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| Critic of Japan’s Central Bank Is Now Its Leader | |
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| TOKYO — In the late 1990s, in the thick of the Asian financial crisis, a top Japanese Finance Ministry official turned to his protégé and found him engrossed not in policy documents, but in a chunky volume of the works of Aristotle. | TOKYO — In the late 1990s, in the thick of the Asian financial crisis, a top Japanese Finance Ministry official turned to his protégé and found him engrossed not in policy documents, but in a chunky volume of the works of Aristotle. |
| That bookish aide, Haruhiko Kuroda, was approved on Friday to become the next Bank of Japan governor, one of the most thankless jobs in a country plagued for decades with economic problems. He will need more than Aristotelian logic to turn years of the central bank’s policies on their head. | That bookish aide, Haruhiko Kuroda, was approved on Friday to become the next Bank of Japan governor, one of the most thankless jobs in a country plagued for decades with economic problems. He will need more than Aristotelian logic to turn years of the central bank’s policies on their head. |
| The Japanese prime minister, Shinzo Abe, who took office in December, has pointed his finger at the central bank and its seemingly hapless monetary decision-making as the root cause of the country’s economic woes. The bank must take a far tougher stance against deflation, Mr. Abe has demanded, to stem the sluggish profits, spending and investment that have weighed on the Japanese economy since the 1990s. | The Japanese prime minister, Shinzo Abe, who took office in December, has pointed his finger at the central bank and its seemingly hapless monetary decision-making as the root cause of the country’s economic woes. The bank must take a far tougher stance against deflation, Mr. Abe has demanded, to stem the sluggish profits, spending and investment that have weighed on the Japanese economy since the 1990s. |
| Mr. Kuroda, 68, is tasked with bringing about a regime change at the bank, something he himself, a critic of the bank, has previously called for. His track record of disparaging the central bank for not doing more to fight deflation as well as a career that has spanned the stodgy halls of Japanese bureaucracy and the negotiation tables of global finance convinced Mr. Abe that he was the man for the job, officials say. | Mr. Kuroda, 68, is tasked with bringing about a regime change at the bank, something he himself, a critic of the bank, has previously called for. His track record of disparaging the central bank for not doing more to fight deflation as well as a career that has spanned the stodgy halls of Japanese bureaucracy and the negotiation tables of global finance convinced Mr. Abe that he was the man for the job, officials say. |
| “Speed is of the utmost importance,” Mr. Kuroda told a parliamentary hearing earlier this week. “I intend to pursue bold monetary easing, both in scale and in quality.” | “Speed is of the utmost importance,” Mr. Kuroda told a parliamentary hearing earlier this week. “I intend to pursue bold monetary easing, both in scale and in quality.” |
| It will be a tough job, though one that offers a chance to right the Bank of Japan’s blemished history of missteps and blunders in attempting to right one of the world’s major economies. | It will be a tough job, though one that offers a chance to right the Bank of Japan’s blemished history of missteps and blunders in attempting to right one of the world’s major economies. |
| The Bank of Japan’s woes reach back to the mid-1980s, when it lowered interest rates to prop up an economy reeling from a rapidly strengthening yen. And despite signs that the easy money was helping to fuel a spectacular bubble economy, the bank kept interest rates low, finally tightening policy in 1989. By that time, stock and land prices had more than quadrupled from five years earlier. | The Bank of Japan’s woes reach back to the mid-1980s, when it lowered interest rates to prop up an economy reeling from a rapidly strengthening yen. And despite signs that the easy money was helping to fuel a spectacular bubble economy, the bank kept interest rates low, finally tightening policy in 1989. By that time, stock and land prices had more than quadrupled from five years earlier. |
