[h=3]By GEORGE NISHIYAMA, PHRED DVORAK and TAKASHI NAKAMICHI[/h]TOKYO—As soon as Monday, Japan's prime minister is expected to carry out a campaign promise to select a new central-bank chief committed to a revival of slumping prices, investment and consumer spending in the world's third-largest economy.
ReutersPrime Minister Shinzo Abe greeting President Barack Obama Friday.
Prime Minister Shinzo Abe's choice will be widely watched around the globe as he picks the new head of the Bank of Japan. He won election in December by pledging to step up pressure on the central bank, which he said was too passive through more than 15 years of falling prices, stagnant wages and slim profits.
Japan's central bank has tried unconventional monetary policies, including large-scale purchases of government debt, to stimulate markets and bolster economic growth. But its many critics argue that a succession of Bank of Japan leaders have been more timid than the U.S. Federal Reserve, Bank of England and other central banks. The result, they say, has been decades of economic doldrums.
The change in leadership, said Mr. Abe's supporters, should yield a central bank that wholeheartedly executes policies to bolster Japan's economy, rather than grudgingly, as in the past. Outgoing BOJ Gov. Masaaki Shirakawa will step down March 19, three weeks before his term ends.
Supporters of the BOJ's traditionally cautious approach said Japan risks runaway inflation, profligate government spending and even a Greek-style sovereign-debt crisis, should the central bank ramp up the amount of money it pumps into the country's $5 trillion economy.
Japan's deeper structural problems—including an aging and shrinking population, as well as too-tight regulations in many industries—hold back an economic rebound and limit the effectiveness of monetary policy, according to this view, which is held by Mr. Shirakawa, among others.
The candidates under consideration all back increased easing, and mark a break from past BOJ governors who believed monetary policy had very limited power, Mr. Abe's advisers said. Whoever is chosen, many say, likely will steer the BOJ toward a hand-in-glove relationship with government leaders.
BloombergToshiro Muto
The men considered for the post also have significant differences. One is career finance bureaucrat Toshiro Muto, skilled at networking but less committed to aggressive monetary easing, according to Mr. Abe's advisers.
[h=3]Monetary Shake-Up[/h]Japanese prime minister will pick a new central banker
Among the candidates:
Toshiro Muto, 69, a career finance bureaucrat with broad establishment support
Other candidates, including the bilingual economist Kazumasa Iwata, represent a complete turnaround for the BOJ, since they are closer to the mold of Fed Chairman Ben Bernanke and European Central Bank chief Mario Draghi—believers in the economic influence of central banks.
ReutersHaruhiko Kuroda
One compromise choice might be Haruhiko Kuroda, a former Finance Ministry official who has in the past said the Bank of Japan needed to do more to fight deflation.
Market watchers say Mr. Abe's choice will send a strong signal on how serious he is about reversing Japan's price declines. His pledge to install a more activist central banker reflects the pressure applied by governments world-wide to stimulate weak economies. Many economists warned that such pressure could undermine central-bank independence and leave the institutions, along with currencies, vulnerable to manipulation by politicians.
In January, Bundesbank President Jens Weidmann said the Japanese government was meddling too much with its central bank, with the consequence, intended or not, "of an increasingly politicized exchange rate.''
Many economists, however, applaud a change. "I think the only thing that kept Japan from getting back to inflation, leaving aside the recession most recently, was inactivism and defeatism by the Bank of Japan," said Adam Posen, a former member of the Bank of England's policy board and now president of the Peterson Institute for International Economics.
Mr. Abe, who was the leader of Japan's main opposition party, put the spotlight on the central bank's role in the economy during his election campaign in November. He was backed by like-minded economists—dubbed "reflationists'' in Japanese—who favored bold steps by the central bank.
In Japan, their support of massive government bond-buying and other steps to flood the economy with more cash were seen here as radical, despite the growing practice in other countries since the 2008 recession.
"What's common sense in Japan is nonsense in the rest of the world,'' said Etsuro Honda, a special adviser to Mr. Abe's cabinet and among the so-called reflationists advising the prime minister.
Some governor candidates in this group include Mr. Iwata of the Japan Center for Economic Research, Kikuo Iwata of Gakushuin University and Takatoshi Ito of the University of Tokyo, according to Mr. Abe's advisers. Any of them would be the first BOJ leader in decades who didn't spend the bulk of his career at the central bank, the Finance Ministry or a major company.
During the campaign, Mr. Abe said the next government "luckily" would get to replace Mr. Shirakawa as Bank of Japan's governor. A week later, Mr. Shirakawa said Mr. Abe's proposal to set an inflation target as high as 3% was "unrealistic."
After the election, Mr. Abe demanded the BOJ set a firm 2% inflation target to stimulate growth, as well as pledge "unlimited easing'' to get there. The BOJ had set a 1% inflation goal but made clear it didn't think that was achievable only by pouring more cash into the economy.
Japan's central bank succumbed to the pressure and on Jan. 22 pledged more aggressive action and set a 2% inflation target. But it also limited the amount of easing it would do, and bank officials expressed doubts about reaching the 2% target. Financial markets fell in disappointment.
