Toyoo Gyoten Oral History Interview

Conducted By

Masayuki Tadokoro, National Defense University, Japan


Mokoto Iokibe, Kobe University

February 29, 1996

Tadokoro: Mr. Gyoten, I have your book which has helped out a lot, but I'd like to confirm a little more about you're career.

You entered the Ministry of Finance in Showa 30, and as far as I know, you left for the IMF in 39 and, after your return in 44, you were at the headquarters of the Asia Development Bank...

Gyoten: I left for the IMF in 1964, returned in 1966, and it was the end of that year that I left for Manila so it would have been Showa 41.

Tadokoro: I'm much less clear about your career after your return.

Gyoten: I returned from the Asia Development Bank in 1969, to the Finance Ministry, in the Banking Bureau. I was the room chief of the Financial Commissioner's room.

Tadokoro: So were you the room chief of the Financial Commissioner's room during the Nixon shocks?

Gyoten: After that... at that time, the international airport was at Haneda. From 1972 through 1973 I was the chief of customs at Haneda airport. Therefore, I was the chief customs officer during the shift to a floating currency and I was hastily drafted. (laughter) After that, I think I became a section chief in the International Finance Bureau. I was also in and out of the Economics Bureau.

Tadokoro: Were you a section chief in the Government Funding Bureau from 1974?

Gyoten: Yes... do you need such detailed dates?

Tadokoro: Only because it is important to know when you did different things.

Gyoten: Immediately after the floating currency in 1974, I was the Funding Section Chief in the Economics Bureau. Next, I became a section chief in the Government Funding Bureau. For about three years, I was the vice deliberations chief of the Government Funding Bureau and for about two, I performed that function for the Banking Bureau.

Tadokoro: After that... I should have it here... after that you were the International Finance bureau chief?

Gyoten: Yes, in 1984 I became the bureau chief for international finance and in 1986, I became the chief deliberator.

Tadokoro: This first question is very general. The significance of the so-called currency mafia's actual meetings and the significance of them trying to preserve their close relations... set against the backdrop of this world that had become very convenient for them I think most people can understand how they could exchange figures and information over the phone or otherwise, but what kind of significance do you place on the fact that these people gathered together, face-to-face, for meetings?

Gyoten: In actuality, the "currency mafia" was the G5 (now the G7) deputy ministers and I think each of them just represented his own country but I think most of their contact would have been done over the telephone. The times that they actually gathered for face-to-face meetings were large international conferences, (for example, the IMF council meeting or provisional committee meetings, summits, or at other large international gatherings.) Also, in the case of a meeting between the ministers of the G5 countries at whatever large event, there were, of course, planning meetings between the deputy ministers beforehand. At these events they would surely have met face-to-face. Just last month there was an international economic forum held in Switzerland which is a good example of the kind of event at which these people might meet.

There is, of course, significance attached to face-to-face meetings. For one thing, it is easier to understand the nuances of the conversation in a face-to-face meeting, and also, there is the pressure to come up with some decisions no matter what. Therefore, face-to-face meetings are definitely important although telephone conversations seem to be more prevalent. Especially during urgent situations, telephone conversations seem to be the norm lately. For example, in cases like the Mexican currency crisis of last spring, when things must be decided quickly, the telephone is used a lot.

Likewise, over ten years ago when I was doing this, on occasions like "Black Monday" and the Japan-U.S. negotiations that took place in its wake, I met often with the vice chief of deliberations but I think that the majority of our communication was done over the telephone. At that time the daily telephone meetings happened like clockwork.

Tadokoro: Aside from that, whether you know someone personally or not, or whether you have a relationship of trust or not...

Gyoten: That is quite different. Especially when you are speaking a lot on the telephone, it is different if you know the person versus if you don't know them. In recent years, I imagine teleconferences have become a lot more common. Even I have to engage in them from time to time. For example linking people in the U.S., Japan, and Europe... of course, if there are too many people there is nothing you can do about it, but in groups of 5 or 6 people, it is completely different if they all know each other than if there are some who have never met before. I would say that there is something physically different about it, wouldn't you? Therefore, when you ask what influence this has on reaching a conclusion, I have a hard time saying, but I do think that if all sides know each other, they will understand each other and come to a conclusion more quickly.

