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Thursday, May 11, 2017, 17:28
Gray matter
By Karl Wilson
Thursday, May 11, 2017, 17:28 By Karl Wilson

ADB's research head highlights aging societies as the big challenge in today's economic modeling

(Ma Xuejing / China Daily)

Naoyuki Yoshino, dean of the Asian Development Bank Institute (ADBI) in Tokyo and one of Japan's most respected economists, clearly remembers the day his PhD supervisor said there was nothing new in his research topic.

He was sitting in a room with a group of doctoral students at the prestigious Johns Hopkins University in Baltimore, Maryland, in the United States.

His supervisor was the late Sir Alan Arthur Walters, the man who would soon serve as chief economic adviser to Margaret Thatcher — the British prime minister from 1979 to 1990 — whose laissez-faire economic policies changed the face of Britain.

"He asked me what topic I was interested in," Yoshino said.

"When I told him fiscal and monetary policy, he started to laugh. He said so many Nobel Prizes had been given for the topic that there was nothing new to say."

Not to be deterred, Yoshino said he had some new research, but Walters was still not convinced. A few weeks later, Yoshino presented Walters with a 15-page thesis outline.

"I remember sitting in his room as he read each page, making notes with his red pen. He still wasn't convinced until he got to page eight, looked up, and said: 'No one has said that.'"

Yoshino said that back then, monetary policy focused on just two things — interest rates or quantitative easing.

"All papers at the time argued whether interest-rate control or quantitative easing was better in lifting economic performance. I added fiscal policy into the model," Yoshino said.

The modest Yoshino did not reveal whether or not Walters used some of his ideas when advising the British prime minister in the development of her economic policy, which became known as Thatcherism.

"Walters did say, however, that my paper was one of the best he had seen at Johns Hopkins in 20 years," he said.

Born in Tokyo, Yoshino grew up in a family of lawyers but decided to study economics when Japan was hit hard by the global oil shocks of the 1970s.

"My father said there were too many lawyers in politics and no economists, so I decided to do economics," he said.

It was a decision he has never regretted. Today, as dean of the ADBI in Tokyo, he heads one of the world's most prestigious research groups.

The University of Pennsylvania, in its latest report on the world's leading think tanks, named the ADBI as the best regional studies center, second-best government-affiliated think tank, and seventh best for international development.

The ADBI was established in 1997 to help build capacity, skills and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in Asia and the Pacific.

While running the ADBI, Yoshino is also professor emeritus of Keio University in Tokyo and involved in a wide range of government policymaking projects.

He is president of the Financial System Council under Japanese Prime Minister Shinzo Abe, also chair of Japanese government bond investment at the Ministry of Finance, and chair of asset management for pension funds at the Ministry of Health, Labour and Welfare.

Much of his work has been aimed at reviving the Japanese economy, which has been stagnant for more than 20 years.

"Economic textbooks tell you that if an economy is in recession we should conduct fiscal or monetary policy and the economy will recover," he said.

"In Japan's case, fiscal or monetary policy is not enough. Japan's biggest problem is its aging population, not monetary policy.

"When you have a population that is aging, the net effect of monetary policy is diminished. Many Western economists say Japan's problem is monetary policy, but it is not the case.

"When you have a diminishing young population, you cannot rely on wage income because social security payments are growing and are outside monetary policy."

Yoshino said many Western economists failed to take into account demography and its impact on economic growth.

"They took population — young and old — to be constant without giving any thought to what will happen as a population gets older," he said.

He sees Abenomics, the economic policies advocated by Abe, as an attempt to put Japan back on the right track, but added: "A lot of work still needs to be done."

"Economics (are) not a case of things being black or white," he said. “There is a lot of gray, and no two countries are the same. Models have to be adjusted to fit the local conditions."

He said Abenomics is based upon "three arrows" — monetary easing, fiscal stimulus and structural reforms.

"Structural reforms will be crucial if Japan is to reverse its current economic situation. Many hard decisions still have to be made.

"At the moment, we spend 33 percent of GDP on social welfare and 7.8 percent on education … . It should be the other way round."

He said Japan's aging population cannot be dealt with through monetary policy.

"The number of elderly and retired people is rising, and the younger generation is shrinking, and monetary policy can't do anything about that," he said.

"So we either have to ask older people to keep on working, or get people to have more children. Those are structural reforms, but this has never been discussed at international meetings like the G20 until recently."

Yoshino has argued that one of the biggest mistakes Japan made at the start of the country's economic crisis was to place too much attention on monetary policy.

"In the late 1980s, Japan experienced an asset-price inflation bubble where stock and land prices roughly trebled," he said.

"The Bank of Japan (BOJ) was focusing on inflation as a target, and the Japanese exchange rate appreciated rapidly in 1985-86. As a result, the yen almost doubled (in value), which meant the import price of oil and natural materials was almost halved.

"So the rate of inflation in Japan was very stable, close to zero in the late 1980s, and the inflation target of the BOJ was (appropriate).

"However, stock prices and land prices went up dramatically, which meant inflation targeting alone was not sufficient for Japan."

He explained that in the US, inflation is not affected by the dollar's exchange rate — but the yen is not being used as an international currency like the US dollar. In Japan and other countries, the inflation rate affects the price of imports.

"So I think that is one of the mistakes Japan made in the late 1980s," he said.

Yoshino has traveled extensively throughout Asia and is sought out by Asian leaders for his opinions and advice on economic matters. "It is something I get great satisfaction from," he said.

"When I had finished my PhD, Walters told me there were two paths I could go down. One was research and the other policy development.

"He told me policy development was the future for economists."


Naoyuki Yoshino

Dean, Asian Development Bank Institute (ADBI)

Career highlights:

2014-present: Dean, ADBI

2014-present: Professor emeritus, economics, Keio University, Japan

2014-present: Senior adviser, Japan Financial Services Agency's Financial Research Center (FSA Institute)

1991-2014: Professor of economics, Keio University, Japan

1992-1994: Visiting scholar, Research Institute, Bank of Japan

1985: Visiting fellow, economics, Massachusetts Institute of Technology, US

1979-1981: Associate professor, economics, State University of New York


1979: PhD in economics, Johns Hopkins University, US

1975: MA in economics, Tohoku University, Japan

1973: BA in economics, Tohoku University, Japan


2014: Professor emeritus, Keio University, Japan

2013: Honorary doctorate, Martin Luther University Halle-Wittenberg, Germany

2013: Fukuzawa award, Keio University

2004: Honorary doctorate, University of Gothenburg, Sweden

Quick takes:

Who has had the biggest influence on your career?

I would have to say Professor Sir Alan Arthur Walters, who was the economic adviser to the then UK prime minister, Margaret Thatcher.

What was the best piece of advice you were given?

My father was a lawyer and he said to me we had too many lawyers in government and not enough economists, so I studied economics.

What is the biggest problem the Japanese economy faces?

Demographics – the population is getting older.

Date of birth: Jan 30, 1950

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