Japan's Silent Fracture
Japan is an economic superpower. No one would question that statement. So no one believed that the bankruptcy of one securities firm and the massive losses suffered by another could plunge the entire Japanese economy into crisis. The tone of the article Yoo Jae-won was reading took exactly the same line. Its core argument was that, besides those two firms, many other Japanese securities companies had also poured money into the Nasdaq and taken heavy losses, so wasn’t it time to stop investing in America?
Yet from those very lines Yoo Jae-won sensed the first hairline fractures spreading through the hard-won tower of Japan’s reputation as an economic colossus. In truth, even the phrase “economic superpower” carried a certain inaccuracy. The term suggested a nation swimming in wealth and, by extension, citizens who shared in that prosperity. Japan did possess enormous national wealth, but its people did not. When measured by purchasing power parity, Japan’s figures diverged dramatically from its GDP. On top of that, its savings rate was extraordinarily high—the very foundation that allowed it to sustain yen carry trades for years on end at zero interest.
Zero interest, of course, meant no returns for depositors and cheap borrowing for everyone else. When money is that inexpensive, moral hazard inevitably follows. The securities firms’ investment fiasco was merely one small symptom of that deeper rot.
“Hmm. No word yet from President Vincent.”
Yoo Jae-won had suddenly thought of Vincent Greenhill for a simple reason: for several years the president of ID Investment’s Japanese branch had been meticulously tracking the scale of Japan’s yen carry trade and every product it touched. Vincent must have seen the article too, yet the phone remained silent. To a man as conservatively cautious as Vincent Greenhill, this level of damage apparently did not yet signal a full-blown red alert for the Japanese economy.
The phone rang.
“Speak of the devil,” Yoo Jae-won murmured with a faint smile. The timing was perfect. But the moment he heard the ringtone he realized it wasn’t Vincent’s assigned tone. He reached into his pocket and pulled out the Tiffany Phone. The LCD screen displayed an entirely unexpected name—George Soros of the Quantum Fund.
"Chairman Yoo, it’s Soros. Have you been keeping well?"
“Hello, Mr. Soros. I’ve been doing very well, thank you.”
“Heh heh. As expected. I saw the papers—your name carries real weight these days. Congratulations on launching the White Tiger Fund. Creating something of that scale in a single stroke is something only you could pull off.”
“You’re hardly one to talk, Mr. Soros. I hear you’ve already earned billions.”
The conversation began with the usual pleasantries—asking after each other’s health, exchanging polite praise for recent successes. It could not have been otherwise. Though they had spoken once before, they had never built any deeper rapport. There was a measure of mutual respect for having sensed Korea’s crisis early, but little more. Each man had navigated the Korean foreign exchange crisis in his own way. One thing, however, was clear: just as Yoo Jae-won had predicted, George Soros had profited handsomely from Korea’s misfortune.
“I called because I have a question. Are you busy at the moment?”
“Not at all. And even if I were, I would still take a call from you, Mr. Soros.”
“That’s kind of you. Then let me be direct. Has your view of Japan remained the same as before?”
Yoo Jae-won’s breath caught. He had not expected Soros to mention Japan. Fortunately the exclamation stayed inside his head; he gave away nothing. A quiet smile curved his lips. The fact that Soros still remembered his earlier prediction—that the East Asian currency crisis would end in Japan—and was bringing it up again was the clearest proof that the legendary investor now saw Japan’s economic situation in a distinctly negative light.
“Yes. If anything, the outlook has worsened rather than improved.”
“I thought as much.”
Soros’s brief reply was enough. The fact that he had not immediately pushed back as he once might have only hardened Yoo Jae-won’s conviction.
“Did you perhaps know that Japanese investment houses had piled into the Nasdaq near its peak and then induce the crash?”
Yoo Jae-won’s mind shifted into high gear. ID Investment had liquidated its Nasdaq positions purely because of his precise timing. In the original timeline the historic peak would not have arrived until 2001. He had judged that IT development had accelerated several years ahead of schedule because of his own influence, and therefore the top would come early as well. The decision to exit had also been calculated to free up capital for intervention in Korea’s crisis.
Soros, unaware of any of this, had apparently drawn the opposite conclusion: that Yoo Jae-won, seeing Japanese funds entering the market late, had deliberately sold in volume to trigger the collapse. In truth, during every interview with Time and other outlets, Yoo Jae-won had repeatedly urged investors to abandon the Nasdaq and put their money into Korea instead.
“Do you honestly believe that makes sense?”
Japan’s losses were collateral damage even for Yoo Jae-won. The Nasdaq’s scale was the largest in the world. Thanks to the IT bubble it had already overtaken the New York Stock Exchange. The withdrawal of a few tens of billions of dollars from his own positions could not possibly have moved the needle that far. The real meaning behind the crash that followed his exit was simple: profit-taking had begun in earnest. The market had started separating strong IT companies from weak ones. Everyone began selling, the decline accelerated, panic selling set in, and the collapse continued.
“It seems Japan’s losses were larger than expected?”
“Heh heh. Why ask when you already know the answer, Chairman Yoo?”
“Still, I’d appreciate the details. I’d like to compare them with what I know.”
Soros fell silent for nearly twenty seconds, thinking. When he spoke again, his tone had changed.
