Central Banks | US Fed’s lessons for a Bank of Japan on the defensive
Bit of a headache for Bank of Japan Governor Haruhiko Kuroda. Photo: Reuters/Kim Kyung-hoon

Kuroda bashing time, again

This is the final piece in a three-part series on how tightening by the US Federal Reserve and other central banks will affect Asia

July 5, 2017 9:40 PM (UTC+8)

It’s that time of year again, already, when Tokyo turns to blaming the Bank of Japan for every economic sin imaginable.

Haruhiko Kuroda is the latest BoJ governor in the lurch. Before he started in 2013, it was Masaaki Shirakawa’s turn as punching bag for not easing enough for the liking of politicians.

Shirakawa succeeded Toshihiko Fukui, who came after Masaru Hayami, the father of quantitative easing.

Neither cutting rates to zero and beyond, nor devaluing the yen like some Latin American banana republic, nor buying every financial asset in sight sated lawmakers. The BoJ just never seems to be accommodative enough.

This charge hurled at Kuroda seems especially rich. And the hurling has begun with surrogates of Prime Minister Shinzo Abe, including advisors Nobuyuki Nakahara and Etsuro Honda, casting doubt Kuroda will get a second term.

What more does Abe want? Kuroda unleashed history’s biggest monetary shock-and-awe, cornered the stock and bond markets and buoyed the Nikkei (up 57% in 2013 alone).

Has Kuroda been perfect? No. But neither has he been derelict in efforts to end deflation.

Has Kuroda been perfect? No. But neither has he been derelict in efforts to end deflation.

Just ask Shirakawa, who Abe effectively fired in 2013.

He argued that deflation — and Japan’s multi-decade malaise — isn’t about the money supply, but structural rigidities, an aging population and a dearth of confidence in the future.

Kuroda proved the point: epic easing, rising corporate profits and the tightest labor markets anywhere aren’t prodding executives to raise wages. Only a deregulatory big bang of the kind Abe promised can do that.

Kuroda’s role, remember, was that of stage-setter.

Aggressive BoJ action was meant to bang the gong in global markets: shock therapy is coming to the world’s No. 3 economy to loosen labor markets, catalyze a startup boom, slash trade barriers, boost productivity and empower women.

In September 2013, six months after Kuroda took the reins, Abe visited the New York Stock Exchange. “Japan,” he proclaimed, “will once again be a country where there is money to be made.”

Make no mistake, Abe told Wall Street, “Japan is back.”

All that’s really back, though, is the old Japan Inc. strategy of prodding the BoJ to do more and more, while politicians demure on real reforms.

Abenomics was sold as a three-pronged assault on deflation: BoJ easing, fiscal loosening and, most importantly, structural change.

Sadly, Abenomics has been little more than Kurodanomics, which explains why consumption and corporate investment aren’t rising as advertised.

Sadly, Abenomics has been little more than Kurodanomics, which explains why consumption and corporate investment aren’t rising as advertised.

Sure, Abe could show Kuroda the door when his term ends in April, but it seems a bad omen that an already underperforming revival scheme is betting on a new BoJ leader nine months from now.

Instead, Abe’s team should be accelerating supply-side efforts to revive Japan’s animal spirits.

The clobbering his Liberal Democratic Party took in Tokyo assembly elections on Sunday suggest the clock is ticking for Abe’s reform prospects.

It’s reasonable to worry, though, that Tokyo will spend those nine months demanding more BoJ action, not doing its job to rebalance the economy.

The Federal Reserve’s rate hike cycle presents quite a contrast. By hiking rates four times since December 2015, Fed Chair Janet Yellen is both putting QE in the rearview mirror and onus on the government to do its job.

Federal Reserve Chair Janet Yellen. Photo: Reuters, Yuri Gripas
Federal Reserve Chair Janet Yellen. Photo: Reuters, Yuri Gripas

US President Donald Trump and the Congress must now create jobs the old-fashioned way: legislative and regulatory reforms. Japan lacks comparable pressure, largely because the BoJ is “independent” in name only.

Sure, Kuroda could do more. He could monetize debt outright and buy corporate, local-government and asset-backed bonds of all types.

He could load up on distressed assets directly — underutilized sports stadiums, plots of land in rural Japan, dilapidated airports, you name it.

He could put cash directly into the hands of consumers via BoJ-issued debit cards. The question, of course, is which respected economist would take steps that would effectively turn Japan into China?

Abe isn’t without his reform wins. Efforts to prod companies to boost return on investments are gaining some traction. So are Abe’s negotiations with Europe to lower trade barriers, as Trump’s America walls off US trade.

Even so, the odds are high that politicians will pressure Kuroda, or perhaps his replacement, to step further into the monetary unknown to replenish a punchbowl the Fed is having success draining.

Therein lies the real sin: accusing the Tokyo institution that’s done 90% of the work so far of inaction. How rich, indeed.

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