The Conglomerate Family Became A Villain [EN]: Chapter 257

257. Tokyo vs. America (1)

Following the Plaza Accord [an agreement in 1985 among France, Germany, the United States, the United Kingdom, and Japan to depreciate the U.S. dollar relative to the Japanese yen and the German mark], the Japanese government made numerous attempts to devalue the yen. However, in the first half of 1987, the yen’s decline halted, and it even began to rise again.

In response, the Japanese government repeatedly lowered interest rates, injecting yen into the market.

This interest rate reduction triggered inflation, which, in turn, drove up real estate prices in Japan.

“Isn’t the real estate bubble getting dangerously large as of June?”

In 1987, Japan’s real estate market experienced wild fluctuations in response to each government policy.

“The only way to control the bubble is to raise interest rates. However, raising interest rates will also increase the value of the yen.”

Diplomatic officials completely ruled out interest rate hikes as a viable option. The head of the Bank of Japan then lamented.

“If raising interest rates is off the table, how can we possibly control real estate prices?”

“What about increasing the housing supply?”

“Increase the supply?”

“We need to implement policies based on the laws of supply and demand.”

The head of the Bank of Japan frowned.

‘This is pure armchair theorizing.’

The center of Tokyo was already densely packed with houses and commercial buildings.

Even with redevelopment, the actual increase in the number of houses would be minimal.

‘All that supplying housing in Tokyo will achieve is the construction of new towns on the outskirts.’

Predictably, the government’s solution was to build new towns on the outskirts of Tokyo.

The cabinet official in charge spread out a map and announced emphatically.

“This is the new town construction plan.”

The head of the Bank of Japan examined the map and voiced his dissatisfaction with the location of each new town.

“Aren’t they too far from downtown Tokyo? Some areas don’t even have proper railway connections. How will this lower Tokyo’s housing prices?”

“We can connect the railways after the new towns are built.”

Instead of constructing new towns and railways simultaneously, they planned to build the railways after the new towns were completed.

At this point, an official from the Ministry of Transport raised his hand, visibly angry.

“What does the cabinet think of our Ministry of Transport?”

The sharp reaction from the Ministry of Transport caused the representatives from the cabinet and the Ministry of Foreign Affairs to frown.

“Noda, aren’t you taking this too far?”

“Apologize immediately.”

“It was wrong of the cabinet to proceed without consulting us, but your behavior is unacceptable.”

The Ministry of Transport official coldly refused their demands for an apology.

“The cabinet not only privatized the Japanese National Railways [JNR, a former government-owned railway company in Japan] but also plans to build railway lines without consulting us. Does that make any sense?”

The Nakasone Cabinet, following the listing of NTT (Nippon Telegraph and Telephone Corporation) [a Japanese telecommunications company], divided the lines and companies operated by the Japanese National Railways into the JR Group [Japan Railways Group] due to significant deficits and privatized them. They also transferred over 30 lines to private railways, effectively dismantling the railway lines managed by the Ministry of Transport.

The Ministry of Transport was understandably deeply dissatisfied with the Nakasone Cabinet’s decision.

“If the real estate bubble gets any bigger, we won’t be able to stop it, no matter how hard we try.”

As of 1987, Japan’s real estate prices had risen 24 times over the past 40 years.

Simply averaging that out, it was a six-fold increase every 10 years.

‘In Japan, real estate investment was a more lucrative option than anything else.’

All the money the Bank of Japan was releasing into the market was flowing into real estate and the stock market.

Even capital from overseas was fueling the real estate boom.

“Why is our Ministry of Transport even involved in trying to prevent the real estate boom…?”

“Noda, if the country collapses, there will be no Ministry of Transport or anything else. Don’t you understand that?”

To the post-war generation, the idea of national ruin was difficult to grasp.

“So, you’re saying the Ministry of Transport should sacrifice itself?”

A gray-haired bureaucrat responded.

