JapanReview.Net Editors

What ‘Balance Sheet Recession’?

Apart from that, it is a nice idea. Of course, if the reason is "because expected returns on investment are low" then it is not a new theory at all. I am saving up my hard-earned yen to buy Richard Werner’s book, Princes of the Yen (just kidding), but if you could explain this one point to me, I won't need to give my money to Mr. Koo instead.

R.J., Tokyo Japan

A.. Koo extrapolates his thesis from two statistical observations. The first is found in Exhibit 2.1:  Interest Bearing Debt Returning to the Pre-Bubble Trend Line (Balance Sheet Recession, pg. 18) sourced from the Ministry of Finance (“Financial Statements Statistics of Corporations by Industry, Yearly”) and Toyo Keizai (“The Japan Company Handbook”). The second is found in Exhibit 2.4: Net Wealth Ratio of Japanese Companies (Balance Sheet Recession, pg. 37) sourced from the Cabinet Office (“Annual Report on National Accounts, 2002”).

He notes that “the outstanding balance of interest-bearing corporate debts declined by JPY113tr between its peak in 1995 and the year 2001.” This phenomenon, he reasons, is largely the result of once profitable firms using their cash flow to pay down their overextended interest-bearing debt in the face of on-going asset deflation. To support his supposition, he cites data indicating an eventual improvement in the aggregate net wealth ratio (net assets divided by total liabilities) of the country circa 1996 to present – although these companies problematically appear to include financials.  

Why does this debt reduction mentality linger? Koo doesn't systematically dwell on the causality, but hints at a range of possibilities such as fear of bankruptcy, increased unemployment, lower disposable incomes or destroyed credit ratings. Based on personal experience, we often find ourselves asking the same questions:  Why do Japanese companies do half of the seemingly irrational things they do? Financial analysts wrestle with expensive multiples, unsustainable cash flows, and unprofitable business strategies  every day. Managements will claim they are being rational; some financial analysts and economists will disagree. The point is that the line between microeconomics and macroeconomics is sufficiently blurred in this book to keep us thinking about Koo’s theory long after we put it down.  

Incidentally, we’ve spoken to other economists who insist that this “one-idea” book overemphasizes the legitimate point about excessive debt and corporate leveraging at the risk of downplaying other potential factors affecting businesses (narrowly) or the economy, more generally. Such examples include Japan’s low rate of return on capital, as you rightly point out.  But to be fair, Koo implies a sort “chicken-and-egg” mentality is at work here. Which came first:  lower consumption and investment triggered by low rates of return on capital _OR_ low rates of return on capital triggered by low consumption and investment? The mainstream would argue the former, while Koo (we believe) would argue the latter.  

A major weakness (or strength?) of Koo’s Balance Sheet Recession is that these causal relationships are not explicit at either the theoretical or empirical level. Then again, John Maynard Keynes was never forced to substantiate his theories using econometric models either.

Q. I'm a newly arrived missionary in Miyakonojo, Miyazaki from Texas. I am glad that I found your wonderful site!  Your reviews are the best I've come across, extremely detailed and informative. However, they seem to naturally be focused on new releases.  I'm really looking for a list of "must read" memoirs about life in Japan written in English. 

I'm looking, as always, to the written word for personal insight.  What books would you suggest that I absolutely “must order” from Amazon and read right away? Thanks in advance for any and all help you can offer.

L.M., Miyazaki, Japan

A.  Thanks for the kind words. Getting us to think about “must order and read” memoirs was a fun exercise. We came to the conclusion that the Japan memoir fits one of three categories, sometimes overlapping, but part of virtual cottage industry that separates itself from academe. Since each has a different target audience, it’s hard to say which is your cup of tea. They include:

• The public policy memoir: usually written by a diplomat or journalist who “lived through” major policy changes, or a lack thereof.

• The travelogue memoir: an endangered genre where the author simply is a tourist, or outsider, experiencing Japan; and

• The self-discovery memoir: a sometimes sublime, but more often than not, wild romp. Japan is the backdrop to some personal or professional development. 

What you consider to be essential, or a “must-order” memoir, really depends as much on your personality as it does your purpose.  Below is a list that has elicited some strong (good and bad) reactions from readers who enjoy personal memoirs. Our preferences are marked with an asterisk followed by an explanation of our top choices.

Start with the public policy memoir. Here is a genre that tries to use inductive (on-the-ground) research to arrive at a public policy conclusion about Japan. The selected anecdotes, sometimes vividly personal, are offered up as proof in abstract debate. Moreover, they  usually match the author’s Manichean vision; the world is black and white, good and evil, right and wrong, fair and unfair. These black and white colors don’t always blend together to offer a “gray” picture of Japan, so it becomes difficult to assess whether the stories are representative, let alone decisive in policy discourse (as opposed to methodical and systematic data analyses).  Some controversial titles include:

• Armacost, Michael H. Friends or Rivals?

• Fallows, James. Looking at the Sun.

• Kerr, Alex. Lost Japan. *

• Naff, Clayton. About Face

• Millard, Mike. Leaving Japan

• Reid, T.R. Confucius Lives Next Door.

