As the world watches to see what Prime Minister Shinzo Abe does with his renewed mandate in Japan, my eyes are on Haruhiko Kuroda instead. After all, the Bank of Japan governor probably deserves about 90 percent of the credit for whatever success Abe's reflation efforts have had thus far — in particular, a more than 70 percent rise in the benchmark Topix index. Whether the prime minister now goes further and implements the real structural reforms Japan needs depends as much on Kuroda as anyone else.
Abe's victory was not as sweeping as might appear at first glance. Amid record-low turnout, his Liberal Democratic Party ended up with a couple fewer seats than previously — although still enough for the ruling coalition to maintain its two-thirds majority in the Lower House. Not surprisingly, officials in Tokyo are talking less about politically difficult reforms and more about putting money in the hands of Japanese to spend.
Analysts are expecting a rush of new fiscal stimulus early in the new year. Kuroda, too, will face pressure to one-up himself when the BOJ meets on Friday. Like addicts looking for their next fix, markets want the central bank governor to outdo his "shock-and-awe" from April 2013 and recent Halloween surprise on Oct. 31, when he boosted bond purchases to about $700 billion annually.