The markets are happy to see him go. He is the butt of jokes at the Finance Ministry, where bureaucrats mimic some of his well-worn phrases. Leading politicians in the ruling coalition blame him for the stagnant economy.
But Bank of Japan Gov. Masaru Hayami, 77, who departs Wednesday following a five-year term, says his conscience is clear.
“I have always acted in what I felt is in the best interests of the nation,” he said earlier this month, following Prime Minister Junichiro Koizumi’s nomination last month of Toshihiko Fukui, former deputy governor of the BOJ, as his successor.
“We have done the very utmost, going to the very limits of what we can do,” Hayami said. This conviction may be of some consolation.
But if he had been less high-minded, stubborn and predictable — and instead been more flexible, calculating and ruthless — the BOJ may have been spared what one BOJ manager close to Hayami described as “a slow and humiliating fall into subordination to the Finance Ministry.”
The BOJ was granted independence from the government under the BOJ Law, which took effect in April 1998, a few weeks after Hayami took office.
Even back then, both the central bank and the Finance Ministry were running out of cards to play to prop up the economy and Japan was feeling the effects of its worst banking crisis since the war.
For the BOJ, overnight inter-banking interest rates — the main vehicle for the bank to influence the economy — had sunk to a half a percentage point when Hayami became governor in March 1998. At the same time, the Finance Ministry was burdened with record-level bond issues to finance massive fiscal stimulus steps.
For the two archrivals, each side’s strength depended utterly on whether one could force the other to use up its cards and save its own to play later, said Akio Makabe, senior economist at Mizuho Research Institute, a think tank affiliated with Mizuho Bank.
“In each round, the BOJ has been forced to play card after card, losing in the face of the Finance Ministry’s awesome political and market connections,” Makabe said.
The BOJ adopted the zero interest-rate policy on Feb. 11, 1999, and has kept overnight interest rates at essentially zero for most of the last four years. The interest rate rose only slightly during the seven months from August 2000, when the bank suspended the policy.
Then in September 2002, the bank announced a plan to buy up 2 trillion yen worth of major banks’ massive stockholdings, an unprecedented move for a central bank.
Through the purchases of the shares and conventional monetary steps, the BOJ under Hayami has pumped trillions of yen into the banking system in the hope that some would trickle down to the rest of the economy in the form of loans or deposits.
Despite the BOJ’s efforts, however, consumer prices have slid year-on-year every month for four straight years, while land prices have fallen for 14 consecutive years, apart from a brief rise in 1997. Responsibility for that rests squarely on the bank’s shoulders, critics say.
The BOJ begrudged each move that it took. The measures were always a step behind the expectations of political circles and the market, and followed repeated statements by the BOJ that such moves would have only a limited effect.
“It’s like a doctor giving a patient medicine that he says won’t work,” said a senior lawmaker of the ruling Liberal Democratic Party.
Many analysts agree that Hayami has communicated poorly with the markets.
“By doing exactly what the BOJ has insisted won’t work, without explaining clearly why, the BOJ has done lasting damage to its credibility,” said Kagehide Kaku, deputy chairman of Daiwa Institute of Research and a former BOJ official.
Hideo Kumano, senior economist at Dai-ichi Life Research Institute, said, “The BOJ has always been so afraid of its independence being taken away that it has been unable to admit when it has made a mistake, and then reverse course.”
Hayami was also deeply unpopular with a number of politicians in the ruling coalition who have demanded more radical monetary steps. The frequent appearances before the Diet by Hayami and other BOJ executives — more than 60 occasions in 2002 alone — have not helped convince the politicians of the bank’s policies, a BOJ official said.
There remain regular calls by such politicians, led by 81-year-old Hideyuki Aizawa, head of the ruling LDP’s anti-deflation policy committee, for an amendment to the BOJ Law to allow the Diet to dismiss a governor.
Hayami is defensive of some of his decisions, refusing to admit, for example, that there was an error of judgment in the BOJ’s decision to scrap the zero interest-rate policy in August 2000, only to effectively revert to it seven months later.
“Nobody was able to predict that the effects of the collapse of the information technology bubble would be so large,” Hayami said.
That may be true, but the decision cost Hayami his strong leadership within the BOJ, according to Kumano of Dai-ichi Life.
Attacked on all fronts, it has been a lonely five years for Hayami, those close to him say. Periodically, the media was fed tales that Hayami was tired, disgruntled and ready to resign his seat.
Nobuyuki Nakahara, a former member of the BOJ Policy Board who dissented in the August 2000 vote to raise interest rates, said at the time, “The BOJ’s independence is not granted by heaven. Unless it can gain good results, it will be taken away by politics.”
Hayami, a devout Lutheran, dismisses criticism from within the BOJ that he has damaged the central bank’s autonomy.
“History will vindicate me,” Hayami is fond of saying, almost to himself.
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