Outspoken Adviser Urges Abe to Shake Up BOJ With New Leaders

  • Etsuro Honda has history of influence on key economic policies
  • He’s seen as a long-shot contender to become the next governor
Etsuro Honda

Photographer: Tomohiro Ohsumi/Bloomberg

Amid strong expectations that Prime Minister Shinzo Abe may reappoint Haruhiko Kuroda to another term as governor of the Bank of Japan, at least one key voice is calling for fresh blood at the top of the BOJ to lift the nation’s flagging inflation rate.

“The leaders of the central bank must conduct a comprehensive review and then take responsibility,” Etsuro Honda, an economic adviser to Abe who is currently Japan’s ambassador to Switzerland, said in an interview. “It’s impossible to end deflation without bringing in a new regime.”

While Abe has said "the slate is completely blank" on who will lead the BOJ when Kuroda’s current term ends in April, he’s praised the central bank for its efforts to lift prices and affirmed his trust in the governor. The prime minister also has to consider replacements for Kuroda’s two deputies, whose terms close in March.

Honda, 62, who declined to name his recommendations for the key roles, said he would pour his life into leading the BOJ, if given the chance. A recent survey of economists by Bloomberg ranked Honda fifth among eight potential candidates. Kuroda, 73, was the clear favorite.

Read more: Who’s in the running to be governor.

Honda offered Abe advice on the choice of BOJ governor in 2013 as well as board members appointed since then. He also played a pivotal role in persuading Abe to postpone a sales-tax increase that was planned for 2015.

A hike in the levy is now set for 2019 and Honda sees danger in this if the BOJ hasn’t passed its 2 percent inflation target by then. The most recent reading was 0.7 percent.

“There’s little sense of crisis,” said Honda, speaking by telephone from Bern. “But Japan’s inflation has to be over 2 percent before the next tax increase. Unless we reach that, Japan’s economy will be in critical danger.”

The last tax hike in 2014 sparked a recession and Honda is concerned that 2019 could also see a big slowdown. He’s also worried that Japan could fail to truly stamp out deflation.

Honda, who’s called for regime change at the BOJ before, said he wants to make the point to the prime minister.

Read more: The BOJ’s latest policy decision and forecasts.

He said one way for the BOJ to stoke inflation expectations would be to revise its 2013 joint statement with the government and to work closely with Abe in trying to expand nominal gross domestic product to 600 trillion yen ($5.3 trillion). That was at 543 trillion yen at the end of June.

Honda has a history of being outspoken and his thinking on the next governor isn’t shared by many others, at least for now.

Another economic adviser to Abe, Koichi Hamada, said last week that he supports Kuroda’s reappointment. Finance Minister Taro Aso has also recently praised Kuroda’s efforts.

The BOJ forecasts the 2 percent inflation goal will be met around the year starting in April 2019. That’s after what has already been more than four-and-a-half years of unprecedented monetary stimulus.

Honda’s relationship with Abe goes back to around 1980, when he was working at the Ministry of Finance, and the two communicate frequently.

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