Banking on Stability: Japan and the Cross-Pacific Dynamics of International Financial Crisis Management (review)

Banking on Stability is an excellent study of Japan's foreign economic policy, a topic too often misunderstood despite its vital global importance. Saori Katada's thesis speaks both to Japan's international relations and to the domestic political sources of policymaking, while illustrating how globalization is altering the balance of power between politicians, bureaucrats, and big business.

The puzzle that Katada seeks to explain is this: Japan is the largest creditor country in the world, yet "Japan's involvement in crisis management has varied significantly across cases" (p. 209). In the Latin American debt crisis of the 1980s, Japan took an active role in resolving the crisis, working in close cooperation with the United States and the International Monetary Fund (IMF). Finance Minister Miyazawa Kiichi's 1988 initiative became the basis for the "Brady Plan" which finally resolved that episode. During the Mexican peso crisis of 1994-95, however, Japan was reluctant to get involved and took no leadership role, despite requests for assistance. Finally, Japan's response to the 1997-98 Asian financial crisis was "ambivalent and irresolute," displaying at least three different policy styles over the period (p. 209). In the early stages, the government took a distinctly proactive role, working independently of the United States and the IMF to come up with a regional solution to the problems then besetting Thailand. This approach included proposals for an Asian Monetary Fund (AMF) which many believed to be an explicit alternative to the "Washington consensus" on financial crisis management. As the financial contagion spread and Western hostility to the AMF became manifest, however, Japan reverted to a passive and subordinate role. Finally, in the midst of considerable criticism of the handling of the situation by the IMF, the Japanese again began to exercise more active leadership, though their independence from U.S. policy was this time more cautious. What explains this inconsistency? Why do the Japanese sometimes act generously to provide the public good of international financial stability, and at other times do nothing? Why does the government passively follow the United States on some occasions yet act proactively and independently at others?

According to Katada, existing models of Japanese policymaking have a hard time explaining this inconsistency. One school of thought sees Japan as an "economic animal"—a mercantilist free rider with little interest in asserting costly global leadership. Others describe a "reactive" or passive state, bobbing aimlessly in international waters unless pushed to act by the United States. Neither model adequately explains the boldness and generosity of the Miyazawa initiative or the aid package proposed for Thailand in 1997. On the other hand, the timidity shown over Mexico in 1994, or in the middle of the Asian crisis in 1998, shows that Japan also cannot be described as an emerging hegemon at either the international or even the Asian regional level.

Katada argues that the best explanation for Japan's uneven crisis management style lies in understanding the private gains to the Japanese government of providing public goods, and the closeness of the ties between Japanese and foreign corporations. She states first that Japan will provide international public goods only if the government sees clear private gains for itself. These gains come in two forms: protecting the economic interests of private Japanese companies, and scoring brownie points with the United States and other governments. Second, the government will be much more likely to act if there are strong transnational links between Japanese and international banks. In her words:

the most favorable conditions for coherent collective action by creditor governments in financial crisis management arise when there are substantial private gains for a creditor government from its involvement and, on the other hand, there are strong and coherent transnational linkages among the private sectors, which...