The Man Who Sold Kuroda Inflation Targets Is Now a Contender for His JobBy
Takatoshi Ito has global clout after years in policy, academia
His pension-fund overhaul shows consensus-building skills
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During countless shared lunches and impromptu meetings, Takatoshi Ito made a detailed and persuasive case that sold Haruhiko Kuroda on the inflation targeting regime he’s pursued relentlessly as governor of the central bank. That was back in 1999, when Kuroda ran Japan’s currency policy at the finance ministry and Ito was his deputy.
Now, the 66-year-old Ito’s combination of academic expertise, policy making experience and influence at the highest levels in the nation has him discussed by central bank watchers as among those with a chance to succeed Kuroda, or to become one of his deputies at the Bank of Japan should the governor make history by taking another term.
As a member of a G-20 task force on global financial governance, Ito is also well connected with economic leaders around the world. His decades of work on both sides of the Pacific Ocean have seen him forge links with the biggest names in academic and policy circles.
“Takatoshi Ito comes from the Ben Bernanke, Mario Draghi, Janet Yellen mold,” said Lawrence Summers, former U.S. Treasury Secretary and Ito’s classmate at Harvard University. “He has a network of colleagues who respect him greatly all over the world. He combines academic excellence with a steady, sober, central bankerly temper.”
Few question Ito’s qualifications, but politics may matter more as Prime Minister Shinzo Abe makes a final call for the top BOJ job that’s never been filled by an academic. Kuroda is considered a contender to get another term in April by a majority of economists in a June survey, while other names mentioned included BOJ Deputy Governor Hiroshi Nakaso and ambassador to Switzerland Etsuro Honda, who is seen as having close ties to Abe.
Ito won’t say whether he’d take the job if asked, but sees a rocky path ahead for whoever is governor.
“The better the BOJ’s policy goes, the harder its job will be over the next five years,” said Ito, now a Columbia University professor. “Various challenges will emerge when it moves toward an exit.”
Ito favors a gradual reduction of the central bank’s balance sheet, in keeping with thinking at the Federal Reserve, which would see it run off bond holdings as they matured. But like Kuroda, he feels that it’s too early to lay out simulations for an exit.
This alone could make him unpopular with some ruling-party lawmakers, amid growing unease about the sustainability of the current monetary policy. His call for the government to stick with a plan to increase the nation’s sales tax in 2019 looms as another issue, given the unpopularity of the tax among the public and Abe’s plunging approval ratings.
Ito has never been far from the world of global economics, even as a boy. He was born and raised on Japan’s northern island Hokkaido, where his father, Moriuemon, was a professor of business administration.
Ito fondly remembers being surrounded by books in his father’s study, where he first came across works including ‘The General Theory of Employment, Interest, and Money’ by John Maynard Keynes and ‘Lectures on Political Economy’ by Knut Wicksell. He went on to study economics at the prestigious Hitotsubashi University in Tokyo, and then to graduate school, having declined a job offer from the finance ministry.
“It was a tough decision,” Ito said in an interview in Tokyo, where he teaches during the summer. “In the end, I figured I had to take a chance. I thought I’d be happier if I succeeded as an academic figure than going to the finance ministry.”
He went on to Harvard, where he studied side-by-side with Summers and David Lipton, now the International Monetary Fund’s first deputy managing director. Yellen, the future Federal Reserve chair, taught them macro economics. Ito also worked as a research assistant at the National Bureau of Economic Research, befriending Glenn Hubbard, who would co-author a chapter of a book on Japan’s debt problem with him and become his colleague at Columbia.
“Taka Ito is an excellent economist with sound views on the Japanese and U.S. economies,” says Martin Feldstein, president emeritus at the National Bureau of Economic Research.
Ito later taught at the University of Minnesota, where his colleagues included Nobel laureate Christopher Sims, whose fiscal policy theory has stirred controversy in Japan. With interest rates at rock bottom, Sims advocates greater government spending, and this has been seen by some as justifying softer deficit reduction targets or postponing the sales-tax hike.
In 1994, Michael Mussa, the late IMF chief economist, helped Ito land a job as a senior adviser at the fund’s research department. There, he learned to put theory into practice under real-time constraints.
“He’s not just an academic, but also a pragmatist,” said Masatsugu Asakawa, the current chief of foreign exchange policy at the finance ministry, who worked under Kuroda and Ito.
Ito’s policy work advanced when Kuroda brought him to the finance ministry in 1999, as did the pair’s wide-ranging discussions on the challenges facing Japan. “We agreed on what economic policies should be like and how we should deal with problems in most cases,” Ito said. “Our thinking and logic were the same.”
In a 2015 magazine article, Kuroda credited Ito with playing a key role in winning him over to inflation targeting, which was being used elsewhere but met with skepticism in Japan. Kuroda and Ito’s successor, Masahiro Kawai, later wrote an opinion piece urging the BOJ to adopt a 3 percent inflation goal and boost the monetary base through asset purchases.
It wasn’t until January 2013, shortly before Kuroda became the BOJ governor, that the central bank adopted a 2 percent inflation target.
Ito served on a key economic advisory board in 2006 during Abe’s first stint as prime minister, and during his second premiership Ito chaired a panel to overhaul the Government Pension Investment Fund, which saw his skills building a consensus come to the fore.
His chance at becoming a deputy governor died in a divided parliament in 2008, with lawmakers criticizing his advocacy of inflation targeting.
And doubters remain today. Hiroshi Yoshikawa, a friend of Ito’s and professor of economics at Rissho University in Tokyo, said he respects Ito’s global standing but is less impressed with the policy: "I’m against it -- they should shelve the 2 percent inflation goal and make it a longer-term objective."
Izuru Kato, a 30-year veteran of Japan’s money market and president of Totan Research Co. in Tokyo, said the pursuit of inflation targeting had gone nowhere. "The policy gets bound by your promise, loses flexibility and an exit path," said Kato.
All the while, Ito’s global network expanded. He serves on the G-20 Eminent Persons Group to review issues relating to global financial governance with Jean-Claude Trichet, former European Central Bank president; he’s on the monetary policy advisory panel at Federal Reserve Bank of New York with Sims.
Hubbard, a potential Federal Reserve chair candidate and Ito’s colleague at Columbia, sees Ito as “certainly qualified” to be BOJ governor.
“Taka would have great insights both about the Japanese economy and about the conduct of monetary policy and the global implications of monetary policy,” he said. “He would be an excellent choice.”
Ito now splits his teaching time between New York and Tokyo. In his spare time, Ito, who plays the violin, frequents Carnegie Hall and Metropolitan Opera. He and his wife Keiko, a pianist, met at a gathering of friends in Minnesota who shared a love of music. They’ve raised two daughters and a son together.
Ito is now working on two books, on international finance and Japan’s growth strategy.
“I want to keep writing as long as my brain works,” Ito said. “When it stops, I’d have to think about something else, say listening to music all day.”