The Banker Behind Japan’s Rising Rates : Economy: Yasushi Mieno, governor of the Bank of Japan, is seeking to fight inflation and protect the yen. His actions, controversial at home, have also affected U.S. mortgage markets.

When Yasushi Mieno’s flight lifted off for a nine-day European trip last week, investors as far away as America took careful note: Japanese interest rates, it appeared, wouldn’t be rising, at least for a little while.

Meet Japan’s chief banker, inflation fighter and a man who stands today in the cross-fire of global economic forces. As governor of the Bank of Japan, Mieno--a devotee of literature, art and golf--seeks to protect the value of the embattled yen, a role that can lead to controversy at home and has important effects as far away as the United States.

Recent interest rate hikes in Japan, for example, probably are one of the reasons that U.S. rates on mortgages have edged up lately. Indirectly, Japanese interest rates also can affect the U.S. dollar’s value on currency markets and therefore the price of American exports to other countries.

“You’re talking about a very big player, a dominant player,” John Oliver Wilson, chief economist at the Bank of America in San Francisco, said of Mieno.

Yet Mieno’s room to maneuver is sharply limited, even in a time when the yen has weakened dramatically and Tokyo’s stock market faces turbulence. Major decisions by the Japanese central bank routinely must be cleared with the powerful Ministry of Finance, where the political fallout of proposed interest rate hikes is weighed carefully.

Indeed, so strong is the Finance Ministry’s influence that career officials from the ministry and the bank serve alternately in the governor’s post. Mieno’s predecessor, Satoshi Sumita, came from the Finance Ministry.

According to press accounts, Mieno failed to get full approval from the ministry before he sought to boost the discount rate charged to commercial banks after taking office Dec. 17. There followed an unusually visible flap, in which the plan was derailed until the banker, who turns 66 Saturday, smoothed things over with Finance Minister Ryutaro Hashimoto behind closed doors.

“I think that’s more independence (by the Bank of Japan) than we’ve seen for a long time,” Wilson said. “You’ve never had such a public difference of view on something as important as whether an interest rate should be raised or not.”

Born into a family that ranked among Japan’s bureaucratic elite--his father was an executive of the Japanese government’s Manchurian Railways--Mieno spent 16 of the first 17 years of his life in northeast China, switching from school to school as his father was transferred from one job to the next.

When World War II ended, his father lost everything. The younger Mieno peddled soap, butter, clothes and other black-market commodities to support his parents and his younger brother and sister, both of whom had tuberculosis.

Despite the early hardships, his career followed an elite path. As a teen-ager, Mieno passed the entrance examination for the ultra-elite former Tokyo No. 1 High School and went on to the prestigious Tokyo University’s law school. (For one year during college, Mieno lived in a sumo wrestlers’ “stable” run by a friend’s father. Mieno himself was not a sumo wrestler.)

He has spent his entire working life since 1947 with the central bank, where colleagues dubbed him “Prince of the Bank of Japan” long before the prime minister appointed him its governor.

Yet associates say the trials of his youth have left a mark. Mieno once said that when he, as deputy director of the central bank’s personnel department, ordered transfers of employees, “I always wondered whether their children would feel the pain I suffered” in entering new schools.

Said one central bank official: “He may appear to be the type who thinks only in broad policies, but he listens very carefully to minute details. Once he makes up his mind, however, he carries out his decisions with firmness.”

Some believe that the robust Japanese economy requires a firm hand to lead it these days. The yen--now trading at above 152 to the dollar--has plunged to its lowest level in roughly three years. And concern is spreading over financial speculation and inflation.

Mieno has been warning that a growing labor shortage and the cheapening of the yen’s value--which drives up prices in Japan of dollar-denominated raw material and energy imports--threaten price rises.

“In the current environment, if you didn’t have one conservative, cautious voice speaking out, the yen could be even weaker,” said Robert H. Chandross, chief economist for North America at Lloyds Bank in New York.

Mieno’s voice is clear: He has described his role as “the watchdog of prices,” committed to “safe driving” of the Japanese economy on a course that will avoid inflation and facilitate growth worldwide.

In a metaphor many found startling, he recently compared inflation to a loose thread on a kimono, one that could unravel with ruinous consequences for the Japanese economy--”a direct and even frightening statement,” recalled Deborah Allen, the Tokyo-based president of the Claremont Economics Institute.

