BOJ veterans in the running to replace Kuroda

Change of leadership at central bank closely watched

“Whoever takes the job, normalising policy will be tough in 2023, given Japan’s yawning output gap and the likelihood of a deep global slump.” Yuki Masujima

TOKYO: Two Bank of Japan (BOJ) veterans lead the field to replace governor Haruhiko Kuroda next spring in a change of leadership at the central bank that risks upsetting global financial markets and spawning a renewed surge of speculation over possible policy change.

Most BOJ watchers surveyed by Bloomberg see current deputy governor Masayoshi Amamiya or his predecessor Hiroshi Nakaso as the most likely successors among a large group of possible contenders that includes former officials from the finance ministry and Japan’s securities watchdog.

Prime Minister Fumio Kishida will decide on his pick in the coming months in what will number among the defining decisions of his administration as he battles against falling public support.

In the latest Bloomberg survey of BOJ watchers, Amamiya ranked as the favourite to replace Kuroda, with 30 votes out of 41 responses.

Known as “Mr BOJ” or the “emperor” of the central bank, Amamiya has long played the key role of re-imagining policy to match the changing circumstances of the time.

Bold examples of the deputy governor’s policymaking resourcefulness are the “shock and awe” quantitative easing first championed by Kuroda and the yield curve control framework that gave Kuroda’s stimulus more sustainability.

He also worked with the previous governor Masaaki Shirakawa, whose policy was often criticised for being “too little, too late”.

That suggests Amamiya, if selected, won’t simply be a continuation of Kuroda. He will likely keep policy flexible and respond to the economic conditions and outlook he encounters next year and beyond.

Meanwhile, Nakaso is chairman of Daiwa Institute of Research and is spearheading Tokyo’s efforts to position itself as a key financial hub in Asia and efforts to promote green financing.

Nakaso served as deputy BOJ governor during Kuroda’s first term, showing he is no stranger to ambitious stimulus efforts.

He is also known for his firefighting efforts during the global financial crisis and in a 740page book published earlier this year he gives vivid descriptions of his intense fight as a central banker during Japan’s near-financial meltdown in the late 1990s.

Nakaso has chaired study groups at the Bank for International Settlements and the Group of 20 and has close ties with many global central bankers.

Former BOJ board member Makoto Sakurai expects Nakaso would place more importance on the long run health of the financial system given his background.

Nakaso said in September that the BOJ has done more than its fair share and that “too much burden was placed on monetary policy”.

“Whoever takes the job, normalising policy will be tough in 2023, given Japan’s yawning output gap and the likelihood of a deep global slump,” said Bloomberg’s senior economist Yuki Masujima.

Masatsugu Asakawa, current head of the Asian Development Bank (ADB), is among a group of four candidates seen as successors by at least one economist in the most recent poll.

The skillfully spoken former finance ministry official used to be the country’s top currency bureaucrat and served as ex-finance Minister Taro Aso’s right-hand man. If chosen, he would be climbing the same career ladder as Kuroda who came to the BOJ after helming the ADB.

Takatoshi Ito, a professor of Columbia University, is a close ally of the current governor and was also in the mix when Kuroda was chosen in 2013.

Ito is credited with convincing Kuroda of the importance of having an inflation target. Speaking on Bloomberg TV last month, Ito said the BOJ had no reason to raise interest rates now, but in the longer run it could adjust its yield curve control if there are signs of stable inflation backed by wage gains.

Takehiko Nakao, another former ADB chief, is known for fighting speculators who were driving the yen to record highs in the wake of Japan’s tsunami and nuclear disaster in 2011.

As the country’s top currency bureaucrat, he ordered Japan’s biggest ever daily intervention to weaken the yen. In a Bloomberg TV interview in June, he said the weak yen numbered among the various negative effects of the Boj’s easing programme.

Masazumi Wakatabe is one of the Boj’s two current deputy governors along with Amamiya. The former professor of Waseda University is known as a strong advocate of monetary stimulus.