Tadokoro: Actually, I just finished talking with Mr. Kashiwagi and...

Gyoten: He's first generation mafia! (laughter) A pioneer mafia.

Tadokoro: In something that Mr. Kashiwagi wrote, he said that one time when he was at a G10 meeting, he got a telephone call from Fowler, the American, who asked, "Are you free for breakfast this morning?" When he went to meet him, all of the principles from the Haneda conference were there. Each laid aside their meal and discussed the script for the meeting of the next day: how one would say one thing followed by another and another, etc. (laughter) Is there still that sort of atmosphere?

Gyoten: Sometimes there is. They realize that the discussion is extremely difficult but know that they have to make due somehow. Sometimes, in the actual conference with all of the countries' representatives present, if they merely said democratically, "let's begin conferring," there is no way they would reach any conclusions. It may be necessary to phrase it another way... the other countries' representatives are very similar to members of an opposition party so there is no immediate sense of a necessity to bring them together on things. Therefore, if allowed to make their own proclamations in whatever way they would like, there would never be any agreement or progress. In order to bring them together, there is no other way but for the negotiation chief or someone else to take an extremely strong stance and, in that case, to set up the best scenario... we call it stage planning. I think that it is the same now as it was long ago. Recently the CIS and the Russian Federation have especially been... It seems to be the responsibility of an advanced nation's ruling party.

Iokibe: So everyone together prepares for the success of the negotiations? (nemawashi)

Gyoten: That is correct.

Tadokoro: Next, this doesn't really have to do with you personally, but with the personnel at the Finance Ministry. In particular, you were quickly sent to Princeton for a period of foreign study, and then went to the IMF and ADB, so from early on you did much work with international finance. Kashiwagi is also in the same boat. International finance is a very specific field; does the Finance Ministry have a personnel policy of taking the few international finance specialists and training them at a young age to deal with these problems?

Gyoten: I'm not sure that it is a conscious policy. I have also been told by many that the Finance Ministry brought me up to use me for that kind of work and it has been written in newspapers, etc. but whether that was a conscious policy or not remains a mystery to me. Rather, it seems that I happened to be one who had gone on foreign study during the time of an active Finance Minister like Tanaka Kakuei. I think the Finance Ministry is still like that, even now it refuses to employ translators from outside the ministry. Because I was used inside the ministry and because I had served as Tanaka's head interpreter before, at the very least he knew my name and face. Normally, the minister or vice minister would know nothing about a chief clerk or someone else of that young age. Through interpreting though, and sitting next to each other etc., he came to at least know of my existence. Then, when he had to decide who to put in jobs in international relations it is only natural that my name would come to his mind.

No, I heard nothing of any plans to raise me up to be the international finance chief or anything like that from my personnel advisor and I certainly never expected my career path to take me where I eventually ended up. It seems pretty haphazard to me. (laughter)

Tadokoro: But, recent Finance Commissioners have all been International Finance bureau chiefs, and it seems to me that recently, one cannot do the job without knowledge of the country's banking administration.

Gyoten: Yes, that is true. In the Finance Ministry, the majority of the work falls to the International Finance bureau so the finance commissioner system was established as an institutional restraint. The Foreign Minister and Foreign Ministry Deliberations Chief were placed on it, one over politics and one over economics, and the MITI Deliberations Chief position was also created. Recently, the Agriculture and Forestry and the Planning Agency have also been added. They are all large government agencies and all have these representatives I think. Therefore, because each agency has increased its amount of international relations work, the traditional system of naming positions was not enough and they seem to be making new positions and titles that better correspond to the kind of work that the staff of each agency does.

The Finance Ministry's Finance Commission is a lot like this. It has no structure of subordinate positions directly under it. It is like all of the ministries and agencies have influence over it and yet none has any real power over it. Within the Commission, the work is overwhelmingly related to international affairs and the next largest amount of work, like you said, has to do with banking and securities and, in some cases, investment and accounting. Thus, when the decision is made as to which of the bureau chiefs will be made a finance commissioner, regardless of qualifications, if you can't speak well, you have no chance. One large qualification is good communication. The next is, because the overwhelming majority of the work is with international finance, a relationship with the International Finance bureau chief.

