The drastic monetary easing by the Bank of Japan under its new governor, Haruhiko Kuroda, has brought about a sharp devaluation of the yen currency and a steep rise in stock prices. This has no doubt revitalized the market while the approval rating for Prime Minister Shinzo Abe, Kuroda’s powerful supporter, has remained at a historically high level.
Even though these factors may have created a general consensus that the central bank has gotten a head start since Kuroda took office in March, a sense of desolation is spreading fast within the central bank.
Under the previous governor, Masaaki Shirakawa, the BOJ steadfastly followed the path of rejecting an “easy monetary policy of unprecedented dimensions” as advocated by Kuroda.
With the change at the top, the central bank has shifted to a policy of pursuing a diametrically opposed sense of values, reminiscent of the unprecedented changes the nation as a whole went through after the end of World War II in 1945.
Kuroda has made a commitment to the Abe government that the bank will work toward achieving 2 percent inflation in two years. Even though such a target was considered unrealistic during Shirakawa’s days, top-ranking BOJ officials who are now Kuroda’s subordinates can no longer maintain the position they had under Shirakawa’s governorship because of the commitment made by their new boss.
Although the BOJ had pursued a policy of quantitative monetary easing to some extent before Kuroda took over, a majority of its officials were skeptical about pushing up prices through such means. Under the new governor, however, elite officials of the BOJ have had no choice except to switch their position, as the decision was forced on them without deliberations.
This has not only served to lower the morale of these central bank officials but also given rise to a rumor that there could be a serious drain on the bank’s human resources, potentially leading to an organizational collapse of the BOJ itself.
This is not the first time that the central bank has faced the danger of losing talented staff. Toward the end of the monetary crisis triggered in the 1990s, a large number of BOJ personnel changed jobs to become economists and analysts at foreign financial institutions operating in Japan.
An insider at a head-hunting agency recalls that many high-ranking officials of the central bank were very talented and proud of themselves with a strong desire “to be duly rewarded” for their work. The BOJ’s pay scale had inched up only modestly during the past two decades.
This, he says, was a perfect match for the needs of the Tokyo offices of major foreign financial institutions, including investment banks, that were willing to pay big salaries to highly skilled persons and eager to establish close ties with the central bank. The latter factor made BOJ staffers a perfect target.
This drain on human resources had come to a standstill, perhaps temporarily, for reasons not necessarily attributable to the central bank.
According to the head-hunting agency insider, the global financial crisis of the recent years forced foreign financial institutions to take belt-tightening measures including layoffs on a large scale. Especially in the Japanese market, which has remained stagnant, he says, these institutions have either ceased or reduced their operations in Japan and can no longer afford to hire high-paid personnel.
This situation has changed in past months as financial markets suddenly rebounded due primarily to Abe’s economic policy known as Abenomics. This has thrown foreign financial institutions, which had greatly cut down on their personnel, into a panic, forcing them to reinforce their business activities in Tokyo. The moves have created the fear among those who have managed to stay on their jobs in Tokyo with foreign financial institutions that their turn to be replaced may come in this new round of head-hunting.
Within the BOJ, it appears quite likely that self-contradiction and dissatisfaction among BOJ officials will surface more vividly every time the “easy money policy of unprecedented dimensions” is further expanded. Indeed, all of the BOJ’s policymakers who had supported Shirakawa have already made a complete about-face to support Kuroda.
If the bias associated with massive quantitative easing aimed at achieving 2 percent inflation in two years extends to lower, working-level officials of the BOJ, they may have no other choice but to distort various economic predictions in the BOJ’s biannual report on the nation’s economic and price conditions. These officials, who take pride in accurate analysis, will be forced to undergo a loyalty test. It is easy to imagine their feelings of disappointment.
If stock prices go up further with the expansion of quantitative easing, it could very well trigger a bubble in the real estate market, which in turn could draw in foreign financial institutions intent on making a killing. It would be no surprise if these institutions make strenuous efforts to lure elite BOJ staff to their payrolls.
Should talented strategists of the central bank become tools of foreign financial institutions and start pursuing the path of greed, that would constitute a huge and unacceptable loss to the nation.
During the previous economic crises and until around the time Abe formed the government late last year, much concern was expressed about the BOJ losing its independence under political pressure. Things appear to have calmed down at least temporarily under Kuroda’s governorship. But the BOJ’s crisis has not gone away.
Members of the BOJ policy board from the days of Gov. Shirakawa made an about-face in their creed, in unison, at their meeting in April. This means that working-level personnel inside the BOJ have been cut off. If the drain on human resources continues on an unprecedented scale, what the central bank will face is not the loss of its independence but a total structural collapse. The BOJ’s biggest-ever crisis is approaching.
This is an abridged translation of an article from the June issue of Sentaku, a monthly magazine covering Japanese political, social and economic scenes.