⛩️ #47 (Part 2) The Psychic Who Made $40bn Then Blew It All

Master manipulator, or masterfully manipulated?

Nui Onoué, evil manipulative mastermind of a billion-dollar fraud? Perhaps not. Image: Daily Shinchō

Dear Readers,

In last week’s edition we began our retelling of one of the wildest sagas in the history of finance: how a 60 year old Osaka restaurant owner named Nui Onoué managed to personally borrow $40bn from some of Japan’s biggest banks in order to speculate in the stock market — selecting her investments via psychic consultation with a statue of a frog.

Now, in this week’s edition we’re going to astonish you by revealing that genius trading strategy didn’t go too well — taking down two major banks and landing five people in prison.

But first, a quick recap of the madness so far…

You came for the sukiyaki, nothing more

Nui Onoué started out as a humble waitress in Osaka’s bustling Minami entertainment district, gradually charming a lineup of influential male patrons who bankrolled her move into restaurant ownership with her sukiyaki joint, Daikokuya.

Despite the fact that her business operated in the red, Onoué kept her head above water thanks to a major cash windfall from a wealthy benefactor’s will.

Daikokuya began drawing some of Western Japan’s most prominent financiers, including a branch manager at the Industrial Bank of Japan (IBJ). As one of Japan’s top banks, IBJ specialized in financing heavy industry and massive infrastructure projects — serious money for serious players.

As often happens in Japanese entertainment districts like Minami, over repeated visits casual pleasantries between the proprietress and her guest eventually turned to investment opportunities. Onoué, who had zero understanding of IBJ’s economic clout, was persuaded — perhaps as a favor or simply for the sake of politeness — to dip a tabi sock-clad toe into high finance and invest ¥1 billion into warikō bonds.

Warikō were basically the least exciting thing in finance: short-term debt instruments sold at a discount to their face value. Buy one for ¥95,000, wait until maturity, collect ¥100,000 — the difference acting as your interest. Safe, simple, and with a few tax perks thrown in for good measure.

For Onoué, it was a tidy little win, plus kept an influential customer coming back. For the IBJ branch manager, it was a career boost —snagging a big new client for the bank.

The deal went down on March 13, 1987.

What could possibly go wrong?

Four years later, Onoué had borrowed a total of $40bn, and was bankrupt with debts of $5bn.

Daikokuya, the Osaka restaurant through which trillions of yen flowed. Image: Ronza Archive

Bubble Deflation

On Halloween 1989, Mitsubishi Real Estate announced a blockbuster deal to take control of Manhattan’s iconic Rockefeller Center, setting off a political firestorm in the United States. Paranoia about Tokyo’s rising economic power reached a fever pitch, encompassing Members of Congress staging anti-Japanese protests on the steps of the Capitol, popular fiction like Michael Crichton’s paranoid-guide-to-fearing-Japan-while-solving-a-murder novel Rising Sun, as well as a certain New York real estate mogul named Donald Trump demanding tariffs on imports.

What no one realized at the time was that the Japanese economic bubble had already sprung a leak, and the Rockefeller Center deal would mark the zenith of Tokyo’s economic power.

As Japan’s absurdly inflated prices began their descent back to sanity — a favorite statistic of the era being that the land under Tokyo’s Imperial Palace was once valued higher than all the real estate in California, combined (!) — competition among Japanese banks ramped up.

As big corporations increasingly bypassed banks to raise funds directly from the capital markets, long-term credit institutions like the Industrial Bank of Japan (IBJ) found themselves in existential crisis.

In a bid to stay relevant, IBJ pivoted toward small and medium-sized businesses, private banking, and cozying up to wealthy individual clients with tailored asset management services. Enter the Daikokuya regular IBJ branch manager, who saw the restaurant’s unassuming middle-aged owner as the perfect candidate for some very special attention.

A Broken Money Wheel

Two months after the safe warikō purchase — and before those bonds had even matured — the Onoué-IBJ relationship deepened when the bank loaned her ¥2.5bn.

It was the first of what would become many similar deals, with collateral consisting of Onoué’s own cash deposits at the bank.

Known within IBJ as a maruban loan, it was a risk-free deal for the bank — should Onoué be unable to repay, they’d simply retain her cash deposits, which they already controlled.

So why did Onoué borrow such a hefty sum? What grand investment plan did she have to generate yield to offset the loan’s interest payments?

Her answer during later court proceedings? “I’m not sure what I was going to use it for.”

So why take the money in the first place?

“They [IBJ staff] were such good customers of the restaurant, coming to see me so diligently.”¹

Without an investment outlet for the loan money, Onoué was stuck in a negative spread — the monthly interest on the principal was higher than any potential returns she could earn from using the money, meaning she was losing money every month just to keep the loans active.

Anyone financially literate — or us, even — would realize this is not a good place to be.

So what did the 60-year-old owner of a loss-making restaurant do?

