“Abenomics” looks ready to bloom just in time for spring, given the Diet’s approval Friday of Haruhiko Kuroda as the next governor of the Bank of Japan.
As head of the central bank, Kuroda, currently president of the Asian Development Bank, will have vast powers over fiscal and monetary policy that some say even exceed those of Prime Minister Shinzo Abe. But Kuroda also has been clear that he will coordinate with Abe’s ultraloose monetary agenda and has promised to attain the BOJ’s 2 percent inflation target within two years.
Critics welcome his ambitious remarks but warn about setting the bar too high. “Achieving the 2 percent mark in two years is not going to be easy,” Takehiro Noguchi, senior economist at Mizuho Research Institute, told The Japan Times on Friday.
Skeptics, including departing BOJ Gov. Masaaki Shirakawa, point out that the inflation rate failed to reach as high as 2 percent even amid the bubble economy years in the latter half of the 1980s.
“Reaching the inflation goal will require bold measures, but that will come with a variety of risks as well. (Kuroda) needs to proceed with caution,” Noguchi stressed.
The new BOJ governor will step up to the plate following a term by his predecessor that was marred by swings and misses. Shirakawa will resign from his position Tuesday after doing little to end Japan’s 15-year deflationary spiral. During his time at the bank’s helm, which began in April 2008, Shirakawa eased monetary policy 15 times but failed to reap any tangible results.
However, Shirakawa had his plate full after the Lehman Brothers shock in September 2008 — just five months into his term — sparked the worst global financial crisis since the Great Depression in the 1930s, while Europe’s ensuing, and still unresolved, sovereign debt crisis badly hurt Japanese exporters. Throw in the March 2011 quake-tsunami, one of the greatest natural disasters the nation has seen in modern times, and one of the world’s worst nuclear catastrophes, and perhaps it’s not surprising that an end to deflation never came in sight during Shirakawa’s five-year stint.
Still, his announcement that he would be leaving the BOJ a few weeks earlier than his term expired was greeted positively by the market.
After coming under intense pressure from Abe, who took office in late December, Shirakawa in his final months as governor doubled the central banks’ inflation target to 2 percent and agreed to an open-ended asset purchase plan. But many argue that this was too little and too late, and one of his harshest critics is none other than Kuroda himself.
Shirakawa’s response against deflation “was insufficient,” Kuroda said earlier this month during a statement before a Lower House committee. In addition to acknowledging that central banks have the responsibility to secure price stability, he also pledged to do “whatever it takes” to hit the 2 percent inflation goal at an early date.
A former Finance Ministry bureaucrat, Kuroda will become the first BOJ chief not to have previously worked for the bank since Yasuo Matsushita, who stepped down in 1998.
As vice finance minister, he was in charge of handling international meetings, including the Group of Seven. With some G-7 member states critical of Abe’s monetary policies for easing the yen excessively against other major currencies, the prime minister has high hopes of Kuroda handling his international counterparts.
Kuroda’s appointment “was an option in my mind from the early stages,” Finance Minister Taro Aso said during a news conference earlier this month.
Aso had repeatedly said the new BOJ governor must have experience managing an organization, a criterion Kuroda meets thanks to his presidency of the ADB, as well as excellent communication skills and an intimate knowledge of global finance, which Kuroda gleaned during his days at the Finance Ministry.
Abe, meanwhile, has pledged to pursue monetary easing “from a different dimension” ever since his Liberal Democratic Party swept December’s general election and had hinted that the nominee to head the BOJ would be someone who concurs with his economic and fiscal beliefs.
Kuroda will take the stage amid soaring stock prices on the benchmark Nikkei 225 index and the yen’s easing against the dollar thanks to the markets’ positive reaction to “Abenomics.” Having expressed his conviction to end deflation, Kuroda will likely tear out of the gate and may even convene a special Policy Board meeting prior to next month’s scheduled gathering.
But whether the Abe-Kuroda duo can put an end to Japan’s economic woes is unclear. To achieve the 2 percent inflation goal within two years — before Kuroda has even served half of his term — the new governor is expected to begin purchasing longer-dated government bonds as well as assets that come with higher risks.
Experts question the impact of such measures on the already bloated government deficit. Excessively purchasing bonds without discipline could also be seen as the BOJ bankrolling the government, as Shirakawa has repeatedly warned of.
If the markets lose trust in the government’s determination to push through a series of painful yet critical fiscal reforms, long-term interest rates could spike and cause severe, highly adverse side effects.
Noguchi of Mizuho Research Institute cautioned there are other unanswered questions, as well.
“Whether increasing the purchase of assets can really contribute to ending to deflation is unknown at this stage,” he said. “Long-term interest rates are low for now. But whether we can carry on (with long-term monetary easing) is debatable.”
Japan Inc. lauds pick
Business leaders on Friday welcomed the Diet’s approval of Haruhiko Kuroda as the next Bank of Japan governor, expressing hope he will utilize his expertise in global finance to carry out monetary policy and spur growth.
Kuroda, currently head of the Asian Development Bank, “is well qualified, as he possesses deep knowledge of global finance and experience in leading an organization,” said Hiromasa Yonekura, chairman of Keidanren, the country’s most influential corporate lobby group.
In a statement released after the Diet green-lighted the government’s nomination of Kuroda and his two deputy governors, Yonekura welcomed the fact there will be no repeat of the BOJ leadership vacuum seen in 2008, when the Democratic Party of Japan, then the main opposition force, repeatedly rejected nominees by the ruling Liberal Democratic Party.
Kuroda, an ex-vice finance minister for international affairs, will assume the post Wednesday, with Gakushuin University professor Kikuo Iwata and BOJ Executive Director Hiroshi Nakaso becoming deputy governors the same day.
Japan Chamber of Commerce and Industry Chairman Tadashi Okamura called on Kuroda “to make utmost efforts” to swiftly realize the BOJ’s 2 percent inflation target “with strong will and bold monetary easing policy, in close cooperation with the government.”
Yasuchika Hasegawa, head of the Japan Association of Corporate Executives, said he would like to see Kuroda make use of his extensive network of contacts at home and overseas, as well as his experience in heading a large financial organization. He also wants the BOJ to remain independent.