“It’s not just the Ministry of Transport. Many of those gathered here will have to make sacrifices to barely contain this bubble.”

Sacrifice wasn’t limited to the Ministry of Transport alone.

As his words hung in the air, the atmosphere of the meeting grew heavy.

“First of all, how about blocking funds coming from overseas?”

The veteran bureaucrat shook his head.

“These are different times.”

This wasn’t the Edo period [the period in Japanese history from 1603 to 1868], and the cabinet couldn’t simply control foreign capital by force.

“If we can’t control the inflow of capital, we must at least prevent it from going into real estate.”

“That’s right. If companies like Kajima Construction [a major Japanese construction company] keep investing, the real estate bubble will grow uncontrollably.”

Kajima Construction had made substantial investments in Japanese real estate through the Victoria Fund.

Some officials even claimed that the real estate price surge in 1986 was their fault.

“Prevent direct investment from overseas capital. I will consider that approach.”

The Bank of Japan official interpreted the words “I will consider” as a polite rejection.

‘Real estate policy is reciprocal. If we can buy real estate in the United States, Americans should also be able to buy our real estate.’

If only one side could unilaterally purchase real estate, it would violate the principle of reciprocity.

Of course, if there was a significant difference in economic power or a compelling political reason, such a policy could be pursued. However, it would be naive to expect the U.S. government to understand the Japanese government’s position.

“If there is no definitive solution, the Japanese economy will decline.”

Currently, the streets of Japan were awash with money. However, Japanese officials were aware that this prosperity wouldn’t last.

‘Right now, young people in Japan are more interested in real estate and stocks than in developing products and pioneering overseas markets.’

Japan was a country driven by companies and exports. If young people in Japan lost interest in business and management, Japan’s future would inevitably darken.

“We need to conduct intensive tax investigations on financial institutions and construction companies.”

Since they couldn’t block foreign capital directly, they intended to target the financial institutions and construction companies that acted as conduits.

“Will that be acceptable?”

Some raised objections, but the officials generally agreed that the flow of funds had to be stemmed.

“Isn’t there any other way?”

“I don’t think building new towns alone will solve the problem, so I believe we have no choice.”

“We won’t be able to control real estate prices if we don’t suppress construction companies.”

“I understand. Let’s proceed with that for now.”

The Nakasone Cabinet decided to use every available tool at their disposal.

* * *

Kajima Construction typically consulted with Yu Tanaka when discussing fund management with Victoria Fund.

This day was no different. They visited the Japanese branch of Victoria Fund in Tokyo.

“Tanaka, this has become quite difficult.”

Yu Tanaka sighed deeply at the words of President Mori of Kajima Construction.

“Hoo… I also heard the news about the government’s announced tax investigation.”

“It seems to be specifically targeting our company.”

Yu Tanaka had connections in the political sphere, so he was well aware of the Nakasone Cabinet’s intentions.

‘They intend to block real estate investment from overseas funds.’

He responded calmly.

“We are no longer investing in real estate, so we should be fine.”

“Tanaka, what about the investments we’ve already made?”

Yu Tanaka clasped his hands together between his legs and replied.

“Have you received any instructions to sell the real estate you’ve already invested in?”

If Victoria Fund and Kajima Construction were to sell off all the real estate they had purchased at once, it could temporarily dampen the overheated real estate market.

“I haven’t received any such instructions. But in the worst-case scenario, I think that’s a possibility.”

Yu Tanaka shook his head.

“President Mori, you’re being too pessimistic about the government’s message. Besides, our company isn’t a Japanese company; it’s an American company.”

He implied that the Japanese government couldn’t sanction an American company for this reason.

‘If they were to sanction us, it would only give the U.S. government a convenient excuse.’

The U.S. government was already putting pressure on Japan in various ways, arguing that the Japanese government’s efforts were insufficient.

‘According to recent rumors, the semiconductor agreement is about to become even more specific.’

