September 18, 1997.
In a small conference room inside Japan's Ministry of Finance building located in Chiyoda, Tokyo, Deputy Minister Shin Seung-ki and four other officials from South Korea's Ministry of Finance and Economy sat in a row on one side of a long table, visibly tense.
Rolling up his sleeves, Deputy Minister Shin checked his wristwatch, then reached for the teacup in front of him and took a sip of green tea, perhaps to ease his parched throat.
Seeing this, Manager Lee Dong-woon, seated next to him, cautiously asked,
"Shall I step outside and ask why they're taking so long?"
Deputy Minister Shin hesitated briefly, then shook his head.
"No. It's only been about ten minutes. Let's wait a bit longer."
Though this was an unofficial visit, keeping a government delegation waiting past the scheduled time without any explanation was clearly a diplomatic discourtesy.
As the Korean representative, he should have voiced protest and demanded an apology.
However, because they had come seeking Japan's help, Deputy Minister Shin forced down his displeasure.
About five more minutes passed when there was movement outside the room. The door opened, and a group of men entered.
Recognizing the face of their negotiation counterpart—Yoshikawa Daiki, Director of the Ministry of Finance—Deputy Minister Shin stood up.
Known as "Mr. Yen" for having led Japan's foreign exchange policies during years of extreme currency fluctuations and wielding substantial influence over the foreign exchange markets, Yoshikawa entered with a slightly stiff expression and spoke first, offering an apology.
"Apologies for the delay. The previous meeting ran long."
"Not at all," replied Shin.
With help from an interpreter, the two exchanged brief pleasantries and shook hands lightly. They then took their seats across from each other at the long conference table.
After taking a small sip of green tea served by a female staffer, Yoshikawa gently set down his cup. Growing increasingly anxious, Deputy Minister Shin couldn't wait any longer and asked first:
"So, what decision has been made?"
Setting his teacup down, Yoshikawa looked calmly and steadily across the table at Shin before finally responding in a composed voice.
"I regret to say that it will be difficult for us to accommodate your request."
The hopeful look in Deputy Minister Shin's eyes instantly hardened at the disappointing answer.
"But when we spoke yesterday, your response seemed positive!"
"Yes, it did seem that way."
"Then why the change in attitude overnight?"
Deputy Minister Shin Seung-ki leaned forward urgently and pressed for an answer, to which Director Yoshikawa replied calmly.
"As you're aware, the United States is strongly insisting that all support for countries affected by this currency crisis must be channeled through the IMF. That makes it very difficult for us to provide individual assistance."
Deputy Minister Shin immediately responded, trying to persuade him.
"That's precisely why we asked for help not in the form of government-to-government aid, but through support between financial institutions."
To avoid U.S. pressure that insisted on IMF-led assistance, the Korean government had asked the Japanese Cabinet to discreetly support them by issuing administrative guidance—urging Japanese banks to refrain from withdrawing yen-denominated loans from Korea and instead extend their maturity dates.
At the time, roughly half of Korea's foreign debt was yen-denominated loans borrowed from Japan.
So when large-scale withdrawals of yen funds began, it compounded the pressure on the already shaky Korean won, which had been suffering from foreign capital flight out of the stock market and attacks from currency speculators.
"We understand. We've also looked into ways we might help. However, commercial banks here are expressing serious concerns about Korea's creditworthiness. Without exception, we've received responses saying that extending loans would be difficult."
"Are you saying they don't trust the Korean government or our corporations?"
Seeing the deputy minister's stern expression, Director Yoshikawa gently waved a hand as if to dismiss the misunderstanding.
"That's not what I meant at all. But from the banks' perspective, it could be considered a breach of fiduciary duty. They can't simply ignore the sovereign credit ratings issued by international agencies."
"Hm…"
When Yoshikawa brought up the downgrade of Korea's sovereign credit rating, as well as that of its domestic banks by the Big Three rating agencies—S&P, Moody's, and Fitch—Deputy Minister Shin Seung-ki fell silent, letting out a low sigh.
Seeing this, Yoshikawa continued.
"On top of that, due to the aftermath of the Southeast Asian financial crisis, our own domestic economic conditions are not good either. I'm afraid it's very difficult for us to provide assistance. I truly apologize."
Despite his words, neither Yoshikawa nor the Japanese officials showed any genuine sign of remorse.
It was clearly lip service—nothing more.
Yet, with Korea's foreign reserves melting away like snow while defending the exchange rate, the country desperately needed Japan's help. Swallowing his pride completely, Shin bit his lower lip and pleaded once more.
"Could you please reconsider your position?"
But Yoshikawa flatly refused, his expression unchanging.
"No matter how much you ask, our answer will remain the same."
At that moment, Shin realized with finality that Japan's help would not come. Disappointment washed over his face.
Fury surged at the thought that the Japanese had toyed with them—pretending until the very last moment that they might help—but the feeling soon gave way to dread about what lay ahead for Korea, now hanging by a thread.
"It might be better to seek assistance from the IMF before the situation deteriorates further."
Yoshikawa spoke with feigned concern.
Shin's face contorted in a mix of grief and anger.
"Two-faced bastards!"