Tadokoro: The next question is a bit awkward so please forgive me. I think you probably heard this here and there after the Nixon Shock and I think it was written in your book. First of all, in your book there is a description that implies that the Finance Ministry did not adequately understand the intentions of the American side . We were able to meet with Mr. Kashiwagi and Mr. Hosomi and they have confirmed that there was never a formal request by the American authorities for Japan to appreciate the yen. I don't think that this is a mistake. In contrast, the mark was appreciated three times in the 1960s. Looking back at the situation, did you personally have the feeling that appreciation was inevitable...

Gyoten: Which step in the process are you referring to?

Tadokoro: Basically the spring of 1971.

Gyoten: So before the Nixon announcement, right? Yes, you're probably right. Before that announcement, I don't think there had been any request to appreciate the yen. At least as far as I know there were none. There is no doubt that we didn't understand America's intentions but, there was probably also the added dimension that America itself also wasn't sure what it would do next. Therefore, even if you listened to the American side talk about it afterwards, for example, Arthur Burns was negative about it until the bitter end and many people seemed to think that the imposition of the surcharge was the most important part.

Tadokoro: You mean inside of America?

Gyoten: Yes, inside. There were those who said that it was an effort to raise prices. Nixon probably did not completely understand what he was doing and anyway, America did not have its back to the wall. At the beginning, if other countries would have raised their currencies against the dollar it would have probably been good for America but the other countries never even considered that and because there was no mechanism in the Bretton Woods system to accept the revaluation of the dollar, it seems that America was in a position that made it very difficult to maneuver. At the very least, in that situation it was necessary to lessen the deficit. At the time there was a feeling that in order to lower the deficit, it was first necessary to lower imports by imposing something like the surcharge, then find a way to stop the capital flight from the country (in effect, stop the bleeding), and after it stopped, to think of something to keep it that way. Suspension of the exchange rate was actually a means of stopping the bleeding, I think. At least that was its intended function.

Tadokoro: So it was that no matter what the negotiation was, if the Gold Window was not closed, there was no way to negotiate anything else, right?

Gyoten: Yes I think that is exactly right. At the point of wondering what to do next, now that the bleeding had stopped, it became the real situation, I think. The Nixon announcement was a step, if I'm asked whether I think America was predicting the 1973 state of affairs I say that at that time I don't think that they were. I don't think anyone could have done that.

Tadokoro: I would like to ask you to think about your experience with Nixon's announcement of August 16, 1971. You were the secretary in the Financial Commissioners' room, did you get a telephone call regarding this?

Gyoten: I think Mr. Kashiwagi got a call from Volker that morning. All I know is that that morning we got a call from **Shubert Dyke** who was in charge of the financial offices at the U.S. embassy in Japan. He said, "at ten o'clock Japan time, there will be a very important message made by the President, be sure to listen." I immediately told Finance Commissioner Hosomi and he listened to the radio. Of course, Washington quickly disseminated the news but it came over the air waves mixed with other current news, public announcements, and other static. Frankly, we didn't really understand what was going on during the ten o'clock broadcast.

Tadokoro: You mean that you physically couldn't hear it very well?

Iokibe: Like the Emperor's broadcast? (laughter)

Gyoten: Exactly. They also didn't distribute a text of the announcement if I remember right. They may have given a copy of the text to the embassy in Washington but it didn't make it to Tokyo for quite some time.

Tadokoro: On the subject of the hard to hear broadcast, I imagine you listened to Nixon's announcement on VOA. When you first heard it, how did you understand it?

Gyoten: That is a difficult question. I was still new at the time and didn't fully understand international finance or the intricacies of the Bretton Woods system. Frankly, I didn't understand much of what was said. However, I did have the general feeling that Japan had been involved in economic friction with the U.S. since the Kennedy interest equilibrium tax and that Japan would have problems dealing with either an import surcharge or a suspension of the exchange rate. I knew that exporting Japanese goods would become much more difficult and because Japan was originally a country without much foreign exchange reserve, many people were extremely worried about the situation. They thought that this would only make Japan's weak position even weaker. Any way I looked at it, my first impression was that this was a very bad thing for Japan.

