Mr. Tatara

MOF vs MITI over the jurisdiction of gold

Saying“Elite who graduated from the University of Tokyo may not be suitable for the market world”Mr. Matsuro Tatara who had founded Yutaka Shoji Co., Led. scouted his nephew, Yoshinari. Graduated from the University of Tokyo, Yoshinari entered Sumitomo Marine & Fire Insurance Co., Led., and after that, he moved to Yutaka Shoji in April 1962. At that time, he was 25 years old. In those days, red bean and fiber were the main products in Japanese commodity futures industry. Fighting through large-scale speculative dealing by trading companies was commonplace. Although he was wishing to move to Yutaka Shoji that intentionally lowers his social status, his boss at Sumitomo Marine & Fire Insurance persuaded him to stay at the company. However, he would have felt some kind of romance about the commodity market. He kept giving his resignation that was rejected, and after submitting his resignation for the third time, he finally decided to retire.

Shintaro’s bombshell statement that gave the go-ahead to found a gold market opened the opportunity, but there were a lot of problems. To begin with, Yoshinari had to get help of actual gold dealers. To list any product in the commodity futures market in Japan, request of its actual dealers was a prerequisite under the Commodity Exchange Act, so gold bullion dealers, gold fabricators, etc. applied to actual gold dealers.

He went around everywhere to persuade many actual gold dealers. At the same time, in the commodity futures industry, it was necessary to build the industry-wide cooperation system. As the story of the sudden, realistic gold listing came to the commodity futures industry, the industry gained momentum. Although there were some commodity futures traders that took the establishment of a gold exchange for granted because the ruling Liberal Democratic Party backed it up, Yoshinari advised to admonish such optimism as the chairman at a board of directors, National Federation of Commodity Futures Traders Association. Indeed, the gold bullion industry in Japan, its top member was Tanaka Kikinzoku Kogyo K.K., was reluctant to establish a gold exchange. As to listing movement of new product on an exchange, the flag of“Actual dealers” had to be raised , and from the principle, it cannot be avoided to make them agree to the listing.

Yoshinari persuaded them and asked them for help repeatedly using his wide network. At that time, his physical strength and personal connections that had built up through the boat club activities in the student days at the University of Tokyo were helpful. As a result, some big trading companies changed their attitude in favor of a public gold market founding and some major gold bullion dealers gave consent “We don’t openly oppose”. However, at that time, a tug-of-war between the Ministry of Finance (MOF) and the Ministry of International Trade and Industry (MITI) has begun over the jurisdiction of gold below the surface.

Struggle of MOF vs MITI continued－He pushed forward despite losing his beloved wife

Accepting Abe’s statement, the Policy Research Council of Liberal Democratic Party (LDP) launched “A round-table conference on gold market issues”in 1981. Mr. Eizaburo Saito, the member of the House of Councilors, was appointed the chairman of the conference and its first meeting was held on February 19. Yoshinari attended the meeting under the guise of a parliamentary secretary.

One day, he encountered the following:
Kaname Seki, director of international finance division, MOF, and Tadashi Ezaki, director of commercial affairs, MITI, ran into each other in the conference room. When Seki asked Ezaki “Does MITI seriously intend to create a gold market?”, Ezaki immediately answered “We’ll do it”. Hearing these words up close, Yoshinari felt that the words were worth a fortune. At that time, although MITI was slightly in the lead, Seki hurriedly visited Europe and tried to inspect the gold market in spite of the situation that gold market issues were being debated in the Diet. About the situation, Nikkei of that time reported “A feeling similar to the impatience of the MOF against the creation of a gold market that began to develop under the leadership of MITI can be understood ”

The chairman, Saito waited for Seki’s return and planned to prepare a report, but there was anxiety in Yoshinari’s heart. At that time, Yoshinari thought that after Seki who had been known for his sharpness in MOF returned, the situation so far could be turned upside down, so he visited Abe’s house and appealed to Abe to hurry. As a result, Saito demonstrated his brute force and completed the report while Seki was in Europa. The report was submitted on April 1 and was called “Oath of five articles” in the commodity futures industry at that time. At the beginning of the report, it stated that “Gold becomes a government-designated commodity under the Commodity Exchange Act and a gold futures market opens”.

Alike MOF, the securities industry in Japan was also afraid that a plan of a gold exchange centered the commodity futures industry would go ahead. Three groups in the securities industry set up “Gold market study group” on April 7, 1981 to turn over the situation led by MITI and to seize the initiative. It was less than a week after the report was submitted.