She doubled down.

That initial ¥2.5 billion loan was to mature in six months, but repayment never happened — because by the following March, IBJ had lent Onoué another ¥5 billion. The collateral? You guessed it: her deposits at IBJ. The pattern continued: another ¥5 billion in May, ¥7 billion in June, and by the end of 1990, her loan balance had ballooned to ¥18 billion. By the close of 1989, it had exploded to ¥58.6 billion.

Onoué, stuck in a negative spread, found herself in a spiral, with every new loan just ratcheting up her costs. Meanwhile, IBJ was raking in profits on the loans and keeping the charm offensive alive at Daikokuya, making sure their favorite restaurateur stayed hooked for ever-larger loans.

IBJ’s president, Hiroshi Kurosawa, assiduously attended to the relationship: a celebratory party for his appointment was held at Daikokuya, and he dropped by with his family during summer vacation to visit Onoué, keeping up the general appearance that IBJ — the bank which had rebuilt post-WW2 Japan by funding roads, rail, and tunnels — was making a middle-aged restaurant owner a cornerstone of their survival strategy.

Weighed down with tens of billions of yen in loans and crushing interest payments, the money had to go somewhere, and now IBJ (with the greatest intentions, we’re sure) recommended she move into real estate. Five buildings in Osaka’s Chūō Ward were quickly snapped up for a total of ¥13.7 billion.

Sadly, these were not exactly trophy properties. For ¥3.8 billion, she grabbed the Synapse Shinsaibashi Building, which was hemorrhaging ¥200 million annually. This was a goldmine compared to the ON Daiichi Building — a ¥4.2 billion money pit with even bigger annual losses.

Incredibly, despite these financial sinkholes (or perhaps because of them), IBJ then set Onoué up with her own investment firm — ON International Co., Ltd. — in August 1990. The Daikokuya regular branch manager who’d first brought her into the IBJ fold even managed to get his wife’s brother-in-law parachuted in as a co-founder.

Meanwhile, Onoué, still blissfully ignorant of the concept of negative carry, kept piling on more debt at IBJ’s encouragement. By the end of 1990, the daily interest burden on her loans had reached what one might term a less-than-ideal ¥171m (~$3m in 2025 terms).

Despite her financial naivety, Onoué knew she had to do something to get out of the hole she had found herself in.

Nui’s Study Group

Onoué began to speculate in Tokyo’s still-overheated stock market.

Enter Nui no kai (縫の会), roughly “Nui’s Study Group” (the Washington Post translated it as “Nui’s Gang”²)

A group of worshipful brokers would meet in a back room at Daikokuya and write the names of stocks on pieces of paper, whereupon Onoué would pray to a statue of frog, then relay the ranine prediction on if the stock would rise or fall.

It sounds like some cultish mastermind manipulating the unaccountable credulity of men who had been promoted far above their intellectual capabilities.

Maybe.

But by 1989, at a time when stock prices hit an all-time high, she’d somehow contrived to lose nearly 35 billion yen in the market.

And those credulous brokers? Were they dummies, or actually just eager to skim the commission and fee income from a wildly speculative financial orgy that Onoué was helping to fuel with her outsized market-moving buy and sell orders?

Forgery!

By the end of 1989, Onoué's financial assets totalled ¥618.2bn (~$11bn at today’s prices).

She was one of the richest people in the world — on paper. But, as noted, her daily repayment burden was ¥171m, on truly insane yearly borrowing of ¥1.1975 trillion.

To cover up the ballooning debt, Onoué now made a fateful decision — asking a branch manager of a minor Osaka bank, Toyo Shinkin, with whom she had a long-standing relationship, to forge fixed-term deposit certificates.

A fixed-term deposit certificate is a type of investment where you deposit money in a bank for a set period, and in return earn interest over that time.

Onoué and the manager embarked on what, by modern banking standards, seems a fantastically quaint operation — the bank guy took legitimate deposit certificates from his branch and ballpoint penned-in fictitious amounts of yen which Onoué had supposedly deposited at his Toyo Shinkin branch.

The certificates were then wheelbarrowed over to other financial institutions to be used as collateral to keep the money wheel spinning.

15 certificates of this type were eventually traced — the total of the scribbled-in cash an incredible ¥365.5bn (~$6.5bn at 2025 prices).

Toyo Shinkin’s lack of capital controls can be inferred from the fact that this amount was almost equal to their entire legitimate deposits.

The Wheel Stops

In early August 1991, Onoué confessed to the IBJ branch manager who had originally ushered her into the world of finance that she had been using and reusing the fictitious Toyo Shinkin Bank deposit certificates as collateral to keep the deals flowing.

The IBJ manager told Onoué the only way to pull off an unlikely rescue operation was for the heads of Sanwa Bank — parent company of Toyo Shinkin Bank — and the Industrial Bank of Japan to talk to each other.

The talk did not go well.

