An Interesting Question

Will Japan's big bang be met by more than respectful silence or the sound of drawing in breath between clenched teeth?

'So how do you think our Big Bang will affect investor relations in Japan?' Yamada-san asked with a penetrating look. We'd clear ly moved on from the small talk - what we were doing now; how our families were - which had occupied us since we found ourselves sitting opposite each other on the bullet-train from Tokyo to Osaka.

I had known Yamada-san since the mid-1980s. He worked for one of the big securities houses where he was instrumental in setting up an investor relations department. There had been much talk then of Japanese companies improving their IR: they were listing in the US and Europe and, since international investors demanded higher levels of disclosure, this was bound to feed back into the domestic market. But improved disclosure seemed to mean not much more than producing glossy annual reports; little was done to improve accounting standards. Foreign investors, like domestic ones, piled into the market; share prices went higher and higher; western analysts developed systems to show why outrageous p/e ratios were, in fact, perfectly reasonable; and everyone was happy.

That I didn't reply immediately to Yamada-san's question was not a problem. In Japan, you are expected to pause before answering an important question; it shows you are treating it with due seriousness. I couldn't bring myself to do the other thing the Japanese do in this situation - to draw in my breath between clenched teeth - any more than I can make the required slurping sound when eating soba or udon. But some things gaijin are forgiven. A profound silence would be respectful enough.

I glanced at Yamada-san's business card. He was no longer in IR; now he was a general manager in the general administration department.

That might mean anything. I suspected he was visiting his firm's Osaka office to deal with some of the scandals that had hit Japan's financial institutions. Suspensions, imprisonment, fines and, the final humiliation, public apologies for wrongdoing, must take some explaining. But it would have been impolite to ask.

No-one else in our car was talking but then the Japanese only seem to do two things on trains: they eat from their bentos, or lunch boxes; or they sleep. In fact, at this point, no-one was sleeping. All eyes turned to the right to look out for Fuji-san. But today it was hidden behind mist and murk. There was a collective but subdued sigh.The Japanese are good at handling disappointment. I suppose that in a land where earthquakes and tidal waves are a fact of life, fatalism is part of the national psyche.

So it had been when the economic bubble burst at the start of the 1990s. Yamada-san, who was still in the IR department then, was full of optimism. To attract investors back, companies would have to start taking their outside shareholders seriously. With rising interest rates and a collapsed stock market, dividend policy and investors' returns would be at the top of corporate agendas. And, above all, something would have to be done about disclosure.

But the market never recovered. Earlier this year, when stock markets around the world were hitting new highs, the Nikkei was around half its level at the height of the bubble. Between 1990 and 1995, asset depreciation cost Japan some $9 trillion - more than the economic loss it suffered as a result of the second world war.

Now the government had announced Big Bang - a 2,800 point plan to make financial markets as efficient and competitive as London and New York by the year 2001. Those still engaged in investor relations in Tokyo were enthusiastic, speaking of competition for capital creating a need for better information and, of course, disclosure. But then most of them hadn't been round this loop twice before. Cynics pointed to holes in the plan and the watering down of proposals which had already started.

So how was I to reply to Yamada-san's question? While the other passengers were straining to catch a glimpse of the symbol of eternal Japan to our right, I was thinking that to our left was the Izu peninsular. At its tip was Shimoda where, in 1853, the arrival of Captain Perry's black ship forced an end to Japan's 400 years of voluntary isolation. The response to this humiliation was a rapid adoption of western technology, turning Japan into a major industrial power.

In the end, I plumped for a quintessentially Japanese answer. Looking him straight in the eye, I sighed - the closest I can get to teeth sucking - and said, 'That is a very interesting question.' He seemed satisfied. At least, he opened his bento and started eating.


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