As the end of Bank of Japan Gov. Haruhiko Kuroda’s term draws closer, it is widely expected that Prime Minister Shinzo Abe will reappoint him to ensure that his aggressive monetary easing policy will continue.
Whoever is chosen will have their work cut out. Despite moderate economic growth in Japan, inflation is still far below the central bank’s 2 percent target. The next BOJ chief will also likely have to deal with the complicated process of winding down the stimulus.
In recent interviews, three key voices on monetary policy — Abe advisers Koichi Hamada, Etsuro Honda and former BOJ board member Takahide Kiuchi — offered their views on the right person for the job.
Hamada, one of the architects of Abenomics, the prime minister’s economic policy, said reappointing Kuroda, 73, is the natural choice and hailed his “great success” in lifting corporate earnings and tightening the labor market.
Abe said in early November that he trusts Kuroda but said the slot for the next governorship remains a “blank slate.”
The next BOJ chief should be someone who will stick to the same path of monetary easing, Hamada said.
“If you’re winning, don’t change the game plan,” he said.
While inflation remains far below the BOJ’s 2 percent target, Hamada said, there is no cause for concern because the economy is growing regardless.
“Inflation itself isn’t desirable for the average person because, of course, it raises the cost of living,” said the Yale University professor emeritus of economics.
The BOJ has pushed back the time frame for its inflation target six times and now expects it to be reaching around fiscal 2019 starting in April. The core consumer price index, which includes prices for energy but not fresh food, rose 0.7 percent in September compared with a year earlier.
Kiuchi, a sharp critic of the BOJ’s unorthodox monetary easing policy, credited demand for exports and a strengthening global economy for Japan’s upswing, not monetary easing.
The positive effects of the drastic stimulus launched in April 2013 had “run their course” by around 2015, and Japan is now dealing with negative side effects, including loss of liquidity in the bond market, the executive economist at Nomura Research Institute said.
The next governor should be someone who will not succumb to political pressure to continue easing and who can navigate an exit strategy, he said. This could be an insider who understands not just the theoretical aspects of central banking but the operational aspects as well, he said.
BOJ Deputy Gov. Hiroshi Nakaso, 64, and Executive Director Masayoshi Amamiya, 62, have been floated as possible candidates, media reports say. Columbia University professor Takatoshi Ito, 67, is also thought to be in contention.
Kiuchi said the BOJ should do away with its pledge to help end deflation in the short term and instead aim to achieve it in the medium to long term.
Honda, on the other hand, said the inflation target must be reached as soon as possible to ensure stability in the currency market and give the BOJ room to maneuver.
Also considered a contender, the 62-year-old ambassador to Switzerland sees the April 2018 end of Kuroda’s term as the perfect time to conduct a “regime change” that will usher in more powerful easing measures. If chosen, he said he would do “everything in my power” to reach the inflation target.
He also acknowledged that monetary policy has its limits, however, and noted that fiscal policy will also need to play a role. He suggested that the BOJ and the government amend their 2013 accord to fight deflation to include a nominal gross domestic product target of ¥600 trillion ($5.3 trillion).
Japan’s nominal GDP for 2016 was ¥537 trillion.