Tadokoro: Inside the Finance Ministry, Finance Commissioner Hosomi had just recently assumed office and I'm sure there were many different opinions about things in the International Finance bureau... what was everone's reaction to the situation?

Gyoten: As you might expect, it was a terrible situation. Of course the dollar problem had been a key issue for several months prior to this point. In Japan, to jump forward in time a bit, I insisted on a conclusion to this but there were various scholars such as Mr. Omiya and others who propounded a "crawling peg" system. It seemed that our analysts understood the problem well until America came in and acted unilaterally creating a terrible atmosphere, or "shock", in the Finance Ministry.

Tadokoro: A problem for historians is that on the evening of the day of announcement, there was a ministry meeting about whether to keep the foreign exchange markets open or to shut them. We asked Mr. Kashiwagi about that meeting; did you get called to that meeting along with Kashiwagi, Finance Commissioner Hosomi, and Vice Minister Kaneyama? I've heard that it turned into a heated debate, do you remember much about it?

Gyoten: Yes, I do. As the holder of the funds for the Finance Commissioners' office or something like that, I was sitting in the corner of the Vice Minister's office. I, of course, was not one of the "participants" of the meeting. (laughter)

Tadokoro: I have never met Vice Minister Kaneyama, but from interviewing Kashiwagi and Hosomi, I have learned the basic subject matter of that argument. There are many who say, after the fact, that the decision to keep the exchange markets open was a huge mistake. This is all regarding things that happened later on but what do you think about it?

Gyoten: Of course, it they would have closed the market at that time, they would have been in the same situation as other countries so maybe there was not much confusion regarding the decision. Depending on the criteria used for a decision, keeping it open was both good and bad. For Kashiwagi, it probably seemed sensible to close them but very difficult to open them back up again. At that time, even among those who insisted on closing the exchange markets, there were none who advocated taking the yen off of the standard. Taking the yen off was, as always, taboo.

So the question was this, "if we close the market now and then try to open it again later on, will we be able to open it without taking the yen off of the standard?" Upon examination, the decision that this would be impossible seems quite logical. I'm not sure, but I think these were Kashiwagi's concerns. Along with these problems, there was the real problem of making Japan's banks buy and hold expanding U.S. currency.

Tadokoro: Did that situation occur from regulation?

Gyoten: The problem was that it entailed more than just an accounting loss, it was a real loss. The fact that Japan was not preparing for foreign currency naturally resulted in that kind of problem. Whether they thought that far ahead and then decided to keep the market open, I don't know. But, after the fact, it seems sure that they did think about the problems that could occur from their actions.

Tadokoro: Incidentally, Kaneyama said that he suggested that they shut the market, are you saying that he was against taking the yen off of the standard?

Gyoten: There was no one who advocated coming off of the standard from the beginning.

Tadokoro: Was there also no one who said that coming off of the standard was inevitable and that Japan should move the focus to closing the foreign exchange markets and then take the yen off?

Gyoten: It would be wrong for me to read into each of these people's thoughts. (laughter) Frankly, Kashiwagi had already been an advisor, and the power of the Finance Ministries speech was very large. There were no experts on this subject anywhere else so there was no way that anyone could say, "that is incorrect" and defeat Kashwagi in an argument about this subject, people held his opinions in great regard.

Iokibe: It would have been difficult to challenge him, wouldn't it?

Gyoten: I don't just mean winning arguments against inferiors, Kaneyama even said that he was often bettered by Kashiwagi. (laughter) No matter how much people say that someone should have stood up to him on that occasion, I don't think anyone had the courage to have done it. Everyone worried about leaving the market open but actually, no one else was universally trusted enough with these matters to challenge Kashiwagi's decision.

Therefore, it was impossible to tell from the criteria that presented itself at the time whether the foreign currency that had been bought on the foreign exchange markets was important or not important at all.

Iokibe: What do you think were the positive aspects of leaving the markets open? As you mentioned, a negative aspect was that it would cause a real loss of money.

Gyoten: With the decision, the financial driver of private Japan, holding a surplus of dollars, was liquidated. That was a terrible thing.

Tadokoro: So basically, in order to end the yen appreciation, you had the policy of forcing banks to hold on to dollars?

