The government of Prime Minister Shinzo Abe has submitted to the Diet its proposal to retain Haruhiko Kuroda as Bank of Japan (BOJ) governor. It has also nominated BOJ Executive Director Masayoshi Amamiya and Waseda University economics professor Masazumi Wakatabe to replace two current BOJ vice governors whose terms are to end shortly.
The only thing Kuroda's reappointment does is maintain the status quo. The prospect of the BOJ hitting a "2 percent inflation target in around two years" is still nowhere in sight nearly five years after Kuroda assumed office. Prime Minister Abe, who placed top priority on lifting Japan out of deflation when he returned to power in 2012, has been pushing his "Abenomics" economic policy mix. However, his government is yet to declare an end to Japan's deflation. In the meantime, the adverse effects of the nation's drastic ultra-easy monetary policy have only gotten worse.
In spite of such circumstances, the Abe government is heading along the same old path. While it is not uncommon in other nations to reappoint the head of the central bank, it would be the first time for Japan to do so since the reappointment of then BOJ Gov. Masamichi Yamagiwa, who served in office until 1964. Kuroda would be 78 at the end of his next five-year term.
It makes one suspect that in reality, the BOJ governor could not be replaced even if the government wanted to replace him, and that it would be too risky to change the head of Japan's central bank at this point.
Recently, the global financial world has seen a sharp drop in stock market prices originating in the United States, but what market players are worried about is the potential effect of an accelerated interest rate hike, which would boost long-term rates, interrupting economic growth.
When an ultra-easy monetary policy is pushed forward, it causes confusion in financial markets in the process of turning the wheel back, making it hard for central banks to operate their preferred policies. For the BOJ in particular, which has continued with a relaxed monetary policy whose scale is one of the largest among advanced economies, even a slight policy change to normalize the current state of affairs could spark confusion in the market.
With his eyes on a third term as president of the ruling Liberal Democratic Party and his long-cherished goal of achieving constitutional revision, Prime Minister Abe is no doubt desperate to avoid causing market chaos.
The continuation of the ultra-easy monetary policy, whereby the BOJ purchases a massive amount of government bonds, is bliss for fiscal management depending on borrowing. Deputy governor candidate Wakatabe supports an easy monetary policy, and takes the position that financial rehabilitation does not have to be hastily pushed. He is critical of increasing the consumption tax, and has advocated an active approach to bolster public finance.
Following the government's proposal, the Diet will now interview the three candidates for BOJ governor and vice governors. It is unacceptable for Japan's central bank to become a mere wallet that the government can take advantage of. The Diet is urged to screen the candidates on whether the proposal fits the interest of the people in the long run.