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Number 1 Shimbun

Mr. Smith Goes to Tokyo (Part I)

No1-2018-04 05

Mr. Smith Goes to Tokyo (Part I)

by Charles Smith


When Charles Smith arrived in Tokyo in 1973 as Financial Times bureau chief, he had no idea he'd end up spending most of the rest of his life here. Now 82 and still an FCCJ Regular member, he's been writing his memoirs and has consented to share with us accounts of some of the most memorable moments in a long and interesting career. Here is the first installment.


Financial Times had closed its Japan bureau in 1967. Based in London I had occasionally plugged the gap by making a series of short reporting visits to Tokyo. By 1973, when the paper sent me to reopen the bureau, I had plenty of grounding in trade and foreign exchange – but I had no idea of the scale and complexity of the story I had come to cover.

An illustration of my naiveté: As newly hired news assistant Yoko Shibata shopped for desks and chairs, I pondered what seemed to me a critical issue: Could the office afford an electronic calculator? As a writer who had ignored technology (not my beat), I was unaware that calculators as small as cigarette packs had come from nowhere to be in many people’s pockets and that Casio Computer Corp., a specialist maker that rode this wave, had become a noted success story.

I bought a medium sized calculator and didn’t stop there. Without understanding details, I began to grasp that a tidal wave of semiconductor technology giving birth to products from calculators to robots would be a big part of the story I had come to cover.

By 1984, when my long run with FT ended, I had time to develop a fascination with Japan that had begun with the chance reading of a 1961 Economist survey by the renowned British analyst Norman Macrae. In “Consider Japan,” Macrae described how the country had developed a number of highly original systems for managing its economy – systems that Europeans and others could afford to imitate, even if they might find it difficult to do so.

Although the Macrae article had made a deep impression on me, my understanding had been shallow. It was only after I had lived and worked in Tokyo for a while that I came to realize the Japanese system wasn’t a single inspired creation. It was an elusive combination of Western political and cultural ideas dating from the arrival of Commodore Perry’s “black ships,” in 1853, along with older and perhaps more sophisticated ways of building a nation.

Of course Japan had absorbed and adapted Chinese culture more than a thousand years earlier. It was also crucial to understand how the aftermath of World War II had left Japan with a lopsided democracy, featuring a stubbornly resourceful center-right ruling party confronting a pigeon-holed socialist opposition. Macrae hadn’t written about that, or about a vast range of other, distinctive Japanese cultures. Taken together these made the country into a mixture of a Western replica and a homemade system whose formula wasn’t spelled out on paper, but worked.

I would notice this complexity more and more as I found myself writing about companies that had imported or copied technology from the United States and Europe but had gone on to improve on their acquisitions in ways that the inventors had not contemplated.

And then there was the puzzling question of how Japan’s brilliantly creative journalists managed to work in a newspaper industry that seemed to act as an obedient extension of political and industrial power centers.

All of this could and should have interested the FT, but it wasn’t until my last two or three years with the paper that I even tried to tackle such topics. What dominated my first years in Tokyo were the questions, then on the minds of Western readers and my editors, of how and why Japan had grown so fast to become the world’s third largest economy and of how long the tightrope walker – to use a fashionable image – could avoid tumbling off the high wire.

This was already a well-worn issue when the Tokyo bureau opened but perhaps I was lucky in arriving at a moment when the high wire act looked particularly risky. Kakuei Tanaka, then Prime Minister, was not the scion of a political dynasty like many of his predecessors but the son of a real estate dealer in a remote prefecture on Japan’s west coast. Tanaka had made his own tens of billions (perhaps trillions) of yen in real estate.

As prime minister, Tanaka had famously put forth a plan to spread Tokyo’s concentrated wealth around the whole nation under the slogan of “Remodeling the Japanese Archipelago.” Tanaka was also the man who, two months after taking office in 1972, had transformed Japan’s position in Asia by opening diplomatic relations with Beijing. This was done in seemingly casual defiance of vested Tokyo political interests that had long favored the Chinese Nationalists on Taiwan.

The opening to China made possible a relationship between two almost perfectly interlocking economies but also created a dangerous web of political and strategic tensions. By 2010 China would become Japan’s second largest export market, free of the chronic frictions that overshadow trade with the United States and Europe. On the other hand the two nations eventually came close to blows over the Senkaku (Diaoyutai in Chinese), a group of tiny, barren islands in the East China Sea controlled by Japan but emphatically claimed by China and Taiwan.

The breakthrough with China raised some eyebrows, and elicited some admiration outside Japan in 1972. But in the short term Tanaka’s infrastructure investment plan was a bigger issue. During 1972-73 its effect had been to add a point or two to Japan’s already double-digit GNP growth rate while triggering land speculation in distant parts of the country. At a macroeconomic level there were doubts about the government’s ability to finance a massive expansion of public works investment – including the building of a nationwide network of high-speed railways, which would open up remote prefectures.

All of this meant that my first big job after the bureau reopened in September 1973 was to deliver a feature article on Japan’s combination of accelerating growth and its highest rate of inflation in 20 years. At its most hopeful, the story suggested that the government might be able to keep economic growth down to “no more than 10 per cent” in 1974 by a combination of sharply higher interest rates and guidance to business to cut back on capital investment. I thought, though, that even that would be difficult given a striking lack of consensus on the aims of growth.

