WHEN it comes to filling the vacancy at the top of the Bank of Japan (BoJ), prospective candidates should take note – a crisis manager need not apply.
As the government prepares to name the successor to Haruhiko Kuroda after a decade in the big seat, the appointment will be a very different one to that made in the opening months of 2013.
While BoJ sceptics bet they can force a transformative policy switch while the eyes of the world are on Japan’s geopolitical renaissance, this is no job for a superhero.
About 10 years ago, Japan needed radical thinking for an urgent rescue from deflation, but this time, things are simpler. A regular central banker will suffice.
That’s one reason the list of candidates is hardly full of household names.
BoJ veterans are the most likely contenders, according to central bank watchers, with most still expecting deputy governor Masayoshi Amamiya or Hiroshi Nakaso, another former lieutenant, to take the top job.
Rumours of a shock appointment such as Akio Toyoda, the outgoing head of Toyota Motor Corp, seem fanciful at best.
Whoever it is, the challenges they’ll face are no doubt formidable. No monetary chief, anywhere, gets an easy time.
Alan Greenspan, Ben Bernanke and Jerome Powell were hit with crises in their early years as Federal Reserve boss, and Mario Draghi was barely into his term at the European Central Bank before mounting a rescue of the euro.
But the trials of Prime Minister Fumio Kishida’s appointee won’t reflect a sense of pervasive crisis in the fabric of Japanese life.
Relative to Kuroda’s inbox in 2013, the assignment looks almost conventional: Tighten policy a bit without making it tight, per se, and watch for the impact of the prospective global recession that some economists still foresee.
In other words, standard central banker stuff.
Things were very different a decade ago. Kuroda’s appointment, and the subsequent firing of his money-printing bazooka, were the final pieces of a carefully assembled puzzle.
Shinzo Abe rode to power in 2012 promising what amounted to a monetary policy revolution: Cranking up the presses and setting a formal 2% inflation target, part of an overall package that came to be known as Abenomics.
Abe cast himself as ideologically opposed to Masaaki Shirakawa, the then-governor who was criticised as a gentle manager of Japan’s decline.
Together with fiscal spending and regulatory reform, Abe’s goal was to do whatever it took to rekindle economic growth and Japan’s worldwide standing.
To do this, Abe piled on the pressure, threatening to introduce laws to rescind the BoJ’s independence if Shirakawa didn’t cooperate with his 2% inflation goal.
Abe was right to be worried. It was a Sliding Doors moment, as deflation threatened to become permanent.
All eyes were turning to China, where gross domestic product had recently surpassed Japan, still struggling to recover from the 2011 earthquake and tsunami.
It was a time that demanded action. At least when it came to the breadth of his monetary policy vision, Abe didn’t disappoint.
Kishida, in contrast, can boast no such grand design. While he shares Abe’s desire for Japan to carry its weight on the world stage, monetary policy doesn’t seem one of his great passions.
His signature economic policy, dubbed “New Capitalism,” has failed to resonate with voters, pundits or overseas investors.
His bold talk of redistribution spooked markets, but has been incongruous with his actual policies, which so far have amounted to warmed-over measures such as expanding tax-free investing accounts.
The country is again pinning its hopes on annual wage talks to create the virtuous cycle of pay hikes and inflation that has eluded it for decades.
Whoever walks in the door in April will face growing calls to dismantle at least some of the apparatus that supports the ultra-loose policy that has become Kuroda’s trademark.
Speculation that the BoJ will let long-term market interest rates climb has intensified since December, when Kuroda shocked investors by lifting the cap on 10-year government bond yields a bit.
Widening the band around zero was for a long time seen as something the next governor would get to in good time, not necessarily one of the first things he or she would do. (Most economists predict a man will get the nod.)
But Japan has been talking about an exit from cheap money for decades, just as it has about balancing the budget.
Absent an unlikely surge of growth in its economy, the BoJ has little choice but to keep money cheap – especially when it’s talking about extra spending on everything from defence to policies to boost the birthrate.
The new governor will be expected to talk like normalisation is on the horizon, while continuing to kick the can down the road.
Unwinding policy to make it somewhat less loose, but not a brake on growth, isn’t an easy chore. Merely widening the yield band again will simply stoke talk that more is on the horizon and traders will immediately test the new ceiling.
Market functioning, a reason Kuroda cited for December’s upset, hasn’t improved dramatically.
Thanks to aggressive quantitative easing, the BoJ owns vast swathes of the fixed-income market. It may be easier to just scrap yield-curve control rather than keep tinkering.
That implies a shift to something resembling a more conventional policy. Under many scenarios, the benchmark rate also rises from negative territory, though not very far. Zero would be a start.
Plenty of complications and room for mistakes? Absolutely. But policy transition in an era of modestly rising inflation is a text-book task for central bankers.
Untangling Kuroda’s legacy will ultimately require a new framework. As daunting as that may sound, it’s far more quantifiable than being expected to play a big role in national salvation.
The new team at the BoJ will, happily, spend more time worrying about basis points than China’s ascendancy and beating a national funk.
This is no “Japan is back” moment. That might be for the best: After an intense period of global attention, most lost interest in Abenomics when it didn’t produce instant returns.
Whoever ends up as Kishida’s banker might be better off this time under-promising and over-delivering. — Bloomberg
Daniel Moss and Gearoid Reidy are Bloomberg Opinion columnists. The views expressed here are the writers’ own.