Japan has officially named Haruhiko Kuroda to head up the the BoJ.
Kuroda is the head of the Asian development bank, and is generally seen as an advocate of monetary stimulus, so the markets like this news, etc.
Naming a BoJ chief was one of the most important decisions that the new Prime Minister — Shinzo Abe — had to make, given the significance of monetary stimulus in his plans to jumpstart the Japanese economy.
Nomura economist Richard Koo — who is one of the finest Japan watchers there is — likes the pick, even though Koo himself is sceptical that monetary policy can accomplish much in a balance sheet recession (Koo is big on fiscal stimulus).
Here’s Koo’s take:
I have had the pleasure of participating in conferences with Mr. Kuroda on two occasions. The impression I received was of a man with an excellent sense of balance who chooses his words carefully. The flip side is that his comments are often safe and predictable. Still, based on my two encounters with him and his performance as vice finance minister, he appears to be a man who listens well and is good at building consensus.
I first met Mr. Kuroda nearly 20 years ago when I was invited as an instructor at a training session, and I remember a lively discussion with him about the so-called Komiya theory, which says Japan’s trade surpluses are simply the result of investment and savings choices made by Japanese and foreign businesses and households. I was impressed by the fact that he did not seem to be doctrinaire and was able to engage in debate while lending an ear to the other party’s views.
The other time I met him was at the Japan Dinner at Davos forum a number of years ago to which both of us had been invited to speak. His presentation was mostly an orthodox description of Japan’s economy, while I talked about Japan’s balance sheet recession. Nissan CEO Carlos Ghosn was also at the dinner that night and provided strong support for my theory by discussing his company’s experience in paying down debt at a time of zero interest rates. So while the extent of Mr. Kuroda’s understanding of balance sheet recession theory is unclear, he has at the very least heard the term.
And this is probably more important from Koo, given Abe’s desire to see the Bank of Japan act aggressively.
I would be remiss if I did not mention that Mr. Kuroda is also a dedicated (and possibly dangerous) advocate of reflationary policies. However, I suspect that as the pragmatic Mr. Kuroda comes to realise that the monetary transmission mechanisms required for reflation (see below) are no longer operative during a balance sheet recession—a time when the private sector is seeking to minimize debt—he is unlikely to push ahead with truly reckless monetary accommodation.
Koo doesn’t believe that aggressive reflationary monetary policies will work, which is why he ads the parenthetical “and possibly dangerous” but reflation is what Shinzo Abe is all about, so the pick makes perfect sense.
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