A countryside of legendary beauty is ravaged, and what was once reputed to be the richest nation in the world runs out of money To understand how such things can happen, we must come to grips with an issue that disconcerts writers on Japan so badly that when faced with it they ordinarily set down their pens and look away. It is the quality of sheer fantasy.

We have entered a twilight zone where dams and roads carve their way through the landscape without reason and money comes from nowhere and goes nowhere. We cannot dismiss the air of unreality in Japan's public life lightly, as it is the very air that its officials breathe. The facts about much of Japan's social political, and financial life are hidden so well that the truth is nearly impossible to know. This is not just a matter of regret for academic researchers, for a lack of reliable data is the single most significant difference between Japan's democracy and the democracies of the West. Why have so many students of Japan and commentators by and large ignored the issue of how the nation handles information? I believe it is because our cultural biases run much more deeply than we think. While experts on Japan know all about the commonly encountered difference between tatemae (an official stated position) and honne (real intent), they tend to view the discrepancy as a negotiating ploy. It hasn't occurred to them that the fundamental Japanese attitude toward information might differ from what they take for granted in the West. But it does differ, and radically so.

Traditionally, in Japan «truth» has never been sacrosanct, nor do «facts» need to be real, and here we run up against one of the great cultural divides between East and West. We can see the two approaches clashing in the Daiwa Bank scandal of 1995, when the Federal Reserve ordered Daiwa's American branches closed after finding that Daiwa, in collaboration with the Ministry of Finance, had hidden more than a billion dollars of losses from U.S. investigators. MOF reacted angrily with the comment that the Fed had failed to appreciate «cultural differences» between American and Japanese banking. The cultural difference goes back a long way, to a belief that ideal forms are more «true» than actual objects or events that don't fit the ideal. When an Edo-period artist entitled his screen painting A True View of Mount Fuji, he did not mean that his painting closely resembled the real Mount Fuji. Rather, it was a «true view» because it captured the perfect shape that people thought Mount Fuji ought to have. This principle of valuing the ideal above the real is far-reaching, and one may see it at work in the play between tatemae and honne that dominates daily life in Japan. People will strive to uphold thetatemae in the face of blatant facts to the contrary, believing it is important to keep the honne hidden in order to maintain public harmony.

Tatemae requires an element of reserve, for it presumes that not everything need be spelled out. It relies on communication through nonverbal means, and in interpersonal relations there is much to be said for tatemae, for from it springs the flower of harmony. Tatemae helps to make Japanese society peaceful and cohesive, with a relative lack of the aggressive violence, family breakups, and lawsuits that plague the West. The statistics professor Hayashi Chimio puts the case for tatemae very elegantly:

When people say «There's no communication between parents and children,» this is an American way of thinking. In Japan we didn't need spoken communication between parents and children. A glance at the face, a glance at the back, and we understood enough. That was our way of thinking, and it was because we had true communication of the heart. It's when we took as our model a culture relying on words that things went wrong. Although we live in a society replete with problems that words cannot ever solve, we think we can solve them with words, and this is where things go wrong.

Discreet reliance on tatemae is one of Japan's truly excellent features, infusing daily life with a grace and a calm that are rare in the fractious West. The problem arises when tatemae goes beyond its natural limits. As we saw earlier, when Japan began to modernize after 1868, the rallying cry was Wakon Yosai (Japanese spirit, Western technology). Tatemae, the idea that an unruffled surface takes precedence over stating the facts, is an old bit of Wakon, of Japanese spirit, and, like the Wakon of «total control,» it runs into trouble when it does not adapt to modern systems. Tatemae is a charming attitude when it means that everyone should look the other way at a guest's faux pas in the tearoom; it has dangerous and unpredictable results when applied to corporate balance sheets, drug testing, and nuclear-power safety reports.

As we saw earlier, Japanese finance companies lend money to bankrupt borrowers or subsidiaries so that they can continue to pay interest and make bad loans fly off the books. This is to-bashi, « flying» – one popular technique for which is to have a bank sell a troubled property to a subsidiary, to which it then loans the money to pay for the property: real-estate problem solved! The docile Japanese press meekly reports tobashi transactions as if they were real ones; one must learn this in order to understand how to read a Japanese newspaper. A headline announces «Nippon Trust sells choice Kyoto site» or «Hokkaido Bank sells assets to write off loans,» and one might imagine that the banks were disposing of assets. However, in both cases the banks were selling to their own subsidiaries in tobashi transactions. The headlines should have read «Nippon Trust fails to sell choice Kyoto site» and «Hokkaido Bank finds no bona fide buyer to help it write off loans.»

