The Finance Ministry has long been known as the most powerful and elitist of Japan’s bureaucracy. When Prime Minister Yasuo Fukuda repeatedly tried in March to appoint a former vice finance minister as the new Bank of Japan governor — only to be rejected by the opposition-controlled Upper House — some opposition leaders charged that Fukuda’s insistence on tapping a former Finance Ministry bureaucrat was evidence that the whole government is controlled by that ministry.
But its power in recent years has seen ups and downs as it has undergone organizational changes.
Following are some questions and answers regarding the ministry:
When was it established?
The Finance Ministry was established in 1869 as a government body with responsibility for the nation’s fiscal policy and supervision of the financial industry following the Meiji Restoration.
In the postwar years, the ministry was considered the most powerful of the government bureaucracy as it effectively monopolized the budget-formulation process.
However, the ministry’s responses to the postbubble economic doldrums in the 1990s and financial industry woes raised questions about its policies, and a series of scandals involving its elite bureaucrats hurt public views toward the once-revered ministry.
The ministry maintained cozy ties with the banking industry, and its “convoy” system was meant to ensure that no major banks would be allowed to fail. Its responsibility was highlighted when the government decided to inject ¥685 billion of taxpayer money to dispose of the mess at “jusen” housing loan lenders — one of the “amakudari,” or golden parachute, destinations of retired ministry bureaucrats — in the late 1990s.
A series of revelations about excessive wining and dining of elite Finance Ministry bureaucrats added to the public’s distrust.
Finally, the ministry lost its power over supervision of the financial industry to the newly established Finance Services Agency in 2000.
In the 2001 reorganization of various government organizations, its Japanese name was changed from the traditional “Okura-sho” to “Zaimu-sho” — a term that more literally means the finance ministry. Its English name was unchanged.
What are the current functions of the Finance Ministry?
The ministry is responsible for drafting the national budget every fiscal year, based on requests from other ministries. In the fall, the ministry’s bureaucrats review these requests that have been submitted during the summer, and it releases the draft budget in late December. The draft becomes the government’s budget package following minor revisions and supplementary allocations after last-minute negotiations with other ministries.
The Finance Ministry is also responsible for tax policy, estimating revenue and issuing government bonds. It engages in foreign exchange market intervention to stabilize the yen’s exchange rate, although it has not intervened in the currency market since March 2004.
How has its role changed over the years?
The ministry lost its monopoly on budgetary powers when the Council for Economic and Fiscal Policy, made up of Cabinet ministers in charge of economic affairs and private-sector experts, was set up under the Cabinet Office in January 2001 as part of administrative reforms.
Its creation was aimed at enabling the prime minister to take stronger leadership over the bureaucracy in economic and fiscal policy. And Prime Minister Junichiro Koizumi, who took office in April 2001, used the council as the government’s key organ to push his structural reform agenda.
Under the Koizumi administration, the council set the basic outline of the government budget for next fiscal year, such as the limits on debt issuance and spending cuts policies. As a result, the role of the Finance Ministry was reduced to formulating the draft budget within the framework set by the council. The council has thus played the role of controlling the power of the Finance Ministry.
However, the council, which was seen as the “engine” of reform, lost some steam when Koizumi’s successor, Shinzo Abe, failed to come up with a fresh reform agenda.
The council is scheduled to unveil the first reform policy under Fukuda in June. But unlike Koizumi, the consensus-oriented Fukuda may have a hard time pushing bold new policies, especially at a time when he faces a divided Diet.
Is the Finance Ministry still the most coveted government job among elite university graduates?
There are indications that graduates from the University of Tokyo, for example, are shifting their interest from the Finance Ministry to high-paying foreign-affiliated financial or consultancy firms.
It used to be that the Finance Ministry was home to a handful of graduates of the law faculty of Tokyo University, but they have started to seek specialized financial literacy and payment.
A recent article in the Nikkei business daily, citing data from the University of Tokyo Newspaper, said the number of law faculty graduates landing a job at the Finance Ministry or the Financial Services Agency was 13 in the class of 1987 but declined to 10 in the class of 1997 and to six in the class of 2007.