Kozo Yamamoto, one of parliament's leading Bank of Japan critics, said he emailed Mr. Abe: "I told him the Bank of Japan is flipping us off.''
Soon after, Mr. Abe threatened to revise the law that guarantees Bank of Japan independence, if the inflation target wasn't hit. Behind the scenes, Mr. Abe and his aides focused on installing a more aggressive central-bank governor.
The candidates fall into two camps. Japan's economic policy-making establishment rallied around Mr. Muto, 69 years old, who is backed by the BOJ staff and leadership, as well as the Ministry of Finance, where he held elite posts.
One former colleague said Mr. Muto had a gift for finding consensus among disparate opinions. Officials at the central bank and Finance Ministry have praised Mr. Muto to politicians from both Mr. Abe's ruling party, as well as opposition parties whose approval is needed in parliament to fill the BOJ post.
Mr. Muto, now chairman of the Daiwa Institute of Research, has, of late, been touting Mr. Abe's view that the central bank needs to lean toward an easy-money policy. "I basically agree with taking radical quantitative easing," he said in a newspaper interview last month. The BOJ, he said, "hasn't responded to a criticism that the current policy isn't enough. It is essential to ease monetary policy further."
Some of Mr. Abe's economic advisers said they have doubts about Mr. Muto's commitment. He had served as a deputy BOJ governor after his retirement from the Finance Ministry, from 2003 to 2008, and backed a disastrous move to raise rates and end a round of quantitative easing.
ReutersKazumasa Iwata
A better choice, these advisers said, would be Japan Center of Economic Research head Kazumasa Iwata, age 66, the other deputy governor during Mr. Muto's stint on the BOJ policy board and who opposed the rate increase in what became known as "the Iwata rebellion."
While Mr. Muto uses interpreters at global conferences, Mr. Iwata spent years rubbing shoulders at the Fed's annual international gathering at Jackson Hole, Wyo., with a command of English that allowed him to discuss Japan's monetary policies. Mr. Iwata has also long advocated an inflation target—over the objections of colleagues, including Mr. Muto.
Mr. Abe has kept quiet about his pick. But in an interview last weekend with a Japanese news service, he said he wanted someone who could carry out policies "different from the mainstream."
—Takashi Mochizuki and Tatsuo Ito contributed to this article.Write to George Nishiyama at [email protected], Phred Dvorak at [email protected] and Takashi Nakamichi at [email protected]
ReutersPrime Minister Shinzo Abe greeting President Barack Obama Friday.
Prime Minister Shinzo Abe's choice will be widely watched around the globe as he picks the new head of the Bank of Japan. He won election in December by pledging to step up pressure on the central bank, which he said was too passive through more than 15 years of falling prices, stagnant wages and slim profits.
Japan's central bank has tried unconventional monetary policies, including large-scale purchases of government debt, to stimulate markets and bolster economic growth. But its many critics argue that a succession of Bank of Japan leaders have been more timid than the U.S. Federal Reserve, Bank of England and other central banks. The result, they say, has been decades of economic doldrums.
The change in leadership, said Mr. Abe's supporters, should yield a central bank that wholeheartedly executes policies to bolster Japan's economy, rather than grudgingly, as in the past. Outgoing BOJ Gov. Masaaki Shirakawa will step down March 19, three weeks before his term ends.
Supporters of the BOJ's traditionally cautious approach said Japan risks runaway inflation, profligate government spending and even a Greek-style sovereign-debt crisis, should the central bank ramp up the amount of money it pumps into the country's $5 trillion economy.
Japan's deeper structural problems—including an aging and shrinking population, as well as too-tight regulations in many industries—hold back an economic rebound and limit the effectiveness of monetary policy, according to this view, which is held by Mr. Shirakawa, among others.
The candidates under consideration all back increased easing, and mark a break from past BOJ governors who believed monetary policy had very limited power, Mr. Abe's advisers said. Whoever is chosen, many say, likely will steer the BOJ toward a hand-in-glove relationship with government leaders.
The men considered for the post also have significant differences. One is career finance bureaucrat Toshiro Muto, skilled at networking but less committed to aggressive monetary easing, according to Mr. Abe's advisers.
[h=3]Monetary Shake-Up[/h]Japanese prime minister will pick a new central banker
Among the candidates:
Toshiro Muto, 69, a career finance bureaucrat with broad establishment support
- Former vice minister of finance, now chairman of the Daiwa Institute of Research
- Served five years as Bank of Japan deputy governor
- Little experience in global economic networking
- Rose to vice minister for international affairs
- Has said in past that Japan's central bank needed to do more
- President of the Asian Development Bank
- Possible compromise choice
- Head of the Japan Center for Economic Research, a nonprofit think tank
- Former Bank of Japan deputy governor
- Closer in central bank thinking to Fed Chairman Ben Bernanke and ECB chief Mario Draghi
Other candidates, including the bilingual economist Kazumasa Iwata, represent a complete turnaround for the BOJ, since they are closer to the mold of Fed Chairman Ben Bernanke and European Central Bank chief Mario Draghi—believers in the economic influence of central banks.
