As Prime Minister Shinzo Abe prepares to reshuffle his Cabinet, the Tokyo buzz machine is obsessing about every official but for the one who matters most: Haruhiko Kuroda.
Yes, I know, the head of the Bank of Japan isn’t part of Abe’s administrative team. But, really, how independent is a central bank that has kept interest rates near, at or below, zero for almost two decades and wouldn’t dare cross the prime minister? Even so, speculation is rampant that Abe’s money man should get shunted aside to make room for an even more compliant BOJ governor when Kuroda’s term ends in about eight months.
Here’s a better idea: promote Kuroda to finance minister and move the current holder of that job, Taro Aso, to the BOJ. At the Ministry of Finance, where Kuroda served in the 1990s and early 2000s as a top international official, Kuroda could resurrect the reformist agenda Abe promised five years ago. All Aso would have to do at the BOJ is keep things on autopilot as a more intellectually curious man restructures Japan Inc.
Sound crazy? Let’s review Japan’s last 20 years, starting with Kuroda’s MOF stint back in 1997. Sure, Kuroda was on board in November of that year when Yamaichi Securities collapsed. It happened at the height of the Asian financial crisis, just as South Korea was hammering out a $57 billion International Monetary Fund bailout. The fear was that the then-No. 2 economy might be next as Japan’s true bad-loan tally became known. Markets debated: is Japan too big to fail or too big to save?
Kuroda is still grappling with the fallout from that period. The 2 percent inflation he thought the BOJ would generate by now is, 1,588 days into his tenure, nowhere to be found. Myriad bailouts, amassing the worst public debt burden in the developed world and history’s loosest monetary policies aren’t reviving Japan as hoped.
Governing realities are that Abe, afflicted by plunging poll numbers, can’t alienate Aso’s faction. Moving him to the BOJ could be a face-saving way to clear the road for an economic thinker with a pulse (Aso, or course, might have to vacate his Diet seat). Here, Kuroda’s 2005-2013 stint as Asian Development Bank president would come in handy. Many think of his role at the Philippine-based lender, whose mandate is reducing poverty, as irrelevant to running of Group of Seven central bank.
I interviewed Kuroda in his Manila office at least once a year during those eight years. The job was finding ways to broaden the benefits of gross domestic product growth with tight budgets, complex socioeconomic and political considerations and to experiment with unconventional projects and processes. When Abe chose Kuroda in 2013, it seemed a stroke of genius. He had the gravitas to open the monetary floodgates without spooking markets, and a better ability than Japanese bureaucrats to think out of the box and take risks.
Things might have worked out brilliantly had Aso done his job. Kuroda’s role was to set the stage for an epic restructuring boom to loosen labor markets, catalyze startups, increase productivity, empower women and morph Japan Inc. into a lean, mean, globally-competing machine. Instead, Aso and Abe let Kuroda do 90 percent of the work, if not more. Companies aren’t raising wages because the deregulatory Big Bang hasn’t materialized. And it’s Kuroda’s fault that deflation persists?
Rather than dumping a globally known economist, Abe should put Kuroda in charge of structural changes. Such a move might impress markets now rolling their eyes at Abenomics. It would put a fresh pair of eyes, meanwhile, on how to prioritize the to-do list and execute it. Anyone who thinks Aso is the man to martial major action through the Diet is dreaming. The same goes for Nobuteru Ishihara, who serves as economy minister less for his expertise than the fact he’s the son a former Tokyo governor revered by right-wingers.
Abe’s real passion is rewriting the war-renouncing Constitution and security matters. That might be fine if he’d entrusted a crack team to devise and implement reforms that take on vested interests and prepare Japan for a Chinese-dominated era. And, of course, it may be too late. Abe’s 26 percent support rate in a new Mainichi newspaper poll could be damning as scandals mount and accusations of cronyism swirl.
Precedents for my trading-places suggestion are hard to find. After stepping down as Singapore’s prime minister in 2004, Goh Chok Tong ran the city-state’s central bank. Long before that, under U.S. President Ronald Reagan, Chief of Staff James Baker and Treasury Secretary Donald Regan suddenly switched jobs in 1985. But then it’s not like Japan’s two-decade-plus-long funk has a precedent anyway.
Abe is miffed Kuroda won’t retrace the steps of 1930s Tokyo and aggressively monetize debt. Perhaps Aso would, while Kuroda maps out how to remake an aging economy that’s 20 years behind on basic upgrades to keep pace with a rapidly changing world. Abe’s choice is clear: Show Kuroda the door, or open his Cabinet to new thinking by a man who’s seen considerable action in the economic trenches.
Tokyo-based journalist William Pesek is the author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”