Furthermore, thirteen securities companies including the four big securities companies in those days (Nomura Securities, Yamaichi Securities, Nikko Securities and Daiwa Securities) set up a subcommittee to make a concrete plan for establishment of a gold exchange, and on April 17, they launched a working group to do the concrete work. Along with it, they had a fast schedule to survey the world gold market and to complete the survey in a month.

The plan by the securities industry was that it takes gold as “Near cash”in line with MOF ’s intention and that it carries out creating of a gold exchange with the Bank of Japan. Therefore, the securities industry started arguing with the reasoning that the commodity futures industry isn’t practical to handle gold.

The securities industry had a meeting with MOF in June with quick action first, and after that, it speculated that another tug-of-war between MOF and MITI over gold should be held, so it intended to work on MOF to bring in gold“Under the joint jurisdiction of both ministries in a draw without compromise ”　at least. Also, in those days, the three banks, Fuji Bank, The Sumitomo Bank and The Bank of Tokyo, showed great interest in the matter of a gold exchange, and the Dai-Ichi Kangyo Bank, The Mitsubishi Bank and The Sanwa Bank did not make it clear in the banking industry.

On the contrary, in the commodity futures industry, entrusted with the project of gold exchange establishment by Shintaro, Saito, the chairman of the Policy Research Council of LDP, professed that he would refer to the gold market of COMEX in the U.S. for gold exchange establishment in Japan, so he was translating the provisions regarding COMEX.

Among them, against the declaration of war from the securities industry, he argued “If the banking industry and the securities industry meddle in, give bond, currency and interest rate products to the commodity exchanges. In the U.S., futures transactions including commodity, security and financial products are governed by a unified law”.

MITI that opposed absolutely to MOF’s leadership of a gold exchange planned to discuss the matter at the Commodity Exchange Council in May, to stipulate gold as a government-designated commodity in August at the latest and to establish a gold exchange by March 1982. Therefore, MITI gave the commodity futures traders that organized their private gold market such as“Toukin-kai”,etc. its administrative guidance “It should stay in a study group for achievement”.

Against it, MOF mentioned “These are required permission under the Foreign Exchange Law” regarding international payment and receipt of margins and differentials related to futures trading, and insisted that it would stipulate gold as“an ordinance-designated product under ministerial ordinance of the Foreign Exchange Law　again”. Furthermore, MOF amended intentionally ministerial ordinance of the law to “As specified by　MOF, international payment and receipt of margins, etc. are taken permission-free measures ” to gold exchange participating traders.

The amendment means that the commodity futures trader that wishes to develop gold futures trading to international business are impossible to pay and receipt margins and differentials related to gold futures trading unless it is permitted as a designated contractor by MOF. After forming such a base, MOF began to take intervening measures to gold exchange establishment.

Meanwhile, MITI　consulted “Government ordinance” of gold and “Futures market founding related to non-listing commodities and how to deal with the solicitation problem of transactions at overseas exchanges ”at the Commodity Exchange Council on May 22. The council decided that it was subject to a prior decision on the government ordinance designation of gold and made a report that “approved revision of ministerial ordinances related to gold trading”on May 28.

Also, on the same day, the securities industry held the second meeting of the gold market issues study group, and it decided to make a master plan of gold transaction in the industry in June and to have a meeting with the commodity futures industry around July-August after negotiating with MOF and LDP in July.

Against those movements, MITI specified gold as government ordinance-designated based on the Commodity Exchange Act as originally planned on September 16 and enforced it on September 26. Therefore, the master plan by the securities industry ended up as an illusion without seeing the light of day.

Although movements and tug of wars between MOF and MITI must have been corresponding bargaining below the surface, as a result, the matter of gold exchange ended in MITI’s victory. MOF stipulated “As with capital transactions, gold is subject to emergency regulations based on the Foreign Exchange Law” at last and gave up on the jurisdiction.

Gold was stipulated as government ordinance on September 16 and Yoshinari pushed forward to establish a gold exchange. The target for the establishment was within the fiscal year and there was already only half a year left.

Immediately after that, Yoshinari’s beloved wife Mitsuko passed away suddenly. The disease name of the cause of her death was aplastic anemia and she was 42 years old. After the memorial service on the 49th day, Yoshinari struggled with the final challenge. The license of member at a gold exchange was limited to 30 traders in the commodity futures industry and four people including Yoshinari were in charge of its preliminary selection. The work that cut off colleagues in the industry was thought to impose considerable burden on their minds, however, Yoshinari flatters himself that even if it resulted in making enemies, he wasn’t selfish in the selection process.

（to be continued）

（Futures Tribune・issued July 11, 2023 ・no.3226）