“Since it’s you, I’ll tell you. We estimate the real damage is at least ten times what the newspapers are reporting.”
A savory scent seemed to fill the air—the smell of roasting sesame seeds. The country that had driven Korea to the edge of the IMF cliff had been Japan. The margin call that yanked back every yen invested in Korea had been only the beginning. Tokyo had even pressured the United States and others not to roll over Korean debt. Because of that, Korea’s already depleted foreign reserves had been utterly shattered.
Now the picture was slowly reversing. Korea had hit bottom and was beginning to rebound. Japan was falling fast. They might still apply the brakes and manage a soft landing, but Yoo Jae-won intended to return the favor exactly as Japan had once done to his country.
“What is your own thinking, Chairman Yoo?”
“We see it similarly. But the loss amounts themselves are less worrying than the moral hazard they reveal.”
“Heh heh. Indeed. Then, just as we did before, shall we join hands when the time comes to move on Japan?”
Soros spoke as though he were granting a favor. In reality he wanted to know the exact moment Japan’s full-scale crisis would begin and the optimal timing for entry. Even the great George Soros had come to acknowledge that Yoo Jae-won operated on an entirely different level.
“Of course. Working together would be far more comfortable than going alone.”
There was no downside for Yoo Jae-won. Japan’s foreign exchange crisis was an event that had never occurred in the original timeline. Unlike Korea, Japan boasted foreign reserves measured in hundreds of billions of dollars. The chance that his offensive might fail was not only possible—it was high. Therefore, gathering as many allies as possible was the wisest course.
“I hope that day comes soon.”
Yoo Jae-won felt exactly the same.
The intercom chimed just as the call ended. His parents had arrived. After enjoying the dinner his mother had prepared with her almost magical touch, Yoo Jae-won slept as contentedly as a well-fed cat.
The next day he set off after receiving his parents’ send-off. The most important item on his Korean schedule was, of course, the meeting with Jeon Myeong-heon, followed by the trip to North Korea. Before the main event, however, there were several smaller tasks to handle.
He needed to visit companies whose management rights the White Tiger Fund had recently secured—Daeho Construction, Daeho Electronics, and others—to outline future plans and offer encouragement. It felt slightly embarrassing. The gap between the presence Yoo Jae-won felt he possessed and the almost mythic stature the public and business community ascribed to him was enormous. He was a businessman, not an entertainer. Yet in Korea his popularity surpassed that of most celebrities. It seemed the broadcast appearances he had made like a star during ID Group’s early days were still producing aftershocks.
Of course, since he was fully prepared to meet those expectations, he began the schedule cheerfully.
“Today’s first stop is the Daeho Electronics plant in Incheon,” Choi Kang-wook explained, seated beside him. Even after becoming vice chairman of ID Group, Choi still occupied the seat next to Yoo Jae-won. Thanks to that, Kim Dae-seok once again rode in the passenger seat.
“Is Daeho Automobile still making no progress?”
Although cars held no meaning for Yoo Jae-won beyond transportation, from a business perspective Daeho Automobile carried real weight. The automobile sector had grown so large that it was destined to become a global oligopoly dominated by five manufacturers. Holding it might prove a burden due to lack of competitiveness, but nationally it was the crown jewel of heavy industry and a strategic field that had to be nurtured. Since its ripple effects far exceeded those of IT, saving the company was the correct choice.
If no buyer appeared immediately, the White Tiger Fund could hold it and later sell to Mirae or Ilsung. The worst outcome would be a sale to a foreign automaker—especially GM.
“The management team has already been restructured. The union is the problem. They agree that drastic measures are needed to normalize operations, but they reject large-scale restructuring. They say dismissal is murder.”
Dismissal is murder. Unfortunately the phrase stirred little emotion in Yoo Jae-won. He had lived a life in which dismissal was routine. Only after founding his own company much later had the situation changed. Until then, losing a job simply meant finding another. Of course, the new positions were rarely any better than the old ones.
“Then we’ll wait a little longer.”
Self-rescue was impossible for Daeho Automobile. Bankruptcy had dried up sales; there was no longer any revenue coming in. If the sale failed, creditors were prepared to dismantle the factories themselves and sell them off. The court’s grace period was running out. Time was clearly on one side, and Yoo Jae-won understood exactly which side that was.
Later, when he arrived at the largest Daeho Electronics plant in the Incheon industrial complex, he received an enormous welcome. On the spot he announced plans for factory normalization and laid out a broader vision. He revealed that the second production run of DAP units, as well as the upcoming touch-screen version of the Tiffany Phone, would be manufactured there. The products would not carry the Daeho logo; they would be produced under the ID brand in an OEM arrangement.
The guarantee of steady orders meant no layoffs, and the workers’ reaction was overwhelmingly positive. Yoo Jae-won delivered the finishing touch by depositing all overdue wages—unpaid since the Daeho Group collapse—directly into the employees’ accounts at the exact moment of his visit. Kim Dae-seok and Choi Kang-wook had suggested handing out physical envelopes, but Yoo Jae-won had shaken his head. As the owner of the world’s largest IT conglomerate, handing out pay envelopes simply would not do.
After completing that satisfying schedule, Yoo Jae-won moved on to the main event of the afternoon: a visit to the Blue House at the invitation of President Jeon Myeong-heon.