Tokyo markets are obsessing over whether Bank of Japan Governor Haruhiko Kuroda will get a second term come April. Why not promote him instead?
The BoJ, let’s face it, has done what it can to defeat deflation. Sure, we may see policymakers tweaking the basket of bonds they buy in 2018. Expect some modest tapering, at most. But given the dearth of inflation or wage gains, a computer program could do Kuroda’s job into 2019.
Kuroda’s talents are being underutilized at a moment when Abenomics needs some serious brainstorming. Abe should elevate Kuroda to finance minister or a newly created role as economic-retooling czar. Yes, Japan already has three men on the case, but one is, frankly, less inspiring than the next.
Finance chief Taro Aso is better known for dozing off in meetings than bold ideas. And who, with all due respect, could name Japan’s two other economic bigwigs? (For the record, they are Hiroshige Seko or Toshimitsu Motegi).
Kuroda’s background makes him a better fit to plot, prioritize and accelerate moves to loosen labor markets, catalyze a startup boom, tweak taxes, deregulate industry and buttress Japan Inc.’s confidence to share surging profits with workers.
After a lengthy and active stint at the Ministry of Finance, working on international issues, Kuroda moved to Manila to run the Asian Development Bank. With its 67-member countries around the globe and 3,000 employees, the ADB’s mission is to spread the benefits of rapid Asian growth. From 2005 to 2013, Kuroda traveled constantly, gathering intelligence on how to get more mileage out of reform and stimulus.
Those years in the trenches using limited resources to overcome market inefficiencies and attack inequality left the 73-year-old with a unique skill set by Tokyo standards.
Kuroda has spent the last 1,759 days back in Tokyo and on the frontlines of an epic deflation battle. Despite massive easing beyond anything (as a ratio of gross domestic product) seen from the Federal Reserve or European Central Bank, inflation is a long way from 2%.
The reason, as Kuroda knows better than anyone at this point, is a focus on the symptoms of Japan’s two-decades-long malaise, not the underlying cause. The malady is this: low confidence that living standards in an aging nation will be higher five years from now amid rampant global competition.
The malady is this: low confidence that living standards in an aging nation will be higher five years from now amid rampant global competition
Abenomics has thrown trillions of dollars at the problem, sending equities soaring. It failed to upend a model that thrived in 1985, but which feeds complacency 33 years later.
Tokyo’s weak yen policy, the BoJ’s largesse and modest corporate governance tweaks have the Nikkei 225 at its highest levels since the early 1990s. It’s not trickling down, though. In fact, inequality is widening even as the economy has its longest run of growth since the mid-90s.
Large stockholders and landowners are thriving, while average workers are largely walking in place. And Japan’s growth, remember, is largely a product of a buoyant external sector (exports jumped 16.2% in November alone), not domestic demand.
Things are playing out exactly as Kuroda’s BOJ predecessor, Masaaki Shirakawa, warned. In 2013, before Kuroda got to work, Shirakawa said ultra-low monetary policy would make little difference as the population shrinks and Japan falls behind competitively in Asia. Japan’s problem, he cautioned, isn’t the level of the money supply, but the uses for the yen which the BoJ creates.
Abe could keep Kuroda at the BoJ keyboard, hitting “ENTER” every few days to sustain liquidity. Or, the prime minister could empower Kuroda to lead a structural-upgrade revolution. What, let’s be honest, has Abe done with his big October election win? Other than talk of cheaper health care and education, and helping Hitachi sell nuclear power plants abroad, not much.
Abe’s focus is on revising the pacifist Constitution and beefing up military readiness, not on an Abenomics reboot. With one staffing change, he could alter the narrative – and put some real foundations under a Nikkei racing ahead of wage gains. Why not give Kuroda a call?