Iokibe: That was a very sympathetic policy, wasn't it.

Gyoten: Because everyone had bought dollars at 360 yen per dollar, the situation was that in one night they lost 50 yen for every dollar. Keeping the markets open meant that, because the Finance Ministry had said that they would buy dollars at the 360 yen rate, all of the banks sold back their dollars at no loss to them.

Iokibe: So the Finance Ministry made the sacrifice...

Gyoten: Therefore, that is the point where people argue that the Ministry, in effect, imposed a heavy tax when, in reality, it wasn't a heavy tax at all.

Tadokoro: Is that because the foreign exchange accounts continue forever and are never really settled?.

Gyoten: I don't think that evaluating this decision and saying that it was right or wrong will really shed light on anything. Either way, it's done, and that's it.

One more thing, after the shock, Japan's preparedness for an influx of foreign currency rose substantially. This was also hindsight, but two years later we had the oil shocks. Had Japan been like it was before the Nixon shock these would have been much worse. Some may say that it was coincidence but the dollars that we bought after the Nixon shock helped immensely during the oil shocks.

Iokibe: Japan didn't think about it at the time, though.

Gyoten: Like I said, it was hindsight.

Tadokoro: Did you often accompany Mr. Hosomi to the negotiations regarding the Smithsonian Agreement?

Gyoten: I went to nearly all of them. Mr. Mizuta and Mr. Hosomi always worked together and I was their porter and Mr. Mizuta's interpreter.

Tadokoro: I asked this of Messrs. Kashiwagi and Mizuta already, but, from your point of view, did you think the U.S. negotiation team of Connally and Volker were rough negotiators? Did you think that they were a bit strange?

Gyoten: Yes, they were a very wild team. That is correct.

Tadokoro: After this period, you worked for a long time in international currency. Mr. Hosomi was a very interesting person and he said that the "currency mafia were very refined people." Would you say that the negotiation team that we just discussed was from a comparatively refined world where...?

Gyoten: Connally was that type of rare person I think because of his particular situation as a politician. There are few political appointees in the U.S. Department of the Treasury. Recently, Secretary Bentsen had previously been a Senator but, in his case, he had been a veteran Senator who had dealt with financial issues for a long while. In Connally's case, he was a politician from the roots up and, at least at the time he got to the Department of the Treasury, he probably knew little about the issues that it dealt with. Also, in a sense, he was a typical American type and enjoyed conflict and...

Tadokoro: Sort of a macho type of...

Gyoten: The type that loves to win more than anything else. I think Volker was different, though.

Tadokoro: There is an account of this in the book Tomi no Kobo (Rise and Fall of Riches) where it says, "It seemed that Kissinger and Connally could read each other very well." During the Smithsonian negotiations, did you get the feeling that the American side was influenced by input given from a more general foreign policy point of view, and that the instruction to "compromise before too long" had come from the State Department?

Gyoten: At the time, America did not think that Japan would resist yen appreciation so strongly and work so hard at increasing its imports. There must have been a very strong desire in America to get Japan to follow America's counsel on the matter. At the time, the U.S. had just begun to change from its long-standing strategy of opposition to Chinese communism to one of a balance of power in the region. I think that Japan was seen by some in the U.S. State Department as a counter-balance for the new policy of accepting the Chinese Communists as one legitimate government in the region.

Tadokoro: Therefore, in the case of economic relations, the U.S. wanted to do what it could to convince Japan to listen to U.S. counsel, and in the case of regional relations, the U.S. must have wanted Japan to cooperate in this very different way. For that purpose, I think they all must have been trying to figure out the most persuasive arguments to use with Japan. My personal impression of the conclusion that they reached is that it was something like, "let's wait on Japan and see what happens. Europe is unifying, China is gaining strength, and the Soviet Union is still strong. Japan will soon be left completely isolated." In that way, I think that the U.S. banked on the perception in Japan that the U.S.-Japan alliance spanning the Pacific Ocean was of utmost importance.

Tadokoro: When I asked Mr. Hosomi whether there was any input from the Japanese Foreign Ministry in the Smithsonian negotiations, he said, "none of that at all." It's counterpart, the American State Department, however, was very present, making foreign policy...

