Princes of the Yen: Japan's Central Bankers and the Transformation of the Economy

by Richard A. Werner

This eye-opening book offers a disturbing new look at Japan's post-war economy and the key factors that shaped it. It gives special emphasis to the 1980s and 1990s when Japan's economy experienced vast swings in activity. According to the author, the most recent upheaval in the Japanese economy is the result of the policies of a central bank less concerned with stimulating the economy than with its own turf battles and its ideological agenda to change Japan's economic structure. The book combines new historical research with an in-depth behind-the-scenes account of the bureaucratic competition between Japan's most important institutions: the Ministry of Finance and the Bank of Japan. Drawing on new economic data and first-hand eyewitness accounts, it reveals little known monetary policy tools at the core of Japan's business cycle, identifies the key figures behind Japan's economy, and discusses their agenda. The book also highlights the implications for the rest of the world, and raises important questions about the concentration of power within central banks.

Genres: Economics, History, Finance, Japan, Nonfiction, Politics, Asia

384 pages, Paperback

First published February 1, 2003

Reviews

[Z. · Rating 4 out of 5]

big if true

[Blair · Rating 5 out of 5]

This is an in depth study of what has happened with Japan's economy. Japan is the second biggest economy in the world despite being relatively small in size with regard to geography and population. Clearly they were doing something very well for a long time to get there. Then the 90s hit and they had a ten year recession. This book compares all of the explanations of mainstream economic theories (classical, neoclassical, monetarist and Keynesian) and finds that none of them can explain either Japan's economic ascent from post WWII or it's huge recession in the 90s. It also goes in detail about the various fixes that were attempted in the 90s (from each school of thought) and their results.

In place of all of these it successfully uses 'window guidance' in order to show what actually caused Japan's economy to act the way it did. Essentially credit creation was what was important to predict how the economy was going to perform a year later, and this has been consistent for every decade. While I have given away the main point of the book I think it is a very valuable book for the way it is thoroughly researched and written. For anyone interested in macroeconomics this is a must-read, as it turns mainstream macroeconomics on its head. It also mentions the Asian Tigers who all had similar policies in place and shows briefly how it applies to countries beyond Asia (including the US). For a more in depth look at Werner's theory based on this work you can read his New Paradigm in Macroeconomics.

[Jeremiah · Rating 5 out of 5]

Perhaps the most important book in economics since the millennium, but then again I've only read a few.

Richard Werner uncovers new and alternative mechanisms for economic organisation, at least as effective as interest rates, that of credit creation and allocation policies. A must read for anyone interested in modern economics or the dynamics of power.

[Justin Wei · Rating 5 out of 5]

This book makes me angry. Angry that the States plagued the world with their capitalist thinking

[Moein Kaboli · Rating 5 out of 5]

The more you read it the darker it gets

[Ilse Van · Rating 5 out of 5]

Excellent!

[Levy · Rating 5 out of 5]

A financial murder mystery. The perpetrator? The bank of japan.

Besides the red line of the story, being the BoJ's and Japan's financial/economic policy since the 1920's, the princes of yen is also a great study of central banking.

[JC NoKey · Rating 5 out of 5]

It is therefore relevant to find out whether the Asian crisis really was the result of the Asian system. A thorough study of its causes reveals that, quite to the contrary, it was the policies "recommended" by the U.S. Treasury, the IMF, and the local Asian central banks that resulted in the Asian crisis.' While the Asian central banks previously had had no independence and few legal powers, after the Asian crisis almost all of them had becoine independent and unaccountable for their actions.

The Old Testament advises that the borrower is servant to the lender.

In this book we have seen that the rate of economic growth, asset price movements, and exchange rates have been largely determined by the Bank of Japan.' Using its extralegal window guidance credit controls, in the 1980s the central bank forced the banks to lend excessively to real estate speculators. In the 1990s it restricted credit and burst the bubble. It then failed to increase credit creation and actively disrupted government policies to stimulate the economy. In addition to prolonging the recession, the Bank of Japan at key junctures manipulated the exchange rate to strengthen the yen. The considerable national debt resulting from these blows to the economy has also been the responsibility of the Bank of Japan.