What followed was an event that outdated any talk about the aims and objectives of rapid, or not so rapid, growth. On October 17, 1973, Arab countries that were supplying 40 per cent of Japan’s oil imports announced a steep reduction of oil supplies to the “Western” countries, including Japan, that had supported Israel during the recent Yom Kippur War between Israel and Egypt.

At almost the same time the Organisation of Petroleum Exporting Countries (including Arab and non- Arab producers) announced cuts of five percent per month in crude oil production. OPEC threatened to continue the cuts until the pre-war frontiers between Israel and its Arab neighbors had been restored – in other words, until Israel surrendered all its recent territorial gains.

My cuttings book suggests that most people in Tokyo, if not the foreign press, were slow to grasp the full implications of this. As the crisis began to unfold, Tokyo’s affluent population at first seemed to continue blindly with the frantic business of making and spending money. Compared with London the huge city, with all its magnificent department stores featuring mouth-watering food halls, reflected what to me was a new scale of affluence. Even some Tokyoites seemed to be intoxicated by the country’s sudden plenty.

For a couple of months after the news from the Middle East turned ominous the consumption super-truck stayed in overdrive. It was good that the truck eventually turned out to have brakes. By mid-November, I was reporting on plans by the government for severe short term cuts in oil imports accompanied by warnings of hardships to come. At the very end of 1973 the fragility of Japan’s situation became visible to all when illuminated advertising displays went out simultaneously one night on the Ginza.

Sekiyu Shokku
The sekiyu shokku (oil shock) as it was soon labelled became my first real introduction to the elite bureaucrats of Tokyo who, at that time, seemed to make most things happen in the public sector and often told private companies what to do, or not to do, as well.

The crisis put the Ministry of International Trade and Industry into the driver’s seat as the government agency best able to control short-term damage from a looming oil shortage. But there was plenty of mood music from elsewhere. In early December the Ministry of Foreign Affairs weighed in with a report warning that oil import cuts of up to 15 per cent a year would lead to a “deepening sense of social unrest” in Japan.

That was because the cuts threatened to lead, via electricity, kerosene and gasoline supply cuts and perhaps some food shortages, to a diminishing lifestyle instead of the consumer-fueled double-digit growth that had seemed a national right before the crisis. As the government tried to change course, bottlenecks of daily necessities had already appeared

A story of the early winter of 1973-74 that even the FT latched onto in due course was of a toilet paper war in Tokyo supermarkets. TV shots showed elegantly dressed housewives elbowing each other for the precious paper rolls, until order was restored with emergency imports from China.

What I did not allow for as the shutters closed on pre-crisis affluence was Japan’s talent for “embracing” disaster (to borrow terminology from American scholar John W. Dower’s brilliant 1999 book on the country’s post-World War II resurgence). If I had taken a longer view I might have noted that a threat of colonization in the 19th century had sparked Japan’s first big round of industrialization, and that devastation in World War II had inspired a redesign of the economy. A reporter less tied to covering daily news might have guessed that, by the early 1970s, Japan had just about reached the point where it needed another challenge to its creativity.

As it was, the bad news had already begun to inject traces of originality into Tokyo’s Washington-led foreign policy. When the Arabs announced plans for a global cut in crude oil production they classified importing countries into three categories – friendly, neutral and hostile – and allocated supplies accordingly, with a ban on shipments to hostile nations and preference for friendly importers.

Although Japan had been classed as neutral the government thought it saw a chance of winning an upgrade to friendly by favoring the Arab interpretation of a recent UN resolution on the Arab-Israeli territorial dispute. This led to an exchange with the American Secretary of State, Henry Kissinger, who made a flying visit to Tokyo to warn that any overtly anti-Israeli moves might provoke unfriendly action by Jewish business interests in the United States.

But the threat seemed to be vague and the change went ahead. The immediate result was that Japan was exempted from the effects of a five percent oil production cut scheduled for December.

That was good, but a second shock came at the end of December: a doubling in OPEC’s oil prices, which shifted Japan’s primary worry from not being able to obtain oil to not being able to pay for it. Our story on the price increase quoted officials as warning that oil at the new price could account for one-third of Japan’s total import bill in 1974. The result, I hastily calculated, would be a Japanese trade deficit amounting to US$10 billion during the coming year – enough, I thought, to almost soak up foreign exchange reserves of $13 billion.

That calculation did not allow for borrowing. As we should have realized, the Arabs would want to recycle their gains. It wasn’t long before the media were airing rumors of a “private” $1.2 billion loan from Saudi Arabia.

But the strain on Tokyo’s ability to pay its way was genuine. Japan, it seemed, could only hope to deal with this problem by returning to the policy of aggressive export promotion that it had followed through the decade of the 1960s until 1971-72. If it did that the issue would not be availability of exportable goods – since industry was emerging from an orgy of capital investment that had created plenty of spare production capacity – but whether the world could or would absorb what would be offered.

Japan’s vigorous exports of standard manufactured goods to the United States from 1969 onward had provoked several (to Japan, shocking) revaluations of the yen. Those exports had shaken the structure of world financial markets with the Nixon Administration’s 1971 decision to end dollar convertibility to gold.

What would happen if the oil shock led to a second outbreak of “heavy rain” exporting, with the inundation spreading from the United States to Western Europe?


Charles Smith is a veteran of 45 years with the Club, including 11 years as Financial Times Tokyo bureau chief and two stints as bureau chief of the Far Eastern Economic Review. He lives in Tokyo and continues as an FCCJ regular member. 

Published in: April 2018

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