Thomas Hoover - The samurai strategy

"Our president, Noda-sama, should be arriving in a few days. I'm sure he will be happy to address your questions in detail." Tanaka paused for the green tea, delivered by a silent girl-the young, smiling, uniformed Japanese "office lady"- who scarcely looked up as she settled the tray on the desk. After she was gone, he continued. "This, of course, is only the financial nerve center for our operation. Our technical staff will begin arriving soon."

Technical staff? Then who were those grim-faced minions out there punching computers?

"You're bringing in more people?"

"Correct. Which is why I needed to see you. I understand that the lease on the floor above us is due for renewal at the end of this month. We would like to acquire that space. We will need to convert it as quickly as possible."

"What about the current tenants?"

"There is a rider in their lease, Mr. Walton, that permits the owner of the building to reclaim the space for his own use at the time of a renewal. We fully intend to make use of it. Consequently as our American attorney you are hereby authorized to inform them that their lease will not be automatically extended, that they will be expected to vacate. In accordance with the legal and binding terms of their lease. Advise them also that there can be no grace period. We will require the floor immediately."

I looked at him. So much for the current tenants. "What will these new offices be used for?"

Tanaka sipped his tea. "That section will have another managing director. Our range of operations here brings other responsibilities."

"What section, what range of operations?"

"I am regrettably not at liberty to discuss the specific extent of DNI's interests."

"Well, let me break some news to you. I like to know who I'm working for. So you'd better start discussing specifics and fast."

Tanaka seemed to be having trouble meeting my eye. The skull beneath his short-cropped hair glistened under the harsh neon lighting.

"Mr. Walton, you are now part of the DNI team. That position includes obligations I am sure you would not wish to take lightly."

"Hold on." The hell with politeness. "I'm not part of your 'team' or anybody's. I came on board with the explicit understanding that-"

"Mr. Walton, kindly sit down." He pointed without ceremony to a chair. I just looked at it, then back at him.

"As you are a scholar of Japan," he continued, "I'm sure you are aware that an employee's loyalty to his company is considered to be a gauge of his character. A company is a family, and one considers its interests in that spirit."

"Maybe you didn't notice, but I'm not Japanese. 'Nihon-jin' as you'd probably put it. I'm a gaijin. We usually work for number one."

"At the moment, Mr. Walton, you work for Dai Nippon. There is an assigned role for you, one that Noda-san expects you to fulfill."

"Maybe I just handed in my resignation."

"I do not really think you would wish to do that." Deadpan. The confidence with which he made that statement told me this guy could make a killing at poker. Unless he had a few cards in the hole I didn't know about. "It would hardly be in your best interest. We expect your contribution to be crucial."

"What contribution?"

"That will become plain in due time, Mr. Walton." He was measuring his words as he continued, maybe easing up a bit. "For now, let me merely say we know you to be a man with substantial curiosity. Consequently we believe that what lies ahead will be of considerable interest to you."

What was this samurai up to?

"Maybe it's time everybody put their cards on the table. And why don't we begin with you." I thumbed at the floor outside. "What the hell's going on out there?"

"At the moment nothing in this office need concern you. But perhaps I can tell you this. Now that you are serving as our corporate attorney, you are in a position to help us pursue other avenues."

I looked him over. Tanaka was beating about the bush. Why? Maybe it was merely the Japanese style, but he also seemed to know exactly what not to say.

"I'm still waiting to hear what's next."

"Very well. As long as you're here…" He sipped calmly from his cup. "It is common knowledge that Japanese savers have become the world's largest lenders, with overseas investment that now exceeds, by the way, the greatest rate of lending by OPEC even at its peak. The Japanese people will have over a trillion dollars in overseas assets within the next few years."

"I'm familiar with the numbers." I also knew that with several trillion dollars in spare change sloshing around back home, they were sending abroad a mere dribble of what they had.

"Were you also aware that over four fifths of our overseas investment is currently in dollar-denominated instruments?"

"No surprise. The dollar's still the name of the game, worldwide."

"True enough, but we at Dai Nippon are concerned that so many of our institutions have such heavy exposure in a single currency. Accordingly, in addition to our program with interest- rate futures, we also feel it would be prudent to provide some protection for this currency risk. In the same manner, I might add, that American investors often do."

"You mean some downside protection? On the dollar?"

"That is correct. A devaluation or a sudden drop in exchange rates would jeopardize much Japanese capital. Therefore we feel it would be prudent to enter the currency-futures markets to cover at least some of the dollar exposure of our investors."

Jesus! I suddenly needed a Valium. In addition to Treasuries, now Dai Nippon was about to short the dollar, pre-sell it in advance of… of what?

Had Noda been lying to me right down the line? Setting up a cockamamie cover with interest futures while all along he was setting up an international currency swindle?

Or were we about to get down to the real action? He'd scheduled his curtain raiser, whatever it was, then realized he might accidentally pull the plug on the U.S. greenback? So he'd decided to arrange a little currency insurance for everybody back at the ranch, just in case.

Don't ask me why, but I was drawn to this pending nightmare like a moth to flame. This was a ringside seat at…

All right, who am I trying to kid? That was the moment when I finally, finally grasped what our meeting was all about. It was to formally announce the tidal wave that would soon engulf America. And now Matsuo Noda-or maybe I should say Noah-was, in his oblique Japanese way, handing me a pair of tickets good for one round-trip passage on his ark. The only thing missing was the schedule.

By then I didn't care whether I was on board or not; I figured I'd just as soon try swimming on my own. But I had one very good reason to play along.

"Okay, what's the game? Want to sell some dollars for delivery down the road?"

"We assume you are familiar with the markets."

"I stay in touch. How would you like to go? If you want currency futures, there're the exchanges. Or you can buy forwards, which are more or less the same thing, from any number of banks around town. Futures only go out for a year, maximum, but I can probably get you forwards out to three. Come to think of it, Citibank will quote you ten-year forwards."

"We would be looking at shorter terms."

"No problem. Currency futures are quoted for March, June, September, and December. That's on the Chicago Mercantile Exchange's IMM. But if three months are too far out, then you can get options on spot currency contracts down at the Philadelphia exchange, which allows early exercise. Or if you want, I think you can get off-exchange bank quotes as short as one month. Citibank has a big FOREX desk. And Bankers Trust, and First Boston, or even Banque Indosuez. Of course, if you really want to get serious, there's the currency trading floor at Barclays Bank in London…"