Kuroda Extends His Lead in Guessing Game for Who Will Run BOJ

By Toru Fujioka and Masahiro Hidaka
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Governor Haruhiko Kuroda extended his wide lead as the top contender to head the Bank of Japan again when his five-year term comes to an end, according to a Jan. 15-17 Bloomberg survey. Markets are on tenterhooks for any signs about who Prime Minister Shinzo Abe will pick to be governor, with any choice except Kuroda likely to see the yen rise and stocks fall, according to a majority of economists in the survey.

Kuroda arrived with a bang in 2013 when he radically increased stimulus, then surprised markets again with the introduction of negative interest rates and later an innovative yield-curve control program. The 73-year-old’s had some success: the economy is growing, corporate profits are high and unemployment is low; yet wages are barely rising, there’s discontent in bond markets and the BOJ is years away from reaching its inflation target.

He and his board next meet Jan. 22-23.

Abe's Most-Likely Nominees for BOJ Governor

Ranking based on a Bloomberg survey of economists (survey methodology below)
The Contenders
Haruhiko Kuroda: The Incumbent
Kuroda’s bold moves overturned the BOJ’s image for doing “too little, too late,” while angering investors who were caught off guard. Critics argue that he has gone too far with a stimulus program that distorts markets and will take many years to unwind. But Kuroda, 73, has been a key figure in the prime minister’s drive to reinvigorate the economy, giving him a real shot at breaking precedent and being reappointed. Abe has said he has “complete trust” in the governor’s abilities.

Kuroda, formerly the head of the Asian Development Bank and Japan’s top currency bureaucrat, stands out from his predecessors as outwardly happy and upbeat. Unlike Masaaki Shirakawa who came before him, Kuroda has always highlighted the bright side, even with the odds stacked against him.
Hiroshi Nakaso: Financial Markets Expert
Nakaso, 64, one of Kuroda’s two deputies at the BOJ, is known for his hands-on experience in dealing with markets during Japan’s financial crisis. With some analysts expecting that the key task for the next governor will be winding down stimulus without disrupting markets, Nakaso is seen as a leading contender.

Speculation among some BOJ watchers that Nakaso might struggle to work with Kuroda and his radical policies proved unfounded. He has supported every policy decision of his boss. As a veteran at the central bank, Nakaso has been a go-between who’s helped connect the board and BOJ officials. Nakaso’s term as deputy is due to end in March.
Etsuro Honda: Abenomics Insider
Honda, a friend of Abe for more than three decades, has advised the premier about monetary measures from the very beginning of Abenomics. He is also said to have played a key role in the nomination of Kuroda to be governor in 2013. Honda, 63, who is currently serving as ambassador to Switzerland, said in an interview last year that he wants a “regime change” as the next step for the central bank.

Honda concedes that it was a mistake in letting the sales tax be increased in 2014, which plunged the economy into recession. Kuroda was among those who supported the government’s decision to hike the levy. Honda now argues that the next governor should be someone who supports keeping the fiscal gates open until Japan convincingly ends deflation.
Takatoshi Ito: Inflation Targeter
A close friend of Kuroda, Ito convinced him of the importance of adopting an inflation target when they worked together at the Ministry of Finance in 1999. Ito, 67, said in an interview last year that he supports the BOJ’s yield-curve control program and expects inflation to emerge as Japan’s labor market tightens.

The Columbia University professor is well connected with global economic luminaries including Lawrence Summers and Glenn Hubbard, as well as Japanese scholars and policy makers.
Masayoshi Amamiya: “Mr. BOJ”
Amamiya, 62, is a career official at the central bank who is known to some of his colleagues as “Mr. BOJ.” He has played a key role in constructing the current monetary policy, drawing on many years of experience in the area. Amamiya has a reputation for being open to a wide range of ideas and freely adopting new methods, something that served him well under Kuroda.

His deft hand in finding middle ground in contentious debates has been well received by politicians and officials at the Ministry of Finance.
Kazumasa Iwata: Leading Economist
Iwata, a former Cabinet Office official and BOJ deputy governor, has been one of Japan’s leading economists for decades. During his time at the BOJ, he surprised observers by dissenting against raising interest rates in 2007. His proposal to buy foreign bonds fueled a big debate in policy circles in 2011, when the nation was suffering under the weight of a strong yen.

The 71-year old left the central bank in 2008 and has been skeptical of the current BOJ policy. He has warned of the costs of stimulus and suggested that the BOJ could hit the limits of bond purchases soon. Kuroda has made the point that while the BOJ has gobbled up 40 percent of Japanese government bonds outstanding, there are still 60 percent available.
Takehiko Nakao: Currency Connection
Among all the potential candidates, Nakao’s career path most closely resembles Kuroda’s. Before succeeding Kuroda as the head of the Asian Development Bank in 2013, Nakao was the top currency official at the Ministry of Finance.

He led efforts to contain the yen’s appreciation by intervening in the currency market in 2010 and 2011. Nakao, 61, worked closely with the Federal Reserve’s Lael Brainard, who at that time was undersecretary at the U.S. Treasury.

What Economists Said

“Kuroda is the favorite as long as he accepts because Abe wouldn’t want to take any risks,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.

“Many people in the market are expecting it, so Kuroda’s reappointment is desirable to avoid any big negative reaction,” said Akio Makabe, a professor at Hosei University in Tokyo.

“Chances are slim for anyone other than Kuroda to be picked. The consensus is he'll get a second term,” said Masaaki Kanno, chief Japan economist at Sony Financial Holdings Inc.

Methodology: Respondents were asked to rank the three most likely candidates for the Bank of Japan governor role when Kuroda’s term expires on April 8, 2018, with three points awarded for a top ranking, two points for second and one for third. Each individual result was then divided by the maximum vote possible and multiplied by 100 to come up with a final score. Forty-three economists took part in the Jan. 15-17 survey.

Editors: Brett Miller, Henry Hoenig, James Mayger

Design & development: Chloe Whiteaker, Jeremy Scott Diamond, Yue Qiu, Hannah Dormido

With assistance from Cynthia Li

Source: Survey conducted by Bloomberg