Kuroda the Bazooka Stays

Newspapers reported that Governor of Bank of Japan Haruhiko Kuroda would stay after his five-year term would be expired this April. According to Bank of Japan Act, The Cabinet appoints BoJ Governor. Shinzo Abe administration looks like having decided to send the market a message that Japan is going to maintain current monetary easing policy exercised under the leadership of Kuroda. Abe insists on his economic policy called Abenomics with no sign of exit policy from pouring money or constructive plan for reducing national debt.

The Governor and two Vice-governors of BoJ is appointed by Cabinet headed by Prime Minister, with approval of both Houses of the Diet. While BoJ Act does not prohibit reappointment of Governor, all the Governors have retired when the five-year term was expired, except Masamichi Yamagiwa in 1956 to 1964. It is highly unusual for Kuroda to stay.

The main reason is that Abe administration firmly believes in Kuroda’s unusual policy of “monetary easing in different dimension” as the best way for economic growth. After retired as President of Asian Development Bank, Kuroda took the seat of BoJ in March 2013. Next month, Kuroda declared that the bank would achieve 2% growth of commodity price within two years, which goal has been postponed for six times with no obvious achievement. His sudden announcements were called Kuroda Bazooka.

Even though Kuroda has not reached the goal, Abe supports Kuroda’s handling of monetary policy. To overcome possible crisis expected in consumption tax hike from 8% to 10% in October 2019, Abe relies on Kuroda’s skill in monetary policy for economic growth. Moderate economy may generate necessary support for Abe’s political agenda including constitutional amendment he expects in 2020. Early decision on next BoJ Governor was required for stabilizing Japanese economy currently shaken by steep decline of stock price.

BoJ Act demands that autonomy of the bank regarding currency and monetary control shall be respected. Not only Abe, but Minister of Finance Taro Aso or Chief Cabinet Secretary Yoshihide Suga supports reappointment of Kudora. Kuroda’s governorship is firmly supported by Abe administration. It is fair to say that Kuroda’s monetary policy has been so preferable for Abenomics that Abe Cabinet supports Kuroda’s reappointment.

There are some distortions in bond market and stock market caused by current extraordinary monetary easing policy. Extremely law interest rate brought by Kuroda’s policy affects operation of pension system, which was maintained by the interest of fund, or balance of small and local private banks. Autonomy of BoJ will be proved when it is successful in removing those side effects.