It's the sort of news no political leader wants to hear: An influential banker appointed to a key economic panel is forced to resign when it turns out his institution was funnelling loans to a raft of criminals, and its former top executive knew about it. The banker in question, Yasuhiro Sato, CEO of Mizuho Financial Group, was among nine high-profile business executives selected by Japanese Prime Minister Shinzo Abe to advise him on efforts to restructure the ailing economy. Doing business with what Mr. Sato and other Japanese officials call "anti-social forces" and everyone else calls the Yakuza was probably not on the list of possible options.
When Mr. Abe launched his vaunted three-arrow strategy late last year to reboot the economy, he knew the first two arrows in the quiver would be relatively easy to aim and shoot: a hefty dose of fiscal spending and hyper-aggressive quantitative easing designed to weaken the yen and double the monetary base by next year. Then would come the critical third arrow – structural reforms to open large swaths of the economy to genuine competition, increased foreign investment and renewed capital spending. These would also address such critical issues as an aging population, outmoded agricultural, tax and pension policies, soaring health-care costs, job security and a lack of women in a shrinking labour force.
Without such reforms, the government's strenuous efforts to combat deflation through monetary stimulus are likely to fail. But previous liberalization efforts have run aground on the hard reality that entrenched interests have carried enough political clout to preserve the status quo.
Mr. Abe has already signalled that badly needed labour market reforms will not be included when he unveils his third-arrow policies. "To gain people's understanding will require more careful explanation than for other reforms," he told the Financial Times.
Mr. Sato the banker seemed ideally suited to play a key role in the transformation. After taking the helm of Mizuho in 2011, he took a 30 per cent cut in salary for three months and launched an aggressive overhaul to slash costs at Japan's second-largest financial group – cutting 3,000 jobs in the process – as well as consolidate operations and reorganize the company's unwieldy management structure. More shockingly, he vowed that the customer would always come first.
There may be a lesson here for Mr. Abe. Perhaps he needs to consult fewer prominent business people like Mr. Sato and tap into the management talents of the Yakuza. They seem to know how to get capital out of reluctant lenders. And they certainly know how to eliminate redundant workers.