Gyoten: That is because the American system at its highest levels is very closely tied together. It must be because it is a presidential system. However, even in America, things were not nearly as closely tied at the bureaucratic levels, and each bureaucrat carried on territorial wars with the others. The part that is different from Japan is that, at the top levels of the U.S. government, there is a definite policy decision-making process centered around the President. Although Japan's system is called a cabinet system, the Prime Minister has no clear power to set the policy agenda. So Japan can't really just get everyone together and make a decision. That aspect of the system is very different than in America.

Also, in the U.S. government of that time, Kissinger had an extremely powerful influence. I'm not exactly sure, but I think Connally had to be quite subservient to Kissinger during this period.

Tadokoro: In that case, if there were any exchanges like these, they were probably between Kissinger and Connally then?

Gyoten: Yes, I think they would have been directly between them.

Furushiro: I would like to ask some things about the period between the Nixon Shock and the Smithsonian Agreement. You have written that, when America tried hard to push yen appreciation on Japan, Japan tried to reach a cooperative agreement with some of the European nations, particularly France and Germany. That did not go well, I guess, but what would you say was the attitude of France and Germany towards Japan at the time? In other words, what was the approach that Japan took toward these countries?

Gyoten: The thing that first confused Japan was the extent to which France and Germany did or did not follow America's lead. France, of course, had been independently exchanging money previously so, from Japan's perspective, at least, the U.S.-France relationship was far from unified. America was also pushing hard for Germany to appreciate the mark but it is true that Germany opposed it. At that time, Japan felt that it might be able to combine with France and Germany and work for a common benefit by forming a common front against the U.S. in this matter. I think now that this was pure fantasy. It was only fantasy because, as we talked about before, each of them was too busy pursuing its own interests to unite with the others.

Iokibe: You mean the Americans and the Europeans?

Gyoten: Yes, both of them. If you look at it from the U.S. strategy, Japan was the worst of all. Japan was the most stubborn and unwilling to understand the U.S. point of view so the U.S. must have thought that Japan would have to be the first to fall. Also, on the Japan side there were several people who, for various reasons, had strong ties to Germany and France from a young age. Those people would, for example, call up their old friends in France who could not firmly tell them that they were in the wrong. There would also have been some criticism of America, I would imagine, saying that America's assertions were out of control. Today's Asians are like that, don't you think? If asked, we're quick to criticize America. However, criticism doesn't come out quite as easily when an American is present, does it? (laughter) Anyway, with this going on, I felt like things would probably work out as I expected but once things began it was completely different.

Iokibe: So, did the fact that Mr. Kashiwagi turned to Europe after the "dollar shock" result from his annoyance at that kind of misunderstanding?

Gyoten: Probably so. At the very least he confirmed Europe's attitude toward America and wondered whether there was a possibility to stretch the front lines of cooperation with America. He understood because this was a dollar problem, America was just taking one step at a time and everyone else was in a bad position. That may have been true, but his big mistake was thinking that he could build a relationship between Japan and Europe which would protect Japanese interests as well as cooperate with America. It was a mistake because the things that Japan thought would protect its interests at the time were actually, when looked at from an international perspective, not persuasive at all.

Iokibe: Did Mr. Kashiwagi also consider going directly to America?

Gyoten: Do you mean first? I think that he was decided to try Europe first at the time. I think he felt that way because he only wanted to go to America and listen to American officials after he had seen how closely he could get Europe to work with Japan. I think he was correct in that strategy.

Iokibe: Then he had a reason to confirm that, didn't he, to take a week in Europe? It would have been difficult to complete it in less than that, wouldn't it? Basically, he had to confirm whether Europe was going to cooperate with Japan or not.

Tadokoro: So, creating a united front of cooperation with Europe didn't go very well. There are a few instances in your book where you suggest that Japan was relatively isolated on a number of issues, not just the Smithsonian agreement. After it, you became very active again when Volker came in February of 1973 and also when Japan changed to a floating rate. If my facts are correct, soon afterwards you went to Germany with Hosomi.

Gyoten: Yes, we went.

Tadokoro: At that time, if I have it right, Schmidt raised a fuss and said that Japan needed to act more in line with the other countries involved. Was your design the same here as the other cases that you've described?

