Currency veteran Kuroda offers BOJ deflation-fight credibility

Intellectual Bent

His dream was to be a teacher, according to the IMF profile, an objective he fulfilled for a time as a professor at Tokyo’s Hitotsubashi University after he left the Finance Ministry in 2003. While at the ministry, he wrote a paper titled “Socrates: The Dollar Dialogue,” in which the ancient Greek philosopher muses on the efforts by international policy makers to manage foreign exchange rates.

Kuroda rose to become vice finance minister for international affairs, the senior official in charge of foreign- exchange issues, from 1999 to 2003. He succeeded Eisuke Sakakibara, who was known as “Mr. Yen” for his ability to influence the currency markets with his comments.

It was in the capacity as currency-policy chief that Kuroda honed his sense that monetary policy ought to be deployed more forcefully against what at the time were the first years of Japan’s deflation. Consumer-price declines set in in the late 1990s as banks constricted lending, seeking to fix balance sheets mauled by the destruction of burst bubbles in the stock and real-estate markets.

Target Advocate

He wrote a 2002 opinion piece, along with colleague Masahiro Kawai, urging the BOJ to adopt a 3% inflation goal and to continually increase the monetary base through asset purchases. Kuroda also oversaw bouts of foreign-exchange intervention, selling yen as the currency appreciated.

“Kuroda has certainly been out there for a decade saying more could be done by the Bank of Japan, so he’s got credibility,” said Richard Jerram, chief economist at Bank of Singapore Ltd. “The requirements of what they need to do has been made clear. The outcome is going to be large-scale purchases of Japanese government bonds.”

Kuroda explained in an interview this month that falling prices exacerbate real debt burdens, and give the incentive to companies and households to postpone spending. Consumer prices excluding fresh food fell 0.2% in December. The price gauge hasn’t advanced 2% for any year since 1997, when a national sales tax was increased.

ADB Role

Leading the ADB since 2005, Kuroda has had a seat at international economic gatherings and observed from abroad how the BOJ for years resisted establishing an inflation target. Shirakawa and his colleagues on the current board took the step of setting a 2% goal last month, acting weeks after the election of Abe on a platform of reflation.

Shirakawa, 63, sought to damp impulses to press the central bank into extraordinary easing in the aftermath of the March 11, 2011 earthquake and tsunami, warning that any move to underwrite government debt would lead to sharp inflation and damage to people’s livelihoods.

Kuroda would need to be confirmed by both houses of parliament should Abe nominate him. Abe is also likely to tap Kikuo Iwata, an academic who has urged a ramping up in Japan’s monetary base to end deflation, and senior BOJ official Hiroshi Nakaso, as deputy governors, according to one government official and a ruling coalition executive, who asked not to be named as the talks are private.

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