Showing posts with label G7. Show all posts
Showing posts with label G7. Show all posts

Sunday, February 15, 2009

Nakagawa Shoichi is now Aso's problem



As the above video illustrates, Nakagawa Shoichi, finance minister, financial services minister, and Aso ally appeared at the G7 meeting in Rome, where he stumbled and slurred his way through his remarks to the press and fell asleep during the plenary session.

Hatoyama Yukio, DPJ secretary-general, has already called for Mr. Nakagawa to be fired for "doing immeasurable harm to the national interest." (Presumably Mr. Hatoyama was referring to ABC's reporting on Mr. Nakagawa's falling asleep.) Ozawa Ichiro added that for a minister to act as Mr. Nakagawa did on the world stage is a "disgrace."

The question now is whether Mr. Nakagawa was drunk. As this Asahi article reviewing the response to Mr. Nakagawa's behavior notes (in passive voice), "Mr. Nakagawa is known as a drinker." Kawamura Takeo, the chief cabinet secretary, admitted that while Mr. Nakagawa had some wine at lunch, it was not enough for Mr. Nakagawa to become inebriated — the cause was his taking too much cold medicine.

Former Prime Minister Mori Yoshiro, however, did not help the government by noting in an appearance on TBS that he had warned Mr. Nakagawa about his drinking in the past. (Mr. Mori has become almost fatalistic about the future of his party in recent remarks — in the same appearance on TBS, he said that an election should be held as soon as the budget passes, in effect admitting that there is nothing Mr. Aso can do to rescue his government and his party before September so he might as well go through with an election sooner rather than later.)

Given that Mr. Nakagawa's alcoholism is an open secret in the Japanese political world, it is unlikely that the government's explanation will hold water, which raises the question: should it matter?

On this question it is worth looking at a 2006 article at Slate by British historian Geoffrey Wheatcroft on the fall of Charles Kennedy, the leader of Britain's Liberal Democrats. Wheatcroft looks back at the role of alcohol in democratic politics over the twentieth century and concludes that times have changed.

Kennedy," he wrote, "is a likable man, but you have to say he had it coming. He had regularly given the impression in public of being either sozzled or monumentally hung-over, making an awful mess of policy presentation during last spring's election."

He concluded, "Charles Kennedy's departure is sad but not tragic."

The same might be said of Mr. Nakagawa should he be forced to step down as the result of this scandal.

Mr. Nakagawa clearly has a problem to deal with, but that is his concern; he should not be the object of ridicule. The important question is whether Japan's finance ministry should be headed by a man struggling with a disease that clearly affects his ability to work just as its economy collapses, the answer to which is no. In some sense, this is a symbolic question, because I have to imagine that the finance ministry bureaucrats have ensured the smooth functioning of the ministry under Mr. Nakagawa's watch. (Indeed, I imagine that the finance ministry's power has waxed in recent months, despite the anti-bureaucratic wave in Japanese politics.) But the symbols do matter; surely pictures of the finance minister falling asleep at a summit alongside the finance ministers and central bankers of the developed world do little to inspire confidence in the ability of the Japanese government to respond to the crisis.

It is, of course, possible that the government's explanation is correct. Mr. Nakagawa has said that his behavior was the result of mixing alcohol and cold medicine, but even if this is true, this incident has shed light on Mr. Nakagawa's alcoholism, which, as suggested by Wheatcroft, should be considered problematic. The lid has come off on the open secret, and it is now a subject for discussion.

The bigger question, beyond Mr. Nakagawa's fitness for office, is Aso Taro's capacity for governing. When Mr. Aso named Mr. Nakagawa as his finance minister, I suggested that naming Mr. Nakagawa as finance minister was akin to John McCain's naming Sarah Palin as his running mate — not because Mr. Nakagawa is as abjectly clueless as Mrs. Palin, but because both choices suggested that the choosers were unserious about governing, as they handed important posts to manifestly unqualified individuals for wholly political reasons (Mr. Aso to reward an important ally in the party, Mr. McCain to shore up his support among conservatives and to try to poach disgruntled Hillary voters). Now we learn that Mr. Aso handed an important post in the midst of a "once in a century economic crisis" to not only a political ally with little background or expertise in financial and economic affairs, but to a political ally with little background or expertise in financial and economic affairs struggling with a medical problem that can affect his ability to perform his duties.

