TOKYO – Japan’s government has nominated Asian Development Bank President Haruhiko Kuroda to head the country’s central bank, counting on his support for more aggressive monetary policy to help the world’s third-biggest economy escape recession and deflation.
The current Bank of Japan governor, Masaaki Shirakawa, will step down on March 19, three weeks before his term was due to end. Prime Minister Shinzo Abe favoured Kuroda, whose formal nomination was made to the parliament on Thursday. A vote on the choice is due next month.
The nomination of Kuroda, 68, was widely expected. The Oxford-educated former vice minister of finance has criticized central bank policies in the past and backs Abe’s strategy for reviving Japan’s economy by fighting deflation through monetary easing and hefty government spending.
Kuroda’s perceived alignment with Abe’s views on the economy has drawn criticism that the Bank of Japan’s independence could be undermined. Central bank autonomy, which aims to ensure monetary policy decisions aren’t captive to the short-term considerations of political leaders, is enshrined in law in many countries. However the deep economic malaise that followed the 2008 financial crisis has resulted in many central banks, the U.S. Federal Reserve in particular, accommodating calls for unprecedented monetary easing.
Also as expected, the government proposed that Kikuo Iwata, a professor at Tokyo’s Gakushuin University, and Hiroshi Nakaso, an executive director at the BOJ, to become the bank’s top two deputy governors.
Kuroda is viewed as part of the global “currency mafia” in Japan. With his long experience and fluent English, he is accustomed to dealing with the world’s major central banks and other financial leaders. During his years as Japan’s top financial diplomat, he often decried the Japanese yen’s rise against the U.S. dollar, saying it did not reflect the fundamentals of the economy.
Despite frequent central bank interventions in the currency markets, the yen continued its long-term ascent thanks to its status as a safe-haven, and low interest rates that encouraged an international “carry trade” of borrowing in yen and using the money to invest in the bonds of countries with higher interest rates.
Abe’s support for a weaker yen, to help support Japanese export manufacturers, has lifted share prices and spurred a decline in the value of the Japanese currency, which has weakened by about 20 per cent against the U.S. dollar since last fall.
The yen was trading at about 92.32 yen to the dollar by midday Thursday, while the Nikkei 225 stock index had risen 1.9 per cent to 11,462.63.
Once it became clear that the government intended to move ahead with its plan to nominate Kuroda, attention in Japan turned to who will replace him as head of the Manila, Philippines-based ADB, which is a regional development lender. Local reports suggested that the current vice finance minister in charge of international affairs, Takehiko Nakao, be named to take his place. However Japan would need to win support from other ADB member countries for that choice.
Japan’s economy is struggling with the aftermath of the 2011 natural and nuclear disasters, rapid aging of its population and the biggest public debt burden among leading industrial economies.
Data from the Ministry of Economy, Trade and Industry released Thursday showed a glimmer of progress, with industrial production up 1 per cent in January from the month before. But that was down 5.1 per cent from a year earlier and below economists’ forecasts for a 1.5 per cent month-on-month increase. Retail spending dropped 1.1 per cent in January from a year earlier, despite higher spending on food and beverages, the ministry reported earlier.
The ministry cited rising shipments of vehicles, iron and steel and electronics equipment, and of semiconductors and auto parts as the main factors behind the increase from the previous month.
So far, the economy has shown only scant signs of recovery, and that thanks largely to stronger demand overseas as the global economy has rebounded and the Japanese yen has weakened, helping make exports from Japan more price competitive in overseas markets.
After months of lobbying by Abe, even before the Liberal Democrats took power following a landslide win in a Dec. 16 election, the Bank of Japan joined with the government in setting a 2 per cent inflation target. So far, massive asset purchases by the central bank and years of near-zero interest rates have done little to boost investment or hiring by corporations put off by slack domestic demand.