February 16, 2018 / 5:23 AM / in a month

Breakingviews - Bank of Japan’s Kuroda bags a tricky second term

By Quentin Webb

Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a financial and monetary committee session at the Lower House of the parliament in Tokyo, Japan, February 16, 2018. REUTERS/Toru Hanai

HONG KONG (Reuters Breakingviews) - It can be difficult to stay on when all your peers are retiring. That’s the case for Haruhiko Kuroda who will be reappointed Bank of Japan governor. The continuity at the helm of the Japanese central bank contrasts with a changing of the guard in the United States and Europe and reduces the chances of major monetary policy shifts in Tokyo. But Kuroda faces some tricky challenges.

Prime Minister Shinzo Abe’s nomination of Kuroda on Friday was widely expected, not least because Kuroda is a vital ally in the government’s project to stimulate growth and generate inflation. He is also a known quantity, which is typically reassuring for markets. With Jerome Powell taking over the U.S. Federal Reserve, and Mario Draghi and Mark Carney moving on next year from the European Central Bank and Bank of England respectively, Kuroda will soon be the only veteran of the “zero-interest-rate-policy” era left heading up a major central bank.

His nomination is a sign that Abe is broadly content with current policy. That involves large amounts of bond-buying, smaller stock purchases, negative short-term rates, and a goal of keeping 10-year government bond yields near zero. There now seems little chance that asset purchases will be reduced markedly anytime soon.

Conversely, despite his previous boldness, Kuroda seems loath to experiment further. He has notably ruled out buying state debt directly and holding it forever. That said, naming Masazumi Wakatabe, an academic who has pressed for bolder action, as one of two deputies could help tilt the BOJ towards even easier policy.

In any case, Kuroda will have to deal with the backdraft from policy changes abroad. For example, less accommodative U.S. and European monetary policy will push up bond yields in these countries, which could drag up Japanese ones. The BOJ’s resolve could be tested, forcing it to buy huge quantities of 10-year debt or to lift its yield targets.

Japan’s slow progress towards its 2 percent inflation target stores up trouble. Keeping policy super-loose leaves Kuroda little room to cushion the blow were a new economic downturn or financial crisis to hit. If things go relatively smoothly, though, that may be a problem he can leave for his successor.


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