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March 13, 2013 4:05 pm
Records show that no governor of the Bank of Japan has ever been on the losing side of an argument. But that does not mean Haruhiko Kuroda, expected to be approved by parliament this week to succeed Masaaki Shirakawa, will have an easy time as he seeks to implement Prime Minister Shinzo Abe’s pledge to pull the world’s third-largest economy out of deflation.
Analysts and former BoJ insiders say he will have to work very carefully to build a consensus on a board that as recently as last week threw out a proposal from one of its nine members to accelerate monetary easing.
What Mr Kuroda has to achieve, after all, is nothing short of a revolution. Under Mr Shirakawa, the BoJ often talked of the limits of monetary policy, insisting that ending deflation was a joint endeavour between the BoJ and the government.
Mr Kuroda, however, told parliament this week that the BoJ alone had the power to achieve the 2 per cent target for inflation handed down by Mr Abe’s government – and to do it within about two years.
The BoJ has to take bolder steps from the perspective of both “quality and quantity”, Mr Kuroda says. Meeting the target is “the biggest mission for the BoJ governor”.
In the past, new governors have changed the bank’s tone, displaying a greater or lesser bias towards easing, for example. But this is the first time that “a new leadership has completely rejected what the previous leadership claimed”, says Masamichi Adachi, who spent 15 years at the BoJ before joining JPMorgan as an economist in 2006.
“It’s an unprecedented philosophical shift.”
Yasunari Ueno, chief market economist at Mizuho Securities, likens Mr Kuroda’s task to a game of Othello, the board game featuring black-and-white chips, which Japan dominates in the same way Russia used to dominate chess.
Backed by his two deputies, Mr Kuroda – whose name translates as “black field” – must in effect “flip” six board members who have almost always voted in line with Mr Shirakawa – “white river”.
None of the six is due to stand down for another two years. Already, one of them – ex-banker Koji Ishida – has signalled a potential clash with the incoming governor. In a speech this week he described the 2 per cent inflation target as “very high,” and argued that the government shared responsibility for meeting it.
Together, the six could represent “a powerful push-back against the reflationists’ goal of regime change at the BoJ”, says Mr Ueno.
As Mr Kuroda – the first non-BoJ man to become governor since Yasuo Matsushita in 1994 – tries to build bridges, he is likely to rely in particular on Hiroshi Nakaso, his deputy.
Former colleagues say that during a 35-year career at the BoJ, latterly as assistant governor in charge of international affairs, Mr Nakaso has proved to be skilled in the art of nemawashi, or laying foundations for shifts in policy.
Such behind-the-scenes lobbying has long been a feature of the BoJ’s decision-making, says Junko Nishioka, chief economist at RBS, and a former central-bank official.
In his confirmation hearings before parliament, Mr Nakaso did not reject Mr Shirakawa’s doctrine outright, but distanced himself from it by expressing qualified support for the views of Mr Kuroda.
“I think [Mr Nakaso] may be sceptical of Mr Kuroda’s beliefs, but it would not be wise for the BoJ, as an organisation, to say that,” says Nobuyuki Nakahara, a BoJ board member from 1998 to 2002, and a long-time advocate of more aggressive easing. “A good bureaucrat doesn’t tell his own views.”
Friends and associates of Mr Kuroda pay tribute to his powers of persuasion.
“He does not necessarily force his ideas in discussion, but he has a great way of convincing the other person that he is correct,” says Masahiro Kawai, dean of the Asian Development Bank Institute in Tokyo.
Miyako Suda, who served two five-year terms on the BoJ’s board until 2011, says the new governor has a “clear head,” which could help him deal with some of the “agonies” experienced by his predecessors.
But few expect the BoJ’s transition to new management to run entirely smoothly.
Japan, after all, is entering uncharted territory.
“Inflation-targeting has always been used to fight inflation, not deflation,” says Hajime Takata, chief economist at the Mizuho Research Institute, and one of seven advisers summoned by Mr Abe in January to recommend a new path for monetary policy.
“No other advanced economy has ever tried anything like this.”
Additional reporting by Mitsuko Matsutani
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