On Thursday, Mieno decried “extremely speculative” financial moves that he said were damaging the value of the yen.

But if Mieno’s anti-inflation goal is clear, his full authority to raise interest rates to enforce the goal is not.

Traditionally, the Bank of Japan has been much weaker and subordinate an institution than, say, the stubbornly independent Bundesbank of West Germany or the U.S. Federal Reserve. It is unthinkable, for instance, that Mieno would be able to pursue interest rate policies that could seriously harm his nation’s political leaders--as former Federal Reserve Board Chairman Paul A. Volcker did when Jimmy Carter was President.

As the yen has suffered on currency markets, the Bank of Japan has limited its actions to intervening with more than $10 billion of spending in the last two weeks in a futile attempt to prop up its value.

Mieno “is considered a very strong person among Bank of Japan officials,” observed Charlie Nakayama, a senior vice president with First Interstate Bank in Tokyo. “But, basically, the Bank of Japan officials have very weak personalities.”

Shortly after assuming his post, Mieno said he wanted to tighten “easy money” conditions in Japan, a situation widely viewed as inflationary. Since then, however, no trace of a slowdown in the money supply has occurred. And he has held off on a fourth increase since last May in the discount rate far longer than the currency and stock markets had expected.

Maintained Frances Rosenbluth, a professor of Japanese political economy at UC San Diego: “There is some tension” between the Bank of Japan and the Ministry of Finance, “but for the most part, the Finance Ministry is able to call the shots.”

Yet Mieno’s role is critical, and professional investors on both sides of the Pacific follow his moves with great interest. When he left Tokyo last week, his departure itself was interpreted by dealers on the Tokyo Foreign Exchange Market as meaning there would be no increase until he returned. A new round of yen selling occurred immediately, and the currency plunged.

Since his return Thursday, expectations have been running high that he will order another increase in the discount rate.

While such a decision may seem far removed from events in the United States, the reality is quite different.

Interest rate hikes in major countries, such as Japan and West Germany, can make U.S. Treasury offerings less attractive to investors, pressuring U.S. interest rates upward. And the stakes are high: America depends on Japanese investors to help finance its budget deficit by their purchases of Treasury bills.

Thus, if rising Japanese rates make U.S. rates appear unattractive, “it’s going to affect your mortgage rate. It’s going to affect revolving credit,” said Joe Wahed, chief economist with Wells Fargo Bank in San Francisco. “The whole spectrum of interest rates will be affected one way or the other.”

Although Mieno has served abroad only once--in New York in the late 1950s--the perspective he brings to important global relationships is not provincial.

He speaks often about the need to maintain international confidence in Japan’s financial system and to open its markets to foreign investors. Associates give him major credit for upholding confidence in Japan by helping arrange the 1975 bailout of the Ataka Trading Co., which had major foreign debts.

The Russian writer Fyodor Dostoyevsky is one of his favorite authors, and he likes French Impressionist art.

In a 1985 newspaper essay, he confessed that one of his secret pleasures as a teen-ager living in Anshan in northern China was to sneak out with his classmates and go drinking in the Chinese sections of the city. The risk of getting caught was minimal, he wrote--no Japanese teacher ever ventured into the Chinese districts.

These days, the banker is faced with strategic calculations that are vastly more complex. When he took office in December, consultations on the third discount rate increase of 1989 were under way. But the bid might have proceeded more smoothly had Mieno done more consulting at the highest levels. “He probably gave one or two telephone calls,” said First Interstate’s Nakayama. “That’s not polite enough from the Ministry of Finance’s point of view.”

(In fact, Mieno is polite even by the high standards of Japanese society and is said to always check to see whether someone is following him before he closes a door.)

Just what did transpire in the December flap remains a mystery. A senior central bank official, who asked not to be identified, said that a “leak” of the impending rate hike found its way into the mass media--and both Hashimoto and Mieno “got mad and postponed the rate hike.”

“If there had been a disagreement between the two men, the discount rate would not have been raised,” the official said.

It ultimately was raised on Dec. 25 to its current level of 4.25%.

Jonathan Peterson reported from Los Angeles and Sam Jameson from Tokyo.