Of all the debates surrounding the Oct. 22 election, the silliest is whether Haruhiko Kuroda’s days at the Bank of Japan are numbered.
While deflation is still with us and wage gains are negligible, Governor Kuroda’s policies are the glue holding an aging, highly-indebted and rigid system together – and producing some growth.
But the idea that Prime Minister Shinzo Abe could get away with naming an even more activist monetary lapdog are as fanciful as hopes Abenomics will restore Japan to its 1980s greatness.
The same goes for Yuriko Koike’s Party of Hope, should it beat the odds and grab power.
Truth is, the Oxford-trained Kuroda’s gravitas is the only reason the BOJ’s explosion of liquidity hasn’t panicked bond traders.
A less respected economist would unnerve markets by cornering the debt and stock markets and devaluing one of the three most-used currencies. Odds are high that a second term come March 2018 is Kuroda’s for the taking.
The more interesting debate is why Kuroda failed to generate 2% inflation: politicians are failing both him and the economy.
The more interesting debate is why Kuroda failed to generate 2% inflation: politicians are failing both him and the economy.
Granted, central bank independence has become a quaint concept since 2008, after which monetary authorities went all in with quantitative easing.
The Federal Reserve, European Central Bank, Bank of England and others followed the BOJ down the QE rabbit hole.
That made sense after Wall Street collided with a subprime debacle, but QE was always meant to be a desperation measure – an economic adrenaline shot – not a long-term feature.
Governments quickly got addicted, trapping central bankers into providing ever more steroids. A valid argument can be made that the BOJ, Fed and ECB never should’ve allowed themselves to be cast as enablers of complacent governments.
Here, Japan is home to the original monetary sin. The BOJ pioneered QE in 2001 and yet deflation deepened. Enter Kuroda, who in 2013 was empowered by Abe to try the nuclear monetary option.
After myriad shots, though, household wages are stagnant and inflation pressures few and far between.
Turns out, an aging and shrinking population is deflationary. It turns out, too, that an aging and tired ruling party lacking the political will to modernize the economy is equally deflationary.
Turns out, an aging and shrinking population is deflationary. It turns out, too, that an aging and tired ruling party lacking the political will to modernize the economy is equally deflationary.
The reference here is to Abe’s Liberal Democratic Party, which has held power with only two brief interruptions for 62 years.
Odds are, the LDP will still be in power after October 22, albeit with fewer parliament seats and a weakened mandate.
The odds also favor Kuroda being under greater pressure to increase liquidity. Yet without Abe stepping up efforts to loosen labor markets, reduce bureaucracy, encourage entrepreneurship, tweak tax policies and empower women, BOJ policies will get little traction.
Even the perceived successes of Abenomics come with asterisks. Moves to tighten corporate governance, for example, are no match for Toshiba Corp.’s accounting shenanigans, deadly airbag maker Takata Corp.’s obfuscations, Tokyo Electric Power Co.’s glacial Fukushima cleanup or Nissan Motor Co.’s unauthorized quality inspectors.
Another reminder Japan Inc. answers to no one: a fresh scandal at Kobe Steel Ltd. involving falsified data on the strength and durability of copper and aluminum products.
Sadly, Abe’s election manifesto is the same-old, same-old. Voters would be wise to doubt his vague talk of structural upgrades he pledged to implement five years ago.
Koike’s vision is far more progressive, including clear steps to empower women, revolutionize Tokyo’s energy policies and tax corporations sitting on excess cash – roughly $2.7 trillion – better spent fattening paychecks.
And clearly, a good showing by her Party of Hope could prod Abe to accelerate steps to raise Japan’s game and catalyze a startup boom.
Kuroda will play a leading role in where Japan Inc. finds itself 12 months from now. But in order to ensure living standards and competitiveness are higher 12 years from now requires bold steps by the government, not just printing more yen.
When will it occur to the author that a sovereign currency issuing government cannot involuntarily default on its debt? People waiting for the BOJ to behave like a household balancing its books will still be waiting a century from now.