However, we have found that it was not interest rates that were responsible for these costly gyrations in economic ac-tivity, Instead, they were driven by the quantity of credit creation. There has been no evidence that the Ministry of Finance, the government, or other agencies had any influence over the Bank of Japan's quantity of credit policies. To the contrary, we found that a small number of insiders at the Bank of Japan independently determined these policies without being held accountable for their actions.

Alternatively, we should heed the conclusion Milton Friedman came to after decades of research and experience dealing with the Federal Reserve: "The only two alternatives that do seem to me feasible over the longer run are either to make the Federal Reserve a bureau in the Treasury under the secretary of the Treasury, or to put the Federal Reserve under direct congressional control. Either involves terminating the so-called independence of the system. But either would establish a strong incentive for the Fed to produce a stabler monetary environment than we have had."*4

[Aaron Sabin · Rating 5 out of 5]

I never thought I would be so engaged by a book on macroeconomics. This book tells the story of Japan's economy, from unbridled shareholder capitalism before the war to its transformation in the war years and thereafter, up until the central bankers forced structural change by causing the bubble of the late 1980's and prolonging the recession thereafter. It is a cautionary tale about consolidation of immense power in unaccountable hands. It is also just a great lesson in macroeconomics, especially on the role of monetary policy in the economy. I came away from this book feeling much smarter about the role of central banks and the tools to enable sustainable growth. This book paints a damning portrait of central bankers worldwide, as well as the IMF and US influence on foreign economies. It's also littered with amazing facts, like how money was created, why central banks came into existence, how the original bankers were more powerful than their governments, and more. I would highly recommend this book.

[Zord Guts · Rating 5 out of 5]

Dense topic for someone with no economic background. But Richard Werner walks through his thesis like a court case, outlining everything in great detail. A slow read but an important one, as Dr. Werner describes how a select few, unelected and unaccountable, has taken control of the economy.

These elites have decided that their ideological system, US-style shareholder capitalism, is the only way to run countries. They conspire to cement their seat at the top of the power pyramid. They do this by controlling credit creation, making Central Banks independent and unaccountable, and obscuring their actions through propaganda.

Now that I know that the words of the Central Banks are noise, I'd like to find out what is signal. How do I find out the amount of credit created by banks? Where will this credit flow to? How do we keep these people in check? Please share any book suggestions.

[Shubham · Rating 5 out of 5]

A truly remarkable and wonderful book, must read for everyone with even a slight interest in Political Economy. It tells the story of the Japanese Central Bank and the impact it's policies have had on the Japanese Economy. Lots of us remain in the shadows about the true power wielded by Central Banks on our lives and this does a stellar job in shining light on it.
It gives a good background on how Japanese Administrators after the shock of Meiji Restoration caught up with the west. The interesting thing is, all countries in East Asia, Korean Chaebols and Chinese state backed corporations continue to follow the template first laid out for Zaibatsus in Japan. This will also provide a good background for understanding the recent crackdown on Tech sector in China.
One of the important takeaways that I got from this book was about unsuitability of Free markets doctrine, which would be just tyranny of Capital. Exposes the intellectual bankruptcy and criminal naivety of proponents of Neo- liberal Laissez-faire systems in developing countries.

[Nikola Bakic · Rating 5 out of 5]

Richard Werner’s magisterial work on the political economy of central banks shown through the example of Bank of Japan. It demonstrates how instrumental central banks have been in driving the unstable boom and bust market and economic cycles. The main channel is direct control of credit creation process that is concealed from the purview of the public and even from the executive and legislative branches that appoint CB governors. The problem of the lack of accountability in front of democratic instituons is pointed out as the biggest threat of central banking. Very well argued and researched. I really enjoyed the book and I intend to come back to it in the future

[Yogy TheBear · Rating 2 out of 5]

I give it a 2.5 stars. I did actualy really licked the book. It presented valuable insight into central banks and politics. Yet I highly disagree with the author on economics. Thus the book is very good, and others with less thought pured into economics may like and agree with the author much more than me.
But here is what I disagree with him: He constantly blames bad credit creation for the boom yet also blames the Bank for not giving enough credit during the recessions. He believes in the optimal level of targeted credit creation.... Such a thing never exists. Credit creation is bad in itself.

