Despite the Trump administration’s chaotic start, there is one man who has every reason to thank the new US president — Haruhiko Kuroda, governor of the Bank of Japan.
At a policy meeting this week, Mr Kuroda’s BoJ is set to edge upwards its growth forecasts for Japan, reflecting a Japanese economic outlook transformed by Mr Trump’s election and subsequent weakness in the yen.
The US election has given Mr Kuroda new hope, both of finally reaching his goal of 2 per cent inflation and of reappointment as governor when his term ends next year.
Speaking in Davos this month, the BoJ governor hailed Mr Trump’s proposals for fiscal stimulus and infrastructure investment. “That would raise US . . . and global economic growth in the coming years,” he said.
There are already signs of yen weakness helping deflation to bottom out. The so-called core consumer price index is still stuck in deflationary territory, falling 0.2 per cent year on year in December, but a steady turnround in imported energy prices suggests the figure will be positive by early spring.
While Mr Trump’s election is serendipitous for the BoJ, the resulting slide in the yen to about ¥115 against the dollar also reflects Mr Kuroda’s gamble last September on capping 10-year bond yields at 0 per cent.
That committed Japan to importing monetary policy shocks from abroad. If foreign yields fall, the gap with Japan narrows and the yen strengthens. If foreign yields rise — as they did on the prospect of a Trump stimulus — the gap with Japan widens, putting downward pressure on the yen.
Haruhiko Kuroda’s goal for inflation is looking more attainable
BoJ officials are delighted with how the policy is going and Mr Kuroda is likely to signal there will be no change until inflation is rising steadily.
That may take some time given indications of a weak round of wage rises in 2017, as companies and workers look back on a year of stagnant prices.
“Yield curve control is working extremely well because of the US and the dollar,” says Masaaki Kanno, chief economist at JPMorgan in Tokyo.
For Mr Kuroda, it revives a term that was in danger of petering out, with inflation still far from its 2 per cent goal and a strong backlash against negative interest rates hurting public perceptions of the BoJ.
Officials close to prime minister Shinzo Abe say he could now reappoint the governor, although political anger about negative rates runs deep, and the government does not share Mr Kuroda’s preference for tighter fiscal policy.
The age Mr Kuroda would be at the start of a second term
The other big issue is Mr Kuroda’s age: he would be 73 at the start of a second term and 78 by the time it finished in 2023. Some BoJ staff doubt he has the appetite, others say he is determined to reach 2 per cent inflation, albeit much later than 2015, as originally promised.
Alternative candidates within the bank are Hiroshi Nakaso, deputy governor, and Masayoshi Amamiya, monetary affairs chief, although Hiromichi Shirakawa, a Credit Suisse economist, notes that the prime minister has an “allergy” to BoJ lifers, doubting the sincerity of their conversion to stimulus.
A more controversial option is Etsuro Honda, one of Mr Abe’s top economic advisers, currently ambassador to Switzerland. But the most likely choices come from within Japan’s financial bureaucracy.
If any such bureaucrat has the trust of Mr Abe’s inner circle, it is Nobuchika Mori, commissioner of Japan’s Financial Services Agency. Mr Mori is a strong critic of negative rates, arguing banks’ inability to make money on lending hurts financial stability. But since the BoJ’s September move steepened the yield curve, Mr Mori has become supportive of Mr Kuroda once more.
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