| The painful memories of the collapse of that bubble and the drawn-out economic pain it has brought the Japanese economy have paralyzed the bank’s decision-making, critics including Mr. Kuroda charge. The bank progressively lowered its policy interest rate through the 1990s, hitting zero in 1999, but was reluctant to try more unconventional policies. The governor at the time, Masaru Hayami, thought the possibility of a return to Japan’s bubble economy was still all too real and argued that deflation was not entirely a bad phenomenon. | The painful memories of the collapse of that bubble and the drawn-out economic pain it has brought the Japanese economy have paralyzed the bank’s decision-making, critics including Mr. Kuroda charge. The bank progressively lowered its policy interest rate through the 1990s, hitting zero in 1999, but was reluctant to try more unconventional policies. The governor at the time, Masaru Hayami, thought the possibility of a return to Japan’s bubble economy was still all too real and argued that deflation was not entirely a bad phenomenon. |
| By 2001, Japan’s economy was again slumping and the bank finally tried its hand at buying up assets to create new money in the economy, a policy known as quantitative easing. Even then, the bank officials continued to voice doubts over that policy’s effectiveness, even exiting quantitative easing at the first signs of an uptick in the economy in 2006. | By 2001, Japan’s economy was again slumping and the bank finally tried its hand at buying up assets to create new money in the economy, a policy known as quantitative easing. Even then, the bank officials continued to voice doubts over that policy’s effectiveness, even exiting quantitative easing at the first signs of an uptick in the economy in 2006. |
| As the global economic crisis plunged Japan’s economy into its worst recession in decades, the bank has again been slow to adopt an expansionary monetary policy. Until recently, the bank also refused to set a clear inflation target. | As the global economic crisis plunged Japan’s economy into its worst recession in decades, the bank has again been slow to adopt an expansionary monetary policy. Until recently, the bank also refused to set a clear inflation target. |
| Mr. Kuroda has long been a critic of the bank’s missteps. In his 2005 book, “Success and Failure in Fiscal and Monetary Policy,” he denounces the bank for constantly standing behind the curve in its understanding of the economy and deflation. | Mr. Kuroda has long been a critic of the bank’s missteps. In his 2005 book, “Success and Failure in Fiscal and Monetary Policy,” he denounces the bank for constantly standing behind the curve in its understanding of the economy and deflation. |
| “It is dead wrong to assume that once policy interest rates are at zero, nothing much else can be done,” Mr. Kuroda wrote. “Fundamental responsibility for preventing deflation lies in monetary policy,” he added. At parliamentary hearings, Mr. Kuroda has committed to expanding Japan’s monetary base to achieve a goal of 2 percent inflation, a level not seen since the early 1990s. He said he would do “whatever it takes” to beat deflation and restore economic growth. He also suggested that he would be open to buying long-term government bonds, as well as corporate assets, to pump more funds into the economy. However, he ruled out foreign bond purchases and was cautious about lowering the floor on short-term interest rates, which are currently at 0.1 percent. | “It is dead wrong to assume that once policy interest rates are at zero, nothing much else can be done,” Mr. Kuroda wrote. “Fundamental responsibility for preventing deflation lies in monetary policy,” he added. At parliamentary hearings, Mr. Kuroda has committed to expanding Japan’s monetary base to achieve a goal of 2 percent inflation, a level not seen since the early 1990s. He said he would do “whatever it takes” to beat deflation and restore economic growth. He also suggested that he would be open to buying long-term government bonds, as well as corporate assets, to pump more funds into the economy. However, he ruled out foreign bond purchases and was cautious about lowering the floor on short-term interest rates, which are currently at 0.1 percent. |
| “A dream team is set to lead the regime change at the Bank of Japan,” Hajime Takata, chief economist at the Mizuho Research Institute, said in a breathless note to clients, referring to Mr. Kuroda and his two deputies, Kikuo Iwata and Hiroshi Nakaso, who also were approved by Parliament on Friday. Their terms begin on Wednesday. | “A dream team is set to lead the regime change at the Bank of Japan,” Hajime Takata, chief economist at the Mizuho Research Institute, said in a breathless note to clients, referring to Mr. Kuroda and his two deputies, Kikuo Iwata and Hiroshi Nakaso, who also were approved by Parliament on Friday. Their terms begin on Wednesday. |
