An Inspired Choice to Lead the Bank of Japan
My favorite Haruhiko Kuroda moment was on a Tokyo-bound flight on March 13, 2011, two days after a gigantic earthquake struck northeast Japan.
I was in the Philippines when the quake precipitated a nuclear crisis. On the first available flight back, the president of the Manila-based Asian Development Bank sat near me on an almost-empty plane. Manila-to-Tokyo flights are rarely made with a single empty seat, but no one likes to fly into a potential Chernobyl, not with tens of thousands in Japan clamoring for the exits.
“We seem to have the whole plane to ourselves,” Kuroda quipped, saying he was returning to “do what I can to help.”
Those words come to mind as Kuroda may be about to return to offer help again, this time as Bank of Japan governor. It would be a timely reappearance for a respected economist who has spent the past eight years in Manila working to reduce poverty. When I spoke with him in Tokyo yesterday, it occurred to me that this kind of selflessness might make Kuroda an inspired choice to end Japan’s 15-year bout with deflation.
It was heartening that Kuroda said “some additional” monetary measures could be justified this year, while incumbent Bank of Japan Governor Masaaki Shirakawa had said he saw no need for monetary easing until 2014. Kuroda, a leading candidate to replace Shirakawa when he leaves office next month, said the central bank has many tools to achieve its 2 percent inflation target. That alone might set him apart from his predecessors. He also declared, in unambiguous terms, that falling consumer prices must be “eradicated.”
Kuroda, 68, hasn’t been nominated so far, and his comments came with a disclaimer that he’s speaking as head of the Asian Development Bank, and not on behalf of the Bank of Japan. Nor has Prime Minister Shinzo Abe tipped his hand on whom he might choose. But Kuroda looks like he would come to the job with a unique ability to deliver stimulus to the economy.
The standard line on Abe is that he wants to emulate a strategy that U.S. Treasury Secretary Henry Paulson in 2008 described as wielding a bazooka. The job of Abe’s candidate for central-bank head will be to fire huge amounts of liquidity into markets. Japan, of course, needs far more than that. Along with increased power, Bank of Japan policies need better aim and precision. This is where economic theory comes into play.
The first reason Kuroda might succeed is because he isn’t a Bank of Japan lifer, but a former Finance Ministry official. That means he wasn’t steeped in decades of institutional paranoia that tends to defeat each new central-bank governor even before he presides over his first interest-rate meeting. There is a reason the Bank of Japan is keen to see that one of its own gets the job. Another career bureaucrat at the helm might deepen deflation, not end it.
The bigger reason is what Kuroda has been doing since 2005, when he became president of the Asian Development Bank. The multiplier effect that makes monetary policy so potent has eluded Japan since the early 1990s. Bankers are still reluctant to lend, traumatized by the bad-loan crisis that dragged on until the mid-2000s. Households have too little confidence in their job prospects and future earning potential to borrow. The key is to end a liquidity trap.
Part of the onus is on the government. Penalizing banks that are sitting on trillions of dollars of government securities might boost credit growth. Offering tax incentives to would-be consumer or corporate borrowers could increase lending. Yet two decades of political gridlock have lawmakers demanding more from the Bank of Japan while doing little on their end.
While officialdom in Japan has been fighting the same turf battles, Kuroda has been focusing on strengthening and broadening the benefits of growth in Asia, home to a crucial mass of the world’s extreme poor. He’s doing so with limited resources and an imperfect understanding of the often conflicting needs of a diverse region at disparate levels of development. That has meant experimenting with new projects and initiatives to see what works and what doesn’t. This kind of risk taking and brainstorming is just what Japan needs.
Japan’s unconventional policies are being pursued too conventionally. There are lots of things the Bank of Japan could do: boost purchases of longer-dated government debt, corporate bonds, exchange-traded funds and securitized loans to smaller companies. And then there are kitchen-sink steps, such as buying distressed real estate or monetizing the debt of bankrupt towns. The central bank needs to think outside the confines of its current staff. Saying deflation must be ended “through whatever measures available” suggests that Kuroda could be stellar news for the world’s third-biggest economy.
Few questions tantalize markets more than whether Japan’s long-awaited revival is afoot. Abe’s plans lack innovation and rely too much on the fossilized Liberal Democratic Party ideas of the past. Yet at the Bank of Japan, Abe has the opportunity to surprise the world with a radical personnel choice. All he needs to do is make Kuroda’s ticket one-way.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)
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