Bank of Japan Gov. Haruhiko Kuroda has become the second-longest serving head of the central bank, a post he took in 2013 with a pledge to achieve 2% inflation through drastic monetary easing steps dubbed the “Kuroda bazooka.”
But with Kuroda’s term set to end in April 2023, delivering on his promise of hitting the inflation target may be much harder than setting a new record as the longest-serving chief in the central bank’s history dating back to 1882.
Kuroda passed Masamichi Yamagiwa, who was BOJ governor from November 1956 to December 1964, for second on the list, with Kuroda’s service time reaching 2,941 days on Wednesday.
At 76, Kuroda stands a good chance of becoming the longest-serving BOJ chief as he has about two years left under his current term and only trails the 3,115 days served by Hisato Ichimada from June 1946 to December 1954. Ichimada was known for his strong influence over finance and other industries.
Kuroda is an expert in finance, having served as the nation’s top currency diplomat following the Asian financial crisis that erupted in 1997 and as president of the Asian Development Bank.
A spate of steps by the BOJ taken under Kuroda, including aggressive buying of assets such as Japanese government bonds and exchange-traded funds, has not succeeded so far in bringing Japan close to the 2% target.
One indicator of the extent of monetary easing, the monetary base — money in circulation and current account deposits by financial institutions at the central bank — hit a record ¥643.61 trillion ($5.8 trillion) at the end of March while the BOJ’s balance sheet has swollen.
“I have to admit that it would still be difficult in 2021, 2022, or even 2023 to achieve the 2% target,” Kuroda told a parliamentary session in mid-February, a month before the BOJ conducted a review of its policy tools to brace for protracted monetary easing.
The BOJ initially aimed at achieving 2% inflation in two years but then repeatedly postponed it. Kuroda has pledged to attain the goal “as soon as possible” without specifying when.
The core consumer price index, excluding volatile fresh foods, dropped 0.4% in February from a year ago. The central bank is scheduled to release its price outlook for fiscal 2023 in late April.
Kuroda has said the BOJ’s unprecedented monetary easing has brought benefits such as a recovery of the economy, corporate earnings growth and wage increases. But the unexpected coronavirus pandemic has been putting a damper on those improvements, according to the governor.
In March, the BOJ did some fine-tuning of its monetary policy, partly to address emerging side effects of longer-than-expected easing, while maintaining its broader framework of keeping short-term rates at minus 0.1% and long-term interest rates near zero percent.
The BOJ now allows long-term interest rates to move in a wider range than before, as it seeks to breathe some life back into a bond market where the bank’s presence has grown.
It will buy ETFs, or investment products comprising stocks tracking the Topix index, only when needed, though it has already become a top holder of domestic shares.
The bank’s net assets ballooned to ¥714.23 trillion at the end of March, with Japanese government bonds accounting for more than 70% and ETFs for about 5%.
Kuroda and BOJ watchers agree that it is still too early to talk about an exit from the steps that have taken the central bank into uncharted territory.
The governor has brushed aside the risk of reverting to deflation, a nightmare scenario for policymakers, even though he argues that there remains a “deeply entrenched” view among Japanese people that prices will not rise easily.
The coronavirus pandemic has boosted the likelihood that wage growth will slow as economists expect a recovery from the economic fallout will take time.
On the price side, some retailers are cutting prices and major mobile phone carriers are lowering data fees following pressure from the administration of Prime Minister Yoshihide Suga to do so.
“In theory, prices will rise when more money is in circulation. But the problem is that not much money has reached consumers, even with the Kuroda bazooka,” said Toru Suehiro, a senior economist at Daiwa Securities Co.
“It’ll be difficult to discuss an exit (from accommodative monetary policy) before Mr. Kuroda’s term ends and the stage has been set for easing to continue,” he said.
“The focus would shift toward supporting green investment and stepping up work on a central bank digital currency as he needs accomplishments that would become his legacy as BOJ chief,” Suehiro said.
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