September 10, 2002 — Prime Minister's Office (Kantei), Chiyoda, Tokyo.
In the fifth-floor office of the newly constructed Kantei that year, three cabinet ministers were gathered around Prime Minister Goto Yujiro, who sat at the center of the sofa.
Resting both hands on the armrests of the glossy European mahogany sofa, Prime Minister Goto spoke with a deeply furrowed expression.
"Is it true that the exchange rate briefly broke through 130 yen per dollar today?"
Minister Sato, seated to his left, quickly responded as if making an excuse, looking as though he were sitting on pins and needles.
"Foreign investors, concerned about the looming Iraq war crisis and the decline in the stock market, rushed to sell off shares and move their funds overseas all at once. On top of that, speculative forces launched attacks, causing the exchange rate to surge sharply. However, thanks to the cooperation of exporters such as Toyota and Sony, we fortunately managed to close the market at 129.31 yen."
Though the explanation was long-winded, in the end it meant they had pressured export companies into converting their dollar holdings, barely managing to pull the exchange rate back below 130 yen.
Prime Minister Goto frowned and asked,
"Even if we managed to get through today like that, what about tomorrow? Are you planning to strong-arm companies again and make them release dollars?"
"If the foreign exchange market shows signs of instability again tomorrow, the Governor of the Bank of Japan and I plan to step in personally and carry out verbal intervention."
As Minister Sato answered with a troubled expression, Prime Minister Goto slammed his palm down hard on the armrest.
"Then if even verbal intervention fails, anxiety will only grow, and the exchange rate will spiral out of control. What are you going to do then!"
At the thunderous shout that made the office seem to reverberate, Minister Sato's shoulders shrank.
He then spoke in a faltering voice, as if making excuses.
"Th-then we plan to actively defend the exchange rate by selling U.S. Treasury bonds held by the Bank of Japan."
Prime Minister Goto glared sharply at the sweat-soaked Minister Sato, looking at him as though he were utterly pathetic.
"Is selling U.S. Treasuries the best countermeasure you can come up with!"
"...."
"Even if it might hold the exchange rate in place, all it does is sell off national wealth—at bargain prices, no less—and pave the way for foreign investors to pull their funds out at a lower exchange rate, doesn't it?"
Minister Sato knew all too well that it would effectively be helping foreign investors flee Japan, so he could only bow his head, unable to offer any reply.
Seeing this, Prime Minister Goto grew even more irritated and pressed him further.
"Didn't you say from the start that although there would be a short-term shock, it wouldn't last long and the market would soon stabilize? Then what is this? The exchange rate has surged into the 130-yen range, and the Nikkei has been hitting new lows almost every day—now it's on the verge of breaking below the 9,000 mark!"
Prime Minister Goto, unable to contain his anger, poured out his words as if venting his frustration.
As the atmosphere grew increasingly hostile, Chief Cabinet Secretary Hirata Naoshi—an influential third-term member of the Liberal Democratic Party and a close aide to the Prime Minister—stepped in.
A middle-aged man with a sharp, stern impression, he had been seated on the sofa to the right. Casting a sidelong glance at the visibly intimidated Minister Sato, he began to speak.
"While it's true that we underestimated the impact on the exchange rate and the stock market, there's also the fact that the market's fear and confusion were amplified beyond necessity—due not only to malicious attacks by speculative forces but also to President Bush's hardline remarks yesterday."
"Then you should have anticipated that and acted accordingly!"
"As you said, there are certainly regrets. But what's done is done. At this point, rather than getting angry, I believe the best course of action is to quickly put together countermeasures to prevent the shock from worsening."
Minister Hirata spoke in a calm tone, as if soothing the Prime Minister.
At that, Prime Minister Goto clicked his tongue while looking at Minister Sato—who had his head bowed like a criminal—with a displeased expression.
"Tskt!"
Minister Sato kept his mouth tightly shut, clenching his clasped hands.
While it was true that he had made the mistake of predicting the situation too optimistically, it had been none other than Prime Minister Goto who had strongly pushed for aggressive, government-led reforms from the outset—insisting on injecting massive public funds into banks to resolve the problem of non-performing loans.
He had merely followed the Prime Minister's intentions faithfully, yet now that the shock had grown to a serious level, Goto was trying to shift all the blame onto him and distance himself. The injustice of it welled up inside him.
