Minister Abe who pledged to end Japanese deflation. Many bureaucrats in the BOJ were influenced by
Shirakawa’s approach. Abe went to the opposite side of
the ideological spectrum with the appointment of the activist Kuroda (note that
Shirakawa refers to white in Japanese and Kuroda refers to
black).
Several key votes, including the asset purchase program and the next
interest rates, were decided by a 5-4
vote, where ostensibly Kuroda cast the deciding vote. Gradually, Abe
has made appointments to the board to give Kuroda greater support. A new step was taken earlier today.
The terms of the two remaining Shirakawa-era board members end on July
23. The Diet nominated their replacements today. Hitoshi Suzuki
and Goshi Kataoka will replace Takahide Kiuchi and Takehiro Sato. Kataoka
is seen as ideologically close to
Kuroda. In addition to reflationist
policies, he advocates a more supportive fiscal policy is favors delaying the
2019 planned sales tax hike. Suzuki comes from the audit board of Bank
Tokyo-Mitsubishi.
Although banks’ profits have been squeezed
by the low interest rate (and the minus 10
bp deposit rate that applies to a fraction of deposits at the BOJ) policy,
Suzuki is understood to be more dovish than either of Kiuchi and Sato.
It is important too that since Ishida’s
term ended in June 2016, there has not been a “representative” of the
banking industry on the board.
This was former Minneapolis Fed
President Kocherlakota’s point about the possible Trump appointment to the
Federal Reserve. Kocherlakota argued the
Board of Governors should be a diverse group. His focus was not on
race, gender, religion or sexual preference, but in background, skills, and
ideas. Kocherlakota warned that Quarles background was too similar
to Governor Powell in terms of experience
(both are lawyers, served in the George H.W. Bush’s Treasury Department, and
worked in at the Carlyle Group, an investment
firm).
We have pointed out that by the middle of next year, Trump will have the
ability to appoint at least five of the seven-member Board of Governors (of the
Federal Reserve). It is clumsy and needlessly antagonistic to take to
the airwaves (and social media) to criticize Yellen and the Federal Reserve as
Trump did as a candidate. We have argued that Trump will influence the
Fed the old-fashioned way, through the power of appointment.
Japan’s Prime Minister Abe is doing the same thing. More
changes are afoot. Next March the BOJ’s two deputy governors’ terms expire, and Kuroda’s five-year term ends in
April. Typically (for more than 50 years), BOJ Governors serve a single
term. Many expected Kuroda to retire, but our contacts suggest that this
may not be the case. Kuroda reportedly recognizes his mission is not
complete and may be interested in a second term. Prime Minister Abe
has great respect for Kuroda, even if the 2% inflation target has not even been approached.
If Kuroda is not reappointed, the
clear indication is that someone from his
camp, as opposed to a return to the
Shirakawa camp, will be picked. Deputy Governor Nakaso has been cited as a possible replacement.
Abe-adviser Honda has been suggested, as
has Columbia University’s Ito.
Still, given the complexities of Japanese monetary policy, Abe’s trust, and
Kuroda’s international standing, we suspect he will be
reappointed.