• Reischauer, Edwin O. My Life Between Japan and America.*

• Our top choice: Lost Japan. Kerr has written a highly original (and personal) tour de force behind Japan’s cultural icons such as Kabuki, calligraphy, and traditional architecture. His backstage experiences reinforce the developing argument that modern Japanese culture is slowly corrupting its environmental landscape and traditional aesthetic. Kerr’s quasi-sequel, Dogs and Demons, is more well-known, but stands on shakier ground because it extends the cultural argument to politics, economics and modern artistic expression – sometimes (in our opinion) biting off more than it can chew.     

The second genre, the travelogue memoir, is the exact opposite. If the public policy memoir is written by the putative insider, this genre is written by the self-proclaimed outsider; it doesn’t try to persuade you to take the author’s position because the author himself is one part sensualist, one part tourist. As author Donald Richie describes himself: “I am not to be put on one side or the other. You can’t get the bipolar grip on me.” While it’s clear the author “knows” Japan, it’s unclear what he systematically “thinks” about the country – making it more descriptive and light-hearted than analytical and high-brow. And while it's true that every once in a while an author can lapse into half-baked generalization (c.f. Will Ferguson), ignore it; we all do.  Some well-known examples include:   

• Barry, Dave. Dave Barry Does Japan*

• Booth, Alan. The Roads to Sata

• Ferguson, Will. Hokkaido Highway Blues

• George, Donald W., and Carlson, Amy Greimann (editors). Japan: True Stories of Life on the Road*

• Leonard, Todd Jay. Letters Home

• Silva, Arturo (editor). Donald Richie Reader: 50 Years of Writing on Japan*

• Theroux, Paul. The Great Railway Bazaar

• Our top choice: Dave Barry Does Japan.  Dave Barry might be a humorist, but he’s also an astute observer of the typical reactions most of us first have upon arrival in Japan. Our favorite quote from his book: “The best way to learn Japanese is to be born as a Japanese baby, in Japan, raised by a Japanese family.”   Well, maybe…

Finally, there’s the self-discovery memoir – a mixed bag. These either can be highly nuanced expositions or the opposite extreme: self-indulgent narcissism. At least with the public policy memoir, the author attempts to weave a structured, lucid argument between the personal fabric. In the case of the self-discovery memoir, barriers to entry are low; all you need is a plane ticket and the willingness to navel gaze. Sure: there are some well-informed, insightful individuals experiencing Japan that can bring to life the facts and figures we often know, but really don’t understand. The risk comes to personal taste. You may not always enjoy graphic discussions of “sex, drugs and rockin’ roll” (c.f. Karl Taro Greenfeld), constant carping about Japanese exclusionist behavior (c.f. Peregrine Hodson), or the occasional curmudgeon who sees the cup as always half empty, rather than half full. But even these books have value. A few of the most popular examples include:  

• Greenfeld, Karl Taro. Standard Deviations

• Hodson, Peregrine. A Circle Round the Sun

• Iyer, Pico. The Lady and the Monk

• Keene, Donald. Blue Eyed Tarokaja *

• Mura, David. Turning Japanese*

• Schwartz, John Burnham. Bicycle Days (novel)

• Underwood, Carolyn S. An Adventure Interrupted

• Our top choice: Blue Eyed Tarokaja. Donald Keene is a well-respected Japan scholar and translator. His memoirs are an anthology of 37 personal essays and vignettes interconnecting the literary and the personal. Topics range from the basics (people and places) to more literary subjects like his thoughts on The Tale of Genji. He’s not everyone’s taste, but he’s ours.  

In any case, it stands to reason that these are personal experiences, so it follows that these listed memoirs are just personal reactions. There are more “bad” memoirs than “good” ones. A lot of them whine. A lot of them preach. And – this is the real stickler – a lot of them presume to know what’s best for Japan. Our choices always rest with memoirs that set out what they wanted to do, and followed through on that promise. What more can anyone ask?

Alma Mater, Boo-rah!

Q. My quick thoughts regarding the JRN comment in response to the trivia question #2 below. The reference to the Tokyo University doctorate as a "no surprise" suspect of the alleged charge implies to me that you hold a certain stereotype about the university's graduates. Furthermore, this leads me to believe that you have a categorical, grossly oversimplified and mostly negative view of "Todai graduates" which consists of a diverse group of people just like any other school.

If these are the case, it is unacceptable. The many graduates of the school including me (who could be within or near the financial industry and potentially your valued readers/clients) would certainly not accept such a stereotype. Thank god, by a school in the country of your subject, you don't have to worry about getting sued. I am afraid this kind of thing really lowers your efforts and makes otherwise great contents of your site somewhat undetectable. 

David, Location Unknown

The trivia question of issue is:

“Question 2: A man has been just arrested in Los Angeles for stalking Britney Spears. He is a Japanese national. Where was he educated?

“JRN: Stumped? The answer is a doctorate from Tokyo University. No surprises in the last one.”

