Shirakawa Accelerates BOJ Exit as Abe Presses for Stimulus
Bank of Japan Governor Masaaki Shirakawa will step down on March 19, almost three weeks before his term was due, accelerating a leadership transition that may aid Prime Minister Shinzo Abe’s campaign for aggressive easing.
Shirakawa, 63, will exit the same day as two deputy governors, he told reporters in Tokyo yesterday. He was scheduled to leave on April 8. Japan’s currency slid, adding to losses against the dollar since Abe’s administration took office in December on a platform of greater monetary stimulus and a reversal of yen strength that hurts export competitiveness.
The outgoing governor assured the stability of Japan’s financial system with liquidity injections during the global credit crisis, and again in the wake of the record March 2011 earthquake and tsunami. At the same time, his failure to end the nation’s trenchant deflation stoked criticism from lawmakers, and ministers have pledged a replacement who shares Abe’s determination to end price declines.
“It’s the equivalent of waving a white flag for unconditional surrender,” said Shuichi Obata, senior economist at Nomura Securities Co. in Tokyo. “Shirakawa didn’t share the the government’s view that the central bank is responsible for ending deflation.”
The yen fell to its weakest level in almost three years against the dollar and euro today, while the Nikkei closed at the highest since September 2008. At 5:53 p.m. in Tokyo, the yen was at 93.74 per dollar, after earlier touching 94.06, and the Nikkei closed up 3.8 percent.
“There was no pressure at all from the government, this was my own decision,” Shirakawa told reporters last night after a meeting with Abe, saying it was not an act of protest. He said he made the decision yesterday so that the central bank’s new leadership could start together.
The short-list to replace him is probably composed of Asian Development Bank President Haruhiko Kuroda and former BOJ Deputy Governors Kazumasa Iwata and Toshiro Muto, according to Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., who used to work at the central bank, writing in a note last month.
“The appointment of the next governor and deputies will be at the top of the government’s agenda now,” Kanno said yesterday.
Shirakawa’s exit is part of a global changing of the guard, with Canada’s Mark Carney to take the helm of the Bank of England in July. In China, Governor Zhou Xiaochuan will step down next month, the China Securities Journal said Feb. 2. In the U.S., Janet Yellen may be a candidate to replace Chairman Ben S. Bernanke at the Federal Reserve a year from now.
Abe has repeatedly said that he wants the BOJ to take responsibility for the 2 percent inflation target it agreed to set last month. His government has defined ending deflation as central to efforts to revive the world’s third-biggest economy.
The central bank may be set for “a really fundamental policy shift,” said Richard Jerram, chief economist at Bank of Singapore Ltd., who has analyzed Asian economies for two decades. “When you have three new people in charge, they basically start from scratch.”
While the central bank last month announced plans for Federal Reserve-style open-ended asset purchases, they aren’t due to start until January 2014. The deputy governors leaving are Kiyohiko Nishimura and Hirohide Yamaguchi.
“Shirakawa’s resignation will likely push forward the timing of bold monetary easing action,” said Akito Fukunaga, chief rates strategist at RBS Securities Japan Ltd. in Tokyo, a unit of Royal Bank of Scotland Group Plc.
Abe’s sway has highlighted the risk of an erosion of the BOJ’s independence, with the biggest opposition party signaling that Abe could face resistance in getting his nominee for governor confirmed in the Diet.
“The BOJ’s independence must be guaranteed,” Mitsuru Sakurai, policy chief for the Democratic Party of Japan, said in an interview on Jan. 29. “We need someone who can do that.”
The DPJ lost power in the December election little more than three years after ending the Liberal Democratic Party’s half century of domination of Japanese politics. The DPJ yesterday released a statement reiterating Sakurai’s comments.
Abe needs opposition support to ensure his nominees are approved in parliament’s upper chamber, where his LDP lacks a majority.
Japan’s economy shrank in the second and third quarters of last year. The median forecast in a survey of economists by Bloomberg News is for a 0.5 percent annualized expansion in the three months through December, up from a forecast 0.6 percent contraction in a survey last month.
Shirakawa during his tenure has emphasized that ending two decades of deflation isn’t something the central bank can do on its own. He also consistently warned against keeping interest rates too low for too long, with the risk that it plants the seeds for asset bubbles.
Abe, by contrast, identified ending deflation as a priority during the campaign. Falling prices reduce the incentives to borrow and invest in new business projects, erode tax receipts and increase the attractiveness of saving in cash rather than spending or putting money into stocks or bonds.
The yen surged as other central banks stepped up monetary stimulus and Europe’s debt crisis drove investment into assets seen as safe havens, eroding Japan’s export competitiveness. A report last week showed manufacturing employment fell below 10 million for the first time since 1961. The yen reached a postwar high of 75.35 per dollar in October 2011.
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