Expected To Be A Magician

A talent required for new governor of the Bank of Japan was playing magic. Haruhiko Koroda, as the nominee of the post, was regarded the best person for that. With growing support, the Prime Minister Shinzo Abe is confident with his political stability in Japan. Outside Japan, however, he gets negative response toward his handlings of monetary policy. His English unfortunately is horrible. The Prime Minister therefore wanted a speaker to the world. Is Kuroda a good magician, anyway?

Kuroda worked for the Ministry of Finance for thirty-six years. After accumulating his career mainly in tax division and international bureau, he was promoted to the Vice-minister of Finance for International Affairs in 1997, which is the overall director for international policy in MOF. At that time, Japan was recovering from financial crisis of 1998, in which several banks were bankrupted with great amount of bad loans. After retired from MOF, he was elected to the chairman of the Asia Development Bank, which has been a routine post for Japanese economist.

The main reason of picking Kuroda was that he firmly supported Abe’s monetary easing policy. For a prime minister who determined to handle his administration with aggressive economic policy, it is impossible to appoint a person negative to his viewpoint on the top of monetary policy in Japan. Kuroda is one of the advocators of “reflation,” who aims to get rid of deflation through monetary easing. He accordingly supported the inflation targeting policy of Abe administration.

It is unclear, however, whether Kuroda can manage the growing suspicion among governments, which worry about excessive devaluation of yen. The explanation of Abe administration is “Don’t worry, it’s not a manipulation of foreign exchange, but a policy of getting rid of deflation.” It obviously makes no sense. There is no rule of allowing foreign exchange manipulation to fight deflation. Japan is getting close to the isolation in international monetary community.

The key would be how Kuroda can explain the current policy of Abe administration. Even though he is a good communicator in international economy or dubbed as a member of “mafia” of currency community, it is not easy to find a reason to justify the policy of Japan. He at least needs to persuade foreign countries that Japanese policy has good reason for the recovery and growth of itself, and show some benefits for international economy. As long as there is no sign of mutual understanding on Japan’s standpoint, the job of Kuroda should so far be concentrated in confidence building through continuous communications.