徴です。単純化のため、この過去の平均的な関係をそのまま今年度に当てはめて考えますと、GDPギャップの縮小1.1%に0.42を掛けることになり、結果は0.46%になります。昨年度のコアCPIの変化率は、一時的要因によるものを除いたベースで、マイナス0.5%でした。このマイナス0.5%に0.46%の物価上昇圧力が加わると、今年度のコアCPI変化率はほぼゼロになることになります。ただし、昨年度の一時的物価上昇要因の一つであったコメ価格が、今年度は逆に下落要因になると想定すれば、今年度のコアCPI変化率には若干のマイナスが残ることになります。

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