| At first glance, Mr. Kuroda’s background as a Finance Ministry bureaucrat does not paint a picture of a colorful game-changer who may push for the kind of bold action that could finally jump-start Japan’s economy. Born to parents who were also government bureaucrats, Mr. Kuroda was known as a quiet student in school, and dreamed of becoming a teacher. He was often found in the library instead of sweating it out in sports like his flashier classmates, one of whom went on to become chief cabinet secretary under former Prime Minister Junichiro Koizumi. | At first glance, Mr. Kuroda’s background as a Finance Ministry bureaucrat does not paint a picture of a colorful game-changer who may push for the kind of bold action that could finally jump-start Japan’s economy. Born to parents who were also government bureaucrats, Mr. Kuroda was known as a quiet student in school, and dreamed of becoming a teacher. He was often found in the library instead of sweating it out in sports like his flashier classmates, one of whom went on to become chief cabinet secretary under former Prime Minister Junichiro Koizumi. |
| “We sometimes did jump rope, low-key things like that,” said Sadatomo Matsudaira, a retired former anchor for the public broadcaster, NHK, and Mr. Kuroda’s classmate through middle and high school in Tokyo. “He was very smart, but not one to assert leadership. He’d instead be right behind the leader,” said Mr. Matsudaira, now a professor at the Kyoto University of Art and Design. | “We sometimes did jump rope, low-key things like that,” said Sadatomo Matsudaira, a retired former anchor for the public broadcaster, NHK, and Mr. Kuroda’s classmate through middle and high school in Tokyo. “He was very smart, but not one to assert leadership. He’d instead be right behind the leader,” said Mr. Matsudaira, now a professor at the Kyoto University of Art and Design. |
| His intellect took Mr. Kuroda to Tokyo University’s prestigious law department, then to the powerful Finance Ministry, and later to Oxford, where he earned a master’s degree in economics. Back at the ministry, Mr. Kuroda made his mark in international tax and currency policy, both areas that thrust him into global financial negotiations. | His intellect took Mr. Kuroda to Tokyo University’s prestigious law department, then to the powerful Finance Ministry, and later to Oxford, where he earned a master’s degree in economics. Back at the ministry, Mr. Kuroda made his mark in international tax and currency policy, both areas that thrust him into global financial negotiations. |
| As the ministry’s top currency official from 1999 to 2003, Mr. Kuroda orchestrated trillions of yen’s worth of market interventions in a bid to drive down the value of the yen. The act fended off global criticism while he pressed the United States and other trading partners to accommodate those moves. | As the ministry’s top currency official from 1999 to 2003, Mr. Kuroda orchestrated trillions of yen’s worth of market interventions in a bid to drive down the value of the yen. The act fended off global criticism while he pressed the United States and other trading partners to accommodate those moves. |
| Steering Japan’s central bank could require those same skills of diplomacy, especially when Japan is accused of deliberately weakening the yen to benefit its exporters. Easing monetary policy further, as Mr. Kuroda is expected to do, could lead to an even weaker yen, sparking fresh complaints. | Steering Japan’s central bank could require those same skills of diplomacy, especially when Japan is accused of deliberately weakening the yen to benefit its exporters. Easing monetary policy further, as Mr. Kuroda is expected to do, could lead to an even weaker yen, sparking fresh complaints. |
| A bigger challenge, some experts say, is how much he can work effectively with the Bank of Japan rank and file, who conduct the bank’s daily market operations, and with members of the bank’s policy-setting board. Many within the bank still harbor longstanding reservations against aggressive easing, which the departing governor, Masaaki Shirakawa, favored. | A bigger challenge, some experts say, is how much he can work effectively with the Bank of Japan rank and file, who conduct the bank’s daily market operations, and with members of the bank’s policy-setting board. Many within the bank still harbor longstanding reservations against aggressive easing, which the departing governor, Masaaki Shirakawa, favored. |
| The bank’s policies have been blamed unfairly for Japan’s economic woes, they say; deflation is not a product of policy missteps but reflect wider changes like an aging and shrinking population and deepening integration of Japan’s economy with its Asian neighbors, where manufacturing is less expensive. And it is the government, these officials say, that must do more for economic growth and innovation. | The bank’s policies have been blamed unfairly for Japan’s economic woes, they say; deflation is not a product of policy missteps but reflect wider changes like an aging and shrinking population and deepening integration of Japan’s economy with its Asian neighbors, where manufacturing is less expensive. And it is the government, these officials say, that must do more for economic growth and innovation. |
