A tumultuous Kuroda era reverberated way beyond Japan

HARUHIKO Kuroda changed Japan in crucial ways during his decade atop the country’s central bank. His successor will find it hard to undo the legacy, assuming he even wants to. Kuroda was a revolutionary in the cause of reflating an economy that once was lauded for possessing a secret sauce to, briefly, challenge the US for financial supremacy. Some of his innovations have stored up trouble for the future – and probably not just in Japan.

To truly appreciate the impact of Kuroda’s tenure, we need to travel back to late 2012 and early 2013. Shinzo Abe had just led the long-time ruling party back to government after three years in the wilderness. He sought a major shake-up: monetary, fiscal and regulatory. The first of those arrows was vital to fending off deflation, and in Kuroda, he found his man. Predictions that the avuncular, lifelong bureaucrat would champion a gradual evolution in policy were wrong. (I was sceptical myself that his leadership would be quite so eventful.) Kuroda’s two tumultuous five-year terms are in their final days, and a valedictory press conference has been pencilled for Friday (Apr 7). The fear of falling prices has been greatly diminished. Inflation, after a long absence, is a hotter topic. Not all of this about-face was Kuroda’s doing; he had a powerful assist from forces beyond Japan. But he never stopped trying new ways to lift inflation towards, and beyond, the 2 per cent target that Abe wrestled the Bank of Japan (BOJ) into accepting.

Viewed from afar, the Kuroda period was one big exercise in easing after years of moderate-but-consistent stimulus. Japan was an early mover on zero interest rates and bond buying before Kuroda came along. But he turbo-charged that approach, vastly increasing the BOJ’s balance sheet at his earliest opportunity before adding his own iterations. In 2016, the bank took rates negative and, months later, launched yield-curve control (YCC), which aimed to constrain long-term market borrowing costs. Submerging the benchmark rate was a daring move: The vote on the BOJ’s nine-member panel was 5-4. One defection would have killed the idea, and wounded Kuroda’s authority, perhaps irreparably. It was his most contentious step, prompting an outcry from banks and gyrations in global markets. As dramatic as those steps were, the BOJ went further: When they unveiled YCC, officials declared they wouldn’t be satisfied with inflation just getting to 2 per cent. Easing would continue until price gains exceeded the goal and stayed there “in a stable manner”. In other words, aim high, and you just might land in the right vicinity.