The manager ghosted Onoué, and on the morning of August 13th, 1991, during the annual Obon festival for the dead, she was arrested.

It was front-page news.

Osaka's Toyo Shinkin Bank has fictitious deposits of 340 billion yen, equivalent to the total amount of deposits

On the 13th, the Osaka District Public Prosecutors Office Special Investigation Division launched an investigation into a massive fraudulent loan case at Toyo Shinkin Bank, and arrested two suspects, former Imazato branch manager Asami Maekawa (58) and restaurant owner Nui Onoué (61) on suspicion of forgery of a private document bearing a seal.

Former branch manager Maekawa issued fictitious deposit certificates that made it appear that Onoué had a fixed-term deposit of approximately 342 billion yen at Toyo Shinkin Bank, and Onoue is suspected of using these certificates to withdraw 300 billion yen in loans from financial institutions such as the Industrial Bank of Japan. Onoué is said to have used the withdrawn funds for stock speculation, and there is a possibility that this could develop into a major economic crime.³

The IBJ had gone to the police — and then the bank got really sneaky: before the arrest was made, aware that Onoué wouldn’t be able to pay off her debts, they sold most of their own claims to another (unnamed; very stupid) financial institution, recovering ¥3.3bn that was about to go up in smoke (they were later forced to pay the money back).

The arrest also made international headlines, embarrassing the Japanese economic establishment. One U.S. newspaper dubbed Onoué the “bubble lady,” and recounted the bizarre psychic stock-tipping at the meetings of Nui’s Study Group.

Trial

Given its complexity, Nui Onoué’s trial was expected to be protracted, but in the meantime four people indicted as accomplices were rapidly found guilty: the former branch manager of Toyo Shinkin Bank who provided the fictitious deposit certificate was charged with fraud, and sentenced to 10 years in prison.

A former branch manager of another minor bank, Kizu Shinkumi, who also did the deposit certificate dance got three years with three years of probation.

Two other minor players in the economic bonfire, a former manager of loans company Daishinpan and the former head of the screening department at Panasonic affiliate National Lease were also jailed for breach of trust after providing other assistance to the Onoué operation.

68 Years Old

Onoué’s trial chugged on for five years and eight months.

She advanced an admirably simple defense on the charges she had conspired to falsify the billion dollar deposit certificates — that technically, they weren’t forged at all. They were legitimate documents, and the bank manager had the authority to issue them. He’d just scribbled in inaccurate amounts, that’s all.

In other words, mere bullshit rather than forgery.

The prosecution didn’t agree.

However, during the trial, neither they nor any financial institution, including the IBJ, could offer a rational explanation for why Onoué repeatedly engaged in negative spread transactions, taking out loans at high interest rates and depositing them at lower interest rates, ensuring a steady cash bleed that only furious stock speculation could hope to cover.

It became clear that Onoué had incurred huge losses through margin trading, cross trading, warrant investments, real estate, and other, more esoteric deals, all conducted without any significant economic knowledge.

IBJ, who claimed to be the major victim of Onoué’s crimes, had in fact profited vastly from the negative spread, and various other securities companies (including those whose employees were members of “Nui’s Study Club”) had also creamed off billions of yen in transaction fees without suffering a single yen of loss.

During their closing statement at the trial, Onoué’s defense lawyers made a plea of total ignorance:

“The defendant, who had no economic knowledge whatsoever, was merely manipulated by financial institutions. She had no intention or awareness of causing damage, so no crime has been committed.”⁴

On March 23rd 2000, the verdict was announced in Courtroom 1003 of the Osaka High Court.

By then, she was 68 years old.

She got 12 years in prison.

Postscript

• In spring 2002, having been shuttered since Onoué’s 1991 arrest, the Osaka restaurant Daikokuya was sold, in a cut-price transaction for approximately 10% of its true worth. The reason for the low price was cited as the presence of certain creepy stone statues, thought to cause bad luck. The new owners quickly razed the restaurant to the ground. The fate of the frog statue that provided so much bad investment advice is unknown.

• The same month, the Industrial Bank of Japan was dissolved and its remnants merged with the Dai-Ichi Kangyo Bank and Fuji Bank to form Mizuho Financial Group, today one of Japan’s largest banking institutions. IBJ had been founded 100 years and five days before.

• Toyo Shinkin bank was absorbed by its parent, Sanwa Bank, and ceased to exist.

• Nui Onoue passed away in 2014.

Remember to check out last week’s edition for the first part of the story, including a recreation of a bizarre meeting of “Nui’s Study Group”.

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Until next time,

The Kyote

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1. バブル清算のツケ：３　指弾された興銀　大阪の女将に逆ざや融資, Asahi Shimbun, 2004-11-26, P42

2. https://www.washingtonpost.com/archive/business/1993/08/01/in-japan-monuments-to-a-bubble-that-burst/77e93817-e7bb-4ba6-8e22-f5a2620e95c5/

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