Business / Economy

Haruhiko Kuroda likely to win rare second term as BOJ chief: sources

Kyodo, JIJI, Bloomberg

The government has decided to retain Bank of Japan Gov. Haruhiko Kuroda for another term, sources close to the matter say.

The reappointment of the 73-year-old Kuroda, whose five-year term as BOJ chief expires in April, apparently underscores the government’s wish to accelerate efforts to improve economic growth and end decades of deflation.

The government’s nominees for the BOJ chief and deputies’ posts are expected to be submitted to the Diet by month’s end, the sources said Friday.

Under Kuroda, market watchers expect the BOJ to stay the course on its unorthodox monetary easing policy for the time being. He will be the first BOJ governor to be reappointed in about 60 years.

The government is also considering naming BOJ Executive Director Masayoshi Amamiya as one of the bank’s two deputy governors, the sources said. The current deputies — Kikuo Iwata and Hiroshi Nakaso — will both see their terms end on March 19.

Kuroda, who took over the BOJ’s helm in March 2013 and has been widely expected to serve another five-year term, set an inflation target of 2 percent and carried out bold monetary easing steps, including massive purchases of government bonds and risky financial assets, to attack deflation. These steps are an integral part of Prime Minister Shinzo Abe’s three arrows of Abenomics, his economic growth policy.

The yen subsequently weakened against the dollar, boosting Japanese exporters. Corporate earnings have hit record highs and labor conditions amid Japan’s shrinking population and brith rate have improved during his term.

The current economic expansion phase, which began in December 2012 when Abe returned to power, is believed to be the second-longest in postwar Japan. But the BOJ is still far from reaching its 2 percent inflation target as growth in consumer prices remains modest. Japan’s core consumer prices rose 0.9 percent in December compared with a year earlier, government data show.

Concerns are growing about the sustainability of the BOJ’s stimulus and how it will exit the policy. The central bank owns about 40 percent of all outstanding JGBs, and its balance sheet has swollen to nearly the size of the nation’s ¥549 trillion ($5 trillion) economy, raising concerns about the policy’s viability.

Whoever is governor during the next five-year term will have a “job from hell,” and any attempt to exit the radical monetary easing program will trigger a Greece-like debt crisis, according to Takeshi Fujimaki, a banker-turned-lawmaker with the Japan Innovation Party said.

“This is the calm before the battle,” Fujimaki, who once served briefly as an adviser to financier George Soros, said in December.Since 2013, the BOJ has pushed back the timing for achieving the inflation target six times and now expects to meet the goal around the fiscal 2019.

Still, Abe praised Kuroda during a Diet session earlier this week for having undertaken the massive monetary easing steps he described as helping “change the atmosphere in financial markets.”

“This will give a sense of relief to volatile markets,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “This will send a message that the BOJ will keep up its ultra-loose monetary easing while the U.S. raises the pace of interest rate hikes. It will stabilize the markets to some degree.”

Kuroda, a former Finance Ministry official who also headed the Asian Development Bank, has pledged to maintain “powerful” monetary easing strenuously.

The focus of Kuroda’s next term is expected to be on how the BOJ will taper its stimulus as major central banks such as the U.S. Federal Reserve shift toward normalization of their own extraordinary policy steps.

The BOJ has undertaken its so-called yield curve control — consisting of a short-term policy rate of minus 0.1 percent and JGB purchases aimed at guiding the 10-year yield to around zero percent.

But concerns have already grown over the adverse impact of prolonged monetary easing on Japan’s financial system and the government’s commitment to fiscal discipline as borrowing costs can be kept extremely low.

BOJ Policy Board member Hitoshi Suzuki said Thursday that low interest rates have made it easier for companies to secure funding but acknowledged that intense competition among banks to offer lower lending rates has eroded their profitability.