Not much is expected of new BoJ governor

  • Business
  • Wednesday, 19 Feb 2003

SINGAPORE: Japan is about to name a new central bank chief who might just revive Asia’s largest economy, yet the rest of the region barely seems to care. 

It’s hard to imagine financial markets being indifferent to the successor of Federal Reserve chairman Alan Greenspan when he finally hands over the reins of the US central bank. 

But expectations of Japanese policymakers have sunk so low after more than a decade of stagnation that analysts and investors across Asia are sceptical that the appointment of a new Bank of Japan (BoJ) governor will usher in a more aggressive monetary policy to pump up the country's economy. 

“It’s like the boy who cried wolf,” said Sriyan Pietersz, head of research at S.G. Asia Credit Securities in Bangkok. 

“We’ve had numerous imminent resurrections of the Japanese economy in the past 10 years, but the cards are stacked against it. There’s always been plenty of rhetoric about radical surgery, but at the end of the day the political forces simply didn’t let that happen. So what has changed that would let that happen now?” 

The collective shrug of the shoulders reflects the decline in Japan’s importance to the rest of Asia since its asset-price bubble started to deflate at the beginning of the 1990s, reducing average annual growth since then to a skimpy 1%.  

Japan took 18.8% of Asia’s exports in 1990, but by 2000 the share had shrunk to 13.8%. And because Japanese banks started to pull in their horns after Asia’s 1997-98 financial crisis, they now account for just 15% of international bank lending to the region, down from a peak of 70%.  

“I don’t think the rest of Asia cares much about Japan any more, does it?” one regional policy adviser said.  

“It’s failed to be an engine of growth so they’ve got on without Japan for the past 10 years,” the official added. “If it did something, all well and good, but nobody’s holding his breath.” 

The lack of confidence in Japan is magnified by the ascent of China, which now imports more from the rest of Asia than does Japan. 

With China steadily increasing its share of world exports and luring the lion’s share of foreign direct investment (FDI) coming into Asia, Pietersz said governments in the region had more reason to be preoccupied with policy twists in Beijing even if the next BoJ governor was committed to crushing deflation. 

“If whoever comes in actually manages to do the needful either by massive money printing exercises or whatever, that would no doubt be beneficial at the margins.  

“But I think it’s a bit of a sideshow in the sense that it will take a long time before economies and financial markets see the benefits.  

“In the meantime, central banks in Asia are probably much more concerned about what’s happening in China,” he added. 

Japanese Prime Minister Junichiro Koizumi said yesterday he had not yet decided on a replacement for Masaru Hayami, whose five-year term at the BoJ ends on March 19. 

Given Koizumi’s reputation for surprise appointments, speculation could prove idle.  

But the bookmakers’ favourites are Toshihiko Fuji, a former senior BoJ official deemed the establishment candidate, and Noboyuki Nakahara, whose dogged advocacy of inflation targeting and aggressive monetary expansion fell on deaf ears when he was a member of the central bank's board. 

Graeme Sinclair, director for Japanese equities at Aberdeen Asset Management Asia in Singapore, said the expectation among investors was that Koizumi would not take the risk of upsetting BoJ traditionalists by appointing a radical reflationist. 

“The more probable scenario is an appointment that continues with the existing policy,” he said. “We would have to reassess the situation if there was a change, but for the time being we’re managing our portfolios on the basis that that’s not likely.” – Reuters  

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