But knowing full well that saying any of this here would bring him no benefit, Minister Sato simply kept his mouth shut and silently endured the piercing gazes directed at him.
"Phew."
Prime Minister Goto, as if trying to quell the burning anger inside him, picked up the teacup in front of him, took a sip of green tea, and let out a frustrated sigh.
"It seems they've completely made up their minds to go to war with Iraq before the midterm elections. If that happens, won't the turmoil in the exchange rate and stock market only worsen rather than settle down?"
Minister Sato hesitated, wearing a troubled expression as he replied.
"Considering that major global stock markets, including the New York Stock Exchange, are plunging in tandem… it will likely be difficult to avoid further declines."
"Hmm."
Prime Minister Goto let out a groan, his face contorting.
If concerns about the Iraq war had surfaced after the shock from the large-scale resolution of non-performing loans had somewhat subsided, the damage might have been less severe.
But instead, just as the Japanese government made its aggressive move, the massive negative factor of war struck immediately afterwards, causing the impact on the market to grow far greater than anticipated.
In truth, it had been an open secret around the world that the United States would attack Iraq before the midterm elections.
Naturally, the Japanese government had also been aware of this information, which was why they had originally planned to delay the resolution of non-performing loans as much as possible—either until the end of the year or after the Iraq war had concluded.
'But because of the Eldorado Fund—no, because of Chairman Park Seok-won—that man ruined everything.'
Suddenly, the Eldorado Fund poured in massive capital to take short positions against the yen and the Nikkei, and as other hedge funds and speculative forces joined in, the Japanese government was thrown into a state of urgency.
The problem of Japan's non-performing loans—something everyone had known about but had deliberately ignored like an elephant in the room—rapidly surfaced.
A growing sense of crisis set in: if mishandled, instead of being gradually resolved under government control, fear could spread in an instant and escalate into a full-blown financial crisis. In the end, they had hastily brought forward their plans and put them into action.
'And for the Iraq war crisis to erupt at this exact timing—what terrible luck.'
Prime Minister Goto muttered to himself inwardly, biting down hard on his lip.
It was, quite literally, a case of misfortunes piling on top of each other.
Irritation surged within him, but the situation had already unfolded, and he needed to find a way to bring it under control as quickly as possible.
Prime Minister Goto looked around at the ministers seated on either side and spoke.
"Given how bad the situation is, how about postponing the resolution of non-performing loans for a while?"
At that, Kobayashi, the Minister of the Economic Planning Agency, who was seated beside Chief Cabinet Secretary Hirata, immediately objected.
"That won't do."
As Prime Minister Goto frowned, Minister Kobayashi—an economic expert from the former Ministry of Finance and also a member of the Liberal Democratic Party—leaned forward and explained his reasoning.
"If we hadn't announced the resolution of non-performing loans from the start, that might be one thing. But now that not only market participants but the entire public is aware of the cabinet's plan, even if we put it on hold at this point, the market won't calm down easily. On the contrary, it's far more likely to create even greater confusion."
"Then what exactly are you suggesting we do?"
Prime Minister Goto scowled and snapped irritably.
At that, Minister Sato, who had been quietly gauging the situation, cautiously stepped in and spoke.
"Although the damage may be greater than expected, pushing ahead with the resolution of non-performing loans as planned and concluding it as quickly as possible would be the best course of action for now."
"While that's happening, will you take responsibility for the exchange rate and the stock market being shattered, Minister Sato?"
Startled for a moment, Minister Sato clenched his teeth.
"When you decided to proceed with the resolution of non-performing loans, you were already prepared for the market to take a hit, weren't you?"
"But the shock is exceeding the expected range—that's the problem, isn't it!"
Prime Minister Goto raised his eyebrows and lashed out in anger.
As the atmosphere showed signs of escalating once again, Minister Hirata stepped in between the two.
"Both of you, please calm down. If we assess this coolly, withdrawing at this point would cost us far more than we would gain."
Minister Hirata added in a subdued voice,
"If we're not careful, it could be seen as having carelessly brought up the issue and only caused confusion in the market, giving not only the opposition but also other factions within the ruling party a pretext to attack us."
At that, Prime Minister Goto's face stiffened.
Under the nature of the cabinet system, no matter how much time remained in his term, if his support base collapsed, he would have to resign from the premiership at any moment.