Japan and the United States had already signed an agreement regarding semiconductor dumping [exporting a product at a price below its domestic price].

However, the U.S. government wanted to finalize a more detailed and systematic semiconductor agreement.

This was intended to place restrictions on the Japanese semiconductor industry.

“Yes, the Japanese government can’t directly sanction Victoria Fund. But our company is different.”

Yu Tanaka understood President Mori’s concerns.

“If President Mori meets with cabinet officials and declares that he will no longer invest, it will be fine.”

President Mori raised his voice slightly at the end of his sentence, questioning.

“If that’s not possible?”

Yu Tanaka spread his hands and replied.

“Then I’ll have to speak with the CEO.”

President Mori clicked his tongue inwardly at his response.

‘Tch, he never admits defeat.’

Yu Tanaka’s message was that if the Japanese government took a strong stance, he would enlist the help of Jung Hyun-woo and Victoria Corporation to counter it.

“Okay. If the Japanese government comes out strongly, we’ll seek assistance from Mr. Jung.”

“Is that all for today’s discussion?”

President Mori shook his head. “There’s one more thing.”

Yu Tanaka tilted his head, “One more thing?”

“That’s right.”

“What is it?” Yu Tanaka asked, a hint of arrogance in his voice.

President Mori recognized the confidence stemming from Tanaka’s recent successes. *’Success makes everyone alike,’* he thought.

He cleared his throat. “I was wondering if we should invest in railroads instead of construction.”

“Railroads?”

“Recently, the JR Group [Japan Railways Group, a group of railway companies that were formerly part of the government-owned Japanese National Railways] was launched. I feel like we’d be helping the Japanese government, and it seems like a good opportunity.”

Yu Tanaka, emboldened by his previous success with NTT [Nippon Telegraph and Telephone Corporation, a partially privatized telecommunications company], received President Mori’s suggestion favorably.

“I understand. I’ll discuss this with the CEO.”

After President Mori left, Tanaka immediately called John Peer.

John Peer listened to the proposal and tilted his head. “Well, I think this definitely requires the CEO’s opinion.”

“Should I call him directly?”

John Peer nodded. “Do that. But be mindful of the time. It wouldn’t be good to call like this again.”

The current time in New York was midnight.

If Tanaka had called any later, Jung Hyun-woo might have been unavailable.

“I’m sorry. I’ll be mindful of the time from now on.”

“Charlie often has meetings right after coming to work. Call him about an hour later.”

“I understand. I will do that.”

Following John Peer’s advice, Yu Tanaka called at 11:30 PM, after Jung Hyun-woo had arrived at work.

The Victoria Corporation’s secretary office immediately forwarded the call to Jung Hyun-woo.

“This is Charlie.”

“This is Tanaka.”

Jung Hyun-woo, pleased with Tanaka’s recent performance, asked in a cheerful voice, “Tanaka, what’s going on?”

If it were a simple matter, Tanaka would have contacted John Peer directly.

“I’m calling after consulting with John.”

This indicated that Tanaka had followed the proper reporting channels.

“So, what’s the matter?”

“I’d like to inquire about an investment.”

“If it’s an investment inquiry, it seems you want my opinion.”

“That’s right.”

Jung Hyun-woo detected fatigue in Yu Tanaka’s voice.

*’It must be a little before midnight in Japan now,’* he thought.

It was morning in Boston, but Tokyo was approaching midnight.

“What kind of investment is it?”

Yu Tanaka explained the Japanese cabinet’s railway privatization policy, highlighting the JR Group’s central role.

“I believe the JR Group has significant investment value, just like NTT.”

Jung Hyun-woo was well aware that the JR Group was the leading railway operator in Japan.

*’Is the JR Group also going public?’* he wondered, his voice rising slightly at the end.

“So, when is the JR Group going public?”

“I cannot know the exact timing.”

Jung Hyun-woo paused, surprised. “You can’t know the exact timing?”