[Dantavius · Rating 5 out of 5]

Worth one read. Main point: Money creation, which occurs through banking is the important (and discrete) lever for redistributing purchasing power across your economy. Come to conclusion that the American economy runs by airdropping money to wealthy people so that they feel rich and spend money to keep the juices flowing. That's ok but have come to sympathize with Werner point that you can really do a lot once you realize the power of banking and it is probably not very holy that ours works by blindly throwing money into system so that people will purchase assets.

[Hasta Fu]

If you think that interest rate is the most powerful instrument to control the money supply, then BOJ has made another tool to their own interest. Window guidance, a direct way to control credit creation and money availability in the market. MOF was in the dark, thinking that they have done every way possible to save Japan's economy.

But why those high official in BOJ do these actions that caused Japan to lose one decade?

[Worakan Vongsopanagul · Rating 4 out of 5]

Great Idea about japan's economy influenced by BoJ.

The First Half is so informative showing how money supply and central bank intervention create a Boom-bust cycle.

But the second half, in my opinion, feel like a kind of many books that tell how a bad guy run a central bank and control the country behind the scene.

[Elijah Oyekunle · Rating 4 out of 5]

I've never read a book that puts me to sleep as fast as this book. Once, I woke up from a 10 hour sleep, read a few pages and promptly fell into a 2 hour nap.

I stuck with it though, and it was worth it. I understand more about Central Banks and how they control the economy, and influence boom & bust cycles.

[Hao Zhang · Rating 5 out of 5]

Interesting and well-explained!

[Hilliard Macbeth · Rating 5 out of 5]

Excellent. Will open the readers eyes. This book changed my way of thinking about many things such as banking and economics.

[Ima Schoonbeek · Rating 4 out of 5]

Good overview of developments in Japan as well as questioning role of central banks over past few decades. Very current in terms of recent & future developments (QE/ low interest rate environment)

[Jonathan Krishna Ramani · Rating 2 out of 5]

Interesting takes, but lacking in deductive strength. It's lacking in supply-side growth factors, and engages in conspiracies.

[Wen · Rating 3 out of 5]

The ratio of pleasure+learning vs. time+effort was disappointing.

The documentary on YouTube was sufficient to get the essence of it.

[Snide Weal · Rating 5 out of 5]

Richard werner is very detailed about World economies not only in Japan.

[Husnu · Rating 2 out of 5]

Bunch of one sided speculations. No real knowledge of modern macroeconomics

[Brian Hull · Rating 3 out of 5]

Fascinating read but hard work!

[Srinath · Rating 4 out of 5]

A good and detailed book.

[Viola Wang · Rating 4 out of 5]

作者用歷史事件讓我終於讀懂了不少經濟學用語, 但整本書的寫法讓我讀得很不適, 以犯罪小說來比喻, 它就是先跟你說人是央行殺的, 然後再例舉各種證據說明人為什麼是央行殺的, 這種寫法會讓我一直懷疑:人真的是央行殺的嗎?

[Chris · Rating 4 out of 5]

3.5 stars

[T.H Rumelia · Rating 5 out of 5]

A thoroughly researched and dense book compiling and making a case against Japans Central bank, and Modern Central Banking at large. Wherein, from what I can extrapolate from this book, Central Banks have become independent from their own people, government, regional blocs, and serve as overlords for the 'Economic System' (American Globalism?). Which is an arm of "Globalism" I never deeply considered.

[Sai Kumar · Rating 5 out of 5]

Best book to read how inflation, deflation, boom and bust happens with japan as an example