Japan’s Parliament today endorsed Haruhiko Kuroda, a Finance Ministry veteran and President of the Asian Development Bank, to become Central Bank Governor and spearhead efforts to break the world’s third-largest economy out of its long bout of deflation.
Kuroda’s support is crucial to Prime Minister Shinzo Abe’s efforts to revive the economy through a combination of monetary easing, robust Government spending and longer-term reforms.
Trends have proved favourable for Abe since he took office late last year. The yen has dropped more than 20 percent against the US dollar in a coup for beleaguered export manufacturers.
Share prices have surged, with the benchmark Nikkie 225 index up 27 percent in the past three months.
The economy did better than first thought in the last quarter of 2012, eking out a slight expansion instead of shrinking, suggesting that the world’s No. 3 economy was emerging from recession when Abe took over.
Approvals by the lower house of Parliament yesterday and by the upper house today morning only allow Kuroda to stand in for current Bank of Japan Gov. Masaaki Shirakawa after he steps down on March 19, three weeks before his five-year term was due to end. Another vote is required to make his appointment permanent.
But the ruling Liberal Democrats have lined up support for Kuroda from the main opposition party, which still controls Parliament’s upper house, and Kuroda and two new deputy Governors, Kikuo Iwata, a Professor at Tokyo’s Gakushuin University, and Hiroshi Nakaso, an executive director at the BOJ, are likely to get the final green light to helm the central bank.
Kuroda, an Oxford-educated economist who proved an effective fund raiser at the ADB, has vowed to “do whatever it takes” to achieve a 2 percent inflation target as soon as possible. Since interest rates are already at rock bottom, the central bank can only adopt other strategies such as expanding asset purchases or lengthening the maturities of Government bonds to help increase the flow of funds in the economy.
“This is kind of an experiment,” said Masayuki Kichikawa, of Bank of America-Merrill Lynch. At least, he says, “It’s worth trying.”
Some economists and policy makers, including Shirakawa, contend that Japan’s deflation stems from structural problems such as a declining and ageing population that cannot be resolved through monetary policy.
Critics of Abe’s approach also fret that heavy deficit spending could undermine confidence in Japan’s fiscal health.