ReutersHaruhiko Kuroda
One compromise choice might be Haruhiko Kuroda, a former Finance Ministry official who has in the past said the Bank of Japan needed to do more to fight deflation.
Market watchers say Mr. Abe's choice will send a strong signal on how serious he is about reversing Japan's price declines. His pledge to install a more activist central banker reflects the pressure applied by governments world-wide to stimulate weak economies. Many economists warned that such pressure could undermine central-bank independence and leave the institutions, along with currencies, vulnerable to manipulation by politicians.
In January, Bundesbank President Jens Weidmann said the Japanese government was meddling too much with its central bank, with the consequence, intended or not, "of an increasingly politicized exchange rate.''
Many economists, however, applaud a change. "I think the only thing that kept Japan from getting back to inflation, leaving aside the recession most recently, was inactivism and defeatism by the Bank of Japan," said Adam Posen, a former member of the Bank of England's policy board and now president of the Peterson Institute for International Economics.
Mr. Abe, who was the leader of Japan's main opposition party, put the spotlight on the central bank's role in the economy during his election campaign in November. He was backed by like-minded economists—dubbed "reflationists'' in Japanese—who favored bold steps by the central bank.
In Japan, their support of massive government bond-buying and other steps to flood the economy with more cash were seen here as radical, despite the growing practice in other countries since the 2008 recession.
"What's common sense in Japan is nonsense in the rest of the world,'' said Etsuro Honda, a special adviser to Mr. Abe's cabinet and among the so-called reflationists advising the prime minister.
Some governor candidates in this group include Mr. Iwata of the Japan Center for Economic Research, Kikuo Iwata of Gakushuin University and Takatoshi Ito of the University of Tokyo, according to Mr. Abe's advisers. Any of them would be the first BOJ leader in decades who didn't spend the bulk of his career at the central bank, the Finance Ministry or a major company.
During the campaign, Mr. Abe said the next government "luckily" would get to replace Mr. Shirakawa as Bank of Japan's governor. A week later, Mr. Shirakawa said Mr. Abe's proposal to set an inflation target as high as 3% was "unrealistic."
After the election, Mr. Abe demanded the BOJ set a firm 2% inflation target to stimulate growth, as well as pledge "unlimited easing'' to get there. The BOJ had set a 1% inflation goal but made clear it didn't think that was achievable only by pouring more cash into the economy.
Japan's central bank succumbed to the pressure and on Jan. 22 pledged more aggressive action and set a 2% inflation target. But it also limited the amount of easing it would do, and bank officials expressed doubts about reaching the 2% target. Financial markets fell in disappointment.
Kozo Yamamoto, one of parliament's leading Bank of Japan critics, said he emailed Mr. Abe: "I told him the Bank of Japan is flipping us off.''
Soon after, Mr. Abe threatened to revise the law that guarantees Bank of Japan independence, if the inflation target wasn't hit. Behind the scenes, Mr. Abe and his aides focused on installing a more aggressive central-bank governor.
The candidates fall into two camps. Japan's economic policy-making establishment rallied around Mr. Muto, 69 years old, who is backed by the BOJ staff and leadership, as well as the Ministry of Finance, where he held elite posts.
One former colleague said Mr. Muto had a gift for finding consensus among disparate opinions. Officials at the central bank and Finance Ministry have praised Mr. Muto to politicians from both Mr. Abe's ruling party, as well as opposition parties whose approval is needed in parliament to fill the BOJ post.
Mr. Muto, now chairman of the Daiwa Institute of Research, has, of late, been touting Mr. Abe's view that the central bank needs to lean toward an easy-money policy. "I basically agree with taking radical quantitative easing," he said in a newspaper interview last month. The BOJ, he said, "hasn't responded to a criticism that the current policy isn't enough. It is essential to ease monetary policy further."
Some of Mr. Abe's economic advisers said they have doubts about Mr. Muto's commitment. He had served as a deputy BOJ governor after his retirement from the Finance Ministry, from 2003 to 2008, and backed a disastrous move to raise rates and end a round of quantitative easing.
A better choice, these advisers said, would be Japan Center of Economic Research head Kazumasa Iwata, age 66, the other deputy governor during Mr. Muto's stint on the BOJ policy board and who opposed the rate increase in what became known as "the Iwata rebellion."
While Mr. Muto uses interpreters at global conferences, Mr. Iwata spent years rubbing shoulders at the Fed's annual international gathering at Jackson Hole, Wyo., with a command of English that allowed him to discuss Japan's monetary policies. Mr. Iwata has also long advocated an inflation target—over the objections of colleagues, including Mr. Muto.
Mr. Abe has kept quiet about his pick. But in an interview last weekend with a Japanese news service, he said he wanted someone who could carry out policies "different from the mainstream."
—Takashi Mochizuki and Tatsuo Ito contributed to this article.Write to George Nishiyama at [email protected], Phred Dvorak at [email protected] and Takashi Nakamichi at [email protected]