Behind the government's decision to reappoint Bank of Japan (BOJ) Gov. Haruhiko Kuroda lies the intention of Prime Minister Shinzo Abe's administration to avoid economic risks to the maximum levels possible, ahead of such key political agenda as the ruling Liberal Democratic Party's leadership election and constitutional revision.
If Kuroda, a primary symbol of the "Abenomics" economic policy mix promoted by Prime Minister Abe, had been replaced, it could adversely affect the yen's value and stock prices. With only limited alternative candidates available, the government settled for the seemingly most innocuous option to maintain the status quo.
Kuroda, 73, is highly appreciated within the government for bringing about a weaker yen and high share prices by way of the massive quantitative monetary easing, with some saying his policy "brightened Japanese society's atmosphere." While some others voiced concerns over his age as he will be 78 when his second term expires, calls for his reappointment grew stronger within the government and ruling parties as Kuroda was free of any problems in terms of physical strength. Even the Finance Ministry and the BOJ itself, which were reluctant to appoint Kuroda to his current post five years ago, are now rallying behind him.
Meanwhile, those calling for more aggressive monetary and fiscal policies demanded that Kuroda be replaced on the grounds that he failed to achieve the 2 percent inflation target during his five-year term as BOJ chief. As Prime Minister Abe has heretofore appointed proponents of reflationary monetary policy to key economic posts, his decision over the appointment of the next BOJ chief had attracted much speculation, but he ended up retaining Kuroda in compliance with calls from his aides.
Kuroda's next five years in the BOJ chiefdom, however, will be fraught with challenges to address. While the central bank slashed the long-term interest rate to around 0 percent in 2016 and aims to attain the 2 percent inflation goal, there are concerns that a drawn-out ultralow interest rate policy could adversely affect earnings among financial institutions, prompting them to cut back on loans. In the meantime, if the interest rate is raised when commodity prices have not grown enough, it could trigger the yen's appreciation and dampen the economy. A number of difficult tests await Kuroda, who will become the oldest postwar BOJ governor when he retires.