“We are undergoing privatization procedures, but unlike NTT, the schedule isn’t transparently disclosed.”

“Then how are you going to invest?”

“If I get your permission, I’d like to discuss it with the Ministry of Transport.”

Jung Hyun-woo was lost in thought. *’If I have to discuss it with the Ministry of Transport…’*

In short, this wasn’t a short-term investment, but a long-term one.

A long-term investment in the summer of 1987 was risky.

*’I can’t invest in the JR Group, without knowing when it will be listed, when I have to start withdrawing funds next year,’* he thought.

He frowned slightly. “Mr. Tanaka, let’s skip this investment.”

Yu Tanaka was taken aback by the unexpected response. “C, CEO?”

Jung Hyun-woo spoke reassuringly. “The bubble in the Japanese economy is growing. In this situation, long-term investments are too risky.”

Yu Tanaka, like many Japanese investors, was aware of the economic bubble. However, he didn’t believe the problem was as severe as it appeared from the outside.

“But the JR Group is one of the best investment opportunities.”

He considered the JR Group comparable to NTT, the world’s largest company by market capitalization.

“If it were 1982, that would be the case. But now it’s 1987.”

Yu Tanaka realized that Jung Hyun-woo had a negative outlook on the Japanese economy.

*’Is Charlie just an American after all? I didn’t realize he viewed the Japanese economy so negatively,’* he mused, his brow furrowed.

Then, Jung Hyun-woo revealed something surprising.

“Mr. Tanaka, we’ll gradually withdraw funds starting next year.”

Yu Tanaka asked, incredulous, “Are you saying you’re going to withdraw funds invested in the Tokyo stock market?”

Jung Hyun-woo shook his head. “Not the stock market, but real estate.”

Selling off Japanese real estate.

*’Selling real estate now, when the upward trend has gained momentum, is like giving up huge profits,’* Tanaka thought.

Yu Tanaka tried to dissuade him. “CEO, Japanese real estate has been steadily rising for the past three years. How about watching it a little longer? And real estate doesn’t fall so easily.”

Jung Hyun-woo shook his head. “It would be nice to sell real estate at the peak. But the risk is too great to wait until then.”

He aimed to “buy at the knee and sell at the shoulder,” as the saying goes.

“So, you’re saying you’ll withdraw your investment while there’s still room for appreciation?”

“In short, that’s right.”

Yu Tanaka realized he couldn’t change Jung Hyun-woo’s mind.

*’He seems to have a clear investment philosophy,’* he thought. While unfortunate, he had no choice but to follow Jung Hyun-woo’s decision.

“I understand. Then I’ll cancel the investment in the JR Group.”

Jung Hyun-woo inquired, “If you’ve discussed this with anyone, please inform them politely. And please keep our plans to withdraw from the real estate business a secret.”

Yu Tanaka didn’t immediately agree. Instead, he asked, “CEO, I discussed this with Kajima Construction [a major Japanese construction company]. Shouldn’t we inform them about our real estate withdrawal?”

Kajima Construction had been a key partner in growing Victoria Fund’s Japanese real estate business.

*’It would be strange not to tell our partner about our withdrawal,’* Tanaka thought.

Kajima Construction’s assistance would be crucial when selling the real estate.

“Give Kajima Construction a light hint.”

“If I say it lightly…”

“Say that we’ll likely start withdrawing in the late 1980s.”

“Should I not tell them the exact timing?”

Jung Hyun-woo answered, “We haven’t decided on the exact timing of the withdrawal yet.”

*’I want to withdraw in 1988. But I haven’t decided when in 1988,’* he thought.

“I hope it will be in the second half of the year.”

Jung Hyun-woo acknowledged his words softly. “Maybe we won’t withdraw before the Olympics [the 1988 Seoul Olympics].”

*’I will start withdrawing in time for the 1988 Seoul Olympics,’* he thought.

This is how Yu Tanaka interpreted Jung Hyun-woo’s words.