He barely held back the curse bubbling in his throat and answered with restraint.
"You must be aware of how harsh the IMF's conditions are in return for their assistance."
Yoshikawa shrugged and replied with a faintly mocking tone.
"True, but isn't that better than facing a moratorium when your foreign reserves run dry?"
A moratorium is when a country declares a temporary suspension of all foreign debt payments due to an inability to repay.
Hearing such a blatant assumption that Korea would inevitably fail to fend off the currency speculators, Shin clenched his jaw and replied stiffly.
"Thank you for your concern, but that will not happen."
"I certainly hope so," Yoshikawa replied insincerely.
His dismissive tone deeply insulted Shin and the Korean delegation, who sat trembling with silent fury, their hands clenched tightly under the table.
In the end, contrary to their expectations, Shin and his team left Japan empty-handed and returned home in bitter disappointment.
Meanwhile, after the meeting with the Korean delegation, Yoshikawa, the administrative officer, immediately headed up to the Ministry of Finance's office on the top floor.
Passing through the door opened by a staff member, he entered the office, where Minister Kazuya Sato, a veteran three-term member of the House of Representatives, was sitting upright in front of a large wooden desk.
"How did it go?" Minister Sato asked.
Approaching the desk, Yoshikawa answered while looking at the minister.
"As per your instructions, we refused their request and told them we couldn't help."
"Did they accept it easily?"
"They begged for one more reconsideration, but when I firmly told them it wasn't possible, they reluctantly gave up."
A sly smile spread across Sato's face.
"Well, if we don't want to help, what can they do? Right?"
"That's right, sir."
However, sensing some unease, Yoshikawa hesitated slightly and cautiously asked.
"If Korea proceeds with receiving IMF support or declares a moratorium, it will certainly affect us here in Japan as well. I'm wondering if we should just leave it as is."
Minister Sato clasped his hands together and placed them on his lap before responding.
"Of course, there will be some damage, but that will likely force the U.S. to finally take action to prevent things from getting worse."
Yoshikawa nodded subtly in agreement, and Sato continued.
"Even if we wanted to help Korea, the prosecution is currently investigating the ties between the Ministry of Finance and the financial institutions. It's going to be difficult to tell the banks to extend the maturity of the loans to Korea."
Sato clicked his tongue in displeasure.
"The economy is already in a bad state, and the stock market is a mess. Instead of just letting things go, now the prosecutors want to expand their investigation to all financial institutions. I can't understand what those guys are thinking."
Sato, clearly frustrated, turned his gaze back to Yoshikawa and asked in a serious tone.
"How long do you think Korea can hold out?"
"Given that their foreign reserves were never very large, and they've already used a significant portion of it to defend the exchange rate, they'll likely only last about a month at most."
"A month, huh... Well, considering the timing, it seems inevitable that there will be a change in government before the presidential election."
"That's very likely."
Nodding, Sato crossed his arms as he sat back in his chair.
"Once Korea raises the white flag, the fallout will inevitably affect Japan in some way. We need to be well-prepared, especially to prevent the already weak exchange rate from plunging to dangerous levels."
"I will make sure of it."
"I hope those greedy hedge funds are satisfied with Korea as their final feast, but I doubt it will be that easy... They're nothing but starving piranhas."
Just as Sato muttered these words, there was a knock at the door, and a staff member hurriedly entered with an urgent expression.
"Sorry to interrupt."
"What is it?" Sato asked.
Minister Sato furrowed his brow and spoke.
At that moment, the staff member quickly approached and urgently relayed the news.
"Just now, Yamaichi Securities has filed for bankruptcy."
"What?"
The news was like a thunderbolt out of the blue, and Minister Sato's eyes widened in shock as he repeated the question.
"Is that true?"
Yoshikawa, who was with him, also couldn't hide his shock and stared at the staff member.
"Yes. They have just submitted a voluntary closure notice to our Ministry of Finance."
"What is this…?"
Yamaichi Securities was one of Japan's top four securities firms, with a history of 100 years, so its bankruptcy was no small matter.
The impact on the already sluggish Japanese economy and stock market was bound to be enormous, and Minister Sato's face twisted in concern.
"What the hell is the reason for this?"
As Minister Sato shouted, the staff member shrank, as if it were his fault, and stumbled over his words.
"They discovered that the company had been hiding large losses through accounting fraud, and recently, there was another massive loss from a CDS option contract they had signed with the Eldorado Fund."
"The Eldorado Fund? Those bastards again!"
Minister Sato slammed his palm onto the desk in anger.
Meanwhile, Yoshikawa, who was standing nearby, turned to the staff member and asked.
"How much loss are we talking about that led to this bankruptcy filing?"
"It's 20 billion dollars."
Hearing the amount, Yoshikawa immediately shook his head, realizing that Yamaichi Securities' recovery would be impossible.
Minister Sato, his face grim, shouted loudly.
"Call an emergency meeting right now!"
"Yes. Understood!"
As Yoshikawa watched the staff member rush out, a wave of unease suddenly swept over him. He had tried to blame Japan's poor economic situation when speaking to Korea, but now, he feared the situation might actually become far more serious than he had imagined.