"The best course of action we can take right now, with no way out, is to finish the resolution of non-performing loans as quickly as possible, just as Minister Sato suggested."
This time, Prime Minister Goto did not lash out. Instead, he folded his arms and sank into deep thought.
"If we do that, the excessively surging exchange rate and the panic-stricken stock market will soon return to their proper levels and stabilize."
At Chief Cabinet Secretary Hirata's words, Minister Kobayashi also stepped forward in agreement.
"If we push ahead with the resolution of non-performing loans without wavering, the speculative forces won't be able to keep up their attacks indefinitely, and at some point, they will begin to pull out. When that happens, the pressure on the market will decrease rapidly, and the pace at which it returns to normal will also accelerate."
"Exactly. Speculative forces have a hyena-like nature—if we show weakness and retreat, they will latch on and tear into us even more relentlessly. However, if we demonstrate a firm resolve to normalize the economy, they will withdraw like the receding tide, taking their profits and exiting, having already earned more than enough."
Even Minister Sato voiced his agreement, and Prime Minister Goto, stroking his chin, hesitated for a moment before finally nodding as if he had made up his mind.
"The situation has grown too large to turn back now, so proceed with the resolution of non-performing loans as planned."
Minister Sato, who had been anxiously worried that an order to halt might be given, showed a look of relief.
"Yes. Understood."
Chief Cabinet Secretary Hirata and Minister Kobayashi also voiced their support for the Prime Minister's decision.
"You've made the right choice."
"That is indeed a wise decision."
Prime Minister Goto looked around at the ministers with a serious expression and spoke.
"However, if the exchange rate rises too much, it will cause problems in many ways. So work together with the Bank of Japan and actively move to defend it."
Although it was practically the same as handing over the nation's wealth to speculative forces, they could not simply stand by and allow the exchange rate to surge. With that in mind, Minister Sato bowed his head.
"We will proceed accordingly."
"And while it may be unavoidable to consolidate banks that will receive massive public funds during the process of resolving non-performing loans, minimize the expulsion of companies with high debt ratios as much as possible."
"But if we do that, the effectiveness of the non-performing loan resolution will be greatly reduced."
As Minister Sato voiced his concern, Prime Minister Goto spoke with a stern expression.
"If, amid a collapsing stock market and worsening public sentiment, we also unleash corporate expulsions and an employment crisis, then no matter how much this cabinet succeeds in resolving the difficult problem of non-performing loans, it won't be able to hold out. That's why minimizing corporate expulsions is a painful but necessary measure to maintain the administration."
"That may be true, but…"
"I'm well aware that this means we won't be able to achieve all of our original goals. However, it is the only way to continue pushing forward with the resolution of non-performing loans while minimizing the decline in the cabinet's approval rating, so just follow the instructions as given."
Prime Minister Goto wore a resolute expression, making it clear that he would not compromise on this matter.
Sensing that stance, Minister Sato reluctantly bowed his head.
"Understood."
As the discussion came to an end, Prime Minister Goto leaned back and let out a bitter remark, his face filled with displeasure.
"In the end, it's Chairman Park and the speculative forces who've walked away with massive profits from all this."
"That's right."
"Haah…"
The other three men were equally infuriated by how the Eldorado Fund and other speculative forces had cleverly exploited Japan's difficult situation to rake in enormous sums of money.
However, with no options left and completely cornered, they had no choice but to endure it despite knowing exactly what was happening.
None of them could have imagined that this decision made today would allow a large number of zombie companies—barely able to even pay interest—to survive without being properly cleared out, eventually becoming a toxic burden on Japan's economy and leading it into the prolonged stagnation later known as the "Lost 30 Years."
TL/n -
The "Lost Decades"
1990s (First Lost Decade):
Economic growth slowed dramatically.
Deflation set in, with falling prices discouraging investment and spending.
Government stimulus and low interest rates failed to restore strong growth.
2000s (Second Lost Decade):
Continued weak growth and deflation.
Structural issues: ageing population, rigid corporate culture, and slow reforms.
Global financial crisis (2008) worsened stagnation.
2010s–2020s (Third Lost Decade):
"Abenomics" under Prime Minister Shinzo Abe (2012 onward) tried to revive growth with monetary easing, fiscal stimulus, and structural reforms.
Some success in boosting stock markets and employment, but long‑term growth remained sluggish.