Gyoten: I think so. Mr. Hosomi went with the expectation that, at the very least, Germany would show that it understood where Japan was coming from. It wasn't just Hosomi, either, everyone seemed to expect the same thing. The reason that it didn't work out must have been that Volker had already visited everyone and laid his groundwork before we even went.

Iokibe: But, wasn't it the case of Japan looking at things from the perspective of one that went first? Eventually everyone followed along, didn't they?

Tadokoro: Yes, if you mean that Japan was the first to float its currency... except that Japan was made to accept a rate that was higher than it expected.

Iokibe: There isn't much to say about that.

Gyoten: From the start, Japan jumped right in and floated its currency, it didn't really have any other choice.

Furushiro: Was the Finance Ministry decision not to end the floating rate something that happened before this point?

Gyoten: Even though Japan spoke of "floating currency," at the beginning no one really intended for it to float at all. Frankly, there were some who suggested that we have a so- called "dirty" floating currency. The market price was maintained at the specific level that was announced and because everyone understood that it was impossible to avoid any appreciation, there really wasn't another choice. However, there was a lot of effort that went into keeping the yen low. If it could not be stationary, then we at least tried to keep it stable at a low rate. For a time, this strategy actually worked effectively.

Tadokoro: Were there any cases during the period of Japan's participation in international currency relations, and this is not limited to the first half of the 1970s, when the Bank of Japan and the Finance Ministry opposed each other?

Gyoten: Regarding the currency exchange market price system, there was not much opposition between them. The Bank of Japan and the Finance Ministry were united in their desire to avoid yen appreciation, and if avoiding it was impossible, to keep it as small as possible. At the time, I don't think that one of them wanted more intervention while the other wanted less. As far as the nation's interest rate policy went, I think that business was doing quite well at the time so there was no talk of a business stimulus action and there was no quarreling between the Bank and the Ministry as far as I know.

Tadokoro: This exchange rate problem and the change to a floating rate that was brought about by the Smithsonian agreement were very closely related to the trade problem. Did MITI or the Foreign Ministry try to interfere in this matter and either oppose or work with the Finance Ministry?

Gyoten: I think that MITI and the Foreign Ministry were very dissatisfied with things. They felt that even though the issue related very closely to their work, the Finance Ministry had total control over it and was less than forthcoming with various information. Finance absolutely refused to allow other ministries to participate in foreign negotiations and this made the other ministries very upset. I do, however, think that there were individual discussions at high levels that lessened the dissatisfaction. The truth is... I wonder how to say it best... it is too bad that a system was not worked out that would have allowed some participation or at least the timely dissemination of information to the other ministries.

Furushiro: So the rate started to float after Japan changed to a policy of fluctuating market prices but, as you just mentioned, Japan's exchange rate policy at the time is often criticized as a "dirty floating rate" system. Do you think that that kind of critical evaluation is justified? Compared with other countries was Japan's rate supported by the government?

Gyoten: You cannot say that Japan completely changed its way of thinking at the time it began to float its currency. Especially, from 1973 until about 1975 or 1976 when it got in trouble, the Japanese government did support the yen quite a bit. At the time, though, there was not really a realization in Japan that there was anything wrong with its actions. It seemed natural and necessary. It was felt that although we could not avoid yen appreciation, it should be slowed as much as possible. It was in the national interest to do so. Japanese voices to the contrary were not only scarce, they were completely unheard of.

What we had was criticism from those outside the field. Because of that criticism, Japan's exchange rate policy caused pressure from foreign sources to the end which, incidentally, did not influence me as I did not want to keep the exchange rate fixed anyway. It was all controlled by outside forces and I think we felt that although we disliked it, there was nothing we could do to change it. Therefore, inside of the international monetary and trade framework, Japan felt very little responsibility to provide international leadership in this area like it does today.

Iokibe: Do you think that there is much of that feeling of responsibility today?

Gyoten: I think that now Japan hasn't much of a choice but to feel some of that. It is easy to see that the influence of Japan's current policies immediately affects other countries and also that foreign countries watch Japan's policy moves very closely. Also, Japan's economy has spread all over the earth in products, service, and production, and that has also provided a strong influence on things.

Iokibe: When would you say that the situation changed? Was it after the Plaza Accords?