| Mr. Kuroda, in his 2005 book, answers that it does not matter why deflation occurs; it should still be the central bank’s mission to fight it. | Mr. Kuroda, in his 2005 book, answers that it does not matter why deflation occurs; it should still be the central bank’s mission to fight it. |
| “You have to remember that the B.O.J. is a massive organization. You could say, ‘March left!’ but that doesn’t mean everyone will march your direction,” said Eisuke Sakakibara, Mr. Kuroda’s mentor at the Finance Ministry, the same official who puzzled over Mr. Kuroda’s penchant for Greek philosophy. “He will first need to challenge very deep-rooted views at the bank, and that will not be easy.” | “You have to remember that the B.O.J. is a massive organization. You could say, ‘March left!’ but that doesn’t mean everyone will march your direction,” said Eisuke Sakakibara, Mr. Kuroda’s mentor at the Finance Ministry, the same official who puzzled over Mr. Kuroda’s penchant for Greek philosophy. “He will first need to challenge very deep-rooted views at the bank, and that will not be easy.” |
| Mr. Kuroda already appeared to face opposition from the bank’s top ranks earlier this week after a board member, Koji Ishida, was quoted in media reports as saying the next governor should not take unorthodox steps too hastily. | Mr. Kuroda already appeared to face opposition from the bank’s top ranks earlier this week after a board member, Koji Ishida, was quoted in media reports as saying the next governor should not take unorthodox steps too hastily. |
| Any big shift in the bank’s policy framework would first require “a comprehensive examination of the purpose, means, costs and effects as well as the transmission channel of monetary policy,” Mr. Ishida was quoted by Bloomberg as saying after a meeting with business leaders. | Any big shift in the bank’s policy framework would first require “a comprehensive examination of the purpose, means, costs and effects as well as the transmission channel of monetary policy,” Mr. Ishida was quoted by Bloomberg as saying after a meeting with business leaders. |
| The inflationary push policy has its own critics. Some warn that inflation will cause a dangerous spike in interest rates on the country’s already high government debt. Others simply say the Japanese economy is simply too broken to grow. | The inflationary push policy has its own critics. Some warn that inflation will cause a dangerous spike in interest rates on the country’s already high government debt. Others simply say the Japanese economy is simply too broken to grow. |
| “Saying Japan needs fiscal-monetary stimulus is like saying a car needs gasoline. You can fill the tank to overflowing, but if the engine remains broken, no one is going anywhere,” Richard Katz, an economic writer, opined in The International Economy magazine. | “Saying Japan needs fiscal-monetary stimulus is like saying a car needs gasoline. You can fill the tank to overflowing, but if the engine remains broken, no one is going anywhere,” Richard Katz, an economic writer, opined in The International Economy magazine. |
| In an 1989 essay in the same magazine, Mr. Kuroda seemed resigned to the realities of policy making in an imperfect world. In the essay, he waxed lyrical about what another Greek sage, Socrates, would have made of currency management. | In an 1989 essay in the same magazine, Mr. Kuroda seemed resigned to the realities of policy making in an imperfect world. In the essay, he waxed lyrical about what another Greek sage, Socrates, would have made of currency management. |
| Such a task, Mr. Kuroda quotes his philosopher as saying, “is a beast that can only live in the gray zone between success and failure, uncertainty and hope.” | Such a task, Mr. Kuroda quotes his philosopher as saying, “is a beast that can only live in the gray zone between success and failure, uncertainty and hope.” |
This article has been revised to reflect the following correction: | This article has been revised to reflect the following correction: |
| Correction: March 15, 2013 | Correction: March 15, 2013 |
An earlier version of this article misspelled the first name of Haruhiko Kuroda’s mentor at the Finance Ministry. His name is Eisuke Sakakibara, not Eiji. | An earlier version of this article misspelled the first name of Haruhiko Kuroda’s mentor at the Finance Ministry. His name is Eisuke Sakakibara, not Eiji. |