A. Thank you for the thoughtful e-mail. Your concerns reminded us of the irate letters to Harvard Magazine complaining that the movie Legally Blonde(2001) was an affront to the dignity of Harvard Law. We would love to think JapanReview.net is that much of a cultural icon, but alas. . .

As for being sued: our legally admissible defense? It was all in good fun. As one of the editors got to  experience  Tokyo University’s economics department first hand for a few years, we feel we have free license to poke fun at all of our alma maters.  The Todai graduate doth protest too much, methinks.

Broker Poll Feedback

Many thanks for the survey results. On the whole, they aren't too surprising and show what a motley crew (market) economists are. To be fair, however, I think there is just about as much disagreement among academic economists as well. I agreed with the majority response on only 4 out of 10 questions, but it would be interesting to know whether others were more consistent.

P.M., Tokyo, Japan

My impression is that there is not that much disagreement among academic economists. I think one problem is that the phrasing of the questions was such that people with very similar views could give different (i.e., True or False) answers. You realize, with hindsight, that constructing poll questions really is a talent.

R.J., Tokyo, Japan

I had a chance to read your economists poll and would like to comment. The first question presumes a lost decade and someone to blame. In fact, it was not all that lost, and there was a lot of stuff going on that was so widespread that it is difficult to assess responsibility. In fact, I think that it is the presumed values of the Japanese people as read by  politicians and decision makers that are to blame: namely, the fear of hard landing. I say "presumed" because I think that the LDP has done a real snow job of asserting public fear and anxiety, when they really mean their particular constituents. What "everyone believes" is really what the construction companies and farmers believe. The deviation between asserted anxieties and true public desires is revealed by the wild popularity of nay politician or other person who like a real reformer. That said, the true-false questions are interesting and show both concurrence and divergences.

A.A., Washington D.C.

The Headless State Lives!

Q. I've always enjoyed reading this site, thanks so much. One point I'd like to raise: Why not include books written by John  Dower and Herbert Blix?

As a twenty-year veteran working full-time for the Japanese government in international exchange I’m still strongly of the opinion that Karl van Wolferen came closest to seeing the inside machinations of governments here. That’s another story perhaps and maybe I’ll write about the goings on I’ve witnessed.

P.E., Seattle, USA

A. We were supposed to review John Dower's work at one point, but our busy schedules haven't allowed us to get to them. Needless to say, Dower is an excellent historian with solid contributions to the field. As for Karl van Wolferen's The Enigma of Japanese Power, you might have a point. When was the last time the Koizumi Cabinet engaged in anything that could be labeled "decisive"? 

Plugging into the Source

Q. Although I don' agree with much of your review of Alex Kerr's Dogs and Demons, I found it be enlightening. One question, though. In the review, you write: "In fact, Tokyo's 23 wards boast 90% of its transmission and 42% of its distribution cables buried under ground, while London only records roughly 43%."

 What is your source? I am an American who lived in London for one year, Tokyo for six, and now live and work in Kyoto. I don't know the difference between "distribution" and "transmission" in this context -- but I find your assertion very hard to believe. Invariably, visitors to Japan comment on the ubiquity of telephone wires. My father, a city planner in Philadelphia, was appalled by, among other things, the wires that punctuate much of Kyoto's skyline.

S.B., JapanVisitor.com

A.  Last year we wrote a response to a similar question. While we’ll just ask you to read that response, we will add the data in question are a matter of public record. Tokyo’s network statistics for both distribution and transmission cables come from TEPCO Illustrated. Data on U.K. network system are sourced from the Office of Gas and Electricity Markets, Report on Distribution and Transmission Performance. 

In Praise of Alex Kerr

Q. Besides the fact that is very easy to fall into the extreme opposite when writing a critique about anything that emotionally affects the author, this book is a good starting point to understand why the things are the way they are in Japan. Anyone who has lived in Japan for at least 6 months will feel that he is not alone after having read the things that upset Mr. Kerr in his book.

F.F., Abiko, Japan

A. We're not so sure. Is everything in Japan rotten? How about in America? Is "culture" the  problem of Japan? If so, how can you measure it from one generation to the next and still attribute every thought, statistic and policy choice to a vague value system? These questions are more complicated than Kerr's reductivist approach would suggest. When sociologist  Max Weber argued that China's Confucionist culture prevented economic growth 100 years ago, it sounded like a plausible argument. Now the country's economy grows faster than any industrialized nation (including Japan) and is the source of constant fear and speculation about head-to-head competition. What happened? Authors like Francis Fukuyama tell us we have Chinese culture to thank. Really? So much for the cultural argument...

Death Threats, Anyone?

Q. Ciao, stamattina mi sono svegliato e ho trovato il vostro  web-site. E' proprio il caso di dire: il mattino ha l'oro in bocca.......

 Alex Kerr non vive piu' in Giappone perche' ha ricevuto delle minacce dopo aver pubblicato Dogs and Demons ?

L.M., Rome, Italy

A.  Come si dice in italiano, “l'uccello mattiniero si becca il verme” In ogni caso, non lo sappiamo. Sarebbe la prima volta  che abbiamo sentite che l’autore ha ricevuto delle minacce dopo aver pubblicato Dogs and Demons.