Gyoten: I think so. I think that it happened near the beginning of the 1980s, after the Plaza accords. It was during the time that I served as Finance Commissioner and it seemed like things were changing on a day to day basis. Soon the "bubble" period was upon us when Japan's collective view of its power grew as well.

Tadokoro: At that time, with regard to the debt accumulation problem, there was the talk of attacking it with the solution of spending a lot of money.

Gyoten: With regard to aid or to debt accumulation, the power of Japan's money was great. This may not be the best way to put it, it was like we could slap countries in the face with a wad of bills. At least on the surface, the power of Japan's money was enough to make us even a bit self-conscious as we drew near the intermediate and advanced countries of the world.

Iokibe: After the "bubble" burst, did that kind of feeling disappear?

Gyoten: Not completely. Japan is, of course, still on top when it comes to the ODA and Japan's citizens are still doing well. It is only the banks that are sick. (laughter)

Tadokoro: One last question. This is, again, a question about the 1980s. During Finance Commissioner Oba's tenure, there was a meeting of the Japan-U.S., Yen-Dollar Commission... I believe you were the head of the International Finance bureau at the time. Seeing things from the outside, I had the feeling that these were very strange negotiations. I also thought it was strange that Japan wouldn't act without being told what to do by the Americans.

Gyoten: I think that it was exactly as you say. At the time, we also wondered why it was necessary for the Americans to say things in order to impose outside pressure on Japan. About the time that the Yen-Dollar Commission began meeting, America was beginning to strongly criticize Japan for its current account surplus. The Americans said that Japan's domestic demand had expanded late and that its markets remained closed... that it wasn't as bad as the previous "dirty floating rate" market but that Japan was consciously trying to keep the yen cheap. They said that the situation had to be fixed and that Reagan and Nakasone were the ones to fix it. As for Mr. Nakasone, there must have also been economic reasons also, but he was very close to Reagan and they had the kind of relationship in which they tried their best to help each other out. Nakasone probably received a personal request from Reagan to get moving on this subject and, with that, things began to progress.

So, from a clerical perspective, these were not single-faceted discussions, they were related to macro-economic policy, the opening of the marketplace, and the establishment of prices for the marketplace and both sides agreed to treat them as mutual problems and work together for solutions. Although America said on the surface that it would work together with Japan, in reality, and this fact is regrettable, America created a situation in which there was nothing that Japan could say about, among other things, the opening of markets. (Laughter) Therefore, in reality, Japan gave away to the Americans 70 or 80 percent of its ability to deal with this Japanese problem. If I dare say so, these negotiators tried hard to look like they were working together but the truth is the truth and there was nothing that could be done about the fact that the other side had no control of the situation.

Furushiro: So, they had a strong belief that through the change in Japan's currency markets toward free trade, Japan's surplus would shrink?

Gyoten: This is a crude way to put it, but at the time, there was a follower of Milton Friedman named **Sprinkle** who was a very strict monetarist. He said that if Japan's foreign exchange markets became free, the yen would be used more in international markets. If that happened, the demand for yen would rise and the undervalued yen would correct itself. He held that the process was unrelated to Japan's surplus and that, in effect, America's drive toward trade had cause investment in Japan to increase. Even in America, it seemed like there were several areas of gain to be made and the Department of the Treasury went to the negotiations as the representative for those various interests.

Tadokoro: Looking at the results, was America able to speed up the move toward liberalization of Japan's currency markets?

Gyoten: Yes, I think so. Inside of Japan, the effect on government offices, from the viewpoint of regulatory relief, was quite negative. As you might imagine, bureaucrats don't like to give up their authority easily. To put it simply, this is related to the problem of one's feelings versus one's actual work. In the private sphere, the influence of companies that did not want to lose what they felt were their vested interests was violently strong.

Especially regarding the circulation of money, government protection and regulation had been dunked in lukewarm water and there were very few willing to challenge the system. You see, the desire to maintain the status quo was overwhelmingly strong so it was very difficult to alter the regulatory system. In that sense, foreign pressure was bad but, l looking at the result, one must acknowledge that it was probably necessary. It is exactly the same now.

Iokibe: Thank you so much for meeting with us during your busy schedule.