Abe's Mentor Says BOJ Needs Fresh Face as Kuroda Is Out of Ideas

  • New ideas needed after Kuroda’s term ends, Nakahara says
  • Central bank’s ETF buying distorting the market, he says

HSBC’s Henry Says Structural Reform Is Key in Japan

Haruhiko Kuroda shouldn’t serve another term as governor of the Bank of Japan because the central bank will need fresh ideas as it moves toward exiting years of unprecedented monetary easing, according to an adviser to the prime minister.

"An exit will surely come up within the next five years and we need someone who can prepare for it," said Nobuyuki Nakahara, a former BOJ board member.

“He will fall into inertia and struggle to come up with bold new ideas. It’s the same in the private sector when a corporate president stays too long," he said.

Nakahara’s comments come amid growing speculation among private economists that Prime Minister Shinzo Abe will reappoint Kuroda, 72, after his five-year term ends in April. Nakahara, who was close to Abe’s father, Shintaro, has known the prime minister since he was young and has advised him for years.

In an interview on June 29, Nakahara, one of the architects of Abenomics, said he didn’t have any replacements for Kuroda in mind. But he said change at the top of the BOJ would be good because the government and central bank should strike a new accord and form a new strategy for the next five years.

The current accord, issued in January 2013, says the central bank should aim for price stability at an annual inflation rate of 2 percent, while the government is responsible for strengthening competitiveness and the nation’s growth potential. More than four years later, the inflation target remains far off.

A New Accord

“I think we need to make a new one, and we’ve got to think about how to incorporate the fiscal side,” said Nakahara, 82.

The Japanese economy has done relatively well over the past five years, but downside risks facing the global economy include a possible hard landing in China and the unpredictability of U.S. President Donald Trump, according to Nakahara. 

In fact, given global conditions, the BOJ should delay the projected timing for reaching 2 percent inflation to around 2023, said Nakahara, an intellectual father of the bank’s initial quantitative easing in 2001.

Kuroda’s propensity to surprise markets with innovative ideas has been waning, according to Nakahara. And the strains of his record easing are particularly evident in the bank’s purchases of exchange-traded funds, which are distorting the market, he said.

“They can’t keep holding ETFs forever,” he said.

Nakahara offered a possible solution. How about getting companies to buy back their own shares from the BOJ? Or the BOJ could tell companies it plans to sell the shares on the market. If the companies need funding for share buybacks, the central bank could help with a loan-support program.

“That’s my secret strategy,” he said.

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