Mr. Mori, in the same TV appearance mentioned previously, said that had he not been on a trip to the US when the Aso cabinet formed, he would have protested Mr. Nakagawa's being named the finance minister.

It is too late to lament the original mistake. With the government's committing to the story that Mr. Nakagawa was simply doped up on cold medicine, it may be too late to fix the mistake without mortally wounding a government already nearing death. It is entirely conceivable that this scandal, with its international ramifications (mostly in terms of Japan's pride), could set in motion a train of events that will bring down the government and trigger an election, the final blow to the prime minister's support within his own party.

Sunday, February 11, 2007

Much ado about nothing in Essen

So the meeting of G7 finance minister and central bank presidents has concluded, and, despite grumbles from the Democratic US Congress and the EU's ECOFIN about the weakness of the Japanese yen, the final statement in Essen included nothing that directly referred to Japanese monetary policy.

Instead, the only country named directly in the paragraph on exchange rate policy is China, together with other developing countries:
We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely, and cooperate as appropriate. In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur. (Statement available for download here)
So Japan has once again been granted a reprieve, with China remaining the favored scapegoat of developed countries feeling the crush of competition from the BRICs and the rest of the developing world. Perhaps the G7 balked at the potential consequences of a statement that might spark the rapid "unwinding" of the yen carry trade.

In any case, the yen remains weak, Japanese interest rates remain extremely low, and the G7 remains a body with questionable relevance in the rapidly changing international system.

Sunday, February 4, 2007

Japan walking into a trap at Essen?

The G7 is due to meet in Essen, Germany this weekend, and there are dark rumblings that Japan may be called to account for failing to allow its currency to rise as the dollar falls, which has forced the euro to appreciate to a greater extent than the yen, which has remained the weakest of the major currencies.

At a recent ECOFIN (that's the Economic and Financial Council of the Council of the European Union -- the finance ministers' group in the European presidency) meeting, German Finance Minister Peer Steinbrück and French Minister of Economy, Finance and Industry Thierry Breton suggested that the weakness of the yen would be on the table at Essen. In Breton's words, "We agreed that the yen ought to reflect the reality of the Japanese economy" (From Jiji, in Japanese).

That was from 31 January.

Just before that, however, US Undersecretary of the Treasury for International Affairs Tim Adams said at Davos that the US viewed Japan's economic policy as "appropriate," suggesting that any attempt by the European members of the G7 to cajole Japan into allowing the yen to bear more of the burden of the dollar's fall would be nixed by the US.

Recent changes in the US, however, suggest that Japan may in fact be confronted in Germany.

First, Adams tendered his resignation on Friday. His letter gives the usual "more time with my family" excuse, but I can't help but wonder if there isn't a dispute going on in the upper reaches of the Treasury Department over how the US should deal with currency manipulation. As Ken Worsley notes in this post at his Japan Economy News blog, Congressman John Dingell (D-MI), chairman of the House Energy and Commerce Committee, apparently wrote a letter to Bush calling for the administration to press Japan on the currency issue. (Apparently if China won't budge, Congress can always turn to Japan as a scapegoat.) Maybe Secretary Paulson is caving on this front.

Second, I wonder how the Kyuma dispute plays into all this. The Bush administration, after all, isn't known for being especially charitable to critics, and Kyuma trod upon the administration's toes -- well, toe, probably the pinky toe -- just as it struggled to sell the new course in Iraq to the American public. While alliance managers have traditionally tried and mostly succeeded at keeping the economic and security realms separate, I can't help but wonder if the Bush administration, embattled at home and abroad and short on prominent Japan hands, isn't particularly concerned about breaking with tradition in the US-Japan relationship.

As such, should Japan face a united front of criticism from the rest of the G7 in Essen, it could be a crippling blow for the already tottering Abe Cabinet. Combined with the boycott of budget hearings by the opposition as a result of l'affaire Yanigasawa, pressure from the G7 to change course at home could further paint Abe into a corner.

Is it too early to start placing bets on how many more months (weeks?) Abe has before being ousted?