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The House of Nomura

The Inside Story of the Legendary Japanese Financial Dynasty

By Albert J. Alletzhauser

One of the biggest hurdles that countries face in modernizing is in developing a financial system that meets the needs of disparate factions in the nation. The government needs a stable currency that circulates without problems, business requires financing for cash flow and expansion, the agricultural sector desires stability when buying supplies or selling crops, investors have their own aims and there are a host of other considerations. China is a nation that is experiencing the same kind of growing pains that other countries have gone through as it tries to address these concerns. It might find it useful to take a close look at how Japan met that challenge under similar circumstances.

“The House of Nomura” by Albert J. Alletzhauser examines these questions from the standpoint of one of the most famous families in the annals of Japanese financing. The founder of the present day stock brokerage, Nomura Tokushichi, was a shrewd speculator who made several financial killings over the course of his career, and set the tone for the company. It made and lost a series of fortunes during one of the most eventful periods of Japanese history.

There are many books that chronicle the lives of nobles and commoners in Japan, or detail specific wars, or travel books, guidebooks and the like that explain the notable sights to see in Japan, along with a smattering of the history of those areas. Other books focus on the culture, of Noh and Kabuki, or the tea ceremony or Japanese gardens. Still others tell the story of the country in a straightforward way, starting with prehistoric times and continuing with a linear exposition up to the present day.

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But few of those books give the Western reader any sense of affinity with the people or the culture. In fact, perhaps it is the exotic aspects of Japan that attract many people in the West to those works.

However, everyone can understand the drive to make money, the thrill of gambling on a speculative venture, the unexpected twists and turns in the financial life of a nation. “The House of Nomura” is replete with such activity. Watching it happen is like seeing someone win the lottery… except in this case the gambles were on leveraged stock transactions. If the reader has ever wondered how the commodity futures exchanges work or how they arose in the first place, and especially how certain people managed to make unbelievable fortunes in the process, this book gives all the answers. And it is all laid out in the context of the nation of Japan struggling to modernize itself.

But more than that, “The House of Nomura” ties the story together with the international monetary system and shows how there is a direct relationship with the lives of everyday people in the West. Chapter 1 is entitled, “The Day Nomura Helped Save the World.” Lest this seem like an overwrought exaggeration, please think back to October 20, 1987. On that day the Dow Jones Industrial Average dropped 508 points, sparking fears of a financial panic all over the world. In Japan the reaction was severe:

The cascading Tokyo market bounds downward from price to price without trading, as stocks that have taken months to climb retrace their ascent within a matter of hours. The big insurance and savings institutions, managing billions of yen on behalf of ordinary Japanese, make a beeline for the relative safety of the bond market. Officials there are overwhelmed and forced to suspend trading.

It was the same the world over. The global financial system was in danger of melting down. (Sound familiar? The same thing happened in May 2008. That gives poignancy to the story as one recalls how that narrative played out.) Corporate officers of Nomura met with bureaucrats in the Ministry of Finance to work out a plan of action. They came to a consensus as to what to do and went to work right away.

As the market closes in Tokyo on Tuesday, the public relations machine of the Japanese establishment swings into action. Satoshi Sumita, head of the Bank of Japan, announces that all financial market trading procedures will be adhered to in spite of the crisis. He is followed by the chairman of the Tokyo Stock Exchange. The world economy is functioning well, he claims, and investors must not worry. In a gesture of faith in the market, he lowers the margin requirements for dealing in shares and relaxes the rules on collateral for securities, which were tightened up only the previous week.

Other spokesmen from the government and the financial world, especially from Nomura, add their own endorsements of the stock exchange, and the tide is slowly turned.

Greed, so rapidly replaced by fear only hours earlier, once again becomes the dominant market emotion. The resilient Japanese, reduced to nothing more than speculators, are being lured back by the chance of a quick profit on Wednesday’s market opening.

They do not realize, perhaps never will, that their greed has been collectively calculated. It is this psychological ingredient that will be systematically used to save the Japanese market. Individual investors will be brought back to the market en masseby Nomura.

That steadying of the Japanese stock market played a significant role in stabilizing the global financial system. And rest of “The House of Nomura” holds just as much relevance to the world today.

Alletzhauser, while acting in the capacity of a senior executive of the British investment firm James Capel in Tōkyō, spent three years researching this work, and had the cooperation of the company and members of the Nomura family. He traces the origins of Nomura back to its establishment in Ōsaka as a money-changing operation and its connections to the rice market. That was essentially a commodity exchange that was the forerunner of the modern operation. It is fascinating to see how it naturally developed into a futures market.

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The rice market arose in response to the cash flow needs of the time:

The feudal lords saw an additional use for the rice exchange. When money became tight, as often happened during the costly annual pilgrimage to the Tokugawa shogunate in Tokyo, they could sell rice tickets, receipts for rice stored in warehouses or for crops not yet harvested. These tickets became a form of currency in which rice dealers were only too happy to trade and this secondary market at Dojima became the world’s first futures market.

Japanese are sometimes characterized as being mere imitators, who do nothing but refine the inventions of others. Nothing could be farther from the truth and this book shows how that was illustrated countless times over the years.

In fact, Nomura suffered many setbacks during its history and had to reinvent itself repeatedly. Most notably, the military requisitioned its resources in Indonesia to supply its war effort in China and then against the US. The company had no choice but to go along. Then, after the war was over, the US occupied Japan and blamed companies like Nomura for supporting the war effort, a criminal exercise in the judgment of the US! And the company was broken up, its assets confiscated and the Nomura family dispossessed. It was only after the end of the occupation that Nomura rebuilt itself.

Besides the history of Nomura, this book has sixteen pages of prints and photographs, a biographical listing of the main personages who appear (incidentally, including Shoriki Matsutarō, publisher of the Yomiuri Newspaper, who played a prominent role in promoting go in the 20th century), a bibliography and index, plus six appendices that include the Nomura family tree, corporate structure, corporate holdings, etc. The material offered here is anything that anyone could desire.

“The House of Nomura” is a work that has great relevance to the financial world today, but it is also an enjoyable way to delve into the history of Japan’s striving to master modern capitalism.

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