The National Land Agency accepts tobashi sales as real ones, which further distorts land-value statistics. Hence while the agency estimates that land prices have dropped in half from their peak, the results at actual auctions show that the fall is more than 80 percent. This is a classic example of an official statistic based on skewed data, but, unfortunately, we have even less to go by in estimating the true situation in most cases.

Tobashi is only one of several techniques of funshoku kessan , «cosmetic accounting.» Another technique is, as we have seen, «book accounting,» whereby banks value their holdings at purchase value, although they may be worth much less today than what was paid for them. Or unsightly liabilities are simply brushed away, such as pension-fund deficits, which Japanese companies have not had to report, even though they face huge exposure to their underfunded pensions. When all else fails, outright falsification comes into play – with encouragement from the ministries of Finance and of International Trade and Industry. In the Jusen scandal of 1996, when Japan's seven housing-loan corporations (known as Jusen) went bankrupt, leaving bad debts of ?8 trillion, former MOF men (amakudari , or «descended from heaven,» because after retirement they descend to the management of companies under MOF's control) ran six of the seven Jusen, which together had extended loans of which an astonishing 90 to 98.5 percent were nonperforming. In the years before the final collapse and exposure, the amakudari executives guided the Jusen banks in a game of elaborate trickery. At Juso, for example, the bank showed investigators and lenders three different sets of figures for the total of bad loans: ?1,254 billion, ?1,004 billion, or ?649 billion. MOF was aware of the scale of the Jusen disaster as early as 1992, but it must have chosen to work only with the С List, because a report at that time concluded that the Jusen were «not approaching a state of danger.» This decision to put off the reckoning led to the public's having to pay hundreds of billions of yen more in 1996 to clean up the mess.

Tobashi and «cosmetic accounting» are endemic; one could say they are defining features of Japanese industry. As embarrassing as revelations of serious abuses are when they come, MOF cannot do without either, because Japanese banks are addicted to them. Only with such techniques can the banks maintain the capital-to-assets adequacy ratio of 8 percent mandated by the Bank of International Settlements (BIS), failing which they cannot lend abroad. Nakamori Takakazu of Teikoku Databank estimates that if Japanese banks were to disclose the true state of their finances, their BIS ratios would fall to 2 to 3 percent at best.

As the Japanese economy sank lower and lower during the 1990s, each year the government announced rosy predictions for growth. Likewise, MOF has consistently downplayed the financial crisis, with Vice Minister Sakakibara Eisuke announcing in February 1999 that the crisis would be over «in a week or two.» The wolf is at the door, yet the government keeps crying «Sheep!» It is indeed precisely because MOF has been the Little Boy Who Cried Sheep that experts estimate bad loans to be two or three times higher than the government admits, and the true national debt to be as much as triple the official numbers. Ishizawa Takashi, the chief researcher at Long Term Credit Bank's research institute, says, «Even if we told the truth people would think there is more being hidden. So we put out lower numbers on the assumption people believe the true figure is higher.»

Nevertheless, there is much to be said for tobashi. Tobashi is a form of make-believe in which Japan's banks pretend to have hundreds of billions of dollars that they don't have. But, after all, money is a sort of fiction. If the world banking community agrees to believe that Japan has these billions, then it essentially does.

For the time being, tobashi seems to be working just fine. In any case, Japan's ministries have at their disposal a further «management of information» technique, perhaps the strongest: denial. Shiranu, zonsenu, means «I don't know, I have no knowledge,» and it is the standard response to most inquiries. We saw an example of this when Asahi TV questioned a section chief at the Ministry of Health and Welfare about dioxin pollution, and he responded, «I don't know, I have no idea.» A similar process was at work in the same ministry when for seven years its officials denied that they had any records of AIDS-contaminated blood products which had infected more than 1,400 people with HIV in the 1980s. In March 1996, however, when Health Minister Kan Naoto demanded that the «lost» records be found, they turned up within three days.